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.

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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.

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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.

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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 http://www.eastangliaemails.com .

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 http://singularity.com/

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

A Disarming Lie and Brother, Can You Spare A Billion? -The Lone Haranguer

A Disarming Lie

The liberal media has been intensifying their push for gun control lately, to coincide with Obama’s recent announcement of his own anti-gun agenda, in direct violation of his campaign promise not to mess with gun rights. At the time he made that promise I warned everyone not to believe that lying chimp, but idiots always seem to win out, and he got the presidency anyway.

The show I saw today was put together by Jews (of course) Democrat politicians, and rabid liberal yuppies, who used isolated incidents as examples of why we need gun control and blew them all out of proportion. They even used footage from the time that nut in San Diego stole a tank and crushed cars with it, as if that had anything whatsoever to do with gun control. Talk about desperate.

And I’m sure this will come as no surprise to any of you that there wasn’t one single black perp shown or discussed, though 98% of all gun crimes are committed by blacks. They must have had one hell of a time finding enough white footage to talk about if they had to stoop to using that tank, as if unlicensed tanks were a problem (I wish).

We all need to keep in mind at all times, that gun control is key to Obama’s agenda to take over the country. Down through history gun control has always been the last step before a takeover. Every single time.

Obama and the evil bastards that control him have a totally different fate in store for us. We can piss and moan all we like, but it’s going to come down to either obeying the regime and handing over your ability to defend yourself against our benevolent government and the vast mud hordes coming, or becoming a wanted fugitive and outlaw in the eyes of this corrupt gang of thugs now in control of our nation. They’re not going to leave us any wiggle room. It’s going to be one or the other, cut and dried. And sadly, far too many of us just don’t have the stones to resist like we should. Most whites will humbly bow to their will and obey like good little sheeple, even a lot of our most vocal supporters on the Net.

I heard one of us recently say that people on the Net take on a whole different personality than the one they have in real life, and that all their talk and bravado is just that..talk. I agree 100%. Most of the ones that crow for rebellion and resistance among us will be the first to crap their pants and hand over their weapons at the first sign of government goons. To be quite honest, most of my fellow whites sicken me.

Are their comforts so precious to them that they’d surrender their self respect, dignity, future of our race, and their freedom? Yes. Dammit, yes. That’s exactly how lowlife most whites have become.

That’s why I trust almost nobody. I’ve had tons of people talk a great game to me, but when I put them to the test, 95% of them suddenly have urgent business elsewhere. They don’t seem to comprehend that they’re going to lose it all anyway, and damned soon now to boot.

By going along with the government, all they’re doing is postponing the inevitable, and not by much. The government’s timetable for the takeover is a short one, and due to be implemented very soon now. Oh sure, I could be wrong about that, and so could all the hundreds of thousands of other whites that have seriously investigated every angle of this government’s plans and activities over the past year. But there’s really far too much solid evidence pointing to the fact they really will act.

And even if the Plague of Obama flu scam doesn’t turn out to be the trigger for their plan for implementing martial law, you can rest assured that whatever it is, it’s almost upon us. Too many very expensive, complicated, and far reaching preparations have been made for them to just do nothing. Get real. Only a complete idiot would still believe that it’s all just a bunch of paranoid conspiracy BS.

All that crap they spew about the American people having the right to assembly and to form organizations is a bold-faced lie. It’s just one of many this regime puts out every day of the week to pacify an increasingly fed up public. The government knows it’s running out of time. It sees the handwriting on the wall, and knows that the country is teetering on the brink of revolution. They also know that they’re going to have to act before that happens.

What the media isn’t telling you, including Fox News and all of the other news outlets we still trust to some extent, is that there are a great many incidents of civil unrest and resistance happening all over the country. It’s simply that most of these go unreported due to government censorship, which has become almost as ruthless as Russia’s. We may not know about these attacks, but rest assured the government does. And this only serves to spur them onward toward a quicker solution.

The reason they’re preventing the public from knowing about these attacks is obvious. Even one of them could trigger the revolt. That’s how all revolutions start, one single watershed event, usually something most people would consider unremarkable, ends up being the trigger to the bomb. As I’ve stressed repeatedly, the enemy is not stupid. They know this as well as we do.

For the present we all need to continue moving out of all major population centers, forming either lone wolf operations or small cells in quiet, remote places. Be quiet, unobtrusive, and discreet in your actions, words, and activities. Never tip your hand. For even the most harmless looking sheeple next door can get all of you killed. Keep your mouths shut! Don’t go bragging about your activities to anyone, not even your family. Only the smart among us are going to survive this mess. No flags, signs, badges, uniforms, or rallies. We are at war, and it’s time people acted like it. Stop waving a red flag at the bull. You will get gored.

The government, the media, and it’s allies the Jews are on a lying campaign as never before. Propaganda is literally pouring out of every seam of the liberal media. Don’t be disarmed by their lies or you, and everything, and everyone you’ve ever loved will be dead. Be wise, be discreet, and be victorious.

-The Lone Haranguer


posted by The Old Man at 4:43 PM | 4 comments

Wednesday, October 14, 2009


If you ever have a yen to check out the glories of black rule, Zimbuggery is the place. Take a good look at what goes on there today; you see the United States in a few years’ time.

According to Reuters: “Zimbabwe’s central bank will introduce new higher-value 100 billion Zimbabwe dollar notes on Monday as part of a desperate fight against spiralling hyperinflation…Zimbabweans are suffering chronic shortages of meat, maize, fuel and other basic commodities due to the collapse of the once prosperous economy, which critics blame on President Robert Mugabe’s policies, including his violent seizure of white-owned farms.”

What kind of nation destroys its own food supply? Probably somewhat more primitive cousins of a nation like ours, that destroys its own energy sources by threatening to bomb and invade our primary suppliers.

“Central bank Governor Gideon Gono announced on Wednesday that inflation had surpassed 2.2 million percent, though some economists put it much higher. In a notice in the official Herald newspaper on Saturday, Gono said the Reserve Bank of Zimbabwe would introduce 100 billion dollar special agro-cheques (notes), to help consumers who currently need to carry large wads of cash even for simple transactions.”

Yeah, they’ll cause a lot of aggro, all right.

“This new $100 billion special agro-cheque will go into circulation on Monday, the notice said. The central bank has been printing higher denomination banknotes to keep pace with soaring prices. The most valuable bank note currently in circulation is worth Z$50 billion.”

“Gono said he was also considering raising the amount of cash people could withdraw daily from their bank accounts. The central bank has imposed a withdrawal limit of Z$100 billion, but this is only enough for two trips on an urban commuter bus or two loaves of bread — if one can find a bus that’s running or a shop with any bread for sale.

“The Zimbabwe dollar, which had been officially pegged at 30,000 to the U.S. dollar before exchange rules were relaxed recently, now trades at about 800 million to the greenback. Besides struggling with shortages of basic goods and services, Zimbabweans also spend long hours in bank queues trying to withdraw their money.” (Like some American bank customers over the past year.)

“The central bank says the limits on cash withdrawals are designed to curtail a thriving black market in foreign exchange and basic commodities.” (Give us time in this country, and we’ll have dynamic black market economies just like all socialist societies.)

Reuters concludes: “Two weeks ago a German firm, Giesecke and Devrient, stopped deliveries of banknote paper to Zimbabwe following pressure from the German government amid international criticism of Mugabe’s widely condemned re-election. Gono said Zimbabwe had made alternative arrangements.”

In other words, they’re getting their currency paper from their Chinese friends now.

When, oh when will ignorant savages like Mugabe learn that simply printing money as you need it leads to galloping inflation and economic destruction? And come to that, when will the Federal Reserve learn the same lesson?

You see, the Federal Reserve and the financial rulers of Wall Street are now doing exactly the same thing, on a more sophisticated scale, that Mugabe’s Commie kaffirs in Zimbuggery are doing. It’s just a bit less visible, concealed by a little more smoke and mirrors, and since we have more wealth to waste, it’s taking a little longer.

