5-Dec-11 World View — Egypt's Two Islamist Winners Now Become Arch Foes

This morning’s key headlines from GenerationalDynamics.com.

* Iran claims to have shot down a U.S. spy drone

* Egypt’s two Islamist winners now become arch foes

* Depletion of Egypt’s foreign reserves will be critical by January

* What looks like the end is proving to be only the beginning

* Four days left to save the euro

* Putin’s party suffers a major setback in Duma elections

* New study highlights China’s massive war preparations

Iran claims to have shot down a U.S. spy drone


Lockheed-Martin RQ-170 Sentinel stealth drone
Lockheed-Martin RQ-170 Sentinel stealth drone

Iran’s armed forces on Sunday claimed to have shot down a U.S. unmanned Lockheed-Martin RQ-170 Sentinel stealth drone along Iran’s eastern border. According to an Arabic language station, “Iran’s army has downed an intruding RQ-170 American drone in eastern Iran. The spy drone, which has been downed with little damage, was seized by the armed forces.” However, an unnamed U.S. official disputed the reports, saying that the Iranians may be referring to “an American drone that had been flying a mission over western Afghanistan last week and is now missing.” Tehran Times and VOA

Egypt’s two Islamist winners now become arch foes

Last week’s parliamentary elections in Egypt were only the beginning of a lengthy process. The biggest winner was the Muslim Brotherhood’s Freedom and Justice Party (FJP), with 40% of the votes, while the Salafist party Al-Nour and its allies won 25% of the votes. During the election, both FJP and Al-Nour slammed each other with accusations of illegal leafleting, bribery, and even forgery. And now, with runoff elections scheduled for Monday and Tuesday, the two parties are going to be arch foes. During last week’s elections, Al-Nour and the FJP had a gentleman’s agreement to vie with each other in an honest way. But those gentleman’s agreements are now ended, and there may be no gentlemen taking part in the next rounds. Al-Ahram

Depletion of Egypt’s foreign reserves will be critical by January

The past year of unrest has cut deeply into Egypt’s tourist business, and the riots and elections have been expensive, causing Egypt’s foreign reserves to be depleted even faster than expected. The pace of the decline has been increasing, and Thursday, the Supreme Council of the Armed Forces (SCAF) forecast that the figure would plummet to just $15 billion by the end of January. “We’re nearing a critical benchmark, which is three months of imports. We’re not quite there yet, but at the rate reserves have been deteriorating we’ll be there by the end of January.” Gulf Arab states have offered to lend Egypt $10 billion, but little of this money has been delivered. This comes at a time when the IMF is already stretched because of bailouts in Europe. The Media Line

What looks like the end is proving to be only the beginning


Douglas Holtz-Eakin
Douglas Holtz-Eakin

It’s amazing how history keeps repeating itself, over and over. On Sunday, Douglas Holtz-Eakin, former director of the Congressional Budget Office, was being interviewed on CNN, and here’s what he said when asked about the U.S. economy:

“And it has two silver linings. Silver lining number one is that there’s not much left to go wrong. Housing’s already depressed. Auto sector’s down. So the — you really can’t get much more downside. So we need to grow. And manufacturing has turned out to be in much better shape than anyone dreamed, and it’s been a real engine of this recovery.”

Not much left to go wrong?? I would laugh at this if it weren’t so sickening. Let me now repeat this quote from John Kenneth Galbraith’s 1954 book The Great Crash – 1929, where he contrasted the 1929 with previous panics:

“A common feature of all these earlier troubles [previous panics] was that having happened they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune.” (p. 108)

In fact, Douglas Holtz-Eakin was directly contradicted by Carl Case, co-author of the Case-Shiller report. On Tuesday, when the latest Case-Shiller report was released, I transcribed the following from an interview with Carl Case on BBTV, when Case explained why he thought housing prices would fall at least another 5-10%, based on experiment he tried with his home price computer model:

“We ‘shocked our model’ with the shadow inventory. If we put in the entirety of the shadow inventory into our home price model, home prices would fall another 30%. We don’t expect that will happen – the shadow inventory would never make its way like a wave into the market, but what it does show is the market clearing price for homes. So we have a long way to go before we see anything like normalcy in the home market.”

So, when Holtz-Eakin says that there “not much left that can go wrong,” he’s not only dead wrong, he’s catastrophically wrong — by 30%. And, in fact, if there’s a financial panic, which Generational Dynamics predicts is coming, then that shadow inventory would indeed make its way like a wave into the market.

I recently quoted former Fed chairman Alan Greenspan as saying, “All the econometric models failed in 2008 – across the board,” and I pointed out that they’ve been failing for a lot longer than that. Holtz-Eakin, like all the economists you see on TV, is using econometric models that have consistently been proven wrong. Being consistently wrong doesn’t seem to bother Holtz-Eakin or anyone else in Washington or on Wall Street — as long as they get their money.

Four days left to save the euro

Europe is reaching the edge of a cliff this Friday, when French President Nicolas Sarkozy and German Chancellor Angela Merkel will have to announce their new plan to save the euro. Europe has been on the edge of a cliff before. In the last two years, the Europeans have announced one truly ridiculous plan after another — plans that could not possibly work. But they always fooled enough people to pull Europe back from the cliff’s edge for a few weeks or, more recently, for a few days. Now we’re waiting for a new plan on Friday. We can only wait with breathless anticipation to see what it will be and how many and for how long people will be fooled.

Putin’s party suffers a major setback in Duma elections


Vladimir Putin
Vladimir Putin

Russian Prime Minister Vladimir Putin’s United Russia party suffered a sharp drop in support in Sunday’s parliamentary elections, just barely past the 50% mark, falling far short of the two-thirds majority that it had enjoyed for years. The Communist Party (KPRF) came in at second place, with 19% of the votes, with the remaining votes split among the five remaining parties. The outcome for United Russia would force the party, accustomed to passing legislation without regard for support from others, to negotiate and cooperate with competing political parties. Ria Novosti

New study highlights China’s massive war preparations

A study by Georgetown University has developed evidence that China is building thousands of miles of hardened, bombproof tunnels and storing thousands of nuclear missiles. The study was based on analysis of publicly available military journals and videos, so the conclusions can’t be confirmed, but it appears that China is building a massive arsenal of nuclear missiles in preparation for war with the United States. As I reported in August in “New Pentagon report outlines China’s military buildup,” China has been massively preparing for war over Taiwan and in the South China Sea, and that they would now, or very soon, win such a war with the U.S. This new data extends the war preparations to bring the war to U.S. soil. With China’s rapid military buildup, the next 12 months appear increasingly likely. Washington Post

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