World View: Algeria Ends Four-Day Terrorist Siege with No-Mercy Assault

This morning’s key headlines from GenerationalDynamics.com

• Algeria ends four-day terrorist siege with a no-mercy assault
• Hillary Clinton tells China to steer clear of the Senkaku/Diaoyu islands
• Federal Reserve officials were caught by surprise by financial crisis

Algeria ends four-day terrorist siege with a no-mercy assault

Mokhtar Belmokhtar is the leader of the terrorist group responsible for the siege of the Algerian natural gas complex (Reuters)

Algerian troops ended the four-day siege by Islamist terrorists at anatural gas complex in the Sahara with a no-mercy, no-negotiationassault that killed the seven remaining foreign hostages, along withall the remaining hostage takers. Algeria’s interior ministry saidthat 107 foreign hostages and 685 Algerian hostages had survived, butthere are still people unaccounted for, including Americans, Britons,Norwegians and French, and many people are fearing the worst. Atleast 15 unidentified burned bodies were found at the plant. SomeWestern governments have expressed anger that they weren’t evennotified before the Algerians went ahead with the initial assault,risking the lives of the hostages, but the Algerians feared that anydelay would make matters worse. Reuters

Hillary Clinton tells China to steer clear of the Senkaku/Diaoyu islands

U.S. Secretary of State Hillary Rodham Clinton is warning China not totake “any unilateral actions that would seek to undermine Japaneseadministration” of the Sankaku/Diaoyu islands. If China does take anyaction, then presumably she or her successor will issue anotherwarning. As we’ve reported, ( “19-Jan-13 World View — China’s directive to the People’s Liberation Army: Get Ready for War”), Chinese militaryofficials believe that “the U.S. is bluffing in the East China Sea,”and that Americans will “run like rabbits” if there’s a clash.Japan Times

Federal Reserve officials were caught by surprise by financial crisis

The transcripts of Federal Reserve meetings from 2007 have just beenreleased, and they indicate that Federal Reserve officials, fromchairman Ben Bernanke on down, were completely clueless about thecoming financial crisis. One Fed official, then-San Francisco FedPresident Janet Yellen, raised the alarm about the housing bubble inJanuary, but she was ignored and backed down later in the year. AsI’ve said many times, mainstream economists did not predict and can’texplain the 1990s tech bubble, the real estate bubble, the 2007financial crisis, or anything that’s happening today, and they don’thave the vaguest clue what’s going to happen next year.

I still can’t get used to this. It was perfectly obvious to me by2004 that there was a housing bubble and a stock market bubble. Itwas also obvious to Alan Greenspan, who gave some alarming speeches onthe subject in 2005. (See “Ben S. Bernanke: The man without agony” from 2005.) AndI’m not blessed with any special powers, but I do understand the Lawof Mean Reversion, which is taught in Economics 1.01, and when youapply the Law of Mean Reversion, you could see well before 2007 thatthere was a housing bubble, a stock market bubble and a credit bubble,and that there was going to be a crash. So I was able to applyEconomics 1.01 and predict what was going to happen, but Ben Bernankeand the gang at the Fed were totally unable to do the same thing.

These are the same people that are running the Fed today. They stilldon’t have a clue what’s going on. As I wrote in “1-Jan-13 World View — 2013 Forecast: Financial Crisis and China Threat”, the S&P 500 Price/EarningsRatio index (also called “valuations”) has been well above averagesince 1995, and by the Law of Mean Reversion, stocks will at somepoint fall sharply, to the Dow 3000 level or lower, and stay thereuntil the 2020s. Bloomberg and AP

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