In Mugabe’s Zimbibbledy, the inflation is wiping out basic commodities everyone can see and feel and touch and eat, like bread and oil and gasoline and electricity and auto parts. When outfits like Bear Stearns and IndyMac go down, what happens is that the Fed “prints” (i.e. creates on a computer; they’re probably not even bothering to actually print the bills any more) X billion or trillion dollars and then “loans” it to J. P. Morgan Chase or to the FDIC, as the case may be, in order to shore up the creaking and decrepit financial structure another few weeks until the next crisis.

The same thing applies to government bailouts. Where the hell do you think The One (or rather the Jews who are running him) got that trillion dollars in “stimulus” money from? They simply called up their Jewish buddy Ben Bernanke at the Federal Reserve and told him to fire up the printing presses.

But the effect is the same: more worthless paper (or computer terminal) money is pumped into the system, causing the price of everything to leap so vendors can get the same amount of value and profit per item sold or traded as before.

The ultimate result is “loss of confidence”, i.e. all of a sudden something snaps, people realize that small green pieces of paper have no value at all except as toilet paper, and they say to the rich man, “screw your two million dollars, I want that sandwich on your plate and if you don’t give it to me I’ll plug you!”

Yeah, that’s a bit oversimplified, but essentially, that’s the deal. This always happens when governments (and the Federal Reserve, although a private corporation, has virtual governmental power here) inject essentially worthless money backed by nothing substantial into an economy to make up for the fact that the state and the people who run have pissed away all their money and the establishment is broke.

Always it happens. This is Economics 101 and it’s impossible for these sharp Jews who run things not to be aware of the fact. The people ruling us are all so mega-rich and have their own personal wealth stashed in so many shelters and secure hiding places that they simply don’t care what kind of damage they do to the economy or to the country or other people’s lives so long as their books balance and the Balloon doesn’t Go Up for good in some manner that will harm them personally.

If we’re going to do something about this, people, we damned well better get on with it. We don’t have a whole hell of a lot of time left.

China may attack India by 2012 – leading defence expert has projected that China will attack India by 2012 to divert the attention of its own people from “unprecedented” internal dissent

China may attack India by 2012

The Times of India
July 12, 2009

A leading defence expert has projected that China will attack India by 2012 to divert the attention of its own people from “unprecedented” internal dissent, growing unemployment and financial problems that are threatening the hold of Communists in that country.

“China will launch an attack on India before 2012. There are multiple reasons for a desperate Beijing to teach India the final lesson, thereby ensuring Chinese supremacy in Asia in this century,” Bharat Verma, Editor of the Indian Defence Review, has said.

Verma said the recession has “shut the Chinese exports shop”, creating an “unprecedented internal social unrest” which in turn, was severely threatening the grip of the Communists over the society.

Among other reasons for this assessment were rising unemployment, flight of capital worth billions of dollars, depletion of its foreign exchange reserves and growing internal dissent, Verma said in an editorial in the forthcoming issue of the premier defence journal. In addition to this, “The growing irrelevance of Pakistan, their right hand that operates against India on their behest, is increasing the Chinese nervousness,” he said, adding that US President Barak Obama’s Af-Pak policy was primarily Pak-Af policy that has “intelligently set the thief to catch the thief”.

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Verma said Beijing was “already rattled, with its proxy Pakistan now literally embroiled in a civil war, losing its sheen against India.” “Above all, it is worried over the growing alliance of India with the US and the West, because the alliance has the potential to create a technologically superior counterpoise.

“All these three concerns of Chinese Communists are best addressed by waging a war against pacifist India to achieve multiple strategic objectives,” he said.

While China “covertly allowed” North Korea to test underground nuclear explosion and carry out missile trials, it was also “increasing its naval presence in South China Sea to coerce into submission those opposing its claim on the Sprately Islands,” the defence expert said. He said it would be “unwise” at this point of time for a recession-hit China to move against the Western interests, including Japan.

“Therefore, the most attractive option is to attack a soft target like India and forcibly occupy its territory in the Northeast,” Verma said. But India is “least prepared” on ground to face the Chinese threat, he says and asks a series of questions on how will India respond to repulse the Chinese game plan or whether Indian leadership would be able to “take the heat of war”.

“Is Indian military equipped to face the two-front wars by Beijing and Islamabad? Is the Indian civil administration geared to meet the internal security challenges that the external actors will sponsor simultaneously through their doctrine of unrestricted warfare? “The answers are an unequivocal ‘no’. Pacifist India is not ready by a long shot either on the internal or the external front,” the defence journal editor says. In view of the “imminent threat” posed by China, “the quickest way to swing out of pacifism to a state of assertion is by injecting military thinking in the civil administration to build the sinews. That will enormously increase the deliverables on ground – from Lalgarh to Tawang,” he says.

Banking on Beijing- China’s priority is saving itself, not sinking the dollar.

Banking on Beijing       PDF

China’s priority is saving itself, not sinking the dollar.

By Philip Delves Broughton

There are two ways to interpret the fact that China is America’s largest creditor at a moment of stupendous American borrowing. The first is as an economist. And we’ll get to that. But the second is as a thriller writer—or paranoid economic and political nationalist—and it is much, much juicier. The thriller scenario begins in the blood-red corridors of the Zhongnanhai leadership compound in Beijing, next door to the Forbidden City. Here China’s political elite has been plotting their usurpation of American power for decades. Bent over their Lenovo Thinkpads, the brilliant sons of Communism have engineered nothing less than a global revolution.

Dissolute, wasteful, crass America has been rotting, borrowing and spending, licking lead toys and watching “The Girls Next Door.” Meanwhile, diligent, thrifty, clever China has been preparing to take its place, squirreling away money and buying American debt.

Poor America thinks only in four-year election cycles, cackle the Beijing bureaucrats, whereas China thinks in hundred- and thousand-year spans, in vast historical revolutions that must inevitably turn in their favor.

Does any issue sum it up better than patent infringement? “We can’t do business with a country which pirates ‘The Dark Knight’ and Microsoft Office,” screams America. “Fine,” say the Chinese, “But did we ever see a penny from our invention of paper?”

And so, in the spring of 2009, the time came for China to spring its trap.

As with the assassination of Archduke Ferdinand in 1914, no one believed so trivial an incident as the hassling of a U.S. naval ship in the waters of the South China Sea could precipitate the events that followed.

Sunday, March 8, 75 miles south of Hainan Island. The USNS Impeccable was cruising in international waters, dragging behind it a Surveillance Towed Array Sensor System (SURTASS), a listening device used to pick up underwater acoustical data, notably submarine movements.

Suddenly, five Chinese boats appeared and surrounded it, one coming within 25 feet. A Chinese sailor produced a grappling hook and tried to snag the Impeccable’s SURTASS. The Impeccable’s crew sprayed him and his ship with a fire hose. The Chinese sailors undressed down to their underwear and kept coming. One boat tossed wood into the water ahead of the Impeccable, forcing it to stop. Two hours later, Chinese fighter planes flew low over the American ship.

The Impeccable’s captain said Chinese harassment had increased markedly during the previous week, but he had no idea why. The Pentagon maintained that the Chinese have vastly under-reported their military spending and cloaked their intentions for years. Was the truth now starting to emerge? Was China’s pesky aggression a sign of worse to come?

The following Friday, March 13, China’s premier, Wen Jiabao, followed the military attack with an assault on America’s credit-worthiness. “We have lent a huge amount of money to the U.S.,” he said. “Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.”

With the U.S. Treasury rolling out ever more plans to borrow and spend, this was no time for one of the biggest acquirers of its debt to be making violent choking sounds.

Or was it the perfect time? With America on its knees, was this not the ideal moment to trigger the shift of power from Washington to Beijing? Would China now dump its U.S. assets, render the dollar worthless, and emerge triumphant from the wreckage of the global economy?

Get me Harrison Ford.

The truth may be more mundane—unless, of course, you are a keen follower of the patterns of global credit, in which case these are riveting times.

China’s massive acquisition of American assets in recent years, from Treasury bills to corporate bonds and equities, seems to have many people spooked. The way they talk about it, you would think some tattooed goon, seconded from a Macao casino, had cornered Lady Liberty and was demanding she pay the vigorish.

