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Japan's economy also deteriorating.
China's defense ministry has announced measures to retaliate for the US administration's announcement on Friday that it would sell $6.4 billion in arms to Taiwan, according to The Guardian. The measures include suspension of military exchanges with the US and sanctions on companies selling arms to Taiwan.
The arms sale will cause severe damage to overall China-US cooperation, according to Xinhua. The article points that the US is violating a joint communiqué issued on August 17, 1982. Indeed, the communiqué states:
7. In order to bring about, over a period of time, a final settlement of the question of United States arms sales to Taiwan, which is an issue rooted in history, the two governments will make every effort to adopt measures and create conditions conducive to the thorough settlement of this issue."
A lot has happened in the 28 years since the joint communiqué was issued. The US policy is to do nothing to disturb the status quo. China has repeatedly threatened war with the US, and is militarily preparing to take control of Taiwan by force. The US justifies the arms sales to Taiwan as necessary to balance China's military threat against Taiwan, so that the status quo can be maintained. Everyone recognizes that a China-US war over Taiwan could start at any time.
It's thus worthy of note that US-China relations have deteriorated significantly in just the last seven weeks, when Chinese President Hu Jintao snubbed Barack Obama at December's climate change conference in Copenhagen. Since then, the US State Department has sided with Google in their dispute with China, and has openly criticized China's lack of internet freedom. Now the Taiwan arms sale and China's announcement of retaliation have made relations even more tense.
You can see one of the reasons why I've been so critical of Barack Obama before and after the election. He gives these great oratorial speeches where he makes absolutely ridiculous promises and commitments that can't be fulfilled. (See "After a week of foreign policy disasters, President Obama's entire program is adrift.") Now some of those promises are really biting him in the ass, and we're all paying for it.
A Washington Post analysis of the deterioration says that China's actions have "befuddled Western officials and analysts," who wonder whether it's a change in policies or just a change in tone. The article offers the following explanation:
From the point of view of Generational Dynamics, this explanation is bizarre in its naïveté. China is going through a major generational change, just like the US. The top level leaders are from the generation of survivors of the the last crisis war, Mao's Communist Revolution, and they're like our Silent Generation, looking for compromise and conciliation. But more and more, younger generations are making all the day to day decisions, just as Generation-X is doing in the US. And those younger generations are going to be more confrontational and less conciliatory.
That's why we're seeing a change in tone from BOTH the US and China. BOTH sides are being more confrontational. BOTH sides are moving closer and closer to "crossing the line."
This is not a "yo-yo" kind of trend, where things get bad for a while and then get better for a few years. There are minor ups and downs, of course, but the major trend is toward greater and greater confrontation, shock and anger. Generational Dynamics predicts that China and the US is headed for a "Clash of Civilizations" world war, and that could be triggered at any time.
Japan's consumer prices in December fell at the fastest rate since records began in 1971, leaving many analysts worrying that Japan is in the midst of a new deflationary spiral, according to the Financial Times. Furthermore, preliminary data from January shows that declines are accelerating.
I'm actually surprised by this. In 2007 I wrote "Japan's real estate crash may finally end after 16 years." Recall that Japan had an enormous real estate bubble in the 1980s, so large that at the time it ended, the nominal value of Tokyo's real estate was greater than the nominal value of all the property in the United States.
By 2007, 16 years had passed since the bubble burst and Tokyo's stock exchange had crashed. I felt that Japan's deflationary spiral must finally be over, and prices would start increasing again. But this week's news caps a period of increasing deflationary pressure in Japan.
My explanation for this is the same as I wrote last April in commenting on theories of Richard C. Koo, Chief Economist at Nomura Research Institute. (See "Fiscal stimulus programs in 1930s and today.")
Even though Japan went through a major financial crisis, including stock market and real estate crashes, they were able to avoid a great deal of suffering simply by developing an export economy that took advantage of the economic bubbles in China and the United States.
Apparently their financial crisis hasn't yet been painful enough, and there is a lot more to come.
Critical infrastructures worldwide, especially oil and gas, electrical, and telecommunications companies, are under constant cyber attack, according to Dark Reading, and the threat is growing. The cost of downtime incurred from an attack is $6-8 million per day.
France is very close to permanently banning women from wearing a veil or burqa, according to France24. This has spurred a national debate about discrimination against women and discrimination against Muslims.
Learning a foreign language is easier and cheaper than ever, thanks to courses offered over the internet, according to NY Times. Firms offering courses include Rosetta Stone, TellMeMore, Livemocha, Babbel and the BBC.
(Comments: For reader comments, questions and discussion,
see the 31-Jan-10 News - US-China relations deteriorating
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(31-Jan-2010)
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US will sell $6 billion in arms to Taiwan, infuriating China.
I watched a couple of hours of the questioning of Tony Blair on the BBC on Friday morning, and I noted that the Iraq War Inquiry commissioners asked Blair a lot of tough questions, but they never laid a glove him.
It was discouraging to me that this inquiry even has to be held, and even more discouraging because of the loons outside the meeting hall calling Blair a liar and war criminal. Blair was cleared of all those charges in 2004 in the the Hutton Inquiry, but the loons still persist.
The most important thing that I heard Blair say didn't even appear in the BBC story, but does appear in the Reuters coverage:
This paragraph is a devastating response to the loons, but they're apparently incapable of even the simplest coherent thought.
I've made the point in the past that the only reason we know that Saddam had no weapons of mass destruction (WMDs) is because of the invasion. Obviously, therefore, if there had been no invasion, then we still wouldn't know to this day. This continuing uncertainty would have destabilized the entire region, and might well have triggered an attack on Iraq by either Israel or Iran.
But Blair carries this a lot farther. My assumption was that if there had been no invasion, then the status quo (uncertainty) would have continued. But Blair points out that it was not a choice between invasion and status quo. Without the invasion, it would have been politically impossible to continue the sanctions and inspections. And once the inspections ended, Saddam had every intention of reconstituting his WMD program.
So without the invasion, we would have had Iraq developing WMDs. Saddam had used WMDs during the Iran/Iraq war, and so Iran would have sped up its own program to develop its own WMDs. There might even have been similar nervous reactions in Saudi Arabia, Turkey and Syria.
So, without the invasion, we might have several countries in the region developing nuclear weapons and other WMDs.
This is so obvious, but even the simplest reasoning appears to be out of reach of the loons.
Meanwhile, the Obama administration is getting into a situation in Afghanistan that is possibly even more dangerous than the Iraq situation was. Like Blair, Obama will eventually have to face questioning about every word in every sentence he says about the subject.
The government in China is furious over the Obama administration's announcement, on Friday, of $6 billion dollars in weapons, including Patriot anti-missile systems, helicopters, mine-sweeping ships and communications equipment to Taiwan, according to a report in the Washington Post.
I would guess that the anti-missile systems are to be used to defend against the 1500 or so missiles that China is ready at any time to launch at Taiwan.
China was "strongly indignant" about the arms sales to Taiwan, according to the article, and warned that they would have a "serious negative impact" on U.S.-China cooperation. China may sanction US companies, and the planned visit of Chinese President Hu Jintao to Washington in April may be canceled.
A commentary in Financial Times Deutschland (translation) says that negotiations are going on for an EU bailout of Greece, despite the fact that such a bailout would violate the EU constitution. However, German Chancellor Angela Merkel opposes a bailout because of Greece's history of lying about deficits.
But the talk of bailout encouraged investors, and pushed down credit default swap prices slightly from their historic highs, according to Bloomberg. (High credit default swap prices indicate an investor belief that Greece is going to default on its bond payments.)
Iran's hardliners are about to purge Ali Akbar Hashemi Rafsanjani, the remaining high-level moderate among the Islamic Revolution survivors, from his government post, according to an analysis in the Asian Times. From the point of view of Generational Dynamics, however, this will only outrage the opposition further, as Iran is in a generational Awakening era. (See "Theological split in Iran widens as opposition protests continue.")
(Comments: For reader comments, questions and discussion,
see the 30-Jan-10 News - Tony Blair faces questions about Iraq
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(30-Jan-2010)
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Ben Bernanke is confirmed
It's an interesting chain reaction.
Yesterday we mentioned the rumor that Goldman Sacks was putting together a deal where China would buy Greece's bonds, after Greece's public sale had been at very high interest rates. (The Greek newspaper Kathimerini (translation) contemptuously calls them "usurious.")
The rumor has been firmly denied by Goldman, by Greece, and by China.
That caused investors to become anxious over Greece's and Portugal's worsening budget deficit crises, with the prices of credit default swaps reaching fresh record highs on Thursday. The euro fell sharply against the dollar, reaching its lowest level since July 14, according to Bloomberg.
Now, let's recall how many pundits explained the unexpected stock market rally last year. (See, for example, "Nouriel Roubini apparently is predicting a global market crash.")
Last year's new stock market bubble was driven by massive stimulus spending by the government. With Treasury interest rates effectively zero, investors borrow money at zero percent interest rates and invest the money in commodities and stocks, or in foreign currencies paying higher interest rates. This is a typical "carry trade" scenario, especially since the stimulus spending caused the dollar to weaken against other currencies.
Once the dollar begins to strengthen again, the above reasoning reverses. Investors who borrowed cheap dollars rush to pay back the loans before the dollars become even more expensive. In order to pay back the dollars, they have to sell the assets they purchased with the cheap dollars, including stocks.
So that's the chain reaction:
The Greek deficit crisis is increasingly turning into a euro currency crisis. Whether it fizzles or gathers steam will affect a lot more people than the Greeks.
The opponents of Ben Bernanke's nomination claimed that he caused the real estate bubble that caused the financial crisis, or at least that he was oblivious to the danger.
These are idiotic reasons. He couldn't have caused the real estate bubble, because the world wide real estate bubble began in the mid-1990s. (See "The global housing bubble began in the mid-1990s." and "The housing bubble began in 1995.")
It's true that Bernanke was oblivious to the bubble, and I've been bitterly critical of him for that, but all the people criticizing were even more oblivious than he was.
One thing that's absolutely hilarious about this situation is that the analysts, journalists, politicians and economists who are now criticizing Bernanke were saying really stupid things at the time, like "There can't be a housing bubble, since everyone has to live somewhere." You didn't have to a rocket scientist to know that there was a real estate bubble, since I was writing about it on this web site in 2004. (See "Real estate is in an overpriced bubble all over the world.")
These people, who are now criticizing Bernanke, are simply hiding their own complicity in the bubble. Those who were able to got as much as they could out of the bubble -- money or political power. Having acted without a shred of ethics, they're now blaming Bernanke.
What's past is past, and now we're approaching a major new financial crisis. If Bernanke hadn't been confirmed, then the choice might have gone to some political hack, like Larry Summers or Paul Krugman. Ben Bernanke is the best person I can see on the horizon to help us get through the coming catastrophe.
The Financial Times says that "An explosion in trading propelled by computers is raising fears that trading platforms could be knocked out by rogue trades triggered by systems running out of control." I wrote about this last year. (See "The Bubble Algorithm - How computers and herd behavior are inflating the stock market bubble.")
The climate scientists who were exposed by the hacked "climategate" e-mail messages last year were apparently breaking the law, according to The Telegraph. They were illegally hiding or destroying data that they were required to reveal under Freedom of Information laws.
When there's nothing else to blame, then blame video games. Well, Dungeons and Dragons isn't a video game, but prisoners in Wisconsin prison are being forbidden from playing it because it "could lead to gang behavior and fantasies about escape," according to the NY Times. Hmmmm. I wonder if when bankers are in jail they're forbidden from playing "Monopoly"?
(Comments: For reader comments, questions and discussion,
see the 29-Jan-10 News - Greece financial crisis spreading
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(29-Jan-2010)
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Portugal, Italy and Spain aren't far behind.
U.S. military teams and intelligence agencies are deeply involved in secret joint operations with Yemeni troops, according to reporting by The Washington Post. The American advisors do not take part in raids, but provide intelligence and weapons, as well as missile strikes from drones. Dozens of people have been killed in the past six weeks, including six of the 15 top regional al-Qaeda leaders, according to the US.
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The American military intervention is supported by the Yemen government but is kept secret because it's deeply disliked by the Yemeni people.
All of this is occurring in the context of a conference being held in London, attended by foreign ministers from the US, Britain, Saudi Arabia and 20 other countries. The purpose of the conference: What do we do about Yemen?
According to The Guardian, there is widespread alarm that al-Qaeda is finding safe havens in the country's "ungoverned spaces" – tribal areas beyond the reach of the Yemen's government. However, the ministers in London are pledging not to interfere in Yemen's internal affairs.
LOL.
Credit default swaps on Greece's debt jumped to record levels, according to Bloomberg. Rising credit default swaps on any form of debt means that investors believe that that form of debt is more likely to default.
As we mentioned yesterday, Greece's bond sale earlier this week required Greece to pay exceptionally high interest rates. Investors presumably were reacting to the possibility that the country is in a spiral of increasing debt from which it can't escape.
Rumors spread on Wednesday that China was going to help Greece out by buying $35 billion in Greek bonds, in a deal being put together by Goldman Sachs. However, Reuters reports that both Goldman and Greece denied the rumors.
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The Bloomberg story says that Greece isn't the only European country in trouble, as credit default swaps have also risen substantially on debt from Spain, Portugal and Italy.
Ohio is spending $1 million in stimulus money to put up signs that brag that Ohio is spending stimulus money, according to CNN. The signs cost as much as $3,000 apiece.
Employer told not to post advert for 'reliable' workers because it discriminates against 'unreliable' applicants, according to The Daily Mail.
(Comments: For reader comments, questions and discussion,
see the 28-Jan-10 News - US military in Yemen, investors bet against Greece
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(28-Jan-2010)
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Higher tensions between North and South Korea.
South Korea's Yonhap news service reports that North and South Korea have exchanged artillery fire across a disputed sea border in the Yellow Sea. "No casualties or injuries were reported as both sides fired toward the air and no fishing boats were then on duty."
This will probably fizzle out, as similar flare-ups have done in the past. But both countries are armed to the teeth, and are fully prepared for full-scale war with one another. The possibilities for panic, misunderstanding and miscalculation are large.
The Colombo Page newspaper, published in Sri Lanka's capital city, reports that Tuesday's historic presidential elections were peaceful, with little violence.
Many people had feared that the elections would trigger a renewed round of the civil war that lasted thirty years, between the majority Sinhalese ethnic group vs the minority Tamils. Voting was heavy in the southern Sinhalese regions, lighter in the northern Tamil region.
