Pentagon Confirms Chinese Fired Lasers at U.S. Pilots – Two American Aircraft taken down by Chinese Military Laser Weapons.

The Pentagon confirmed Thursday that Chinese nationals fired lasers near a military base in east Africa against U.S. military aircraft in the region, injuring several pilots.

Pentagon Press Secretary Dana White said the U.S. government made diplomatic protests to the Chinese government over several recent incidents of laser firings near China’s first overseas military base at Djibouti.

“These are very serious incidents. There have been two minor injuries. This activity poses a threat to our airmen,” White told reporters.

“We have formally demarched the Chinese government, and we’ve requested that the Chinese investigate these incidents,” she added.

The number of incidents is “more than two but less than ten” and the laser firings took place in recent weeks, White said.

White said the Pentagon is confident that Chinese nationals were behind the laser firings but did not elaborate on the intelligence linking Beijing to the incidents.

She declined to speculate on the Chinese motive behind the laser attacks.

“I believe there have been cases where this has happened previously,” White said. “But what this started was these last few weeks we decided to become very serious about it, and we have demarched the Chinese, and we’ve asked for the investigation.”

China’s government has not commented on the incidents. A Chinese military expert told the state-run Global Times newspaper that the U.S. accusations that China used a laser weapon in Djibouti was “groundless.”

China opened the military base in Djibouti last year and plans to deploy some 400 troops there.

China’s government has asserted that the base is merely a logistics hub for anti-piracy operations as well as to support China’s international infrastructure project called Belt and Road Initiative.

The U.S. government regards the Chinese base as part of Beijing’s efforts to project military power around the world.

The Djibouti incidents appear similar to the 1997 incident involving a Russian merchant ship that was shadowing a Navy missile submarine and fired a laser on a Canadian surveillance helicopter.

The laser damaged the eyes of the Navy Lt. Jack Daly and Canadian pilot Captain Patrick Barnes near Washington state and was covered up by the administration of President Bill Clinton.

China and the United States have battled over international trade and finance after the Trump administration announced it will impose tariffs on China for its unfair trade practices.

The U.S. and Chinese militaries also have squared off in the South China Sea where China is seeking to take control of the strategic waterway. The U.S. military has been seeking to counter the illegal claim by sending ships and aircraft near disputed islands in the sea that have been militarized in recent years by China.

A Federal Aviation Administration notice to airmen reported April 14 that “there have been multiple lazing events involving a high power laser” near the Chinese military base.

“Use extreme caution when transiting near this area,” the notice states. “If a laser is seen in or near Djibouti, notify immediately tower…”

The notice also said U.S. military air crews were to contact military air controllers.

In one incident, air crew members flying aboard a C-130 transport suffered two minor eye injuries after exposure to what was described as “military-grade laser beams” that appear to have been fired from the Chinese base.

The laser incidents followed U.S. military exercises last month off the coast of Djibouti called Alligator Dagger. The exercise was canceled April 5 after two separate air mishaps, including the crash of a Marine Corps Harrier jump jet and a CH-53 helicopters, in Djibouti.

About 4,000 U.S. personnel are stationed at Camp Lemonnier in Djibouti. The base has been used as a major launch point for U.S. military and special operations commando raids in the region.

The Chinese military base in the country is located about a mile from Camp Lemonnier and is Beijing’s first overseas military base and has raised security concerns because it is located very close to the U.S. military base there.

The Washington Free Beacon disclosed in 2015 that China’s military has deployed several types of hand-held blinding laser weapons.

The weapons, according to state-run Chinese media, are used to interfere and damage laser and night vision equipment.

Use of the weapons violates China’s announced commitment to a section of the 1998 U.N. Convention on Certain Conventional Weapons that bans the use of blinding lasers in combat.

The Chinese have marketed four types of laser guns, designated the BBQ-905 Laser Dazzler Weapon, the WJG-2002 Laser Gun, the PY132A Blinding Laser Weapon, and the PY131A Blinding Laser Weapon.

Marine Corps Gen. Thomas Waldhauser, commander of the U.S. Africa Command, warned in congressional testimony in March that China is seeking to expand and possibly take over the strategic port in Djibouti, which owes Beijing an estimated $1.2 billion in construction debt.

China operates a naval port and “multi-purpose” port that offloads containers from freighters.

Waldhauser said a Chinese takeover of ports in Djibouti would have “significant consequences” for U.S. military operations there.

“We are not naive to think that some of the activities the Chinese are doing in terms of counterintelligence there are taking place, but it just means that we have to be cautious,” Waldhauser told the House Armed Services Committee March 6. “We have to be on guard for that type of situation.”

Pentagon: Chinese military producing 42,000 drones

The US Department of Defense says in an annual report that the Chinese military is set to build nearly 42,000 land-based and sea-based drones.

It added that China is also developing long-range Unmanned Aerial Vehicles (UAVs) for intelligence gathering and bombing attacks.

“The acquisition and development of longer-range UAVs will increase China’s ability to conduct long-range reconnaissance and strike operations,” the Pentagon said in the report on Friday.

The report — entitled Military and Security Developments Involving the People’s Republic of China 2015 — shows concerns from the US military about China’s growing military power.

“China is advancing its development and employment of UAVs,” the report said. “Some estimates indicate China plans to produce upwards of 41,800 land- and sea-based unmanned systems, worth about $10.5 billion, between 2014 and 2023.”

The report was handed to the US Congress for further assessment.

The US military also noted in the 2015 report that China has been adding UAVs into military exercises in recent years, including one drill in the East China Sea in 2013.

The Pentagon also expressed alarm over the scale of the Chinese army’s modernization campaign that seeks to depend on self-sufficiency rather than important defense equipment from the US or its allies.

The report concluded that the People’s Liberation Army Air Force “is pursuing modernization on a scale unprecedented in its history.”

In recent years, the Pentagon claimed that China has been building more advanced weapons that could target US interests in the future.

The US has expressed concern that the US might be losing its military superiority in areas such as fighter jets, missile systems and cyber warfare in the coming years.

Military spending worldwide amounts to $1.75 trillion and Washington is responsible for more than one third of all military spending.


Apocalypse China

Apocalypse China

Or why the East will not inherit the earth

It’s hard not to notice that there’s a certain admiration for the Chinese among far rightist websites these days.  The reasons are obvious as their nation is large, numerous, proud, talented, industrial, relatively homogeneous, and – in the main – unaffected by cultural Marxism and the ideas that went into it.  To give one prominent example, Richard Lynn speculates that the Chinese will colonize the world on the grounds that they will most likely be the first large nation to fully embrace the eugenic potential of upcoming innovations in biotechnology.  But before we let ourselves get carried away with such analysis we should also consider whether there are any potholes that might obstruct the path to China dominating the earth.

And there are.  At least two.  The first being the prospect that China’s economy is, in certain key ways, propped up by massive government distortion and not nearly so strong as it appears, which I briefly touched on in this entry.  The second would have to be the potentially devastating long-term affects due to environmental degradation and pollution as a consequence of China’s unique path to development, and it is this second point that I would now like to concentrate my attention.

The conventional wisdom on that second point also takes two forms.  The first is that it is rude for us Westerners to point out such a thing given how we’ve polluted the earth ourselves and how much of what’s made in China these days is for our benefit.  The second is that China is merely following the development pattern that we pioneered but in a highly-compressed timescale – what happened to us over a couple centuries is happening to them over a few decades – and we should expect the current era of pollution to be followed by an era of cleanup.  The Yangtze and the Yellow will one day be what the Thames and the Cuyahoga are today, not perfect but serviceable.

The conventional wisdom seemed convincing enough until I found these pictures.  Please, follow the link before continuing below the fold.

Say it with me now, “Holy shit!”

To briefly recap, starting with Deng China has been undergoing an industrial revolution all its own over the last three decades using an economic “model” based on foreign exports.  Chinese goods dominate Western markets because they can be made more cheaply even after transportation costs are taken into account because the operating labor and environmental costs are obscenely low – the workers are paid slave wages and the waste is dumped without the additional expense of treatment into the rivers and onto the soil.  Intense competition within the mainland [China] keeps profit margins vanishingly small and sometimes even negative, due to the distortions that come from having state controlled companies.  The same Chinese rare earths industry that’s been making recent headlines provides a great of example of this model in action.

But the story of modern China’s environmental degradation does not begin with Deng, although you would be forgiven for thinking so, as it is not simply a story of industrial development gone haywire.  The real story begins with Chairman Mao.

In the Great Leap Forward Mao flicked his wrist and caused at least two ecological catastrophes.  The first was part of his plan for China to lead the world in steel production by smelting steel in their backyards, the Chinese were to get the energy to do this by completely cutting down the forest of the vast subtropical south China karst belt and turning them into coals; however, the trees didn’t produce enough coals and so the Chinese were – amazingly enough – made to uproot all the stumps that were left behind and use their wood as well.  The consequence of this is that the hot summer sun beat directly down onto the ground cover that once blanketed the forest floor and killing it in a few years, with the elimination of the trees and the ground cover the land was no longer able to retain the seasonal rainfall like it once did, which lead to massive flooding and soil erosion and rendered impossible those traditional farming practices in the region that have sustained the Chinese people throughout the ages.  All of this is discussed in a riveting – if poorly lit – one hour lecture available here or here.  This first catastrophe is a little known piece to the puzzle that was the Great Chinese Famine and the more recent droughts in the Southern provinces.

The second of Mao’s ecological catastrophes was his decision to send out large numbers of Chinese people to work the grasslands with the inevitable consequence being over-farming and overgrazing.  The over-farming led to massive dust storms, which carried away fertile top soil not unlike what happened in the American Dust Bowl, as well as flash floods, soil erosion, and desertification.  The disaster of overgrazing was made worse by the use of goats, which ate up the grasslands at their very roots and accelerated the desertification process.  The result has been that China has lost roughly enough farmland the size of Greenland to the encroaching desert since the Great Leap Forward and continues to experience desertification at the rate of losing enough farmland the size of England’s Kent per year and the size of America’s New Jersey every five years with an increasing rate of apocalyptic looking orange dust storms, which carry with them important top soil as well as sand.  As one can imagine, many livelihoods are lost in the desertification process and massive resettlement efforts are continually underway.

Factor into the equation all the dams that the ruling government has built in the modern era and it’s not wonder that nearly 40 percent of China is suffering from soil erosion problems.

Back to Deng and the pollution caused by a process of industrial development that began in earnest roughly three decades ago.  The central crisis here is water, roughly one-half of China’s water resources are no longer safe to drink, even when taking into consideration modern treatment methods, and one-fifth of it can’t even be used for industrial purposes.  By at least one estimate, China might possibly use up between 89-100% of all its sources of drinking water by 2030!  The Yangtze and Pearl river estuaries are now dead zones and the Yellow river is drying up, China is the only country in the world where seafood output from aquaculture outstrips live catch.  Anywhere from 75-90% of the groundwater in the fertile and densely populated North China Plain (home to Beijing) is polluted, causing cities and farms to increasingly rely on a rapidly dwindling unreplenishable fossil aquifer that is practically a mile below the surface.  In the face of such dire circumstances the Chinese authorities have decided to alleviate water shortages in the North by turning to none other than Chairman Mao and his harebrained, massively expensive, vastly complicated South-North water diversion project and melt snow in the meantime.

And then there are the smoggy skies caused by coal plants, underground coal seam fires, vehicle exhaust; toxic food; cancer villages; and even something so absurd as deodorant cannons applied to open landfills.  It’s not that environmental laws don’t exist, they do, but go unenforced because of political corruption stemming from the fact that local officials are rewarded for growing the economy and producing more GDP, not protecting the environment.  No wonder China is scrambling to cut deals with Africa and Brazil in order to have enough resources to meet its future resource needs.

China, and by extension the East, will not inherit the earth.  It can only have a few more years left until the sheer weight of these ecological catastrophes bring the country to its knees and become a textbook case of what it means to economically develop a country around an incomplete view of wealth.

China’s High-Wire Act: Working Without a Net

China’s High-Wire Act: Working Without a Net

July 18, 2010

China is walking a very shaky highwire right now as it comes to grips with its holdings of US bonds. One false move…one mistake…and they might fall off that highwire. But that fall might also bring down the entire circus tent.

China, the world’s largest economy, is the world’s largest holder of United States Treasury securities. In May 2009, the US owed China $772 billion. ..likely much more now. That places them in the position to entirely control the economic system of the United States. If Washington doesn’t go along with Chinese desires and directives, China could collapse the DC government overnight.

How, you say?

The world bond market is made up of debt instruments. The world’s reserve currency is the US Dollar. All China would need to do is sell off a small percentage of its US Treasuries at a steep discount. If it made its transaction at the end of a business day, or after hours, the bond market would collapse the very next business day. Other nations, investors, insurance companies and pension funds would see the precipitous decline of the US bonds and rush to market in a desperate attempt to sell and get SOMETHING…rather than waiting until after the market collapses and getting NOTHING.

China understands diplomacy and making appearances. That is why China allows Washington to bluff and bluster about monetary policy and the revaluation of the Yuan. They are allowing DC politicians to save face. But remember the old saying… “actions speak louder than words?”

China is dumping US Treasury debt instruments as fast as they can. At the same time, they are buying gold bullion in measured amounts.

Meanwhile, the rest of the world is trying to replace the dollar as the world reserve currency. We used to think that the Euro had a chance. But the Euro is nearly as bad off as the dollar.

Big governments are as addicted to fiat money as a heroin junkie, so looking to existing nations for answers is futile. Which of them would actually repudiate their debt, their central planning and their currency? Which of them would switch to a gold/silver money system?

Answer: Possibly China and India. That’s because they are the lenders, not the borrowers.

Answer #2: Possibly an American state that secedes.

We have written previously about a Chinese strategy in which China gets their own people to monetize their currency. Click HERE to learn more.

The National Inflation Association has just published a six-minute video about this issue. Watch and learn.

When you bow your head for your bedtime prayers tonight, pray for the Chinese leaders. Pray that they don’t slip and fall before you have bought enough gold and silver coins to protect yourself.

DumpDC. Six Letters That Can Change History.