China, according to this thinking, is not someone to whom you want to owe money, especially if like America you are already in a deep financial hole and asking to dig further. China’s motives are not aligned with America’s interests. Owe them too much and one day you’ll pay a far heavier price than you imagined.

In fact, Chinese lending and U.S. borrowing have become so fundamental to the success of their respective social and economic models, and the stability of the global economy, that a quick unraveling would be a form of mutually assured destruction. There is no easy way out of the relationship for either country unless they wish to tumble like Holmes and Moriarty into the roaring Reichenbach Falls.

China’s huge dollar reserves are merely a symptom of an economic fix of its own making. Ever since Deng Xiaoping introduced his economic reforms to China 30 years ago, the country’s growth has been driven by exports—mostly to the United States and Europe.

The export focus led to the creation of millions of manufacturing jobs, which in turn served the primary goal of China’s leaders, to ensure social stability through employment and prosperity. China’s factories duly became the last stop on the global assembly line, taking in imports from more advanced Asian economies such as South Korea, Taiwan, and Japan, repackaging them, and sending them off by container ship.

Crucial to this strategy was a weak currency. If the renminbi climbed, as it should have given China’s growing economic power, the value of Chinese exports would rise and their competitiveness fall. So Beijing acted aggressively to keep the renminbi at a consistent level against the dollar. Until 2005, there was a fixed peg. Since then, the renminbi has been allowed to float and has drifted up by around 20 percent, though it still trades well below where most economists believe it should.

How the Chinese achieved this explains much of the present situation. First, the Chinese central bank simply printed renminbi to dilute the existing pool and buy foreign currencies. Then, fearing inflation, they bought back their own currency by issuing bonds and raising capital requirements on Chinese banks, which must now turn over some 20 percent of their cash deposits to the government.

In addition, China lent to its biggest export market by investing in dollar-denominated securities, notably those issued by the United States Treasury and government agencies like Fannie Mae and Freddie Mac. This kept the dollar healthy and Chinese exports relatively cheap.

For years, this policy of keeping the renminbi low against the dollar and using the dollar trade surplus to lend back to the United States to buy more Chinese goods worked. But it was a policy, like a Ponzi scheme, that became all but impossible to reverse and was merely putting off the cost China would one day have to pay for its explosive growth.

As Brad Setser, a global economic analyst at the Council on Foreign Relations, has written, “The benefits—rapid export growth, lots of investment in the export sector—associated with China’s exchange rate policy were front-loaded while the costs—export dependence, losses on China’s reserves—were back-loaded. The bill for subsidizing China’s exports during the boom is just now coming due.”

One consequence of this is that China’s leaders now view America’s economic challenges from two different, often conflicting, perspectives. On the one hand, China is America’s largest foreign creditor. U.S. Treasury and government agency securities are now estimated to comprise $1.25 trillion of China’s American portfolio. Another $250 billion or so is believed to be split between U.S. corporate bonds, money-market funds, and equities. American assets are believed to comprise 70 percent of China’s foreign reserves, with most of the rest held in euros. The numbers are murky as China’s foreign investments are handled by a number of entities, some in Hong Kong, whose holdings are not disclosed.

If America runs up more debt than it can reasonably repay, the value of China’s U.S. holdings will fall. Thinking as a lender, China would rather America tightened its belt, cut its expenses, and focused on paying back its existing debts. It wants America to keep the dollar strong and interest rates low to preserve the value of its bonds.

But if the U.S. economy does not recover quickly, whether through government stimulus or other means, China’s entire growth and export-driven economy risks unwinding. If one accepts that the size of China’s reserves is a sign of its devotion to the goal of social stability, of which the export economy is simply the means, then Beijing must be willing President Obama’s borrowing plans to succeed. Dollar be damned, China needs the American consumer to buy Chinese goods and sustain Chinese jobs.

In this context, Wen Jiabao’s fretting over a fall in the value of China’s foreign reserves, its rainy day fund, is like complaining about a dripping tap when water is pouring in from the ceiling. Even if the value of China’s U.S. portfolio were to fall by 30 percent, it would cost the Chinese around the same as their recent $586 billion stimulus plan. If the whole lot, a sum equivalent to one seventh of America’s GDP, were to go up in smoke, China would remain solvent. Except that would also mean that the United States’ economy had ceased to exist, which would be a considerably larger problem.

From America’s perspective, China’s fussing is a mild concern. If China were to stop lending money to the United States, there are other sources of capital in the world. There are plenty of investors, including American investors, who still see the full faith and credit of the United States government as a decent bet.

And realistically, where else is China going to go? It has already tried to use its economic muscle to patch together a network of oil suppliers around the world to immunize itself from price movements and supply disruptions by cutting deals with Iran, Sudan, and Angola. But it still depends on global supply for 95 percent of its energy needs. This policy of going where squeamish rivals fear to tread has also led it to become the largest trading partner of Iran, North Korea, and Sudan and the second largest of Burma and Zimbabwe. You scarcely need to be the UN High Commissioner of Human Rights to understand this is not the Peoria Chamber of Commerce.

The China Investment Corporation, a sovereign wealth fund, and the State Administration of Foreign Exchange (SAFE), a shadowy body with responsibility for managing China’s foreign reserves, have made a number of investments in Western financial firms in recent years. Two years ago, the Chinese paid $3 billion for a stake in the Blackstone Private Equity Group. The value of that has fallen by around 75 percent. In December 2007, the CIC paid $5 billion for a 10 percent stake in Morgan Stanley. That has since fallen by more than half.

The Chinese were reportedly stunned by their losses in Lehman Brothers and by the lack of support they received from the U.S. government. When Fannie Mae and Freddie Mac were close to collapse, only intervention by the Bush administration saved the Chinese from dramatic losses on hundreds of billions of dollars in mortgage-backed securities. Since then, the Chinese have sold their government agency securities and bought short-term Treasury bills, which carry less risk.

In fact, when you decompose the risks and returns on China’s portfolio, U.S. Treasuries may well be its soundest investment. Singapore’s vaunted Temasek sovereign wealth fund, for example, lost 31 percent of its value last year. Had China followed Temasek’s investment strategy, or indeed Blackstone’s, instead of buying boring old Treasuries, Wen Jiabao would have thrown himself into the Yangtze.

Over the next few months, the extent of China’s buying of U.S. assets will be closely watched. The World Bank forecasts that China ran up a $425 billion current account surplus in 2008. It has to put the money somewhere, and there is already a surfeit of domestic credit. That cash, perhaps the last of the great savings glut piled up in emerging markets over the past decade, has to go overseas.

The appetite of foreign central banks for U.S. Treasury securities is already falling as the global economy contracts. But for the next few months at least, long enough for President Obama to get his stimulus funding in place, the money, with China’s help, should be there.

And then what? Then the really hard work begins for China. Wen Jiabao has conceded that the government target of 8 percent growth this year, necessary to contain unemployment, is unrealistic. He has called on China’s businesses to “focus on adjusting product structure, improving quality and upgrading technologies in the face of economic woes.” It is high time, he was saying, for China to move up the economic value chain, to go from sweatshop to design shop, to develop its domestic markets and create investment opportunities for its own citizens.

The reason the Chinese save so much is not because they are better than us or because they all read Suze Orman. They save because they have nothing to buy or to invest in and because they are terrified that when they get sick or grow old or have to educate their children, the state will not help them.

China’s priorities are territorial integrity and economic growth, not bankrupting the United States. Growth can only continue with greater economic liberalization and a move away from the government’s mercantilist policies, notably its insistence on using an artificially low currency as its main competitive weapon. For all of its success, China’s GDP per capita still ranks only 100th in the world. It is a woefully inefficient consumer of energy, a rank polluter, and a poor provider of educational and health services to its people. If you think the United States has problems, try living in Guangzhou Province, the heart of China’s manufacturing industry, where millions of migrant workers are struggling to find work.

The stark facts of China’s relative position to the United States are these: China has four times the people and one quarter the GDP.

Wen Jiabao is within his rights to express concern about his investment in the United States. But he must also acknowledge that China’s ability to convert its surplus into loans to Americans has been crucial to China’s economic growth.

