This morning’s key headlines from GenerationalDynamics.com.

* Alan Greenspan: All econometric models have failed

* Italy and Spain debt downgraded, Belgium is next

* Paramilitaries may be joining drug wars in Mexico

* Karzai: Taliban can’t move a finger without Pakistan

* Israeli Security: Violence by Jewish settlers and activists is growing

Alan Greenspan: All econometric models have failed

Alan Greenspan and Peter Orszag on Friday morning (CNBC)

Appearing on CNBC on Friday morning, former Fed chairman Alan Greenspan explained why economists didn’t predict the financial crisis:

“All the econometric models failed in 2008 – across the board. And the question is, would they have caught it if they had had more data.

I will submit to you, given the existing econometric structure, you could fit the 2008 data, 2009, 2010, and you still wouldn’t forecast it.

The crucial question is – there are many missing independent variables in these models.”

This is exactly the point that I’ve been making for years — and not just since 2008.

Macroeconomics models are completely static in time, and economists assume that the same macroeconomics model that worked in the 70s and 80s also work today, an assumption which is completely absurd on its face. As I’ve pointed out many times, economists have been consistently wrong about everything, at least since 1995. They didn’t predict and can’t explain the 1990s tech bubble, the real estate and credit bubbles, the financial crisis since 2007, where we are today, and what’s coming next year.

Generational Dynamics is to macroeconomics as macroeconomics is to microeconomics. Macroeconomics models aggregate microeconomics models over the entire population, and Generational Dynamics models aggregate macroeconomic models over time.

Economist Peter Orszag appeared on CNBC at the same time, and said, “Most of the major econometric models — the administration, the Fed, the CBO — missed this because they were based on a time period that didn’t have this kind of experience in it.” That’s exactly right. If you want to use econometric models to predict what’s happening today, then you have to use data from the 1930s. Nothing since then is relevant. (CNBC)

Italy and Spain debt downgraded, Belgium is next

Fitch Ratings service downgraded the credit ratings of bonds issued by Italy and Spain early Friday, and said its long-term outlook for both countries was negative. Fitch based its decision on the growing debt crisis in Europe and deteriorating prospects for getting deficits under control. Later in the day, Moody’s Investors Service put Belgium on notice for a possible downgrade, citing the uncertainty of the costs for rescuing Dexia bank. ( “4-Oct-11 World View — Belgium’s Dexia bank may be near collapse”) On Friday, Moody’s also downgraded a dozen British and nine Portuguese banks. Each day, Europe is closer to the edge of the cliff. Canadian Broadcasting (CBC)

Paramilitaries may be joining drug wars in Mexico

Evidence is growing that people with military training are perpetrating some of the most gruesome drug cartel violence in Mexico, leading to concern that Mexico’s government no longer has control of the armed forces. The latest atrocity was the discover of 32 bodies scattered in houses in the port city of Veracruz this week, the latest sign that Mexico’s drug-fueled violence is entering a new phase in which murky paramilitary-style squads are carrying out mass exterminations. Two weeks ago, gunmen dumped 35 semi-nude, mutilated bodies along a freeway underpass in Veracruz in broad daylight. From the point of view of Generational Dynamics, Mexico is headed for a new war, refighting the Mexican Revolution of the 1910s along the fault line separating the people of European ancestry versus the indigenous peoples (“Amerindians”) of Mexico — the Mayans in the south and the Aztecs and Commancheros in the north. This war is expected to spread into the southwestern United States. Miami Herald

Karzai: Taliban can’t move a finger without Pakistan

Hamid Karzai on Friday, speaking to the BBC

The already inflamed relationship between Afghanistan and Pakistan became more tense on Friday when Afghanistan’s president, in an interview on the tenth anniversary of the start of the Afghan war, blamed the Taliban insurgency squarely on Pakistan:

“On the overall policy of Pakistan toward Afghanistan and towards the Taliban, definitely, the Taliban will not be able to move a finger without Pakistani support.

The fact is the Taliban were and are stationed, in terms of their political headquarters and operational headquarters, in Pakistan. We all know that. The Pakistanis know that. We know that.

We’re not saying this in a manner of accusation and reprimand. We are saying this in a manner of a statement intended towards a solution of the problem.”

Pakistan maintains it cut off ties to the Taliban and other militants following the U.S. invasion of Afghanistan. BBC and AP

Israeli Security: Violence by Jewish settlers and activists is growing

A violent attack on a mosque in Galilee, apparently carried out by settlers and right-wing Jewish activists — is the latest sign that Jewish terrorism is increasing, according to Shin Bet, Israel’s Security Agency. Shin Bet has recorded a growing number of these attacks, several dozen in the past year, including attacks like the one on Sunday against mosques, the uprooting of olive trees, the puncturing of tires on military vehicles, the harassment of left-wing activists, IDF officers and Shin Bet officials and others. The fear within the Shin Bet and the IDF is these attacks will continue to increase as the Palestinians move forward with their unilateral bid for statehood at the United Nations, and if large-scale demonstrations erupt in Palestinian towns. Jerusalem Post and Haaretz