However, the The Independent is reporting that the vote will be close for the two candidates (both Sinhalese, both war heroes), and it may be the Tamil vote that decides the winner.
Following the Sri Lanka civil war has been exciting for me in the development of Generational Dynamics, since it's the first generational crisis war that I've been able to follow to its climax.
In 2006, the final peace agreement unraveled, and the 30 year old war transitioned into a full-fledged crisis war. (See "While world watches Lebanon, Sri Lanka goes to war.") It began its final phases early in 2008. (See "Sri Lanka government declares all out war against Tamil Tiger rebels.")
At that time, the war became increasingly genocidal on both sides. The Sinhalese government forces were increasingly willing to kill civilians, and the Tamil rebel forces were increasingly willing to use civilians as human shields. This is typical as a generational crisis war approaches a climax.
By early 2009 it was clear that the end was near, and that the Tamil rebels were close to defeat. Analysts at Stratfor, BBC, and other organizations predicted that since the war had gone on for 30 years, it would continue on even after a rebel defeat. I said, based on generational theory, that this would be a crisis war climax, and that the war would end. Generational Dynamics turned out to be 100% right, and Stratfor, BBC and the others turned out to be dead wrong.
There is no other web site like this one in the world.
I renew my challenge to anyone to find an analyst, journalist, politician or web site, anywhere in the world, with anything even remotely close to the predictive success of this web site. Other analysts' predictions are no better than chance; after seven years, Generational Dynamics predictions have proved to be almost 100% correct. The validity of generational theory has been proven by the consistently correct results posted on this web site.
The fall of Constantinople in 1453 ended the (Orthodox Christian) Byzantine Empire, and launched the (Sunni Muslim) Ottoman Empire. The Turks changed Constantinople's name to Istanbul, and made it the Caliphate for Islam (playing the same role as the Vatican in Rome for Catholicism).
When the Ottoman Empire collapsed after World War I, Turkey became a secular nation, and worldwide Islam lost its Caliphate. The 1940s was an Awakening era for the Arab/Muslim world, and it resulted in pan-Arab and Sunni Muslim nationalism. According to an intelligence report on Islam, published by the US military in 1946:
Now, a new analysis in the Asian Times, Turkey in recent years has been moving back to its Muslim roots, along with an "irreversible shift in Turkish foreign policy towards Israel, the United States and the Middle East as a whole."
The main signpost of this shift was the election of Prime Minister Recep Tayyip Erdogan from the Islamist AKP party. The article concludes:
The Washington Post says that Hugo Chavez's revolution is crumbling, referring to the virulently anti-American president of Venezuela.
Greece has avoided (i.e., postponed) an immediate financial crisis by selling $11.3 billion of 5-year government bonds at a very high 6.2% interest rate, according to Bloomberg. It will have to sell tens of billions of dollars in additional bonds this year.
"Lower your voice when taking calls in public." That's the first rule of cell phone etiquette, according to Computerworld.
(Comments: For reader comments, questions and discussion,
see the 27-Jan-10 News - Sri Lanka elections, Turkey returns to its roots
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(27-Jan-2010)
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China's oil imports reach "alarming levels"
In the last few days I've mentioned that higher terror alerts have been announced in the UK and India, but Debka points out that many more governments, some without fanfare, are implementing elevated terror security levels.
These include the following:
In addition, The Telegraph reports that terror experts are warning that Al-Qaeda has trained female suicide bombers to attack West. The women, who may have a "non Arab" appearance and be travelling on Western passports, have been prepared for their missions by Al-Qaeda in the Arabian Peninsula (AQAP).
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China's oil imports reached "alarming levels" in 2009, and are poised to surge even higher in 2010, according to Xinhua.
China imported 52% of its oil in 2009, and "importing more than 50 percent is a globally recognized level for an energy security alert," according to the article.
Most of China's imported oil comes from Saudi Arabia, as you can see from the adjoining graphic.
So it's not surprising that China and Saudi Arabia are deepening ties with one another. Xinhua reports that the two countries plan to cooperate on energy and infrastructure projects, and to foster cultural exchanges.
From the point of view of Generation Dynamics, this is consistent with the expected trend that the Clash of Civilizations world war will be fought by China and Sunni countries, including Saudi Arabia, versus the West.
By contrast, as we've mentioned a couple of times recently, Iran and China are not getting along well at all. Two years ago, we reported that China had 'betrayed' Iran. And recently, we've described a cyberwar between Iran and China. (Paragraph modified - 26-Jan-10)
At the same time, hostilities between Saudi Arabia have been growing. The two countries are supporting opposite sides in Yemen's war against Houthi rebels, and it's thought that Saudi Arabia may have provided support for last October's Jundullah terrorist attack in southeast Iran.
Thanks to intelligence gained from high-ranking defectors from Iran, officials in Washington and Europe are concerned about Iran's plans to develop nuclear weapons, according to a report by Der Spiegel.
Officials who have read the report conclude that the government in Tehran is serious about developing a bomb, and that its plans are well advanced.
From the point of view of Generational Dynamics, the fear is that at some point the Israelis will panic and attempt to attack Iran's nuclear research facilities. Whether this is even possible is in doubt, since Iran has hidden them deep inside mountains that may not even be reachable by bombing raids.
As we've been saying for years, Iran is a schizophrenic nation with a government that's anti-American and anti-West, but a young population that's pro-American and pro-West. Iran is in a generational Awakening era, and the continuing student protests can only end in a political victory for the young people. Thus, it's expected that, when Iran is forced to pick sides in the Clash of Civilizations world war, they'll side with the West, including America, Europe and Israel.
Teens are choosing to wait to get their driver's licenses, according to the Washington Post. More differences between the young Millennial generation and their parents.
Facebook is increasingly becoming a security problem for computer users, providing a path for careless users to have their personal information stolen or a computer virus installed. The NY Times has "The 3 Facebook Settings Every User Should Check Now."
Tensions are increasing again between North and South Korea, according to a report by the Korea Times. The South threatened to strike the North "right away" if the North shows a clear sign of attacking with nuclear weapons. A North Korea military official called this remark "an open declaration of war."
(Comments: For reader comments, questions and discussion,
see the 26-Jan-10 News - Elevated terror alerts around the world
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(26-Jan-2010)
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The same may be true of some investors.
My favorite metaphor these days is to be "willing to drive off a cliff to prove you're right."
The Republicans, who polls show are as unpopular as the Democrats, have no power, no strategy and no leader. This is turning out to be to their benefit, since it means that they keep their mouths shut most of the time.
But the Democrats appear to be so consumed with hatred that they're determined to commit suicide. Probably the poster boy for this suicidal hatred is MSNBC's ardent Obama supporter, Keith Olbermann. On the day before Tuesday's election of Republican Scott Brown as Massachusetts Senator, Olbermann said:
What does one make of such a hate-filled, self-destructive statement? Is Olbermann too stupid to know how much damage he's doing to the causes he claims to support? Or is Olbermann, born in 1959 on the cusp of Gen-Xerdom, just following basal nihilistic Gen-Xer instincts and destroying everything in his path just to improve his ratings?
Not that he's improving his ratings. Ratings of MSNBC and other mainstream news media are plunging like necklines in summer against the Fox News Channel (FNC).
In fact, Fox News is cleaning up against everyone, according to TV By the Numbers. On Election night, for example,
Now, FNC does indeed lean to the right, but not as far to the right (in my opinion) as CNN and MSNBC lean to the left.
And this is nothing new. I started watching CNN in 1980, when it first came on the air. Its coverage of the Gulf War in 1990 was spectacular. By the mid 1990s, it had the best international news coverage in the world, except perhaps for the BBC.
The turning point came in 1998, with the Tailwind Scandal, where CNN erroneously accused the U.S. military of using nerve gas in a mission to kill American defectors in Laos during the Vietnam War.
By the 2006 elections, CNN was turning the entire network over to the Democratic party. By spring of 2009, it had really hit bottom, as I wrote in "Vile 'teabagging' jokes signal the deterioration of CNN and NBC news." The practice of using unbelievably offensive "teabag" references to "tea party" supporters -- and this practice continues to this day -- continues to show how deep in the sewer mainstream media has gone, and how willing these so-called journalists are to drive off a cliff to prove that they're right.
President Obama the pragmatist would like to move toward the political center, but it's obvious that the loony left is not going to allow him to do so.
A good example is Paul Krugman, who used to be an economist decades ago, but now only plays one on tv. Here's what he wrote earlier this week:
Health care reform — which is crucial for millions of Americans — hangs in the balance. Progressives are desperately in need of leadership; more specifically, House Democrats need to be told to pass the Senate bill, which isn’t what they wanted but is vastly better than nothing. And what we get from the great progressive hope, the man who was offering hope and change, is this:
In short, “Run away, run away”!
Maybe House Democrats can pull this out, even with a gaping hole in White House leadership. Barney Frank seems to have thought better of his initial defeatism. But I have to say, I’m pretty close to giving up on Mr. Obama, who seems determined to confirm every doubt I and others ever had about whether he was ready to fight for what his supporters believed in."
This is quite a remarkable statement. Obama tries to move toward the center, and Krugman calls it "running away." And then Krugman says that he's going to give up on Obama. With friends like these, Obama doesn't need enemies. In particular, the Republicans can just sit back and enjoy the show.
Krugman won the Nobel Prize last year because he had the major qualification that the Nobel committee was looking for: He hated George Bush. If Krugman turns his back on Obama, do you think he'll win another Nobel prize?
The loony ideology of people like Krugman and Olbermann isn't President Obama's only problem. He also has to deal with journalists and pundits who adore him but are incredibly naïve. That was pretty clear listening to the Sunday news talk shows.
A good example today was Fareed Zakaria, appearing on his Sunday news show GPS on CNN. Zakaria is something of a contradiction these days. He's way over on the left politically, but he's not imbued with the sheer hatred of people like Olbermann and Krugman.
Zakaria is also a contradiction because he's well-read, well-studied, he knows a lot about what's going on in the world, and yet he seems totally unable to grasp what it all means. I first wrote about Zakaria in 2006 in "Learning-disabled journalists and politicians continue to predict Iraq civil war," quoting him as saying, "If you look at the last 3-4 months, it's absolutely clear that a civil war dynamic has set in. This is happening. ... The trend is moving in the wrong direction on every issue that relates to a building civil war."
Now of course Zakaria was 100% wrong about this. (See, for example, "Brookings Institution does a full reversal on Iraq war.") And Zakaria, who sports a broad teethy smile, turns out to be wrong about most things. But he still produces a good show on CNN on Sunday that's worth watching.
Today's show (transcript here) is a good example because it shows how a complete lack of understanding of generational theory leads you to dramatically wrong conclusions (as was the case with his Iraqi civil war theory).
Fareed and his guests looked to the experiences of past Democratic presidents to help them conclude what President Obama should do next. Here's how he introduced his show:
So, Obama's situation is not dramatically worse than many of his predecessors, which means it can be corrected.
But what should he do? I would put it very simply. Obama needs to start acting like a president, and particularly the president he campaigned to become.
For the last six months, Barack Obama has seemed to be not a president, but a prime minister. He has not outlined a broad vision for the country and put forward grand plans to solve the nation's problems."
I cannot imagine a more dramatic misreading of what's going on. he says that Obama "has not outlined a broad vision for the country and put forward grand plans to solve the nation's problems."
Huh?
Obama was nothing BUT broad visions. He was going to heal the world with his mere presence -- cure global warming, provide universal health care, close Guantanamo, leave Iraq in peace, bring a two-state solution to Palestinians and Israelis, beat the Taliban in Afghanistan, restore the stock market bubble, and dismantle President Bush's war against terror. Nothing was beyond his reach. Unfortunately it now turns out that he was "all hat, but no cattle," (as the midwesterners like to say), but no one can credibly claim he had no broad visions. He was just in over his head.
But the most interesting part of Zakaria's theory are his comparisons to past Presidents. If he knew even the simplest facts about generational theory, he wouldn't compare President Obama, governing during a generational Crisis era, with Presidents who governed in generational Awakening and Unraveling eras. There simply is no basis for comparison.
In particular, let's move forward in the tv show to some statements by one of his guests, Robert Caro, a biographer of President Lyndon Baines Johnson (LBJ).
Caro's comparison of LBJ to Obama is so out of touch with reality, it's bizarre. Caro wants Obama to push health care reform through Congress with the same kind of "legislative genius" that LBJ used to get the Civil Rights act through Congress. In particular, he describes how he got cooperation from some Southern Democrats, who normally sided with the Republicans. He describes how LBJ did it:
Johnson needs 10 or 12 votes that he can deliver to the South. He says, what can I find? He finds the Western Democrats. What do they want? He says, I have to find something that 12 senators want enough to go along with the South on this.
And he finds Hells Canyon Dam on the Snake River, which divides Idaho or Oregon. He says, they've been fighting for this for 20 years for federal power. The South, if I can get Richard Russell, the head of the Southern Democrats, to agree to give them Hells Canyon, the South will let the bill move forward to the next level.
And he gets 12 votes.
If we had seen a stroke of genius like -- what else is legislative genius? Johnson is on the floor during this...
There's a moment where he's going to lose. There's about to be a vote called. He's going to lose. He's standing next to the senator from New Mexico, Clinton Anderson, and he sees that Anderson, a liberal, has been doodling on a paragraph, and changing it around.
And he says, "That'll work." He says, "Introduce it, introduce it now."
And Anderson says, "I can't introduce it. I'm too liberal. They won't trust me."
He says, "Get a good Republican."
He looks around and he says, "Get Aiken." George Aiken of Vermont ... who was working on it. He says -- Aiken introduces it, and the bill passes.
We don't see legislative genius like that anymore, I'm sorry.
It's an interesting story, about "horse trading" to get legislation passed, and Caro wants Obama to do the same kind of thing that LBJ did.
Why is this historian so dense? Why doesn't it occur to him that this comparison makes no sense, because the country was so different in 1965?
In 1965, the country was still on a "high." We had beaten the Great Depression, and we knew we could do it again if we had to. We had beaten the Nazis, and we knew we could do it again if we had to. The country was very confident about itself.
The leaders in Congress at that time were people whose fathers had fought in the Civil War. Abraham Lincoln and the Republicans had fought the South, and had freed the slaves. The Democrats had opposed fighting the war, and were feeling "liberal guilt" for having done so. The Southern Democrats were a special case. They were philosophically close to the Republicans, but couldn't be in the political party that had beaten the South.
