Hamas West Bank cells ordered to launch terror war on Abbas forces, Israel

DEBKAfile’s military sources disclose that Sunday night, May 31, Hamas commanders in Damascus and Gaza ordered all West Bank cells to unleash a terrorist assault on the West Bank with bomb cars, roadside bombs, snipers and missiles. They were told to set their sights on all Palestinian Authority officials including Mahmoud Abbas as well as taking aim at Israeli cities north of Tel Aviv.

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Professor Robert Shiller warns Britain may suffer a double recession

Britain faces the prospect of two recessions in quick succession.

Robert Shiller, Professor of Economics at Yale University, said that the recent stock market bounce should be treated with caution.

The apparent upturn could soon go into reverse, he told The Times, marking a repeat of economic patterns in the 1930s and the 1980s. Such a double-dip slowdown has been nicknamed by economists a “W-shaped” recession, where recovery is so fragile, the country could be plunged into another slowdown as soon as it emerged from the last.

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Higher-education bubble could burst next

Two prominent higher-education experts are warning that the financial structure of colleges and universities may be the next “bubble” to burst in America.

The result could be mergers, closures and even bankruptcies of smaller colleges that have spent too much and taken on too much debt based on a shaky system of student loans paying for ever-rising tuitions, say Joseph Marr Cronin, former secretary of education in Massachusetts, and Howard E. Horton, president of Boston’s New England College of Business and Finance.

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China at the Crossroads

A week-long Guardian series offering a unique portrait of modern China – its politics, economy, society, environment and international relations – through the eyes of migrant workers, business people, bloggers and officials. We follow them from the factories of Shenzhen to the deserts of Gansu, and explore their views on everything from modern marriage to patriotic pride. We learn about their hopes and fears, and hear from some of the country’s foremost commentators on issues ranging from economic reform to environmental protection.

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Economic crisis spurs spike in ‘suburban survivalists’

Six months ago, Jim Wiseman didn’t even have a spare nutrition bar in his kitchen cabinet.

Now, the 54-year-old businessman and father of five has a backup generator, a water filter, a grain mill and a 4-foot-tall pile of emergency food tucked in his home in the San Diego suburb of La Jolla.

Wiseman isn’t alone. Emergency supply retailers and military surplus stores nationwide have seen business boom in the past few months as more Americans spooked by the economy rush to stock up on gear that was once the domain of hard-core survivalists.

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China’s Growing Sands

Winding my way along China’s network of rail lines through the northern provinces of Inner Mongolia, Ningxia, Gansu and Xinjiang, I have travelled over 4000 kilometers over the past 6 weeks, witnessing first hand the severity of desertification in China, just from my carriage window. The route I have followed, although made up of a number of trains, has been dubbed China’s ‘desertification train’, as it snakes through some of the hardest hit land, suffering as a result of this increasingly severe phenomenon.

Affecting the lives of an estimated 400 million people, it is the most important environmental issue in China today.

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Guardian: China’s Water Crisis

China Digital Times – ?May 20, 2009?
As part of their China at the Crossroads series, the Guardian looks at China’s water crisis. One article visits eco-refugees in Gansu: Huang is one of 

A Nuclear Asia From End To End

What North Korea starts could weaponize the world.

Why now? There can be only one answer: People in South Korea are losing trust in Washington. And so are the Japanese. Although Tokyo maintains its Three Non-Nuclear Principles–Japan shall not possess nuclear weapons, manufacture them or allow their introduction into Japanese territory–a succession of Japanese politicians has called for the country to develop its own arsenal. Japan still exhibits the so-called “nuclear allergy,” but the mood of the nation is shifting.

Like in South Korea, the reason for changing public opinion in Japan is the nuclearization of nearby North Korea–and the inability of Washington to craft effective policies in response.