© Copyright 2010, Russell D. Longcore. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

Three Gorges Dam in China Developing Cracks

Three Gorges Dam in China Developing Cracks

by James Buchanan

A recent news article reports “In China, cracks are appearing – in the neighbourhood of the massive Three Gorges Dam, the country’s great prestige project, and also in the Great Internet Firewall of China, enabling the ominous news to leak out. Three years ago stories were already emerging in the Chinese media about landslides, ecological deterioration and accumulation of algae further down the river. And less and less effort seems to be made to plug the leaks. Recent media reports tell of a series of landslips, minor earthquakes and cracks appearing in roads and buildings along the central section of the Yangtse, between the dam and the city of Chongqing. Almost 10,000 ‘dangerous sites’ have been identified, but many of the people living near them cannot be relocated for lack of money.”

We may soon see one of the biggest engineering failures in history thanks to Third World engineering. The liberal media keeps telling us that “east Asians” are superior to Whites. While the east Asian immigrants that have come to the US (so far) may be above the White IQ average, the east Asian IQ would plummet if you average in all of the Chinese. China has had the largest population of any nation on the planet, yet the productivity of China was negligible compared to Germany, France or England. China has only managed to advance itself economically in recent decades thanks to the massive outsourcing of US manufacturing to China thanks to traitorous politicians, who signed the GATT treaty. (more…)

Chinese “Miracle”? No – Just A Scam

Chinese “Miracle”? No – Just A Scam

Gee, you mean that what I’ve been saying now for years is starting to sink into consciousness?

Nevertheless, the two businessmen were “shanghaied,” so to speak, unscrupulously duped in a way Mouazzen has never experienced anywhere else. In early May, after Mouazzen had returned to Mannheim, he received a furious phone call from his client in Iran. Instead of delivering what was expected, a well-maintained crane, made by the Japanese company Kato and freshly overhauled at Mouazzen’s behest, the Chinese had shipped a rusty Mitsubishi — a wreck without an engine or a loading arm, weighing 12,590 kilograms (27,700 lbs.) less than the original crane.

Mouazzen places the photos of both cranes next to each other. He is still in disbelief. The two machines were photographed standing on the same container, which was marked YMLU 700754 6. Mouazzen photographed this number and the crane when it was being loaded in Shanghai. At the time, he and his son remained with the truck carrying the container in the Shanghai customs port until 1 a.m. Only after the truck had taken its place in the long line of other trucks waiting at the harbor did they return to their hotel, satisfied that everything was legitimate.

Such a “swap” in a loaded container beyond customs could have only occurred with the complicity and involvement of the customs agents.  That is, OFFICIAL GOVERNMENT PERMISSION.

The rest of the article makes clear that not only did that happen, but in addition the cops in China simply don’t care.

There is no “miracle” in China folks, and never was.  These crooks poison the earth, water and air, ship products laced with poison, rip off the intellectual property of everyone they can manage to get their hands on and when that’s not enough, just steal outright as is documented here.

I used to record literal thousands of attempted break-ins to my servers every day, all coming from China.  So did my customers.  It stopped only when I blocked all IP traffic from China.  I advise others to do the same.

They don’t care.  Our government conferred “most favored trading” status on them – they don’t care either.  Despite allegedly breaking into Google’s machines and stealing Microsoft software by the tens of billions annually, the government refuses to act – there, or here – to the point that Microsoft has now decided to withdraw manufacturing, as there’s no point when they steal $10 worth of product for every dollar of product they “produce” for you.

Rule of law?  Where?  We don’t have it here in the US and we sure as hell don’t have it in China.  When they decide to enforce it due to transgressions against their own people they literally execute crooks the same day.  But when the person getting fucked is a foreign entity it’s all good – their people get theirs, and you lose.

Will we care?  Probably not.  Should we?  Yes.

We should stop it and so should the Germans.  But they won’t, and neither will we, until private business decides that it simply will not do business with China – period.

Sleeping with the devil in search of alleged profit when you know the person on the other side of the table is a crook is no way to run a business – or a nation.

Yet we do, and as a consequence we deserve exactly what we get.

What we should do is tell them that we’re dishonoring all the Treasuries and other debt securities they, or any of their nationals or firms, hold.  They’re zeros.  Declare it, be done with it, tell them to screw off and die.  Give it to them exactly the same way they’ve screwed everyone they’ve dealt with.

That’s the right thing to do, but with Washington DC full of kleptocrats who have intentionally looked the the other way while our banksters have robbed the American people of trillions, nobody should have any sort of expectation that our government will do the right thing.

Therefore, it falls to us – we the people – to boycott everything coming from China and, to the extent possible, every firm that trades with or does business in that nation.

Generational Dynamics- Web Log – “Watching the pot come to a boil”

Web Log – “Watching the pot come to a boil”

Financial guru John Hussman is wrong about “Valuations and Clarity”
“Operating earnings” are passé; “Normalized earnings” are in.

I normally don’t want to pick on John P. Hussman, since he’s one of the better financial analysts, and to be fair, he is a lot less Pollyannish than most of the others. But his 21-Dec newsletter, “Clarity and Valuation,” contains remarks about price/earnings ratios (also called “valuations”) that are far off base, and introduce a new tool with which to defraud investors.

As regular readers of this web site are aware, price/earnings ratios have been above average since 1995. (See “How to compute the ‘real value’ of the stock market.”) From about 2004-2007, the P/E ratio was around 18-20, still very expensive, and still above the historical average of about 14. (See the chart at the bottom of the home page of this web site.)

But after the credit crisis began in late 2007, earnings began falling, and P/E ratios started increasing. With the stock market rally in 2009, P/E ratios have been astronomically, high, near 100. This is a remarkable and unique historical development, but you never hear or read about this on CNBC or in the Wall Street Journal. These mainstream sources make their money by advertisements from financial institutions, and financial institutions make money by selling investments, and talking about a P/E ratio close to 100 would turn off investors, so no one wants to talk about P/E ratios.

Early in 2009, we saw the ridiculous spectacle of financial commentators talking about P/E ratios based on “operating earnings,” a phony earnings number that ignores many expenses. But it satisfied the needs of financial institutions who wish to make commissions and fees by investing other people’s money. (See “Wall Street Journal sharply revises its fantasy price/earnings computations.”)

By today, even the P/E ratios based on phony operating earnings are around 30, which is also astronomically high, so financial institutions can no longer even use those numbers.

‘Normalized Earnings’ to the rescue

Now we have Hussman’s analysis which brings a brand new level of disinformation to the discussion. He discusses an even phonier kind of earning computation, called “normalized earnings”:

“On the basis of normalized profit margins, the average price/earnings ratio for the S&P 500, prior to 1995, was only about 13. Higher historical “norms” reflect the addition into that average of extremely high “recession P/Es,” based on dividing the S&P 500 by extremely low, but temporarily depressed earnings. For example, the P/E for the S&P 500 currently is 86, because earnings have been devastated, but it would be foolish to take that figure at face value, and equally foolish to work it into a historical “average” P/E. The pre-1995 norm of 13 for price-to-normalized earnings is important, because at present – and again, we are not using current depressed earnings, but properly normalized values – the S&P 500 P/E would currently be over 20. That’s higher than 1987 and 1972, and about even with 1929. Of course, valuations have been regularly higher in the period since the late 1990’s (and not surprisingly, subsequent returns, even after the recent advance, have been dismal overall, with the S&P 500 posting a negative total return for the past decade).”

According to Investopedia, “normalized earnings are: “earnings adjusted for cyclical ups and downs in the economy” or “earnings adjusted to remove unusual or one-time influences.”

In other words, you start from the phony “operating earnings,” you remove even more expenses, and then you pretend that there was never a bubble. It’s the height of stupidity and insanity, but that’s the norm these days. If you don’t like a number, then make up your own, and use that number to defraud investors.

According to Hussman, the high P/Es are “based on dividing the S&P 500 by extremely low, but temporarily depressed earnings. For example, the P/E for the S&P 500 currently is 86, because earnings have been devastated, but it would be foolish to take that figure at face value, and equally foolish to work it into a historical ‘average’ P/E.”

So he uses this magic “normalized earnings” figure, which somehow gets the P/E ratio from 86 (for reported earnings) or 30 (for operating earnings) down to 20. Seeing this go on literally takes my breath away.

Bubble vs post-bubble earnings

Hussman says that earnings have been “devastated,” but it would be “foolish” to trust earnings values. (Presumably, it’s less foolish to use phony “normalized earnings.”)

Of course earnings have been devastated. The credit and real estate bubbles have ended, and they’re still collapsing. The high earnings were a product of the bubbles. Today’s “devastating” earnings are a perfectly normal reaction, as the bubbles collapse.

The table below gives earnings per share for each year since 1988, taken from the Standard & Poors spreadsheet.

              S&P 500 Reported Earnings since 1988
        Pre-bubble    Dot-com        Credit/RE      Post-bubble
                       bubble         bubble
        -----------   -----------   -----------  ---------------------
        1988 $23.75   1994 $30.60   2001 $24.69  2008 $14.88
        1989 $22.87   1995 $33.96   2002 $27.59  2009 $44.50 (Estimate)
        1990 $21.34   1996 $38.73   2003 $48.74  2010 $45.50 (Estimate)
        1991 $15.97   1997 $39.72   2004 $58.55  2011 $61.01 (Estimate)
        1992 $19.09   1998 $37.71   2005 $69.93
        1993 $21.89   1999 $48.17   2006 $81.51
                      2000 $50.00   2007 $66.18

These are the figures used to compute the S&P 500 P/E ratio. For example, earnings per share for the year 2007 were $66.18, and the S&P index on 12/31/2007 was 1468.36, and so the P/E index at that time was 1468.36/66.18 = 22.18, well above the historical average.

I’ve split the values into four columns, so you can see what happened. Before the dot-com bubble, a typical share earned around $20. The dot-com bubble pushed that up to $50 per share in 2000. The credit and real estate bubbles pushed the value of up $81 by 2006. Then earnings feel to $14.88 per share in 2008.

Now, $14.88 is certainly a “devastated” value, to use Hussman’s word, but is it really “foolish” to take it at face value? It’s comparable to the value $15.97 in 1991. That’s not so long ago.

Law of Mean Reversion

In fact, the value $14.88 is quite a reasonable value at this time, since it reflects the end of the credit and real estate bubbles. The future estimates of $45.50 and $61.01 are so unreasonable as to be fantasies, since they assume that the bubbles will be restored.

If you fit the last century’s earnings into an exponential growth curve, and extrapolate that curve to 2009, then you get a trend value for about $41 for 2009. So in the absence of a bubble, you should not expect earnings per share to be above $41 for some time to come.

But it’s a lot worse than that, since earnings have to fall much farther, to compensate for the bubble highs. This is the Law of Mean Reversion, which says that if a value is well above trend for many years, then it has to fall well below the trend value for roughly the same number of years. This is simple math, since it says that the average growth rate in the future will equal the average growth rate in the past.

During bubbles, there are always people who say “This time it’s different.” We saw this in the housing bubble, where I heard financial analysts, economists and journalists say, “Housing prices can’t go down — people have to live somewhere,” and “Banks won’t foreclose — it’s not in their interest to do so” and “These housing construction firms know what they’re doing, and they wouldn’t be building houses if it were just a bubble.”

All of these arguments proved to be completely wrong, but financial analysts, economists and journalists are apparently too dumb to learn from their mistakes.

Let’s see if we can give an intuitive explanation for why the earnings per share value has to fall well below the trend value (currently $41) for a long time to come.

During the dot-com and credit and housing bubbles, the following happened:

  • The bubble allowed consumers, investors and businesses to borrow extravagant amounts of money.
  • The bubble money allowed consumers to buy things they might not have needed; it allowed businesses to expand to satisfy those consumer needs; and it allowed investors to buy shares in those businesses.
  • For example, to meet expanded consumer demand, housing construction increased, automobile manufacturing expanded, shopping centers were built and expanded, even new apartment buildings were built so that young people could get their own apartments.
  • Each of those activities fed into other businesses and investments. For example, hardware stores, building supply stores, car parts suppliers, home decorating services, carwashes, etc., all expanded existing businesses or opened new businesses.
  • This increased access to debt, so that consumers and investors could go even farther into debt, using the money to buy more things, allowing businesses to expand even further.
  • All of this creates a chain reaction loop that builds the bubble up, until it bursts.

Once the bubble bursts, the above chain reaction goes into reverse.

  • People and businesses start paying down debt. This is a double effect: Not only do they not borrow money, they actually pay down debt.
  • Thus, they cut back way back on purchases, buying only the essentials.
  • Some people lose their jobs, become bankrupt, even lose their homes, and these people may spend absolutely nothing during the course of a day.
  • The new and expanded businesses that were created to meet growing demand during the bubble now are too large for the reduced demand for their products and services.
  • Therefore, businesses are forced to reduce prices, lay off workers, close factories, or even close completely.
  • All of this creates a chain reaction loop that causes the bubble to burst even faster.

This is why the Law of Mean Reversion works, and why it must always work. The bubble creates jobs, factories, and businesses that can no longer survive in the new world of reduced demand. This feeds on itself, and collapses the bubble even further.

The data value (earnings, in this case) can’t simply return to the trend value that it would have had, if there’d been no bubble, since the bubble used up resources that have to be replenished, and that depresses the data value after the bubble bursts.

This is what ALWAYS happens, no matter how many times analysts claim, “This time it’s different.” It’s NEVER different.

Some people hope that government stimulus packages can change things, but they can’t change the fundamentals, and sometimes make things worse. The “cash for clunkers” program caused a temporary surge in car sales, but presumably only “borrowed” sales from months after the program ends. And in China, stimulus money is being used to create ghost towns and empty skyscrapers, pushing the price of real estate up in a new bubble. (See “Skyrocketing real estate prices in China alarm officials.”)

The use of “normalized earnings” by Hussman and others is a bizarre and disturbing new development by financial analysts and journalists to hide what’s going on.

But the underlying fundamentals have not changed. Since 1995, we’ve had a dot-com bubble, a housing bubble, a credit bubble, and a stock market bubble. We have not nearly begun to pay the full price for those bubbles, as they continue to collapse.

(Comments: For reader comments, questions and discussion, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (2-Jan-2009) Permanent Link

In Iran’s largest and most violent protests yet, nephew of opposition leader is killed
Iranian police fired on protesters on Sunday, killing ten people, including the 35-year-old nephew of the opposition leader Mir-Hussein Moussavi. Moussavi was the principal opponent of Mahmoud Ahmadinejad in the June 12 presidential elections that many analysts have claimed were conducted fraudulently. Moussavi claims to have won the election.

