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Generational Dynamics |
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Joint Russian/U.S. drug operation in Afghanistan criticized by Karzai
A college girl and her mother were arrested in Sanaa on Saturday, the capital of Yemen, a day after parcels containing bombs sparked a global security alert, according to Al-Jazeera.
The arrests were confirmed by Yemen president Ali Abdullah Saleh, who said, "Yemen is determined to fight terror but will not allow anyone to intervene in its affairs." This 16 word statement contained two messages to two different audiences: To the West, the message is that Yemen will fight terrorism; to the local audience, the message was that Yemen's government will not allow the United States to interfere in Yemen's internal affairs.
Even so, the U.S. administration is absolutely delighted that Yemeni officials have moved so swiftly and agressively, something that they haven't always done in the past.
The packages were found after a tip from Saudi Arabian intelligence services. One package was found on a UPS cargo plane at East Midlands Airport, north of London, the other in a FedEx facility in Dubai (United Arab Emirates), according to Haaretz.
According to the al-Jazeera article, the Dubai bomb contained the same explosive that was found in the underwear of the "Christmas bomber," who tried to blow an airplane over Detroit on December 25 of last year.
If I were a high-level "executive" in the al-Qaeda organization, I'd be really pretty pissed off right now that, after the failure of the Christmas bomber, yet another bombing attempt has failed. I assume that failures in terrorist organizations are punished not by firing the person responsible, but by beheading him.
Nonetheless, this does show the shift in the center of gravity of the al-Qaeda organization from Pakistan's tribal area to Al-Qaeda on the Arabian Peninsula (AQAP). This shift in the past has been credited to the bombing of terrorists in the tribal areas by American unmanned drones, which has caused fighters to flee to Yemen, as well as to North Africa.
On Wednesday, the chairman of British Airways criticized the U.S. for forcing international airlines to inconvenience their passengers with too much security, according to the Independent:
Martin Broughton said passengers should no longer be required to take off their shoes or have their laptops checked separately in security lines.
Britain should not be required to impose security restrictions on its own passengers that the United States did not deem necessary for domestic flights, the chairman told the annual conference of the UK Airport Operators Association in London.
His comments immediately struck a chord with many in the industry, receiving backing from airport and airline operators as well as pilots, security experts and passenger groups.
"America does not do internally a lot of the things they demand that we do. We shouldn't stand for that. We should say, 'We'll only do things which we consider to be essential and that you Americans also consider essential'," said Mr Broughton. "We all know there's quite a number of elements in the security programme which are completely redundant and they should be sorted out."
However, Broughton has become strangely silent in the last couple of days.
After China on Friday angrily canceled bilateral meetings with the Japanese, saying that the Japanese had lied, Japanese Prime Minister Naoto Kan and Chinese Premier Wen Jiabao met briefly on Saturday. The informal meeting took place in conjunction with the Association of Southeast Asian Nations (ASEAN) summit meeting being held in Hanoi. Kyodo
A number of Chinese actions in the past few months -- threats in the South China sea, Yellow sea and East China sea, and unexpectedly embargoing exports of rare earth elements -- have caused a bit of panic among China's neighbors. Thus, at the ASEAN meeting, "Chinese Premier Wen Jiabao strove to promote regional understanding and cooperation ... and in bilateral talks with Vietnamese and Australian leaders." From the point of view of Generational Dynamics, Wen is in China's Artist archetype generation (like America's Silent generation), highly risk-averse and willing to compromise. However, he's at the end of his career and younger officials will not be so conciliatory. Xinhua
A joint operation on Thursday by Russian and U.S. forces captured and destroyed thousands of pounds of high-grade heroin and opium in Afghanistan, destroying a "major hub" of drug production, about three miles from the Pakistan border. However, the operation was strongly criticized by Afghan president Hamid Karzai because he had not given permission for Russian troops to take part. The presence of Russian troops in Afghanistan is a sensitive issue, because the Russians fought a "Vietnam-style" war in Afghanistan in the 1980s. BBC
(Comments: For reader comments, questions and discussion,
see the 31-Oct-10 News -- Bomb plot shows al-Qaeda shift from Pakistan to Yemen
thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(31-Oct-2010)
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Obama administration is discussing new arms sales to China
A very dramatic scene is underway in the obscure republic of Kabardino-Balkaria, a province in southern Russia, part of the northern Caucasus.
On October 20, gun fighting broke out between rebel forces and police, in which people on both sides were killed, according to Jamestown. After the clash, about ten insurgents hid inside some 300 kilometers of underground tunnels connecting abandoned mines.
In a massive counter-terrorist operation, over 400 policemen were sent to trap the insurgents in the mines, with the objective of capturing them and preventing them from escaping.
The operation is expected to go on for several more days. However it ends, it's sure to become a part of the folklore of this region, a long-time site for the conflict between ethnic Russians and ethnic Circassians.
Rebel activity has been growing in this formerly quiet region. But that changed on July 21, when rebel terrorists attacked the Baksan hydroelectric power plant with homemade bombs, disabling the plant and causing millions of dollars in damages. It's only in the last couple of days, according to Itar-Tass, that the persons directly involved in the sabotage has been arrested.
The increased rebel activity has been energized by the selection of the resort city of Sochi, on the Black Sea, for the 2014 Winter Olympics hosted by Russia. Sochi, as it turns out, is claimed by the Circassians as their terrority, and it is the site of a major battle between Circassians and Russians in 1864, a battle that the Circassians claim was a Russian genocidal killing of Circassians. According to a 2009 article on the Circassian World web site, which promotes Circassian independence.
Circassians are almost unknown in the west, but some groups intend to change all that by means of Circassian activism between now and 2014, which ironically will be the 150th anniversary of the climactic 1864 battle, in which the Russians conquered Sochi and dispersed the Circassians.
The Obama Administration is discussing a major policy change in US-China military relations. The Chinese media has reported the possibility that the US may lift its twenty year old arms embargo on China. The Institute of Peace & Conflict Studies
A tip from Saudi Arabian intelligence led to the discovery of explosive packages on Friday on planes bound for the U.S. Associated Press
The Israelis and Palestinians are discussing an Obama administration proposal that East Palestine would be part of a Palestinian state, but Israel would lease the land for 40 to 99 years. Haaretz
Ministers from Japan and China had planned to meet during a conference being held in Hanoi with the objective of patching up some of the ill will between the two countries. But China canceled the meeting, claiming that Japan lied about China agreeing to resume talks with Japan on exploration for oil and gas in the East China sea. Bloomberg
The EU has set in motion a divisible battle to modify the Lisbon Treaty to include penalties for any nation failing to meet maximum deficit requirements. The proposal that offending nations would lose voting rights is off the table for now, and the exact penalities have yet to be agreed. All 27 EU nations would have to agree. Reuters
French public union workers voted on Friday to end their walkouts at the country's oil refineries, after the pension reform that will raise the retirement age from 60 to 62 was passed by both houses of Parliament. NY Times
(Comments: For reader comments, questions and discussion,
see the 30-Oct-10 News -- Caucasus terrorism / politics becomes embroiled in 2014 Olympics
thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(30-Oct-2010)
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Russia may be drawn back into the war with Afghanistan
When the EU bailed out Greece in May (see "11-May-10 News -- Europe's super-nuclear bailout"), it was thought that the country's budget deficit for 2009 was 13.6% of the gross domestic product (GDP). In fact, that was the figure published by Eurostat, the European Union's statistical agency.
The official common story line adoped by the EU and Greek politicians was that Greece would lower this percentage to 8.1% in 2010, and even lower in subsequent years, and would avoid default. No one with a shred of honesty actually believed this nonsense, but we're talking about politicians, so dishonesty is the norm anyway.
Eurostat did a thorough audit of Greece's finances, and was scheduled to publish a report on Friday, October 22, updating the 13.6% figure to a completely accurate figure. But on October 22, Eurostat announced that it would have to delay the report until mid-November, according to Dow Jones.
It's assumed that there are political reasons for this postponement, since it came amid rumors that the new 2009 deficit figure would be 15.5% of GDP, sharply higher than Eurostat's previous 13.6% figure.
And now, on Wednesday, the NY Times quoted sources saying that the 2010 defit will be 8.9% of GDP, rather than 8.1%.
Lowering the budget deficit from 15.5% to 8.9%, if that can be accomplished at all, would be a significant feat, and a measure of how severe the austerity measures were that have been put into place since the bailout.
Nonetheless, this news caused Greek ten-year bond prices to fall, and yields (interest rates) to rise to 10.3% from 9.3%, figures that are around the crisis levels that led to bailout in the first place. However, Greece is relatively immune from crisis for a year or two, since they can borrow money from the EU at a little more than 5%.
You know, people think that lying politicians are cute and amusing, but do no real harm. But this little story shows how much damage they do. Any widows and orphans who invested in Greek bonds, believing the politicians who said that Greece would avoid default, are going to lose a lot of money.
Unfortunately, all of these situations are like going to the dentist. Nursing your aching tooth just makes things worse, so you might as well go to the dentist and get it over with. The same is true of accepting the reality of what Greece is going through. By continuing to lie, the politicians are only making what's coming worse.
Not just Greece but all the PIIGS countries (Portugal, Ireland, Italy, Greece, Spain) are all under the microscope.
Greece did institute fairly severe austerity measures, but the politicians in Portugal are refusing to do so. It had been hoped that Portugal could avoid a Greece-style bailout on its own, but austerity talks in Portugal collapsed have collapsed, according to Reuters.
Budget talks had been proceeding between the governing Socialist party and the main opposition Social Democrats (PSD) party, but no further talks are planned after the collapse on Wednesday.
There is still a budget vote to be taken, and if the budget is not passed by November 3, then Portugal will be in a crisis and forced to seek international aid.
Portuguese bond yields are still well below those of Greece, but they've been increasing and reached 3.28%.
The dire financial situations in Greece and Portugal have had a domino effect on Irish bonds, according to the Irish Times. Irish bond yields spiked to 6.68% on Wednesday and 7.2% on Thursday, as investors once again begin to lose faith in the entire euro currency experiment.
The spectacle of eurozone countries with collapsing finances has caused leaders of France and Germany to demand punitive measures for some countries. They want to create a permanent system for handling financial crises like Greece's debt collapse, according to Reuters, so that nothing like that will ever, ever, ever happen again. This will require changing the Lisbon treaty, which is currently the highest law allowing a central government for the European Union.
Long-time readers of this web site will recall that because of deep-seated historical differences in Europe, the European constitution would never be ratified. That turned out to be true, but I also believed that its weaker replacement, the Lisbon treaty, would never be ratified either. So I was quite surprised when it was ratified, although it was done by a process of extortion very similar in spirit to the way that the health care bill was passed in the U.S. Congress.
It's highly doubtful that a similar process of extortion will work again, so European leaders are looking for ways to change the Lisbon treaty without requiring all 27 EU nations to ratify the changes. The above Reuters article describes various scenarios that the EU lawyers are considering so that they can change the Lisbon Treaty without anyone actually having to vote on the changes.
Germany is particularly adament about wanting to punish member states that flout budget rules, since Germany has the best economy in the EU, and since the German population was absolutely furious at being forced to bail out Greece last spring, as they were the biggest contributors to the bailout.
In particular, what Germany wants is to change the Lisbon treaty to have a member state's EU voting rights suspended if they did not meet the budget requirements, according to Spiegel.
This is actually a breathtaking proposal. Imagine if the United States denied voting rights in the Senate to Senators from California and Illinois because of their desperate budget situations.
It seems pretty clear that if such a change to the Lisbon treaty were somehow engineered, it would infuriate Greece, Portugal, and the other PIIGS countries, as well as Britain and France, who are also in violation of the EU's budget rules.
This proposal is being discussed this week at an EU summit. If it somehow survives the summit, it's going to lead to a very bloody political battle.
Of course, lying and extortion are not unique to Brussels. There's plenty of it in Washington and on Wall Street as well, where many people are claiming that the world will be saved by "QE2," a new proposed Federal Reserve quantitative easing program of hundreds of billions of dollars.
Jeremy Grantham's October newsletter (PDF) provides an excellent explanation why the program will not work. Here is the summary from the newsletter:
2) Therefore, lowering rates to encourage more debt is useless at the second derivative level.
3) Lower rates, however, certainly do encourage speculation in markets and produce higher-priced and therefore less rewarding investments, which tilt markets toward the speculative end. Sustained higher prices mislead consumers and budgets alike.
4) Our new Presidential Cycle data also shows no measurable economic benefi ts in Year 3, yet point to a striking market and speculative stock effect. This effect goes back to FDR, and is felt all around the world.
5) It seems certain that the Fed is aware that low rates and moral hazard encourage higher asset prices and increased speculation, and that higher asset prices have a benefi cial short-term impact on the economy, mainly through the wealth effect. It is also probable that the Fed knows that the other direct effects of monetary policy on the economy are negligible.
6) It seems certain that the Fed uses this type of stimulus to help the recovery from even mild recessions, which might be healthier in the long-term for the economy to accept.
7) The Fed, both now and under Greenspan, expressed no concern with the later stages of investment bubbles. This sets up a much-increased probability of bubbles forming and breaking, always dangerous events. Even as much of the rest of the world expresses concern with asset bubbles, Bernanke expresses none. (Yellen to the rescue?)
8) The economic stimulus of higher asset prices, mild in the case of stocks and intense in the case of houses, is in any case all given back with interest as bubbles break and even overcorrect, causing intense fi nancial and economic pain.
9) Persistently over-stimulated asset prices seduce states, municipalities, endowments, and pension funds into assuming unrealistic return assumptions, which can and have caused fi nancial crises as asset prices revert back to replacement cost or below.
10) Artifi cially high asset prices also encourage misallocation of resources, as epitomized in the dotcom and fi ber optic cable booms of 1999, and the overbuilding of houses from 2005 through 2007.
11) Housing is much more dangerous to mess with than stocks, as houses are more broadly owned, more easily borrowed against, and seen as a more stable asset. Consequently, the wealth effect is greater.
12) More importantly, house prices, unlike equities, have a direct effect on the economy by stimulating overbuilding. By 2007, overbuilding employed about 1 million additional, mostly lightly skilled, people, not counting the associated stimulus from housingrelated purchases.
13) This increment of employment probably masked a structural increase in unemployment between 2002 and 2007, which was likely caused by global trade developments. With the housing bust, construction fell below normal and revealed this large increment in structural unemployment. Since these particular jobs may not come back, even in 10 years, this problem may call for retraining or special incentives.
14) Housing busts also help to partly freeze the movement of labor; people are reluctant to move if they have negative house equity. The lesson here is: Do not mess with housing!
15) Lower rates always transfer wealth from retirees (debt owners) to corporations (debt for expansion, theoretically) and the fi nancial industry. This time, there are more retirees and the pain is greater, and corporations are notably avoiding capital spending and, therefore, the benefi ts are reduced. It is likely that there is no net benefi t to artifi cially low rates.
16) Quantitative easing is likely to turn out to be an even more desperate maneuver than the typical low rate policy. Importantly, by increasing infl ation fears, this easing has sent the dollar down and commodity prices up.
17) Weakening the dollar and being seen as certain to do that increases the chances of currency friction, which could spiral out of control.
18) In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment."
In other words, the only effect of "QE2" will be to push the stock market up into even higher bubble territory, and one day that bubble will burst.
From the point of view of Generational Dynamics, a major financial crisis is overdue. It may be triggered by a some kind of collapse in Europe or some kind of collapse on Wall Street ... or a collapse somewhere else, leading to a domino effect. It's impossible to predict what will trigger it, but the fact that it's coming is absolutely certain.
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Russian Prime Minister Vladimir Putin triggered speculation on Wednesday in a visit to Kiev Ukraine. He was wearing heavy makeup, but it wasn't enough to hide the dark bruises beneath his eyes. Putin's spokesman said that the appearance was simply caused by tiredness, according to the Kyiv Post.
While he was in Kiev, negotiating a treaty to keep Russian ships in the Black Sea port of Sevastopol, he was met by topless women from a feminist group demanding that Putin not interfere in Ukraine's business.
The Soviet Union fought a "Vietnam-style" war in Afghanistan in the 1980s, and was finally driven out by the Taliban mujahadeen. But now Russia and Nato are developing a closer relationship, and this may cause Russia to be drawn back in to the Afghanistan war, in support of Nato coalition troops. Guardian
Despite many reforms that have been implemented by the government over the past few months, including a crackdown on tax evasion and on graft in the public sector, Greece is still perceived as the most corrupt state in the 27-member European Union, according to the corruption index published by Transparency International. Kathimerini
Foreign aid to Haiti that followed January's earthquake has itself been something of a disaster for Haiti, as it failed to create any permanent jobs or industries, and has robbed the government of legitimacy. Reuters
Recent news reports that Iran has been supplying "bags of money" to President Hamid Karzi of Afghanistan have raised the ire of opposition leaders in Iran, who are demanding an explanation. Eurasia Review
The border separating Yemen from Saudi Arabia is extremely porous, and is posing a security threat to Saudi Arabia. Al-Qaeda on the Arabian Peninsula (AQAP) is headquartered in Yemen, and has successfully targeted the Saudi leadership through terrorists crossing the border. Also, rebel groups in northwest Yemen, possibly being funded by Iran, fought with the Saudi army after crossing the border. Saudi Arabia is being to take the border more seriously, to combat drug smuggling and to prevent hundreds of thousands of migrants from crossing. NY Times
India’s Prime Minister Manmohan Singh said he will ask the central bank to learn more about Islamic finance from Malaysia, which has the world’s biggest market for Shariah-compliant debt. Experts are recommending that Indian banks experiment with Islamic finance in order to attract more capital. Bloomberg
Russia is facing a potential demographic catastrophe unique in the world for a relatively developed country. The birth rate is falling, as it is in many western countries, but what makes Russia different is that the death rate is soaring. Experts are puzzled by the cause. Eurasia Net
Just as mysteriously as China started its recent embargo on exporting rare earth minerals, China abruptly and mysteriously ended the embargo on Thursday. The decision came a day and a half after Secretary of State Hillary Rodham Clinton announced plans to visit China on Saturday. NY Times
Will Facebook kill people during a flu pandemic? That's the fear of U.S. government officials, who fear that social media sites will spread dangerous rumors. "We were terrified about what was going to happen with the flu pandemic and social media," says one official. Social media is a place where a lot of rumors can start about what causes flu. We had an untested, never-tried-before vaccine that we developed. One wrong thing on Facebook or Twitter and a whole bunch of people in this country--especially children and pregnant women, that's who this disease targeted--could die." Fierce Government IT
Paul the Octopus, who correctly predicted the outcome of eight World Cup soccer matches this year, has died. Devastated Germans will build a memorial to him. Spiegel
(Comments: For reader comments, questions and discussion,
see the 29-Oct-10 News -- EU appears near another financial crisis point thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(29-Oct-2010)
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France is braced for a new strike on Thursday
As we reported yesterday, China's export restrictions on rare earth minerals (REEs) are considered by many international officials to be China's revenge for the arrest of the fishing boat captain last month, and even for the selection of a Chinese dissident as winner of the Nobel Peace Prize.
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China produces over 90% of the world's supply of rare earth minerals (REEs). REEs are not particularly rare, but they are expensive to mine because of labor costs and poisonous byproducts that pollute the environment, according to an analysis by Market Oracle.
Apparently, the current situation is due to the foresight of former Chinese leader Deng Xiaoping, according to Global Post. In the 1980s, he put the country on track to be the world leader in development of REEs, though some say it was by taking advantage of China's cheap labor costs and weak environmental laws.
The REE controversy is a boon for Australian mining companies that still produce them, according to the Sydney Morning Herald. Prices are going so high, according to the article, that a new bubble has been created, and it's likely to burst at some point.
Other countries, including the U.S., couldn't compete with China on price, and they simply stopped developing REEs in the 1990s and the early 2000s.
One American supplier, Molycorp Inc., has a mine in Mountain Pass, Calif., that was closed almost ten years ago, and could reopen, but it would take four years. Other suppliers might require up to ten years.
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On the other hand, India has now decided to restart production of REEs for the first time since 2004, according to Reuters, and expects to be in production in 2011. India hopes to meet Japan's need for REEs as quickly as possible. This is part of a Comprehensive Economic Partnership Agreement (CEPA) signed by Prime Minister Manmohan Singh and his Japanese counterpart, Naoto Kan.
