This morning’s key headlines from GenerationalDynamics.com.

* Admiral Mullen accuses Pakistan of terrorism in Afghanistan

* Pakistan will not tolerate American ‘boots on the ground’

* World Bank warns of spreading financial crisis

Admiral Mullen accuses Pakistan of terrorism in Afghanistan

Admiral Mike Mullen

U.S. Admiral Mike Mullen told the Senate Armed Services committee on Thursday that Pakistan’s Inter-Services Intelligence (ISI) agency was directly supporting the Taliban-linked Haqqani network that was conducting terrorist attacks against Americans and American allies in Afghanistan:

“The Haqqani Network … acts as a veritable arm of Pakistan’s Inter-Services Intelligence Agency.

With ISI support, Haqqani operatives planned and conducted that truck bomb attack, as well as the assault on our embassy. We also have credible intelligence that they were behind the 28 June attack against the Inter-Continental Hotel in Kabul and a host of other smaller but effective operations.

In choosing to use violent extremism as an instrument of policy, the government of Pakistan – and most especially the Pakistani Army and ISI – jeopardises not only the prospect of our strategic partnership, but also Pakistan’s opportunity to be a respected nation with legitimate regional influence.

They may believe that by using these proxies they are hedging their bets, or redressing what they feel is an imbalance of regional power. But in reality they have already lost that bet.”

This unprecedented condemnation was the harshest public appraisal of Pakistan yet. BBC

Pakistan will not tolerate American ‘boots on the ground’

Pakistan’s Interior Minister Rehman Malik categorically rejected US allegations that ISI aids or has ties to the Taliban-allied Haqqani network, and said that Pakistan will not tolerate any incursion onto its territory by US forces targeting militant groups.

“The Pakistan nation will not allow the boots on our ground, never. Our government is already cooperating with the US…but they also must respect our sovereignty.

If you say that it is ISI involved in that attack, I categorically deny it. We have no such policy to attack or aid attack through Pakistani forces or through any Pakistani assistance. …

We are fighting a common enemy but unfortunately not with a common strategy. Instead of a blame game we have to sit together. We are not part of the terrorism, we are part of the solution. …

For us, whether it’s the Haqqanis or Tehreek-e-Taliban, or LeJ, they are all terrorist outfits and we will leave no stone unturned to go against them. …

Pakistan should be given some trust, and this trust deficit should go away, because we are fighting a war. There is not a day that is not 9/11 for my country.”

Malik also complained that the Americans had so far not provided Pakistan with intelligence that would help it go after the Haqqani network. Dawn

World Bank warns of spreading financial crisis

The global economy is deteriorating rapidly, according to World Bank President Robert Zoellick. Budgets are deteriorating and government deficits are increasing in countries around the world. “If the situation deteriorates further, then developing countries’ growth could turn down, their asset prices could drop and then their non-performing loans could increase,” he said. “With these pressures and prospects we have to anticipate possible protectionist pressures, beggar-thy-neighbor policies and a risk of a retreat to Populism.” Reuters

S&P 500 Price/Earnings Ratio (P/E1) 1871 to August 2010

I’m posting this chart again because it’s still highly relevant, and it explains what’s going on on Wall Street. Even if you don’t understand the Law of Mean Reversion at all, you can still understand this chart. This shows that P/E ratios (also called “valuations”) have been high, sometimes astronomically high, continuously since 1995. And you can see that valuations are on their way down to 1982 levels, which implies a stock market at the Dow 3000 level or lower. (Since August, 2010, the P/E ratio has fallen to about 15.)

Zoellick referred to protectionism and beggar-thy-neighbor policies. These could be components of a worldwide financial panic. From the point of view of Generational Dynamics, a massive generational panic and crash is coming, for the first time since 1929. This must occur for the same reason that many times an alcoholic won’t reform until he “hits bottom,” losing his family, his home and his job. No one seriously believes that world political and financial executives have “reformed” since the crisis first began in 2007; in fact, the abuses are much worse today than they were then. It’s impossible to predict exactly when this full-scale panic and financial crash will occur, but it’s coming with mathematical certainty.