The country was well into a general Awakening era. It had been launched two years earlier, in the great civil rights march on Washington in 1963, led by Martin Luther King. Then, in 1964, the beloved President John Kennedy had been assassinated.
This was also a time America transitioned from a "Protestant nation," with prejudice against Catholics and Jews, into a country of "religious equality." (See my 2006 article, "President George Bush talks about a 'Third Awakening,' but he has his history wrong.")
So this is the world that LBJ operated in.
Everything's upside down today. There's enormous anxiety over the economy and over terrorism. There's no "guilt" over health care. There's no sense of unity from having beaten a common enemy.
LBJ's "legislative genius" was more a product of generational era than of anything else. His "horse trading" worked because the climate was right.
Obama has been trying "horse trading" as well, to get the health care bill passed. LBJ's "Hells Canyon Dam" may have been a stroke of genius, but the numerous corrupt deals (known as the "Louisiana purchase" and the "Cornhusker's kickback") are only provoking anger today.
Caro, Zakaria, Krugman and the others are all living in the past. They're dreaming of the 60s, 70s, or 80s, when the GI and Silent Generations were still in charge, and compromise was still possible, because there was a sense of common purpose. There's no such sense of common purpose today, so LBJ's "horse trading" cannot possibly work.
What we're seeing here is generational theory and Generational Dynamics in action. This kind of political bickering is standard fare at the beginning of a generational Crisis era. For example, you can can google "FDR scandals," and you'll see that the political bickering for Franklin Roosevelt was equally bad. But once the Pearl Harbor attack occurred in 1941, the nation began to unify behind the President.
An event like the Pearl Harbor attack is called a "regeneracy event" in generational theory. It's an event that regenerates civic unity for the first time since the end of the preceding crisis war, World War II, in this case.
(For information about the term "regeneracy" and about generational eras, see "Basics of Generational Dynamics.")
Today, the country is almost just waiting for a "regeneracy event." It might be a terrorist attack on American soil, or it might be an overseas military disaster. But whatever it is, it will end the bickering, and regenerate civic unity again.
Universal health care may be dead for now, but it's not dead forever. This is the wrong time for this kind of legislation. In September I called Obama's bill a proposal of economic insanity, because it's basically a rehash of President Richard Nixon's wage and price controls, applied to health care. That was a disaster, and Obama's proposal is sure to be as well.
If you want to reduce health care costs, then the only way to do it is to increase the supply of health care services -- more doctors, nurses, hospitals and equipment. Obama's health care proposal does the opposite. But once the Clash of Civilizations world war is over, in 5-10 years, then universal health care will revived, and it will pass. And President Obama may still get some of the credit.
What I've been describing in politics and media also appears to be happening in the investor community. Here's how "xakzen" described it in the Generational Dynamics forum:
I've noticed this stratification as well. The stratification seems to be similar to the political split between Republicans and Democrats. Each side is absolutely convinced the other side is wrong, and is willing to drive off a cliff to prove it. I can't prove it, but I believe that the stratification among investors is related to the divisions among politicians.
If you listen to CNBC or read the Wall Street Journal, you could easily believe that all mainstream financial pundits are agreed that the only direction is up with the stock market, or that the worst that will happen is a minor new recession.
That actually isn't true. There are quite a few mainstream financial experts who believe that the situation is far more serious.
A web site reader pointed me to an article entitled "12 'Dr. Dooms' warn Wall Street's optimism misleads, will trigger new crash."
For example, according to the article, Money manager Jeremy Grantham warns that our irrational nightmare will repeat. A year ago we came dangerously close to the "Great Depression 2." Unfortunately, we've "learned nothing ... condemning ourselves to another serious financial crisis in the not too-distant future." We had our bear-market rally. Next, historical cycles plus our irrational behavior guarantees another, bigger global meltdown. We "learned nothing." There are 11 more like that in the article.
Why don't we hear from these people more often on CNBC and in the Wall Street Journal?
We actually have an analogy for that if we look at climate change scandal that was triggered by the release of thousands of hacked e-mail messages from climate change scientists. The hacked e-mail messages showed a pattern of deception and fraud by these "scientists." The scientists urge one another to smooth over data and hide unfavorable data; to enforce a unified view; and to blackball scientists with opposing views.
The same kind of massive corruption happened in Washington in the negotiations for the health care bill that passed the Senate. And when last Tuesday's Massachusetts election blew things apart, the mainstream media has been filled with oozing contempt for Scott Brown. The most extreme example, of course, is MSNBC's Keith Olbermann, calling him an "irresponsible, homophobic, racist, reactionary, ex-nude model, teabagging supporter of violence against woman."
Thus, Tuesday's election has performed the same role for the health care bill that the hacked e-mail messages did for climate change. In both cases, the mainstream politicians and the mainstream media had overwhelmingly adopted the "politically correct" position -- supporting climate change legislation and supporting the health care bill. And in both cases, the mainstream politicians and media simply showed contempt when the corruption was exposed.
But what about investors? Is it really even possible that Democratic supporters are more invested in the current stock market than Republicans?
There are certainly some obvious examples of that. Warren Buffett seems almost erotically in love with Barack Obama, and he's been saying loudly and often that the worst is over.
But that's just one example. Is there a trend? I actually suspect that there is, but I have no way of proving it or disproving it.
One thing's for sure. Just as the hacked e-mail messages caused the climate change support to collapse, just as the election of Scott Brown signaled the end of health care legislation, the coming financial crisis will be a devastating blow to investors who believe that it's ok to invest in a stock market with a P/E ratio over 80, just because Barack Obama is President.
(Comments: For reader comments, questions and discussion,
see the President Barack Obama thread and the Financial Topics thread of the Generational Dynamics forum. Read
the entire latter thread for discussions on how to protect your
money.)
(25-Jan-2010)
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Theologians ask: Why did God punish the Haitians with an earthquake?
American Secretary of Defense Robert Gates is confronting a nominal contradiction in American foreign policy, according to an analysis in the Los Angeles Times: How could the US be selling military weapons to both Pakistan and India, especially when the US is concerned about a possible war between the two countries?
According to the article, the strategy is as follows:
However, Generational Dynamics predicts that India and Pakistan are headed for a new war re-fighting the massive war that began after Partition, the 1947 partitioning of the Indian subcontinent into India and Pakistan.
We mentioned this briefly yesterday, but few details were known beyond the fact that it means that chance of a terrorist attack is now "highly likely," instead of merely being "substantial."
It turns out to be a consequence of the attempted jetliner bombing over Detroit on Christmas day, according to an analysis by The Telegraph.
Recall that the attempt was perpetrated by an "underwear bomber," someone who hid bomb incredients in his underwear, but failed to explode them at his intended time.
The attempted Detroit attack demonstrated a "new methodology," according to the article, leading to fears that al-Qaeda is planning "a wave of attacks."
Francis X. Clooney, A Jesuit scholar, writing for The National Catholic Weekly analyzes Pat Robertson's recent remarks that God punished the Haitians because they made a deal with the Devil. He dislikes Robertson's statements, but he wonders what the correct answer is, if Robertson is wrong.
Michael Johnson, writing in The NY Times, quotes Voltaire as asking the same question about a devastating earthquake in Lisbon in 1755:
Would you say, seeing this heap of victims,
That God is avenged, that their death is payment for their crimes?
What crimes, what bad things have been committed by these children,
Lying on the breasts of their mothers, flattened and bloody?
Lisbon is a city no longer. Did it have more vices
Than London, than Paris, given to doubtful delights?
I'm not a religious person, but I like religion, and it plays an important part in Generational Dynamics theory. (See "Book review review: Christopher Hitchens: 'God Is Not Great: How Religion Poisons Everything'.")
The question that I ask of religious theorists is this: For millennia, the population rate has grown faster than man's ability to grow food, and this has been the root cause of thousands of genocidal wars. How, according to religious theory, could God allow this to happen?
I've asked may religious people this question, and have never gotten a credible answer. I should also mention that neither Clooney nor Johnson provide answers to why God might have punished Haitians with such devastation.
At the Global Economic Trend Analysis blog, Michael "Mish" Shedlock explains in detail why California is headed for bankruptcy. The short answer: California has some of the highest tax rates, but is being strangled by public service unions.
Gu Yan's China News blog quotes Chinese news sources as saying that Pakistan is buying 36 Chinese J-16 fighters, in addition to America's F-16 fighters described above.
(Comments: For reader comments, questions and discussion,
see the 24-Jan-10 News - Arms sales to India and Pakistan, UK threat level
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(24-Jan-2010)
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News summary is New! Improved! with 'Additional Links.'
Detailed technical information about the announcement by Google last week that China had hacked its servers is coming out slowly but surely, but very slowly. The Dark Reading newsletter reports that the attack took advantage of a flaw in Internet Explorer that permits an attacker to install malware that takes control of the user's computer if the user visits an infected web site. Reverse engineering of the attack malware reveals that it contains code that can be traced back to Chinese programmers, although China's government claims that it had nothing to do with the attack.
The flaw in Internet Explorer is a serious one. Microsoft issued a "critical" patch to fix the flaw a couple of days ago. You should make sure that your version of the Internet Explorer is updated to include that patch. The Microsoft support site has further information.
However, the Google attack is metamorphosing from a tech story to a geopolitical story. The Obama administration has taken up Google's case, and demanded that China investigate the attack and provide some answers.
In a speech on Thursday, US Secretary of State Hilary Clinton said:
States, terrorists, and those who would act as their proxies must know that the United States will protect our networks. Those who disrupt the free flow of information in our society or any other pose a threat to our economy, our government, and our civil society. Countries or individuals that engage in cyber attacks should face consequences and international condemnation. In an internet-connected world, an attack on one nation’s networks can be an attack on all. And by reinforcing that message, we can create norms of behavior among states and encourage respect for the global networked commons. ...
The most recent situation involving Google has attracted a great deal of interest. And we look to the Chinese authorities to conduct a thorough review of the cyber intrusions that led Google to make its announcement. And we also look for that investigation and its results to be transparent."
Clinton's remarks were pretty threatening, and the Chinese are apparently infuriated by these remarks.
Here's the response from China's Foreign Ministry:
Hacking in whatever form and offence of others' privacy is prohibited by law in China. As a major victim of hacking in the world, China believes that the international community should intensify the cooperaion in jointly combating internet hacking so as to safeguard internet security and protect the privacy of citizens in accordance with law.
We urge the US to respect facts and stop attacking China under the excuse of the so-called freedom of internet. We hope that the US side can work with China to earnestly implement the consensus between leaders of both countries on developing bilateral relationship in the new era by strengthening dialogue, exchanges and cooperation, respecting each other's core interest and major concerns and properly handling differences and sensitive issues so as to ensure the healthy and stable development of China-US relationship."
The Foreign Ministry spokesman does make one very good point: Chinese web sites are as much victims of hacking as American web sites. As we described last week, there is a particularly vicious cyberwar between Iran and China.
Beyond that, the Chinese statement is about as weaselly as you can get. Note that:
From the point of view of Generational Dynamics, we're headed for a Clash of Civilizations world war with China and the US on opposite sides. It's becoming increasingly clear that a "cyber war" is going to be an important component of this real war.
The White House is still predicting that Ben Bernanke will be confirmed for a second term as Chairman of the Federal Reserve, according to the Baltimore Sun.
This is true even though four Senate Democrats have indicated that they will vote against confirmation. "It is time for a change," said California Democratic Senator Barbara Boxer.
However, a WSJ Blog says that the vote tally as of Friday evening is close:
Voting “Yes”: 26 (18 Democrats, 8 Republicans)
Voting “No”: 15 (4 Democrats, 10 Republicans, 1 Independent)
Officially Undecided: 21 (13 Democrats, 7 Republicans, 1 Independent)
The remainder of the senators haven’t officially commented.
60 "Yes" votes are required for confirmation.
Both supporters and opponents of confirmation are pointing to the aggressive actions that Bernanke took in implementing various monetary programs like quantitative easing, and advocating fiscal stimulus programs. Supporters say that he prevented a worse financial crisis, and opponents claim that he made things worse.
Actually, none of these politicians really has any idea whether Bernanke has made things better or worse. After this past Tuesday's election, these guys are just trying to decide which vote will make them more likely to get reelected next time.
I personally like Bernanke, even though I've been bitingly critical of his thinking. I think he's a decent honest guy. (See "The 'culture of complicity' continues with Tim Geithner's new toxic asset plan.")
If Bernanke's not confirmed for a second term at the Fed, then someone else will be chosen. And that someone else will be someone like Larry Summers or Hank Paulsen or Robert Rubin. These people are far less capable than Bernanke, and they're all sleazy, having made millions of dollars participating in the fraudulent creation and sale of toxic assets.
On the other hand, long time readers of this web site are well aware that we're headed for a major financial panic and crash. I believe that by this time Bernanke is aware of it as well. It's quite possible that Bernanke is HOPING that he won't be confirmed. That way, someone else will be blamed for what's coming.
The Times of India reports that India has gone on high alert based on intelligence that the Pakistan-based terror group Lashkar-e-Taiba (LeT) has acquired more than 50 para-gliders. These can be loaded with explosives and launched from unused airstrips to attack jetliners.
On Friday evening, the UK raised its terror threat level to "Severe," according to The Guardian. This means that the probability of a terror attack has gone from "substantial" to "highly likely."
European investors are beginning to talk about openly about a Greek default, according to Euro Intelligence, quoting FT Deutschland.
Another scandal involving global warming scientists: UN climate report riddled with errors on glaciers.
From web site reader Eric, a fascinating account by historian Sir John Glubb relating generations to empires. Glubb finds that an empire generally lasts for about ten generations.
News you can use: Too Much Sex Can Cause Wrist Pain.
(Comments: For reader comments, questions and discussion,
see the 23-Jan-10 News - US vs China cyberwar, and Bernanke in trouble
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(23-Jan-2010)
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And he calls the Mideast situation 'intractable.'
President Obama gave a very interesting speech on Thursday. Extracts:
That's why we are seeking reforms to protect consumers; we intend to close loopholes that allowed big financial firms to trade risky financial products like credit defaults swaps and other derivatives without oversight; to identify system-wide risks that could cause a meltdown; to strengthen capital and liquidity requirements to make the system more stable; and to ensure that the failure of any large firm does not take the entire economy down with it. Never again will the American taxpayer be held hostage by a bank that is "too big to fail." ...