This agreement is significant for a number of reasons, according to an analysis by Asia Times. Japan is eager to develop a strong trading relationship with India these days, but that wasn't the case a few years ago. Until recently, Japan complained of bureaucratic bottlenecks and corruption in India, but China's actions on REE's seem to have turned things around.
When we look back at this controversy five or ten years from now from the point of view of Generational Dynamics, it may turn out to have spiraled into something big, or it may have fizzled into nothing. What makes it interesting now is that it supports the overall expected trend. The prediction is that we're headed for a new world war with China, as the mutual xenophobia between China and the West continues to grow. Thus, we expect Japan to be allied with India and the U.S., and China to be allied with Pakistan.
A part of the CEPA agreement mentioned above between Japan and India is that Japan may be investing in nuclear power plants in India. This would have been unthinkable a few years ago, because of Japan's post WW II nonnuclear policy, having been the target of nuclear weapons in 1945. But the generations of survivors of that attack are now pretty much gone, and Japan may conclude a nuclear deal with Japan.
At the same time that's going on, the United States has asked Pakistan to provide more information about a civilian nuclear agreement that they've concluded with China, according to the Times of India.
France is braced for a major public union strike on Thursday, protesting raising the retirement age from 60 to 62. However, both houses of Parliament have passed the reform, and only procedural steps are required before the bill becomes law, probably next week. Unions have had to back down from their strike actions in recent days, and Thursday's strike is the fifth, and possibly the last. Bloomberg
The European Union is headed for a major economic summit on Thursday, following up from last spring's bailout of Greece. However, there are deep divisions on the way to proceed, and France and Germany are proposing major changes to governance of the EU that would require renegotiation of the Lisbon Treaty. AFP
(Comments: For reader comments, questions and discussion,
see the 28-Oct-10 News -- Rare earth minerals controversy creates new alliances thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(28-Oct-2010)
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Obama administration is becoming more confrontational with China
From China's point of view, ceasing exports of rare earth minerals makes a lot of sense outside of ideology. China needs these minerals for its own manufacturing as much as any other countries do, so the Chinese might well reason that they want to keep all of these resources available for themselves.
However, the way events played out, it appears that the Chinese are motivated entirely by revenge and ideology. The result is increasing international polarization.
Rare earth elements have to be extracted from mines, in the way that copper and iron ore are extracted, but as the name implies, they're much harder to find and extract. There are 17 metals in this category, according to Reuters, all with the names that end in "ium." The ones in biggest demand are dysprosium, terbium, neodymium, praseodymium and europium.
Rare earth elements are used in electronic devices, everything from the iPhone to hybrid cars to to military weapons. There is some concern that the U.S. military is particularly dependent on China's rare earth mineral exports.
The rare earth export ban began as an act of revenge by China following the incident last month where a Chinese fishing boat captain was arrested by the Japanese following a confrontation in waters disputed by both countries. The Japanese backed down in order to avoid antagonizing the Chinese further, but Beijing overreacted enormously. (See "26-Sep-10 News -- China turns the screws on a humiliated Japan.")
China demanded a formal apology and compensation, embargoed exports of rare earth minerals to Japan, and made additional threats. After a few days, it became clear that China had quietly embargoed rare earth mineral exports to other countries as well.
Germany is a country that depends on imports of most of its raw materials, and has been hit particularly hard by China's embargo. Germany is calling for increased international regulation of the market for rare earth minerals, according to Associated Press, and is appealing to the World Trade Organization for help.
From the point of view of Generational Dynamics, this is just one small incident in what will be an increasing number of incidents, as the level of xenophobia between China and western countries continues to increase. With almost all of these countries in a generational Crisis era, at some point, one of the incidents will cross a line that can't be ignored, and the result will be war.
The Obama administration is no longer courting China, but has been taking an increasingly confrontational stance on such issues as exchange rates, and trade and security issues. The change in attitude reflects the current view that China has no intention of working with the United States. This is one more sign of the increasing xenophobia between China and the U.S. NY Times
Home prices in Hong Kong have almost doubled since the start of 2009, making it impossible for Hongkongers to afford a home. The price bubble is being caused by China's mainland speculators who see Hong Kong real estate as a good investment opportunity. But officials are increasingly worried that the bubble will burst. Asia Times
Turkey's role as a member of NATO is going to come under stress at the NATO summit meeting on November 16, particularly on the issue of the plans for a NATO missile shield to protect Europe from possible future nuclear missiles from Iran. Turkey has been developing closer relations with Iran, and has opposed sanctions against Iran, and will probably oppose the missile shield at the NATO summit. EurasiaNet
Osama bin Laden has been searching for someone to take over his own leadership role, and he's found Ilyas Kashmiri, and 46 year old terrorist with the experience, the connections, and a determination to attack the West -- including the United States, making him the most dangerous al-Qaeda operative to emerge in years. He's hiding out in Pakistan's tribal areas, and both Pakistanis and Americans are trying to find him. Pakistani officials fear that if Kashmiri carries out another major attack on India or in the West, their country could suffer massive retaliation. Newsweek
There's another immigration issue in Europe. Immigrants have been pouring into Greece from Turkey and many are put into prisons and camps that a UN investigation charges are "inhuman, degrading and dysfunctional." Greece has asked the EU for help, and the EU will deploy border patrols in Greece to try to stop the increasingly high numbers of immigrants crossing over. In addition, Greek premier George Papandreou and Turkish Prime Minister Recep Tayyip Erdogan have agreed to work together to solve the illegal immigration problem. At a joint press conference, Papandreou said that a "xenophobic climate" is being cultivated in Europe and hoped that bilateral co-operation with Turkey would help alleviate the trend by reducing the wave of migration. Greece and Turkey have been bitter enemies for millennia. EU Observer
In fact, anti-Muslim and xenophobic feelings are growing in Europe, and are propelling right wing policy. Washington Post
(Comments: For reader comments, questions and discussion,
see the 27-Oct-10 News -- Rare earths controversy polarizes China's relations thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(27-Oct-2010)
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U.S. Treasury sells bonds with negative yield for first time in history
On Monday evening, I was moderator for a debate between three candidates running for the office of town representative from Framingham, Massachusetts, to the legislature on Beacon Hill.
I used to live in Framingham until last year, when I moved to Cambridge. It's an interesting town for several reasons, one of which is that it's still a town, and still has town meetings instead of a mayor. In fact, Framingham is the largest town in the United States.
Framingham is located about 25 miles west of Boston. It's the target of unending snobbery by the reporters at the major newspapers of the area, the Boston Globe and the Middlesex News, who consider the wealthier municipalities such as Wellesley and Wayland to have superior people. Still, Framingham is a great place to live, with great schools and great shopping.
You would think that the economy was the most important topic in the debate, but actually it wasn't. The questions that came in from Framingham residents were only tangentially related to the economy. People seem to have resigned themselves to a bad economy, and that there's nothing that any candidate can do about.
The issue that dominated the debate was immigration or, as I describe it frequently on this web site, xenophobia.
However, the target of the xenophobia was not Muslims or Roma Gypsies or Mexicans. The target is Brazilians, because Framingham has a large community of Brazilian immigrants, including a significant number of illegal immigrants.
As I was sitting there moderating, presenting the questions and listening to the answers, I was struck by how the debate going on in that little room between those three candidates was a microcosm for the debates going on in the entire world.
On a global basis, the first point to be made is that the xenophobia story is not just about Muslims. The issue everywhere is about immigrants of any kind.
The second point is that the issues are always the same -- immigrants take jobs, immigrants go on welfare, immigrants cause crime.
And of course, both sides have valid points. Immigrants complain of incessant discrimination, but many immigrants are also very contemptuous of the societies that they live in. In many cases, immigrants are so contemptuous of their hosts that they consider crime against their hosts to be completely acceptable. The local populations return the favor by increasingly being contemptuous of all the people in the immigrant community.
Some people may argue that Muslims ARE a special case because they attacked America on 9/11/2001. That's certainly true, but as far as I can tell, that attitude is much less true in Europe than it is in America. There's a lot of xenophobia in Europe directed at Muslims, but what people say is very similar to what they say about the Roma Gypsies, and sometimes even the Jews.
On the other hand, Europeans have a different view of terrorist acts. Europeans are well aware that home-grown groups, including the Irish Republic Army and Basque separatists, have also perpetrated terrorist acts.
For example, from the point of view of someone in Great Britain, at around the time that Muslims were committing the 9/11 attacks, the Irish Republican Army was the real danger. Here's a list of terrorist attacks in Great Britain since 2000, that I've taken from Wikipedia:
Thus, someone in Great Britain might credibly argue that Islamist terrorists are less dangerous than IRA terrorists.
As I've said many times, from the point of view of Generational Dynamics, xenophobia of all kinds is increasing around the world, as the survivors of World War II disappear.
The generations of survivors of WW II remembered how xenophobia in the 1930s led to the greatest world war in history, and they vowed to spend their lives preventing anything like that happening again. But now those people are gone. Xenophobia in all forms is increasing around the world, and it's going to lead to another world war.
For the first time in history, bonds issued by the U.S. Treasury were in such heavy demand that purchasers push the bond price up high enough so that the yield (interest rate) was negative, at -0.55%, according to Bloomberg.
Imagine that you have a few million dollars sitting around, that you'd like to put somewhere safe. You could invest in stocks, but stocks are too risky. You could deposit it in the bank, but the FDIC only insures $200,000 or so. You could put the money into your mattress, but you'd be afraid of being robbed.
The best solution would be to purchase Treasury bonds. Normally, you would expect to receive interest payments, but not the bonds that were sold on Monday. In that case, you have to pay the Treasury interest for taking your money.
Admittedly, it's more complicated than that. These are TIPS bonds -- Treasury Inflation-Protected Securities -- which means that the bonds will pay more in case of inflation in the years to come. Thus, investors are willing to accept negative interest rates in the hope that inflation rates will be high.
However, as I've been saying for eight years now, that's a false hope. The economy is in a deflationary spiral, and the hyperinflation that investors are hoping for will not occur.
Interest rates have been close to zero for most of those eight years, and pundits have been predicting (hyper)inflation for most of those eight years. For these pundits, hyperinflation is like prosperity: They're both right around the corner.
Negative yields are a sign of a continuing deflationary spiral. A negative interest rate means that investors are willing to pay to keep their assets in cash, which means that they expect cash to become more valuable, which is what deflation means.
Both houses of France's parliament are expected this week to pass the final form of pension reform legislation that will raise the retirement age from 60 to 62. Public sector union workers who have virtually shut down France's refineries for the last few weeks are now returning to work, and three of the twelve refineries are now reopening. In addition, the port of Marseille has been blocked for weeks, and leaving dozens of oil tankers anchored in the harbor waiting to dock. The blockade has now been lifted, and the oil tankers are beginning to unload their cargoes. France 24
A new dispute has broken out between the Israelis and the Palestinians. Over the weekend, Israeli Prime Minister Benjamin Netanyahu warned the Palestinians not to take unilateral states to achieve statehood by going directly to the United Nations to request an international mandate. Netanyahu's warning has pissed off the Palestinians, who say that Israelis should not lecture the Palestinians, in view of their record. Meanwhile, the peace talks are still on hold, since September 26 when the moratorium on West Bank settlements expired. It's believed that the Obama administration is operating behind the scenes in an attempt to bring about a compromise, and get the big peace deal in the sky. VOA
Another Sufi shrine has been attacked by Sunni Islamist terrorists in Pakistan, this time in central Pakistan in the province of Punjab. Al-Qaeda linked terrorists have been attacking Shia and Sufi shrines for months. Daily Times (Pakistan)
Joint military operations between the U.S. and South Korea, with exercises planned for the Yellow Sea this month, have been postponed. According to the South Koreans, the exercises were delayed in order not to antagonize the Chinese and North Koreans, prior to the G20 summit in Seoul on November 11-12. But the Pentagon denies this, and says the delay is caused by scheduling snags. Reuters
China's recent decision to suspend export of rare earth minerals has spurred Japan and India to expand their bilateral ties in research, development and recycling of rare earth minerals and metals. This is an interesting development, because it supports the view that in the coming Clash of Civilizations world war, India and Japan will be allied against China. The Hindu
(Comments: For reader comments, questions and discussion,
see the 26-Oct-10 News -- Xenophobia in Framingham, Massachusetts thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(26-Oct-2010)
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H1N1 swine flu virus mutates in Australia
Observers are breathing a sigh of relief that Bahrain's parliamentary election on Saturday went smoothly, and that there are no threats of violence in the aftermath, so far.
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Bahrain is an important American ally because it houses America's Fifth Fleet, and because it's a major financial center in the Mideast.
However, the country is governed by Sunni Muslim officials, while 2/3rds of the population are Shia Muslim. Iran has been stirring up trouble recently, and claims Bahrain is part of Iran, as I described last month in "20-Sep-10 News -- Unrest grows in Bahrain over Shia 'terror network' arrests."
The election has been closely watched in the Arab community, and the verdict seems to be that it was a great success, according to the Arab News.
According to the article, "The international media had access to all election booths on Saturday and the journalists were free to speak to anyone they wanted. The whole exercise was quite transparent and beamed live on state television. All key ministers were at hand and more than willing to answer difficult questions from the media, indicating the government's confidence in carrying out this important democratic exercise."
The opposition party Al-Wefaq, which represents the Shia majority, gained an additional seat in the National Assembly, though they're still in the minority.
Although the election was successful, severe sectarian divisions remain, according to Geopolitical Monitor and Global Research, and Iran is certain to continue to exploit them.
Since it broke out in March, 2009, and spread around the world, the H1N1 swine flu virus has been very stable, with almost no mutations. However, it may now be starting to mutate, as a new form has begun to predominate in Australia, New Zealand and Singapore, where the winter flu season is just ending. Fox News
However, as the flu season begins in the northern hemisphere, the number of deaths from pneumonia and flu has spiked much higher than usual in the U.S. The H1N1 swine flu virus normally targets younger people, since older people are protected by antibodies made during the H1N1 flu outbreaks in the 1950s. Thus, a peculiar thing happened in 2009: The H1N1 flu virus "crowded out" the normal seasonal flu, and the result is that fewer old people died from flu in 2009. This means that old people are at higher risk in the new flu season, and this might explain the spike in deaths. Recombinomics
Anti-Japan protests in China continued on Sunday. The police broke up demonstrations by hundreds of protestors unfurling banners and demanding a boycott of Japanese products. There was no violence. Reuters
For 17 days after the Chile miners were trapped, nobody knew whether they were dead or alive. Then one of the miners attached a note to a probe. The note read, "Estamos bien en el refugio los 33" ("We are okay in the refuge, the 33 of us"). This note is being declared a work of art, and the phrase has been copyrighted in the name of its author, Jose Ojeda. BBC
(Comments: For reader comments, questions and discussion,
see the 26-Oct-10 News -- Observers breath sigh of relief at Bahrain election thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(25-Oct-2010)
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Palestinians will give the peace process more time
Last week I posted an article, "19-Oct-10 News -- Analyst John Mauldin is turned by the foreclosure issue," in which I quoted a newsletter from financial analyst John Mauldin.
In that newsletter, Mauldin quoted a lengthy personal letter that he received from another financial analyst, David Kotok.
Kotok, in turn, quotes an e-mail message he received "from sources that are in the financial services business and with whom I have a personal relationship. The original text was laced with expletives and I would not use it in the form I received it." He adds that, "The writer shall remain anonymous." Kotok also put the text of the message on his own web site.
Well, apparently Kotok took the text from the web site of yet another financial analyst, Gonzalo Lira. Lira accuses Kotok of plagiarism, and provides links to support the charge, and then accuses Kotok of trying to cover it up.
Lira adds, "If Mr. Kotok would so foolishly plagiarize from an obscure, insignificant blogger in order to look good—and then lie about it to cover his tracks—then one has to wonder what other actions he would commit, in order to look good."
I can see ways that this could have been an innocent mistake by Kotok, or even that he himself was duped by the person who sent him the e-mail message, but Lira seems convinced that it was deliberate plagiarism.
I remember how I used to be really harshly castigated, 4-5 years ago, for talking about widespread fraud, and how a lot of people in real estate and banking were crooks. Some people were furious with me for being so accusatory, especially of Generation-Xers, and some people thought I was mentally ill (which I may well be). One person said, "You think everyone's a crook? You're really sick."
And yet, here we are in 2010, and everything I said 4-5 years ago was an understatement. As can be seen from yesterday's posting, "23-Oct-10 News -- Foreclosure crisis will cost $10 trillion," the amount of widespread fraud among the bankers and the government regulators is beyond belief.
I was particularly struck by the William Black's statistics: During the 1980s savings and loan crisis, thousands of people were criminally referred by regulators, while during this crisis, which is 40 times bigger, not one single criminal referral has been made. And the FBI is actually in league with the Mortgage Bankers Association, the perpetrators of the fraud.
And what really gets me is that these bankers still think they deserve million dollar bonuses. These f-----g b-----ds still believe that they're doing such a good job at screwing the public that they should receive unlimited rewards for doing so.
It sounds almost like a teenager ranting when I say that Wall Street and Washington are being run by crooks and liars, but the level of fraud and corruption going on today isn't remotely close to anything that's happened in my lifetime.
So, did David Kotok intentionally plagiarize from Gonzalo Lira? Ten years ago, I would have given Kotok the benefit of the doubt. But today I could easily believe that he's a crook screwing his clients. What does he say about price/earnings ratios? That might tell us something about him.
An Israeli anti-settlement group is saying that since the since settlement moratorium expired on September 26, Jewish settlers have begun building 600 settlement homes -- four times the rate as before the moratorium. Both the U.S. and the U.N have condemned the settlement building. VOA
A top Palestinian Authority negotiator says that the Palestinians have not abandoned the peace process, and are not ready to fulfill previous threats, including the threat to ask the United Nations for an international mandate for a Palestinian state based on Israel's pre-1967 borders. Nor has Mahmoud Abbas stepped down as Palestinian president, as he had threatened to do if the moratorium were not extended. The Palestinians will give the Obama administration additional time to bring about a compromise solution. Jerusalem Post
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The picture on the right was part of the article that I wrote on Haiti in 2004. Haiti's environment has never improved since then, and became much worse after the recent earthquake flattened much of the country. Now, a deadly epidemic of cholera is spreading rapidly through Haiti, and has killed almost 200 people already. Miami Herald
China has started an online mapping service to compete with google maps, sohu.com and other mapping services. http://tianditu.cn will particularly focus on China's geography. Bloomberg
As the law to raise France's retirement age from 60 to 62 nears passage, France is being hit by the worst strikes in 15 years. The city of Marseille is almost completely shut down, with garbage filling the streets, petrol unavailable, streets blockaded by abandoned cars, and ships unable to dock. A poll of French people shows that a majority support the strike -- but oppose shutting down the services that they personally depend on. Telegraph
As Russia's economy deteriorates, it is becoming increasingly depending on economic integration with China. However, new strains are emerging in military relationships between Russia and China, especially as China pirates Russia's weapons designs and invades Russia's markets. Jamestown Foundation
Relations between Japan and China remain tense, as anti-Japan riots and demonstrations continue in China. Japan Times
Why can't middle-aged women have long hair? NY Times
(Comments: For reader comments, questions and discussion,
see the 24-Oct-10 News -- The mysterious case of David Kotok thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(24-Oct-2010)
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William Black: Despite massive fraud by bankers, no one is being charged
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.
I've quoted him before, comparing today's investigations into the mortgage crisis to those he led in the early 1990s. He appeared on Bloomberg TV on Friday and made some remarks that are worth quoting.
Black says that the current mortgage crisis is 40 times as bad as the 1980s savings and loan crisis, in two different ways:
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The second thing is the savings loan crisis didn't cause any macroeconomic disaster, didn't cause a recession, much less a great recession that came very close to being the second great depression."
Black says that the evidence is overwhelming that massive fraud has occurred:
This is really an amazing charge, though it's not surprising. It's amazing because Black backs it up with plenty of evidence, and it's not surprising because we've known for a long time that something like this was coming.
Black also gives some amazing statistics about criminal convictions:
There are NONE now. The regulators have to serve as the sherpas to have successful criminal prosecution. We've got to do the heavy lifting, and we have to do the guide function, because the FBI can't possibly do this on its own.
