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LaRouche - Admin - 01-04-2008


Paul Krugman

On Wednesday, the U.S. Federal Reserve announced plans to lend $40 billion to banks. By my count, it's the fourth high-profile attempt to rescue the financial system since things started falling apart about five months ago. Maybe this one will do the trick, but I wouldn't count on it

In past financial crises - the stock market crash of 1987, the aftermath of Russia's default in 1998 - the Fed has been able to wave its magic wand and make market turmoil disappear. But this time the magic isn't working.

Why not? Because the problem with the markets isn't just a lack of liquidity - there's also a fundamental problem of solvency.

Let me explain the difference with a hypothetical example.

Suppose that there's a nasty rumor about the First Bank of Pottersville: People say that the bank made a huge loan to the president's brother-in-law, who squandered the money on a failed business venture.

Even if the rumor is false, it can break the bank. If everyone, believing that the bank is about to go bust, demands their money out at the same time, the bank would have to raise cash by selling off assets at fire-sale prices - and it may indeed go bust even though it didn't really make that bum loan.

And because loss of confidence can be a self-fulfilling prophecy, even depositors who don't believe the rumor would join in the bank run, trying to get their money out while they can.

But the Fed can come to the rescue. If the rumor is false, the bank has enough assets to cover its debts; all it lacks is liquidity - the ability to raise cash on short notice. And the Fed can solve that problem by giving the bank a temporary loan, tiding it over until things calm down.

Matters are very different, however, if the rumor is true: The bank really did make a big bad loan. Then the problem isn't how to restore confidence; it's how to deal with the fact that the bank is really, truly insolvent, that is, busted.

My story about a basically sound bank beset by a crisis of confidence, which can be rescued with a temporary loan from the Fed, is more or less what happened to the financial system as a whole in 1998. Russia's default led to the collapse of the giant hedge fund Long Term Capital Management, and for a few weeks there was panic in the markets.

But when all was said and done, not that much money had been lost; a temporary expansion of credit by the Fed gave everyone time to regain their nerve, and the crisis soon passed.

In August, the Fed tried again to do what it did in 1998, and at first it seemed to work. But then the crisis of confidence came back, worse than ever. And the reason is that this time the financial system - both banks and, probably even more important, nonbank financial institutions - made a lot of loans that are likely to go very, very bad.

It's easy to get lost in the details of subprime mortgages, resets, collateralized debt obligations, and so on. But there are two important facts that may give you a sense of just how big the problem is.

First, the United States had an enormous housing bubble in the middle of this decade. To restore a historically normal ratio of housing prices to rents or incomes, average home prices would have to fall about 30 percent from their current levels.

Second, there was a tremendous amount of borrowing into the bubble, as new home buyers purchased houses with little or no money down, and as people who already owned houses refinanced their mortgages as a way of converting rising home prices into cash.

As home prices come back down to earth, many of these borrowers will find themselves with negative equity - owing more than their houses are worth. Negative equity, in turn, often leads to foreclosures and big losses for lenders.

And the numbers are huge. The financial blog Calculated Risk, using data from First American CoreLogic, estimates that if home prices fall 20 percent there will be 13.7 million homeowners with negative equity.

If prices fall 30 percent, that number would rise to more than 20 million.

That translates into a lot of losses, and explains why liquidity has dried up. What's going on in the markets isn't an irrational panic. It's a wholly rational panic, because there's a lot of bad debt out there, and you don't know how much of that bad debt is held by the guy who wants to borrow your money.

How will it all end? Markets won't start functioning normally until investors are reasonably sure that they know where the bodies - I mean, the bad debts - are buried. And that probably won't happen until house prices have finished falling and financial institutions have come clean about all their losses. All of this will probably take years.

Meanwhile, anyone who expects the Fed or anyone else to come up with a plan that makes this financial crisis just go away will be sorely disappointed.

LaRouche - Admin - 01-04-2008


American statesman Lyndon LaRouche said today that Alan "Bubbles" Greenspan's dire New Year's Eve warning that "something unexpected" will happen soon, which will "knock us all down," provides the true setting for the unleashing of chaos which is now occurring around the world. LaRouche pointed to Pakistan, Southwest Asia, Kenya, South Africa, Yemen, and the FARC/Chavez moves in Ibero-America as in-progress chaos operations run by the Anglo-Dutch financier crowd.

Ayn Rand devotee and 20-year Fed Chairman Greenspan said in his National Public Radio (NPR) interview, reported in today, "What I have to forecast is that something will happen which is unexpected, which will knock us down.... The odds of that happening, I think, are rising, because we are getting in vulnerable areas."

Greenspan added, "What I point out is that we're in a turning phase, and that the extraordinary improvements that have occurred in the world economy in the last 15 years are transitory, and they're about to change ... So, I think this whole process will begin to reverse."

Interest rates, Greenspan said, "now are set by the supply of investment money worldwide; a force much larger than the concerted efforts of central banks, including the Fed.... We and all other central banks lost control of the forces directing higher prices in homes."

Greenspan admitted his miserable record at forecasting, despite sitting at the helm of the Fed for nearly two decades: "The record of forecasting not only of myself and of companies I have developed, but of the profession as a whole, is not particularly spectacular," Greenspan said. "Ive been forecasting since the early 1950s. I was as bad then as I am now." Apparently, a belated confession of an economic ____ (rhymes with hitman).

In the most dire words, French commentator Jacques Attali, a longtime lackey for the financial oligarchy, and former adviser to French President Francois Mitterand, calls the world financial system, bankrupt. Writing in his column in the weekly l'Express today, he says, "It is the whole world which seems to be going over the precipice. As if a collision of trains going at full speed was being prepared. As if, in a vortex emptying the bottom of a bathtub...." there is no stability in sight for the global economy.

"That the murder of an opposition leader of a country of the South would so gravely shake the Asian financial markets, and with them those of the entire world, reveals the extreme fragility of the planet," writes Jacques Attali, referring to the murder of former Pakistani Prime Minister Benazir Bhutto. Attali says that "Beyond the sub-primes, many other debts are circulating and no one knows how the banks will be able to honor them: those of hedge funds, of monoline insurers, of LBO funds, and of holders of credit cards, which form a pyramid amounting much more than the bank's own funds, which would have been closed a long time ago, had the central banks not agreed to refinance them all without restraint."

The European Union is in such bad straits, "with an Italy going financially adrift, to such an extent that the very existence of the euro could be put into question by speculators attacking the Rome Treasury."

He even adds to this already poisonous mix, the crises of the Middle East, and the growth of world poverty. But, like other appendages of the Anglo-Dutch oligarchical system, Attali will not admit that it is gone forever, and must be replaced with the kind of financial reorganization represented by Lyndon LaRouche's New Bretton Woods monetary system, and emergency action in the United States embodied in the Homeowners and Bank Protection Act. Instead he only lists the symptoms, as if he were examining a live patient, not a corpse.


In a schizophrenic drive to save the financial system, the European Central Bank yesterday again "mopped up" some of the hundreds of billions of dollars in liquidity that it had pumped into the collapsing interbank market over the past few weeks -- while then adding today, about another $200 billion in new liquidity to the system.