My message to members of Congress of both parties is that we have to get this done. And my message to leaders of the financial industry is to work with us, and not against us, on needed reforms. I welcome constructive input from folks in the financial sector. But what we've seen so far, in recent weeks, is an army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and common-sense rules of the road that would protect our economy and the American people.
So if these folks want a fight, it's a fight I'm ready to have. And my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see soaring profits and obscene bonuses at some of the very firms claiming that they can't lend more to small business, they can't keep credit card rates low, they can't pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers -- that's the claims they're making. It's exactly this kind of irresponsibility that makes clear reform is necessary."
So President Obama is declaring war on the banks.
If you look at the history of the last century, this is almost hilarious. During the 1930s Great Depression, all sorts of laws were passed to regulate banks.
As the generations of Great Depression survivors disappeared (retired or died), all these 1930s regulations were ignored or repealed by the Gen-Xers and Boomers, who thought of them as vestigial remnants of an age dominated by doddering old fools. (See "Markets fall as investors are increasingly unsettled by bad economic news."
Since 2007, the Gen-Xers are learning the same rules that the doddering old fools of the 1930s learned, and we see the result today: President Obama is saying we have to regulate the banks again.
Pundits are pointing out that Obama is pivoting to a new issue, having suffered a major political defeat on Tuesday with the election of Republican Scott Brown as Senator from Massachusetts, in the seat formerly occupied by ultra-liberal Ted Kennedy. The vote is considered a repudiation of Obama himself, and particularly a repudiation of his health care plan, which I've called a proposal of economic insanity.
History tells us that this new issue is sure to be a winner for President Obama. Whereas his health plan was wildly unpopular, the public hatred being directed at banks is growing palpably each day.
History is repeating itself. As I've pointed out several times, when I was growing up in the 1950s, my parents and my teachers all hated bankers. I didn't understand it then, but I understand it today. Bankers in the 1930s perpetrated the same kind of fraud and extortion that they're practicing today, as standard operating procedure.
The fury directed at banks is going to grow, and will be around for decades. President Obama will do much better politically with this issue than he did with health care.
Finally, it's worth saying again that from the point of view of Generational Dynamics, the attitudes and behaviors of politicians are irrelevant; what's important are the attitudes and behaviors of the great masses of people, entire generations of people. These attitudes and behaviors follow generational trends that are completely independent of the wishes of the politicians. We're seeing this happen now, as Obama abandons his health care agenda and takes up his war against bankers.
President Obama didn't only talk about banks on Thursday. He also gave an interview to Time Magazine discussing a number of issues. Probably the most interesting part came near the end when he discussed his Mideast policy. In his statement, he refers to George Mitchell, the special envoy that he sent to the Mideast early in 2009 to negotiate a peace deal.
And on the Israeli front — although the Israelis, I think, after a lot of time showed a willingness to make some modifications in their policies, they still found it very hard to move with any bold gestures. And so what we're going to have to do — I think it is absolutely true that what we did this year didn't produce the kind of breakthrough that we wanted, and if we had anticipated some of these political problems on both sides earlier, we might not have raised expectations as high. Moving forward, though, we are going to continue to work with both parties to recognize what I think is ultimately their deep-seated interest in a two-state solution in which Israel is secure and the Palestinians have sovereignty and can start focusing on developing their economy and improving the lives of their children and grandchildren."
To begin with, let's remember that Obama was going to heal the world on January 21, 2009, when he took office a year ago today. And that wasn't just an empty campaign promise; it was clear from his statements that he actually believed it. It was clear that the believed that the problems of the world were caused because President Bush was evil.
But now, after a year in office, his foreign policies have failed in pretty much every area. (See "After a week of foreign policy disasters, President Obama's entire program is adrift.")
So now, President Obama is apparently learning from his lessons, and becoming more realistic. He's changing his major domestic issue from health care to banking, and he's beginning to understand that the Mideast problem is "intractable."
This is what Generational Dynamics has been predicting for years. The Mideast is dominated by younger generations that have no desire to compromise with the other side. They're prepared to re-fight the genocidal 1948-49 war between Jews and Palestinians that followed the partitioning of Palestine and the creation of the state of Israel, and nothing's going to stop that.
President Obama mentioned the efforts of his envoy, George Mitchell, "who helped bring about the peace in Northern Ireland."
What Obama and Mitchell don't understand is that the Northern Ireland peace was negotiated during a generational Unraveling era, a time when peace treaties are relatively easy to agree on.
Things are quite different different today, when the Israelis and Palestinians are in a generational Crisis era, when a negotiated peace is almost impossible. It's a shame the Obama and Mitchell don't understand that.
(Comments: For reader comments, questions and discussion,
see the 22-Jan-10 News - President Obama declares war on banks
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(22-Jan-2010)
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Stimulus spending on lending slows in China.
Speaking at a press conference in India, America's Secretary of Defense Robert Gates says that there is a "syndicate of terrorist operators," operating under the al-Qaeda umbrella, attempting to destabilize the entire region.
These include the Taliban in Afghanistan, Tehrik-e-Taliban Pakistan, which is focused on Pakistan, and Lashkar-e-Taiba, which is focused on both Pakistan and India, and which is responsible for the 2008 terrorist attack in Mumbai. (See "After Mumbai's '26/11' nightmare finally ends, India - Pakistan relations face crisis.")
Their objective is to cause a collapse of the Pakistan government through terrorist acts, or to provoke an India-Pakistan conflict through provocative or terrorist acts.
"And what we see is that the success of any one of these groups leads to new capabilities and new reputation for all," according to Gates. "A victory for one is a victory for all."
Gates' remarks reflect the increasing danger presented by Sunni Muslim terrorist groups in Afghanistan, Pakistan and India.
As I've said many times, these groups have been trying for years to repeat the success of the 1979 (Shia) Islamic Revolution in Iran, to create a Sunni Islamic nation. They've tried it in Iraq, Somalia, Yemen, Afghanistan, Uzbekistan, and Pakistan. They haven't succeeded yet, but they're committed to continuing, until they succeed.
India and Pakistan almost went to war in 2008, when India threatened to invade Pakistan to go after Lashkar-e-Toiba, following the Mumbai terrorist attack. This was nipped in the bud by hard intervention from Condoleezza Rice, but if a war does break out between the two nuclear powers India and Pakistan, then China will side with Pakistan and Russia and the US will side with India, spreading within a few months to world war.
Prices for oil and other commodities are likely to fall sharply if China keeps its word that it will slow lending to businesses, according to CNN Money. Oil prices could return to $40 per barrel, close to their lows in 2008.
As we've said in the past, China is experiencing a huge real estate and investment bubble, fueled by China's huge stimulus program, to the extent that even the Beijing government is concerned. (See "Skyrocketing real estate prices in China alarm officials.")
From the point of view of Generational Dynamics, a cutback in China's stimulus program could do more than just cause commodity prices to call. There is still a major worldwide panic and crisis predicted, and it's possible that Chinese cutbacks could serve as the trigger causing a chain reaction.
Greece's debt problems are causing the euro currency to fall sharply against the yen and the dollar, according to Bloomberg. The possibility of a bailout for Greece is putting pressure on other countries in euroland, and on the other hand, there is fear that if there's no bailout, and Greece defaults, then the defaults will spread to other countries.
Greece's government is proposing to put Greece on a three-year austerity program, but the program is facing facing substantial opposition, according to the WSJ's Athens Bureau Chief. Already, Greek farmers are blockading roads, and next month the civil servants union is planning a strike.
If there's any way out of this for Greece, I sure don't see it.
A couple of days ago I posted an item about a University of California study that says that blondes get their own way with men, and that their sense of entitlement makes them "more warlike they are than their peers on campus."
Professor Aaron Sell, the author of the study, has written to tell me that the news reports I quoted are in error. Here's his message:
If you'd like to see my actual research, which shows that attractive women are more prone to anger, feel more entitled, and believe they win more conflicts of interest then you can see the actual article and the press release here: http://www.psych.ucsb.edu/research/cep/topics/anger.htm
Note that the words “blonde” or even “hair” never appear there.
The writer Ryan Sager has reported accurately on the story here: http://trueslant.com/ryansager/2010/01/18/science-reporting-gone-wild/
I apologize to Professor Sell for propagating the error.
(Comments: For reader comments, questions and discussion,
see the 21-Jan-10 News - Gates: Danger of India-Pakistan war
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(21-Jan-2010)
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Hundreds die in Muslim-Christian riots in Nigeria.
Republican Scott Brown has won, by a substantial margin, the special election to replace the late Ted Kennedy in the Senate. That this is happening in Massachusetts, an overwhelmingly liberal Democratic state, illustrates how thoroughly the country is realigning politically.
To see what's going on, you have to understand what I've been saying for years: The great trends of any society or nation are generational, and are not determined at all by politicians. All the politicians can do is follow the generational trends.
President Bush represented the Silent and Boomer generations. The Generation-Xers, who generally speaking despise Boomers and Silents, turned to Gen-Xer Barack Obama because he was the un-Bush -- and by that I mean the un-Boomer and the un-Silent.
But now President Obama's presidency is turning out to be indistinguishable from President Bush's third term. President Obama is considered by many of his supporters to be just as much a "warmonger" as Bush was, and "change we can believe in" has been buried by loathsome corruption of the health care bill. The only difference between Bush and Obama is oratorial skill. The policies turn out to be the same.
A year ago, mainstream pundits were saying that the Republican party was close to death, and wouldn't recover for decades.
This evening, I'm hearing Republican pundits talk about this as a major political revolution, a huge victory for the Republicans that will be felt for decades. Yawn.
Other pundits are saying that Obama and the Democrats are going to move to the center. Yawn.
Actually, there is a revolution going on, but nothing that's going to make anyone happy. The Gen-Xers, who are pretty much running things now, are not going to turn back to the Republicans, nor are they going to move to the center. They're going to synthesize something new.
Who will be the new candidate who will lead the nation through this realignment? Who will be the new Abraham Lincoln or the new Franklin Roosevelt? It might be a Boomer or a Gen-Xer, but it will probably be a surprise to a lot of people.
 |
In three days of clashes between Christians and Muslims in the city of Jos in central Nigeria, nearly 200 people have been killed, according to a report in the Times Online. The Army has been called in to restore order.
The northern part of Nigeria is mostly Muslim, because of centuries of migration from the Maghreb, the region in northern Africa that was conquered by Arab Muslims in the centuries following the death of Mohammed.
The southern part of Nigeria, especially around the Port Harcourt area, is predominantly Christian, following centuries of colonization by the Europeans, taking advantage of opportunities for mining and the slave trade.
In the middle of Nigeria is the city of Jos, heavily populated by both Muslims and Christians. There have been a number of secular confrontations in Jos over time, so the current clashes are nothing new.
However, it comes at a bad time for the Nigerian psyche. President Yar'Adua has been out of the country since November, in a hospital in Saudi Arabia receiving treatment for a heart condition.
Even worse, the perpetrator of the attempted Christmas day jetliner bombing over Detroit has been identified as a Nigerian citizen, and Nigerians have been demoralized because the US has placed Nigeria on a list of "terror-linked" countries that include Afghanistan, Cuba, Iran, Libya, Pakistan, Somalia, Sudan, Syria and Yemen.
Politicians in Nigeria are calling this violence evidence of a declining Nigerian state, according to the Nigerian newspaper The Punch.
"With the ongoing crisis, we have one more piece of evidence of decline," says one presidential candidate. "Something that repeats itself like that should by now be containable. There is a committee still working on the last riot and this one is taking place. Yet, we think the world has no right to talk about the character of the Nigerian nation, it is a shame and it is regrettable. ... In a way, the Jos crisis is an indictment. Being included on the United States‘ security risk list is a matter of perception of the character of the Nigerian state. This crisis reinforces that perception; it is acting negatively against us."
Nigeria is a country of dozens of separate tribes and ethnic groups, and I have not yet done the many hours of research necessary to completely sort out the generational timelines. But it appears that for most of the country the last generational Crisis war was the Nigerian-Biafran war of 1967-70. At that time, the southeast portion of Nigeria attemted to secede, creating a new country called the Republic of Biafra.
Based on that tentative assessment, there is no chance that the current violence will spiral into full-scale war, despite the fears of many.
(Comments: For reader comments, questions and discussion,
see the 20-Jan-10 News - Republican victory in Massachusetts
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(20-Jan-2010)
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Major Taliban attack on Kabul, Afghanistan.
The next 48 hours are critical for Greece as they negotiate with European financial ministers in Brussels, according to Kathimerini (machine translation).
The article warns that "The climate in Brussels is not the best for the Greek program," and when further information on the budget deficit is published at the end of January, the climate will get worse.
Meanwhile, the ECB is preparing the legal ground to eject Greece from the European Union, according to Ambrose Evans-Pritchard in The Telegraph.
This reflects the fury in Brussels at the Greek government for lying about budget deficits in the past.
This is a warning shot for all of the "P.I.I.G.S" (Portugal, Ireland, Italy, Greece and Spain), countries that are getting closer to being unable to pay their bills -- and the UK and the US are not far behind.
Two suicide bombings and multiple gun battles punctuated a five hour attack by the Taliban and Afghanistan's presidential palace and other government buildings, as well as a shopping complex.
The purpose of the attack is to reject an outreach by the Karzai government to the Taliban, according to an analysis by CS Monitor.
From the point of view of Generational Dynamics, this attack by the Taliban is likely to backfire. Afghanistan is in a generational Recovery era, having had a very bloody civil war in the early 1990s, and even Taliban supporters have little sympathy for this type of violence.
A study by the University of California has discovered that women with blonde hair tend to get their own way with men, and also feel entitled to get their own way, according to The Straits Times.
We can only hope that not too much taxpayer money was spent on the University of California study, because I think it's something that we already knew.
Actually, there's something else: "What we did not expect to find was how much more warlike they are than their peers on campus. Many blondes exist in a kind of bubble where they have been treated better than other people for so long, they may not even realise they are treated like a princess," according to study leader Aaron Sell.
According to Sell's web page, he's an expert on evolutionary psychology. The web page doesn't say whether Sell's wife (or ex-wife) is blonde.
Correction: Professor Aaron Sell, the author of the study, has written to tell me that the news reports I quoted are in error. Click here for the text of his message.
(Comments: For reader comments, questions and discussion,
see the 19-Jan-10 News - Greece continues to head for default.
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(19-Jan-2010)
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US State Department will make formal protest to China over Google.