Next thing that has to be done - the FBI formed a partnership with the Mortgage Bankers Association -- that's the trade association of the perps."
This shows the difference between the Silent generation, who were still in charge at the time of the S&L crisis, and the Boomers and Gen-Xers, who are in charge today. Thousands of people were charged and convicted in the S&L crisis, while NOBODY is being charged and convicted in today's crisis, which is 40 times larger.
I wanted to check out Black's last sentence -- about the FBI forming a partnership with the Mortgage Bankers Association (MBA), which he calls the trade association of the perpetrators. I found references to it on the FBI web site and the MBA web site.
Both of these references continued the evidence of a bizarre farce. The people in the FBI and MBA who are dealing with this problem are incompetent criminals themselves.
The original March 2007 notice on the FBI web site says that:
I had to read this three or four times before I could convince myself that I was understanding what I was reading. The FBI and MBA are combatting mortgage fraud by allowing a one-page FBI notice to be used by the MBA for educational purposes. Click here for a PDF of the notice.
Are we dealing with children here? Do these people think that a one-page notice is actually going to make some difference?
Next, the MBA site has a page on mortgage fraud that contains a reference to the same agreement.
Here's the definition of mortgage fraud:
You can see here why Black is condemning this ridiculous agreement.
This definition of "mortgage fraud" makes the bankers into the victims, when they're the principal perpetrators.
I don't know what to say about all this, Dear Reader. I'd like to come up with some reasonable explanation, but all of this is so completely preposterous that there are no words to describe it.
All I can say is that we're dealing with crooks at the FBI and crooks at the MBA.
You can see why there were thousands of criminal referrals in the savings and loan crisis, but ZERO criminal referrals in the current crisis, as Black says.
As I've been saying for years, the circumstantial evidence indicates that there must have been massive fraud by banks. The banksters who created structured securities that became "toxic assets" are claiming that they didn't know that real estate prices would ever fall. Well, that excuse may be valid for the years 2002-2005, and part of 2006, but by then it was clear that the real estate bubble was bursting, and there was at least reasonable doubt that the computerized models were wrong. But instead of warning investors of these doubts, the banksters redoubled their efforts in 2007 to sell as much as possible before the game was up.
Then, as I described in "Financial Crisis Inquiry hearings provide 'smoking gun' evidence of widespread criminal fraud," the Financial Crisis Inquiry hearings showed that the computerized models for the creation of the structured securities were based on assumptions that were mathematically impossible, once again providing evidence of massive criminal fraud.
Then in yesterday's posting, "22-Oct-10 News -- Foreclosure mess turns into a major crisis," I discussed increasing evidence that bank employees -- now called "robo-signers" -- never bothered to read mortgage documents they were signing: either the mortgage approvals in the 2005-2008 time period, or the mortgage foreclosures in the 2008-2010 time period.
Now, William Black is providing even more circumstantial evidence of massive fraud. Companies like Ambac and Pimco are rejecting mortgage-based securities because they've investigated the underlying mortgages and found them to be fraudulent.
And yet, as Black points out, the FBI is in bed with the Mortgage Bankers Association, the people who committed the fraud, with the result that not a single criminal referral has been made.
And you can see why the Boomers and Gen-Xers are so incompetent, greedy and nihilistic compared to the people in the Silent generation. I've been saying for years that the current crisis is caused by the unique relationship between the greedy, nihilistic, destructive Generation-Xers and their bosses, the greedy, incompotent Boomers.
It seems that every few days something new comes out to prove that that statement was no exaggeration. People in the past accused me of exaggerating in many of the things that I said, but as events are unfolding today, it's obvious that what's going on in the world is far worse than even the very pessimistic picture I painted in the past. It's really sickening.
(Comments: For reader comments, questions and discussion,
see the 23-Oct-10 News -- Foreclosure crisis will cost $10 trillion thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(23-Oct-2010)
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Citibank appears to be lying about foreclosure process
When I first heard about the foreclosure paperwork problem a few weeks ago, my first reaction was that this was relatively unimportant, that the paperwork would be straightened out within a month or two, and then the whole problem would disappear.
I swear to you, Dear Reader, that I was not drunk or stoned when I reached that ridiculous conclusion. I can only offer the excuse that I must have been infected by a temporary case of the same kind of giddy mental illness that we see exhibited on CNBC and Bloomberg TV every day.
Remember what happened when the "toxic asset" scandal started in 2007? It was never going to be a major scandal. When the first bad quarter came by, the pundits called it a "kitchen sink" quarter, implying that financial institutions were writing down all their toxic assets in one quarter. Then there were a couple of "kitchen sink" quarters. Then the subprime crisis would be "contained." When there was bad news it was good news, because the worst was always over. Then when the news got worse and the stock market fell, the pundits would say, "Why did the stock market fall? We've known about this for months." And then, gradually, it came out that the financial institutions had repeatedly lied to the public and defrauded investors, but that they still felt that they deserved million dollar bonuses.
The foreclosure mess appears to be the next wave. The same signs are there. On the one hand you have banks saying that there's no problem except a few isolated cases, and on the other hand you have news stories showing that banks have been lying to the public and defrauding investors. There are only a few news stories so far, but it's obvious that no one knows what's going on, and the number of problems is going to accelerate.
Citibank, for example, is claiming that they have no problem, that they've reviewed their procedures, and that they haven't used "robo-signers," according to ABC News.
A robo-signer is an employee that signs thousands of foreclosure documents, in a rush to foreclose on homes. What we're seeing here is the mirror image of the original housing bubble. At that time employees were approving thousands of mortgage loan approvals without checking any of the documents, though of course nobody called them "robo-signers" at that time. In 2006, these banks were approving so many mortgages that they needed robo-signers to process them all, while today they need robo-signers to process the equivalent mass of foreclosures.
But Citibank claims that they're not using robo-signers. How many times did Citibank lie about its exposure with toxic assets in 2007 and 2008? Not only did they lie to the public repeatedly, and defraud investors in doing so, they also were ENCOURAGED to lie by regulators and prosecutors.
For an example of this, see my 2008 report, "Bond insurer 'bailout' appears near crisis point." In that report, I described how New York Insurance Superintendent Eric Dinallo repeatedly colluded with banks, including Citibank, and bond insurance firms, to lie to the public and defraud investors.
And I want to emphasize that I'm no big investigative reporter who discovers this fraud by assiduously digging deep into thousands of courthouse records somewhere and discovering a trail of deception by connecting the dots. I discovered this by reading the WSJ, the NY Times online, and by listening to CNBC and Bloomberg TV.
And then I have to read articles in those same media sources wondering why investors don't trust the banks any more. The actors in these events, in New York and Washington, are liars and crooks, and are operating openly.
So now Citibank claims that they're not using robo-signers, even though it's almost mathematically impossible to process all their foreclosures without using robo-signers. Should we believe them? Should we assume that regulators are watching out for us? (Insert your favorite sarcastic epithet here.)
And yet, a 2008 legal challenge to a foreclosure identified an individual named Cheryl Samons, working for one of Citibank's outside law firms, according to a Bloomberg analysis by Jonathan Weil.
Under questioning, Samons testified that she spent two hours a day executing affidavits and other records. She said she spent "very little" time examining documents before signing them. Asked if she signed more than 100 a day, Samons said yes. She declined to provide her own estimate. "It’s definitely not more than a million," she told the lawyer deposing her.
Well, that's a relief. Now that I know that Samons robo-signed less than a million foreclosure documents in her two-hour workdays, I can breathe more easily.
Further testimony indicated that Citibank may have made up for paperwork deficiencies by fraudulently creating and backdating documents. Whether these allegations are true should be revealed as the court actions continue.
There's going to be a flood of stories like this in the next few months. An analysis by the Wall Street Journal (Access) shows that robo-signers were being used for foreclosures as early as 2006. It's clear that this practice was not only widespread, it was also the norm. And a large number of these foreclosures are going to be open to legal challenge.
As I understand it so far, here's what happened in the 2005-2008 time frame.
Million of mortgages were approved by banks, but the banks did not maintain them as individual mortgages. Instead, the mortgages were put into a pool run by MERS Inc. According to the company web site,
MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans."
The pool then maintains ownership of the mortgage notes, and processes the associated flow of funds. When a homeowner makes a payment, it's to the pool. When Citibank receives its share of those funds, the payment is completely unrelated to the specific mortgages that Citibank approved.
The MERS pool contained 62 million mortgages by 2008. It was funded by investors who purchased structured securities based on the expected returns from those 62 million mortgages.
You can see the "moral hazard" in this system. When a bank approves a mortgage, why worry if the homeowner is going to default? That individual default will be buried in the 62 million other mortgages in the pool.
This shows what a mess the foreclosure problem has become. Since there was little or no motivation to process the original mortgage loans properly, it's possible that millions or even tens of millions of mortgages are faulty. And if the allegations are true that Citibank fraudulently created and backdated documents in the Cheryl Samons case mentioned above, then it's possible that there have been millions of cases where documents were fraudulently created and backdated.
Some people are saying that this is a good thing, because it means that people will be able to stay in their homes.
In some cases, as I understand it, if the paperwork wasn't properly processed, then the entire mortgage debt is invalid, and the homeowner can stop making mortgage payments, with no legal consequences whatsoever. (Check with your lawyer if you're considering this.)
The problem is that the entire real estate industry depends on processing foreclosures. Some 25-30% of all real estate sales today are of foreclosed properties. Without the foreclosure business, the real estate industry would suffer another enormous shock. What person is going to buy a foreclosed property now, if it's possible that they won't even have legal title to the home?
This will mean more toxic assets for banks. If millions of mortgage debts are now erased, then the investors who purchased the structured securities, basing on the expected returns from those debts, are going to lose that money. And many of those investors are banks, hedge funds, and other financial institutions.
So we can assume that the volume of "toxic assets" is going to increase substantially in the next few months. And this may well be the next major leg in the collapse of the real estate bubble.
From the point of view of Generational Dynamics, the global financial crisis has only begun. One event that hasn't occurred yet, and must occur, is a day that will be remembered in history as the collapse of the financial system, similar to the day October 28, 1929. Stocks today are still overpriced by over 150%, as described in "Updating the 'real value' of the stock market." Thus, as bad as it's been, far worse is to come. It's impossible to predict what will trigger this crisis, but the foreclosure mess is one possibility.
(Comments: For reader comments, questions and discussion,
see the 22-Oct-10 News -- Foreclosure mess turns into a major crisis thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(22-Oct-2010)
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UK adopts a 'slash and burn' austerity budget
As I reported yesterday, Russians were shocked by a successful terrorist attack on Chechnya's highly protected Parliament building in Grozny. The attack was perpetrated by the "North Caucasus Emirate" or the "Islamic Emirate of the Caucasus" (IEC), a terrorist jihadist group created and headed by terrorist Doku Umarov.
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As we described, the "Emirate" itself has recently been split by ethnic tensions, when several warlords repudiated their pledges of alliegiance to Umarov.
One of those renegade warlords is Khusein Gakayev (or Hussein Gakaev), and Chechen officials have now named Gakayev as the organizer of Tuesday's attack, according to Russia Today.
Gakayev and his family are from the Vedeno province in the east of Chechnya, according to a 2008 biography by Kavkaz. He fought the Russians in the two Chechen wars, where three brothers were killed, and his sister was kidnapped, with whereabouts still unknown.
He was bodyguard to terrorist Shamil Basayev, according to BCM (Russia). Basayev was the mastermind of the horrific 2004 Beslan terrorist attack that killed 340 people, including 156 children. (See "Russian President Putin asks revenge for Beslan.")
Before splitting from Umarov, he was commander of the Eastern Front of the Caucasus Emirate Armed forces. The split occurred because Umarov's objective is an Islamic Emirate that unites all of Russia's Caucasus provinces - Chechnya, Dagestan, Ingushetia and Kabardino-Balkaria. Gakayev is less interested in a greater Emirate, and more interested in gaining independence from Russia for Chechnya.
If Gakayev did engineer Tuesday's attack, then it indicates a severe split in the leadership of IEC, and a greatly increased level of ethnic and clan tension throughout the Caucasus. An ethnic war in Chechnya could spiral into a full scale ethnic and religious war in the Caucasus region and beyond.
For centuries, and especially since the fall of Constantinople to the Muslim Ottomans in 1453, Moscow has taken on the role of "protector" of Jerusalem as the center of the Orthodox or "true" Christian Church.
Russia has had three major wars with Western Christians -- the Great Northern War with Sweden in the early 1700s, the war with Napoleon in 1812-14, and the war with the Nazis in World War II. However, although these were generational Crisis war invasions by the Europeans, they were non-crisis wars for the Russians. In all three cases, the Russians won by taking strategic advantage of the extremely harsh Russian winters, often by simply letting the enemy sit and freeze to death.
Russia's crisis wars were a combination of civil wars along ethnic lines and external wars between the Orthodox Christian and Muslim Civilizations.
Generational Dynamics predicts that the Caucasus region will once again be the fault line of a major genocidal crisis war between these two great civilizations, along with numerous ethnic wars playing a role.
My expectation is that, in the coming "Clash of Civilizations" world war between China and the United States, America's allies will include Russia, India and almost certainly Iran, while China's allies will include the Sunni Muslim states. It's impossible to predict what event will trigger this world war, but a spiraling war in the Caucasus region is one possibility.
On Wednesday, the UK's Conservative finance minister George Osborne announced historic austerity budget cuts. Government spending will be cut by 19% over four years, and almost 500,000 government employees will be laid off according to Reuters. Osborne said that Britain's budget deficit of 11% of gross domestic product (GDP) left him no option to such drastic action if the country was to avoid a Greek-style fiscal meltdown.
This came at a time when France is facing another day of massive strikes, riots and demonstrations over pension reform.
Financial pundits on tv on Wednesday indicated that they did not expect Britons to take the streets in the same way that the French did, but some pundits speculated that there would be massive riots and demnnstrations in America, when the U.S. is finally forced to take similar austerity measures.
Osborne's proposed budget plan is to reduce Britain's deficit, but this assumes that the world economy is going to bounce back into growth in the next couple of years.
Generational Dynamics predicts that no such bounce is going to occur. What we're seeing is a continuing downward trend into the depths of a ne deflationary Great Depression. A typical scenario at such times in history is a continuing global financial collapse, leading so social unrest, and then to war.
(Comments: For reader comments, questions and discussion,
see the 21-Oct-10 News -- Chechnya warlord blamed for attack on Parliament thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(21-Oct-2010)
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China halting 'rare earth mineral' exports
Russians were shocked on Tuesday morning by the news of a successful large-scale terrorist attack on Chechnya's very well protected Parliament building in Grozny.
The attack began when vehicles containing rebel militants made their way into parliamentary grounds by following cars taking lawmakers to work, according to Ria Novosti. A suicide bomber then blew himself up, and in the confusion the other militants reached the main building. There were several deaths, but no casualties among lawmakers.
It was just a year ago that Russians had been assured by Prime Minister Vladimir Putin that the Chechen insurgency had been quelled for good. Since that time, there have almost daily terrorist attacks in the Northern Caucasus, which refers to Russian southern provinces of Chechnya, Ingushetia, and Dagestan. Several attacks in recent months have been spectacular.
The brazenness of Tuesday's attack has reignited fears among the Russian people that the Caucasus provinces are becoming lawless again, as they were during two wars of independence, one in the 1990s, and one in the early 2000s.
However, the nature of the rebel movement has changed since the earlier wars. The two Chechen wars were along ethnic fault lines, with Chechnya's clans and warlords versus the Russian people and leaders.
However, in 2007, the Chechen rebel leader, Doku Umarov, created the "North Caucasus Emirate" and made himself the "Emir," with the objective of uniting the three North Caucasus provinces into a single jihadist conflict with Moscow.
However, the rebel movement is still split along ethnic and clan lines, according to the Eurasia Daily Monitor. On October 7, three rebel field commanders announced that they were renouncing their oaths of allegiance to Umarov. They said that they would still be part of the North Caucasus Emirate, but that they would form their own legislative bodies.
Historically, the Caucasus region is one of the most violent on earth, because of the interethnic wars, and because it's one of the major regions (along with the Crimea and the Balkans) where fault line wars have been fought between the Muslim civilization and the Orthodox Christian civilization. Thus, a small regional war in the Caucasus could spiral into a much larger war very quickly.
That's one of the major reasons -- often overlooked by Western journalists and politicians -- for Russia's invasion of Georgia in 2008. At that time, Georgia and South Ossetia were beginning a conflict that could have spread quickly from Georgia into Russia's southern provinces. Undoubtedly one of Vladimir Putin's major reasons for intervening was to prevent a larger war.
From the point of view of Generational Dynamics, the violence in the Caucasus is following a familiar pattern. Low-level violence occurs for years or decades, often punctuated by peace agreements or temporary ceasefires. Each time the violence flares up again, it's more lethal and more genocidal, until finally it crosses the line into a full-fledged generational crisis war. Generational Dynamics predicts that the Caucasus region is headed in that direction, but this should hardly be news to anyone, since it's happened so many times over the centuries.
In the last four days, 79 people have been killed in gun violence in Karachi, Pakistan. On Tuesday alone, 28 people were killed. Since the Pakistan floods, and resulting flood of refugees to Karachi, many people are saying that the city is ungovernable. As a result, some people are calling for the army to come in and control the violence. Pak Observer
France's President Nicolas Sarkozy continues to stand firm with plans for pension reform that will raise the retirement age from 60 to 62, despite massive public opposition and massive public strikes that have all but shut down the country. Plans are still going on for the French Senate to vote on the pension reform plan on Wednesday, and it's hoped that the strikes will end when the pension reform law becomes a fait accompli. However, Sarkozy's opponents are attempting to stall the vote, to force him to back down. Bloomberg
Pregnant women taking fish oil supplements do not make babies smart, or the mothers less depressed, according to the Journal of the American Medical Association. NY Times
An H1N1 swine flu pandemic is not expected in the coming flu season, but researchers are still recommending people over 50 to be immunized. Bloomberg
China has quietly halted "rare earth minerals" to Western countries, following the recent step taken in retaliation for the Japanese arrest of a fishing boat captain. These minerals are used in high-tech products, and China controls more than 95% of the global market, and the embargo has spread to the European Union and the United States. Germany plans to ask the World Trade Organization and the European Commission to intervene. NY Times
The European Commission is lifting its threat to take legal action against France over concerns about its expulsions of the Roma Gypsies, after France committed to make changes to its laws. BBC
(Comments: For reader comments, questions and discussion,
see the 20-Oct-10 News -- 'North Caucasus Emirate' attacks Chechnya's parliament building thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(20-Oct-2010)
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The geography of the recession
Former Countrywide Financial CEO Angelo Mozilo agreed to a $67.5 million settlement to avoid trial on civil fraud and insider trading charges, according to AP.
Countrywide was once the largest US mortgage lender. During the period 2003-2006, Countrywide adopted a series of risky lending practices, in order to expand its asset base. Many of the mortgages required no down payment, and were adjustable rate and interest-only loans, according to Reuters.
Countrywide grew exponentially during that period, but by 2008, about one in 11 borrowers overall and more than one in three subprime borrowers had fallen behind on home loan payments. Bank of America acquired Countrywide in 2008, at fire sale prices.
Mozilo's settlement with the SEC was for civil fraud charges. Mozilo also faces charges of criminal fraud that have yet to be resolved. The fraud charges are that Mozilo claimed in 2007 that his mortgage business was rock solid, when he already knew that it was falling apart. None of this will be a surprise to long-time readers of this web site.
This settlement comes at a time when a new scandal, known as the "foreclosure scandal," is beginning to appear and could last for years, according to a recent article by Bloomberg.
It's almost hilarious to read about this -- if only the consequences weren't so great.
As I've written many times, the financial crisis could not have occurred while the Silent generation, the survivors of the Great Depression and WW II, were in charge. The crisis began seriously with the tech bubble in the late 1990s, when the members of the Silent generation were disappearing, all at once, leaving Boomers in charge.
The tech bubble was bad, but what happened next was a million times worse, and was caused by the unique relationship between the nihilistic, greedy Generation-Xers and their bosses, the incompetent, greedy Boomers. In financial institutions around the world, young "financial engineers" created and sold structured securities that later turned into toxic assets. Their Boomer bosses were too incompetent to stop this and besides, they were all making too much money.