Related Articles


In Iran’s largest and most violent protests yet, nephew of opposition leader is killed: Iranian police fired on protesters on Sunday,… (28-Dec-2009)

Iran fails to smash student protests, as the Dubai crisis batters its economy: Huge peaceful student protests in cities across Iran were met with violence… (9-Dec-2009)

Theological split in Iran widens as opposition protests continue: The Islamic Republic of Iran versus the Persian Republic of Iran…. (9-Nov-2009)

Iran plays a grand game in international nuclear weapons talks: Will she or won’t she?… (26-Oct-2009)

Furious Iran blames Pakistan, US and Britain for Sunday’s terrorist attacks: Iran’s Revolutionary Guards vow revenge…. (22-Oct-2009)

Big Iran street protests greet Ahmadinejad’s fiery denunciations of Israel: Iran’s political crisis continues to grow, as the college year begins…. (19-Sep-2009)

Escalating civil war in Yemen threatens to pull in Iran, Saudi Arabia and U.S.: Last week, President Obama said we would help Yemen in its “fight against terrorism,”… (13-Sep-2009)

New Iran demonstrations commemorate the student protests of July 9, 1999: Hardline Iranian mullahs had thought that they had crushed the demonstrations … (10-Jul-2009)

Ayatollah Ali Khamanei relives his childhood, as Iran arrests UK Embassy employees: Following a week of massacres, protestors have taken to the rooftops,… (28-Jun-2009)

Iran’s Khamenei appears desperate, as reports of Tehran massacres grow: An amazing generational battle is proceeding in Iran…. (26-Jun-2009)

A generational explanation of Iran’s political crisis: What happens when an irresistible force meets an immovable object?… (23-Jun-2009)

Iran’s government panics, as Supreme Leader hints at violence against protesters: Friday’s speech by Ayatollah Ali Khamenei was a significant escalation… (20-Jun-2009)

Iran: Violent street demonstrations follow Ahmadinejad’s landslide election victory: Opposition supporters are claiming massive election fraud,… (14-Jun-2009)

President Obama casts a vote against Iran’s President Ahmadinejad: Can reformist Mir-Hossein Musavi beat Ahmadinejad in the June 12 elections?… (22-Mar-2009)

Stock markets in Iraq and Iran are surging.: Iran’s President Mahmoud Ahmadinejad says “it is the end of capitalism.”… (17-Oct-2008)

Wall Street Journal describes Iran’s generational Awakening era: Young Iranians turn away from the Quran and go for self-help and New Age…. (1-Jul-2008)

Israel conducts mock attack on Iran: The rumor mill is predicting a real attack…. (21-Jun-2008)

China “betrays” Iran, as internal problems in both countries mount: Diplomats say that China has provided Iran’s nuclear weapons plans to the UN…. (5-Apr-08)

Iranian speedboats threaten to blow up US ships in Gulf of Hormuz: Question: Why did Iran do it?… (9-Jan-08)

Students at Tehran University risk protest against Ahmadinejad: When Iranian President Mahmoud Ahmadinejad spoke at Columbia University… (8-Oct-07)

Iran’s President Ahmadinejad facing a growing “generation gap”: Gas rationing and restrictions on women are infuriating the college-age generation…. (2-Jul-07)

Iranian police swoop down on women with loose headscarves: Sorry, I just can’t stop laughing at this one…. (25-Apr-07)

An Iranian scholar says that Tom and Jerry cartoons are a Jewish conspiracy: Professor Hasan Bolkhari is loonier than Ahmadinejad…. (29-Mar-07)

Iran is using cartoons to fight decline in anti-Americanism: Anti-Americanism has been declining in Iran for ten years,… (24-Mar-07)

Iran and Russia increasingly at odds over Iran’s nuclear development: Saying that Moscow “will not play anti-American games” with Iran,… (17-Mar-07)

Iran’s President Mahmoud Ahmadinejad holds two-day Holocaust denial conference: He says that Israel “will soon be wiped out.”… (13-Dec-06)

Iran and Ahmadinejad are waiting for the Mahdi: Most people know about the belief by Christian fundamentalists about the Second Coming of Christ,… (22-Aug-06)

Iranian President Mahmoud Ahmadinejad is a very charismatic leader: In his 60 Minutes interview, he was witty, charming, confident and deadly…. (14-Aug-06)

State of the Union speech displays continuing misreading of Iran: It’s wishful thinking to believe that an overthrow of the Mullahs is coming…. (1-Feb-06)

Europe resigns itself to a nuclear Iran: Defiant Iran President Mahmoud Ahmadinejad continues to lead Iran to be the regional superpower,… (16-Jan-06)

Iran appears to be positioning itself as a post-war superpower: Iran restarts its nuclear enrichment program while calling for Israel’s removal…. (11-Jan-06)

Feminism flourishes in Iran, as the international crisis on nuclear weapons intensifies: Iran’s new president, Mahmoud Ahmadinejad, named a hardline Islamist cabinet on Sunday,… (15-Aug-05)

Iran’s plan to develop nuclear fuel is “irreversible”: France calls it a “major international crisis”… (3-Aug-05)

Ultraconservative Mahmoud Ahmadinejad wins Iran Presidential election: I try to find humor wherever I can for this serious web site, and with this guy it’s easy…. (25-Jun-05)

Iran: Tehran University student unrest is building against the government: “Moderate” President Mohammad Khatami blamed the hard-line Muslim clerics… (8-Dec-04)

Iraq Today vs 1960s America (Revised): They have much in common: Bombings, assassinations, student demonstrations, violent riots, calls for insurrection and civil war and harsh rhetoric. That’s much more than a coincidence. (8-May-2004)

Riots in Iran: Will there be a violent overthrow of the Iranian Mullahs? Generational Dynamics says ‘No.’ (25-Jun-03)

The hardline government’s threats of violence against protesters may have reduced the volume of protests during the last few months but, as would be expected during a generational Awakening era, the protests have come back stronger than ever during the last week. Hundreds of thousands of protesters took over the streets of Tehran on Sunday, and similar protests occurred in cities across the country.

However, two events have occurred recently that have given the protesters an “excuse” to come out in force and demonstrate:

  • Grand Ayatollah Hoseyn Ali Montazeri died two weeks ago. Montazeri was one of the heroes of the 1979 Islamic Revolution, but he has been a leading critic of the hardline policies of the current regime. I quote Montazeri in an earlier article (see “Theological split in Iran widens as opposition protests continue”) last month. His funeral ceremonly last Sunday provided an opportunity for protesters to come out.
  • This Sunday was the Ashura holiday, the holiest day in the Shia Islam calendar, commemorating the death in 680 of Imam Hussein at the Battle of Karbala. This was the climax of the first crisis war between followers of Mohammed after his death. This war created the division between the Sunni and Shia branches of the Islam faith. The Ashura holiday, commemorating the death of Imam Hussein, is roughly equivalent in importance to the Easter holiday in Christianity, commemorating the death and resurrection of Christ. The Ashura holiday provided the opportunity for the nationwide anti-government protests.

Iran’s government is panicking over these demonstrations because they seem very similar to the the demonstrations that led to the massive violence Islamic Revolution in 1979. From the point of view of Generational Dynamics, a repeat of the 1979 revolution is completely impossible at this time. In 1979, Iran was in a generational Crisis era, so a crisis civil war was quite plausible. Today, Iran is in a generational Awakening era, and a crisis civil war is literally impossible. (See “A generational explanation of Iran’s political crisis.”)

I heard one commentator on television say something like, “I don’t know where these protests are going. They seem to have no leader and no objective.” That’s exactly right. The riots and demonstrations are just like those by the Boomer generation in America in the 1960s, and the ’68er demonstrations in Europe at the same time. That was the time of the West’s generational Awakening era. When tens of thousands of young people went to San Francisco to take part in the 1967 Summer of Love, they had no leader and no objective either. They were mainly demonstrating against their own parents, and the austere rules imposed by the generations that survived World War II. Today’s demonstrators in Iran are really demonstrating against the austere rules imposed by the generations that survived the Islamic revolution and the Iran/Iraq war of the 1980s.

The death of Moussavi’s nephew is certain to be considered a major event by the young demonstrations, infuriating them and causing enormous outrage. The hardline government is hoping that the demonstrations will fizzle, and they’re using violence to try to stop them, but without success.

From the point of view of Generational Dynamics, Iran’s riots and demonstrations can be expected to continue for years, and will only end when some sort of climactic event occurs, equivalent to America’s resignation of President Richard Nixon in 1974.

(Comments: For reader comments, questions and discussion, see the Iran thread of the Generational Dynamics forum.) (28-Dec-2009) Permanent Link

Yemen wars escalate rapidly, as US provides military support
The Yemen connection to the attempted airplane bombing has thrust Yemen into the news.

The 23-year-old would-be bomber is from a prominent Nigerian family, but apparently received terrorist training and the bomb ingredients from Al-Qaeda in the Arabian Peninsula (AQAP), headquartered in Yemen. This has caused various news anchors, bloggers and politicians to have to learn how to spell “Yemen” and to realize the growing al-Qaeda presence there.

Yemen.  Shia Houthi rebels are fighting the Saudi army in northern Yemen, while al-Qaeda is gaining control in southern Yemen. <font size=-2>(Source: CIA Fact Book / Economist)</font>
Yemen. Shia Houthi rebels are fighting the Saudi army in northern Yemen, while al-Qaeda is gaining control in southern Yemen. (Source: CIA Fact Book / Economist)

However, there’s far more important news coming from Yemen, and it’s about two wars that have been escalating rapidly since I first wrote about them in September. (See “Escalating civil war in Yemen threatens to pull in Iran, Saudi Arabia and U.S.”)

In northern Yemen, the war was originally a rebellion by the Houthi ethnic group against the Yemen government. Since September, it’s spilled over into a border war between Houthis and Saudi Arabia. Analysts were shocked this week when Saudi Arabia disclosed that it has lost 73 of its soldiers in its clashes with Yemen’s Houthi rebels.

Saudi Arabia’s air force has been crossing the border into Yemen, with the Yemenis’ consent, and striking at Houthi rebel bases. A Saudi air strike last Sunday on a north Yemen town reportedly killed dozens of people, including civilians. The US is thought to be providing intelligence information for the strikes.

In southern Yemen, the war is against al-Qaeda terrorists. Yemen’s government in Sana’a is increasingly losing control of the country, and al-Qaeda groups are using Yemen as headquarters for AQAP, with a stronghold in the south. AQAP has been staging terrorist attacks throughout the country in order to destabilize the government.

Yemen has been conducting air strikes against al-Qaeda bases. The NY Times reports that the “United States provided firepower, intelligence and other support to the government of Yemen.” The “other support” is thought to include American special forces soldiers and attacks by American cruise missiles.

According to a statement by General David Petraeus statement in April:

“Yemen stands out from its neighbors on the Arab Peninsula. The inability of the Yemeni government to secure and exercise control over all of its territory offers terrorist and insurgent groups in the region, particularly Al Qaeda, a safe haven in which to plan, organize, and support terrorist operations. It is important that this problem be addressed, and CENTCOM is working to do that. Were extremist cells in Yemen to grow, Yemen’s strategic location would facilitate terrorist freedom of movement in the region and allow terrorist organizations to threaten Yemen’s neighbors, especially Saudi Arabia and the other Gulf States. In view of this, we are expanding our security cooperation efforts with Yemen to help build the nation’s security, counter-insurgency, and counter-terror capabilities.”

As I’ve described many times, al-Qaeda’s aim is to duplicate the success of Iran’s 1979 (Shia) Islamic Revolution in a Sunni Muslim country. They’ve attempted this in Iraq, Somalia, Algeria, Afghanistan, Pakistan, Uzbekistan and elsewhere, and now Yemen. So far they’ve been unsuccessful, but they’ll keep trying in different countries until they’re successful.

The growing American military presence in Yemen means that there is one more country, in addition to Iraq, Afghanistan, and Somalia, where American forces and al-Qaeda-linked Islamist forces are fighting one another. The potential for a major escalation is substantial.

From the point of view of Generational Dynamics, the world is headed for a “clash of civilizations” world war, pitting China and Sunni Islam forces against the West.

(Comments: For reader comments, questions and discussion, see the Yemen thread of the Generational Dynamics forum.) (27-Dec-2009) Permanent Link

At the end of a dark year, Merry Christmas and Happy New Year to all
It’s been an incredible year, hasn’t it?

In my own way, I lead a fairly ascetic life. During the day I develop computer software in the ancient language of C++, and in my remaining time I work on this web site. My obsession is nearly total. While I’m at work, writing C++ code, I have my headphones on, and I’m listening to the BBC or Bloomberg TV. At night, if I wake up at 4 am and can’t get back to sleep, I turn on the BBC. At other times, I watch CNN, Fox News, CNBC, or MSNBC. I’ve also cut and pasted some 50,000 articles that I have filed on my hard disk. My obsession is a GOOD thing (I keep telling myself), because it makes me know everything that’s going on in the world, and makes it possible to write all the articles I post on this web site.

This has been true for seven years, since I started this web site in 2002. Each day, or as often as I have time for, I look at the world through the prism of generational theory and write articles for this web site reporting on what I find.

But this year has been different from the previous six. The world went off the rails this year. I used to get up in the morning and wonder if I was crazy or the world was crazy, but that conundrum has been resolved at least partially. The question of whether I’m crazy is still open, but there’s absolutely no doubt at all that the world has gone mad.

Let’s take a look at some of the events of the last year:

  • The stock market surged this year, even though earnings kept falling. On what planet does that make any sense at all? Price/earnings ratios (also called “valuations”) are close to 100, when anything above 16 is considered “expensive.” And this year we saw the heavy use of P/E ratios based on phony so-called “operating earnings,” but even those phony numbers are now around 30, which is also astronomically high.
  • The Copenhagen climate change conference was predictably a farce long before it started. Anyone with any sense at all could see that China would never agree to any binding limits. I said that, and other commentators said that. But you still had dozens of world leaders, including President Obama, go there and act like total idiots, come away with less than nothing, and then still declare it a success.
  • The loathsome spectacle in the U.S. Senate these last few days as they passed the health care bill is unspeakable.
  • Fraud and extortion, especially by people at financial institutions like Goldman Sachs, Citibank and Bank of America, have become standard operating procedure.