Had China pursued a different strategy over the years, letting its currency float, liberalizing its markets, and stimulating domestic consumption, its progress may have been more uneven and less predictable. It would have had a different set of problems to face today—problems that might have looked more like America’s. 

Philip Delves Broughton is the author of Ahead of the Curve: Two Years at Harvard Business School and a former New York and Paris correspondent for The Daily Telegraph.

The American Conservative welcomes letters to the editor.
Send letters to: letters@amconmag.com

China “worried” about US Treasury holdings

China “worried” about US Treasury holdings

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Mar 13, 6:21 AM (ET)


(AP) Chinese Premier Wen Jiabao gestures during a news conference after the closing ceremony of the…
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BEIJING (AP) – China’s premier expressed concern Friday about its massive holdings of Treasuries and other U.S. debt, appealing to Washington to safeguard their value, and said Beijing is ready to expand its stimulus if the economy worsens.

Premier Wen Jiabao noted that Beijing is the biggest foreign creditor to the United States and called on Washington to see that its response to the global slowdown does not damage the value of Chinese holdings.

“We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried,” Wen said at a news conference following the closing of China’s annual legislative session. “I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets.”

Wen’s comments foreshadowed possible appeals to President Barack Obama, who will meet with Chinese President Hu Jintao at a London summit of leaders of the G-20 group of major economies on April 2 to discuss the global financial crisis.

(AP) Chinese Premier Wen Jiabao waves to journalists as he arrives at a news conference after the…
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Analysts estimate that nearly half of China’s $2 trillion in currency reserves are in U.S. Treasuries and notes issued by other government-affiliated agencies.

Washington is counting on China to continue buying Treasuries to fund its $787 billion stimulus package. Last month, visiting Secretary of State Hillary Rodham Clinton sought to reassure Beijing that government debt would remain a reliable investment.

“They are worried about forever-rising deficits, which may devalue Treasuries by pushing interest rates higher,” said JP Morgan economist Frank Gong. “Inside China there has been a lot of debate about whether they should continue to buy Treasuries.”

The comments come as finance ministers and central bankers of the G-20 gather in London this weekend to discuss the crisis and possible remedies.

U.S. Treasury Secretary Timothy Geithner is pressing for a new coordinated stimulus but European governments are reluctant to take on more debt before they see how current plans are working. The Europeans want to emphasize the need for greater regulation of markets, including a crackdown on tax havens and increased control over hedge funds.

(AP) Chinese Premier Wen Jiabao leaves a press conference after the closing ceremony of the National…
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In Beijing, Wen expressed confidence China can emerge from its slump “at an early date,” and said the government is ready to expand its 4 trillion yuan ($586 billion) stimulus to boost growth in the world’s third-largest economy.

Communist leaders worry about rising job losses and possible unrest amid a trade slump that saw Chinese exports fall 25.7 percent in February from a year earlier. They have promised to spend heavily to create jobs and boost exports.

“We already have our plans ready to tackle even more difficult times, and to do that we have reserved adequate ammunition,” Wen said. “That means that at any time we can introduce new stimulus policies.”

In nearby Japan, Prime Minister Taro Aso called Friday for a fresh stimulus to help lift the world’s second-largest economy out of “an unprecedented economic crisis.” The comments helped spark a rally in Japan’s stock market, where the Nikkei 225 stock index surged 5.2 percent.

China’s Wen and other officials point to rising bank lending, power demand and other signs the stimulus is taking effect. But growth in retail sales is weakening, suggesting it has yet to spur private sector spending and investment, which analysts say will be key to its success.

(AP) Chinese Premier Wen Jiabao, right, chats with National People’s Congress spokesman Li Zhaoxing…
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Wen said Beijing can meet its 2009 growth target of 8 percent, despite skepticism by private sector economists, who expect as little as 5 percent. That would be the strongest of any major country but could lead to more waves of job cuts.

“I really believe we will be able to walk out of the shadow of the financial crisis at an early date,” he said. “After this trial, I believe the Chinese economy will show greater vitality.”

The premier promised to focus on job creation and give more help to smaller companies, which he said generate 90 percent of Chinese new employment.

“We will pay all attention possible to this issue and we will never overlook this issue,” he said.

Wen said Beijing wants the London summit to focus on the plight of poor countries.

“We must see to it that we show concern for developing countries, and help developing countries – the least-developed ones in particular – become an important topic on the agenda,” he said.

China fears major crisis, as economy continues to crash

China fears major crisis, as economy continues to crash

A new study shows 8% unemployment, with 20 million migrants unemployed. This news is much worse than expected, and represents a threat to social stability, according to Chinese officials.

Collapsing corporate profits in China (Source: WSJ)

This comes at the same time that other economic statistics continue to indicate a huge shakeout in China’s economic is occurring.

In particular, corporate profit in China appears to be rapidly crashing. Profits of industrial companies plunged 27% in the three months to November, according to official figures. Industries related to exports are particularly hard hit.

In another dramatic development, Chinese citizens seem increasingly turning away from investment in China, and using what money they have to invest in (of all places) America – American products and securities. Total outflows in the fourth quarter were as much as $240 billion.

The sharp increase in unemployment estimates for migrant workers was revealed at a press conference held by Chen Xiwen of China’s Central Finance and Economic Leading Group. Here’s a translation of what he said, from Victor Shih of RGE Monitor:

Chen Xiwen: “Not long ago, the Ministry of Agriculture organized a survey which drew samples from 150 villages located in 15 provinces which exported more rural labor. The sample focused on the approximately 38.5% of rural labor who returned home before the lunar new year. Of those who returned home, some 60.4% were home on regular visits to their family. That is to say that their jobs in the cities are still preserved, and they will return to their jobs after the holiday. Of those who returned home, 39.6% of the respondents reported that they lost their jobs or have not found a job, thus returning home. According to these figures, of the 130 million rural labor who are working elsewhere, we think 15.3% in total have lost their jobs or have not found employment (in cities). According to the ratio of 15.3%, we can calculate that out of the 130 million of rural labor working elsewhere, approximately 20 million of them have lost their jobs or have not found employment due to economic unwellness.”

Shih analyzes this further by adding 15 million or so in the registered urban unemployed (not migrant workers, but residents in major cities), and reaches a total of 37 million unemployed, or over 8% of the total work force of 430 million.

This is extremely high for China, higher than at any time since the end of China’s crisis civil war, the Communist Revolution that climaxed in 1949. China depends on low unemployment to maintain social stability.

As I wrote in 2005, from the point of view of Generational Dynamics, China is approaching a major civil war. This conclusion was based on a variety of factors, including the increasing number of mass riots, a huge migrant worker population, big income disparities, and an unraveling of the social structure.

The Chinese authorities themselves are well aware of this. As I’ve said many times, the Beijing government is among the most paranoid in the world, afraid of their own population.

China has tens of thousands of “mass incidents” each year. In a typical incident, someone accidentally bumps into somebody on the street in a shopping area. Or, even worse, somebody bumps into somebody’s wife. An argument ensues, and other people join the fray and take sides, especially if the one of the people is a peasant and the other is a member of China’s élite, a member of the Chinese Communist Party (CCP). Soon, people start using their cell phones to call other people, and the altercation may grow into a riot with thousands of people, or more.

If even one incident like this happened in the US, it would be worldwide news. But in China, there are hundreds of “mass incidents” in the country EVERY DAY. Some are small, involving only a few people, while others are major riots.

The growing global financial crisis is causing the worst possible scenario for the Beijing government. China’s crisis wars have always been major rebellions — the White Lotus rebellion (1795-1805), the Taiping Rebellion (1852-1871), and Mao Zedong’s Communist Revolution (1934-1949). Chinese authorities are well aware that a similar rebellion could flare up at any time.

“Without doubt, we are entering a peak period for mass incidents. In 2009, Chinese society may face even more conflicts and clashes that will test even more the governing abilities of all levels of the party and government,” Huang Huo, a reporter for the state-run New China News Agency, warned this month. The Chinese have special security forces trained to handle these “mass incidents,” as long as they’re relatively small. But the greatest concern, in the current financial climate, is that the small incidents could coalesce into a “national-level event” that would bring about civil war.