The ECB drained about $300 billion out of the system, in the last few days, re-absorbing part of the flood of liquidity that it had poured out as part of an unprecedented coordinated action by central banks starting in mid-December. Last week, the ECB had drained out another $150 billion, and more is expected to be mopped up on Friday, Jan. 4, even after pumping new liquidity in on Thursday.

Reportedly, the ECB has vast difficulty in creating "equilibrium conditions" on the markets, because banks "remain unwilling to lend among one another," since they are unable to measure the exact degree of exposure to the damage caused by the subprime blow-out.

Leading economist Lyndon LaRouche said that the ECB draining the liquidity from the banks was one of examples of financial turbulence that he expected would hit on January 3. The point is, there is no monetarist solution, he said, even though the financiers keep looking for one. The only way to understand the crisis now faced is from the global standpoint, LaRouche reiterated.


Lyndon LaRouche called for a world color mapping of the severity of national dissolution and potential genocide crises, for both the Feature coverage of EIR Number 2 and the LPAC website, in order "to make clear that you have a global financial breakdown and a single, global British chaos strategy, not 'hotspots.' If you think of this and try to describe each threatened national dissolution--Kenya, Pakistan, Lebanon, Bolivia, Thailand--as a 'hotspot' first, you have it wrong," LaRouche said. Chaos and ungovernability are the British Empire's strategy of "governing" through a financial breakdown collapse--coming out on top in the endgame, by destroying all the other players, and blocking all national debate and action on the solution.

"This is what they're doing worldwide, LaRouche said. It's one chaos policy. And those writers and 'experts' who are talking about 'Anglo-American' destabilizations--they should cut it out; whose agent is Dick Cheney, anyway? Who does George Shultz work with, who selected Cheney?

This is the British Empire. It is the London Economist, the leading mouthpiece of London's financial empire, which has just warned Thai leader Thaksin that "he is the Benazir Bhutto of Thailand." It is British MPs who have been found to be funding Baluchi fundamentalist separatists in Pakistan; British MI-6 agents just expelled from Afghanistan for guiding and funding the Taliban; British Iraq policy which set up the invasion and then the conditions for the breakup of Iraq between southern, central, and Kurdish regions. Now, in a serious blunder, Pakistani President Musharraf has been induced to announce in a national address, that he is calling in Scotland Yard teams to investigate Benazir Bhutto's murder. It is a British Liberal Democrat in the House of Lords who is the "gamemaster" (see report below) of the outbreak of riots in Kenya, now leading rapidly to ethnic cleansing and threatening genocide. It was Britain's ambassador, confronting the U.S. ambassador on CNN today, demanding that the Kenya election be scrapped and started over amidst rioting and hundreds already dead.

The reason? The City of London knows--and even half-acknowledges, in its financial press and statements of the Bank of England--that the global monetary system is blown out, and a final disintegration of banking systems is under way. The year of hyperinflation, 2008, began today in spectacular fashion: Gold reached an all-time record of $860, rising 3% on the first business day of the year; oil passed $100 a barrel, rising 2% for the day; wheat and other agricultural commodities rose 2-3% in wholesale price today; stock markets fell and the leading indicator of industrial production in the United States, the ISM index, showed a "totally unexpected" 4% drop in one month! And today, the "Basel II" changes in bank-capital deregulation went into effect, backfiring with exactly the opposite impact on banks than intended when they were designed--because the banking system is in the middle of a crash. "Big banks will shrink, and small and middle-sized banks will disappear," was the way financial insiders in New York and Europe characterized the situation.

The only sane answer to such a complete financial disintegration underway, threatening dark age conditions, is for nations to rapidly place "firewalls" of national protection around chartered banks, industry, and households to protect them from the crash; and for a group of major nations to establish a new monetary system, a New Bretton Woods, to replace the collapsed IMF system. This is LaRouche's policy, the Homeowners and Bank Protection Act (HBPA), Economic Recovery Act, and the "four-power" approach to a New Bretton Woods by cooperation of the United States, Russia, China, and India with other nations.

The insane policy of the Anglo-Dutch financial oligarchy to prevent such national moves--or even serious debate and discussion of them--is chaos, destruction of national sovereignty, breakup of nations, even ethnic genocide.

Thus we see, and have to map out, not "crisis hotspots" with their own local scenarios, but a single global policy of chaos, assassinations, existential national crises, like that which leads to world war. And we have to expose it, and defeat it with national mobilizations modelled on the HBPA.


There will for sure be a lot of financial pain, soon, wrote Daily Telegraph financial columnist Ambrose Evans-Pritchard today. For most of the past year, Evans-Pritchard has been echoing the forecasts by Lyndon LaRouche, that the current financial system has gone down.

Real estate bubbles will burst all over Europe, Evans-Pritchard wrote, a "version of the East Asia 1998 crisis [will hit] half the ex-Communist bloc"; Japan will crash due to an 18% rise of the yen against the dollar; but China will not be able to step into world lending, especially to emerging markets, because of "credit tightening and yuan appreciation" by Beijing.

Overall there will be massive rate cuts by the central banks, with inflation to follow. In the "Anglo-Saxon" sector of the world, the populations' personal losses will "mount to $1 trillion, entailing a $4 trillion contraction in lending." Everywhere else in Europe, the high euro will kill every economy outside Germany, and the euro accord will crack. French president Nicolas Sarkozy will react and increase his war against the European Central Bank, and the restrictions imposed by the Maastricht treaty, Evans-Pritchard wrote. Finally, Hillary Clinton will take the White House, with Democrats in control of both Houses.

Telegraph Business desk chief Damian Reece warned that Chancellor of the Exchequer Alastair Darling is not long for political office, after Northern Rock is nationalised. "Having succeeded the UK's longest continuously-serving Chancellor, Darling is likely to become one of the UK's shortest-serving Chancellors. He has to be favourite among the Cabinet to be moved on come a spring reshuffle."


The big banks will shrink, and the smaller banks just disappear in the coming financial meltdown, French hedge fund big name Arpad Busson told The Times of London in an interview Dec. 31. Busson is known for warning in 1987 that the financial system was on the way to meltdown, in the crisis forecast by Lyndon LaRouche earlier that year.

Busson told The Times three days ago: "This is the first time in my 21 years in the business that I've seen systemic risk. I think we are now one-third of the way through the banking problem.... The big banks can battle against these massive write downs. They can shrink," he said. "What I'm concerned about is the medium-sized and small banks. This is going to create another round of consolidation among banks, which is a pity if you end up with ten banks that control the world."


With ripples from the financial crash already hitting the real U.S. economy and companies, it will only take a rise in corporate debt defaults to 5% from the current 1.4%, to blow up a derivatives market far larger than anything that has crashed so far. This is the $45-50 trillion mass of financial derivatives called credit default swaps (CDS), which have ballooned tenfold in three years, and are called "the next domino" in the crash for early 2008 by one New York financial manager, who says it will be "far more severe" than anything that has happened so far in the mortgage meltdown and otherwise.

Again, banks are in the greatest danger of going under in this potential $45-50 trillion blowup; it is banks--not the "monoline" bond insurance companies already reported in big trouble--which have issued 44% of all CDS, and hedge funds another 22%. Fitch Ratings Agency is already projecting a corporate bond and loan default rate of 4-5% in the first half of 2008--particularly by home builders and commercial real estate companies in the United States and Europe--enough to collapse a large chunk of the CDS bubble.