I’ve been expecting something like this for years, because the same thing happened after the 1929 crash, and I’ve written about it many times, but it’s still a shock how pervasive it’s become.

I frequently mention Yves Smith’s Naked Capitalism blog, because her blog has become a kind of “ground zero” for describing many of the criminal activities going on in the financial world. Smith calls people like me (without actually acknowledging me or this web site) “alarmists,” but she’s now confirming all the things that she used to consider alarmist. She even refers to bankers as “banksters.”

The fraud and extortion have made writing for this web site more difficult, because what’s going on is so far from reality. If the P/E ratio index is around 18, as it has been in previous years, then I can talk about how it’s been above the historical average of 14 since 1995, and by the Law of Mean Reversion will have to fall equally far below 14 for the same amount of time. But what can you say when the P/E ratio index is around 100? How can you say anything that anyone sane can relate to?

Many things that happened last year were crazy in another sense, because they’re just “business as usual.” Some other events of note in the last year: the Gaza war between Israel and Hamas; the escalation of the Afghanistan war and the increasing instability of Pakistan; and in the last few days, we’re learning that U.S. forces are getting involved in the border war between Saudi Arabia versus the Iran-backed Houthis in Yemen. There’s also been the climactic end to the Sri Lanka crisis civil war, and the growing riots and demonstrations in Iran.

There are tens of thousands of people who read this web site regularly, according to the web site logs. The logs also tell me that there are plenty of people from universities, government and businesses, though of course I have no idea who they are.

I still have to joke that this web site is like a porn site: there are a lot of people reading it, but almost no one wants to admit it. I’d love to get some feedback from academics or government officials, but apparently few of them want to admit associating with the gloomiest person in the world, who writes for the gloomiest web site in the world.

The Generational Dynamics forum has had mixed success. There isn’t a great deal of traffic, although the discussion that occurs is very intelligent.

For me personally, the forum has actually been very successful. I try to answer most of the e-mail questions and comments that I receive from web site readers, but at the end of 2008 and the beginning of 2009, the volume of e-mail queries was getting out of hand, and I couldn’t respond to all of them. Furthermore, many people were asking me the same questions, usually something along the lines of “How can I protect my assets?”

So I started referring people to the forum, especially the Financial Topics thread. That’s been pretty successful, as the number of e-mail queries has leveled off and is under control again, even as the traffic to the web site has increased.

Still, I would like the forum to be more useful to people, and if there’s anything I can do (such as rearranging topics or categories, or something like that), I would be happy to do so. Feel free to write to me with suggestions, or post them in the forum itself.

I would like to simply wish everyone a Merry Christmas and Happy New Year, but it’s not that simple. I’m a believer in trends, and the trend for the world is to become increasingly dysfunctional in the seven years since I started this web site.

There’s something really dark going on. The stock market surge, the Copenhagen summit, the health care bill — none of these things makes any sense at all. The investors, journalists and politicians whose behavior is responsible for these things are not that stupid. They may act like idiots, but they aren’t idiots.

Sherlock Holmes said, “When you have eliminated the impossible, whatever remains, however improbable, must be the truth.”

So these people are acting like idiots, but the “impossible” is that they actually ARE idiots. So we can eliminate that. Therefore, they must be acting like idiots on purpose, knowing the consequences, but having some venal personal motives. What are those motives? Usually money and political power, accompanied by total contempt for the people they’re screwing.

There are actually plenty of examples of this.

I’ll start with a couple of examples from China. Chinese food producers poisoned millions of Chinese children by bulking up their food products with melamine, to give the appearance of greater protein content. Chinese real estate firms are continuing to build empty cities and empty skyscrapers, creating a real estate bubble that’s doing enormous harm to ordinary Chinese citizens.

In America and Europe, we have supposedly reputable companies like Priceline, Orbitz, FTD, 1-800-Flowers, Pizza Hut, and Continental Airlines scamming their customers online and making billions of dollars doing it.

And of course the entire financial disaster was perpetrated by people defrauding other people for their own gain. In particular, the “toxic assets” were being created and sold by people who, by 2006-2007, knew that they were toxic, but redoubled their efforts to sell them before the party ended. Today, banks like Citibank and Bank of America are still extorting their own customers by charging phony fees and 30% interest rates, in order to pay themselves million dollar bonuses.

Why is all of this happening? I know that one of the least popular things I can talk about on this web site is “The nihilism and self-destructiveness of Generation X,” but with Gen-Xers increasingly in control of government and business organizations, there’s really no other direction to go in.

Most people in every generation, including Gen-Xers, are decent, hard-working people, but what we have today are a small group of cynical Gen-Xers who really ARE nihilistic, and who have the skills to drive out the hard-working people. This is “the bad driving out the good.”

The mechanism for doing this became clear from the hacked climate change e-mail messages that were revealed prior to the Copenhagen conference. In a word, these e-mail messages show that climate change science is junk science. And even if the polar icecaps ARE melting, these e-mail messages still show that climate change science is junk science. But instead of acknowledging that it’s junk science, all the politicians, journalists and “scientists” acted like idiots, and went to Copenhagen, where the whole scene collapsed into farce.

But what’s most interesting, and deserves a lot more study, is that the hacked e-mails showed how climate change advocates used the peer review process to systematically exclude anyone with dissenting views. The advocates were skillful in gaining control of climate research journals and then making sure that skeptics were ignored and never acknowledged. And if a skeptic published his research elsewhere, then the advocates would say that the research wasn’t “peer reviewed.”

That shows one way that “the bad drives out the good” in climate change.

In financial institutions, anyone who wants to conduct business honestly is fired, driven out, or threatened. Last June, Yves Smith described exactly how middle level employees are effectively able to extort management into continuing fraudulent activities and getting themselves overpaid.

The disintegration of the Copenhagen climate change conference is interesting, because it’s a microcosm of what’s happening in the world. The nihilism and self-destructiveness of these Gen-Xers in power is threatening the entire world with the same kind of disintegration, through worse financial crises and world war.

But other than that, Dear Readers, let me wish you a Merry Christmas and a Happy New Year. And I hope that this web site is helping you to prepare for what’s coming. If it does, then it’s serving its purpose.

Let’s close this essay with a little Christmas music.

I wrote about the song “Have yourself a merry little Christmas” last year. I think I like this song because it fits my mood as the gloomiest person in the world.

Here’s the video of Judy Garland singing this song in the 1944 movie “Meet Me in St. Louis”:

Merry Christmas and Happy New Year, everyone, and thank you for your support in the last year.

(Comments: For reader comments, questions and discussion, see the Merry Christmas and Happy New Year 2010 thread of the Generational Dynamics forum.) (25-Dec-2009) Permanent Link

CalculatedRisk: Expect a big drop in existing home sales in December
New home sales fell unexpectedly in November, when analysts had expected them to increase.

The CalculatedRisk blog has an interesting analysis of the relationship between new and existing home sales.

New and existing home sales <font face=Arial size=-2>(Source: Calculated Risk)</font>
New and existing home sales (Source: Calculated Risk)

This graph shows that new home sales (red line) and existing home sales (blue line) followed similar growth paths until the real estate bubble burst in 2006 and they started to diverge.

New home sales were supposed to increase in November, according to the analysts, but as you can see from the graph, they took another downward spike.

Since 2006, existing home sales have been doing better than new home sales (relatively speaking) because new home builders couldn’t compete with the low prices of all the foreclosed properties (existing homes), according to CalculatedRisk.

“The recent increase in the ratio was partially due to the timing of the first time homebuyer tax credit (before the extension) – and partially because the tax credit spurred existing home sales more than new home sales.On timing issues: New home sales are counted when the contract is signed, and usually before construction begins. So to close before the original Dec 1st deadline, the contract had to be signed early this Summer. Existing home sales are counted when escrow closes. And the recent surge in existing home sales was primarily due to buyers rushing to beat the tax credit.

November will probably remain the record high since existing home sales will decline sharply in December.”

It’s not surprising that existing home sales have been doing well, because of the foreclosed homes flooding the market.

As you can see from the above graph, new home sales took a slight upward blip a couple of months ago. Pollyannish journalists and analysts took this as a sign that the housing crisis had bottomed, and that the worst was over.

But as we discussed in “‘Shadow inventory’ of unsold homes continues to grow,” millions of additional distressed homes are expected to come on the market in 2010. This will trigger a sharp decrease in the market prices of homes, and may even result in panicked selling.

These are trends that analysts at CNBC, the Wall Street Journal, and other media ignore.

Steve Lieseman on CNBC was genuinely stunned on Tuesday morning, when the news came in that revised Q3 GDP growth was 2.2%. There were actually 10-20 seconds of total silence as Lieseman stared at the report, trying to figure out what was going on.

The financial community almost universally believes that the worst is over, and that GDP growth will reach 4% in either Q4 or Q1. As a consequence, they believe that the economy will start ADDING jobs by Q2, while they’ve been losing jobs for two years now.

These beliefs are based entirely on unrealistic hopes.

As another example, corporate earnings have been falling for over two years now, and analysts believe that they HAVE to start increasing, simply because too much time has passed. For example, here’s what appeared earlier this week on CNBC Earnings Central:

“EARNINGS STATS: BY THE NUMBERSAs of Monday, December 21st:

The blended earnings growth rate for the S&P 500 for Q3 2009, combining actual numbers for companies that have reported, and estimates for companies yet to report is currently -14.1% versus an estimated earnings growth for Q4 2009 of 196.1%. Of the 498 S&P 500 companies who have reported Q3, 79% beat estimates, 7% were in-line, and 14% were below estimates. As of October 1st, the earnings growth rate was at -24.7%. (Data provided by Thomson Reuters)”

If you read the above carefully, you’ll see that analysts expect earnings growth of 196.1% in Q4. After earnings growth has been negative for many quarters, this is truly an incredible belief, and it shows what ridiculous views mainstream analysts are holding.

All my life I’ve been reading about how foolish people were after the 1929 crash. Herbert Hoover said that “Prosperity is just around the corner.” All kinds of analysts predicted that the market had bottomed and would start going up again.

That whole story has always been something of a joke, ever since I first encountered it when I was in school in the 1950s.

But now we see it playing out again. It’s absolutely astounding to see this joke replayed before our eyes.

A couple of days ago, I posted a story on China’s real estate bubble. As incredible as what’s happening in America, China’s real estate bubble is so cuckoo as to be worthy of a cartoon rather than real life.

I know I keep saying this, but the insanity keeps getting worse every day. How can journalists, analysts and politicians be more insane every day than they were the day before?

(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.) (24-Dec-2009) Permanent Link

Skyrocketing real estate prices in China alarm officials
Chinese home prices rose 5.7% in November from a year earlier, according to China’s National Bureau of Statistics (NBS).

Having just posted a new article, “‘Shadow inventory’ of unsold homes continues to grow,” indicating that the housing crisis in America is far from over, it’s worthwhile taking a look at the even worse real estate crisis in China.

Housing prices in China are rising rapidly <font face=Arial size=-2>(Source: Xinhua)</font>
Housing prices in China are rising rapidly (Source: Xinhua)

China’s growth rate in home prices was 2.2 percentage points higher than that of October, according to the NBS report.

Alarmed Beijing officials are imposing new regulations in an attempt to slow down the rapid bubble growth. “We’re at the start of an all-out crackdown on the property market,” according to one Shanghai analyst. “The current speed of gains in property prices cannot be sustained. Local governments may also work out their own policies targeting house prices.”

Announcement of this crackdown panicked investors this week in the Shanghai stock market, especially in stocks related to real estate.

A giant Ponzi scheme

According to former Morgan Stanley Chief Asia Economist Andy Xie, Chinese stocks and properties are 50-100% overvalued, fueled by bank lending and inflation fear:

“Chinese asset markets have become a giant Ponzi scheme. The prices are supported by appreciation expectation. As more people and liquidity are sucked in, the resulting surging prices validate the expectation, which prompts more people to join the party. This sort of bubble ends when there isn’t enough liquidity to feed the beast.”

The asset bubble is being caused by China’s massive stimulus program. The stimulus program was intended to create jobs and increase consumption, but instead, state-run banks have channeled the money into real estate projects for their own benefit. The new landowners are being called “Land Kings,” and they have little respect among the Chinese people.

Chinese cartoons on real estate bubble <font face=Arial size=-2>(Source: Xinhua)</font>
Chinese cartoons on real estate bubble (Source: Xinhua)

As stimulus money pours into real estate properties, the property bubble gets larger and larger, making home prices too expensive for ordinary citizens, even as many homes and apartment buildings lay empty.

This is one of the most incredible features of China’s real estate bubble, and something that’s different from America’s recent real estate bubble.

There’s no property tax in China, and so there’s no cost to buying real estate and holding it indefinitely, according to Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing.

So “land kings” have been able to use stimulus money or cheap bank loans to purchase properties and hold them, expecting to sell them later at big profits. According to Chovanec,

“The way I read these figures is that an immense amount of new housing is being purchased and accumulated (in a vacant condition) off-market. Nobody has any idea what it is actually worth because there is little urgency to offer it, to end users, on the secondary market and actually see it priced based on their demand. If investors were at least trying to “flip,” we might find out, but they’re not, and so prices for new residences (especially on the high-priced luxury end) continue to rise without anything to bring them back down to earth.”

This has led to remarkable situations. The following video describes “China’s empty city – Ordos.” The entire city was built by real estate developers using other people’s money, and there are no people living there:

In America, the real estate bubble took the form of financial institutions creating and selling mortgage-backed securities that later turned out to be worthless “toxic assets.”

In China, the real estate bubble takes the form of financial institutions building and buying unwanted real estate with other people’s money.

The details are different, but the core patterns are the same: Financial institutions defrauding the public and paying themselves huge salaries, fees, commissions, bonuses and bribes.

Commercial property in China

China’s residential real estate problem is bad, but if anything, the commercial real estate problems are even worse.