There are 23 countries in the world whose government recognize Taiwan as a country, and one of them is Haiti. So China and Taiwan are competing to provide aid to Haiti, according to a report by Canadian Press.
China has another reason for providing aid to Haiti: Sympathy for Haitians, after China itself suffered its own major earthquake disaster in 2008.
Next week the U.S. will issue a formal protest to the Chinese government demanding an explanation for the cyber attack on Google and other American companies, according to a report from Bloomberg.
According to a CNET story, google's Chinese web site, google.cn, has already stopped censoring search results.
Text and image searches are now showing some "highly sensitive photos and page results." These are presumably in violation of Chinese law, but China has not yet pulled the plug on google.cn.
Haiti was the major topic in the news on Sunday morning. Every network has reporters in Port-au-Prince, Haiti, now showing live scenes of pain and destruction. One surprise, appearing on several shows, was a love-fest between President George Bush and President Bill Clinton, talking about what great friends they are, as they lead a fund-raising effort for Haiti.
There was some brief discussion among political pundits of whether President Obama had responded quickly enough, but political matters were mostly put aside. It's amazing how political bickering can end in the face of a major crisis.
The major political discussions were over the Massachusetts special election to fill Senator Ted Kennedy's Senate seat. Sitting here in my apartment in Cambridge, I can only express my astonishment that a Republican has a real chance of winning on Tuesday.
(Comments: For reader comments, questions and discussion,
see the 18-Jan-10 News - China and Taiwan compete in Haiti.
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(18-Jan-2010)
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President Obama promises "months and even years" of support for Haiti.
In his White House remarks on Saturday, President Obama appointed President George W. Bush and President Bill Clinton to lead a major fundraising effort for Haiti: the Clinton Bush Haiti Fund at http://www.clintonbushhaitifund.org.
He added,
The earthquake devastation is so bad that there's widespread concern that Haiti will become a major new commitment for America's armed forces that can last for years. This will add one more country, besides Iraq, Afghanistan, and possibly Yemen, where American forces will be committed.
The last time that I wrote much about Haiti was in 2004, when the government was collapsing and the country appeared close to total anarchy and possibly civil war from ethnic tensions. That scenario was prevented by large amounts of aid and lots of UN peacekeepers.
During the 1700s, the island was an extremely wealthy French colony, thanks to crops sugar, rum, coffee and cotton -- and thanks to the efforts of 500,000 slaves that the French had imported from Africa.
By the end of the 1700s, there were three groups of Haitians: The "whites," native Europeans; the "noirs" or "blacks," native black Africans whom the French imported as slaves; and the "mulattos," the children of mixed European and African blood.
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At that time, the mulattos were theoretically free, but in practice had as few rights as the noirs. In 1791, the noirs and the mulattos united in a violent slave rebellion that led to a 13-year civil war, resulting in formal recognition, in 1804, of Haiti as the second Republic in the Western hemisphere. However, the United States didn't grant Haiti diplomatic recognition until 1862 -- when Lincoln's Emancipation Proclamation freed America's slaves during the Civil War.
Today the mulattos are a small French-speaking minority, under 5% of the population, generally light-skinned, but a "market-dominant" minority, controlling well over 50% of the nation's wealth. The noirs generally live in extreme poverty, and speak Creole, a mixture of French and African language elements. (Other different variations of Creole are spoken throughout the Caribbean, including parts of Louisiana.)
After the whites were overthrown in 1804, the mulattos became the new élite class. There was a new crisis civil war in the late 1840s, followed by several decades of peace and the growth of a Haitian intellectual culture. However, there was one bloodless coup after another, resulting in a succession of dozens of Presidents.
The 1915 coup was different, in that it turned into a major generational crisis rebellion. With total anarchy breaking out, President Woodrow Wilson eventually felt it necessary to take complete control of all governmental and financial institutions in Haiti.
The American armed forces remained in Haiti for 20 years, withdrawing only in 1934.
American armed forces came back in 1994, when it appeared that Haiti was once again heading for anarchy. The same thing happened in 2004. Now, after the earthquake, things are worse than ever.
Haiti is one of the most densely populated countries in the world, and is the poorest nation in the Western Hemisphere, with the average income at about $3.50 per day per person. In addition, Haiti has the least water availability per capita of any nation in the world. In 2008, Haiti became an international story when there were huge food riots, with violence quelled by large increases in aid.
With so much poverty, there's nothing left for obvious services like cleaning garbage out of the street, resulting in pictures like the one shown above, which is typical. And with the population growing at almost 2% a year, Haiti is also suffering from the "Malthus effect" (population grows faster than available food and water), making poverty worse each year.
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Of course, not all streets of Haiti are covered with garbage. Here's a photo of Petionville from a Haiti travel site. Residents of Petionville are wealthy, mostly mulattos.
From the French phrase "rester avec" (stay with), restaveks (or restavecs) are the over 250,000 children who are sold or given away by their parents to other families. The children, usually noirs, are from families that can't afford to feed them, given to wealthy families, often mulattos.
Restaveks, as young as 5 years old, generally get no education, but are required to work all day as domestic servants.
This is the environment in which the earthquake occurred. Haiti's society was already very fragile, with unemployment above 70% and most people dependent on foreign aid.
The earthquake has killed tens of thousands, perhaps hundreds of thousands of Haitians across the country. Most buildings have collapsed, and there are thousands of dead bodies buried under the wreckage. The streets are filled with more dead bodies. Survivors are forced to sleep in the streets, for fear that an aftershock may cause other buildings to collapse.
The BBC reports that Haitians are becoming increasingly desperate, and looting and violence by roving gangs are spreading. This is made worse by the fact that the main prison also collapsed, freeing thousands of prisoners. Many roads are blocked by bodies and debris, making the distribution of aid difficult or impossible.
From the point of view of Generational Dynamics, this is a generational crisis civil war waiting to happen, across the mulatto vs noir fault line.
When anarchy broke out in 1994, and again in 2004, there would undoubtedly have been a civil war at that time, if it hadn't been for massive international aid and peacekeeping.
This situation has grown palpably worse since then.
One of the signs of this is the blogs and online discussions about Haiti, and here there's a story to be told.
When I do one of these analytical reports for this web site, I usually review dozens of online sources. These include current news stories, historical accounts, and international blogs and discussion forums. The latter are important because there you get a feel for what the people are saying and doing that goes beyond the politically correct mainstream media.
Here is one comment that appeared on a YouTube site on Saturday: "i jumped for joy upon hearing of the haiti earthquake. the sound of buildings collapsing is music to my ears. the sight of arms and legs sticking out from the rubble is awesome. blood streaming out from mangled bodies of hookers and johns under collapsed brothels holds great artistic value. the view of thousands of n----r bodies lined up is spectacular. i love the way that bodies are stacked up for bonfires. the streets of haiti is awash in n----r blood. there are now less n----rs to feed."
When you read a quote like that, of course you think, "That's crazy. That's the exception; few of them are like that." Amazingly, that not's true. The above quote is actually typical of the online discourse on Haiti. I don't believe I've ever seen anything like this. For example, I've read many online discussions by Palestinians and Israelis, and there's nothing like what I've seen for online discussions of Haiti.
The only thing I can conclude from this is that the seething hatred in Haiti's population and diaspora is greater than almost any other population on earth. Perhaps one could have guessed this anyway from the level of poverty and the highly visible contrast between garbage-strewn noir neighborhoods versus well-kept mulatto neighborhoods, maintained by noir restaveks, but the online discussions really make it clear.
This has significant implications for the United States.
At the very least, looting and violence are going to increase at least in the short run, with the possibility of thousands of "boat people" headed for the shores of Florida. But with most of Haiti's infrastructure destroyed in the earthquake, providing aid and peacekeeping is going to be next to impossible for many regions outside of Port-au-Prince.
Because of the danger that this violence could spiral into unlimited civil war, the United States and the United Nations will be under pressure for full-scale military intervention. This would end up being one more major military commitment for the United States, as President Obama said, "for months and even years."
(Comments: For reader comments, questions and discussion,
see the Haiti thread of the Generational Dynamics forum.)
(17-Jan-2010)
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The 'rich nations' are not far behind.
According to a report by Reuters, euro zone finance ministers are so furious about Greece's previous lies about budget deficit figures that there is little willingness to bail Greece out.
"German taxpayers would have little patience if you tried to tell them you are using their money to bailout a country that has consistently and knowingly reported wrong data and has repeatedly infringed EU budget rules," according to one source.
Thus Greece and euro zone finance ministers continue on their collision course, a game of "chicken" as I called it a couple of days ago, and unless one side or the other swerves, the result will be a Greek default with consequences that no one can predict.
Moody's rating service says that Greece and Portugal face "a slow death," according to a Bloomberg report.
Both countries will have to dedicate a higher proportion of their wealth to paying off their enormous debt. To make matters worse, both countries have to pay very high interest rates because of the danger of default, because of their enormous debt. So both countries are in a vicious spiral.
From the point of view of Generational Dynamics, this conclusion is completely rejected. If Europe were in a generational Recovery or Awakening era, then some kind of prolonged paydown of debt might be a possibility, but not during a generational Crisis era. The population of each country will not tolerate such a debilitating scenario for long. Their "Boomer" and "Gen-X" populations will even choose war after a while, rather than suffer the kind of "slow death" that Moody's is describing.
An analysis by the Financial Times says that even in the "rich world," debt levels are rising almost uncontrollably. "The biggest increases have occurred in Iceland, Ireland, the US, Japan, the UK, and Spain. There is no peacetime precedent for the current speed and scale of public debt accumulation and it is difficult to assess the social tolerance for high debt levels, and for the pain of protracted fiscal restraint. In several EU member states, the threshold has already been breached. The spectre of sovereign default, therefore, has returned to the rich world."
From the point of view of Generational Dynamics, the financial system is like a huge ball rolling downhill, faster and faster, headed for an enormous collision and smashup.
2008 was the year of the defaults of failing banks -- Bear Stearns, Lehman -- and failures. 2009 was the year of the bailouts of failing banks and car companies. 2010 is shaping up to be the year of failing countries. Each year, the financial damage is worse than the preceding year.
As I've been saying for years, the world is in a deflationary spiral, as the massive real estate and credit bubbles continue to deflate. (Anyone who says we're facing superinflation is an idiot. See Ambrose Evans Pritchard's analysis.)
That means that everyone is "deleveraging," and each month there's less money in the world than there was the month before. As that process continues, there's less and less money to support failing banks, failing car companies, and failing countries. It's only a matter of time before some event triggers a massive worldwide panic. The timing can't be predicted, but the result is 100% certain.
(Comments: For reader comments, questions and discussion,
see the 16-Jan-10 News - Greece and Portugal head for financial crisis.
thread of the Generational Dynamics forum. Comments may be posted
anonymously.)
(16-Jan-2010)
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Pressure builds to send American forces to Yemen.
Google's announcement that it will no longer censor web sites in China, and will close its offices in China if necessary, has drawn worldwide comment. The announcement was precipated by a discovery that Chinese hackers were hacking into the corporate data of Google, Adobe, and 20 other (so far unidentified) corporations, and also were hacking into Google's Gmail.
InformationWeek's Dark Reading newsletter reports that the Chinese hackers used a "Spear Phishing" attack to gain control of corporate computers.
"Phishing" has been around for years. The hacker sends e-mail messages to millions of users saying, "Open the attached file for pictures of beautiful nude women." Opening the file launches an application that takes control of the computer and turns it into a zombie that can capture passwords, bank numbers, and so forth, and send them back to the central "Command and Control" computer of the hackers. Only a tiny percentage of the users open the file, but that gives the hackers control of thousands of computers.
Spear phishing is a refinement that's extremely sophisticated and highly targeted. The hackers find out the name of your employer, your boss, your girlfriend, or whatever, and then send you an e-mail message, making it appear that it's from one of them. Once again, it asks you to open an attached file that takes control of your computer.
According to the newsletter, "The wave of targeted attacks from China on Google, Adobe, and more than 20 other U.S. companies, which has led the search giant to consider closing its doors in China and no longer censor search results there, began with end users at the victim organizations getting duped by convincing spear-phishing messages with poisoned attachments. Google and Adobe both revealed last night that they were hit by these attacks, which appear to be aimed mainly at stealing intellectual property, including source code from the victim companies, security experts say."
The Chinese hackers obtained intelligence information about people in each of the 20+ corporations. Where did they get that information? There are two possibilities, according to the article.
The first possibility is that the hackers did their own research, using the internet. The second possibility is that the data was collected by engineers intercepting data that crosses routers, controlled by China, that carry internet traffic in and out of China.
"One source close to the investigation says this brand of targeted attack has actually been going on for about three years against U.S. companies and government agencies, involving some 10 different groups in China consisting of some 150,000 trained cyber-attackers," according to the article.
Spear-phishing attacks are becoming increasingly common, not only by Chinese attackers, but by hackers around the world. It's used to capture personal information, including bank and credit card numbers, used for identity theft.
As a computer industry professional, I try to keep reasonably up to date on various security threats that are going on, and I have to tell you that I'm finding it increasingly frightening. The types of exploits that malicious hackers are using is growing, and anyone can be victimized. I consider myself to be in the 99.9th percentile of vigilance about potential hackers, but some people may remember that this web site was hacked about a year ago. Fortunately, I've written all the web site code that runs this web site, so I was able to identify the problem and correct it fairly quickly. Still it illustrates the fact that the attacks are becoming so sophisticated that anyone's home computer, business computer or web site server could be victimized.
One thing that surprised me recently is that even PDF files can be exploited. Most people know that EXE files, DOC files and Excel files can contain malware that attacks computers, but PDF files were thought to be safe until now. Last week, Adobe Systems put up a patched version of Adobe Reader, the program that reads PDF files. You should make sure that you have the latest version of this program installed, so that you'll be safe from these attacks. (See Adobe web site.) (Paragraph corrected - 15-Jan-10)
The Microsoft web site contains some additional tips and information about avoiding spear-phishing attacks on your computer.
The larger picture is that there's a worldwide cyberwar going on.
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The National Post that China and Iran are two of the major belligerents, hacking each other's web sites.
And as I've said many times (see, for example, "China 'betrays' Iran, as internal problems in both countries mount"), when all is said and done, I expect Iran to be on the side of America and the West, including Israel, when forced to make a choice in the coming Clash of Civilizations world war. This cyberwar between Iran and China appears to be an early skirmish.
Thanks to a fairly weak monsoon season, harvests have been down in India, resulting in food prices that have increased by almost 20% in the last year.
