29-Oct-11 World View — Kenya Gets Mired in Somalia, U.S. Involvement Rapidly Expands

This morning’s key headlines from GenerationalDynamics.com:

* China’s housing bubble collapses as home prices fall sharply

* China’s credit bubble collapses as well

* China appears unwilling to help bail out Europe

* Fitch says that Greece’s 50% bond haircut would trigger default

* Kenya gets mired in Somalia, and U.S. involvement rapidly expands

* American expands its Arba Minch Air Force base in Ethiopia

China’s housing bubble collapses as home prices fall sharply


Real estate development, part of China's housing bubble (Reuters)
Real estate development, part of China’s housing bubble (Reuters)

In Shanghai this week, a firestorm of protest erupted when developers offered discounts of as much as 40% on new, unsold apartments. Several hundred buyers, who had plunked down cash for the full price, were furious that their investments had lost so much value before they even received the keys. This is just one sign that the continuing collapse of China’s housing bubble has been accelerating since August, with potential severe consequences for China’s economy. Globe and Mail (Canada)

China’s credit bubble collapses as well

China’s businesses and households have accumulated a massive amount of debt, rivaling the subprime crisis in America. But now the economic slowdown is forcing many businesses to close, and many business owners simply to flee to another province or to another country. For Chinese officials, the biggest concern is unrest; China already has tens of thousands of “mass incidents” every year, and the number has been growing. China has a history of massive internal rebellions, and Generational Dynamics predicts that the next one is due around now. Washington Post

China appears unwilling to help bail out Europe

A lot of people are hoping that China will bail out the rest of the world, which is why Klaus Regling, chief executive of the European Financial Stability Facility (EFSF), is visiting Beijing, in the hope of getting some investment commitments from China. As I reported n October 28th, the Europeans plan to set up a “Special Purpose Vehicle” (SPV) that will collect investments from developing countries like China and Brazil, then use that money to bail out European countries as part of the EFSF. In fact, Chinese participation is crucial to the eurozone bailout. However, Regling returned empty-handed but he said that he was still confident Beijing would invest. Reuters

Fitch says that Greece’s 50% bond haircut would trigger default

A crucial element of the eurozone bailout plan is that accepting a 50% “haircut” on Greece’s bonds would be “voluntary” so that no default “credit event” would be triggered. However, Fitch Ratings on Friday issued a statement:

The 50 percent nominal haircut on the proposed bond exchange would be viewed by the agency as a default event under its Distressed Debt Exchange criteria.

According to an analyst, “It’s highly likely that all three rating agencies will classify this restructuring as a technical default. Even if it’s voluntary, investors are left with a product that’s lower in value to what they originally agreed.” Bloomberg

Kenya gets mired in Somalia, and U.S. involvement rapidly expands


American air force base in Arba Minch, in Ethiopia (Washington Post)
American air force base in Arba Minch, in Ethiopia (Washington Post)

President Mwai Kibak defended Kenya’s decision to carry out a military action against al-Shabaab militia in Somalia, saying that it’s not a war against Somalia. He made it clear there is no turning back and that the operation against al-Shabaab would continue until Kenya’s national security and economic interests are secured. Al-Shabaab is an affiliate of al-Qaeda. At the same time, Somalia’s Prime Minister Abdiweli Mohammed Ali said in a statement that his country and Kenya shared a common strategy against al-Shabaab. “The Somali Government views the fights against al-Shabaab extremists as direct support extended to the Somali people and as an action that will improve the security of Somalia, Kenya, and of the entire Horn of Africa.” Standard Media (Kenya)

American expands its Arba Minch Air Force base in Ethiopia

After repeatedly denying that America had any bases in the region, the Air Force finally confirmed Thursday that an air base at Arba Minch, in Ethiopia, became operational early this year, and that it has been secretly flying Reaper drones over Somalia as part of a rapidly expanding U.S.-led proxy war against al-Shabaab. The Air Force has invested millions of dollars to upgrade an airfield in Arba Minch, Ethiopia, where it has built a small annex to house a fleet of drones that can be equipped with Hellfire missiles and satellite-guided bombs. An early version of this story reported that the drones were armed, but the Washington Post later corrected the story to say that the drones are unarmed and have been used only for surveillance and collecting intelligence. However, the Pentagon did not rule out arming them in the future. Washington Post

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