According to a lengthy Xinhua analysis, China’s commercial real estate boom occurred in 2003-2007:

“China’s rapid economic expansion over the past decade turned the country into the place to be for multinational companies. To accommodate the influx of international businesses, developers took out loans, land was cleared and construction sites and cranes dotted the skyline of every major city. …But when the financial crisis hit, many multinationals pulled their offices and employees out of China or moved to less expensive spaces, while the hordes of shoppers that retailers were expecting to flood the malls tightened their purse strings. Now, major cities throughout the country are home to empty skyscrapers and shopping malls that are virtually empty, apart from store clerks and security guards. Meanwhile, construction continues.”

The result is that the vacancy rate in big cities like Beijing and Shanghai is approaching 50%. Even when the buildings and shopping centers are occupied, owners are forced to give special deals, such as one year free rent on a five-year contract. Thus, effective rents have crashed by 40-50% in the last year, even though nominal rents have remained almost the same.

According to international real estate executive Jack Rodman, there are two reasons that explain why developers have been keeping leasing prices at the old rates:

“One, they are under no pressure from banks to repay their loans, ergo no motivation to lease at today’s current rates. And two, writing a lease at half the rent that supports the valuation … could trigger a writedown, incurring losses for the banks. (Meanwhile, there) has been a lack of transparency and reliability, and a lack of veracity in market information that the brokerage community made available to owners, developers and tenants.”

Moreover, the commercial real estate building craze has not ended, as new stimulus money and near-zero interest rates continue to fuel additional development projects that are not needed.

This has led to an absolutely incredible scam where farmers have started “growing houses” instead of growing food.

The scam works as follows: When there are rumors of a new development project, the farmers in the region quickly get together and build numerous houses on their farm land. These are not real houses, in the sense that anyone could live in them, but they’re houses nonetheless. For example, they may be nothing more than bricks held together by glue.

Then, if and when the development project begins, the houses have to be torn town to make way for the development. Beijing’s policy is to reimburse owners when a new real estate project causes people to loses their homes. So the farmers make back double their money. Of course, if the rumored development project never actually occurs, then the farmers lose their money.

Dysfunctional China

I seem to keep using the word “dysfunctional” these days, whenever I talk about almost anything having to do with finance or politics, whether in the US or Europe. But it’s going to be hard for any other country to beat the dysfunction that’s apparent today in China’s real estate market.

It’s not uncommon for observers to compare China’s real estate market today to Japan’s real estate market just before its huge stock market crash in 1990. At the height of Japan’s real estate bubble, the nominal value of the real estate in Tokyo alone was greater than the value of all the real estate in the United States. Once the crash began, Japan’s real estate prices continued falling for almost two decades. (See “Japan’s real estate crash may finally end after 16 years.”)

China is showing the same signs, according to the NY Times:

“[Government subsidies] have spurred excess capacity and created a dangerous political dynamic in which these investments have to be propped up at all cost.China has been building factories and production capacity in virtually every sector of its economy, but it’s not clear that the latest round of investments will be profitable anytime soon. Automobiles, steel, semiconductors, cement, aluminum and real estate all show signs of too much capacity. In Shanghai, the central business district appears to have high vacancy rates, yet building continues.”

In America, the public is becoming increasingly furious with Citibank, Bank of America, and other bankers, who have defrauded the public with “toxic assets,” and who are now raising interest rates to 30% and imposing phony fees on credit card customers in order to have the money to pay themselves million dollar bonuses.

In China, this discontent goes far deeper. I started reporting on this phenomenon in 2004. (See “Up to 50,000 workers riot and clash with police in southeast China.”)

If there were even one incident of this type in the United States, it would be international news. But there are tens of thousands of these “mass incidents” in China each year. And this doesn’t count the recent unrest in Tibet and among the Uighurs in Xinjiang province.

These incidents represent an extremely high level of social unrest, and according to an analysis by a Chinese think-tank, the level of social unrest is higher than ever. According to the report, deep resentment has been accumulating over the past few decades against unfairness and power abuses by government officials at various levels.

From the point of view of Generational Dynamics, a Chinese civil war is certain. As I wrote in 2005 in “China approaches Civil War,” China has a long history of massive internal rebellions and civil wars, creating bloodbaths that have slaughtered tens of millions of people in a short period of time. These include the White Lotus rebellion that began in 1795, the Taiping rebellion that began in 1852, and the Communist Revolution that began with Mao Zedong’s genocidal Long March in 1934.

The current real estate bubble and “asset Ponzi scheme” is a financial crisis waiting to happen. China is desperately trying to use stimulus money to prevent a panic. These attempts have postponed the panic, but the development of the “Land Kings” shows that the stimulus money is only making things worse. And the size of the bubble is so huge that a panic will be a catastrophe for China’s social fabric.

From the point of view of Generational Dynamics, China is now about due for its next massive internal rebellion and civil war, and is headed for civil war with absolute certainty.

(Comments: For reader comments, questions and discussion, see the China thread of the Generational Dynamics forum.) (22-Dec-2009) Permanent Link

Study: Men think their dancing improves with age
This study is oblivious to generational issues.

This study purports to show that men become better dancers (or think they do) suddenly at age 65.

The research was conducted in 2008-09 by Dr Peter Lovatt at the University of Hertfordshire. Here’s the description:

“The Dance Style Questionnaire was completed by almost 14,000 people and the results show that although up to the age of 16, men lack confidence in their dance moves, after that their dance confidence rises steadily with men over the age of 65 having higher ratings than men between the ages of 55 and 60.”

This study has gotten quite a bit of publicity in the UK. Here’s how it was described in The Telegraph:

“The cringeworthy “dad dancing” witnessed at wedding receptions every weekend may be an unconscious way in which ageing males repel the attention of young women, leaving the field clear for men at their sexual peak.”The message their dancing sends out is ‘stay away, I’m not fertile’,” said Dr Peter Lovatt, a psychologist at the University of Hertfordshire who has compared the dancing styles and confidence levels of nearly 14,000 people. His research has backed up scientific studies showing a connection between dancing, hormones and sexual selection.

Men between the ages of 35 and 60 typically attempt complex moves with limited co-ordination – an observation that will be obvious to anyone who saw George W Bush shake his stuff with a troupe of West African performers in 2007.

Dr Lovatt pointed to research showing that women could gauge the testosterone levels of their dance partners by the style and energy of their moves, and suggested that “dad dancing” may be a way of warning women of child-bearing age that they might be better off looking elsewhere.

“It would seem completely unsurprising to me that since middle-aged men have passed their natural reproductive age, and probably have a family already, evolution would act to ensure they are no longer attractive to 18-year-old girls,” Dr Lovatt said.

“It’s like an apple that is going brown – you want a fresh green one instead.””

The problem with all this is that Dr. Lovatt finds that everything changes once a man gets past age 60. He’s a disaster on the dance floor from ages 35 to 60, according to Lovatt, but suddenly gets much better at age 65. He attempts various pseudo-psychological explanations for this phenomenon, but misses the most obvious explanation.

Age 65 is almost exactly the boundary that separates the Silent generation from the Boomer generation.

The Silent generation grew up during the Great Depression and WW II and, more importantly, the time of the Big Band Era.

During the 1930s and 1940s, millions of unemployed musicians formed bands and played music in dance halls around the country. Dancing was the favorite pastime to escape from the worries and anxieties of joblessness and the war. Couples developed very complex and very romantic dance steps from the Fox Trot to Swing.

By the 1950s, complex dance steps were passé. Counterculture Boomer music was rock ‘n’ roll, and complex dance steps were out. Dancing consisted of moving your legs back and forth in a simple repetition that never varied.

So now Dr. Lovatt is finding that men who grew up in the 1930s-40s are great dancers, while those who grew up in the 1950s-60s are lousy dancers, and he’s completely oblivious to these generational differences.

As I keep saying on this web site, journalists, analysts, academics and politicians are apparently incapable of grasping even the simplest generational explanations for things, no matter how obvious.

Dr. Lovatt has appeared on numerous talk shows, demonstrating good and bad dance styles. For some “news you can use,” here’s a video of Dr. Lovatt’s appearance on Graham Norton Show:

(Comments: For reader comments, questions and discussion, see the Music and Generations thread of the Generational Dynamics forum.) (20-Dec-2009) Permanent Link

Climate change: A “meaningful and unprecedented” breakthrough agreement in Copenhagen
Here’s the text of the agreement, as announced by the Obama administration on Friday evening:

“We entered this negotiation at a time when there were significant differences between countries. Developed and developing countries have now agreed to listing their national actions and commitments, a finance mechanism, to set a mitigation target of two degrees Celsius and to provide information on the implementation of their actions through national communications, with provisions for international consultations and analysis under clearly defined guidelines.”

If you don’t understand this, there’s a good reason: This is almost total gibberish. The wording is intentionally garbled because it’s utter nonsense. However, if you sort through the purposely obscure phrases, you get the following:

  • Instead of verifiable reductions in carbon emissions, countries will publish occasional reports on what they’re doing.
  • Instead of a goal to be reached by 2015, they set a target of 2 degrees Celsius by 2050.
  • Instead of a $200 billion per year fund to be paid by the West to the 130 “developing countries,” there is no financial commitment.

This agreement was reached between the United States and four other countries — China, India, Brazil and South Africa. Other countries were excluded from the negotiations, infuriating some of them.

We can all be grateful that the entire conference ended in failure and farce. (See “Climate Change conference in Copenhagen is all about getting green — money.”) This is the best possible outcome for a conference that was absurd from the beginning.

Just when I think that Washington and Wall Street can’t become any more insane and dysfunctional, they surprise me and become even worse. I don’t know how they manage to do it.

I wrote yesterday that President Obama would not be blamed for this failure essentially because he’s a member of the political élite and because he’s not President Bush and not a Republican.

However, Obama went way out on a limb for this conference. He totally committed his own credibility to a successful outcome. He’s going to receive plenty of blame from his political opposition.

(And there was an ironic finish to the day, when President Obama had to leave the global warming conference early because of a snowstorm and frigid cold weather in Washington.)

It’s worth stepping back a moment and seeing the big picture here. President Obama has had one foreign policy disaster after another — in Iran, in Pakistan, in the Mideast.

Domestically, he’s bet his presidency on this health care bill. If it doesn’t pass, it will be a political disaster for him. If it does pass, it will be an even bigger political disaster for him.

But there is one decision that appears to have bolstered his confidence: His decision to send 22,000 additional troops to Afghanistan, after sending 30,000 troops earlier this year.

My point is this: President Obama is failing at anything and everything that requires him to get consensus from other politicians, whether it’s politicians in the Senate, or leaders of other countries negotiating climate change. Obama gives a good speech, but he’s been a total failure as a negotiator, either domestically or internationally.

But the decision to escalate the war in Afghanistan required no consensus and no negotiation. It was his decision to make.

I’ve written many times for several years about how one country after another has experienced governmental paralysis. This is typical of a generational Crisis era, a time when all the survivors of the previous crisis war (WW II in this case) are all gone, and politicians are reduced to bickering.

But there’s one thing that country leaders can usually do on their own: Start or escalate a war. This is especially true in a generational Crisis era, when the population is quick to take offense at a foreign enemy.

We’re about to enter a new decade with the world increasingly insane and dysfunctional. 2010 is sure to be a year full of surprises.

(Comments: For reader comments, questions and discussion, see the Climate Change and the President Barack Obama threads of the Generational Dynamics forum.) (19-Dec-2009) Permanent Link

Climate change conference winds down with search for villains
After eight years of blaming Bush, the world may blame China this time.

The week at Copenhagen has been an incredible spectacle, with everyone looking to the US and Europe to provide money to everyone else. There are 130 “developing countries” who are demanding American technology and $200 billion per year, supposedly to help them implement global warming technologies, but always with the implication that the developed nations owe “reparations” to the developing nations because we’ve been so evil in emitting carbon. And of course they want this money with absolutely no strings attached.

What’s funny about this is that almost no one believes that these developing countries will spend this money on global warming. Imagine giving a few billion dollars to the likes of Robert Mugabe of Zimbabwe, the guy who regularly starves and slaughters his own people, especially those of the ethnic tribes other than his own.

Probably the darkest humor of the week was over the question of China receiving a chunk of that $200 billion, since they’re a “developing country.” Presumably, we would borrow the money from China and pay it back to them to do global warming technology. The suggestion that the US has to fund China has angered the US negotiators. Supposedly, the Chinese have said in back channels that they wouldn’t accept US money even if it was offered, but they don’t want to say so publicly because that would jeopardize their status as a “developing country.”

The Copenhagen conference is a microcosm of all the dysfunction in the world today. In Washington we have a proposed health care bill that’s economic insanity, and in Copenhagen we have a climate change conference that’s an absurd and loony money grab. We should be watching these things on the Cartoon Network, rather than on CNN and Fox News.

The Copenhagen conference has gone from one chaotic disaster to another. There were arguments about money, and arguments about who will and will not be required to reduce carbon emissions. Things got so bad that the President of the Copenhagen Summit, Danish minister Connie Hedegaard, resigned in disgust.

There has been only one question left: Who’s going to be blamed?

Western leaders have been scrambling to cover their asses. In the face of one chaotic disaster after another in Copenhagen, Gordon Brown and Barack Obama have been expressing confidence that an agreement will be signed before the conference ends. French President Nicolas Sarkozy said that it will be catastrophic if there’s no agreement.

Related Articles

Climate Change

Climate change conference winds down with search for villains: After eight years of blaming Bush, the world may blame China this time…. (18-Dec-2009)

Climate Change conference in Copenhagen is all about getting green — money: The banks are not the only pigs at the trough…. (14-Dec-2009)

Politicians are gloomy about reaching climate deal in Copenhagen. Awwwwwwwwww!: It seems that this money and power grab is down for another year…. (12-Nov-2009)

After a week of foreign policy disasters, President Obama’s entire program is adrift: Obama’s first term is indistinguishable from Bush’s “third term.”… (28-Sep-2009)

Food crisis suddenly becomes a top media issue: Is Al Gore planning a new movie, perhaps “An Inconvenient Famine”?… (30-Apr-08)

The global warming fad is becoming the enemy of food production.: Food prices are continuing to increase sharply around the world…. (16-Jul-07)

UN Climate Change conference reaches a compromise agreement: The two-week conference at the Bali beach resort ended Saturday,… (16-Dec-07)

UN Climate Change conference appears to be ending in farce: After two weeks of fun on Bali beaches, participants appear to have agreed on only one thing:… (14-Dec-07)

Ban Ki Moon blames Darfur genocide on global warming: Damn! He’s blaming the Darfur crisis civil war on America!!… (19-Jun-07)

Kyoto protocol is evidently dead as European countries fail to comply: Among the EU countries, only UK and Sweden are on target to meet requirements,… (4-Jan-06)

President George Bush has been blamed for the failure of the Kyoto agreement of 1997. That agreement was sponsored by then-VP Al Gore, but the agreement was rejected in the US Senate by a vote of 97 to 0 — i.e., unanimously. The should mean that Bill Clinton and Al Gore should be blamed for the failure of the Kyoto agreement, but what’s happened instead is that President Bush was blamed.