I’ve written about this many, many times, and as far as I know, this web site is the only one that’s predicting a China civil war with absolute certainty. Indeed, the only way to make such a prediction is by means of generational analysis.

So I was really startled to read Yves Smith’s blog Naked Capitalism and see the following indignant statement:

“Readers have taken to projecting … that I am predicting collapse or a violent overthrow of the Chinese government. I have never said any such thing.It is a demonstration of a tendency I find troubling: engaging in black and white thinking. This is not an either/or.”

As I said, I’ve never seen any blog or web site, other than this one, making such a prediction. This web site is so different from the Naked Capitalism blog that it’s hard to believe that anyone could confuse them, but it appears that’s what happened.

It’s worth quoting some more of Smith’s indignant statement, because it provides insight into how people think about this issue:

“Plenty of countries have experienced a good deal of internal dissent. Look at the US in the 60s, with riots, firebomings, and large scale demonstrations, in a country with no tradition of radical action by the middle class, and a much less highly developed police/surveillance apparatus than we have now. Did anyone think the government here would be overthrown? Perhaps a hopeful few on the radical left, but they’d have little company. Yet that level of violence was still unsettling and did put pressure on the government.”

Anyone familiar with generational theory would know that this comparison makes absolutely no sense whatsoever. During the 1960s, America was in a generational Awakening era, a time when massive protests and demonstrations are common, but a crisis civil war is impossible. This is how I knew, for example, that the Iraq “civil war” that everyone was talking about would have to fizzle out, and it did, because Iraq is today in a generational Awakening era.

(See “Iraq Today vs 1960s America,” and “Basics of Generational Dynamics.”)

But China is in a generational Crisis era, meaning that the country is “attracted toward” war, so the current situation is not at all incomparable to America in the 1960s. A more valid comparison would be to America’s civil war in the 1860s.

“Although China has had violent revolution, it has no organized anti-government movement at present, a very large army, and little tolerance of opposition. The discontent now is directed first against the corporations that shuttered their operations, second against provincial governments (this is more a simmering problem of long-standing corruption that may find a new hook with increasing demands for services, such as they are, driven by the migration back to the countryside).”

This is completely untrue. There is a huge anti-government movement, the Falun Gong movement, which China has outlawed. Furthermore, the reason that China spends such huge sums of money censoring the Internet is because of fears of a “nationwide event,” set up by internet communications.

(See “List of major Generational Dynamics predictions” for more information about Generational Dynamics predictions.)

From the point of view of Generational Dynamics, China is headed for a civil war with absolute certainty, but that’s not all.

One of the most important stories of the decade, in my opinion, was the anti-Japan rioting in China in 2005. The authorities diverted anti-party sentiment at the time, and changed it to anti-Japan sentiment. So a civil war in China would almost certainly lead quickly to a world war. And with China’s economy crashing rapidly, the time may not be too far off.

(Comments: For reader comments, questions and discussion, see the China thread of the Generational Dynamics forum.) (4-Feb-2009) Permanent Link

Hyperinflation Will begin In China And It Will Destroy The Dollar

Hyperinflation Will begin In China And It Will Destroy The Dollar
Eric deCarbonnel
January 20, 2009

The conventional wisdom on China is dead wrong. Specifically, there is a widespread belief, as expressed by Goldman Sachs, that “China will keep the yuan trading within a narrow range in 2009 due concerns about exporters.” Worse still, others are even predicting that China will devalue its currency! The sheer wishful thinking is astounding! The idea that “China will keep the dollar peg to help its exporters” ranks all the way up there with “Housing prices always go up” and “You can spend your way to prosperity”.


If you have learned nothing else in the last year and a half, you should have learned that if something sounds too good to be true, that is because it IS too good to be true. The media overwhelmingly presents China’s dollar peg as a win-win situation: Americans get cheap imports and low interest rates while China gets a strong manufacturing sector. While commentators do sometimes debates whether China will keep lending us money forever, they never talk about the REAL problem with the dollar peg.

Below is a chart which shows how China’s dollar peg works. See if you can spot the downside that the media never seems to mention.

The US’s trade deficit requires China to print money!

The little discussed downside of the dollar peg is all the money China has to print to maintain it. China’s Central Bank puts the extra dollars it receives from its trade surplus into its growing foreign reserves and then prints yuan to pay Chinese exporters. This results in an increase in China’s base money supply by an amount equal to the increase in its foreign exchange reserves. While China’s ability to keep accumulating US reserves is endless, its ability to keep its money supply under control is not.

The true threat to the dollar peg

If there is one development which could force China to drop its dollar peg, it is out of control inflation. Rampant inflation would result in millions of citizens starving and would create widespread social unrest. Keeping food prices low is a matter of political survival for Chinese authorities. So, facing the choice between losing their grip on power and losing the dollar peg, they will not hesitate for a second to sacrifice the dollar to save their own skin.

So far China been able to contain inflation, but…

In recent years, China has been able to contain the inflationary effects of its trade surplus by soaking up or “sterilizing” all the extra liquidity (printed yuan). These sterilization efforts mostly involved:

A) Raising the reserve requirements of commercial banks. In essence, the PBOC (People’s Bank of China) prints money to fund its trade surplus and then increases the amount of yuan banks have to keep as reserves at the Central bank, preventing the printed cash from reaching the economy. As of May of last year, commercial banks’ reserve requirements were at 16.5 percent

B) Selling RMB-denominated sterilization bills. The state owned and controlled banking system has been forced to absorb the majority of these bills. As of May of last year, the value of sterilization bills reached 10 percent of bank deposits.

Taken together, these two steps have immobilized roughly 26.5 percent of Chinese commercial banks’ deposits. This shows the magnitude China has had to intervene so far, as the value of sterilization instruments outstanding has been increasing at roughly the same rate as its foreign reserves.

PBC Foreign Reserves and Sterilization Instruments (US$ Billions)

While China has been able to contain inflation to single digits for the last decade, that is about to change. All economic forces are aligning in China for a surge in inflation.

1) China has abandoned its sterilization operations

Currently, the PBOC has abandoned its sterilization efforts all together:

A) The PBOC has lowered reserve requirements by 2 percentage point for China’s big banks and by 4 percentage point for all other banks.

B) The PBOC has scaled back sterilization efforts by reducing liquidity-draining three-month and 52-week bill sales from once a week to once every two weeks. As a result of these decreasing sales, the clearing house for China’s interbank bond market expects PBOC’s 2009 bill issues to be down over 70%, which will increase the Chinese base money supply by 2 trillion yuan.

These actions signify that the PBOC has ceased sterilizing its currency interventions and is focusing on (imaginary) deflation risks. A flood of cash has been unleashed, and a tsunami of pent-up inflation will soon hit China.

2) China is running record trade surpluses

China’s imports are crashing much faster than its exports. In December, Chinese imports fell 21.3% while exports fell only 2.8%. As a result, China has been running record trade surpluses these last three months: $35 billion, $40 billion, and 39 billion.

The reason for China’s surplus is obvious when you think about it. Consider the following list of goods a country can exports and ask yourself what would hold up best during a severe global economic downturn.

*** Commodities (Oil, gas, steel, etc)
*** Capital goods (Airplanes, Caterpillars, Machinery for new factories, Machinery for new mining/oil exploration projects, etc)
*** Durable goods (SUVs, CARs, appliances, business equipment, electronic equipment, home furnishings, etc)
*** Luxury goods (brand name products, designer clothing, artwork, etc…)
*** Cheap consumer goods (everything you buy at Wal-Mart)

The answer is that the demand for cheap consumer goods will hold up better than anything else. This can easily be seen in the retail sales this holiday shopping season. Wal-Mart, which imports 70% of its products from China, was the only retail to post a year-on-year increase in sales. So while the world economy might be imploding spectacularly, demand for Wal-Mart’s cheap Chinese goods is holding up quite well. The implications of this is that while China’s exports will fall, they will fall less than those of any other country.