An important piece of that fraud was subprime mortgages. Companies like Countrywide churned out millions of these mortgages as a kind of mortgage mill. It was easy, since almost anyone could get an interest-only or adjustable rate mortgage with no credit check, no assets, no income, and no hope of paying the mortgage off.
As I keep repeating on this web site, nothing has changed since 2006. Exactly the same people are still in pretty much the same jobs they were in in 2006, and they're still committing the same kinds of fraud, but it's been adapted for the times.
The new "foreclosure crisis" is being largely caused by the fact that proper ownership of the foreclosed homes can't be established, because the mortgage mills that created the mortgages in the first place were very sloppy. Many of the steps that a bank would have taken prior to 2000 in granting a mortgage were skipped during the frenzy from 2003-2008. Now banks are running into trouble because they didn't do the original paperwork necessary to process a foreclosure today.
Banks have tried to replace the original mortgage mill with a new foreclosure mill. The mortgage mill worked because everyone was making money, for a while. The foreclosure mill is in trouble because everyone is losing money, and willing to fight in court.
For those who would like additional details about the details of how the foreclosure mess is spreading, see the fascinating article by John Mauldin referenced in the following report.
In particular, read the part about how the sloppy paperwork by the mortgage mills created errors in "chain of ownership" of the mortgage notes, and how the new foreclosure mills are trying to repair those errors with fraudulent paperwork.
The same people who defrauded the public in the mortgage mills are still in business, defrauding the public in the foreclosure mills. The financial crisis is far from over.
I've criticized financial columnist John Mauldin in the past for writing Pollyannaish nonsense about future stock market growth and the economy. In particular, as I described in "Blogger watch: Mish Shedlock goes gloomy, while John Mauldin gets muddled," Mauldin wonders why price/earnings ratio can't always just remain above average -- just like the children in Lake Wobegon.
In Mauldin's new newsletter, he appears to be finally grasping the seriousness of the problem, and the event that seems to have changed his thinking is the current foreclosure crisis. He says the following:
Now let's be clear: Mauldin uses the word "may" throughout this paragraph, but he wouldn't even be suggesting these gloomy things if he weren't certain they were coming. Using the word "may" is just the way that all these analysts use to cover all the bases, to protect themselves so that they can say that they were right, no matter what happens. As long-time readers know, this is something that I rarely if ever do.
Here's one of the charts that he refers to:
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As this chart shows, home sales have been on a steady downward trend since the real estate bubble began bursting at the end of 2005. There was a spike upward in existing home sales in the last year, thanks to the stimulus programs and the federal home-buyer's tax credit. But, as you can see, with both of those expiring, existing home sales have returned drastically to the falling trend line, and new home sales never got a boost anyway.
That brings us to the current foreclosure scandal.
Mauldin quotes a personal letter he received from Cumberland Advisors founder David Kotok. The letter spells out in great and gory detail exactly what's going on in the current scandal in which banks have been forced to stop foreclosing on homes because of insufficient paperwork.
When the mortgage mills were operating prior to 2008, the paperwork was sloppy, and rules about "chain of ownership" of the mortgage note were not always followed. According to the analysis in Mauldin's newsletter, if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.
And now it turns out that the banks have been fraudulently creating backdated paperwork to repair the chain of title.
As I keep saying, the same people who committed the original fraud when the mortgage mills are operating, and now defrauding the public again now that the foreclosure mills are operating.
And it appears that the foreclosure crisis is so serious, that even the Pollyannaish John Mauldin is saying that the situation "may" be worse than he thought.
From the point of view of Generational Dynamics, the financial crisis is far from over, and far worse is to come. The foreclosure mess sprang from nowhere within a few weeks, and is now appearing to be the next step in the evitable progression to financial calamity.
The interactive graph by labor writer LaToya Egwuekwe on this page shows how unemployment has grown since 2007 to the present on a county by county basis.
The following is a video of the same graph:
This video shows that unemployment has been on a steadily increasing trend, even through the period of huge bailouts and fiscal stimulus. As we've been saying for years, Generational Dynamics predicts a new 1930s style Great Depression, and nothing can be done to prevent it.
On Monday, Mexican soldiers seized 105 tonnes of marijuana in Tijuana, with a U.S. street value of more than $340 million. Troops found the narcotics wrapped in 10,000 brown and silver packages in houses and a parked truck. The marijuana was brought together from across Mexico over several months and bound for the United States. Reuters
During the enormous floods that swept down Pakistan last month, thousands of refugees fled to the country's commercial capital, Karachi, destabilizing the city. At least 33 people were killed in weekend attacks that coincided with a regional election. As a result, one political party, the Muttahida Qaumi Movement (MQM), part of President Asif Ali Zardari's governing coalition, is threatening to pull out of the coalition, possibly toppling his government. By the way, former president Pervez Musharraf, who is exiled in London but has stated his desire to return to Pakistan and run again for president, is a member of the MQM party. Reuters
In France, labor union strikes are gathering momentum, and are threatening to shut the country down completely, as the strikers oppose raising the retirement age from 60 to 62. President Nicolas Sarkozy insists that he will press ahead with pension reforms, despite the strikes. Attempts by Sarkozy's predecessor, Jacques Chirac, to reform the labor laws in 2006 triggered a massive strike that forced Chirac to back down, and during the subsequent election, Sarkozy was very critical of Chirac's actions. Sarkozy has previously expressed contempt for the strikers, so it would be politically disastrous for him to back down, despite the fact that a poll finds that 71% of those surveyed support the strikers. A vote on the pension reforms is scheduled in the French Senate for Wednesday, but left-wing senators have submitted hundreds of amendments in an attempt to delay the vote and give the strikers more time. BBC
The Palestinian leadership, in conjunction with the Arab states, are going ahead with plans to ask the United Nations and request an international mandate creating a Palestinian state, based on Israel's pre-1967 borders. Haaretz
(Comments: For reader comments, questions and discussion,
see the 19-Oct-10 News -- Analyst John Mauldin is turned by the foreclosure issue thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(19-Oct-2010)
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Barbara Billingsley, mom in 'Leave it to Beaver' dies
The recent row over the arrest by the Japanese navy of the captain of a Chinese fishing boat in waters near islands claimed by both countries has sharply increased nationalism and xenophobia on both sides.
On Saturday, thousands of people in at least three Chinese cities rioted and protested against Japan, shouting "Boycott Japanese goods" and singing the Chinese national anthem, according to the Japan Times. In some cases, Chinese protestors broke into Japanese-owned stores, breaking windows and showcases.
The Japan Times also reports that the Chinese government is calling on the public to express patriotism "rationally and legally." A Chinese Foreign Ministry spokesman is quoted as saying, "We don't agree with irrational actions that violate laws and regulations,"
On the other side of the East China Sea, Xinhua reports that 3,000 people demonstrated in front of the Chinese Embassy in Tokyo on Saturday, in a protest organized by "right-wing groups." A Chinese Foreign Ministry spokesman said, "China urges Japan to earnestly fulfill the related obligations laid out in the Vienna Convention on Diplomatic Relations and take effective measures to ensure the security of China's embassy, consulates, institutions and personnel in Japan."
There were Chinese riots and demonstrations against Japan 2005, and China's government was able to bring them under control. We'll have to see whether the current demonstrations fizzle, or if they become more widespread.
On Sunday on CNN, Capitol Hill correspondent Lisa Desjardins gave a long response to the question of whether a Republican victory in the November 2 elections will bring about a spirit of compromise in Congress. The following is my transcription:
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We took a textbook example of a positive divided government, that's the early 1980s when Ronald Reagan and House Speaker Tip O'Neill were bitter political rivals, but they were personal friends. A lot of folks know together those two rivals came up with a deal on one of the toughest issues anywhere -- social security.
Now let's look at a less positive rivalry. That's the one in the mid 1990s between President Bill Clinton and House Speaker Newt Gringrch. They had an intense ideological divide. Both of them strategists, and that led to a government shutdown.
Ultimately those two did compromise on spending and on welfare, but there were some very, very sharp stabs and games played in the end.
So is it possible for a Republican house and a Democratic White House could get more done than we see now? It's possible, but it is a lot harder when the two have no relationship. And that is the case right now."
I always say on this web site that journalists have some sort of mental defect that prevents them from seeing even the most obvious generational explanations for things, and this is one such case.
Desjardins leaves out the obvious difference between the two examples.
Ronald Reagan and Tip O'Neill were born in 1911 and 1912, respectively, and were part of the Hero GI Generation that fought in World War II. They had lived through the horrors of the Great Depression and World War II, and so they knew that compromises were more important than war. Thus, they were able to reach agreements on Social Security -- something that's completely unthinkable in today's political climate.
Bill Clinton and Newt Gingrich, born in 1946 and 1943, respectively, are Boomers. (Note: Demographers begin the Boomer generation in 1946, but in generational theory, people born in 1943 are still Boomers, since they have no memory of the horrors of World War II.)
And like Boomers, they're more accustomed to bickering and arguing, instead of getting things done. Still, they were able to unite long enough to pass welfare reform in 1996, as Desjardins points out.
Today the world is being run largely by Generation-Xers, a nihilistic generation that has contempt for the Boomer and Silent generation, and for any of their accomplishments. If the Boomers are capable only of bickering, then the Generation-Xers are capable only of bickering on steroids.
I've been writing for years that the bickering in Washington was only going to get worse, and it has. I recall someone telling someone, just after Barack Obama was elected, that the bickering would get worse, and he expressed surprise: "Don't the Democrats control the White House and Congress?" And yet, the bickering has in fact gotten much worse.
Desjardins' comments imply that the disagreements are the fault of one-party control of Congress. Next year, they'll be blaming the disagreement on divided government.
The problem is not political; it's generational. People in the GI and Silent generations were able to compromise, while people in the Boomer and Gen-X generations are not.
From the point of view of Generational Dynamics, this will only change when a "regeneracy event" occurs. The regeneracy is an event that reunites the country again for the first time since the end of the previous crisis war. It's an event that's so horrible that the country is forced to unite for its survival. In 1941, the regeneracy events were the bombing of Pearl Harbor and the Bataan Death March.
It's impossible to predict what regeneracy event(s) will unite America again, but possible examples are a major terrorist act on American soil, or a major defeat of American armed forces overseas. In any case, the regeneracy will stop the bickering and thrust the America and the rest of the world into the greatest world war in history.
That's the part of the story that Desjardins left out.
"Leave it to Beaver" was an iconic television show of the 1950s, a show that has been ridiculed by decades by women's libbers and feminists because of the allegedly stereotypical role of women that it portrayed.
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Barbara Billingsley, who died on Saturday, was June Cleaver, the wife of Ward Cleaver, played by Hugh Beaumont, and the mother of two boys, Wally (Tony Dow) and Theodore (Jerry Mathers), nicknamed "the Beaver."
June Cleaver was a stay-at-home mom who was always there for her kids, with love, sage motherly advice, and good cooking. This model of motherhood was scorned by feminists in the decades to come as the product over oppressive, abusive men who wanted to keep their wives in the kitchen, barefoot and pregnant.
Like many obituaries, the NY Times obituary was a bit snarky:
However, as I said when I appeared in Stephen Bannon's movie, Generation Zero, almost nobody today understands what was going on in the 1950s.
From the point of view of Generational Dynamics, the 1950s was a Recovery Era where the country was excitedly celebrating its victories over the Great Depression and the Nazis in World War II.
A 1950s mother would have grown up during the Great Depression, surrounded by homelessness, starvation and bankruptcy. If she herself hadn't been forced to live under a bridge and depend on soup kitchens for food, then she undoubtedly had many friends who had been forced to do so.
Then, as the Great Depression ended, she saw her brothers, father and uncles tortured and maimed on the Bataan Death March, and then shot down like fish in a barrel on the beaches of Normandy. Out of patriotism, she had been forced to take "Rosie the Riveter" type jobs that she hated.
So when the 1950s arrived, a home with a white picket fence where a mother could stay at home with the kids and be safe and dry and warm and reliably supported by a working husband was a gift from heaven. This was a gift that mothers of the 1950s wanted to give to their daughters. They had suffered through starvation, homelessness and slaughter, and they had won, and they wanted to give their daughters the gift of the fruits of that victory.
Unfortunately, their daughters didn't want those gifts. Their scorn and contempt for those gifts gave rise to the women's lib and feminist movements of the 60s and beyond.
But there's an ironic twist to all this. The pendulum is swinging back, and young women today are not only choosing to stay at home again with the kids (see "'It's going to be the 1950s all over again'"), but they're also becoming much more reserved in terms of style and behavior (see "Victoria's Secret changes from 'too sexy' to 'ultra-feminine.'")
So Barbara Billingsley's character, June Cleaver, did not represent an obsolete era after all. Don't be surprised if, in the next decade, there's a new "Leave it to Beaver" type show on, with mothers who are only too happy to stay at home and bake cookies for the kids.
For months, we've been reporting on al-Qaeda linked terrorists in Yemem (Al-Qaeda on the Arabian Peninsula or AQAP) and in northern Africa (Al-Qaeda in the Maghreb, or AQIM) training and making plans to target Europe. Now Saudi Arabia's intelligence services have warned of a plan to target Europe in the near future, and France in particular. Al Jazeera
Southern Yemen has seen a growing number of attacks by militants from Al-Qaeda on the Arabian Peninsula (AQAP). 8 soldiers were killed last week in al-Qaeda ambushes. Air strikes against Al-Qaeda targets on Sunday killed a civilian and an unknown number of militants. Security measures around the British and US embassies in Sanaa, the capital, have been tightened. AFP
Palestinian president Mahmoud Abbas has warned against a rise in extremism if the Mideast peace talks collapse, in an interview on Israeli television. The peace talks are currently stalemated because Israel has not extended the moratorium on East Jerusalem settlements that expired on September 26, and the Palestinians will not participate in peace talks unless the moratorium is extended. AFP
Many Arabs regarded President Bush as a "political madman" with "a blood-soaked history," and were happy to see him go. In retrospect, bush's policies corresponded to those of moderate Arab states on most strategic issues. Obama, on the other hand, has mishandled the affairs of the Mideast in two ways. The first mistake was his openness with Iran and Syria, which the moderate Arabs consider an act of betrayal; the second mistake is that he doesn't issue clear instructions to the leaders of the Mideast countries. The result is that Obama's policies are undermining moderate Arab regimes. Al-Arab (Qatar), translated by Memri
With 10 of France's 12 oil refineries shut down by strikes, and with pipeline sabotage by public sector unions, it had been feared that Paris's airports would run out of fuel on Monday. However, the pipeline is now back online, and it's hoped that there will be enough fuel available. However, aviation authorities are asking planes to refuel abroad, if possible. Radio France Internationale
In Tajikistan, newborn children are increasingly being given Arabic names rather than Persian names, and older people are beginning to change their names in the same direction. This is a sign of increasing influence by Sunni Muslim Mullahs and Imams, and a break with Iran. RFERL
Italian Prime Minister Sylvio Berlusconi is being condemned by the Vatican for telling a "Jewish joke." The joke is about a Jew that charged another Jew 3,000 euros a day to hide him during the Holocaust. Berluscon's punchline is: "The Jew says, the question now is whether we should tell him Hitler is dead and the war is over." Haaretz
Sophisticated skimming devices have been devised that criminals can place right over the card reader slot on an ATM to capture the information on the magnetic strip of a debit or credit card. In other cases, a hidden pinhole camera watches you and steals your pin number. If an ATM looks suspicious, then just walk away. Wall Street Journal (Access)
Five free ways to improve your typing skills online. Mashable
Anthropologists are saying that women can tell from other women's voices how much of a threat they pose to their relationships. Duh. Telegraph
(Comments: For reader comments, questions and discussion,
see the 18-Oct-10 News -- Mass dueling riots in China and Japan thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(18-Oct-2010)
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Germany's multicultural society is an 'utter failure'
Germany's multicultural society is an 'utter failure'
German Chancellor Angela Merkel waded knee-deep into the xenophobia debate on Saturday, when she said that Germany's decades-old multicultural policies have "utterly failed," according to Deutsche-Welle.
While saying that Germany had not done enough in the past 30 to 40 years to support the multicultural society, she said that immigrants will have to do more to integrate into German society:
Correction: I obtained this quote from a news story, but it apparently was a mistranslation. Merkel's actual statement implies that immigrants who learn German after they arrive are still welcome. The first sentence of the quote should be deleted. (Paragraphs added - 23-Oct)
The remarks follow on other controversies surrounding the presence of Arab and Turkish immigrants in Germany. Horst Seehofer, part of Merkel's governing coalition, said last week that Turkish and Arab immigrants were unable to integrate into German society and should no longer be accepted. (See "13-Oct-10 News -- Xenophobia grows in Germany towards Turks, Arabs and Jews.")
Merkel's remarks were condemned by some Jewish groups. The general secretary of the Central Council of Jews said that the idea that immigrants from Turkey and other Arabic countries found it harder to integrate was "not just tactless, but downright irresponsible."
The growing controversy comes at a time when anti-Semitism is also growing in Europe. A new poll indicates that 17% of Germans believe that Jews have "too much influence," according to Ynet.
European Commission President Jose Manuel Barroso was recently forced to condemn anti-Semitism, after Karel De Gucht, European Commissioner for Trade went on an anti-Jewish rant on Belgian radio, according to Ynet. And anti-Semitism is growing in Hungary, as we described in "15-Oct-10 News -- Red sludge and anti-Semitism spread in Hungary." (Paragraph updated, 17-Oct)
(Comments: For reader comments, questions and discussion,
see the 17-Oct-10 News -- Merkel to immigrants: Speak German or leave! thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(17-Oct-2010)
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France's labor unions sabotage fuel pipeline to Paris
In an October 3 interview with Fareed Zakaria on CNN, China's premier Wen Jiaboa made unusually blunt calls for economic and social reforms in Chinese society.
The interview has had a dramatic effect among China's "netizens," according to the Wall Street Journal (Access). The interview has generated a great deal of excitement, and information about the interview has been popping up everywhere on the Chinese internet, faster than the censors can take the information down.
Wen's statements indicate that the level of bickering and political division is as great in China as it is in America and other countries.
Wen's remarks have now been followed by an open letter signed by 100 Chinese scholars and activists, according to the Washington Post. The letter calls for the release from prison o Nobel Peace Prize winner Liu Xiaobo and all political prisoners, and for China's "peaceful transition" to "a democracy, and a nation of laws."
This is in sharp contrast to official Chinese media, that have been blasting the West for awarding the Nobel Peace prize to an Chinese dissident, rather than someone like Deng Xiaoping, who brought hundreds of millions of people out of poverty.
In fact, China has come close to severing diplomatic relations with Norway. China has called off numerous official visits by Chinese officials to Norway and vice versa, according to Reuters.
So it seems likely that the letter demanding release of Liu from prison must be a great embarassment to top Chinese officials.
People assume that because of China's centralized government, there are no political disputes like the ones in the United States in Europe. As a matter of fact, every government, even dictatorships, have to deal with different constituencies. And from the point of view of Generational Dynamics, the political bickering and governing paralysis grows as the country goes deeper into a generational Crisis era. In that sense, China is not that different from the United States. And like the United States, China's constituencies will not be united until some catastrophic event, such as a war, forces the country to unite for its survival.
Here's the CNBC video where Paul Krugman says that the U.S. needs $8-10 trillion in bond purchases:
Krugman used to be an economist, but in recent years, he's turned into a cartoon left-wing ideologue who plays an economist on tv.
In 2008, I posted the article "One, Two, Three ... Infinity," in which I compared to the ever-increasing government spending plans to a book by George Gamow that I read in school in the 1950s. My use of that particular phrase was to convey the idea that debt was on an exponential growth path that would not be stopped except by a major financial collapse and crisis.
Krugman is illustrating the point. There are hundreds of trillions of dollars in structured securities (collateralized debt obligations, credit default swaps, interest rate swaps, etc.) in portfolios of financial institutions around the world, and we're in a deflationary spiral as they're being deleveraged. As Krugman himself says, his $8-10 trillion in QE has no chance politically of being adopted, but if it were, then the next thing you'd see would be Krugman saying that we need $30-40 trillion.