If George Bush were still President, then he would be burned in effigy around the world for the failure of the Copenhagen conference. Barack Obama can’t be blamed, because he’s a member of the élite. If a Republican wins the White House in 2012, then that person will be blamed for the failure of the Copenhagen conference. But who will be blamed in the meantime?

My guess is that it will be China:

  • China is now ahead of the U.S. as the world’s biggest polluter. They point out that they’re still behind the U.S. on a per capita basis, but they’re still the biggest polluter in total. So without strict environmental controls in China, any agreement would be a waste of time.
  • China is arguably the richest country in the world, with the U.S. owing some $2 trillion in debt to China. They’ve spent huge amounts of money on military weaponry, and have indicated that they’re preparing for war with the U.S. (See “Communist China celebrates its 60th anniversary with bizarre military parade.”) And yet, China insists on being recognized as a weak “developing nation,” a claim that’s less and less credible.
  • As a “developing nation,” China refuses to agree to any mandatory limits on carbon emissions, though they demand that the US and Europe to agree to very harsh limits on carbon emissions. This makes any possible agreement completely meaningless.
  • Every party nation to any proposed climate change agreement has to agree to have their carbon emissions monitored by international inspectors, but China is refusing to permit any such inspections.

None of this is new. These disagreements have been well known for weeks, if not months, and yet the politicians keep play-acting, as if what they’re doing makes any sense whatsoever, each hoping that the other guy will get the blame.

It’s worth repeating a point that I’ve made many times before. The survivors of World War II were united in their desire to prevent any such war from ever occurring again. They created United Nations, World Health Organization, International Monetary Fund, World Bank, the Rockefeller Foundation (Green Revolution), and other international organizations not only to prevent a new world war, but also to end poverty and starvation and to improve health. Those organizations are all failing now, as the generations of WW II survivors disappear.

Even worse, the current generations of Boomers and Gen-Xers are incapable of accomplishing anything except to argue. The insanity and dysfunction of national and world political leaders is increasingly being reflected in polls. President Obama’s approval rating has been in free fall.

This week, a new WSJ/NBC poll finds that 41% of Americans have a positive opinion about the “Tea Party movement,” compared to 35% for the Democratic party, and 28% for the Republican party.

A new Pew Research poll shows that Americans are moving rapidly to the right on a variety of issues, including gun control, abortion rights, and global warming.

What we’re seeing is something that I’m sure I’ll be writing about a lot in the new year: A major political realignment is in the offing. This is something that happened in America’s last two Crisis eras — the Civil War era and the World War II era, and it’s happening again today.

(Comments: For reader comments, questions and discussion, see the Climate Change thread of the Generational Dynamics forum.) (18-Dec-2009) Permanent Link

Climate Change conference in Copenhagen is all about getting green — money
The banks are not the only pigs at the trough.

The big scandal at the Copenhagen climate change conference last week was that the “Danish text” was leaked to The Guardian newspaper on Wednesday.

Related Articles

Climate Change

Climate change conference winds down with search for villains: After eight years of blaming Bush, the world may blame China this time…. (18-Dec-2009)

Climate Change conference in Copenhagen is all about getting green — money: The banks are not the only pigs at the trough…. (14-Dec-2009)

Politicians are gloomy about reaching climate deal in Copenhagen. Awwwwwwwwww!: It seems that this money and power grab is down for another year…. (12-Nov-2009)

After a week of foreign policy disasters, President Obama’s entire program is adrift: Obama’s first term is indistinguishable from Bush’s “third term.”… (28-Sep-2009)

Food crisis suddenly becomes a top media issue: Is Al Gore planning a new movie, perhaps “An Inconvenient Famine”?… (30-Apr-08)

The global warming fad is becoming the enemy of food production.: Food prices are continuing to increase sharply around the world…. (16-Jul-07)

UN Climate Change conference reaches a compromise agreement: The two-week conference at the Bali beach resort ended Saturday,… (16-Dec-07)

UN Climate Change conference appears to be ending in farce: After two weeks of fun on Bali beaches, participants appear to have agreed on only one thing:… (14-Dec-07)

Ban Ki Moon blames Darfur genocide on global warming: Damn! He’s blaming the Darfur crisis civil war on America!!… (19-Jun-07)

Kyoto protocol is evidently dead as European countries fail to comply: Among the EU countries, only UK and Sweden are on target to meet requirements,… (4-Jan-06)

The Danish text is a 200-page document created by a small group of negotiators from the U.K, the U.S., and Denmark, hoping to create a compromise agreement, lest the entire conference end in chaos.

According to The Guardian, it will:

  • Force developing countries to agree to specific emission cuts and measures that were not part of the original UN agreement;
  • Divide poor countries further by creating a new category of developing countries called “the most vulnerable”;
  • Weaken the UN’s role in handling climate finance;
  • Not allow poor countries to emit more than 1.44 tonnes of carbon per person by 2050, while allowing rich countries to emit 2.67 tonnes.

Well, there was chaos anyway. The “developing nations,” including China and nations in Africa and South America, were outraged by the Danish text because it didn’t satisfy the following demands:

  • The developing nations should not have any restrictions whatsoever on carbon emissions.
  • The “rich” nations should have to pay $100 billion or more to developing nations.
  • The “rich” nations should have much larger restrictions on carbon emissions.

Lumumba Di-Aping, the Sudanese chairman of the developing nations, was especially outraged. “The text robs developing countries of their just and equitable and fair share of the atmospheric space. It tries to treat rich and poor countries as equal,” he said. “We will not walk out of the talks at this late hour, because we will not allow the failure of Copenhagen. But we will not sign an inequitable deal; we will not accept a deal that condemns 80 percent of the world population to further suffering and injustice.”

The “rich” nations responded by offering a $10 billion “fast start” fund, with more to be offered later. What happened next is summarized in this analysis by AlterNet:

“Todd Stern, the Obama administration’s chief climate negotiator, said Thursday that he “categorically reject[s]” the suggestion that rich industrial countries owe compensation to the victims of climate change. Stern acknowledged that the emissions of rich nations over the past two hundred years of industrialization had caused global warming, telling a press conference, “We absolutely recognize our historic role in putting emissions in the atmosphere.” But, Stern added, “the sense of guilt or culpability or reparations–I just categorically reject that.”Stern’s statement put him at odds not only with international law but with America’s European allies. European Union leaders announced in Brussels today that their governments would provide 7.2 billion Euros over the next three years to help poor nations adapt to sea level rise, drought and other intensifying impacts of climate change. The EU’s offer was in keeping with the provisions of the UN Framework Convention on Climate Change–the climate treaty President George H.W. Bush signed at the Earth Summit in 1992 and which the Copenhagen negotiations are seeking to extend. Nevertheless, it was quickly rejected by developing nations and aid agencies as grossly inadequate.

“We have talked about $100 billion a year,” ambassador Lima told The Nation, citing an estimate the World Bank has made for climate change adaptation by poor nations. “Now we are hearing about $10 billion for three years.”

“Worst of all, this money is not even new,” Tim Gore, the climate adviser to Oxfam EU, told the BBC. “It’s made up of a recycling of past promises and payments that have already been made.””

China is playing its own role as one of the so-called “developing nations,” making its own demands. Here’s what Chinese Vice Foreign Minister He Yafei said on Friday:

“Developed countries should, in line with the principles of common but different responsibility, undertake substantial mid-term reduction commitments or targets.They have to fulfill their obligation — to provide funds to the developing countries, to provide technologies to the developing countries, to help developing countries in capacity building.

The priority for developing countries is still the reduction of poverty. It’s still economic development. Whatever the outcome, we do wish Copenhagen will have a very good outcome, whatever it is, it should not be done at the expense of the rights to development by developing countries.

History is a mirror. History is the basis on which we can move ahead, looking in the future. What is the history of climate change? I think this is why we’re here in Copenhagen.

For developed countries, they have to face the history squarely. The obligations for developed countries to live up to their commitments in emission reduction and the provision of funds and technology transfer, is an obligation they have undertaken under international instruments. This is the departure point for any international cooperation in climate change.”

So it’s all about money for these guys.

Carbon credits and financial derivatives

In 2007, I wrote “UN Climate Change conference appears to be ending in farce,” referring to a conference in Bali that attracted hundreds of climate change advocates who generated vast amounts of carbon emissions taking jet planes and sitting in air conditioned meeting rooms, when they weren’t out on the beach.

In that report, I highlighted one Generation-X banker, Louis Redshaw, Head of Environment Markets, Barclays Capital, who was hoping to make millions of dollars. The scheme was to set up financial derivatives / structured securities based on carbon credits in the same way that other bankers had set up structured securities based on residential mortgages.

According to one banker that I quoted, “I think this is likely to get bigger than the interest-rate-swaps market within 10 to 15 years, particularly once America joins in.”

Well, this is still the hope and dream of every investment banker today.

Well, here’s a recent story about what JP Morgan is doing:

“The banks are preparing to do with carbon what they’ve done before: design and market derivatives contracts that will help client companies hedge their price risk over the long term. They’re also ready to sell carbon-related financial products to outside investors.Masters says banks must be allowed to lead the way if a mandatory carbon-trading system is going to help save the planet at the lowest possible cost. And derivatives related to carbon must be part of the mix, she says. Derivatives are securities whose value is derived from the value of an underlying commodity — in this case, CO2 and other greenhouse gases.

“This requires a massive redirection of capital,” Masters says. “You can’t have a successful climate policy without the heavy, heavy involvement of financial institutions.””

This is so sickening that I can barely type because of how much it infuriates and disgusts me.

Climate research and sleaze

The whole “climate change” movement has reeked with sleaze for years, and it’s very similar to the sleaze that’s permeated the financial industry. So even if some (or all) of the climate change claims are true, they’re so buried in sleaze that they’re almost irrelevant.

You have people like Al Gore living in expensive mansions and driving expensive cars. You have climate researchers jetting around to places like Bali and Copenhagen, when they could be meeting via videoconferencing, saving huge amounts of carbon. These people obviously don’t believe a word they’re saying about climate change, but feel that they can get away with anything they want.

In November, thousands of e-mail messages were hacked from the web server at East Anglia University. The messages are begin in 1996 and continue until October of this year. This place has been at the heart of the climate “science” that supposedly proves the climate change claims.

The hacked e-mail messages showed a pattern of deception and fraud by these “scientists.” The scientists urge one another to smooth over data and hide unfavorable data; to enforce a unified view; and to blackball scientists with opposing views.

If you’d like to read the hacked e-mail messages yourself, go to .

Nothing in the hacked e-mail messages surprises me. These are the same kinds of people that you find at financial institutions selling worthless mortgage-backed securities to investors.

Phil Jones, who is director of East Anglia’s Climate Research Unit, was forced to step down after some of his e-mail messages revealed egregious violations of scientific honesty. He was the recipient or co-recipient of some $19 million in grants between 2000 and 2006. So of course he’s going to sell a bill of goods to anyone who’ll listen, just as the investment bankers did.

They’re all of the same mold. They’re all pigs at the trough, anxious to scoop up their fat grants, not caring who else gets screwed.

Climate change and the Singularity

In addition to all the general sleaze surrounding climate change, there’s another reason why I know in my gut that the climate change scientists are lying, having to do with the Singularity. I mentioned this reason recently, but now I would like to discuss it some more.

The Singularity is the point in time, around 2030, when computers will become more intelligent than humans, and will be able to improve themselves, so that they’ll soon far surpass humans in intelligence.

The approach of the Singularity is far more certain than the climate change claims. Computers have been doubling in power every 18 months for decades, and that trend is certain to continue. Several years ago, I designed a software architecture that would use this computer power to create a computer capable of doing everything that a human can, and much more, and much faster.

(See “I, Robot is science fiction, but intelligent computers will soon be science fact.” and Chapter 7 – The Singularity in the book Generational Dynamics for Historians for more information on all of this.)

So I personally know with certainty that the Singularity is coming, because I’ve laid out how it will occur.

And I’m certainly not alone in that. There are thousands of scientists and engineers who have gone through the process of understanding how the Singularity will come about. Ray Kurzweil has popularized this understanding through his book, The Singularity is Near, and has a forthcoming movie that can be previewed at

So the approach of the Singularity is not in any reasonable doubt at all. There is only a debate about the date. My estimate is 2030, but other estimates range from 2020 to 2040.

So when climate scientists start talking about rising sea levels in 2050 and 2075, it’s total nonsense. There is absolutely no way to know anything about what will happen after the Singularity occurs.

But it’s much worse than that.

Here you have hundreds of brilliant climate change scientists, and apparently not a single one has considered the possibility that everything they’re doing is meaningless with the Singularity coming.

I did a search of the hacked East Anglian e-mail messages for the word “Singularity,” and it doesn’t appear once. You would think that these brilliant scientists would have at least asked the question of one another: “Hey, what about the Singularity?” But apparently it was never asked once. It must have been forbidden subject, since it conflicts with their own claims.

But let’s suppose that you consider the claims of the Singularity to be “too gloomy,” or you think that a computer can never think like a human because it doesn’t have a human soul, or something like that.

Even so, the world is on the verge of a cornucopia of new computer technology that will change the world. In the next ten years, computers will increasingly be able to make human-like decisions in limited areas, and perform tasks that require judgment far beyond what computers can do today.

I discussed this in my July article on the health care proposal. For example, within a few years we’ll have computerized robots that can take care of a sick person in the home or hospital. They can monitor the patient 24 hours per day, take your temperature, dispense pills, give shots and provide meals. They will have computer vision and hearing, and will be able to respond to simple patient requests like, “Please bring me a glass of water.” If something happens that they can’t handle, they will wirelessly call for a real live human nurse or doctor.