The current trade surplus is still completely unsustainable. If China’s continues running a 40 billion dollar trade surplus all year, its base money supply will double by the end of 2009. Also, since China has halted the appreciation of the yuan, its trade surplus is unlikely to shrink as demand for cheap consumer goods is set to remain strong.

3) The Chinese economy will shrink in 2009

Consistently amazing economic growth is the biggest factor which has helped China contain inflation. Inflation happens when the money supply is growing faster than the economy, and china’s economy has been growing fast. This economic growth has helped absorb the enormous quantities of yuan that have been printed to support the dollar. However, this will change in 2009. Due to falling global demand, China’s economy is set for zero, if not negative, growth which will remove a significant mitigating force against inflation and amplify the inflationary impact of China’s printing press.

Side note: China’s economic strength is underestimated

It is important to note that, while economic growth will go probably go negative, China’s economy will not crash. The strength of the Chinese economy is widely underestimate in the media today. In addition to the resilient worldwide demand for its cheap consumer goods, China is also benefiting for import substitution at home. This is why imports to China are falling so fast: Chinese are switching to cheap domestic product instead of expensive foreign imports. So while there has been a sharp drop in Chinese demand for big-ticket brands (Dior, Chanel, Hermes, etc…) and others luxury items, knock-offs and other cheap goods are still flying off the shelves. Chinese consumers are downshifting, but they are still spending strong, as reflected by the 21% year-over-year growth in 2008.

However, despite China’s strong fundamentals, the current worldwide downturn is too strong for it to escape. The worldwide financial carnage is so severe that even the demand for cheap consumer goods will decrease. As a result, while China may outperform every country on Earth, its economy will still suffer in 2009.

4) Deflation in China would be too good to be true

China has been in a constant war with the inflation caused by the dollar peg. Economic growth and sterilization operations alone have not been enough to absorb the growing liquidity, and China has been forced to turn to ever more drastic steps in its efforts to contain inflation. These stifling policy measures together with its sterilization efforts have enormously suppressed domestic demand and have distracting the government from developing key services enjoyed by other developed nations. This suppressed domestic demand has also distorted China’s economy, as reflected by the undersized service sector, and has lowered the quality of life for Chinese citizens.

Chinese financial repression and market socialism

In its losing battle with inflation, China has adopted stifling policy measures to suppress domestic demand and keep prices down:

(these are only a few of the anti-inflation measures China has adopted)

A) Strict price controls. (ie: Large wholesalers must seek central government approval if they want to raise prices by 6 percent within the space of 10 days or by 10 percent within a month.)
B) Credit ceilings. (limits on how much commercial banks can lend)
C) Floors on lending rates and ceilings on deposit rates
D) Strict rules governing lending decisions
E) Tight land purchase and lending requirements
F) Direct government intervention to limited expansion in certain industries (ie: aluminum, steel, autos and textiles sectors in 2004)
G) Penalty taxes on anyone buying and selling real estate in a short period of time.
H) Forcing local government to cut back spending by delaying approval of their investment projects
I) High sales taxes.
J) Etc…

Suppressed domestic demand has distorted China’s economy

The distortions caused by sterilization operations and stifling policy measures are best seen when comparing China’s and the US’s economy:

A) US home buyers get tax incentives VS Chinese home buyers get tax penalties
B) US gets artificially low interest rates VS China’s artificially high interest rates
C) US’s “service economy” VS China’s “service-less economy”
D) Etc…

In the US, the overvalued dollar and easy credit environment have caused the service sector to become oversized, artificially raising America’s standard of living. In contrast, China’s suppressed domestic demand has led its service sector to become undersized, artificially decreasing its standard of living.

Focus on inflation has lead to a lack of key government services

With Chinese authorities sidetracked by their export oriented focus and battle with overheating, the development of key government services enjoyed by other developed nations has been neglected. As a result, Chinese citizens’ lack of social security, free education, and available consumer credit, which has forced them to save far more than their Western counterparts, leaving them with less disposable income.

Deflation would be a godsend to China

Chinese authorities must be thrilled about the prospect of fighting deflation instead of inflation. Fighting deflation would allow China to:

A) Scale back its increasingly costly sterilization efforts.
B) Lower interest rates.
C) Get rid of all the controls which are distorting domestic property markets.
D) Promote consumer spending without worrying about the inflationary impact.
E) Develop a comprehensive social security net.
F) Increase funding of public education.
E) Accelerate the development of a system to rate people’s credit.
F) Encourage growth in underdeveloped domestic sectors (housing, health care, education, entertainment, etc)
G) Etc…

Most of the steps above are already being taken by Chinese authorities. Unfortunately, there are no free lunches. The possibility that China can maintain a highly inflationary currency peg, reverse years of anti-inflation policies, release a flood of sterilized yuan back into circulation, and go on a Western-style stimulus/bailout binge without experiencing double digit inflation is zero.

5) No deleveraging

There is no chance of real deflation happening in China. None. The Strength of China’s Banking System makes it impossible.

A) Apart from Bank of China, Chinese banks have little exposure to overseas debt. So, although toxic US securities were sold to banks around the world, China’s capital controls protected its banking system from America’s bad debt

B) As a side effect of the country’s sterilization operations, 26.5 percent of Chinese commercial banks’ deposits were placed with the central bank last year (reserve requirements and forced underwriting of PBOC bills).

C) Unlike Western banks, who have been enjoying a credit bonanza for decades, Chinese banks have only recently gotten into the credit game, after years of being ridiculed for being overly cash-centric. Because of this late entry, Chinese banks completely missed the subprime party.

D) China is also in the enviable position of being one of the few countries which doesn’t need to deleverage. While Western banks were going insane with high leverage and off-balance sheet financial vehicles, Chinese banks were doing the opposite, as can be seen on the chart below (from Tao Wang of UBS).

E) China has been waging a war against NPLs (non-performing loans) in the last few years. For example, with heavy penalties having been imposed on bank managers responsible for new NPLs, Chinese banks have become much more concerned about the loan safety than profitability. This battle again NPLs has paid off. As of September 30, 2008, nonperforming loans totaled only 2 percent for Chinese banks, compared to the 2.3 percent for FDIC-insured banks in the US. Loan loss provisions have also improved substantially, with provisions of Chinese banks amounting to an impressive 123 percent of their NPLs.

F) Finally, China’s money supply itself is underleveraged when compared to the rest of the world. For example, the US’s M2 to M1 ratio is 65% higher than China’s. The Chinese M2 to GDP ratio is also more 160 percent, perhaps, the highest in the world.

When considering the strength of Chinese Banks and underlying strength of China’s economy, no debt deflation is possible.

If there is no chance of deflation, then why is China’s cpi slowing down?

There are three main reasons for the slowdown in China’s cpi:

A) The bursting of the commodity bubble. Because of speculator dominated futures markets in the US, commodity prices were boosted to artificial level going into the summer of 2008. As these inflated commodity prices fell back down to Earth, they caused a temporary worldwide slowdown in inflation.

B) In the second half of the year, deleveraging and hedge fund redemption caused the outflow of a large amount of hot money from China. This outflow temporary depressed asset prices.

C) The unwinding of the commodity bubble spread deflation fears worldwide and caused the velocity of money to drop.

6) Deflation fears are paralyzing China’s money supply

“deflation fears” have slowed the Chinese money supply to a crawl. While they are still spending, Chinese consumers are delaying big purchases and downshifting to discount stores. Businesses are strapped for cash, and scared Chinese banks are dumping riskier borrowers, like credit-card holders. China is experiencing one of the brief deflationary periods which typically precede hyperinflation.

Deflation fears in China also provide the perfect example of how a slowdown in the “velocity of money” and makes prices fall. Right now, Chinese banks are hoarding cash and delaying payments on personal credit cards. Only a year ago, most banks paid credit-card transactions in 14 days, but now merchants are having to have to wait 20, 40 or even 90 days to get paid. With lenders making credit-card transactions as unattractive as possible, many merchants are refusing to take credit cards from Chinese consumers. Think about that for a second, all that purchasing power from Chinese credit cards wiped out due to nothing but fear itself.