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In the Arctic Oil & Gas Lottery, Russia Looks Like a Big Winner

As global warming gradually melts away the sea ice in the Arctic Ocean, the oil and gas deposits buried in that inaccessible region are becoming a lot less theoretical to the five northern nations with claims to those riches. “For better or worse, limited ­exploration prospects in the rest of the world ­combined with technological advances make the Arctic increasingly attractive for ­development,” said Paul Berkman, … who specialises in the politics of the Arctic [The Guardian]. Now, a new study has estimated how much oil and gas may lie beneath the Arctic seabed, declaring that it contains about 30 percent of the planet’s undiscovered natural gas reserves and 13 percent of its undiscovered oil.

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UK Express – 5 hours ago
RUSSIA and America are heading for a new cold war over Arctic oil reserves, experts warned yesterday. A document published by the Kremlin reveals the

Study: Most Arctic Gas in Russia
The Moscow Times – May 28, 2009
The Associated Press WASHINGTON — Nearly one-third of the gas yet to be discovered in the world is north of the Arctic Circle, and most of it is

Russia owns most of world’s untapped natural gas – US researchers
MOSNEWS – 15 hours ago
Some one-third of the planet’s undiscovered natural gas reserves are likely located in territories belonging to Russia, Russian website Lent.ru says citing

This Way There Be Dragons

In fantasy novels the intrepid heroes come across a sign saying “This Way Be Dragons.” Of course, they venture on, facing calamity and death, but such is the nature of fantasy novels. We live in a very real world, and if we don’t turn around there will be some very nasty dragons in our future. This week we look at three possible paths we can lead the world down. We then review a number of charts and data on the housing market.

If you just read the headlines on this week’s data, you could be forgiven for assuming the worst is over — not. And then finally we look at some rather stark comparative data on the health-care systems of the US, Canada, and Great Britain. Everyone knows the US pays way more in terms of GDP than the latter two countries. Are we getting our money’s worth? There is a lot to cover, and I hope to finish this on a flight to Naples, so let’s jump right in.

This Way Be Dragons

More and more we read about the growing concern over $1-trillion-dollar deficits. Stanford professor John Taylor (creator of the famous Taylor Rule) jumped into the debate with a rather alarming op-ed in the Financial Times this week, echoing much of what I wrote last week, but with some real insights into what trillion-dollar deficits mean. Quoting:

“I believe the risk posed by this debt is systemic and could do more damage to the economy than the recent financial crisis. To understand the size of the risk, take a look at the numbers that Standard and Poor’s considers. The deficit in 2019 is expected by the CBO [congressional Budget Office] to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget. Clearly this will not and should not happen. So how else can debt service payments be brought down as a share of GDP?

“Inflation will do it. But how much? To bring the debt-to-GDP ratio down to the same level as at the end of 2008 would take a doubling of prices. That 100 per cent increase would make nominal GDP twice as high and thus cut the debt-to-GDP ratio in half, back to 41 from 82 per cent. A 100 per cent increase in the price level means about 10 per cent inflation for 10 years. But it would not be that smooth — probably more like the great inflation of the late 1960s and 1970s with boom followed by bust and recession every three or four years, and a successively higher inflation rate after each recession.”

You can read the rest at (http://www.ft.com/cms/s/0/71520770-4a2c-11de-8e7e-00144feabdc0.html?nclick_check=1)

While Obama gives lip service to cutting the deficit in half, his actual budget increases it over the next 10 years. As I have been writing for some time, this is a very dangerous path. And it is one that the bond market seems to be concerned about, as interest rates are rising, even on mortgages that the Federal Reserve is buying in massive quantities in its effort to hold down rates and stimulate the housing market.

“The good news,” Taylor concludes, “is that it is not too late. There is time to wake up, to make a mid-course correction, to get back on track. Many blame the rating agencies for not telling us about systemic risks in the private sector that lead to this crisis. Let us not ignore them when they try to tell us about the risks in the government sector that will lead to the next one.”

Taylor is right that the massive tax increases necessary to fund these deficits and programs should not happen. But it is not clear to me that they won’t. A Democratic Congress is talking of adopting John McCain’s plan to tax health-care benefits. While this would be a tax on the middle class (on everyone) that Obama said he would not do, he is clearly willing to sign a bill that has such a tax.

