6-Dec-11 World View — Merkel and Sarkozy Kick the Can Down the Road to March

This morning’s key headlines from GenerationalDynamics.com.

* Senior Chinese official warns of increased social unrest

* Motley Fool’s Sean Williams says that he was wrong about China

* Merkel and Sarkozy kick the can down the road to March

* Geithner visiting European officials to urge quick, decisive action

* S&P places 15 euro nations on warning for ratings downgrade

* Russia choosing the stick over the carrot in the North Caucasus

* If Iran goes nuclear, Saudi Arabia will obtain nuclear weapons from Pakistan

Senior Chinese official warns of increased social unrest


Zhou Yougkang
Zhou Yougkang

Zhou Yongkang, a senior Chinese leader and member of the Politburo, has warned provincial officials that they need to be prepared for increased social unrest caused by problems in the economy. The warning comes as large-scale strikes have swept China’s southern manufacturing heartland in recent weeks, as workers face off with employers facing reduced sales to debt-burdened America and Europe. He said the current “social management mechanism” is not keeping pace with social and economic development, a failure particularly damaging to the market-oriented economy. From the point of view of Generational Dynamics, this development is interesting because it shows that dictatorships follow the same generational behavior patterns as democracies. Mao Zedong tried some “social management mechanisms” in the Great Leap Forward in the late 1950s, resulting in the starvation and execution of tens of millions of people. China is still trying various “social management mechanisms,” but they won’t affect the fact that China has a regular pattern of massive internal rebellions every 70-80 years or so, and the country is overdue for the next one right now. Xinhua and AFP

Motley Fool’s Sean Williams says that he was wrong about China

Analysts have been predominantly wrong for the last few years, and econometric models have been failing consistently. This isn’t news. What is news is when one of these analysts states that he was wrong. Sean Williams is saying that he was wrong to have been so bullish on China and admits that his record on picking Chinese stocks has been disastrously wrong. Why was he wrong? “My first mistake was in not realizing that results which seem too good to be true often are,” allowing himself to be fooled by not seeing “a scandalous roundup of fraud allegations.” As I’ve written many times, fraud and extortion are the norm in today’s culture in America, Europe, and China because of the relationship between the Boomers and Generation-Xers. Any investor or analyst who doesn’t take generational trends into account is sure to be wrong during this generational crisis era. Motley Fool

Merkel and Sarkozy kick the can down the road to March


Somber, anxious Merkel and Sarkozy at a press conference on Monday
Somber, anxious Merkel and Sarkozy at a press conference on Monday

German Chancellor Angela Merkel and French President Nicolas Sarkozy put on a big show of unity on Monday in Paris, announcing that they will push for a new European treaty, either among all 27 EU members or just the 17 countries in the euro zone, to force member states to adhere to tighter budget discipline in the future. The main point is that there will be automatic sanctions for any country breaching the deficit ceiling of 3% of GDP. The new agreement will be presented to the other European nations later this week, and they’ve set a date in March of next year to finalize the details in the agreement. What will be done between now and March? As far as I can tell, nothing, except more meetings.Perhaps there will be a further announcement at the big eurozone summit on Friday, December 9. Spiegel

Geithner visiting European officials to urge quick, decisive action

Treasury Secretary Timothy Geithner is traveling to Europe for crisis talks with European officials “on their efforts to reinforce the institutions of the euro area,” where he will urge the leaders to act quickly and decisively. Well, Merkel and Sarkozy are obviously not acting quickly and decisively, so there’s only one person left. On Tuesday, Geithner will have his first meeting with European Central Bank President Mario Draghi. The intent will be to convince Draghi that now that Merkel and Sarkozy have put on their spectacular show of unity, Draghi can now feel OK about “printing” another trillion euros to bail out Italy and Spain, something that Draghi has resolutely refused in the past. The pressure on Draghi will be absolutely enormous, as he will now be seen as the one and only person who can save the euro. Market Watch

S&P places 15 euro nations on warning for ratings downgrade


Italy 10-year bonds at 5.982% on December 5
Italy 10-year bonds at 5.982% on December 5

The initial reaction on Wall Street to the Merkel/Sarkozy press conference was a huge surge in stock prices. I heard one grinning analyst say gleefully that stocks were surging because of Europe’s one trillion euro bailout. I don’t know where the hell he got that statement. Bond yields (interest rates) on Italy’s ten-year bonds fell sharply from 7.2% to 5.9%, causing some analysts to declare victory, even though a glance at the adjoining graph shows that exactly the same thing happened after the July 21 announcement for Greece’s bailout, which turned out to be a total failure. Apparently, S&P Ratings wasn’t impressed on Monday, as they put 15 eurozone nations on negative watch for downgrade. This includes the six nations that still have AAA ratings — Germany, France, Netherlands, Luxembourg, Austria and Finland. “Systemic stress in the eurozone has risen in recent weeks and reached such a level that a review of all eurozone sovereign ratings is warranted,” according to S&P. Bloomberg

Russia choosing the stick over the carrot in the North Caucasus

The Russian government’s plan to pour almost $100 billion of infrastructure investment projects into the North Caucasus is apparently being dropped in favor a substantially increased military presence. This decision may indicate that the Kremlin is simply giving up on the Caucasus and now considers it hostile territory that needs to be governed by force, but there are two political reasons that also contributed to the decision. First, ultranationalism and mutual xenophobia have been increasing in the last year between the Muslim Caucasians and the Orthodox Christian ethnic Russians, and this was an important factor in the recent Duma elections, with slogans such as “Russia for the Russians” and “Don’t feed the Caucasus.” And second, the 2014 Winter Olympics games will be held in the Sochi resort in the Caucasus, and this was the site in 1864, exactly 150 years ago, of a genocidal battle between the Russians and the ethnic Circassians, exterminating the latter or driving them out of their historic homeland. Historically, the Caucasus is one of the bloodiest regions of the world, along the fault line between the Muslim civilization and the Orthodox Christian civilization. Jamestown

If Iran goes nuclear, Saudi Arabia will obtain nuclear weapons from Pakistan

The 1,300 year old Shia/Sunni struggle is being revived over fears in Saudi Arabia that Iran will acquire nuclear weapons. Saudi Arabia has been beefing up its military links with Pakistan to counter Iran’s expansionist plans, and this reportedly includes acquiring atomic arms from the only Muslim nuclear power. Pakistan has become a front-line state for Sunni Islam and is being positioned by its leaders, particularly in the powerful military and intelligence establishments, as a bulwark against Shiite Iran and its proxies. Increasingly, Pakistan is rushing to the defense of Saudi Arabia, with whom it has long had discreet security links. It is reported to have put two army divisions on standby for deployment to Saudi Arabia if the kingdom is threatened by Iran or the pro-democracy uprisings sweeping the Arab world. This is consistent with my oft-stated expectation that China will be allied with Pakistan and the Sunni Muslim countries versus the West, Iran, India and Russia in the coming Clash of Civilizations World War. UPI

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