Israel's housing agency published plans to build 238 new housing units in East Jerusalem. The Obama administration has been frantically doing everything possible to convince Israel's prime minister Benjamin Netanyahu to extend the freeze on settlements that expired on September 26, but that seems less likely by the day. The Mideast peace talks are frozen, and probably dead, though nobody yet has filled out the death certificate. If and when that happens, the Palestinians have said that they intend to go to the United Nations and request an international mandate creating a Palestinian state, based on Israel's pre-1967 borders. Guardian
Refinery workers belonging to France's public labor unions have sabotaged a fuel pipeline to Paris, in actions that are becoming increasingly violent. Panic buying of gasoline has begun. The unions are trying to force the government to back down from a reform that would increase the retirement age from 60 to 62. The French Senate will be voting on the reform on Wednesday. VOA
Residents of Hungary who were forced to flee from their homes when toxic red sludge from an alumina plant flooded their villages are starting to return home. The plant reopened late on Friday. Associated Press
If North Korean president Kim Jong-il died now, the chances of a successful transition to the appointed successor, his son Kim Jong-un, are less than 10%, with the odds of a crisis at 60-70%, according to a South Korean journalist. Chosun
(Comments: For reader comments, questions and discussion,
see the 16-Oct-10 News -- Demands for reform in China thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(16-Oct-2010)
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Some people say that Budapest is returning to the days of the Nazis
Some people say that Budapest is returning to the days of the Nazis
On October 4, a wall holding an enormous reservoir of toxic red sludge collapsed in Hungary. Within an hour, 3 villages were buried deep in in 200 million gallons of the sludge, the waste product from a plant producing alumnina, an ingredient in aluminum. The plant has been running since the Soviet era, and is vital to Hungary's economy, according to AP. Nine people have died, and hundreds of people were forced to flee from their homes.
Here's a video if you haven't seen one yet (prepare to be grossed out):
The crisis may be far from ended. Another reservoir wall appears to be cracking, and officials are evacuating other towns, according to Associated Press.
This is only one of the major problems that Hungary's prime minister Victor Orbán and his Fidesz governing party have to deal with.
Another problem is Hungary's desperate financial situation. (See "20-Jul-10 News -- Hungary and Ireland face new financial problems.") Anxiety about the financial crisis is one of the factors that put Orban into office.
A third problem is the growing popularity of the fascist right-wing Jobbik party, led by chairman Gábor Vona, occurring at the same time that violence is increasing towards Roma Gypsies and Jews.
Orbán himself used to be considered a "liberal." He was a hero of Hungary in 1989 as a leader of the successful movement to gain independence from the Soviet Union. He was prime minister from 1998 to 2002, after which the leftist Socialist Party took power for eight years.
In 2010, Orbán moved to the right and became more nationalistic. He delivered a shockingly big victory in April, which Spiegel said at the time was a "massive shift to the right."
The Socialist Party effectively crashed. Orbán's Fidesz party won 53% of the popular vote, and 2/3rds of the seats in Parliament.
The big surprise was the far right Jobbik party, which made it into Parliament for the first time, with 17% of the vote.
Jobbik chairman Gábor Vona was co-founder of the Hungarian Guard, a paramilitary organization that was banned in 2008. Jobbik took advantage of his new-found political power at his swearing in ceremony on May 14. During the proceedings, he threw off his suit jacket to reveal a uniform similar to those worn in WW II by the Arrow Cross Party, the violent butchers and rapists that served as the Hungarian arm of the Nazi party.
A new election, this time for mayors and other local officials, was held on October 3, and Orbán's Fidesz party won a landslide victory, taking control of 22 or 23 cities, according to the Budapest Times. Orbán's political opponents are accusing him becoming a dictator, and comparing his government to previous dictatorships.
Vona's Jobbik party did not have an electoral surge that many had feared, but it did win some victories in smaller cities. Vona claims that he's now prepared to take power in the 2014 elections.
A new analysis by Spiegel paints Budapest as Europe's "capital of anti-Semitism":
From the point of view of Generational Dynamics, this is one more sign of a truly remarkable trend that's been occurring this year, that I've described several times in recent days. The xenophobia of the 1930s is returning, and appears to be accelerating. We're well on the way to a world war.
(Comments: For reader comments, questions and discussion,
see the 15-Oct-10 News -- Red sludge and anti-Semitism spread in Hungary thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(15-Oct-2010)
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Some observations on the growth of xenophobia
Massive demonstrations and strikes have hit France for three days, as labor unions protest the government's attempt to raise the retirement age from 60 to 62.
Organizers say that 3.5 million people are taking part in rallies and marches across the country, according to EU Observer. This would beat the 2 million that, in 1995, forced a retreat over a similar labor issue, and led to the fall of the government.
The government of Nicolas Sarkozy has shown no sign of backing down, while union leaders are warning that the government risks widespread radicalization is it doesn't back down.
France has a history of violent civil wars, including the terror period of the French revolution in 1793 and the bloody Paris Commune in 1871. However, no significant violence has yet occurred in the current labor action.
The strikes have shut down 10 of France's 12 petroleum refineries, including all six sites of Total SA, Europe's biggest refiner. The strike shows no sign of letting up, and France is expected to have fuel shortages by next week, according to Bloomberg.
Like many European countries, France is running a budget deficit that will force it to default unless it sharply reduces spending and increases taxes. Raising the retirement age to 62 is part of an austerity package intended to reduce the budget deficit. The strikers apparently are determined to drive France into default anyway.
Yesterday's posting described the rise in popularity in Germany of xenophobic views towards Turks, Arabs and Jews.
The surge in popularity for xenophobic views has caught a lot of people by surprise. I recall how shocked I was when I wrote an article about the floods in Pakistan, and saw comments that it's ok for Pakistani women and children to die since they're Muslims, or that the majority of Muslims support murder and rape. I spoke to an evangelical Christian friend of mine, and he explained to me that, yes, many Christians do say that Islam is an "evil" religion.
On the Muslim side, views are equally xenophobic. I asked an online correspondent, a Muslim, for his view of the situation, and he wrote the following:
My british acquaintances sound seriously nuts and they were born and bred in the UK, not in a madrassa in some rural area of Pakistan. I don't think it's coincidence that they were local, home-grown terrorists for the London terrorist attacks a few years ago. ...
I don't think they're dangerous as in they are going to be violent. But then the vast majority of Germans during WWII weren't violent either; however, they did ascribe to a pretty terrible set of beliefs and allowed the really militant ones to be confident in their militancy. This predates 9/11 and was something I found so appalling that I really couldn't go to the mosques anymore.
Would it surprise you to hear that many of the muslims I've come across, when the veneer of politeness comes off, think that the Park51 project, aka Ground Zero Mosque, is indeed a sign that Islam is "winning" against the infidel West?
This is not just my perhaps overly Western view because I grew up here. Even my wife, who was born and raised in Pakistan and only moved here after we were married, would tell you this."
So, some Christians believe that Islam is an "evil" religion, and some Muslims presumably believe that Christianity and Judaism are "evil" religions. Both sides can point to facts to support their views, and both sides believe that they have the "absolute truth" on their side. These mutually distorted views of one another are what lead to wars.
From the point of view of Generational Dynamics, religion often plays a very specific role during generational Crisis eras, as I explained in "Book review review: Christopher Hitchens: 'God Is Not Great: How Religion Poisons Everything'."
If you want to fight a war of extermination, then you have to convince your own people that the enemy people deserve to be exterminated. If you have no other way of making that case, then you use religion. Sunni Islamists have certainly done that by using religion as an excuse for terrorist attacks against the West, but also as a reason for terrorist acts against Sufi and Shia Muslims. The West is only just beginning to exhibit the same level of xenophobia by charactizing Islam as "evil."
But xenophobia is not just a Christian versus Muslim thing. In fact, it's far more often an immigration issue, often unrelated to religion.
In Europe we see harsh immigration issues raised with the Roma Gypsies, who are mostly Christian, and in America, immigration has been a highly visceral topic with (Christian) immigrants from Mexico to Brazil. The issues are often remarkably similar from one case to the next: The immigrants complain of relentless discrimination, and the local population accuses the immigrants of taking jobs and causing crime.
In a broader sense, xenophobia can grow between two ethnic groups, even when immigration is not an important factor. For example, the financial crisis has caused many Chinese to be furious at Americans, while both Republicans and Democrats are "China-bashing" in their Congressional campaigns, according to the Wall Street Journal (Access).
What we're seeing today is an incredibly remarkable phenomenon: the rapid growth in xenophobia, around the world, in many different forms, for the first time since the 1930s. This led to a world war when it happened the last time, and it's certain to do so again.
(Comments: For reader comments, questions and discussion,
see the 14-Oct-10 News -- Millions of strikers shut down France thread of the Generational Dynamics forum. Comments may
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(14-Oct-2010)
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A German politician wants to ban Turkish and Arab immigrants
An international row was triggered on Saturday by a leading German politician who said that Turkish and Arab immigrants were unable to integrate into German society and should no longer be accepted, according to the Guardian.
Horst Seehofer, the premier of Bavaria, said in an interview, "It's clear that immigrants from other cultural circles like Turkey, and Arab countries have more difficulties. From that I draw the conclusion that we don't need any additional foreign workers from other cultures." With regard to immigrants who already live in Germany, he said that Germany should "get tough on those who refuse to integrate."
Outraged Turkish groups and politicians in Germany have demanded an apology from Seehofer, according to Deutsche Presse-Agentur.
Seehofer's party is part of Chancellor Angela Merkel's governing coaliation, and Der Spiegel quoted Merkel defending Seehofer: "It was a comment focused on skilled workers. We remain a homeland for many people and hope they feel comfortable in Germany. Germany is and remains a cosmopolitan country."
Merkel may have felt compelled to defend Seehofer for a different reason - that the views he expressed are becoming increasingly popular.
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This has become clear in the last two months, when Thilo Sarrazin, a member of the board of the Bundesbank (Germany's central bank), published a book called "Deutschland schafft sich ab" (Germany eradicates itself). This book was condemned by many politicians as containing racist remarks directed against Jews, Turks and Arabs, according to Spiegel.
Some quotes are: "The Turks are taking over Germany exactly as the Kosovars took over Kosovo: via a higher birth rate. I wouldn't mind if it were Jews from Eastern Europe with a 15 percent higher IQ than the German population." "A large number of Arabs and Turks in (Berlin) ... have no productive function other than in the fruit and vegetable trade." "All Jews share a certain gene, all Basques have certain genes that make them different from other people." "I don't want the country of my grandchildren and great-grandchildren to be largely Muslim, or that Turkish or Arabic will be spoken in large areas, that women will wear headscarves and the daily rhythm is set by the call of the muezzin. If I want to experience that, I can just take a vacation in the Orient."
Merkel criticized Sarrazin's book, and Sarrazin was forced to resign from the Bundesbank board at the end of September. However, his book has been extremely popular, and is going into additional printings.
Sarrazin feels that he's been vindicated. While still at Bundesbank, he received thousands of calls, letters and e-mail messages, and he bragged, "It's 99 percent support and letters of congratulation."
Many people are becoming alarmed that people in the German mainstream are returning to the xenophobia of the 1930s Nazi era, according to DAPD Nachrichtenagentur A recent poll by the the Friedrich Ebert foundation (PDF German) found that an increasing (though still minority) number of Germans want a "Führer" who would "govern with a hard hand for the good of Germany," and that about 1/3 of the people want to "send foreigners back home" to avoid the danger of German being "overrun."
In addition, 58% say that "religious practices for Muslims in Germany should be seriously limited," and this rises to 75% for people from the former East Germany.
From the point of view of Generational Dynamics, unfortunately none of this is a surprise. The survivors of WW II saw how xenophobia leads to wars of extermination, and as long as they were in charge, xenophobic tendencies have been kept to a minimum. That's why we would have seen very few of these tendencies in the 1990s. But now we see it growing in all its forms, with respect to Muslims, Jews and Roma Gypsies in Europe, and with respect to Muslims, Brazilians and Mexicans in America. The path to world war is becoming clearer and clearer.
(Comments: For reader comments, questions and discussion,
see the 13-Oct-10 News -- Xenophobia grows in Germany towards Turks, Arabs and Jews thread of the Generational Dynamics forum. Comments may
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(13-Oct-2010)
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Mahmoud Abbas demands permanent cessation of settlement building
Senior officers in China's People's Liberation Army (PLA) have had a long relationship with America's army, and remember the times in the 1970s and 1980s when they were united against what appeared to be a common enemy, the Soviet Union, according to the NY Times.
But younger Chinese who became officers after the 1989 Tiananmen Square massacre and the 1991 collapse of the Soviet Union have known America only as an ideological enemy.
In order to help improve relations between the two countries' armed forces, Defense Secretary Robert Gates has accepted an invitation to visit Beijing, according to the Dept. of Defense web site, where they'll undoubtedly have a nice chat.
America and China have had military-to-military cooperation programs for a long time, but they were abruptly ended by the Chinese in January of this year, when the Pentagon announced plans to sell more than $6 billion worth of arms to Taiwan, according to the LA Times.
Chinese military leaders used to tolerate arms sales to Taiwan in the past, according to the NY Times, article, but with the rise of the younger generation of officers, that tolerance appears to be gone. One PLA colonel is quoted as saying, "Why do you sell arms to Taiwan? We don’t sell arms to Hawaii. In the past China simply tolerated this silently for the sake of the overall situation of U.S.-China relations. But now times have moved on, the world is more civilized, and China is stronger."
From the point of view of Generational Dynamics, these differences are only going to increase, as the PLA officers who survived the Communist Revolution crisis civil war continue to retire or die, leaving behind younger officers who have no memory of the horrors of war, and no fear of war. A visit to Beijing by America's Secretary of Defense will not make any difference.
Much of Friday's meeting of the Arab League is shrouded in confusion, but more details are leaking out.
Chief Palestinian negotiator Saeb Erekat is now saying that Mahmoud Abbas used very harsh words about Israel at the meeting. He said that Israel has violated all previous peace agreements, and that peace talks would not resume unless Israel permanently ended all settlement building (which is never going to happen).
If the peace talks fail, then the first option that the Palestinians will consider is UN recognition of an independent Palestinian state on the pre-1967 borders. Jerusalem Post
(Comments: For reader comments, questions and discussion,
see the 12-Oct-10 News -- Chinese army's view of America differs by generation thread of the Generational Dynamics forum. Comments may
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(12-Oct-2010)
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Alarmed Lebanese citizens fear a new civil war
As we reported yesterday, Palestinian Authority president Mahmoud Abbas says that he will resign as PA president if Israel resumes building West Bank settlements, which would cause the collapse of the Mideast peace talks between the Israelis and the Palestinians.
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Abbas has been indicating for several months that he would like to step down because of his age. However, the implications of his resignation go much farther. The PA leadership have agreed that no other senior official in the PA (Fatah) organization would take his place, and no new election would be held. This means that the Palestinian Authority would be dissolved, according to Haaretz.
The dissolution of the PA would also mean that the Palestinian security forces would be dismantled, leaving the West Bank with no police force. The Palestinians would then demand that responsibility for security in the West Bank be taken over by Israel or by the United Nations.
Another option is that the United Nations Security Council and General Assembly will simply recognize a Palestinian state, just as it recognized an Israeli state in 1948. Chief Palestinian negotiator Saeb Erekat is quoted by Ynet as saying, "Should [the talks] fail, we'll consider turning to the UN to check the possibility of imposing an international mandate on the territories."
Thus, it's quite possible that the Mideast will look very different in a couple of months than it does today.
That Abbas, at age 75, would like to step down as Palestinian President is no surprise, as he's been indicating a desire to do so for several months. In an August radio interview, translated by Memri, Abbas expressed a great deal of sadness that peace had not been achieved, and said that he would not run for another term as Palestinian president: "I cannot go on ruling, and I need to rest; I'm at the age where I can't continue to lead."
Born in 1935, Abbas was part of a generation that grew up during World War II and then during the genocidal war between Jews and Arabs that followed the partitioning of Palestine in 1948 and the creation of the state of Israel. Like people in America's Silent Generation, that grew up during WW II, Abbas and people in his generation have spent their lives working to prevent anything like that mass slaughter from happening again. His sadness stems from the fact that he sees the same xenophobia growing between Arabs and Jews that he saw as a child.
In May, 2003, in "Mideast Roadmap - Will it bring peace?" I wrote that there was incredible irony going on in the Mideast, in that the leaders of two opposing sides, Ariel Sharon and Yassir Arafat, hated each other, but that they're the ones cooperating with each other (consciously or not) to prevent a major Mideast conflagration. As long as those two men were in charge of the Israelis and the Palestinians, respectively, nothing like the 1940s war would happen again. But the disappearance of these two men, especially Arafat, would be part of an overall generational change that would lead to a major new conflagration within a few years.
This was certainly not the common wisdom at the time, and several people wrote to me saying that when Arafat died, the Mideast would become more peaceful and President Bush's Mideast Roadmap to Peace would be adopted.
Well, Yasser Araft died in November 2004, and Ariel Sharon fell into a coma in January 2006. Six months later, in July 2006, Israel went to war with Hizbollah in Lebanon, something which, I believe, would never have happened if Sharon had still been in charge.
Abbas is part of the Palestinian "Old Guard" generation that formed Fatah and led the Palestinians in the years after the 1948 war. Since the 1990s, Abbas has been considered to be a conciliator. He was a leader in the Oslo peace process in 1993, and was involved in several attempts at peace since then, often recommending a more conciliatory approach than Arafat wanted. He became Palestinian president after Arafat's death, raising worldwide hopes that Mideast peace was at hand.
The "Young Guard" generation, corresponding to America's Boomers and Generation-X, formed the Hamas organization in the 1980s, with the objective of eliminating Israel completely. Although they went along with Arafat, they never respected Abbas, and in February 2007, took control of Gaza after a bloody war between Fatah and Hamas.
Two years later, in January 2009, it was Israel's turn to fight Hamas, in a war that ended inconclusively with Hamas still in control of Gaza. Abbas has been criticized in the Arab community for refusing to condemn Israel for the Gaza war.
No major war has been fought in the West Bank territory since Abbas became Palestinian president, and it can quite reasonably be argued that this is because of Abbas's leadership.
It's worth remembering that neither Fatah (Abbas) nor Hamas are in control of the future. The future belongs to the younger generations, born since the 1980s, with no sense of history. In Gaza, the median age is 17, meaning that Gaza is being run by kids under age 30 running around with guns and missiles. And a poll of young Israelis, quoted by the Palestine Chronicle, indicated that they didn't even know what continent Israel was on. These are the generations that are going to decide the Mideast's future. None of them wants to listen to the babblings of old fogies like Abbas and Netanyahu, and that's why even if a peace agreement could be forged in a meeting room in Cairo, it would be worthless.
From the point of view of Generational Dynamics, Arabs and Israelis are headed for a new genocidal war, re-fighting the 1948 war that followed the partitioning of Palestine and the creation of Israel. Many leaders in the international community understand this viscerally, and that's why they're applying so much pressure to keep the peace talks going, at any cost, for as long as possible. However, the peace talks must collapse, sooner or later, and the resignation of Mahmoud Abbas will bring a dramatic generational change in leadership that will put younger people in control, with calamitous results.
Like all international meetings these days, the meeting of the International Monetary Fund (IMF) ended inconclusively with no agreement on currency and trade issues, according to the Irish Times.
The article quotes Dominique Strauss-Kahn, the IMF’s managing director, describing the impotence of the meeting's final communique: "The language is ineffective. The language is not going to change things ... There is no way to believe that global growth can be rebalanced without changing some currency value. ... What we need is real action."
However, according to an analysis by Reuters, "real action" is taking place in the form of increased protectionism by several countries.
The situation is as we described it a couple of days ago. (See "8-Oct-10 News -- Fears of international 'currency wars' grow, as dollar weakens.")
In fact, the situation is made worse by Friday's disastrous jobs report. Investors are convinced that the Fed will implement more qunatitative easing. As a result, investors have been selling dollars, and going after emerging markets, leading to a weakening of the US dollar. However, everyone wants a weak currency, so that their exports will improve, and so Japan, China, Brazil, and Europe are all taking steps to weaken their own currencies.