The important point to note about the price deflation caused by the deflation fears is that it will reverse sharply once inflation picks up. Banks will begin paying credit cards normally, and merchants will start accepting them again. The enormous amount of purchasing power which disappeared will reappear just as suddenly, causing a wild jump in inflation.

7) Sterilization operations have become a loss generating ventures

Until last year, China’s sterilization operations had been profitable, since the rate of interest that Beijing earned on foreign exchange reserves (mainly US Treasuries) had been higher than the rates it was paying on its yuan-denominated sterilization bills at home. However, now that the fed has lowered US interest rates to zero for the foreseeable future, China’s dollar peg has become a loss-making policy. When inflation hits china and interest rates rise again, China’s losses from its currency sterilization will become staggering.

8) China likely to attract a flood of hot money in 2009

China has had a problem with hot money inflows in the past, and those problems are likely to get worse this year. Hot money refers to the money that flows regularly between financial markets in search for the highest short term interest rates possible. This hot money has found ways around China’s capital controls and flows freely in and out of China to the authorities great frustration.

When hot money flows into china, it forces the PBOC to print money the same way as the trade surplus does. At the beginning of last year, these hot money inflows were one of China’s biggest problems, bringing inflation up to 8.6 despite the authorities best efforts. The country’s hot money problem ended temporarily with the bursting of the commodity bubble.

In the second half of last year, deflation fears and hedge fund deleveraging cause much of this hot money to leave China and seek the “safety” of US treasuries. This small exodus is what is responsible for the brief fall in China’s foreign reserves. However, the outflow of hot money from China has ended, and it now looks set to reverse.

In the next month or so, rising inflation will start pushing up Chinese interest rates at a time when central banks around the world have set their rates at or near zero. Since the entire world knows that the yuan is undervalued, these higher rates will make China the most attractive destination on Earth for those seeking safe high yielding interest rates, and the hot money problem will return with a vengeance.

9) Chinese authorities are pulling out all the stops

Chinese authorities are pulling out all the stops to get the country back on track. In order to prop up economic growth, Chinese authorities have:

A) Raised tax rebates for exporters of everything from high-tech and electronic products (motorcycles, sewing machines and robots, etc) to some rubber and wood products.
B) scraped export taxes for some steel products, aluminum, rice, wheat, flour and fertilizers
C) Cut the lock-up period beyond which people can resell their property without paying a business tax from five years to two years.
D) scraped the urban property tax for foreign firms and individuals
E) Allowed people to buy second homes on the same preferential terms normally reserved for first time buyers.
F) Announced plan to spend 900 billion yuan over three years to build affordable housing
G) Cut the deed tax payable by first-time buyers of homes smaller than 90 sq m is to 1 percent.
H) Announced measures such as cash subsidies and tax cuts to encourage home purchases
I) Announced plans for a 4 trillion yuan (586 billion) stimulus package to boost domestic demand through 2010.
J) Announced plans to invest 5 trillion yuan roads, waterways and ports in the next three to five years (over 2 trillion yuan more than originally planned).
K) Approved 2 trillion yuan for railway investment
M) Announced a tax break for public infrastructure projects.
N) Abolished the 5 percent withholding tax on interest income.
O) Scraped the 0.1 percent tax on purchases of equities.
P) Instructed Central Huijin (a government investment arm) to buy shares of listed Chinese firms.
Q) Encouraged state-owned firms to buy back shares.
R) Raised minimum grain purchase prices by 15 percent
S) Approved landmark reforms that give peasants the right to lease or transfer their land-use rights
T) Issued a stimulus package for its auto sector, including a tax cut
U) Set a price floor for air tickets
V) Handed out cash gifts to brighten their mood before the Chinese New Year
W) Etc…

10) Banks are flooding the economy with new loans

Chinese authorities are pushing banks to extend credit and help fight “deflation”. To encourage this money supply growth and new lending, the PBOC (the People’s Bank Of China) has halted sterilization operations and has cut the benchmark one-year lending rate by 2.16 percent and the deposit rate by 1.89 percent. Also, as part of these efforts, Chinese officials are reversing decades of financial repression and freeing up their banking system.

As China lifts restrictions on lending, banks are flooding the economy with new loans. Credit ceilings under which commercial banks have been operating have now been removed, and credit controls have been relaxed to give banks more leeway in making lending decisions. Chinese lenders will now be able to restructure loans and adjust the types and maturities of debt. Banks are being pressured to use this new financial freedom to “promote and consolidate the expansion of consumer credit”.

In addition to stimulating consumption, credit constraints are being relaxed to give loan access to small and medium privately owned businesses, which have until now been mostly shut out of credit by the state-owned financial system. As part of this effort and in order to help banks overcome their deflation fears, China has said it will tolerate more bad debt. This step is particularly significant, as the heavy penalties imposed for the creation of new non-performing loans has been a big restraint on credit expansion.

Finally, the commitment of Chinese authorities to fight deflation is so great that regulators have stated they will support the sale and securitization of loans. I repeat, China is moving towards securitization of loans! The adoption of securitization holds the potential to enormously accelerate money supply growth.

China’s efforts to boost lending are working. In December, China’s M2 money and loan growth soared. Just look at the graph of Chinese money supply growth below.

Does it look like China is headed towards deflation to you? (this chart will become much scarier once January’s numbers are added in)


I view hyperinflation in China as absolutely guaranteed. Zero doubt. China is dismantling all the measures it has put in place over the years to fight inflation. It is dropping restrictions on purchasing property, eliminating price controls, getting rid of loan quotas, lowering interest rates, ceasing its sterilization efforts, etc… It is also pulling out all the stops to boost government spending and new loan creation.

Meanwhile, China’s 40 billion dollar trade surplus means that its base money supply looks set to double in 2009. There is also the fact that China’s money supply is frozen due to cash hoarding and will cause inflation to increase when it accelerates. Finally, the commodity bubble has finished bursting, and China’s economy looks set to shrink.

Every economic factor in China suggests an enormous wave of hyperinflation will begin early this year. While I have written about the threats facing the dollar, this will be the event that finally ends the US’s borrowing binge and destroys our currency.

Hyperinflation in China will be a monumental event

Because China makes most of the world cheap consumer goods, it will export its hyperinflation around the world. This means that no fiat/paper currencies will survive this with its purchasing power intact. Some will lose all value (dollar) while others will survive while experiencing a loss of purchasing power (yuan, euro, yen, etc…). The only money that will retain its full value in the face of Chinese hyperinflation is gold.

China will sink the dollar to save the yuan

Once hyperinflation kicks into gear, Chinese authorities will find it impossible to bring it under control without sacrificing the dollar. Since hyperinflation would hurt Chinese exporters as much as losing their US exports, China will face a clear cut decision. By dumping the dollar peg and selling its USD holdings, China will help contain domestic inflation in many ways:

1) China will no longer be printing massive quantities of yuan to support the dollar.
2) By selling dollars in exchange for yuan, China will be able to take those yuan out of circulation, shrinking its monetary base.
3) Since the yuan will strengthen enormously again foreign currencies, Chinese exports will fall and that means there will be a lot more goods available for domestic consumption.
4) Since the yuan will be stronger against foreign currencies like the dollar, Chinese imports will rise. That means cheaper commodity prices across the board.
5) Dropping the dollar peg will make the yuan a major reserve currency. That means lower interests rates in China as foreign central banks build up yuan reserves.

Those expecting deflation are in for a surprise

Western nations who are lowering interest rate very sharply, without fearing inflation, are mainly concentrating on the domestic dynamics of their economies and the value of their currency. My bet is that no one is even considering the possibility that inflation could be imported from China, and, when cheap Chinese imports stop being cheap anymore, it will catch everybody completely by surprise.

What OPEC Teaches China – China’s cheap currency led it to run a massive trade surplus. The earnings from that surplus poured into the United States. The result was the mortgage bubble.

What OPEC Teaches China

Sunday, January 25, 2009; Page B07

At his confirmation hearings last week, Tim Geithner branded China a currency manipulator. This is a designation that the Bush Treasury Department never formally affixed to the Chinese. It may signal a nerve-racking shift in how the United States manages its most pivotal relationship.