The financial manager compared the CDS bubble to a huge, brand-new insurance industry whose providers reserve nothing for future losses. "Imagine what will happen if $45 trillion ... experiences an actuarial average of 5% losses, and no one [in the banks] has $2.25 trillion sitting around to foot the bill!"

LaRouche - Admin - 01-05-2008

John Hoefle

The year 2007 was one of remarkable changes in the global financial system, the chief among them, it being the year that the casino of unpayable debts and off-balance-sheet fantasies finally broke down, leaving us to watch as the ramifications of that collapse spread inexorably across the planet. This was the year that financial terms of which most people had never heard, such as "SIVs," "CDOs," and "monolines," became almost household words, the year the so-called "subprime crisis" turned into the so-called "credit crunch," only to be revealed at the end as a solvency crisis of the international banking system itself. It was the year that the central banks went from talking tough about asserting market discipline and letting speculators take their losses, to launching increasingly desperate schemes to keep the whole system from grinding to a halt.

We now enter 2008 in uncharted territory. The problems we saw in 2007 will only get worse, and there are new horrors to be discovered as the death throes intesify. The losses to the banks in 2007, likely to be on the order of $100 billion, once the final reports are in, are just the beginning. The entire economy, particularly in the United States, has depended upon the accumulation of vast amounts of debt, with households, businesses, governments, and the financial markets all depending upon the ability to borrow to finance their existence. The ability to finance that debt depended in turn upon the ability of the banks to turn loans into securities that could be sold to speculators, moving the loans off the banks' balance sheets into what is euphemistically called the investment community. That securitization game is now over, and its demise will wreak havoc with the ability of the economy to finance itself with debt. The wave of losses we have seen thus far is but a glimpse of what is to come, as the collapse eats its way through the world's balance sheets and flows relentlessly home to the balance sheets of the commercial banks, the investment banks, the insurance companies and other financial institutions, and to the lives of people.

Battle Royal
While the death of the system plays out before us in the financial press, the soap opera of falling dominoes and dueling pundits is but a cover for a much more profound battle: the battle over the nature of the system which will rise from the ashes. There are those poor fools who are trying to save the current system, to pretend that what has happened did not, to save their illusions of wealth; but they are irrelevant and will simply be swept away by events beyond their understanding and control. The real battle is between those who know the system is gone, and want to decide the nature of its replacement.

On the one side are the forces around Lyndon LaRouche and the American System of economics, who want to put the financial system through bankruptcy, putting up firewalls to protect the General Welfare of the citizenry, stopping home foreclosures and freezing the mass of financial claims until the wheat can be separated from the chaff. The speculative claims and fictitious values can be written off over time, while the elements necessary to protect the proper functioning of the economy can be protected, and the economy rebuilt. The essence of LaRouche's approach is that the welfare of the population comes first, and must be protected at all costs.

On the other side are the forces of the international financial oligarchy, organized around the Anglo-Dutch rentier-financier model. Their intent is to use the crisis to destroy the power of the nation-states and to restore the power of the empires, in a world dominated by imperial financiers and their trading cartels. To this crowd, people are but expendable peasants, little more than herds of cattle to be managed, sometimes slaughtered. What motivates the oligarchy is power, the ability to rule the world for the benefit of a small ruling class. In their view, the nation-states, in particular the historic United States, usurped their power, and they intend to reclaim it. They have, in fact, already made large steps in that direction.

There are, to be sure, fights among these jackals which are of interest to those of us who oppose them, but what they have in common is more important than their differences. To the prey, fights among the jackals over who will eat first are of little consequence.

The point which must be clearly understood is that this is a political fight rather than a financial one. The financial system is already gone and cannot be resurrected, and there are no serious attempts to do so. The moves by the central banks and the regulators are not intended to bring back the bubble, but rather to attempt to control its disintegration and buy the time to establish the replacement system. The money is already gone.

British Moves
The center of this global imperial assault is the City of London, which is openly plotting to become the capital of the new order. To do this, it must eliminate or at least severely weaken its rivals, beginning with the United States and its financial center, Wall Street.

The British take the long view of things, and began preparing for this collapse years ago. In 1986, the City of London transformed itself, breaking up its inbred financial system in what was called the "Big Bang," as London positioned itself to be the center of a new global system based upon trading and speculation. Most of the old-line British merchant banks were sold off to better capitalized partners, with S.G. Warburg going to what is now known as UBS; Kleinwort Benson going to Dresdner Bank; Hambros to Société Générale; and Schroders to Citigroup, to name a few of the more prominent banks. These banks did not leave the City but stayed to help orchestrate a shift which brought foreign banks to London. In this way, London became the financial center of the new derivatives game, while the exposures, and ultimately the losses, were centered in New York, Tokyo, Frankfurt, and Zurich. The City positioned itself as the casino, profitting from the gambling of others and, through its network of offshore centers like the Cayman Islands, it lured its rivals into the trap.

Now the trap is being sprung. The Brits are using their propaganda assets like Rupert Murdoch's News Corp. to assault Wall Street. Murdoch's launching of the Fox Business cable television channel and his purchase of the Wall Street Journal provide the City with a platform to undermine the credibility of U.S. institutions.

It Began With Citigroup
Illustrative is the crisis which hit Citigroup in November. It began with a report issued by Canadian Imperial Bank of Commerce analyst Meredith Whitney, who is also a regular guest on Fox News. Whitney said that Citigroup was in big trouble, in dire need of billions of dollars of new capital, and should probably break itself up into smaller pieces. The Wall Street Journal ran with the report, which resulted (or perhaps provided cover for) a sharp drop in Citigroup's stock. The crisis led to the resignation of Citigroup chairman and CEO Chuck Prince within days.

Citi was hit by yet another British blow when HSBC—the infamous Hong Kong and Shanghai Bank of the British East India Company's Dope, Inc.—announced that it was taking $45 billion in SIV (structured investment vehicle) assets onto its balance sheets, putting pressure on Citigroup to do the same. Citigroup has thus far survived, but in a weakened state, and its new chairman is Sir Winifred Bischoff, a British knight who joined Citi when it purchased Schroders.

The British also played a major role in blowing up the subprime lenders. In March, Barclays forced New Century mortgage, the big subprime lender, to buy back mortgages, in effect, throwing New Century under the bus and escalating the meltdown of the subprime lenders. Barclays also played a role in the Bear Stearns hedge fund fiasco which erupted in June, as a major creditor to the bankrupt Bear funds.

The issue is not whether the problems identified by the British were real—they are—but why the British would choose to exacerbate them. In previous financial crises, such problems would have been covered up, the factions more interested in maintaining the illusion of calm, but the nature of the battle has changed. We are now in the endgame, where pushing as much of the damage as possible onto your rivals has replaced cooperation. The jackals are now fighting among themselves, to see who will survive.