The article quotes Thailand's finance minister as saying, "That there seems to be lack of agreement as to what needs to be done at the global level with the major economies is of concern to us. There seems to be a race to the bottom...and that's very problematic."
In 2005, Lebanon's prime minister Rafik Hariri was assassinated as described in the February, 2005, report, "Massive Beirut explosion killing Rafiq Hariri puts Lebanon into state of shock."
Now, reports indicate that Lebanese people are arming themselves because they're terrified about the prospect of a new civil war between Hizbollah and its allies on the one hand, and Lebanese Prime Minister Saad Hariri and his supporters on the other, according to Haaretz. Saad Hariri is the son of the slain Rafiq Hariri.
The fear is that violence will be triggered by a new report on the assassination, prepared by a special international prosecutor, because it's expected that the report will lead to the indictment of some Hizbollah leaders.
The tension is made worse because of a planned visit to Lebanon next week by Iranian president Mahmoud Ahmadinejad. Ahmadinejad is Hizbollah's main supporter, and has supplied money and weapons to the terrorist organization.
However, from the point of view of Generational Dynamics, Lebanon is in a generational Awakening era, as I've written many times, and so a civil war is impossible or, if one begins, it will fizzle quickly.
China bashing is growing in the Congressional campaign, as both Republicans and Democrats blame China for America's economic troubles. Wall Street Journal (Access)
The Israeli cabinet approved a bill requiring new non-Jewish citizens to swear an oath of allegiance to Israel as a "Jewish and democratic state." The bill mostly targets Palestinians from the West Bank who marry Palestinian citizens of Israel. The bill has triggered charges of racism. Guardian
The Pentagon is launching the world's first multi-service military Cyber Warfare Command, CYBERCOM. The command will be coordinated with NATO. The change reflects the recognition that cyber is a warfare domain equal to land, sea, air and space. Eurasia Review
Vietnam held lavish parades and fireworks to celebrate the 1,000th anniversary of North Vietnam and the capital city Hanoi. Vietnam News
(Comments: For reader comments, questions and discussion,
see the 11-Oct-10 News -- Resignation of Abbas would trigger big changes in Mideast thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(11-Oct-2010)
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Climate change talks in Tianjin, China, collapse in acrimony
For a couple of months we've been reporting that Palestinian Authority president Mahmoud Abbas has been expressing the desire to step down, because of his age.
Now the desire has been made official, according to Haaretz. Abbas has indicated that he will resign as PA president if Israel resumes building West Bank settlements, which would cause the collapse of the Mideast peace talks between the Israelis and the Palestinians.
However, the implications of his resignation go much farther. The PA leadership have agreed that no other senior official in the PA (Fatah) organization would take his place, and no new election would be held. This means that the Palestinian Authority would be dissolved.
The dissolution of the PA would also mean that the Palestinian security forces would be dismantled, leaving the West Bank with no police force. The Palestinians would then demand that responsibility for security in the West Bank be taken over by Israel or by the United Nations.
As I've been writing for years, Generational Dynamics predicts that the Jews and Arabs will be re-fighting the genocidal war that followed the 1948 partitioning of Palestine and the creation of the state of Israel, and that therefore no Mideast peace process is possible. There will be enormous international pressure on the Palestinians and the Israelis to maintain some kind of fig leaf of peace talks, but sooner or later they will have to collapse.
The above headline is not much different from what we saw a year ago, except that the location was Copenhagen, rather than Tianjin.
Just as the international community is demanding some kind of fig leaf of Palestinian/Israeli peace talks, the international community also wants some kind of climate change talks to be going on, even if everyone knows they're a waste of time.
In the climate change talks just ended, the U.S. is demanding that China's voluntary energy savings be verified internationally, and China is refusing, according to the BBC.
And China is accusing the Western nations of reneging on the emission cut obligations that they committed to years ago with the Kyoto agreement, according to Xinhua.
"The man that did more good than anyone was Deng Xiaoping. When he came to power 800 million people were living on less than one dollar a day. Thirty years later on after the results of his reforms, 200 million lived on less than one dollar a day. Six hundred million people were lifted out of poverty."
China points to Deng Xiaoping as proof that the Nobel prizes are biased against the Chinese. The Nobel committee only chooses dissidents from China, while they chose Barack Obama, who has not brought peace anywhere. Asia Sentinel
U.S. 30-year mortgage rates declined to 4.27% last week, down from 4.32%. It's the lowest rate since 1971, when records were first kept. Bloomberg
The claim that the Stuxnet computer virus was designed to target Iran's Bushehr nuclear power plant has not been substantiated. Its actual target is not yet known. Schneier on Security.
The left-wing cable news channel MSNBC is a completely different entity than the website msnbc.com, which is an objective news site, and the third most popular news site in the U.S. Both entities are owned jointly by NBC Universal and Microsoft, and the two owners are considering changing the name of msnbc.com to something else to avoid confusion. NY Times
When the Japanese arrested a fishing boat captain last month, China retaliated by arresting four Japanese contractors working in China. China freed 3 of the contractors after the boat captain was returned to China, and only freed the fourth one on Saturday. Japan Times
It's been four months since ethnic violence erupted in southern Kyrgyzstan, with 2,000 Uzbeks murdered in a series of shadowy state pogroms. Human rights organizations are saying that Uzbeks continue to be persecuted, as Kyrgyzstan heads for a parliamentary election. Guardian. Bloomberg
Galileo was a prestige project that was supposed to beat out America's GPS satellite system, with new features, greater accuracy, and none of America's military restrictions. However, it's turning into a financial black hole as costs soar. Spiegel
Do gassy camels add to global warming? News Core
(Comments: For reader comments, questions and discussion,
see the 10-Oct-10 News -- Mahmoud Abbas threatens to dissolve the Palestinian Authority thread of the Generational Dynamics forum. Comments may
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(10-Oct-2010)
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Mideast peace talks may or may not have ended
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Two terrorists exploded suicide bombs on thursday at a Sufi shrine in Pakistan during a special religious ceremony. Of the hundreds in attendance, nine were killed and dozens were injured. Dawn
A Sufi shrine in Lahore was attacked by suicide bombers in June. (See "2-Jul-10 News -- New terrorist attack in Lahore, Pakistan" and "3-Jul-10 News -- Lahore bombing leaves Pakistanis confused.") Sunni Islamist terrorists have been particularly targeting Sufi and Shia Muslims in recent months.
An online correspondent wrote to me recently saying that Wall Street was bcoming "really bonkers relative to reality," just like 2007. I wrote back that it would be hard to see why Wall Street was more bonkers now than it was, say, a year ago.
However, after Friday, I can see what he means. The jobs report was disastrously bad, worse than people had expected. This is particularly true when you remember that economists have been promising a "V-shaped recovery" every month for the last two years. Apparently economists are too dumb to learn, but that shouldn't surprise anyone.
The economy lost 95,000 jobs in September, according to Bloomberg. To celebrate, the stock market celebrated by pushing the DJIA above 11,000.
How could this happen? The financial pundits talked about it all day on tv. The disastrous job report meant that the Fed will be pressured to do another $500 billion to $1 trillion in quantitative easing.
This is exactly what was happening in 2007, prior to the beginning of the financial crisis in August. Bad news was always good news, because bad news meant that the Fed would lower interest rates (the Fed funds rate) by an extra 1/4% or 1/2%, and that would stimulate the economy.
Wow!! Just think, that's all that the Fed had to do then. Just lower the interest rate by 1/2%!! But now, interest rates have been effectively 0% for a couple of years,
Boy, those were the days, my friend!
Now it's hardly worth getting out of bed in the morning unless the Fed or the Administration is throwing a few hundred billion dollars out there.
I heard one economist on tv on Friday say that the economy will be a little slow for a month or two, but then there'll be "an acceleration of job growth and economic growth."
Bonkers.
From the point of view of Generational Dynamics, nothing has changed since I started discussing this in 2002: The stock market has been in a bubble since 1995, and is still overpriced today by a factor of almost 200%, so by the Law of Mean Reversion, there will be a stock market crash to a range below Dow 3000. (See "Updating the 'real value' of the stock market.")
The Arab League met on Friday to discuss whether to recommend ending the peace talks between Palestinians and Israelis, after Israel refused to extend its moratorium on building West Bank settlements when the moratorium expired on September 26.
Palestinian president Mahmoud Abbas had said that he'd let the Arab League decide whether to continue the peace talks. He also said that he would make a historic announcement at the Arab League meeting. I speculated that this might mean that he planned to announce his resignation as Palestinian president, since he's said in recent interviews that he's getting too old to "continue to lead."
However, there seems to be nothing but confusion resulting from Friday's meeting. The Jerusalem Post says that some Arab leaders want the talks to end, while others want to give the U.S. a month to work out a compromise about the settlements, while others say that the direct peace talks should end, but indirect peace talks (using the U.S. as intermediaries) should continue.
However, a Reuters report says that the Arab League leaders want the direct peace talks to continue, and that there was no recommendation to go back to indirect talks.
"The Arab follow-up committee will convene another meeting in the coming weeks to study the alternatives and the ideas that were presented by the president," said an Arab League spokesman.
As I've been saying since 2003, Generational Dynamics predicts that Jews and Arabs will be re-fighting the genocidal war that they fought in 1948, following the partitioning of Palestine and the creation of the state of Israel, and so no peace talk has any talk of succeeding.
In this case, I actually thought that they probably find some formula for temporarily resolving the settlement issue, say by agreeing that only a few settlements will be built, and only in certain restricted areas. But apparently even that limited compromise is impossible. Abbas has repeatedly said that the peace talks cannot continue unless the settlement moratorium is extended, and Israeli prime minister Benjamin Netanyahu has asked Abbas to continue the peace talks, even though the settlement moratorium will not be extended.
I think it's pretty clear to everyone that the peace talks are going to fail, but nobody wants to be the "bad guy" who says it. The Obama administration, which has bet a great deal of credibility on the talks, will try to do anything to grease the wheels; Abbas, the Arab League and Netanyahu are just posturing so that they'll be in a position to blame the other side when the peace talks finally collapse.
Everybody's afraid of the consequences if the peace talks collapse. There have been three Mideast wars in the last five years -- Israelis vs Hizbollah in Lebanon in 2006, Palestinian Fatah vs Hamas in Gaza in 2008, and Israelis vs Hamas in Gaza in January, 2009. If the current peace talks collapse in acrimony, most people expect another war, with unpredictable consequences.
Anyone who's seen the Broadway play "Man of La Mancha," or who has read the original 1605 book "Don Quixote" by Miguel de Cervantes, knows what the phrase "tilting at windmills" means. It refers to an act of lunacy where the hero gets on his horse and ventures forth to attack a windmill, thinking that it's an evil giant. The story is supposed to make you feel good, because it shows how even attacking a windmill "keeps hope alive."
So tilting at windmills is the thought that came to my mind on Friday when I heard the announcement that the Norwegians were awarding the Nobel Peace Prize to a Chinese dissident, Liu Xiabao.
Now, there's no doubt that Liu is a hero by Western standards. He stood up to the Beijing government in the realm of human rights, and was sent to jail for 11 years as a result. And all the European human rights groups feel might proud of themselves for this, according to the LA Times.
According to one China analyst, Kerry Brown of Chatan House, "The hard-liners in China will see this as just a Western conspiracy, and in the short term it will probably make things worse for dissidents. But in the long term it is hugely damaging for the Chinese political elite, who seem to want international legitimization."
This opinion is barely consistent with reality. This award could only infuriate the Chinese -- in the short run and the long run.
If you want to get an idea of what the Chinese REALLY think of the award, here's an extract from an opinion column in China's Global Times. What I found most fascinating about this opinion column is its statements about the collapse of the Soviet Union:
The Nobel committee once again displayed its arrogance and prejudice against a country that has made the most remarkable economic and social progress in the past three decades.
The Nobel Prize has been generally perceived as a prestigious award in China, but many Chinese feel the peace prize is loaded with Western ideology.
Last century the prize was awarded several times to pro-West advocates in the former Soviet Union, including Mikhail Gorbachev, whose efforts directly led to the disintegration of the Soviet Union. The Western preference of the Nobel committee did not disappear with the end of the Cold War.
The committee continues to deny China's development by making paranoid choices.
In 1989, the Dalai Lama, a separatist, won the prize. Liu Xiaobo, the new winner, wants to copy Western political systems in China.
There are many different perspectives to view these two people, but neither of the two are among those who made constructive contributions to China's peace and growth in recent decades.
Other Chinese dissidents, such as Rebiya Kadeer and Hu Jia, were reportedly on the shortlist for the peace prize this year, which naturally generates animosity among many Chinese against the award.
They have reason to question whether the Nobel Peace Prize has been degraded to a political tool that serves an anti-China purpose. It seems that instead of peace and unity in China, the Nobel committee would like to see the country split by an ideological rift, or better yet, collapse like the Soviet Union. ...
Obviously, the Nobel Peace Prize this year is meant to irritate China, but it will not succeed. On the contrary, the committee disgraced itself.
The award however makes it clearer that it is difficult for China to win applause from the West during China's development, and China needs to be more determined and confident in choosing its own development path, which is different from Western approach.
The Nobel committee made an unwise choice, but it and the political force it represents cannot dictate China's future growth.
China's success story speaks louder than the Nobel Peace Prize."
There are several fascinating aspects to the opinion, which illustrates a great deal about the differences between China's view of the world and the West's:
So the Nobel prize committee and the Europeans have found a way to make themselves feel good. They can write congratulatory messages to one another about how clever they were to have embarrassed the Chinese by giving the award to a Chinese dissident.
If they had done no harm, then we could say that they were simply tilting at windmills. But unfortunately they did do harm - they increased the xenophobia between the Chinese and the West.
By the way, in my opinion the winner of the Nobel Peace Prize should have been Bill Gates, who has amassed a fortune at Microsoft and is looking for ways to spend it that really WILL bring peace.
(Comments: For reader comments, questions and discussion,
see the 9-Oct-10 News -- Nobel Peace Prize awarded to China dissident thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(9-Oct-2010)
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This weekend's IMF meeting is expected to be contentious.
On Friday, global financial officials will be attending the twice yearly meeting of the International Monetary Fund (IMF) in Washington, and the major item on the agenda will be discussions of possible "currency war" in the next few months, according to CS Monitor
On Thursday, European Central Bank (ECB) President Jean Claude Trichet "excess volatility and disorderly movements" in international currency exchange rates could harm the world economy.
IMF director Dominique Strauss-Kahn said that using exchange rates "as a policy weapon" to undercut other economies and boost a country's own exporters "would represent a very serious risk to the global recovery."
The words of alarm are triggered by what appears to be an international chain reaction going on right now:
For many officials in the international community, the country to blame is China. As is often the case, economic issues are the motivating factor for xenophobia between the Chinese on one hand and the Americans and Europeans on the other. If only China would allow the yuan to strengthen, then Chinese goods would be more expensive in Europe and America, and the world would be saved.
The mood of the Europeans is summarized in this opinion column from the Australian:
European ministers, led by the commission President, Jose Manuel Barroso, found themselves almost tongue-tied; partly grateful to China for lifting their economies out of recession and partly furious at it for undercutting their exports.
What emerged was an incoherent yelp of rage directed at Beijing and one hopeless demand: that China should let its currency rise in value because . . . well, because it would be unfair to Europe not to."
America's Treasury Secretary Timothy F. Geithner says that China's policy of keeping the yuan cheap on world markets "sets off a dangerous dynamic" that encourages other countries to follow suit and risks touching off a destructive, tit-for-tat competition for jobs and trade. The Washington Post quotes him as saying, "It's unfair to countries that were already running more flexible regimes and let their currencies appreciate." This statement is a sign that things could get ugly.
And as we mentioned briefly yesterday, the House of Representatives has passed a bill by a vote of 348 to 79 to impose punitive tariffs on the Chinese. If the bill becomes law, it would start a major trade war with China, according to Spiegel.
This would be reminiscent of the international trade war that followed the passage of the Smoot-Hawley tariff act in 1931. Almost every economist in 1931 said that the Smoot-Hawley act was a bad idea, but the idea was so popular that the bill was passed and signed anyway. This is a good example of how great events are driven by huge generational trends, rather than the intentions of politicians. The Smoot-Hawley act was an economic disaster for Japan, as their major export, silk, was almost completely shut down. A year later, Japan invaded Manchuria. It would not be too much of an exaggeration to say that the Smoot-Hawley law was the first hostile act of World War II.
Perhaps Chinese Premier Wen Jiabao had the Smoot-Hawley experience in mind when he spoke at a business summit in Brussels on Wednesday. Here are some excerpts, from the Xinhua transcript:
The euro exchange rate experienced large fluctuations recently, but it was caused by the U.S. dollar, instead of the yuan. How can you place the blame on China? The imbalance of trade is caused by structural problems against the backdrop of globalization. It should not be politicized. We pursue balanced and sustainable trade, and in no way seek surplus. ...
You should not pressure China on the yuan's appreciation if you consider the issue from another perspective. Many Chinese export enterprises have profit margins of only 2 to 3 percent, 5 percent at most.
Should the yuan appreciate by 20 to 40 percent, as demanded by some people, a large number of Chinese export enterprises will go bankrupt, the workers will lose their jobs and the migrant workers will have to go back to the rural land, making it hard for society to remain stable. The world will by no means benefit from a crisis in the Chinese economy.
China contributed about 50 percent of the global economic growth in 2009. It is a huge market with great potentials for many enterprises. Once again, I would like to tell our friends in the industrial and business community candidly: Don't pressure China on appreciation of the Chinese yuan."
His predictions that appreciating the yuan would cause massive social unrest in China is undoubtedly correct, as we've been saying for years that China is headed for civil war anyway. Wen is quite aware of the danger, as he famously said in 2007 that "China is 'unsteady, unbalanced, uncoordinated and unsustainable.'"
From the point of view of Generational Dynamics, the real financial crisis is yet to come, with the collapse of banks and stock market crashes around the world.
It's worth saying a few more words about the inflation/deflation debate that seems to be continuing.
There are two measures of inflation, and they have to be understood separately. One measure is a country's "internal" inflation measure, the Consumer Price Index (CPI), which measures the cost of goods within the country.
The other measure is "international," and it's a relative measure. Even if one country's currency weakens, it may actually end up stronger if other countries' currencies weaken more.
Internally, most countries are experiencing a deflationary spiral, meaning that as the cost of ordinary goods -- groceries, rent, transportation -- is going down along with the CPI in each country's currency.
Internationally, we seem to be approaching these "currency wars," where countries are going to be racing one another to devalue their currencies the most, in order to benefit the most from the international export business.
As the international reserve currency, I expect the US dollar to remain strong relative to other currencies, even if the Fed initiates a new round of quantitative easing. This is contrary to the expectations of many pundits. These pundits are focused on possible quantitative easing by the Fed, but they aren't focusing on the devaluations being practiced by other countries, which are expected to weaken those currencies more than the dollar.
I would caution all but the most sophisticated readers to stay away from buying gold or silver, as metal prices appear to be in a bubble. If you absolutely must buy gold, for emotional reasons, then take possession of the actual metal. Many gold stocks and certificates are not backed by actual gold, and you could lose your entire investment.
I'm frequently asked the best way to protect your money, and for several years my answer has always been the same: For the vast majority of people, the best bet is to keep all your assets in liquid cash, either in a government insured bank account or in short-term (6-12 month) Treasuries, but not in money market funds or in long-term Treasuries.
(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.)
(8-Oct-2010)
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Protectionism growing around the world
There was supposed to be an Arab League meeting earlier this week on Monday, at which time the members would decide whether to end the Israeli-Palestinian peace talks.
Then, under pressure from Egypt, the meeting was postponed to Wednesday, and Mahmoud Abbas was supposed to make a "historic announcement," probably to resign as Palestinian president.
Now the meeting has been postponed again, until Friday, according to AFP.
The Israelis have refused to extended the West Bank settlement moratorium that expired over a week ago, and so most analysts expect the Arab League ministers to recommend that the peace talks be canceled. However, an analysis in the Jerusalem Post that the Arab League may decide to be "flexible," and allow the peace talks to continue for a while, even without the moratorium, as long as there is too much additional settlement building.
The Israeli government is sharply divided on the settlement issue, with threats to end Netayahu's ruling coalition no matter which way the moratorium decision goes, according to the NY Times.