This is the kind of health care technology that can barely be imagined today, yet it’s really only a decade or so away.

The same computer technology will provide solutions to global warming that can barely be imagined today. For example, perhaps there will be intelligent battery driven vehicles that can navigate traffic with no driver, and so will replace the need for most cars.

What all of this means is that nothing that the climate change advocates are saying has any meaning whatsoever. And the fact that these scientists aren’t even discussing it means to me that they’re purposely avoiding the subject because it conflicts with their agenda.

So we’ll all be watching what happens at the climate change conference in Copenhagen next week. With so much sleaze and with so many people grasping for their handouts, all we can do is hope that nothing happens.

Danny Kaye and Wonderful Copenhagen

Let’s close this article with some music from an earlier, simpler time. Here’s a video of the song “Wonderful wonderful Copenhagen” from Danny Kaye’s 1953 movie, “Hans Christian Andersen”:

(Comments: For reader comments, questions and discussion, see the Climate Change thread of the Generational Dynamics forum.) (14-Dec-2009) Permanent Link

Obama’s Nobel Prize speech defends a “just war” in Afghanistan
This is President Obama’s most significant speech since the election.

People on the left and right are applauding Thursday’s speech, both for its rhetorical eloquence and for its thoughtful content.

Much of the 40 minute speech was pure politics. But there were portions of the speech that are relevant to Generational Dynamics theory. Here are some excerpts:

“Now these questions are not new. War, in one form or another, appeared with the first man. At the dawn of history, its morality was not questioned; it was simply a fact, like drought or disease — the manner in which tribes and then civilizations sought power and settled their differences.”

From the point of view of Generational Dynamics, war has always been a necessity because population keeps growing faster than the availability of resources such as land, food and water. If there isn’t enough food for everyone to survive, if a man can’t feed his family, then there will be war. That’s still true today.

The easiest way to look at a war is to compare it to a natural disaster, such as a hurricane or earthquake. Looked at that way, a war is not “good” or “bad” or “good” or “evil.” Mankind as a species could not have survived without sex, and equally could not have survived without genocidal war. Both are part of our DNA.

“And over time, as codes of law sought to control violence within groups, so did philosophers and clerics and statesmen seek to regulate the destructive power of war. The concept of a “just war” emerged, suggesting that war is justified only when certain conditions were met: if it is waged as a last resort or in self-defense; if the force used is proportional; and if, whenever possible, civilians are spared from violence.”

As a kid this concept puzzled me. If you’re trying to kill the enemy, how can one way of killing them be any more “just” than another?

What’s interesting about Obama’s definition of a “just war” is roughly the same as a non-crisis war in generational theory. However, every nation goes through a generational Crisis era every 70-90 years or so, and that almost always means a crisis war. And a crisis war is fought with what I like to call increasing “genocidal fury.” At these times, the people fighting the war believe that the very existence of their nation and their way of life is at stake, and that’s when the value of any life, civilian or otherwise, becomes less important than the need to preserve the nation.

“Of course, we know that for most of history, this concept of “just war” was rarely observed. The capacity of human beings to think up new ways to kill one another proved inexhaustible, as did our capacity to exempt from mercy those who look different or pray to a different God. Wars between armies gave way to wars between nations — total wars in which the distinction between combatant and civilian became blurred. In the span of 30 years, such carnage would twice engulf this continent. And while it’s hard to conceive of a cause more just than the defeat of the Third Reich and the Axis powers, World War II was a conflict in which the total number of civilians who died exceeded the number of soldiers who perished.”

Actually, most wars are “just wars,” because there are more non-crisis wars than crisis wars.

“In the wake of such destruction, and with the advent of the nuclear age, it became clear to victor and vanquished alike that the world needed institutions to prevent another world war. And so, a quarter century after the United States Senate rejected the League of Nations — an idea for which Woodrow Wilson received this prize — America led the world in constructing an architecture to keep the peace: a Marshall Plan and a United Nations, mechanisms to govern the waging of war, treaties to protect human rights, prevent genocide, restrict the most dangerous weapons.In many ways, these efforts succeeded. Yes, terrible wars have been fought, and atrocities committed. But there has been no Third World War. The Cold War ended with jubilant crowds dismantling a wall. Commerce has stitched much of the world together. Billions have been lifted from poverty. The ideals of liberty and self-determination, equality and the rule of law have haltingly advanced. We are the heirs of the fortitude and foresight of generations past, and it is a legacy for which my own country is rightfully proud.

And yet, a decade into a new century, this old architecture is buckling under the weight of new threats. The world may no longer shudder at the prospect of war between two nuclear superpowers, but proliferation may increase the risk of catastrophe. Terrorism has long been a tactic, but modern technology allows a few small men with outsized rage to murder innocents on a horrific scale.”

This is a concept that I’ve discussed many times. After World War II ended, the survivors were determined that nothing so horrible should ever happen again. So they set up institutions and programs — the United Nations, the World Bank, the International Monetary Fund, the World Health Organization, the Green Revolution — whose purpose was to protect the world from repeating the horrors of WW II.

But the generations that grew up after the war ended — the Boomers, the Gen-Xers, the Millennials — did not experience WW II and could not grasp its horrors. They took society’s survival for granted, and individual rights became more important that society’s survival. As a result, all of these institutions and programs have been unraveling for decades.

“Moreover, wars between nations have increasingly given way to wars within nations. The resurgence of ethnic or sectarian conflicts; the growth of secessionist movements, insurgencies, and failed states — all these things have increasingly trapped civilians in unending chaos. In today’s wars, many more civilians are killed than soldiers; the seeds of future conflict are sown, economies are wrecked, civil societies torn asunder, refugees amassed, children scarred.”

This is out of touch with reality. Every crisis civil war is in this category. That includes America’s Civil War. There have been many such civil wars since WW II, such as the Communist Revolution in China, the war between the Muslims and Hindus on the Indian subcontinent, the Vietnam War, the Cambodian killing fields, the Rwanda genocide, and many others. There’s nothing new about such wars.

“I do not bring with me today a definitive solution to the problems of war. What I do know is that meeting these challenges will require the same vision, hard work, and persistence of those men and women who acted so boldly decades ago. And it will require us to think in new ways about the notions of just war and the imperatives of a just peace. …”

It’s good to think in new ways, I suppose, but it’s a mistake to think that anything will change. Obama doesn’t have a solution because no solution exists. A belief that war can be ended is dangerous because it means you’ll become less vigilant and more easily defeated by an enemy.

“I make this statement mindful of what Martin Luther King Jr. said in this same ceremony years ago: “Violence never brings permanent peace. It solves no social problem: it merely creates new and more complicated ones.””

Of course violence never brings permanent peace. Nothing can bring permanent peace. This statement makes as much sense as saying, “Peanut butter never brings permanent peace.”

“But as a head of state sworn to protect and defend my nation, I cannot be guided by their examples alone. I face the world as it is, and cannot stand idle in the face of threats to the American people. For make no mistake: Evil does exist in the world. A non-violent movement could not have halted Hitler’s armies. Negotiations cannot convince al Qaeda’s leaders to lay down their arms. To say that force may sometimes be necessary is not a call to cynicism — it is a recognition of history; the imperfections of man and the limits of reason. …”

This is a powerful statement. It’s defused the anger on the right from people who said that Obama was a ditherer in foreign policy, and it’s defused the anger on the left directed at Obama for escalating the war in Afghanistan.

But the statement is fundamentally flawed. Whether someone is “evil” depends on your political point of view. That is, any war can become a just war simply by declaring the enemy “evil.” That’s what al-Qaeda does when they say that Americans are evil because they’re infidels. Another example: Few people would disagree that Saddam Hussein was evil, and therefore, by Obama’s own logic, the war in Iraq was justified.

Basically, the concept of “evil” as a justification for war is meaningless. That’s why I like to say that wars are like natural disasters. Nobody would say that an earthquake was “evil.” It just is what it is.

“But the world must remember that it was not simply international institutions — not just treaties and declarations — that brought stability to a post-World War II world. Whatever mistakes we have made, the plain fact is this: The United States of America has helped underwrite global security for more than six decades with the blood of our citizens and the strength of our arms. The service and sacrifice of our men and women in uniform has promoted peace and prosperity from Germany to Korea, and enabled democracy to take hold in places like the Balkans. We have borne this burden not because we seek to impose our will. We have done so out of enlightened self-interest — because we seek a better future for our children and grandchildren, and we believe that their lives will be better if others’ children and grandchildren can live in freedom and prosperity. …”

This is basically the justification for America as “policemen of the world.” (See my 2006 article, President George Bush talks about a “Third Awakening,” but he has his history wrong.)

Obama’s statement could just as easily have come from President Bush in justifying his “neo-conservative” philosophy, which also is historically wrong.

“To begin with, I believe that all nations — strong and weak alike — must adhere to standards that govern the use of force. I — like any head of state — reserve the right to act unilaterally if necessary to defend my nation. Nevertheless, I am convinced that adhering to standards, international standards, strengthens those who do, and isolates and weakens those who don’t.”

This sounds nice, but there’s no evidence to support it.

There’s no doubt that President Obama’s speech was brilliant and eloquent, a tour de force. What bothers me about it is the same as what bothered me about his campaign speeches: I’m afraid that he believes what he’s saying.

(Comments: For reader comments, questions and discussion, see the President Barack Obama thread of the Generational Dynamics forum.) (12-Dec-2009) Permanent Link

Iran fails to smash student protests, as the Dubai crisis batters its economy
Huge peaceful student protests in cities across Iran were met with violence on Monday, as police and tens of thousands of Basij militia used teargas, beatings and arrests in a fruitless effort to stop the protests. There were also unconfirmed reports of gunfire.

Iran’s government had partially shut down internet and mobile phone connections on Monday, but videos of the clashes were posted anyway to YouTube, Twitter and opposition Web sites.

Ironically, December 7 has been the day when anti-American rallies have been held in the past, commemorating the deaths of three students during an anti-government protest in 1953, protesting Iran’s pro-American policies at that time. What all of these protests have in common is that they’re targeted against the Iranian government of the day.

These continuing anti-government student protests are typical manifestations of the “generation gap” that takes place in any country’s generational Awakening era. This generation gap occurs between the generations that survive a generational Crisis war (in this case, the 1979 Islamic Revolution and the Iran/Iraq war) and the generations that grow up after the war ends. (See “Theological split in Iran widens as opposition protests continue.”)

Dubai financial crisis affects Iran

The recent financial meltdown in the Dubai emirate of the United Arab Emirates (U.A.E.) comes at the worst possible time for Iran’s President Mahmoud Ahmadinejad, and for the hardline Iran government. Just as Iran’s government is facing its greatest internal domestic threat from student protests, the Dubai crisis threatens Iran’s economy and its external import/export regime.

Iran is heavily invested in Dubai, and it appears that Iran has purchased 30% (tens of billions of dollars) of Dubai’s real estate currently in financial distress. Dubai’s real estate values have already fallen 50% since January, and so Iran is poised to suffer large, significant losses.

Even more important to Iran is Dubai’s strategic importance. Iran has been under trade sanctions first imposed by President Bill Clinton’s administration in 1996, and later increased in President George Bush’s administration and by the United Nations. In the past couple of months, Iran has really been sticking it to the international community by announcing aggressive new nuclear development programs, with the result that, led by President Obama’s administration, the UN is considering even greater sanctions.

Dubai has served Iran by providing a conduit by which Iran could bypass the sanctions. Dubai is a major exporter to Iran and a major re-exporter of Iranian goods. The trade between Iran and Dubai is one of the principal sources of Tehran’s confidence that it can survive US-led sanctions.

Iran has been receiving high-tech equipment for its missile and nuclear programs via Dubai, and most of Iran’s gasoline imports also come via bunkering facilities in Dubai, according to the Washington Institute for Near East Policy.

Unlike its neighbor Abu Dhabi, Dubai has little oil revenue, and has sought to generate income through ultra-extravagent real estate development and credit abuse that exceeds even the West in debauchery and depravity. They got away with building up some $100 billion in debt because investors have always assumed that Abu Dhabi would continue to bail out Dubai whenever necessary.

However, Abu Dhabi is allied with Saudi Arabia and the West, and is apparently going to hold back any bailout of Dubai unless Dubai stops allowing Iran to bypass the trade sanctions. According to reporting by Debka, Abu Dhabi will provide $50 billion in bailout money in return for control of Dubai’s ports and the imposition of strict fiscal and monetary laws and regulations.

Thus, the Dubai financial crisis has the potential to cause some significant power shifts in the Persian Gulf region, especially with respect to the escalating power struggle between Iran and Saudi Arabia. (See October article, “Furious Iran blames Pakistan, US and Britain for Sunday’s terrorist attacks,” and September article, “Escalating civil war in Yemen threatens to pull in Iran, Saudi Arabia and U.S.”

A dangerous wild card

Tehran has been riding high for a few years. Suddenly, in the space of a few months, Tehran is being backed into a corner. The student protests are a serious existential threat to Iran’s hardline government — something that couldn’t even be imagined before June.

And now, in the last month, with the government under domestic attack, the Dubai crisis has dramatically weakened Iran internationally and financially.

As I’ve said in the past, Iran is a very dangerous wild card in international politics. Ahmadinejad has plans to gain hegemony over the entire Mideast, including the Arabian peninsula. To that end, he’s been funding Hizbollah in Lebanon, and terrorist Palestinian groups, including Hamas, and the Houthi rebels in Yemen.

The Tehran government may be getting increasingly desperate, like a trapped animal. We’ve already seen how they’ve jailed and slaughtered their own students for peaceful protests, perpetrating violence that’s gone considerably farther than I had expected. Still, the student protests seem only to be growing, as would be expected in a generational Awakening era.

The real danger is that Tehran will now desperately strike out internationally in some way. For example, they might carry out their oft-repeated threats to use mines and missiles to block the Strait of Hormuz, causing an international oil crisis.

One possible sign of this is a recent rant by Mahmoud Ahmadinejad in a speech last week. The Iranian President accused America and the West of devising plans to prevent the coming of the Hidden Imam. (See “Theological split in Iran widens as opposition protests continue.”)

Ahmadinejad’s bizarre rant may be a sign that he’s cracking up, or it may be a sign that he’s laying the groundwork for some kind of religious justification for creating a new crisis.