Time To Move
What is coming, is something none of us has ever seen before. Were the British plans to prevail, the world would descend into a fascist, Cheneyesque nightmare: Governments stripped of what little remains of their abilities to protect their populations from imperial looting, corporate cartels gouging the public in ways that bring to mind what Enron did to California, a veritable new dark age of austerity, population reduction, and utter chaos—with the City of London ruling over whatever pile of rubble is left.

The irony is that the nation-state is far superior to the empire as a political structure, that the levers to reverse this nightmare are within reach, should we choose to grasp them. So, let us make 2008 the year America reasserted itself, beginning with the passage of LaRouche's Homeowners and Bank Protection Act. When you consider the alternative, it is the only choice.

RE: LaRouche - Admin - 01-09-2008


Ambrose Evans-Pritchard, International Business Editor

Bears beware. The New Deal of 2008 is in the works. The US Treasury is about to shower households with rebate cheques to head off a full-blown slump, and save the Bush presidency. On Friday, Mr Bush convened the so-called Plunge Protection Team for its first known meeting in the Oval Office. The black arts unit - officially the President's Working Group on Financial Markets - was created after the 1987 crash.

It appears to have powers to support the markets in a crisis with a host of instruments, mostly by through buying futures contracts on the stock indexes (DOW, S&P 500, NASDAQ and Russell) and key credit levers. And it has the means to fry "short" traders in the hottest of oils.

The team is led by Treasury chief Hank Paulson, ex-Goldman Sachs, a man with a nose for market psychology, and includes Fed chairman Ben Bernanke and the key exchange regulators.

Judging by a well-briefed report in the Washington Post, a mood of deep alarm has taken hold in the upper echelons of the administration. "What everyone's looking at is what is the fastest way to get money out there," said a Bush aide.

Emergency measures are now clearly on the agenda, apparently consisting of a mix of tax cuts for businesses and bungs for consumers. Fiscal action all too appropriate, regrettably.

We face a version of Keynes's "extreme liquidity preference" in the 1930s - banks are hoarding money, and the main credit arteries of the financial system remain blocked after five months.

"In terms of any stimulus package, we're considering all options," said Mr Bush. This should be interesting to watch. The president is not one for half measures. He has already shown in Iraq and on biofuels that he will pursue policies a l'outrance once he gets the bit between his teeth.

The only question is what the president can manage to push through a Democrat Congress.

The Plunge Protection Team - long kept secret - was last mobilised to calm the markets after 9/11. It then went into hibernation during the long boom.

Mr Paulson reactivated it last year, asking the staff to examine "systemic risk posed by hedge funds and derivatives, and the government's ability to respond to a financial crisis", he said.

It seems he failed to spot the immediate threat from mortgage securities and the implosion of the commercial paper market. But never mind.

The White House certainly has grounds for alarm. The global picture is darkening by the day. The Baltic Dry Index has been falling hard for seven weeks, signalling a downturn in bulk shipments. Singapore's economy contracted 3.2pc in the final quarter of last year, led by a slump in electronics and semiconductors.

The Tokyo bourse kicked off with the worst New Year slide in more than half a century as the Seven Samurai exporters buckled. The Topix is down 24pc from its peak. If Japan and Singapore are stalling, it is a fair bet that China's efforts to tighten credit are starting to bite. Asia is not going to rescue us. On the contrary.

Keep an eye on Japan, still the world's top creditor by far, with $3 trillion in net foreign assets. The Bank of Japan has been the biggest single source of liquidity for the global asset boom over the last five years. An army of investors - Japanese insurers and pension funds, housewives and hedge funds borrowing at near zero rates in Tokyo - have sprayed money across the Antipodes, South Africa, Brazil, Turkey, Iceland, Latvia, the US commercial paper market and the City of London.

The Japanese are now bringing the money home, as they always do when the cycle turns. The yen has risen 13pc against the dollar and 12pc against sterling since the summer. We are witnessing the long-feared unwind of the "carry trade", valued by BNP Paribas in all its forms at $1.4 trillion.

The US data is now relentlessly grim. Unemployment jumped from 4.7pc to 5pc - or 7.7m - in December, the biggest one-month rise since the dotcom bust and clear evidence that the housing crunch has spread to the real economy.

"At this point the debate is not about a soft land or hard landing; it is about how hard the hard landing will be," said Nouriel Roubini, professor of economics at New York University.

"Financial losses and defaults are spreading from sub-prime to near-prime and prime mortgages, to commercial real estate loans, to auto loans, credit cards and student loans, and sharply rising default rates on corporate bonds. A severe systemic financial crisis cannot be ruled out. This will be a much worse recession than the mild ones in 1990-91 and 2001," he said.

Sovereign wealth funds stand ready to rescue banks, as they have already rescued Citigroup and UBS. But as Moody's pointed out this week, the estimated $2,500bn in lost wealth from the US house price crash is more than the entire net worth of all the sovereign wealth funds in the world.

Add fresh losses as the property bubbles pop in Britain, Ireland, Australia, Spain, Greece, The Netherlands, Scandinavia and Eastern Europe, as they surely must unless central banks opt for inflation (which would annihilate bonds instead, with equal damage), and you can discount $1,500bn in further attrition.

Not even a Bush New Deal can hold back the post-bubble tide that is drawing in across the globe. What it can do is buy time. Fortunately for America - and the world - the US budget deficit is a healthy 1.2pc of GDP ($163bn). Washington has the wherewithal to fund a fiscal blitz.

Britain has no such luxury. Our deficit is 3pc of GDP at the top of the cycle. Gordon Brown has shut the Keynesian door.

LaRouche - Admin - 01-14-2008

Mike Whitney

In the next couple of weeks, George Bush will prove that the last 30 years of supply side, free market economics was nothing more than a overripe pile of horse manure. In fact, right now, the B-52s are being loaded with pallets-full of freshly-minted hundred dollar bills which will be air-dropped “from sea to shining sea” as soon as King George gives the nod.

Think I'm crazy?

The Bush “Stimulus Package” is the biggest and most obscene hyper-inflationary swindle ever perpetrated on the American people. It's a $100 billion, taxpayer-funded, bailout that is being slapped together at breakneck-speed to forestall a collapse in consumer spending, an exodus of foreign capital, and a painful slide into recession. And, guess what? Both political parties are on board. It is an act of utter desperation designed to address the catastrophe that was created by the Federal Reserve; the housing meltdown. Greenspan's subprime boondoggle is now in full-crisis mode and threatening to deliver a knockout punch to the global economy. That's why the the lights are blinking red at 1600 Pennsylvania Ave. And, that's why the whole 435 member army of lacquer-haired political jacklegs who run the Congress are racing around in circles trying to find solutions.

 They ought to forget about it; go home to their friends and families, stockpile canned food and ammunition, and prepare for the Force 5 fiscal hurricane that's looming just off-shore.

The emergency bailout scheme is spearheaded by Goldman Sach's former head-honcho, Hank Paulson. Paulson warns that the economy is slumping ``rather materially'' and needs massive jolt of capital to keep from sinking altogether.

``We are looking at things that could be done quickly,'' Paulson opined. ``Time is of the essence.''

  Paulson sounds more and more like a man on the verge of a nervous breakdown. He's like the deck-hand on the Lusitania who just felt the great ship shudder from the two torpedoes amidships, but continues swabbing away while the ship pitches lazily starboard.