This Story

Geithner is correct that China manipulates its currency. What’s more, this manipulation is arguably the most important cause of the financial crisis. Starting around the middle of this decade, China’s cheap currency led it to run a massive trade surplus. The earnings from that surplus poured into the United States. The result was the mortgage bubble.

China’s leaders protest that they are being unfairly scapegoated. Yet while there are rival accounts of the origins of the crisis, neither has the explanatory force of the blame-China narrative.

The first rival account is that the crisis reflected failings of U.S. financial regulation. Such failings exist, but most have been around for years. The mortgage bubble reached its craziest extremes in 2005-07, when China was flooding the world with cheap capital.

Moreover, regulatory failings exist not just at one regulator but many. The Securities and Exchange Commission failed to check risks at broker-dealers such as Bear Stearns. State insurance regulators failed to prevent the collapse of AIG. The Federal Reserve failed to see that banks were pouring capital into toxic securities that they then held off their balance sheets. European regulators were no better, even though they had adopted a supposedly more up-to-date set of capital standards. The lesson: Faced with a deluge of cheap money, no regulatory regime can be expected to prevent bubbles.

The second rival account of the crisis accepts that its origins lie less in regulatory failings than in economic pressures. But it blames the bubble on two mistakes at home rather than on the glut of capital from China. Americans should have controlled the urge to splurge, the thinking goes, and borrowed less Chinese money. And the Fed should have shut down the easy-money party by raising interest rates.

If Americans’ insatiable appetite for loans explained the flood of Chinese capital into the United States, we would have seen the evidence in a rising price for those loans — that is, higher interest rates in the bond market. But bond rates were strikingly low at mid-decade. This strongly suggests that it was the supply of lending that went up, not the demand for it. Chinese money flooded into the United States because of the push factor from China, not the pull factor from Americans.

Could the Fed have raised interest rates to avert the bubble? The Fed’s monetary policy was indeed too loose. But as Martin Wolf argues in his recent book, “Fixing Global Finance,” it’s not clear that higher interest rates could have prevented the trouble. Once China decides to export vast quantities of capital, that capital has to go somewhere. Higher interest rates in the United States might have encouraged the world’s savers to park even more of their capital in this country.

So there is no getting around China’s culpability. The country relies on the sort of export-focused growth strategy that other Asian Tigers have pursued, with the difference that China is too big to go this route without destabilizing the world economy. The real question is whether it is diplomatically fruitful to push China to change. The Bush administration tried and failed. Why would the new team fare better?

The wrong answer is to say that Barack Obama’s guys will be tougher. However egregious China’s currency policy may be, it’s counterproductive to punish Beijing with sanctions. For one thing, a trade war is the last thing the world economy needs. For another, as Geithner explained, the immediate priority is to get global growth going, so it’s more important to persuade China to extend its fiscal stimulus than to revalue its currency. Besides, reforming China’s exchange-rate policy is not the only way to wean the country off its high-savings, high-export model. The savings rate partly reflects China’s lack of social safety nets. If the Chinese spend some of their stimulus on pensions and health care, they will be heading in the right direction.

Still, there is an opportunity to nudge China toward currency reform, and the Obama team should take it. China’s leaders are not fools: They can see the effects of their policy not only in collapsing Wall Street banks but also in their own collapsing exports. The bubble that China inflated has brought China’s foreign customers to their knees. Because China pushed its export model too aggressively, its export markets have cratered.

Think of it this way: China’s position is akin to that of OPEC in the early 1980s. Two oil shocks taught oil producers the limits to their power: When they jammed prices up, the world economy sputtered and motorists bought smaller cars — and oil prices fell precipitously. OPEC learned to balance its lust for higher oil prices with the fear that customers might revolt. China’s leaders may be ready for the same lesson — and Geithner’s words may encourage them to learn it.

I want Obama to win. We must allow everything to occur as it is intended.

I want Obama to win.  I may die during the conflict, but we will fight when the time comes, and we will win.

Here is how we win this new conflict with an old history.  We must allow everything to occur as it is intended.

I want Obama to do everything he and his anti-white communist elites have planned, I want them to break the economic back of this nation with massive spending, I want him to fire all white heterosexual males currently working within the government and only hire minorities, I want Obama to push every liberal agenda to mainstream and break the moral and linguistic heritage of this nation.  I want this nation to die, a slow and painful death.  I want Obama to weaken our nation militarily, I want Obama to break down our central intelligence agency, making it easier for terrorists to infiltrate this nation.  I want communist and islamists to run freely over the landscape, I want the islamists terrorists to detonate a nuclear bomb in ten major metropolitan cities.  I want Obama to declare our constitution illegal, and no longer needed in the brave new world order.  The left in the west are moving towards the creation of a communist block federation of nations once called the western world.  I want them to open the borders and allow every illegal alien to enter this nation from all over the world, and bankrupt and destroy the local and state economies.

Why do I want these things?  Because these events will destroy this nation, economically first, riots and crime will skyrocket. Second they will destroy this nation socially, education will collapse, madness and insanity will reign supreme. The left will destroy this nation there is nothing we can do about, only when whites realize that non-white males must go, will we even begin to wake the hell up, and I have one thing to fall back on, my 12 gauge shot gun, my 6.8 spc AR-15 assault rifle, other planned weapons, and my various home made weapon systems.  Not to mention multiply levels of body armor, and other homemade defensive systems.

This nation must die politically, socially and economically, so that the white males who own 95% of the fire arms in this nation can do something about it.  The nation must die so when can rebuild, 1 in 3 of us must sacrifice our lives, we must embrace the destruction of the west, only then will the white males rise up and destroy our enemies, take back what’s rightfully ours, and kill everyone who moved against us.  A world wide race war is what’s needed, and America is the lynch pin of the liberal democracies within the west, when America goes, the west will follow, and then the rise of white Nationalist is all but assured.

White Nationalist government will come to power after the collapse of the west!!!  Think about it, don’t fight it, buy guns and ammo, buy food and water, buy body armor and NBC gear for you and your family, get ready and be prepared, and when the time comes my brothers, I will see you on the battlefield from the streets of L.A. to New York’s Central park, it will not occur in the next 4-5 years, but soon afterwards, we will retake what is ours, allow the world to see the first African Dictator of America, allow this nation to die, be joyful when terrorist attack us, allow this nation to die, and then and only then will we rise to power.  Many of us will die, but the West will be reborn, and our constitution will be reborn in our image, it will protect the ethnic nature of our nation and that of the west, and we must make ready for time is coming when you will no longer be able to purchase what you need to survive.  Be ready, buy plenty of guns and ammo, our organization will come when it is intended to occur, when we need it to save our people, and not a moment sooner.  Obama will fail, liberalism will fail, you cannot defy human nature for very long, until you face the consequences of your defiance.

Black Locust

China’s authorities are running scared

China’s authorities are running scared

Simon Tisdall
January 14, 2009

Last week’s jailing for six years of veteran dissident Wang Rongqing for “subversion of state power” was more than just another unpleasant instance of official vindictiveness, supporters and human rights groups say. China is facing a turbulent year of deepening economic hardship, social unrest, and tense anniversaries. The authorities are running scared. And so they made an example of Wang.

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The diagnosis seems to apply to other prominent dissidents, also feeling the heat as economic boom times fade and political jitters increase. Liu Xiaobo, a noted literary scholar, has been held without charge since 8 December. His apparent offence was supporting a new campaign for political and legal reform known as Charter 08.

According to Amnesty International, Liu’s family does not know where he is, he has no access to a lawyer, and he has yet to be charged or brought before a court. “The use of such detention … is arbitrary and in violation of international human rights standards, including the rights to liberty, security of person, and fair trial,” said Amnesty’s Roseann Rife.

Charter 08 was signed by 303 Chinese scholars, lawyers and officials, many of whom have reportedly since been harassed or placed under surveillance. China expert James Pringle says the campaign, modelled on Vaclav Havel’s Charter 77 in cold war Czechoslovakia, “is the first real opposition to the Communist leadership since Tiananmen Square” and is widely seen as “a threat to the party’s monopoly on power”.