The Hindu reports that the government in New Delhi is putting emergency measures into effect to try to curb soaring prices. These measures include removing duties on imported white sugar, and making hundreds of millions of pounds of wheat and rice available on the open market at low prices.
The Asian Times reports that US Senate Armed Services committee chairman Carl Levin is advocating further American military intervention in Yemen, including unmanned aerial drones, clandestine actions and air strikes.
Military analyst Brian M. Downing gives the following reasons why there's pressure for further American military intervention in Yemen:
From the point of view of Generational Dynamics, a major component of the coming world war will be a war between Sunni and Shia Muslims. With Iran and Saudi Arabia supporting opposite sides of the conflict in Yemen, things could spiral into something more serious at any time.
(Comments: For reader comments, questions and discussion,
see the 15-Jan-10 News - China uses 'Spear Phishing' to attack American corporations. thread of the Generational Dynamics forum. Comments
may be posted anonymously.)
(15-Jan-2010)
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How the Jews were driven out of Iraq.
Watching the bank CEOs testify before Congress on Wednesday, I was immediately struck by the remarks of Lloyd Blankfein, CEO of Goldman Sachs, the man who said that bankers are doing "God's work."
He agreed that Goldman Sachs could have done some things better, and indicated that he might have misled an investor or two, but he said of the things that Goldman Sachs did that "these are typical behaviors" and they are "standards of the times didn't work out well."
Phil Angelides, chairman of the Financial Crisis Inquiry Commission, responded to Blankfein by saying, "It sounds to me a little bit like selling a car with faulty brakes, and then buying an insurance policy on the buyer of those cars."
He's referring to the fact that Goldman created securities that are now known as near-worthless "toxic assets," and at the same time made other investments that bet against those securities, expecting to make money when those securities became worthless.
William K. Black is a professor at the University of Missouri, and was the senior regulator investigating the savings and loan crisis of the 1980s. He compares today's investigations to those he led in the early 1990s. I saw him being interviewed on Bloomberg TV on Wednesday afternoon.
He's extremely criticial of regulators who, he said, have done almost nothing. In the savings and loan crisis, regulators were very aggressive in prosecuting the CEOs of the offending savings and loans banks, but nothing like that is happening today.
This shouldn't be a surprise to anyone, especially after the revelations about how regulators treated Bernie Madoff, the man who defrauded hundreds of investors of $65 billion. The SEC was warned several times that Madoff was likely conducting a Ponzi scheme, but the SEC never did anything about it. The SEC management was absolutely pathetic, and they proved it last September when they published a report of their own investigation that absolved themselves of all blame. (See "Laughable SEC report on Madoff absolves SEC management of blame.")
What we see here is the generational pattern that I've been writing about for years. Blankfein referred to the "standards of the time" giving rise to this crisis. Well, the standards of the time are fraud and extortion being practiced by almost every financial and real estate organization in the country -- or in the world.
Once the Silent Generation disappeared, the world was managed by a lethal combination of greedy, nihilistic Generation-Xers, managed by greedy, incompetent boob Boomers. A generational explanation is the only one that explains why fraud and extortion has become "the standards of the time," and why fraud and extortion is still going on as bad as ever.
On his tv interview, William K. Black was asked why he thought bank CEOs and senior management should go to prison. Here's what he said (my transcription):
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We still get this dribble [from them] about "it's the 100 year flood" type of thing, "so there really ARE no lessons to learn. It's just bad luck that happened on my watch." ...
Many, many of those CEOs and senior officers should be in prison.
The shocking thing about the current crisis is that the regulators, the treasury, the prosecutors, and at least to this point, Congress and the Angelinis Commission have not gotten that information. [He adds that the prosecutors have only begun to get information -- emails, models, accounting books, etc.]
Here's what we know empirically. The FBI warns in Sept 2004 of an epidemic of mortgage fraud. It finds that 80% of the losses occur when lender personnel are involved. So it's not primarily borrowers -- it's coming from the lending institutions.
We know that when Fitch [Ratings agency] finally looks in Nov 2007 at the underlying mortgages on these CDOs, the collateralized debt obligations, it finds that the results are "disconcerting," and that there's the appearance of fraud in nearly every file. Now that means we have massive fraud at that level.
That inherently produces accounting and securities fraud all the way up the line, because of course these are not really assets - these are really net liabilities.
Every time, on average, a "liar's loan" was made, the bank that made the loan lost money.
And so all of this paper is underlying this roughly $2 trillion in non-prime paper.
Now we know what happened next. because there are Standard & Poors memos. Where the professional rater asked to see the underlying files, and he's told by his boss, "It is totally outrageous to ask to see the underlying files," which is the only way to rate risk, and he's ordered not to do that, and to produce a rating.
We know that those ratings are AAA for product that isn't even C. These are not small errors. ...
There are only two choices. Let's take a Goldman Sachs, that under [Hank] Paulsen, when he was still running them, went deeply into this toxic paper.
Either they DID underwriting, which is what an investment banker is supposed to do, and they found that nearly every file was fraudulent, in which case, if they sold it, that's a fraud; or they're telling us they never did any underwriting, in which case they're the most incompetent and unbelievable people in the world, and should be removed from office. And certainly shouldn't get bonuses."
This is an excellent statement why many of these bankers will be going to jail, just as bankers went to jail in the 1930s when they did similar things.
Here's something that I wrote years ago: "If you're an economics expert, journalist, investment broker, mortgage lender, analyst, regulator, pundit or politician whom the public decides is blameworthy for the major coming crisis, then I suggest that you'd better have your underground bunker picked out, because people are going to be coming after you, and the guillotine is going to seem mild compared to the punishment that they're going to want to inflict on you."
The fact that bankers are going to be paying themselves tens of billions of dollars in bonuses during the next few weeks means that they're too dumb to take that advice.
A MEMRI translation of a television interview with Dr. Rashid Al-Khayoun, an Iraqi scholar and author, tells how Jews were driven out of Iraq.
According to Al-Khayoun, Iraqi Jews of the 1940s were not much interested in going to Israel, because they had lived in Iraq for centuries, and considered it to be their home.
But Al-Khayoun says that Jews were coerced to move to Israel by a wave of pan-Arab nationalism within Iraq.
"[P]an-Arab nationalism grew stronger in Iraq, from the late 1940s to the early 1950s," says Al-Khayoun. "The Jew began to be the target of deliberate affronts. Iraqi Jews are known for their patriotism. They have nothing to do with Israel."
The rise of pan-Arab nationalism in the late 1940s is very interesting from the point of view of Generational Dynamics.
In North America and Europe, it's common to refer to "Boomers" and "Generation-X" and their specific behaviors, but those behaviors don't seem to apply to Russia, Turkey and Mideast countries such as Lebanon, Iraq and Iran.
There's a good reason for that. For the West, the most cataclysmic event of the 20th century was World War II. But for Russia, Turkey and the Mideast, the most cataclysmic events surrounded World War I, including the Bolshevik Revolution and the destruction of the Ottoman Empire.
Thus, the people born in Russia and the Mideast in the 20 years following WW I would have attitudes and behaviors similar to the West's Boomers, and the next generation would be similar to the West's Generation-X.
Iraq's crisis war at that time was the the Great Iraqi Revolution of 1920. According to Al-Khayoun, the movements to expel Jews from Iraq began in 1941. This was in Iraq's generational Awakening era, about the same point in Iraq's generational timeline as America's 1967 Summer of Love or Iran's political upheavals of 2009.
What happens in all of these cases is a great deal of political turmoil, followed by a sharp change in political direction. In the case of Iraq in the 1940s, this meant a change from the secularism imposed by the end of the Ottoman Empire, and a resurgence of Arab nationalism to the exclusion of other ethnic and religious groups. Hence, the expulsion of the Jews from Iraq.
There have been new crisis wars 60-70 years after the end of the Ottoman Empire, including the Lebanese civil war and the Iran/Iraq war of the 1980s. These countries are now, once again, in generational Awakening eras, going through the same kind of political turmoil as they did in the 1940s.
(Comments: For reader comments, questions and discussion,
see the 14-Jan-10 News - Senior bankers may be headed for prison thread of
the Generational Dynamics forum. Comments may be posted
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(14-Jan-2010)
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The UK debates the Iraq war.
Question: What are the most terrifying ten words in the English language?
Answer: We're from the Government, and we're here to help you.
Well, perhaps Greece is hearing something even worse: "We're from the IMF, and we're here to help you."
Bloomberg reports that a team from the International Monetary Fund (IMF) arrived in Athens to help the government with "pension reform, tax policy, tax administration and budget management."
These are just some of the areas where Greece's budget has been growing uncontrollably.
This comes at a time when the European Commission is essentially calling Greece a liar, with "severe irregularities" in the nation’s statistical data. Other accusations claim that Greece used dishonest financial data in order to join the euro currency.
It's pretty clear that there's widespread distaste for the idea of bailing Greece out, and preventing the government from defaulting on its debts. The reason is that Greece's government is so out of control with spending, and apparently does not have the political will to cut back sufficiently.
Adding to Greece's troubles, Reuters reports that the major Greek civil servants' union has called a strike for February 10, to protest against the government's austerity measures.
There's apparently a big game of "chicken" going on. In American in the 1950s, the game of Chicken was quite popular among teen hot rodders. Two teenagers would drive their cars full speed straight towards each other from opposite ends of the field. The first driver to swerve to avoid an accident is the "chicken." If neither driver swerves, then both drivers die.
That's what may well happen in Greece. If the EU and the IMF refuse to bail Greece out, and if the Greek government and unions refuse to cut spending, then the repercussions of a Greek default will be worldwide. It'll be interesting to see which side swerves, if any.
According to Krugman's blog,
To be sure, America has at least minor-league versions of the same problems: we are having fiscal crises in the states, and the housing slump has depressed mobility in the recession. But we’re still better able to cope with asymmetric shocks than the eurozone.
Was the euro a mistake? There were benefits — but the costs are proving much higher than the optimists claimed. On balance, I still consider it the wrong move, but in a way that’s irrelevant: it happened, it’s not reversible, so Europe now has to find a way to make it work."
This guy has absolutely no sense of history. Since the end of World War II, there has been an increasing movement towards a European Union and a European currency. The momentum was unstoppable, because nobody wants to see a new European war.
From the point of view of Generational Dynamics, a new European war is inevitable. The European Union and the euro currency will not survive in anything like its current form, and both may collapse completely.
But that's not the end of the story. Once the war is over, in the 2020 time frame, Europe will enter a new generational Recovery era, and this time the European Union and the euro currency will succeed.
The UK is currently conducting a highly contentious inquiry into the history of the UK's involvement in the Iraq war, with the objective of assigning blame.
On BBC's Europe Today program, former Labour Party minister Frank Dobson made the following comments (my transcription):
It's also made it more difficult to deal with problems arising from Iran attempting, if they do, to get nuclear weapons.
All that has been made more difficult as a direct result of the stupid decision to invade and occupy Iraq."
If Dobson can call his political opponents "stupid," then that gives me leave to call Dobson a total moron, almost incapable of coherent thought.
Let's assume the counterfactual that there was no ground invasion of Iraq in 2003. Then we'd have to assume that Saddam Hussein was still in power today, and we STILL WOULDN'T KNOW whether he was deploying weapons of mass destruction.
In that scenario, Iran would be saying to us, "Saddam Hussein has already attacked Iraq with weapons of mass destruction (WMDs), during the Iran/Iraq war of the 1980s, and he may do it again any day. We need nuclear weapons to protect ourselves from Saddam's WMDs. If you want to stop the spread of WMDs, then you'd better start with Saddam!"
And so, contrary to Dobson's argument, without the Iraq war it would have been MUCH MORE DIFFICULT to talk to Iran about nuclear weapons.
Of course, Iran would be developing nuclear weapons capabilities under any scenario. The Iraq war made no difference, except that they might have gone faster without the Iraq war.
This is a good time for me to remind readers that I've never taken a position on whether the Iraq war was "right" or "wrong" or "good" or "bad." (See "The Iraq war may be related to the bombing of Hiroshima and Nagasaki.")
Dobson's statements illustrates the incredibly ignorant quality of most political discussions about the Iraq war.
First the bankers who created trillions of dollars in near worthless "toxic assets," and used them to defraud investors while paying themselves hundreds of billions in commissions and fees. Now that they've been bailed out by the government, they're forcing their own customers 30% interest, and they're using the money to pay themselves more billions in bonuses. This is criminal extortion, but it's the norm for the financial community these days.
I've been expecting something like this for years, since the same thing happened in the 1930s, but I've been sickened by the extent of the corruption being exhibited by these bankers.
On Wednesday, bank executive will be testifying on Capitol Hill before the Financial Crisis Inquiry Commission.
It is grossly loathsome and disgusting that these people are paying themselves million dollar bonuses after all the damage they've done. As I've said before, I truly believe that many of them are going to go to jail before this is all over.
The NY Times reports that Google has discovered that the e-mail accounts of human rights activists had been hacked.
According to the report, Google said that it had found a “highly sophisticated and targeted attack on our corporate infrastructure originating from China. ... These attacks and the surveillance they have uncovered — combined with the attempts over the past year to further limit free speech on the web — have led us to conclude that we should review the feasibility of our business operations in China."
Google has been criticized for years for agreeing to censor its search results to exclude anything that the Chinese Communist Party objects to. The company now says that it is no longer willingo to continue this censoring.
(Comments: For reader comments, questions and discussion,
see the 13-Jan-10 News - Greece may be near financial collapse thread of
the Generational Dynamics forum. Comments may be posted
anonymously.)
(13-Jan-2010)
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While American 'Preppers' prepare for the worst.
In the past, I've frequently said on this web site that you can't prevent what's coming, but you can prepare for it. You should treasure the time that you have left, and you should use the time to prepare yourself, your family, your community and your nation.
Web site reader Joel has referred me to a Newsweek article about a growing group of people, called "preppers," who are doing exactly that.
These people hope for the best, but want to be prepared for the next hurricane Katrina, the next pandemic, the next financial meltdown, the next terrorist attack or, presumably, the next war.
Referring to one of the preppers, the article concludes, "But she believes that in times of uncertainty, what she's doing is simply common sense. As for the rest of us, isn't it a little bit crazy not to prepare?"
That's damn good advice.
 |
The BBC reports that a major poll conducted in December finds the Afghanistan people much more optimistic about the future than in previous years. (PDF here for full poll results.)