The Obama administration has staked a great deal of its own credibility on these peace talks, and is applying enormous pressure to Israeli prime minister Benjamin Netanyahu to extend the freeze. The administration is offering various security and political guarantees to Israel in exchange for extending the moratorium. The exact terms are not known, but they're thought to include delivery of weapons systems to Israel.
In a related story, Bloomberg reports that Netanyahu is seeking to change the nation's citizenship oath to specify that Israel is a Jewish state. This would be a highly symbolic act, since there are non-Jewish Arabs living in Israel, and because Abbas has already rejected the Israeli demand that the Palestinians recognize Israel as a Jewish state.
During the 1930s Great Depression, the global economic situation was made worse because one country after another enacted protectionist legislation that prevented foreign imports from competing with domestically manufactured products. In America, it was the Smoot-Hawley tariff act of 1931. The world was supposed to be avoiding protectionism this time, but in fact it's growing again. But instead of tariffs, which are politically unpalatable, countries are in a race to devalue their currencies, through the politically acceptable means of bond purchases (quantitative easing). However, as a sign that the level of xenophobia between Americans and Chinese is growing, the House of Representatives has passed a bill by a vote of 348 to 79 to impose punitive tariffs on the Chinese. If the bill becomes law, it would start a major trade war with China. Spiegel
The results of the European audit of Greece's national debt and finances will be published this month, and the figures are expected to be worse than previously announced. AFP
As the suicide rate for Boomers increases, studies are showing that Boomers had expected to be in better health and better off financially in their old age, and are depressed because that isn't happen. Furthermore, the high suicide rates are stretching down into the 40s age group, which would include the Generation-Xers. CNN
As Iran starts arresting more people because of the effects of the Stuxnet virus on the Bushehr nuclear installation, dozens of Ruusian nuclear engineers, technicians and contractors are heading for home to escape arrest. The Russians built and maintained the nuclear plant, and they are the Iranians' prime suspects. Debka
The international economic sanctions on Iran are not crippling Iran's economy, but they're causing prices to rise and putting additional strains on the government of President Mahmoud Ahmadinejad. Washington Post
With Iran facing increasing pressure because of the Stuxnet virus and the international sanctions, some Israeli analysts are suggesting that Iran might lash out against its neighbors or Israel by unleashing a "dirty bomb" -- a bomb that uses a conventional explosive to spread radioactive material over a wide area. One strategy would be to give the weapon to Hamas or Hizbollah for use against Israel. Because of this threat, Israel's finance minister is calling for a naval blockade of Iran, since the economic sanctions aren't working. Jewish Week
Syria's is increasingly facing a water shortage crisis, as the amount of available water has fallen from a comfortable 1200 cubic meters per person to a crisis level of fewer than 750 cubic meters, in just a few years. The problem is Syria is wasting enormous amounts of water. The National (UAE)
Although the people of Indonesia and Malaysia have common linguistic, religious and ethnic roots, and the two peoples are "as close as teeth and tongue," their relationship over the centuries has often been acrimonious, as described in this historical analysis. Today, points of contention between the two countries have led to mobilization in the streets, mostly in Indonesia. Rajaratnam School of International Studies (RSIS)
In an interview, former Pakistan president Pervez Musharraf admitted that Pakistan's military had trained militants to fight India in Kashmir, and that Pakistan had a right to do so because the West was ignoring the question of sovereignty of Kashmir, and India was killing Pakistanis. He gave government incompetence as the reason why he plans to return to Pakistan to run for another term as president. Spiegel
Last year, I told readers to make a mental note of the Fergana Valley, in central Asia, because it was going to become increasingly important in world affairs. The Fergana Valley sits at the intersection of Uzbekistan, Tajikistan, and Kyrgyzstan, and is becoming a battleground because of terrorist attacks by the al-Qaeda linked Islamic Movement of Uzbekistan (IMU). The United States is becoming increasingly involved in the Fergana Valley, because the Fergana Valley is used for logistics in fighting the Afghanistan war. Diplomatic Courier
All the central Asian states of the former Soviet Union are rapidly increasing their military spending, resulting in a regional arms race that's "an extremely dangerous trend." Eurasia Review
A new warning posted on France's Foreign Ministry web site warns French travelers to Britain of a high terrorism risk. Associated Press
The cause of Colony Collapse Disorder, a disease that's killed billions of bees since 2006, may have been discovered. Researchers at University of Montana say that the surprise cause may be a little known virus working in combination with a common fungus. Bloomberg
(Comments: For reader comments, questions and discussion,
see the 7-Oct-10 News -- Mideast peace talk decision postponed until Friday thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(7-Oct-2010)
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France, on high alert for terror, arrests 12 people
On Monday, Goldman Sachs senior investment strategist Abby Joseph Cohen appeared on CNBC and lied about the S&P 500 price/earnings ratio index, as we reported yesterday.
On the same day, Iceland's Parliament voted to bring criminal charges against former Prime Minister Geir H. Haarde, according to Ice News. It's not surprising that Iceland's politicians needed a scapegoat, since as many as 8,000 Icelanders were protesting and throwing eggs, tomatoes and paint at the Parliament building, according to Bloomberg. They were protesting the severe financial hardships that Icelanders are undergoing from forced austerity.
And in France on Tuesday, a court sentenced a young trader, Jerome Kerviel, to three years in prison for causing the financial crisis at Sociéte Générale. He didn't make a penny from the trades that he placed, according to CS Monitor, and he says that his management tacitly approved of what he was doing, as long as he was making money for the bank.
The contrast is absolutely incredible.
The global financial crisis was caused by massive fraud perpetrated by almost every major financial institution in the world, led by Goldman Sachs. Abby Joseph Cohen herself has undoubtedly made millions of dollars in bonuses and commissions for her part in this world wide fraud.
And even now, she's still on TV lying about price/earnings ratios to protect her bonuses and commissions, as we reported yesterday.
And yet, the two people facing criminal action did not make any money at all, and had little if any responsibility for causing the massive defrauding of investors around the world.
Former PM Haarde claims that he had no way of knowing that Iceland would face a financial crisis. But that claim is laughable, since I first wrote about Iceland's impending crisis in 2006, and I wrote about it just after Fitch Ratings issued a new rating on Iceland's banks, revising the country outlook from "stable" to "negative." So obviously a lot of people knew that Iceland was headed for financial problems in 2006. In fact, it seems that almost everyone knew except Iceland's Prime Minister.
So I suppose you could say that Haarde deserves to be charged.
But wait. In August, 2009, I wrote "Iceland begs for mercy as Europe turns the screws," I pointed out that European countries had invited Iceland banks into their countries, and must have been fully aware of the Fitch downgrade. In other words, politicians throughout Europe were as guilty as Haarde. But Haarde is the scapegoat.
So undoubtedly, both Haarde and Kerviel deserve to be the targets of some kind of legal action. The problem is that a lot of people deserve it a lot more, especially people who made huge amounts of money by defrauding investors.
There is growing skepticism in Europe about the terror alert that the US issued last weekend, because of its imprecision. It was a blanket US call for travelers to watch out for terrorist attacks in public places, but didn't mention any place to avoid or even a country. It was so vague that it provides little or no guidance to travelers, and it doesn't seem consistent with intelligence data from the European countries themselves. Debka
France has been on high alert for terrorist attacks for several weeks, because of threats from militants in Algeria and Morocco, part of Al-Qaeda in the Islamic Maghreb (AQIM). On Tuesday, French police arrested 12 people and seized guns in anti-terror raids linked to the warnings from US officials that al-Qaeda may be planning Mumbai-style attacks in Europe. Agence France Presse
Japan's Prime Minister Naoto Kan gave a speech in Brussels, at a meeting also attended by China's President Hu Jintao, in which he indirectly criticized China for its continuing retaliatory actions in the disagreements over the disputed islands in the East China Sea. Japan Times
Donald Trump says that he's "seriously considering" running for president in 2012. Fox News
(Comments: For reader comments, questions and discussion,
see the 6-Oct-10 News -- Scapegoats found for financial crisis, while bankers continue to lie thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(6-Oct-2010)
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US drone strike kills German militants in Pakistan, amid travel warnings
Here we go again.
75% of what you hear on CNBC or Bloomberg TV is nonsense, but every now and then, something is so bad that I have to comment on it.
Several weeks ago I posted, "24-Aug-10 News -- Ariel's Bobrinskoy gives price/earnings fantasy," where I quoted Charles Bobrinskoy, Vice Chairman, Director of Research, Ariel Investments, as lying about price/earnings ratios (also called valuations).
Bobrinskoy said that the current S&P 500 price/earnings ratio is 12.5, which is "ridiculously low." This is a lie. In that article, I included the chart from the WSJ Online web site that showed that the current S&P 500 P/E ratio is 16.53, which is much higher than the historic average of about 14. Bobrinskoy misstated the facts in order to continue to convince investors to buy stocks so that he can make fat commissions.
Now we have someone who's even worse than Bobrinskoy.
On CNBC on Monday morning, I watched an interview of Abby Joseph Cohen, head of Global Markets Institute Management at Goldman Sachs. She was described as the most powerful woman on Wall Street.
Here's my transcription of part of the interview:
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COHEN: It looks to us as if the economy is growing more slowly than it was at the beginnning of the year, but we just don't see the preconditions for a double dip. So our judgment is real GDP growth of about 1.5% for the next several months, but then re-acceleration. ...
QUESTION: We had a very strong September for the stock market, but you think equity valuations are still very attractive now?
COHEN: We do. Goldman Sachs for a long time has had one of the lowest economic forecasts, well below consensus. Even so, we think that the scenario that's priced into the stock market is not quite is likely to unfold.
If you agree, for example, that a recession will be avoided, we think that the S&P 500 is underpriced, not just based on 2010, but also the 2011 outlook. We tend to use very sophisticated mathematical models for valuation, but if you look at some of the very simplistic models as well, things like price/earnings ratios, they are dramatically below average -- currently 13 times earnings on 2010 versus a historical average of 17 or 18 times. ...
This is really laughable because she's worse than Bobrinskoy.
First she boasts that Goldman Sachs uses "very sophisticated mathematical models for valuation." This is a very telling piece of braggadocio, and I'll come back to it later.
Then she takes the "simplistic" calculation of P/E ratio = 13, versus a historical average of 17-18.
Well no, that's a double lie. The P/E ratio is 16.53, same as for Brobrinskoy, and the historical average is just 14. (Actually, according to the WSJ today, the P/E ratio has now gone up to 17.56.)
As in the case of Bobrinskoy, perhaps she's using the P/E ratio based on "operating earnings," a purposely misleading value that ignores so-called "one time expenses," which often include most expenses. If she is, then perhaps the P/E ratio = 12-13 is correct, but the historic average for operating earnings is much lower, probably around 7-8. Please see the article about Bobrinskoy for a lot more details about this.
So what's going on here? Cohen is telling a lie. Is she a crook, or is she incompetent? We report, you decide.
Cohen undoubtedly makes millions of dollars in salaries, bonuses, fees and commissions each year, but if she ever said, "The P/E ratio is 16.5 and the historical average is 14," then she'd probably be fired. Lying is the norm on CNBC and Bloomberg TV these days, and among financial executives.
There's another explanation for Cohen's behavior that I'd like to explore here.
Let's go back to the original causes of the financial crisis. I've been writing about this stuff for years while it was going on, and today, in hindsight, what happened is almost universally agreed to be true.
You'll recall that there was a real estate bubble, and investment banks created a market for collections of mortgage loans called RMBS -- residential mortgage backed securities.
But investment bankers weren't satisfied with already huge profits from selling RMBSs, so they found a way to slice and dice RMBSs to create Collaterized Debt Obligations (CDOs). These could be sliced and diced further into "CDOs-squared." All of these securities are now called by the catchy name, "toxic assets."
(See "A primer on financial engineering and structured finance" for how these securities were created, and see "Financial Crisis Inquiry hearings provide 'smoking gun' evidence of widespread criminal fraud" for how they were used to massively defraud investors.)
Today there's no question how massive this fraud was. It wasn't done by one or two "bad apples." Practically every financial firm in the world participated in the fraud, and Goldman Sachs was one of the leaders in perpetrating the fraud.
Within these organizations, the management structure allowed the fraud because of the unique relationship between people in the Boomer generation and Generation-X.
The financial engineers in Generation-X created the complex models and the complex securities that turned into toxic assets, and sold the toxic assets to investors. The Generation-Xers received the blessings of their incompetent Boomer bosses, who also stood to gain from fat fees and commissions. Everyone made money, except for the defrauded investors, who were totally screwed.
Now let's return to Abby Joseph Cohen of Goldman Sachs. I can't prove this, but what I suggest to you, Dear Reader, is that we're seeing a repeat of the scenario that led to the creation of toxic assets. Cohen says that "we use very sophisticated mathematical models for valuation."
Well, does she understand those very sophisticated mathematical models? Obviously not. She's too incompetent even to compute the "simplistic" price/earnings ratio correctly.
No, those sophisticated mathematical models are undoubtedly being created by the Generation-X financial engineers who report to her. And these financial engineers aren't just similar to the ones who created the toxic assets; these are undoubtedly EXACTLY THE SAME PEOPLE.
So my suggestion is that, right before our eyes, we're seeing a repeat of the same kind of scenario that defrauded millions of investors --- and the same people are doing it again.
I'd like to quote an additional excerpt from Cohen's interview because it's so funny:
COHEN: In the S&P 500, we think fair value by year end is something on the order of 1200. And of course this is a market because investors are so risk-averse - lose a little confidence - they're not willing to look out as much into the future as they normally would.
So we think that when investors finally get to the point that they're willing to price in the outlook for 2011, prices will move higher still for the S&P 500.
By the way, this low confidence level and risk aversion is seen not just in the US equity market, but in the developed markets around the world, including Europe.
Cohen is complaining that investors are too risk-averse, which makes them unwilling to buy stocks. She can't figure out why investors aren't listening to her.
Well, for one thing, the Wall Street Journal prints the current S&P 500 price/earnings index every day, and so anyone who bothers to do even the most basic due diligence research will discover that she's lying. So why shouldn't they be risk-averse?
The travel warning for Americans going to Europe that US officials issued over the weekend is in response to US intelligence reports that al-Qaeda is using the North Waziristan region of Pakistan's FATA (Federally Administered Tribal Areas) to train militants for attacks in Europe similar to the 2008 attack on Mumbai. This intelligence has also resulted in an escalation of missile attacks in North Waziristan from unmanned drones. A missile strike on Sunday killed eight suspected German nationals who had come to the training camps probably with the intention of returning to Germany to conduct terrorist attacks. Bloomberg
Public support for Japanese Prime Minister Naoto Kan has fallen from 64% last month to 49% now, because of Kan's kowtowing response to China's demand in the recent confrontation of the islands in the East China Sea. Reuters
(Comments: For reader comments, questions and discussion,
see the 4-Oct-10 News -- Goldman Sachs's Cohen gives price/earnings fantasy thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(5-Oct-2010)
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Any international organization can gain from using this methodology.
I mentioned several months ago that I had received word that later in the year I would be receiving this award. It's taken a while, but I finally have the actual award, as well as a picture of CSC's president presenting the award, and notice of the award on the CSC web site. So for this web site, this is the official announcement.
Computer Sciences Corporation (CSC) has honored Generational Dynamics by selecting a paper on the commercialization of Generational Dynamics as one of the winners in its 2010 Leading Edge Forum Papers program.
 |
The Leading Edge Forum spots key emerging business and technology trends before others, and identifies specific practices for exploiting those trends for business advantage.
The winning paper is entitled "International business forecasting using System Dynamics with generational flows (PDF)."
The 56 page paper describes the Generational Dynamics theory and practice in detail, and provides numerous examples to show how it might be used by commercial and government organizations to forecast developments in foreign countries.
This award is significant because it's the first time that a body of experts have performed a scholarly review of Generational Dynamics for validity. There were over 100 experts from numerous fields evaluating the 160 entries, and the fact that this paper was chosen as a winner indicates that these 100 judges find Generational Dynamics valid enough to pursue and publicize.
This award comes in the same year that the documentary movie "Generation Zero" movie, based on the Generational Dynamics theory, was released to the public.
Generational Dynamics is based on System Dynamics, a branch of engineering and mathematics created in the 1950s by Professor Jay Forrester at MIT. His initial objective, and its principal use since then, is to show how certain kinds of corporate decisions create feedback loops that cause instabilities within the corporation. Generational Dynamics applies these principles to population and generational flows within a country, and shows how governmental and commercial organizations frequently make decisions that have unintended consequences.
Some examples of forecasts that could be used by international organizations to develop short and long term strategies are described in the following paragraphs.
Sri Lanka. Formerly known as Ceylon, the island nation of Sri Lanka is just south of the southern tip of India, governed mainly by the majority Sinhalese (Buddhist) population. In 1976, the minority Tamils (Hindu) began demanding a separate Tamil state, and the demands turned into a civil war and rebellion by the terrorist group known as "Tamil Tigers."
By the beginning of 2009, the rebellion had turned into full scale generational crisis civil war, and the Sinhalese government army was closing in on the Tamil Tigers. As happens in every generational crisis war, both sides were becoming increasingly genocidal, as the Tigers were using civilians as human shields and the army was more willing to harm civilians to defeat the Tigers once as for all.
After decades of fighting that included terrorist acts by the Tigers, such as blowing up busses and buildings, all major analysts, including Stratfor and the BBC, were predicting that Tamil violence and terrorism would continue after the government army had defeated the Tigers.
But from the point of view of Generational Dynamics, this would be the climax to a generational crisis war, and the correct historical analogy would be to the defeat of Berlin and Tokyo in 1945. Thus, the Generational Dynamics web site uniquely predicted that fighting would cease after the army victory. Today, 18 months later that prediction has turned out to be true, and all other predictions were wrong.
Any organization planning to do business in Sri Lanka that paid attention to the standard commercial predictions were at a competitive disadvantage to organizations that wrote based on the correct Generational Dynamics prediction.
Lebanon. Lebanon is in a generational Awakening era. Lebanon's last crisis war began in 1975, and it became a war with Syria in 1976. Israel was an off-and-on participant, and the war reached an explosive climax in 1982 when Christian Arab forces massacred and butchered hundreds or perhaps thousands of Palestinian refugees in camps in Sabra and Shatila. Since that war ended, the Lebanese people have been haunted by that episode, and officials have been determined not to allow anything like it to happen again.
When the 2006 war between Israel and Hizbollah began, both sides immediately fought the war in a manner appropropriate to their respective generational eras. Hizbollah warriors fought the war in a "cool" Awakening era fashion, launching missiles into Israel during the day, and then returning to their wives in the evening. By contrast, Israel fought the war in a "hot" Crisis era fashion. They panicked when two Israeli soldiers were kidnapped, and went to war in four hours, with no plan, no objective, and no idea what was going on. They then blundered from one objective to the next, until the war finally ended. If Lebanon had also been in a generational Crisis era, then Hizbollah warriors would have crossed the border into Israel and slaughtered Israelis in their homes, possibly triggering a regional and world war.
After the war, Lebanon went through a tumultuous period of riots and demonstrations, and analysts around the world, including within Lebanon itself, were predicting a high likelihood that Lebanon would have a new civil war. These predictions went on for months, while the Generational Dynamics web site was saying that a civil war is impossible during a generational Awakening era or, if one begins, then it fizzles quickly. Once again, any organization that understood that a civil war in Lebanon was impossible would have a competitive advantage over those who held the common beliefs.
Iraq. Iraq is also in a generational Awakening era, one generation past the Iran/Iraq war of the 1980s, a war the killed over a million people and featured the use of mustard gas, a WMD. One of the first major predictions of the Generational Dynamics web site, in 2003, was that a civil war would not occur in Iraq, because it was impossible, or would fizzle quickly if begun. This became a huge political issue in 2006, when sectarian violence followed the bombing of the al-Askariya Shrine in Samarra. By December, NBC News put on a big dog and pony show declaring that Iraq was in a civil war, and predicted that it would get worse. Ironically, their prediction occurred just as the sectarian violence was fizzling, and the "Anbar Awakening" in 2007 ended most of the violence, with the help of the American "surge."