   Former Treasury Secretary Larry Summers has recommended a “timely, targeted and temporary” tax rebate “of $250 per tax-filer, and $500 per couple for families with taxable income of less than $100,000.” (WSJ) Some variation of Summer's plan will undoubtedly be implemented in the near future. The “invisible hand” of the market---which Bush praises ad nauseum---will be used to steer the Fed's helicopters as they scatter the nation's wealth like confetti “across the fruited plains”. This multi-billion dollar cash giveaway should put to rest, once and for all, the silly notion that Voodoo economics is anything more than a charlatan's parlor-trick. Supply side theory is a chimera which leads inevitably to disaster. Its only proponents are right-wing bunko artists and think tank crazies who have invoked the doctrine at every opportunity and put the economy in the doldrums.

At present, the financial system is so clogged with subprime gunk and other mortgage-backed garbage, the banks can't even provide loans to applicants with good credit. The gears have simply frozen in place. That's why the Fed and the Dept of the Treasury cooked up this wacky scheme to hand-out tens of billions of dollars via tax rebates to low and middle income families. It's the only way they can revive the maxed-out US consumer long enough to get him spending again. The Washington brainiacs who conjured up this latest quick-fix don't see that it will only buy us a few more months of fake prosperity while pushing us further into debt. If Paulson gets his way, the IRS will start cutting checks in a matter of weeks, which will get the cash registers at TJ Max and Target ringing shortly thereafter.

Does anyone in Washington ever worry about the mess that we're leaving for our kids or do they figure that the Chinese will pay for that, too? The National Debt is already $9 trillion, and yet, the politicians are just dying to write another $100,000 billion check on an overdrawn account. It's madness.

There's an old adage that goes like this: "When it seems like things can't go on forever; they usually don't." We're busted. Its time to stop playing Empire and start mopping up the red ink.  


30 years of Reaganism has destroyed the country. It's eviscerated our industrial base, broken the social contract, crushed our unions, savaged our schools and infrastructure, and shifted the nation's wealth from the middle class to the upper 5%. Now that same multi-headed Hydra is devouring itself. Wages have stagnated, the dollar is nosediving, the banking system is paralyzed, and subprime poison is surging through the global system shuddering banks and businesses around the world. Bush's anemic stimulus package doesn't do anything to reverse this trend. It's like injecting a dying man with a massive dose of meth-amphetamine. It'll only rouse him long enough to know that he is slipping the mortal-coil. What good does that do?

Of course, some people will argue that the $250 government checks are a welcome respite and a verification of “compassionate conservatism”. But how does that square with our 7-year experience of GW Bush?

Is this the same “compassionate” Bush who deliberately withheld food, water and medical supplies from Katrina's disaster victims while they huddled in the stinking, feces-infested Superdome or clung to the roofs of their homes while rescue boats were turned away by FEMA goons?

Yes, it is.

The government largess is not an expression of magnanimity, but despair. The checks are a last-ditch effort to rev-up the moribund economy and see if the ship o' state can be put aright. There's nothing generous about it. Besides, Bush and colleagues are ideologically opposed to giving working people a break; only, this time, they have no choice. The real estate market is crashing, the stock market is headed into ICU, and the country's financial giants are stretched out on a marble slab waiting for the cathedral music to begin. Bush knows he has to act fast or suffer the consequences. That's why he's abandoned his alleged commitment to “free market fundamentalism” and ordered the Fed to put the printing presses on Full Throttle. To hell with principle; it's crunch-time!

What Bush is planning is the moral equivalent of exhuming Milton Friedman from his moldy sepulcher and pounding a wooden stake through his heart. But, then again, honor never mattered much to this crowd. Its all about power and greed.


Albert Einstein summed it all up succinctly 60 years ago in an article titled “Why Socialism?”:

“Nowhere have we really overcome .... "the predatory phase" of human development....The economic anarchy of capitalist the real source of the evil.

Private capital tends to become concentrated in few hands, (creating) an oligarchy with enormous power (that) cannot be effectively checked even by a democratically organized political society....The the real purpose of socialism is precisely to overcome and advance beyond the predatory phase of human development.”

We've done a pretty poor job of reigning in our predators. In fact, the only satisfaction we may derive from the impending disaster is knowing that we'll all be linked together, hand in hand, as the economy rumbles off the cliff.

RE: LaRouche - Admin - 01-19-2008


"We have a bankrupt system," LaRouche said, "which is inherently bankrupt, in which the amount of monetary aggregate being generated to bail out—as you see the bailouts occurring today—to bail out an inflated, explosive mass of financial aggregate, has reached the point that it is now going to accelerate at such a rate, that the question is, whether the U.S. economy, under its present policies, will outlive this current year. People who think they have money, are going to find they don't have any. People who thought they had vast savings, will find out they don't have any. That's the kind of world we're living in.

"And idiots out there, are saying, we're going to induce a palliative to some homeowners, we're going to "stimulate the economy. 'Stimulate?' What's that mean? More monetary aggregate! That's like putting more fuel in the fire, in the forest fire! The worst thing you can do.

"You have to go back to the Roosevelt idea, the Roosevelt conception. Put the system under bankruptcy protection, put it under control, and some things will have to go into negotiation, and some things will be paid; and that decision will be made on the basis of national interest and human interest, and human rights. That's our only chance....

"What we have to do, is forget monetary stimulation. We have to have a governmental control of the creation of credit. We must have a banking system, a regular banking system, which cooperates with government, in processing that credit into places where it's needed: New firms, infrastructure, so forth. Hmm? So, the creation of credit by government, not financial stimulation! You've got too much sexual financial stimulation going on as it stands now!...

"We don't stimulate a sick economy. We don't stimulate the sale of cocaine. We don't stimulate the spread of AIDS. We don't stimulate these things. What we do, is we concentrate on creating and supporting things which are necessary to cause the physical recovery of the economy.... So, it's not stimulation versus anti-stimulation; it's reorganization. And how do you do that? What you do is you go into the key parts of the economy, starting with homeowners, communities, and banks — real banks, not the fake ones. You stabilize them under bankruptcy protection, Federal bankruptcy protection. Don't try to resettle the accounts, don't try to resolve anything; just resolve they're going to be under Federal protection. Then you have to go from there to other measures which stimulate growth."

First it was the sub-prime crisis, then it was the SIVs, and now it is the bond insurers that are the problem, according to the financial press. The line is that if the bond insurers fail, the ratings on the bonds they insure will be reduced, forcing pension funds and other institutions to sell their holdings, causing a crash in the market for the municipal bonds, CDOs, and other paper insured by these companies. That's a scary scenario, designed to make you feel that if we don't bail out the bond insurers, the whole system will collapse.

There's good news and bad news here. The good news is that the scenario presented above is not really true, but the bad news is that the situation is actually much worse.

Let's start with some basic cause and effect. It is not the collapse of the bond insurers that is jeopardizing the bond markets, but the collapse of the bond markets that is killing the bond insurers. Were the bond market sound, we wouldn't be hearing about bond insurance because it wouldn't be an issue. So the scenario being painted has it backwards. Bond insurance, like its larger credit derivatives sibling, is actually an accounting trick designed to help the financial markets portray all the worthless securities they are buying, selling, and holding as having value. When you think about it, the whole concept of such insurance goes out the door in a systemic crisis, since both the instruments being insured and the institutions providing the insurance are part of the same system, and when the system goes, it all goes down together.