The administration is starting to float trial balloons about a new VAT, or value-added tax. Many of my non-US readers will be familiar with VAT taxes, especially in Europe. A combination of a VAT and taxing health-care benefits would raise enough to get us to a deficit of “only” a few hundred billion. Take away the Iraq war and you get even closer. You can make an economic case that a VAT tax would be preferable to an income tax.

However, the administration is not talking about a substitute but an additional tax. There is momentum in the heavily Democrat-controlled Congress for large new health-care programs. While there is resistance to large deficits on the part of a few moderate Democrats, there is a chance they could be brought on board with a tax or a series of new taxes that would offer the potential to pay for the new programs. (Even though everyone knows that the cost overruns on new health-care benefits will be much larger than estimated.)

As much as it grieves me to say it, a tax on health-care benefits or a VAT tax large enough to hold the proposed deficits to something under 3% of GDP would be preferable to running decade-long trillion-dollar deficits, which would destroy the US economy and the dollar and do severe damage to the world economy. (For the record, I am assuming the Bush tax cuts are history.)

But while a large tax increase would keep the economy from crisis and collapse, it is not without very serious consequences. It will put a serious crimp in economic growth. It will lock in European growth rates and European-like unemployment rates. And we will be using those tax increases to fund new spending and will still not have solved the future problems with Social Security and Medicare, which are going to require massive increases in spending in another 5-7 years. Which of course means that either a cut in benefits or another round of growth-crippling tax hikes is down the pike.

A third path would be to simply go ahead and raise taxes on the rich, say no to increased spending on programs until we can afford them, hold the line on any new spending, and see if we can reintroduce the gradual budget control that was the result of the stand-off (and to some extent cooperation) between Gingrich and Clinton.

I put about a 5% probability on the third scenario happening. Better than the chances of a snowball in hell, but not much. The first disaster scenario is about a 35% probability, which is quite scary. If we do choose such a path, then short the dollar, buy gold, and invest abroad. It will be a very tricky and difficult environment.

I assign a 60% probability to the middle path. Maybe it’s my basically optimistic nature and I am simply being naive, but I am hopeful that cooler heads will prevail and we will not run continual massive deficits larger than the growth of GDP. While that means rather large tax increases, since the current leadership wants to create massive new health-care entitlements and will do so, I would rather have to simply overcome higher taxes in my business rather than deal with a collapse of the dollar, high unemployment, high interest rates, and an extremely sluggish economy.

Each scenario will create a different investment environment. Ironically, the middle scenario could be good for the dollar over the long term. But it will be hell on corporate profits from US sources. Given the above, it seems like a 95% chance that we should start looking at investing a significant percentage outside of the US and Europe. Think Canada, Australia, Asia (not Japan), Brazil, South Africa, etc.

Normally, politics does not have all that much of an impact on the stock market. As an example, both Democrats and Republicans can take credit for the ’90s, but it was really the dynamic of the free market that worked in spite of government. Same for the Bush years. While the tax cuts did help, it was the free market and increasing leverage that were the dominating factors.

This time it will be different. The choices we make as to how to fund, or not fund, the increases in spending that are our clear and sad destiny, will have a major impact on not just the US but the world economy. As US consumers have been a major part of the growth of the developing world, and especially Asia (China), a slowing of consumption in the US will mean a very slow recovery for the rest of the world. It will happen, but the choices made by politicians this year will have many unintended consequences. Just as deciding we would take a major part of the corn crop and turn it into expensive ethanol raised the price of tortillas in Mexico, raising taxes in the US will mean lower global consumer spending and trade. It is a very tangled web we weave.

Continue reading This Way There Be Dragons

Time-Lapse Videos of Massive Change on Earth

Over the past decade, the number of people on Earth shot up by more than 13 percent, to nearly 6.8 billion people. To make room for all the hungry, breeding, CO2-emitting bodies on our small planet, we’ve ravaged Earth’s surface with staggering feats of deforestation, irrigation and urbanization — and NASA satellites have captured it all. Here are a few videos, compiled from images posted on NASA’s Earth Observatory, of some of the most impressive conquests of man over environment.

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Dubai Urbanization