Anyone who made commercial or policy decisions based on the predictions of NBC news would have been disastrously wrong. Anyone who made decisions based on the Generational Dynamics analysis would have had a big competitive advantage.
Iran. Iran is also in a generational Awakening era, following the 1979 Great Islamic Revolution and the Iran/Iraq war. When massive students demonstrations broke out following the June 12, 2009, election, most analysts compared them to the demonstrations in Tiananmen Square in 1989, and predicted that they would end. From the point of view of Generational Dynamics, the correct historical analogy is to the student demonstrations in America's Summer of Love in 1967, and the eight years of protests that led to the resignation of President Nixon. The protests in Iran are far from over.
As the above four examples show, the Generational Dynamics forecasting metholodogy can produce trend forecasts that are very accurate. It cannot predict the results of elections, or any events that are "chaotic" (in the sense of Chaos Theory).
In fact, the forecasting methodology is a collection of tools, and like any tools, they have to be used correctly to be of use. These tools are not "silver bullets," but they do produce certain kinds of information that could be valuable to any governmental or commercial organization operating in other countries.
Any organization wishing to make use of these tools should read the award-winning paper, and is invited to contact me for help or answers to questions.
(Comments: For reader comments, questions and discussion,
see the 4-Oct-10 News -- Computer Sciences Corp. (CSC) presents award for Generational Dynamics thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(4-Oct-2010)
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Thousands of anti-China Japanese protesters accuse China of invasion
Iran's intelligence minister announced on Saturday that a number of 'nuclear spies' have been arrested, in conjunction with appropriate measures to counter all destructive moves by "hegemonic powers" in cyberspace, according to Iran's state-run Press TV news service.
At the same time, the Tehran Times quotes Iran's national prosecutor as saying that Iran's sworn enemies, the United States and Zionist regime, have launched a "soft war" against the Islamic Republic.
It's not known for sure how much real damage the Stuxnet computer virus has done to Iran's computer systems, or to the Bushehr nuclear plant. The Iranians say little real damage has been done, though they admit that some 30,000 personal computers have been infected by the computer. But one thing is certain that the Iranians are really "freaked out" by the whole situation. It's possible that the arrest of the "nuclear spies" was just a sort of publicity stunt to reduce the level of public anxiety.
I've talked to a number of people and read various news stories about Stuxnet and Iran, and it turns out that there are quite a few theories -- all unconfirmed -- about what happened, besides the obvious theory that Israel attacked Iran with Stuxnet.
One theory is that the Russians are sabotaging Bushehr. According to this theory, the Russians built Bushehr for Iran, but they really don't want to allow it to start operating, because it could violate nuclear non-proliferation agreements.
Another theory is that a large non-governmental group is China is attacking Iran. There have been stories in the past of Chinese and Iranian hackers targeting each other's computer systems as a sort of competition, so this could be the next great move in the game.
According to Debka's weekly subscriber-only newsletter (forwarded to me by a subscriber), Iran's president Mahmoud Ahmadinejad is absolutely furious about the attack, and is certain the U.S. is behind it, either directly or indirectly:
Their conversation took place Saturday, Sept. 18, three days after word of the software invasion surfaced.
Our sources add that the Iranian president admitted he did not know who was responsible for the cyber attack - and may never find out - but he is certain that either Israel or the United States, or both, launched it to stop Iran's nuclear program in its tracks. Even if it was Israel, he said, Washington would have known and approved.
Ahmadinejad described the damage to Iran's nuclear and military resources as more devastating than the Israel raid on Syria's plutonium reactor at A-Zur exactly three years ago.
He reminded Assad that then, too, Israel and the US had worked together to destroy the Syrian-Iranian nuclear plant under construction by North Korea. Israeli cyber commando units, he said, simultaneously raided additional Syrian nuclear facilities and made off with nuclear materials, equipment and software which they passed to the United States."
The Debka newsletter goes on to say that Ahmadinejad is so furious that he's planning some kind of attack on Israel in the next couple of weeks, and that he's warning Syria's president Assad to be prepared.
It's worth pointing out that Debka, which has contacts within Israel's intelligence agencies, has frequently predicted either an imminent attack on Israel by Hizbollah or Syria, or an imminent attack by Israel on Hizbollah or Syria. Is there any reason to believe that this new prediction is any more accurate?
I certainly don't know the answer, but it's also worth pointing out that tensions in the region are sky-high because the Mideast peace talks are about to collapse. As we reported yesterday, it appears that Mahmoud Abbas is about to resign as Palestinian Authority president, and while we're talking about rumors, there have been many lately about Abbas's talking with Hamas leaders, and a possible détente of some sort between Hamas and Fatah.
There have been three Mideast wars in the last four years, and it's not too soon for a fourth one. Even if a war is not imminent, the collapse of the peace talks IS imminent, and with Iran under attack by Stuxnet, it's unlikely that things will simply go on as they have before. Some major change of direction seems certain, but we'll have to wait and see whether it will be war or something else.
With China's nationalism increasing, as we reported last week, it's not surprising that recent events are also resulting in increased Japanese nationalism, with respect to the disputed islands. On Saturday, thousands of anti-China protesters chanted slogans against China, including, "We will not allow Communist China to invade our territory." CNN
France's public sector unions held mass protests against France again on Saturday, protesting the proposed rise in the retirement age from 60 to 62. France 24
China's premier Wen Jiaboa is visiting Athens, and is promising to set up a multi-billion dollar fund for investments by Chinese firms in Greece. Greece hopes to get bailed out by this and similar deals, and the Chinese hope to establish a base for trade with Europe. Bloomberg
(Comments: For reader comments, questions and discussion,
see the 3-Oct-10 News -- Iran arrests several 'nuclear spies' related to Stuxnet invasion thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(3-Oct-2010)
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Ireland's debt crisis approaches a climax
Israel has refused to extend the settlement moratorium that was demanded by the Palestinians as a minimum condition for continuing the Mideast peace talks.
Palestinian president Mahmoud Abbas agreed to continue the peace talks for one more week, after the moratorium expired last Sunday, as we reported. The decision was to be made on Monday, October 4, at a meeting of the Arab League in Cairo.
However, at the request of the Egyptians, the Arab League meeting was postponed to Wednesday, October 6, to give the peace talks an additional two days, according to Ma'an.
Abbas is reported as saying that he's going to resign from the peace talks on Wednesday, according to the Arab News.
In fact, his statement to one editor was "This is the last time you are traveling with me," said on board his presidential plane, implying that he was going to resign as Palestinian Authority president on Wednesday.
Abbas is also quoted as saying that he will "make historic decisions" during the meeting of the Arab League.
His resignation as president actually would not be much of a surprise, in view of the radio interview he gave two months ago, in which he said, "I cannot go on ruling, and I need to rest; I'm at the age where I can't continue to lead." (See "21-Aug-10 News -- Mideast peace talks to begin on Sept 2.")
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Europeans were shocked this week to learn that it would cost some 50 billion euros to bail out Ireland's banks. That's 32% of Ireland's entire GDP, according to the Wall Street Journal (Access). As you can see from the graph, when the new debt is added to the existing gross debt, the total will exceed GDP.
If America's banks had to be bailed out by 30% of the GDP, it would cost over $4 trillion, and amount that would dwarf the TARP programs that were actually used to bail out America's banks.
The Irish themselves are in a state of despair over this, as can be surmised from the following Irish Times editorial:
The public has adopted an extremely pessimistic and potentially damaging view of the State’s economic prospects. Even before the Government revealed details of the horrendous cost of rescuing the banks last Thursday, seven out of ten voters had concluded that the economic corner had not been turned and worse was yet to come. Their attitude was more downbeat than it had been last June. ...
Uncertainty over the future is accompanied by a widely held belief that changing the Government would make no difference to Ireland’s economic prospects. This lack of confidence in the ability of the Opposition parties to extract the State from the financial morass is echoed by a general unwillingness to believe officials when they say Ireland’s bank liabilities are “manageable”. Seven out of ten voters believe bank liabilities are not manageable and this negative attitude is most engrained among low-income respondents."
So if the situation is not "manageable," then what happens next?
Readers may recall that in May, the EU approved a "gobsmacking" trillion dollar bailout plan for Greece, and to be used for any other eurozone country in trouble. (See "11-May-10 News -- Europe's super-nuclear bailout.")
Theoretically, that should be plenty of bailout money to cover both Greece AND Ireland. But as I reported at the time, and many other commentators noted as well, that plan was little more than a public relations gimmick. It was a plan to loan Greece just enough money to make its credit card payments for a while, after which Greece would still be headed for bankruptcy.
Even so, the plan was deeply resented by the Germans, who did not want to be financially punished for the profligacy of the Greeks. So there's little hope for launching a similar publicity stunt for Ireland.
One approach favored by many Europeans is for Ireland to raise its corporate income tax. It's currently the lowest in Europe, at 12.5%, and with many American corporations located in Ireland to take advantage of the low tax rate, the politicians would see a corporate income tax rise as free money, and a way to stick it to the Americans.
However, the Irish politicians see raising the corporate income tax rate as a sure way of driving those same corporations out of the country, creating more unemployment in Ireland. Thus, the Irish Examiner quotes Finance Minister Brian Lenihan as saying, "The Government has always made it clear that the corporation tax rate will remain at 12.5%. The 12.5% corporation rate is a cornerstone of the Irish industrial policy."
The plan favored by the Irish politicians is the "haircut." That word is a euphemism for "restructuring," which is a form of "bankruptcy." Under this plan, the bondholders, the people to whom Ireland owes tens of billions in debt, would take a 30-70% haircut -- which means that they would be repaid only a fraction of what they're owed.
Obviously the bondholders themselves are not in favor of that solution. The Russian billionaire Roman Abramovich is one of those bondholders, and he's threatening legal action, according to Bloomberg.
Whatever happens in the next few weeks, it's going to be very, very ugly.
And at some point this is going to enter the consciousness of Wall Street investors, who have been buying stocks with reckless abandon, and who will then be saying, "Why should a small economy like Ireland's have any effect on Wall Street?" Bad news is always good news to these people.
From the point of view of Generational Dynamics, nothing has changed since I started discussing this in 2002: The stock market has been in a bubble since 1995, and is still overpriced today by a factor of almost 200%, so by the Law of Mean Reversion, there will be a stock market crash to a range below Dow 3000. (See "Updating the 'real value' of the stock market.")
Former Pakistan President and military leader Pervez Musharraf announced at a press conference in London on Friday that he's starting a new political party and intends to be the leader of Pakistan again. His new party will be called the All Pakistan Muslim League. Guardian
The May 6 "flash crash," which saw the stock market fall by 10% and then recover a few minutes later, was apparently triggered by a single large computerized trade that was not out of the ordinary, according to a report by federal regulators. The trade was driven by a computerized algorithm that was ordered to sell 75,000 securities contracts, regardless of the price. Within a few moments, other computerized trading algorithms "noticed" the sale and created a kind of computerized panic. Wall Street Journal (Access).
When teachers in Peabody, Mass., send kids home with notes to their parents, the notes will contain ads for pizza shops, ice cream shops, dance and karate schools. Boston Globe
CNN anchor Rick Sanchez, who has frequently been openly hostile to anyone who opposed President Obama, has been fired by CNN after he ranted in an interview that Jon Stewart was a bigot and made sarcastic remarks about Jews as an 'oppressed minority.' NY Times
(Comments: For reader comments, questions and discussion,
see the 2-Oct-10 News -- Mideast peace talks appear set to fail on Wednesday thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(2-Oct-2010)
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Congress passes punitive tariff bill directed at China
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Until this year, by far the dumbest and most destructive economic policy enacted in Washington in my lifetime was the imposition, by President Richard Nixon's administration, of wage-price controls, to counter the national "emergency" represented by an inflation rate of about 4.5%. The controls program was an utter disaster. The inflation rate spiked up during the period of wage-price controls, as you can see from the graph. It caused numerous shortages and mini-calamities, and did enormous damage until it was ended three years later.
Unfortunately, the people in Washington are far too dumb to learn from even relatively recent disasters. Thus, this year, wage and price controls have been reimposed, this time on the health care industry, in the form of the "Affordable Heath Care act," which over a year ago I called a proposal of economic insanity.
The news has been filled with numerous "unintended consequences" for weeks. These include substantial health insurance premium increases for individuals and businesses, and over a billion dollars taken in charges against earnings by businesses.
Now, McDonald's Corp. has sent a letter to federal regulators saying that it might drop its heal insurance plan for nearly 30,000 workers, unless regulators waive one of the provisions of the health care bill. The letter was reported on Wednesday by the Wall Street Journal (Access).
This is a typical mini-calamity that occurs whenever wage-price controls are imposed by the government. This provision was intended to control wages -- keep down the salaries of medical and insurance company executives. The way it would work is to require that administrative costs, including salaries, for any health program could not exceed 15-20% of the premiums received. This kind of wage control was supposed to solve the problem of high salaries.
Flipping burgers is a high-turnover kind of job, and many workers at restaurants have no health insurance at all. McDonald's provides a so-called "mini-med" policy with limited benefits so that its employees will at least have basic health insurance coverage. But the administrative costs are substantial.
McDonald's has now written to federal regulators saying that it will be impossible to keep administrative costs under 20%, and that unless that requirement is waived, they'll have to end the "mini-med" coverage.
This is exactly the kind of unintended consequence that ALWAYS happens with wage-price controls.
There were many little mini-catastrophes under President Nixon's wage-price controls, but I'll list two (that I've described before).
The one that's always stuck in my mind was that farmers in New Jersey were drowning chickens. The problem was that chicken feed was a commodity whose price was determined by the international commodities markets, and so its price could not be controlled, while the prices of chickens WERE controlled. So the prices of chicken feed went up, and the prices of chickens stayed the same, meaning that farmers could no longer afford to raise chickens. So they drowned the chickens, leading to a big shortage of chickens.
Another thing that I remember was that wage-price controls applied to private industry, but not to government agencies. Thus, books and pamphlets sold by private publishers were price-controlled, but books and pamphets sold by the Government Printing Office were not. Thus, you had to pay huge prices for federal government publications, while many publications from private publishers simply became unavailable.
Wage and price controls were imposed during World War II, when the country's existence was believed to be in peril. There were shortages of everything from meats to vegetables to gasoline.
Unfortunately, the politicians in the 1970s were too dumb to have learned from the WW II experience, and imposed wage-price controls again, and there were shortages of everything from meats to vegetables to gasoline.
Now the morons in Washington are doing it again, in the form of wage-price controls on health care and insurance.
The Boston Globe is reporting that Harvard Pilgrim Health Care has notified its customers that it will drop its Medicare Advantage health insurance program at the end of the year, forcing 22,000 senior citizens in Massachusetts, New Hampshire, and Maine to seek alternative coverage.
According to a Republican analysis quoted by Human Events, some 3 million seniors will be affected by the expected elimination of Medicare Advantage plans. If you or your parents have a Medicare Advantage plan, then you should be prepared.
This is the modern equivalent of drowning chickens. It's literally impossible for Macdonald's to offer a legal employee health plan without taking huge losses, and it's impossible for Harvard Pilgrim to offer Medicare Advantage without taking huge losses. In both cases, it's because of wage-price controls.
So what's the net result? These are two examples (McDonald's and Harvard Pilgrim) of service providers who are leaving the system. I can guarantee to you, Dear Reader, that there will be many more similar stories in the months to come. Each time a provider leaves the system, the supply of health care goes down, and prices are forced up, by the Law of Supply and Demand. If price controls are used, then health care will become rationed, or completely unavailable -- as happened with meat and vegetables in World War II.
You'd think that people in Washington DC today wouldn't be so stupid as to following in Richard Nixon's footsteps, but if you think that then you would be wrong.
Each day that this "Affordable Health Care" bill is law, more and more health care insurers and providers will reduce or eliminate services. This will reduce the number of service providers, and either drive up prices or force rationing. You'd think that all those intellectual geniuses in the Obama administration would understand something as elementary as that.
But there's also a dark side to this. How is the Obama administration reacting to this kind of news? They're reacting by threatening retaliation against anyone who doesn't do as they say.
Earlier this month, Kathleen Sebelius, the head of the administration's Dept. of Health and Human Services, sent the following letter to the health insurance industry:
Given the importance of the new protections and the facts about their impact on costs, I ask for your help in stopping misinformation and scare tactics about the Affordable Care Act. Moreover, I want AHIP’s members to be put on notice: the Administration, in partnership with states, will not tolerate unjustified rate hikes in the name of consumer protections. ...
Later this fall, we will issue a regulation that will require state or federal review of all potentially unreasonable rate increases filed by health insurers, with the justification for increases posted publicly for consumers and employers. We will also keep track of insurers with a record of unjustified rate increases: those plans may be excluded from health insurance Exchanges in 2014. Simply stated, we will not stand idly by as insurers blame their premium hikes and increased profits on the requirement that they provide consumers with basic protections."
These thuggish threats are really sickening, and show how pathetic the bunch in Washington have become.
I was bitterly critical of President Obama during his campaign and at the beginning of his administration, because he said and did so many unbelievably stupid things. The world was going to change completely on January 21, 2009, because Obama was instantly going to heal the world. He would be guided by facts, not like President Bush, who was guided by ideology and ignored facts. He would cure global warming, close Guantanamo, become friendly with Iran and North Korea, bring a two-state solution to Palestinians and Israelis, beat the Taliban and al-Qaeda, reflate the real estate and stock market bubbles and, of course, provide universal health care. He's failed at all of these objectives, so my comments were completely justified.
And it's not just Obama and the Democrats; the Republicans are crooks and liars as well. That's the norm today, as I've said so many times in reference to the fact that almost every financial institution in the world committed fraud in creating the current financial crisis.
And as I've said several times before, there's only one good thing that can be said about this health care bill: It's such an economic disaster that there's no chance at all that it will be implemented. This will be increasingly apparent as the number of mini-calamities multiplies.
The House of Representatives on Wednesday passed a bill with strong bipartisan support that would raise tariffs on Chinese imports if the Asian giant keeps an artificial lid on its currency, according to the Washington Times.
The bill has infuriated the Chinese. A spokesman for China's Ministry of Commerce is quoted by Xinhua as saying that the law violates international law of the World Trade Organization. He said that a trade surplus should not be used as an excuse for trade protectionism.
On Bloomberg tv on Thursday, Stephen Roach, chairman, Morgan Stanley Asia, said, "I find it an embarrassing, humiliating debate. ... We don't have to go after China. We gotta figure out how to get our act together.... Our savings rate is below zero." His mention of savings rate is a reference to the fact that U.S. consumers are making consumer purchases that they can't afford, and going deeper into debt.
From the point of view of Generational Dynamics, a major stock market crash and financial crisis is overdue, and could occur at any time.
In case of an attack by Israel or the U.S. on one of its nuclear installations, Iran knows that it will be unable to fully retaliate. Iran has analyzed its options, and is preparing by by stockpiling arms and munitions with its proxy militias in Kuwait and Bahrain. Bahrain in particular is crucial to the security of the Gulf region, and has a majority Shia Muslim population, with a Sunni Muslim government. Threats of an Iran-supported coup in Bahrain should be taken seriously. Geopolitical Monitor
The first military talks between North and South Korea in two years have apparently ended in failure, or at least with no progress. The talks began at 10 am, and ended at 11:45 am. South Korea demanded an apology for the sinking of the warship Cheonan in March, and the North Koreans refused. NY Times
An attempted coup is in progress in Ecuador. Police officers are angry over a law that would cut their benefits. They've shut down the country, and tear-gassed President Rafael Correa, who is now hospitalized. The rebels have surrounded the hospital, and the army are coming to Correa's aid. Associated Press
Last week, we described how Sweden's Parliament is hung because the governing coalition has become a minority after a 20-seat victory by the anti-immigration Swedish Democrats party. Europe's problems with xenophobia continue, as a similar problem in the Netherlands was resolved on Thursday. Two center-right parties agreed to ban the burqa in the Netherlands as the price for parliamentary support from the anti-Islam Freedom party for their planned minority government. Reuters
The top ten most overpriced products you should avoid. WalletPop
(Comments: For reader comments, questions and discussion,
see the 1-Oct-10 News -- McDonald's threatens end to worker health benefits thread of the Generational Dynamics forum. Comments may
be posted anonymously.)
(1-Oct-2010)
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