So why have insurance at all? Take the case of the now infamous sub-prime mortgage loans which are pooled into groups, against which mortgage-backed securities are issued. The mortgage-backed securities are theoretically backed by the mortgages in the pool, but they really aren't. Then the mortgage-backed securities are divided into tranches, with a hefty slice being rated AAA by the ratings companies, even though they are nominally based upon junk-rated loans. The middle tranches of the mortgage-backed securities are then often combined with tranches from other mortgage-backed securities and other forms of debt into entities called collateralized debt obligations, or CDOs. These CDOs are divided into tranches, including a hefty slice rated AAA, and sometimes the middle tranches of the CDOs are combined into yet another abomination, called a CDO-Squared. The top tranche of the CDO-Squared is divided into tranches... You get the idea. What you have is a whole string of financial instruments, some of which are given the coveted AAA rating, even though they are all based upon junk-rated mortgages and a process which basically concentrates crap. Everybody on Wall Street knows the credit ratings on this junk are frauds, designed to keep the system going, but some of the potential buyers — say, your pension fund — are nervous, so the bankers came up with the idea to buy insurance on the bonds. The idea is for the bond insurer to have an AAA rating, and in effect rent that rating out to the mortgage-backed securities, CDOs, and similar securities. That means that the top tranche of a junk-backed CDO-Squared can not only have an AAA rating, but can also be insured by an AAA-rated bond insurer. What could possibly go wrong?

With the belt of an AAA rating and the suspenders of AAA-rated insurance in place, these abominations were sold all over the world, to mutual funds, pension funds, hedge funds, banks, corporations, to anyone foolish enough to buy them. Now they are blowing up, and the AAA ratings have been shown to be nothing but an illusion.

The problem is not the bond insurers, but the system. The system itself has failed, and that is what all the scenarios are trying to hide.

The U.S. Federal Reserve was panicked into its drastic midnight cut in short-term rates by the imminent failure of bond insurance companies, and the beginnings of an implosion of financial derivatives, several sources report. Since the morning of Jan. 22, calls and plans are multiplying for government-backed bail-outs of of the bond insurance companies — starting with Ambac Financial Group — on the model of the ruinous $75 billion in bail-outs for the mortgage lender Countrywide Financial. Hyperinflation is the result of this game — see Lyndon LaRouche's warning statement of Jan. 23, which describes the only path out of it for governments.

A New York financial manager reports the Fed governors were moved to panic by the beginnings of a derivative implosion, in the imminent failure of Ambac and the liquidation of ACA, a smaller bond insurer which already failed. This threatens many banks with huge, unpayable claims on financial derivatives. The Fed funds rate was drastically lowered to pump cheaper money into the banking system and hold off these losses.

A Dresdner Kleinwort bank analyst, Kevin Logan, told the London Times the same thing: The Fed was panicked over the weekend by fears that the U.S. bond insurance market, and its financial derivatives overhang, could implode. "The red light that triggered this cut is the issue of the bond insurers," Logan said. "The Fed realised what the consequences were in the event that a bond insurer fails. They hit the emergency switch and cut rates. They spent last week talking about it, calling their contacts. The picture started to look very messy and people realised it could get a lot worse. Then the White House came out with their fiscal stimulus programme which didn’t address anything. The problem is the credit markets."

An analyst from UniCredit bank in Italy says an immediate government bail-out of MBIA and Ambac Financial Group is "highly likely" to avoid a collapse hitting banks. "A kind of bail-out supported by monetary authorities or governments is the only chance for the [bond insurance] industry to survive."

Ambac is now making public announcements that it is will be recapitalized by a merger. New York State insurance regulations are apparently being reviewed and changed overnight to grease the skids for such a bail-out/takeover of Ambac. ACA Capital Holdings Inc.'s state regulator (Maryland Insurance Dept.) is holding off on liquidation proceedings while trying to unwind $60 billion of credit-default swap (derivatives) contracts on which ACA can't pay.

Alarm is increasing in the bond markets, as Fitch Ratings has downgraded the rating of Ambac, the second-largest insurer of municipal and structured bonds, by two levels—from AAA, to A. This means that Ambac will no longer be able to insure bonds, which is the majority of its business, and will have to sell itself to a bank if it is to avoid bankruptcy.

Fitch has also threatened to downgrade MBIA, the largest bond insurer, because of new losses. Without an AAA rating, neither can insure bonds.

The loss of the AAA rating may lead to downgrades of the $2.6 trillion of municipal and structured bonds they guarantee. This would force banks to increase the amount of capital they hold against bonds, and hedges with bond insurers—at a time when giant investment banks like Citigroup and Merrill Lynch are already begging for capital from foreign investors.

Lyndon LaRouche warned that Jan. 3 and afterward would usher in a different phase of the crisis, when outside auditors would go into firms, and find losses many times higher than their own internal audits showed. Just that happened yesterday, as Standard and Poor's said that losses for bond insurers could be 20% higher than previous estimates. Meanwhile, Merrill Lynch announced the writedown of $3.1 billion in hedges with bond insurers, mostly with ACA Capital, another bond guarantor that has lost its investment-grade rating and must raise $1.7 billion by the end of today to avoid insolvency.

Under pressure from Fitch, Ambac announced on Jan. 16 that it would raise $1 billion in new equity. However, this morning, Ambac abandoned that effort, after its shares fell 70% in 48 hours.

RE: LaRouche - Admin - 01-19-2008


The fevered efforts to save the financial system, typified by today's panicked three-quarter-point interest rate cut by the Federal Reserve and the Bush/Paulson stimulus plan not only will not work, but will backfire spectacularly, and soon, economist Lyndon LaRouche warned today. The financial system is dead, and any attempt to save the fictitious values of the trillions of dollars of worthless financial paper will not only fail, but will destroy any nation foolish enough to attempt to do so, LaRouche said.

The global financial system, emphatically including the United States, is entering a period comparable to that of Weimar Germany in the Autumn of 1923, but on a far larger scale. Whereas the damage from the runaway hyperinflation in Weimar Germany was largely restricted to Germany itself, the current crisis is global in scale. No national system will survive its effects, and the nations might not even survive the present year, he warned.

Under the Versailles Treaty ratified at the end of World War I, Germany was hit with war-reparation payments so high as to make it impossible for the nation to function. To meet its obligations, Germany began printing money, funding its reparations payments and the needs of its economy at the cost of debasing its currency. The monetary stimulation soared to such unprecedented heights that the term hyperinflation was coined to distinguish its debilitating horror.

As the German economy began to shut down, the government responded by printing more money as a stimulus, and the value of the Reichsmark began to plummet. During the 1913-1915 period the Reichsmark was in the range of four to the dollar, rising to some six to the dollar in 1917 and 1918. The situation began to deteriorate badly thereafter, from 20 Reichsmarks to the dollar in 1919, to 63 Reichsmarks in 1920, and 105 Reichsmarks in 1921. Then the bottom fell out, jumping to 1,886 Reichsmarks in 1922 and an astounding 535 billion Reichsmarks to the dollar in 1923. During that same period the cost of living index soared, from 100 in 1913 to 1,019 in 1920, and a staggering 657 billion on Nov. 23, 1923, according to the German Statistical Office.