Compared to a year ago, many more Afghans believe that the country is going in the right direction, and more of them back the presence of US troops. 71% were optimistic about the future, compared to 51% a year ago.
This is good news for the armed forces "surge" fighting in Afghanistan, and it raises hopes that the war can be won. However, as I wrote last year, comparing the Afghanistan and Iraq wars, the Iraq "surge" strategy will not work in Afghanistan.
Afghanistan's last generational crisis war as the hugely genocidal civil war that ended in 1996, almost 15 years ago. Thus, Afghanistan is in a generational Recovery era, still recovering from that ghastly war.
Thus, the optimistic results of the Afghan poll make a lot of sense. The people are on a "high," looking forward to a bright future in a country that already settled its differences.
In fact, if it were up to the Afghan people, the war would be over. Even if it were up to the Pashtuns, who make up the Taliban terrorists, the war would be over.
But there are two reasons why the war can't be won.
The first reason is that there is no war. The war was won in 2002, when the American coalition forces, in conjunction with the Afghan Northern Alliance, decisively defeated the Taliban armies. Since then, the war has collapsed into a series of terrorist attacks and a counterinsurgency strategy.
The second reason that the war can't be won is that it's not up to the Afghan people. The terrorist insurgency is being fought by Pashtun, al-Qaeda and Uzbek terrorists hiding out in the tribal areas on Pakistan's borders. The war can't be won in Afghanistan any more than it can be won in Pakistan.
As if the prove the point, the London Independent reports that Taliban terrorists have developed a new generation of roadside bombs that are made out of wood, and have no metal or electronic parts, so they can't be detected by existing methods.
(Comments: For reader comments, questions and discussion,
see the 12-Jan-10 News - Afghan people hope for the best thread of the
Generational Dynamics forum. Comments may be posted
anonymously.)
(12-Jan-2010)
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Understanding where the world is going in the 2010s.
As regular readers know, Generational Dynamics predicts that we're headed for a new "Clash of Civilizations" world war, pitting China and Sunni Islam forces against the West. As usual, Generational Dynamics tells you the final destination, but doesn't tell you the scenario that will get you there. (See "Generational Dynamics forecasting methodology.")
The new issue of The Diplomat Magazine presents an "end of decade" series of articles on the major events of the last decade and the major flash points of the next decade. The magazine doesn't mention anything about a world war, of course, but it does provide an overview of the major trends and major points of conflict, at least for the Asia-Pacific region.
The following are The Diplomat's Top 10 stories of the decade:
The article makes an interesting observation: "As if to prove the maxim that generals always fight the last war, the approaches that worked (sort of) in Iraq have been imported almost wholesale -- think ‘COIN’ [counterinsurgency] and ‘surge’ -- and supported by Obama in an unconvincing plan announced after much cogitation late in 2009."
This is certainly true, and one of the most remarkable aspects of our Afghanistan strategy. However, as I wrote in September the Iraq "surge" strategy will not work in Afghanistan.
If I had to choose, however, I would say that the spectacular Red Mosque attack in Islamabad, earlier in the same year, was more significant, since it was the first major terrorist attack, and it led to other attacks, including the Bhutto assassination.
In the Asia-Pacific region covered by the article, it's hard not to include China's crackdown on Tibet in March, 2008. This event electrified the world, and led to a big rise in hostility between the Chinese people and much of the rest of the world.
Outside of the Asia-Pacific region, we might add a couple of important events from the last decade.
First, the disappearances of Yasser Arafat and Ariel Sharon (through death and coma, respectively) have sent the Mideast spiraling into a worsening situation, resulting in three wars (so far): Israelis vs Hizbollah in Lebanon in 2006, Palestinian Fatah vs Hamas in Gaza in 2008, and Israelis vs Hamas in Gaza in 2009.
And second, the the 2004 Beslan school massacre in southern Russia unified the Russian people behind Vladimir Putin, who is still viewed by the Russian people as almost a god.
The Diplomat Magazine now describes the major flashpoints, any of which could trigger a major war in the Asia-Pacific region.
There are 1500 missiles on China's soil pointing directly at Taiwan, and that number continues to increase. Few people doubt that China intends, sooner or later, to forcibly make Taiwan part of China again. Any political move in Taiwan that even smells of "independence" might trigger such a move by the paranoid Chinese Communist Party (CCP) leaders, and the US would immediately counterattack, leading to war.
 |
The Beijing government claims sovereignty over all islands in the South China sea, including the Spratly Islands, but those claims are disputed by Brunei, the Philippines, Malaysia, Taiwan, and Vietnam. (See "China continues massive military expansion as it announces 18% budget increases.")
This is part of a much larger naval strategy -- a plan to gain hegemony over the entire Pacific and Indian ocean regions. China is developing a "String of Pearls" -- a collection of ports that link China with the Mideast and Africa.
Completion of this "String of Pearls" strategy will bring China into direct confrontation with both India and the US.
This list of flashpoints will be very useful for sorting out which news events are significant and which are not. One of these flashpoints could well be the trigger that leads to war.
Outside of the Asia-Pacific region, other flashpoints include the Mideast and the Caucasus regions, as can be seen on the conflict risk graphic on the home page of this web site.
(Comments: For reader comments, questions and discussion,
see the 11-Jan-10 News - US threatens Israeli / Top Asian Events and Flashpoints thread of the Generational Dynamics forum. Comments
may be posted anonymously.)
(11-Jan-2010)
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And a US political realignment is proceeding.
Responding to many requests, I'm now going to set up a separate forum thread for comments and discussion for each day's article(s). The thread for today's articles is called 11-Jan-10 News - US threatens Israeli / Top Asian Events and Flashpoints.
Furthermore, you'll be able to post in these threads (only) without having to register. To limit spamming, each thread will be locked after 24-72 hours.
The Jerusalem Post reports that Israel "can manage without US guarantees," after US Middle East envoy George Mitchell hinted on Thursday that the US might end US loan guarantees.
However, Ynet news reports that an unnamed American official has backed off, saying, "It was not a threat and not an implied threat."
As part of its numerous campaign promises to save the world on January 21, 2009, the Obama administration said it would focus on the Mideast, and would bring about peace treaty between the Israelis and Palestinians. Now the administration is discovering what the Bush administration discovered: That neither side is willing make almost any real concessions at all. (See "After a week of foreign policy disasters, President Obama's entire program is adrift.")
Now the Obama administration is taking its turn at being blamed for lack of progress. An al-Jazeera editorial blames the administration's "soft-handed approach" toward Israel.
When the Bush administration released its "Mideast Roadmap to Peace" in 2003, one of the first major prediction I wrote for this web site was that it would fail. (See "Mideast Roadmap - Will it bring peace?") From the point of view of Generational Dynamics, the Mideast is headed for a major war, re-fighting the genocidal war between Jews and Palestinians that followed the 1948 partitioning of Palestine and the creation of the state of Israel.
The Boston Globe reports on a letter from a local Democratic party activist and "lifetime Democrat" who is switching his voter registration from Democratic to Unenrolled.
As reasons, he says that the "state of Perpetual War is continuing and even expanding," and the bailouts are helping banks rather than people. "The final straw was the travesty of the Health Care Insurance Reform bill," he adds.
That's just one activist, but reading a Democratic Underground web site page, you can read many activists agreeing with the letter and expressing their own anger, with almost no dissenting voices.
From the point of view of Generational Dynamics, what we're seeing is a major political realignment. Pew Research describes by saying "the public has moved in a conservative direction on a range of issues," and implies that the Republicans will gain.
But that misses the point. The Republican party isn't very popular either. For example, people across the political spectrum want health care reform, but not the loathsome, corrupt bill passed by Democrats in December. And according to a Rasmussen poll, 45% say that a random group of people from phone book would be better than current Congress.
The biggest recent manifestation of this political realignment is the "Tea Party" movement. A December Rasmussen poll found that a new "Tea Party" is more popular than the Republican party. Other polls have found high interest among Democrats for a new "Tea Party."
In 2010, expect to see an increasing realignment that will synthesize views of both parties and create a new movement of some kind.
The main topic of discussion in Sunday mornings news talk shows was the failure of President Obama to respond quickly after the nearly-successful Christmas day jetliner bombing attempt over Detroit.
There was plenty of related discussion about the growing threat of al-Qaeda in Yemen, and whether it's possible to protect airliners against future "underwear bombers."
The major political drama of the morning was over the revelation that Senate Majority Leader Harry Reid (D-NV) said privately, during the 2008 Presidential campaign, that the US would be "ready to embrace a black presidential candidate, especially one such as Obama – a 'light-skinned' African American 'with no Negro dialect, unless he wanted to have one.'"
That remark is so bizarre, I barely know what to make of it.
Democrats rushed to defend Reid, but Republican National Committee Chairman Michael Steele, who is black, pointed out that if a Republican had ever said anything like that, he would be skewered by the Democrats. That's undoubtedly true, but Steele is in trouble with his own party for making money on the side by giving speeches and writing books. His response: "Either fire me or shut up!"
Great drama!
(Comments: For reader comments, questions and discussion,
see the 11-Jan-10 News - US threatens Israeli / Top Asian Events and Flashpoints
Flashpoints"#> thread of the Generational Dynamics forum. Comments
may be posted anonymously.)
(11-Jan-2010)
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It seems like déjà vu -- it was less than a year ago that that terrorists attacked the Sri Lanka cricket team in Lahore. (See "Cricketing world in shock after attack on Sri Lanka team in Pakistan.")
Now it's the soccer world's turn. The the BBC reports that the Togo team's assistant coach are among the three killed and nine wounded by attackers with machine guns.
The bus was taking the taking the Togo team to the Africa Cup of Nations, a major African soccer tournament being held in Angola. The bus had just entered the Angola's Cabinda region, and terrorists demanding independence for Cabinda have claimed responsibility for the attack.
The world's biggest soccer tournament, the World's Cup, is scheduled to be held in Johannesburg, South Africa this summer. The attack has raised questions about whether proper security can be guaranteed this summer, but it's thought that the Togolese attack was a one-of-a-kind incident.
In fact, the Africa Cup of Nations tournament will go on as scheduled, and the BBC is reporting that, after changing their minds several times, the Togo team will participate.
(Comments: For reader comments, questions and discussion,
see the Geopolitical Topics thread of the Generational Dynamics
forum.)
(10-Jan-2010)
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As financial imbalances grow around the world, say goodbye to Saab.
Simon Johnson, MIT School of Management professor, and Peterson Institute Senior fellow, predicts financial catastrophe on CNBC:
Johnson talks about a financial "catastrophe" in the offing. He makes the following very interesting argument: The last crisis (beginning in 2007) was caused by banks that were "too big to fail" taking huge risks with other people's money.
Today, the biggest banks are even bigger, and are even more reckless than ever in taking risks. They can do this because they know that they're "too big to fail," and so they know that they can take any gamble they want: if they succeed, they'll make a lot of money, and if they fail, the government will bail them out.
Therefore, if the last crisis was caused by banks "too big to fail," then there must be an even worse crisis coming soon.
From the point of view of Generational Dynamics, this argument makes sense. The Great Depression of the 1930s made the survivors extremely risk-averse. When those survivors disappeared (retired or died) in the 1990s, they were replaced by Boomers and Gen-Xers who abused credit, causing the dot-com bubble and the credit/real estate bubble. The current crisis will not end until the new generations of Boomers, Gen-Xers and Millennials learn their lessons, and become extremely risk-averse again. The fact that they haven't yet learned that lesson is proof that the worst is yet to come. It's like an alcoholic who doesn't stop drinking until he really hits bottom.
Johnson points out the enormous hubris of these bankers. Goldman Sachs, for example, was bailed out by the government, but is just about to pay $20 billion (with a "b") in bonuses. It's amazing.
Another interesting thing about the above video is that the CNBC anchors don't believe a word that Johnson is saying. They haven't learned their lessons either.
Johnson predicts a financial crisis in China, similar to Japan's massive crash in 1990.
However, as we've written many times, a financial crash will be much worse for China, as even the Beijing government fears it will trigger a huge civil war.
The NY Times reports that wealth hedge-fund investor James S. Chanos is saying that China is in a huge real estate bubble, "Dubai times 1,000 — or worse," headed for a major crash.
In fact, a new report in China daily says that corruption is spreading throughout the grass-roots levels of China's government and state-owned enterprises (SOEs).
An interesting take on all this is to compare the generational timelines of the U.S. and China. America's Recovery era began in 1945, when WW II ended, while China's Recovery era began in 1949 when the Communist Revolution civil war ended. You can't be very precise when it comes to mapping these generational changes forward, but roughly speaking we can assume that China is a couple or a few years behind America in its generational changes. Since America's crisis began in 2007, we can assume that China is very close to a similar crisis.
A BBC report ties everything together by describing the resentment that ordinary Chinese people feel over the massive corruption. "There is widespread anger at the ostentatious lifestyle enjoyed by some Communist Party officials, police chiefs and bosses of state-owned companies," it says.
Even without Generational Dynamics, one can see that China is headed for a very substantial crisis. (See also: "Skyrocketing real estate prices in China alarm officials.")
Things are bad in America and China. Europe doesn't escape.
Eurozone unemployment is at 10%, headed for 11%. The level is at 20% for young people. Latvia is the worst off, at 22.3%. Spain is in second place, at 19.4%
European commentators call them the "P.I.I.G.S". Those are the Eurozone countries -- Portugal, Ireland, Italy, Greece and Spain -- so much in debt that they may default on their sovereign debt.
According to Lobito, a member of the Generational Dynamics forum visiting us from Portugal: "[A]lmost every one [in Portugal] is blind. I try to talk and people call me a pessimist or they say I´m too young to know anything about anything." So it seems that the Portuguese are as deeply in denial as the Americans and the Chinese are.
Euro Intelligence tells us that the EU may not bail out Greece if it's about to default. Jürgen Stark of the European Central Bank (ECB) is quoted as saying, "The markets are deluding themselves when they think at a certain point the other member states will put their hands on their wallets to save Greece."
The EU is conducting a grand experiment right now, by appearing willing to allow countries to default. If Greece or Spain or Portugal defaults on its sovereign debt bonds, then will the damage be contained? Will it spread to other countries in the EU? Will it spread to other countries around the world? Nobody knows.
Getting back to America, California and Illinois are also close to defaulting on their bonds. No one knows what effect that will have either.