One thing seems pretty certain — that Iran’s government in its current form cannot survive against this growing internal political opposition. A civil war something like the 1979 Islamic Revolution is, of course, impossible during a generational Awakening era, but the level of political and generational conflict will increase for years.

And as I’ve said many times (see, for example, “China ‘betrays’ Iran, as internal problems in both countries mount”), when all is said and done, I expect Iran to be on the side of America and the West, including Israel, when forced to make a choice in the coming Clash of Civilizations world war. It’s possible that Iran is close to the next major step in that scenario.

(Comments: For reader comments, questions and discussion, see the Iran thread of the Generational Dynamics forum.) (9-Dec-2009) Permanent Link

People are shocked! shocked! at Obama’s war plan in Afghanistan.
Too bad they didn’t listen to Obama’s campaign speeches.

In his speech last week on Tuesday, President Barack Obama announced that he will direct the armed forces to send 30,000 more American troops to Afghanistan. This is Obama’s second major escalation of the Afghan war since he took office in January, having ordered the deployment of 22,000 additional troops earlier this year. It will bring the U.S. forces in Afghanistan to more than 100,000 troops, and more than half of them will have been deployed by President Obama.

My friends who voted for Obama are suddenly completely disillusioned. “I’m beginning to have serious doubts about Obama,” said one of them darkly.

During the election campaign, Obama supporters, suffering from Bush Derangement Syndrome, were drooling with erotic pleasure almost every time he opened his mouth. It’s too bad that they were so engulfed with passion that they didn’t bother to listen to what he actually said.

During the election campaign, Obama could say anything he wanted, as long as he criticized President Bush. He would receive wildly enthusiastic cheers from his supporters no matter what the content of his speech. As I wrote in July, 2008, in “Barack Obama in Berlin calls for greater European militarism,” it was clear that the people, in America and Europe, who were wildly cheering Obama had absolutely no idea what he was talking about. They were cheering a fantasy Obama, not the real Obama standing before them.

As I wrote about the Berlin speech, I quoted the following excerpt:

“This is the moment when we must defeat terror and dry up the well of extremism that supports it. This threat is real and we cannot shrink from our responsibility to combat it. If we could create NATO to face down the Soviet Union, we can join in a new and global partnership to dismantle the networks that have struck in Madrid and Amman; in London and Bali; in Washington and New York. If we could win a battle of ideas against the communists, we can stand with the vast majority of Muslims who reject the extremism that leads to hate instead of hope.This is the moment when we must renew our resolve to rout the terrorists who threaten our security in Afghanistan, and the traffickers who sell drugs on your streets. No one welcomes war. I recognize the enormous difficulties in Afghanistan. But my country and yours have a stake in seeing that NATO’s first mission beyond Europe’s borders is a success. For the people of Afghanistan, and for our shared security, the work must be done. America cannot do this alone. The Afghan people need our troops and your troops; our support and your support to defeat the Taliban and al Qaeda, to develop their economy, and to help them rebuild their nation. We have too much at stake to turn back now.

This is the moment when we must renew the goal of a world without nuclear weapons. The two superpowers that faced each other across the wall of this city came too close too often to destroying all we have built and all that we love. With that wall gone, we need not stand idly by and watch the further spread of the deadly atom. It is time to secure all loose nuclear materials; to stop the spread of nuclear weapons; and to reduce the arsenals from another era. This is the moment to begin the work of seeking the peace of a world without nuclear weapons.”

So now I would say this to my friends who drooled over Obama: What the hell are you complaining about? You got what you deserve, so man up and quit whining.

And let’s not forget that this is (at least) the second time in six years that people didn’t pay attention. When the ground invasion of Iraq began in 2003, it was overwhelmingly popular with the American people, and with almost everyone in Congress. It’s only when things started going badly, that suddenly these same people decided that they must have been lied to, and that President Bush was the Devil’s Spawn. How much longer will it be before Obama’s supporters decide that he’s also the Devil’s Spawn?

Listening to the Sunday morning news talk shows today, I don’t believe that I heard anyone outside of the Administration say that he liked President Obama’s speech on Tuesday. Here’s the most important excerpt:

“This review is now complete. And as Commander-in-Chief, I have determined that it is in our vital national interest to send an additional 30,000 U.S. troops to Afghanistan. After 18 months, our troops will begin to come home. These are the resources that we need to seize the initiative, while building the Afghan capacity that can allow for a responsible transition of our forces out of Afghanistan.

People on the left criticized it because it was another escalation of the Afghan war.

People on the right criticized it because of the 18-month deadline. And listening to the Sunday morning news talk shows, there’s apparently a lot of confusion over how firm that 18-month deadline is.

It seems that most people (including myself) believe that the 18-month deadline was added as a sop to his supporters on the left, and that in practical terms it’s meaningless. (By the way, how are those other promises going — closing Guantanamo in one year, and pulling the troops out of Iraq in 16 months?)

What we’re seeing here is Generational Dynamics in action.

President Obama is very young, and so he doesn’t have much credibility on the world stage. What little credibility he started with has been used up bowing to foreign emperors, and advocating policies in Iran and the Mideast that are turning into disasters.

A worse irony is that President Obama’s Afghan war strategy is modeled after President Bush’s “surge” strategy in Iraq, something that Senator Obama bitterly opposed before it turned out to be successful. However, as I wrote in “American army general warns of imminent defeat in Afghanistan war,” the Iraq “surge” strategy will not work in Afghanistan.

Meanwhile, what’s coming up next week is so ludicrous, that even by today’s low standards it’s hard to believe.

First, President Obama is going to Oslo to accept his Nobel “peace” prize, where I understand he’ll give a speech explaining why he’s escalating the war.

Next, President Obama is going to Copenhagen to give a boost to the latest farcical climate change conference, a week after hacked ‘Climategate’ e-mail messages showed a pattern of deception and fraud among climate researchers that’s similar to the deception and fraud used by financial institutions like Goldman Sachs or Citibank. Mr. Obama will make promises in Copenhagen that everyone knows don’t even make sense, and will be rejected by Congress, just as Vice President Al Gore’s promises in the 1990s were rejected by Congress.

I’ve written many times that if Al Gore had been President after 9/11, then we still would have invaded Iraq, and we would have been in the same place today. (See “The Iraq war may be related to the bombing of Hiroshima and Nagasaki.”) When generational forces are at play, politicians have no choice but to follow.

Now we’re seeing the same thing with President Obama and the Afghan war. President Obama undoubtedly wishes that things might go differently, but he’s doing what he has to do. The Afghan war is following a certain path as part of the approach to the Clash of Civilizations world war, and neither Obama nor any other politician can change that. Still, it would be nice if President Obama didn’t always look like he has no clue what’s going on in the world.

(Comments: For reader comments, questions and discussion, see the Afghanistan, Pakistan and India thread of the Generational Dynamics forum.) (6-Dec-2009) Permanent Link

Goldman Sachs employees, doing “God’s work,” are acquiring handguns
Worries about a “populist uprising against the bank.”

I’ve been writing this web site for over seven years now, and I’ve been called many names in that time. A posting that appeared in 2006 drew criticisms of being “crazy” and “alarmist.” It appeared at the height of the credit bubble, and I said the following:

“But what’s happened in the last five years is so overwhelming that it can barely be grasped by the human mind. An ordinary 1990s stock market bubble, as bad as it was, has been turned, with the connivance of economic experts, journalists, professors, investors, central bankers, pundits and politicians, into a worldwide bubble of incredibly fastastic proportions that’s so huge and so obvious that every expert should see it. Or maybe it’s like the whole planet earth has turned from being an ordinary planet into a huge bubble planet, so that it’s impossible to see what’s going on any more.Do you remember what happened in 2001 after the Nasdaq crash and the Enron scandal? People wanted to put CEOs in jail — ALL CEOs, even perfectly honest ones. People were going crazy. Well, it’s going to happen again.

The Enron scandal is one historical example, but a better example might be the bankruptcy of the French Monarchy in 1789 that led to the French Revolution. In the Reign of Terror that followed, any person who was an aristocrat, a relative of an aristocrat, a friend of an aristocrat, a servant of an aristocrat, or even had a resemblance to an aristocrat, would be tried and quickly convicted and sentenced to the guillotine.

So as we enter 2007, I have some advice for the economics experts, journalists, professors, investors, central bankers, pundits and politicians that have been telling us that everything is OK and getting better: You’d better have your underground bunker picked out, because people are going to be coming after you, and the guillotine is going to seem mild compared to the punishment that they’re going to want to inflict on you.”

Now we’re beginning to see the first signs of those warnings coming to fruition. Bloomberg reporter Alice Schroeder has found that Goldman Sachs employees are purchasing handguns for self-defense against a possible “populist uprising”:

“Arming Goldman With Pistols Against Public“I just wrote my first reference for a gun permit,” said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.

I called Goldman Sachs spokesman Lucas van Praag to ask whether it’s true that Goldman partners feel they need handguns to protect themselves from the angry proletariat. He didn’t call me back. The New York Police Department has told me that “as a preliminary matter” it believes some of the bankers I inquired about do have pistol permits. The NYPD also said it will be a while before it can name names.”

This story has not been confirmed by Goldman Sachs, but it’s been quoted in many places, and so far it hasn’t been denied either. Goldman’s employees must be very frightened.

And well they should be. These people were at the heart of the fraud that resulted in the real estate and credit bubble crashes. They defrauded investors out of hundreds of billions of dollars by creating and selling mortgage-backed securities and derivatives that have now turned out to be almost worthless.

As I’ve pointed out many times, the circumstantial evidence is overwhelming that they did this on purpose. Their excuse is that they didn’t know that the structured securities they were creating would become worthless. That excuse might have worked in 2002, 2003, 2004, and 2005, but by 2006 it was becoming clear that the computerized models they were using to create these securities were failing. And by 2007, the failures were glaringly obvious to anyone who (like myself) bothered to figure out what was going on. If the bankers at Goldman, Citibank, Bank of America, Bear Stearns and Lehman Brothers had been honest, then they would have warned their investors that the models were becoming questionable. Instead, they redoubled their sales efforts, to sell as many of these securities as they could before the roof caved in. And they made billions of dollars in commissions for themselves by perpetrating this fraud.

This behavior has not changed, but has only taken a different form. These bankers, the exact same people who perpetrated the previous frauds, are now paying themselves million dollar bonuses, to reward themselves for having been clever enough to accept government bailouts.

And Citibank and Bank of America are taking it a step further. They’re arbitrarily raising interest rates to 30%, doubling or tripling minimum payments, and engineering phony fees of hundreds or thousands of dollars per customer, and then using the money to pay themselves the million dollar bonuses. These bankers are committing criminal extortion.

And yet they’re totally oblivious to the amount of hatred that they’re generating against themselves. In a story last month in the London Sunday Times, based on an interview with Lloyd Blankfein, chairman and CEO of Goldman Sachs, author John Arlidge reports, “Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker ‘doing God’s work.'”

In a story to appear in next month’s Vanity Fair, Bethany McLean reports, “All in all, Goldman executives seem to be gambling that the current mood, in which the rest of us are rethinking the system that brought us to the very edge, and maybe into the depths, of a vast black pit, will blow over. And they may be right.”

No, they are not right.

From the point of view of Generational Dynamics, we’re seeing a repeat of what happened in the 1930s Great Depression. At that time, bankers were doing exactly the same kinds of things they’ve been doing today — defrauding investors and paying themselves enormous salaries, fees and commissions. In the investigations that followed until the end of the decade, many bankers went to jail. We’re seeing only the bare beginning of the prosecution of these individuals.

And as I’ve said several times on this web site, my parents and teachers hated bankers when I was growing up in the 1950s. I didn’t understand why then, though I do now. The current mood will NOT blow over for decades to come.

And all this is going on in the context of a Senate Commerce committee investigation that dozens of supposedly honest companies have tricked millions of online customers into paying billions of dollars in mysterious credit card charges. (See “How Priceline, Orbitz, FTD, 1-800-Flowers, Pizza Hut, and Continental Airlines are scamming you online.”)

In 2005, I posted an article describing what happened in 1929. What happens is that during a bubble, there’s a lot of financial crime going on — embezzlement and fraud — but no one cares, because everyone is making money.

After the bubble bursts, people and prosecutors look back to see what happened, and every act is examined. The result is that crimes are discovered and prosecuted years later.

Here’s how John Kenneth Galbraith described this phenomenon in his 1954 book, The Great Crash – 1929, as follows:

“In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in — or more precisely not in — the country’s businesses and banks. This inventory — it should perhaps be called the bezzle — amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.The stock market boom and the ensuing crash caused a traumatic exaggeration of these normal relationships. To the normal needs for money, for home, family and dissipation, was added, during the boom, the new and overwhelming requirement for funds to play the market or to meet margin calls. Money was exceptionally plentiful. People were also exceptionally trusting. A bank president who was himself trusting Kreuger, Hopson, and Insull was obviously unlikely to suspect his lifelong friend the cashier. In the late twenties the bezzle grew apace.

Just as the boom accelerated the rate of growth, so the crash enormously advanced the rate of discovery. Within a few days, something close to universal trust turned into something akin to universal suspicion. Audits were ordered. Strained or preoccupied behavior was noticed. Most important, the collapse in stock values made irredeemable the position of the employee who had embezzled to play the market. He now confessed. …

Each week during the autumn more such unfortunates were reveled in their misery. Most of them were small men who had taken a flier in the market and then become more deeply involved. Later they had more impressive companions. It was the crash, and the subsequent ruthless contraction of values which, in the end, exposed the speculation by Kreuger, Hopson, and Insull with the money of other people. Should the American economy ever achieve permanent full employment and prosperity, firms should look well to their auditors. One of the uses of depression is the exposure of what auditors fail to find. Bagehot once observed: “Every great crisis reveals the excessive speculations of many houses which no one before suspected.”” [pp. 132-35]

In 1929, these crimes were rampant before the crash, but were not discovered until after the crash, as Galbraith describes. These crimes have been just as rampant in the last few years, and are continuing to this very day. History tells us that the consequences for everyone will be harsh, and are only just beginning to be felt. If Goldman Sachs employees are really acquiring handguns to protect themselves against a “populist uprising” for doing “God’s work,” then things may get worse than even gloomy people like me expect.

(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.) (3-Dec-2009) Permanent Link