The world is now approaching a Weimar-style hyper-inflationary collapse, for similar reasons. The actions of the Federal Reserve and the European Central Bank, as well as other central banks and the governments themselves, their determination to try to stimulate the dead corpse of this financial system back to life, their blind refusal to recognize the truth, is the making of a classical tragedy. Gripped by fear, these modern-day Hamlets are choosing to destroy all they hold dear, rather than break with their belief in failed monetary policies.

The nations of Europe, under the sovereignty-killing Maastricht treaty agreements, have abandoned their capabilities to react to this crisis, so it falls to the United States, under the powers and responsibilities vested in it by the Constitution, to lead the rescue of not only itself, but the world as a whole. Rather than continuing the foolish attempts to stimulate the corpse, the United States Government must use its sovereign powers to put its own financial system through bankruptcy proceedings, setting a precedent and providing the context in which other nations can act. The crucial first step is the passage of LaRouche's Homeowners and Bank Protection Act, which will erect the fire-walls necessary to protect the public and essential aspects of economic infrastructure to keep the economy functioning as the damage is sorted out.


After surveying the events since the beginning of this week, Lyndon LaRouche has now announced the beginning of a new educational campaign. The education will have a singular focus, hyperinflation.

100 Trillion German Mark:
The pinnacle of German hyperinflation.The historical reference for this topic occurred less than 5 generations ago, in pre-World War II Germany. Being surrounded by both the French and the British armies, the German government was forced, under the demands of the Versailles Treaty, to pay war reparations. These reparations were, of course, designed to be unpayable. Germany had no choice: "Pay, or we kill you!"

We, now, in the United States face almost the same situation. But this time, no external enemy force is demanding we try to settle the unpayable mass of financial paper that's currently in the process of hyperinflating the U.S. Dollar. We face an internal enemy, one which has been woven quite effectively into the moral fabric of our country over the past 40 years; the same moral decadence that enabled citizens of this country to tolerate financial pyramid schemes, the largest of which is coming down now: mortgages and its related financial paper.

There is another crucial historical difference between the two. In 1923, the German Reichmark was not the world's most powerful currency. Today, our U.S. Dollar is. We bear that responsibility to change our own personal, cultural habits, to use the power of the sovereignty of our Federal Constitution and put the entire U.S. Dollar system into bankruptcy reorganization. We are the only nation in the world with that unique ability.

Some might say, "Well, where's our Hitler?" Open your eyes buddy! Bloomberg and Arnie 'My father was a Nazi' Schwarzenegger, represent our Hitler potential. Mussolini-style Corporatism and Nazi-like austerity are knocking on the door.

So, reflecting on the outright assholes and idiots pushing "economic stimulus packages", think: "Gee, maybe a trip to the firing squad is not the kind of stimulation I'm looking for."


Senior Russian officials and politicians are clinging to their illusions that somehow, the international hyperinflationary crisis will only have a passing effect on Russia. Following Russian presidential candidate Dmitry Medvedyev's statement last week that 2008 might not be so bad, yesterday, Gennady Melikyan, Senior Deputy Chairman of the Russian Central Bank, told the press that while the crisis will go on in the West, Russia can survive without great problems, RosBusinessConsulting reported today. Melikyan, speaking in Tula, said that the "current negative situation on world markets has affected the Russian Federation. It is too early to relax, but there is certainty that we will be able to survive this quietly. There is no fatal danger of a crisis" in Russia, which is protected, he said, by its high level of foreign exchange reserves.

Russian Finance Minister Alexei Kudrin is also apparently suffering from the "money is economy" disease, since he said today at the World Economic Forum in the Swiss ski resort Davos, that Russia will offer a "haven of stability" amidst the financial turbulence. Kudrin was quoted by Novosti, saying: "In the past few years Russia has managed to achieve economic stability piling up substantial international reserves, which play the role of an airbag. I believe Russia will soon be the focus of attention as a haven of stability.... As a country with substantial reserves, Russia could help soothe the global crisis."

It would be beyond foolish for the Russian leadership to continue to deny the systemic scope of the hyperinflationary crisis.  Hyperinflation is now the driving characteristic feature of the world economic system, and only a radical change in the supposed "rules of the game", could yield the potential solution.

Now is not the time for conventional, popularly accepted economic theory.

RE: LaRouche - Admin - 01-21-2008

Lyndon H. LaRouche, Jr.

Our Mary Burdman turned in a report on the current view from London. The content of that report itself, especially when compared with former Prime Minister Blair's brutish, March 2004 attacks on the Peace of Westphalia,[1] is a fair reflection of the quality of the reports being popularly circulated from there during most recent weeks. The problem which any report depending on British publications must suffer, is that almost everything being said publicly from there during these present days, including the output of the usually leading London sources, is fake in one way or another. See the fragment from a piece by Mary Burdman, attached to my account here, as an illustration of that point. Chunks taken from her sampling of the spectacle of London sources, are appended here solely as illustrations of the need for a respectably large, therapeutic reliance on a contrary evidence, evidence which pushes British accounts aside, while pointing to the historically situated, clinical reality of what is actually behind the British—or, better said, Brutish—mask.

The truth of the presently onrushing, general breakdown-crisis of the present world monetary-financial system, can not be competently understood, nor remedies for that crisis found, unless we shift our attention from the apparent world-center of the present world financial crisis, away from that London sideshow curiously identified as the British government, to the real, global financial system which has controlled the world, including London, increasingly, since the U.S. Nixon Administration's August 15-16, 1971 collapsing of the Bretton Woods monetary system.

Those persons, unfortunately including most of those individuals in the relatively highest political ranks of both our U.S.A. and many among today's other leading nations, who do not accept what I have just said, are thus continuing to show themselves as lacking any competence for judging the presently spiraling world financial breakdown-crisis. Such a defect as theirs is to be properly recognized as in the nature of all true Classical tragedy, on stage, or in today's U.S. Senate, or from the mouth of the Speaker of the House. Such poor folk have no real comprehension of what the presently onrushing world crisis is really all about. Such behavior has lately given the very term "high places" a very bad reputation.

So, for example, there are those, in London and elsewhere, as sampled from the evidence presented in Mary Burdman's report, who delude themselves that the publicly reported phenomena of the political-economic crisis of the United Kingdom have something to do with the reality of British politics. In fact, the crisis does have much to do with shaping the track of the avalanche of crisis hitting within the British political system; but, the politics of the British political system itself have arrived at a point far beyond the reach of any self-determined sort of possible remedial actions by that political system itself. The residual function thus remaining within the power of the British political system, has been to provide distracting pieces of entertainment, fairy-tales or merely gossip, whiling away the hours until the economic version of the proverbial "grim reaper" arrives, like a specter, as in the part played prophetically by actor Raymond Massey, in Things to Come of avowed British fascist H.G. Wells: the early end of the continued existence of the present British political system itself.