I've known several people who REALLY love Saab cars, and I imagine many of them are crying in their beer tonight. But while Saab owners are merely sad, European politicians and labor unions are absolutely furious, according to a report in The Guardian. General Motors has appointed liquidators to shut down the Swedish car firm, despite the fact that two or three other firms have expressed an interest in acquiring Saab, but apparently GM didn't consider them to be serious offers.
The good news for Saab lovers is that there may be a fire sale of existing stocks of Saab cars.
(Comments: For reader comments, questions and discussion,
see the Financial Topics thread, the China thread, the Portugal thread, and the Europe thread of the Generational Dynamics forum. Read the entire
Financial Topics thread for discussions on how to protect your
money.)
(9-Jan-2010)
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Al-Qaeda is jubilant, while Jordan is embarassed.
Today we focus on the repercussions of al-Qaeda's recent terrorist acts, as we come closer to world war.
Announcing the results of an investigation of the intelligence community's failure to stop the "underwear bomber" from taking a plane to Detroit on Christmas day, President Barack Obama said:
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As we've said several times last year, Obama is increasingly adopting President Bush's foreign affairs policies, abandoning his own blundering, dithering, befuddled, unfocused approach to terrorism. This reflects the increasing fear and anxiety of the American people.
Der Spiegel says that the European left is getting worried. They're asking, "How much Bush is there in Obama?"
It took President Bush only one day after 9/11 to say we're at war. Obama has taken quite a bit longer. Just imagine what Obama would be saying today if the Christmas day attack HADN'T failed.
From the point of view of Generational Dynamics, such an event would be a "regeneracy" event, the kind of event that, during a Crisis era, regenerates civic unity for the first time since the end of the last crisis war (WW II), and often leads to full-scale war.
(For information about the term "regeneracy" and about generational eras, see "Basics of Generational Dynamics.")
You'd think that the failed Christmas day attack would be considered an al-Qaeda failure, but leaders of Al-Qaeda on the Arabian Peninsula (AQAP), headquartered in Yemen, are apparently very proud that they got a bomb into a jetliner over Detroit.
"With Allah's grace, the hero mujahid martyrdom-seeker, brother Omar Al-Farooq, carried out a quality operation on an American plane that took off from the Dutch city of Amsterdam to the American city of Detroit, while they were celebrating the Christmas holiday on Friday December 25, 2009, [an operation] which broke through all modern advanced technological equipment and security barriers in world airports, ... rubbing their noses in the dust [in humiliation], and making all they have spent upon security technologies a waste for them," according to a MEMRI translation of AQAP statements posted on web sites.
According to the statements, the attack was revenge for "the savage bombing using cluster bombs and cruise missiles that was launched from American ships that occupy the Gulf of Aden."
The leader of Al-Qaeda in Afghanistan is taking pride in the suicide bomber who killed seven CIA operatives in Kabul last week. The NY Times quotes him as saying, "He detonated his fine, astonishing and well-designed explosive device, which was unseen by the eyes of those who do not believe in the hereafter."
Just as Obama's rhetoric is increasingly talking about war, al-Qaeda is becoming energized by these two events.
The suicide bomber that killed the CIA operatives was a Jordanian al-Qaeda terrorist whom Jordan had "turned" to be opposed to al-Qaeda. He was sent to Afghanistan to serve as a double agent -- working for al-Qaeda, but reporting what he learned to the CIA. But what the CIA didn't know was that he was a triple agent -- working for al-Qaeda, spying on the CIA. He was so well trusted that he wasn't searched when he came to the CIA compound, allowing him to explode his bomb.
Jordan is greatly embarassed by the CIA link, according to a detailed analysis in The Guardian. Jordan is America's strongest Muslim ally in the Mideast, but has kept the alliance as quiet as possible. Now that the CIA link has been exposed in the worst possible way, it could have political implications for Jordan's government.
(8-Jan-2010)
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Also: Panic buying of kitty litter in Britain
Dear Reader, I'm going to try this for a while and see if it works for me. Ideally I'll produce a news summary every day, but that's probably unrealistic. I'll try to do it as often as possible.
Every day I come across one or more stories that I believe are very important (or just amusing). Often web site readers refer such articles to me. But my work schedule keeps me from writing a full article on them. The news summary will briefly cover stories that I believe are of international geopolitical or financial significance, and will provide a link to one or more articles.
The Caucasus is one of the most dangerous places in the world, since it's the nexus of centuries of wars between Muslims and Orthodox Christians. Ria Novosti reports that violence is increasing throughout the Caucasus, especially in Chechnya, Dagestan and Ingushetia.
This follows after a suicide bomber car drove into a major police station compound in Dagestan, killing 5 police officers and wounding 14 others. The carnage would have been much worse, but a quick-witted police car driver prevented the bomber from getting into the crowded areas of the compound. The CNN story has a map showing the location.
According to the Telegraph, the bitterly cold weather is causing people to stock up. Kinda makes you wish for more global warming, doesn't it.
One of the two bloodiest wars of the 1990s was the ethnic war in Bosnia and Herzegovina where an estimated 100,000 people were killed and another 2 million displaced. (The other one was the Rwanda genocide.)
A World Focus video says that kids in this region are learning history from textbooks that contain no events at all after 1990, just before the war broke out. "All possible content that could be insulting to any of the people of Bosnia was taken out of the textbooks. Most of the last 20 years of the history of our country is not in primary school textbooks," according to one Bosnian official.
"My personal opinion is that until all sides in Bosnia agree on facts about what happened in the last 20 years, I think it is good. But I hope that we will reach a time when some things could be described in the way they actually happened."
This kind of thing really fascinates me, and we've discussed it in Lebanon and Sri Lanka.
When a country enters a Recovery era following a bloody civil war, everyone walks on egg shells for fear that the war will break out again. But it can't, and won't until the next Crisis era, decades later. In the meantime, they take drastic steps like this one -- deleting 20 years of history from textbooks -- to keep anything from happening.
Ironically, this only pisses off the younger generation of kids who wonder why information is being kept from them.
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A great Der Spiegel article describes the split in Nigeria between Muslims in the north and Christians in the south. This came about because the Arabs colonized the north, and the Europeans colonized the south. Both sides are becoming more radical, and Nigeria is in the news now because the Christmas day attempted jetliner bomber comes from Nigeria.
The U.S. is imposing high duties on wire decking products imported from China, Reuters reports. This follows duties on steel pipes, that the U.S. claims the Chinese are "dumping" at unfairly low subsidized prices. The Chinese say the U.S. ignores the facts that U.S. manufacturers can't compete in today's recession world economy, and is making China a scapegoat.
On the other hand, China is threatening duties on U.S. chicken parts -- chicken feet and wings -- because they're delicacies in the China.
Everybody is thinking about the Smoot-Hawley act of 1931, where the U.S. imposed high duties on imported goods, supposedly to save jobs. The tariffs made the Great Depression worse. They destroyed the Japanese economy, and is one of the factors that led Japan, ten years later, to bomb Pearl Harbor.
A Wired article about some neat stuff (assuming that there are neat ways to kill people). Plenty of great photos.
(Comments: For reader comments, questions and discussion,
see the Financial Topics and the Geopolitical Topics threads of the Generational Dynamics
forum.)
(7-Jan-2010)
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"Operating earnings" are passé; "Normalized earnings" are in.
I normally don't want to pick on John P. Hussman, since he's one of the better financial analysts, and to be fair, he is a lot less Pollyannaish than most of the others. But his 21-Dec newsletter, "Clarity and Valuation," contains remarks about price/earnings ratios (also called "valuations") that are far off base, and introduce a new tool with which to defraud investors.
As regular readers of this web site are aware, price/earnings ratios have been above average since 1995. (See "How to compute the 'real value' of the stock market.") From about 2004-2007, the P/E ratio was around 18-20, still very expensive, and still above the historical average of about 14. (See the chart at the bottom of the home page of this web site.)
But after the credit crisis began in late 2007, earnings began falling, and P/E ratios started increasing. With the stock market rally in 2009, P/E ratios have been astronomically high, near 100. This is a remarkable and unique historical development, but you never hear or read about this on CNBC or in the Wall Street Journal. These mainstream sources make their money by advertisements from financial institutions, and financial institutions make money by selling investments, and talking about a P/E ratio close to 100 would turn off investors, so no one wants to talk about P/E ratios.
Early in 2009, we saw the ridiculous spectacle of financial commentators talking about P/E ratios based on "operating earnings," a phony earnings number that ignores many expenses. But it satisfied the needs of financial institutions who wish to make commissions and fees by investing other people's money. (See "Wall Street Journal sharply revises its fantasy price/earnings computations.")
By today, even the P/E ratios based on phony operating earnings are around 30, which is also astronomically high, so financial institutions can no longer even use those numbers.
Now we have Hussman's analysis which brings a brand new level of disinformation to the discussion. He discusses an even phonier kind of earning computation, called "normalized earnings":
According to Investopedia, "normalized earnings" are: "earnings adjusted for cyclical ups and downs in the economy" or "earnings adjusted to remove unusual or one-time influences."
In other words, you start from the phony "operating earnings," you remove even more expenses, and then you pretend that there was never a bubble. It's the height of stupidity and insanity, but that's the norm these days. If you don't like a number, then make up your own, and use that number to defraud investors.
According to Hussman, the high P/Es are "based on dividing the S&P 500 by extremely low, but temporarily depressed earnings. For example, the P/E for the S&P 500 currently is 86, because earnings have been devastated, but it would be foolish to take that figure at face value, and equally foolish to work it into a historical 'average' P/E."
So he uses this magic "normalized earnings" figure, which somehow gets the P/E ratio from 86 (for reported earnings) or 30 (for operating earnings) down to 20. Seeing this go on literally takes my breath away.
Hussman says that earnings have been "temporarily depressed" and "devastated," but it would be "foolish" to trust these earnings values. (Presumably, it's less foolish to use phony "normalized earnings.")
Of course earnings have been devastated. The credit and real estate bubbles have ended, and they're still collapsing. The high earnings were a product of the bubbles. Today's "devastated" earnings are a perfectly normal reaction, as the bubbles collapse.
The table below gives earnings per share for each year since 1988, taken from the Standard & Poors spreadsheet.
S&P 500 Reported Earnings per Share since 1988
Pre-bubble Dot-com Credit/RE Post-bubble
bubble bubble
----------- ----------- ----------- ---------------------
1988 $23.75 1994 $30.60 2001 $24.69 2008 $14.88
1989 $22.87 1995 $33.96 2002 $27.59 2009 $44.50 (Estimate)
1990 $21.34 1996 $38.73 2003 $48.74 2010 $45.50 (Estimate)
1991 $15.97 1997 $39.72 2004 $58.55 2011 $61.01 (Estimate)
1992 $19.09 1998 $37.71 2005 $69.93
1993 $21.89 1999 $48.17 2006 $81.51
2000 $50.00 2007 $66.18
These are the figures used to compute the S&P 500 P/E ratio. For example, earnings per share for the year 2007 were $66.18, and the S&P index on 31-Dec-2007 was 1468.36, and so the P/E index at that time was 1468.36/66.18 = 22.18, well above the historical average.
I've split the values into four columns, so you can see what happened. Before the dot-com bubble, a typical share earned around $20. The dot-com bubble pushed that up to $50 per share in 2000. The credit and real estate bubbles pushed the value of up $81 by 2006. Then earnings fell to $14.88 per share in 2008.
Now, $14.88 is certainly a "devastated" value, to use Hussman's word, but is it really "foolish" to take it at face value? It's comparable to the value $15.97 in 1991. That's not so long ago.
In fact, the value $14.88 is quite a reasonable value at this time, since it reflects the end of the credit and real estate bubbles. The future estimates of $45.50 and $61.01 are so unreasonable as to be fantasies, since they assume that the bubbles will be restored.
If you fit the last century's earnings into an exponential growth curve, and extrapolate that curve to 2009, then you get a trend value for about $41 for 2009. So in the absence of a bubble, you should not expect earnings per share to be above $41 for some time to come.
But it's a lot worse than that, since earnings have to fall much farther, to compensate for the bubble highs. This is the Law of Mean Reversion, which says that if a value is well above trend for many years, then it has to fall well below the trend value for roughly the same number of years. This is simple math, since it says that the average growth rate in the future will equal the average growth rate in the past.
During bubbles, there are always people who say "This time it's different." We saw this in the housing bubble, where I heard financial analysts, economists and journalists say, "Housing prices can't go down -- people have to live somewhere," and "Banks won't foreclose -- it's not in their interest to do so" and "These housing construction firms know what they're doing, and they wouldn't be building houses if it were just a bubble."
All of these arguments proved to be completely wrong, but financial analysts, economists and journalists are apparently too dumb to learn from their mistakes.
Let's see if we can give an intuitive explanation for why the earnings per share value has to fall well below the trend value (currently $41) for a long time to come.
During the dot-com and credit and housing bubbles, the following happened:
Once the bubble bursts, the above chain reaction goes into reverse.
This is why the Law of Mean Reversion works, and why it must always work. The bubble creates jobs, factories, and businesses that can no longer survive in the new world of reduced demand. This feeds on itself, and collapses the bubble even further.
The data value (earnings, in this case) can't simply return to the trend value that it would have had, if there'd been no bubble, since the bubble used up resources that have to be replenished, and that imposes costs and depresses the data value after the bubble bursts.
This is what ALWAYS happens, no matter how many times analysts claim, "This time it's different." It's NEVER different.
Some people hope that government stimulus packages can change things, but they can't change the fundamentals, and sometimes make things worse. The "cash for clunkers" program caused a temporary surge in car sales, but presumably only "borrowed" sales from months after the program ends. Many economists believe that the $75 billion program to protect homeowners from foreclosures has done more harm than good, since it causes homeowners to waste money on homes they're going to lose anyway. And in China, stimulus money is being used to create ghost towns and empty skyscrapers, pushing the price of real estate up in a new bubble. (See "Skyrocketing real estate prices in China alarm officials.")
The use of "normalized earnings" by Hussman and others is a bizarre and disturbing new development by financial analysts and journalists to hide what's going on.
But the underlying fundamentals have not changed. Since 1995, we've had a dot-com bubble, a housing bubble, a credit bubble, and a stock market bubble. We have not nearly begun to pay the full price for those bubbles, as they continue to collapse. (This article was lightly edited for clarity on 3-Jan.)
(Comments: For reader comments, questions and discussion,
see the Financial Topics thread of the Generational Dynamics forum. Read
the entire thread for discussions on how to protect your money.)
(2-Jan-2010)
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