The true nature of the crisis of Britain itself, is that the British political system, while it has managed to corrupt and almost ruin the very existence of the U.S.A. since the assassination of President John F. Kennedy, and, more clearly, since 1968, has done nothing otherwise to prevent the British political system itself from going out of existence on about the same early day that the U.S. government might disintegrate, the day on which most of the rest of the world plunges into the Hell of the chain-reaction set off by the mutual collapse of the world's two leading English-speaking powers. There is no part of the world which could escape the global chain-reaction effects of what could be a present crash of the U.S.A. itself. Any avowed British Samson would simply pull down as many among the pillars of the present world system, as might be needed to crush himself.

So, the British system or, better said, "Brutish system," like Shakespeare's Macbeth, Lear, Hamlet, Richard III, and Julius Caesar before it, is a true tragedy, in which a disease expressed as the very culture and beliefs of a subject people and its institutions, brings destruction upon the faithful believers themselves.

That Brutish Empire!
So, with the victory of the United Kingdom over continental Europe, at the close of the so-called "Seven Years War," London emerged from the February 1763 Peace of Paris, as the nominal capital of a de facto world maritime empire, not of the British monarchy of that time, but of a private financial organization known as the British East India Company. Such was the post-1763 imperial entity managed by the Lord Shelburne who was, in fact, in his time, a kind of general manager of the Company's interests, a manager with aides or successors such as the British Foreign Office's Jeremy Bentham, Bentham's creature, Lord Palmerston, and Prince of Wales Edward Albert, each of whom played his part in setting into motion all of the historically most crucial features of the British empire over the sweep from 1763 to the present day.

Since the U.S. victory, led by U.S. President Abraham Lincoln, over Lord Palmerston's Confederacy and London's Habsburg Mexican puppets, and with the ensuing integration of the U.S.A. as an integrated territory of a continental sovereign within its own borders, the principal concern of all British imperial policy, has been to halt the spread of the global strategic effects (such as great transcontinental railway systems) of Lincoln's victory on the continent of Eurasia.

Accordingly, the series of London-orchestrated great wars, or related conflicts, which were launched under the impetus given by Edward VII as both Prince of Wales and King, created Britain's launching of Japan into an 1895-1945 war against China, the conquest of Korea, the Russo-Japan war; thus Britain, not Germany, if anyone, has the "sole responsibility" for having caused World War I. It created Mussolini's and Hitler's dictatorships, and their wars, and regained control of the leading financial-political forces of the U.S.A. itself, over the passage of time from the death of President Franklin Roosevelt through to the present instant.

So, former Prime Minister Tony Blair acted to plunge the U.S. into a foolish war concocted by fraud, that with the aid of a "sexed-up" report, and by aid of the death of the Dr. David Kelly who had exposed the Blair hoax. So, de facto British imperial assets, the implicitly treasonous Mrs. and Mr. Lynne Cheney, acted in concert with the Blair government, to dupe the U.S. Senate into launching a new long war, wrecking the U.S.A. itself in pursuit of lunatic quests in southwest Asia.

British imperialism has called its own, post-Abraham Lincoln and post-Franklin Roosevelt types of anti-U.S. strategy of warfare, "geopolitics." The British empire prefers not to fight those wars itself, but then, sometimes, finds putting its own troops in the target-range of harm as a necessary price to be paid for the duping of often politically dumb U.S. leaders. Otherwise, in general, the British system prefers to lure its intended victims into wars against one another, just as Prime Minister Tony Blair threw British troops, and Dr. David Kelly into the fire, as a measure added to lure the U.S.A. under Bush-Cheney into the long wasting war by which the U.S.A. has virtually destroyed itself financially and otherwise in a ruinous adventure in folly, in southwest Asia.

This empire employs a monarchy (at least, up to the present date); yet, the essence of the empire is not in the monarchy, but in a slime-mold-like social formation assembled in the specific kind of Venetian financial-oligarchical model which came into being, under the initiative of Venice's Paolo Sarpi, as Europe's Anglo-Dutch Liberal financier oligarchy.

Nonetheless, the mere Blairs of London aside, it is not the British monarchy, nor elected government in the United Kingdom, which controls that empire. It is the global, virtual slime-mold formation known as the Anglo-Dutch Liberal financier oligarchy, which is presently a globally embedded financier oligarchy, a financier oligarchy akin in essentials to that of the Fourteenth Century's Venice-created, Lombard banking system, the hedge funds of medieval yore, which sank all of Europe into that century's prolonged "New Dark Age."

The difference between the Fourteenth-Century New Dark Age and now, is that today's heteronomic oligarchy was Liberally conceived in the tradition of Venice's New Party, the Liberal party founded by the Paolo Sarpi who was the author of all the modern Liberalism as traced from the medieval irrationalism of William of Ockham.

It is an oligarchy which is currently committed to destroy every semblance of sovereign nation-state on this planet, as through aid of such means as globally mass-murderous, neo-Malthusian "Global Warming" hoaxes, hoaxes which widely dupe the fools of even our own government institutions. The purpose of such schemes, is a destruction aimed at targets which include, ironically, such intended victims as the integrity and institutions of the tattered spectacle of today's United Kingdom. This "slime-mold"-like financier oligarchy has sought to accomplish its evil, long-intended aim, since 1776, and, more emphatically, since the victory of President Lincoln's U.S.A., and most emphatically in hateful reaction against the U.S. victory won through the leadership of President Franklin Roosevelt.

Back during World War II, the U.S. produced a program of training films, for our military and others, under the general theme of "Why We Fight." Obviously, those educational films did not go quite far enough, although Roosevelt, had he lived, would have done as I would have done then, as a soldier returning from South Asia; had Roosevelt lived, we would not have been dropped into the mess which grips our republic today.

1. A Lesson From Timaeus
In his masterful Timaeus, Plato recounts the gist of an historic visit to the leading body of Egypt's intelligentsia. Those Egyptians praised the Greeks of Solon's stripe as good people, but with a certain, crucial strategic flaw: "You have no old men among you." Most among those of us of contemporary, globally extended European civilization today, including most of the political leaderships of nominally powerful nations, represent shallow-minded types of the sort who might appear to have been just recently born from what had been an hermetically sealed egg, hatched at a time close to just yesterday, with concentration-spans which would embarrass a brain-damaged cricket.

Indeed, for today's high-ranking, shallow-minded types, recalling the same yesterday's newspaper headlines which they had endorsed so passionately then, is often a difficult stretch for them today. Contrary to such typically shallow fellows of today's high places, it is the development of a cultural process spanning many generations, even as European culture's development spans millennia, which pre-shapes the dispositions for action of a society today. As Plato's account suggests, it is to the degree that the individual leader in society views the present situation always with a long, multi-generational span of cultural development and retrogression foremost in view, that nations and their peoples are competently self-governed.

If we wished to understand the Egyptians' message, we must learn another, closely related, integral lesson from Plato's writings, what is fairly defined as the anti-digital, analog principle of dynamics. This is a principle, revived under that name, by Gottfried Leibniz, which is the key to competent modern science. It names, thus, the same principle which was known as dynamis of that science of Sphaerics (e.g., astrogation) which Thales, Heracleitus, the Pythagoreans, and Plato's Academy represented in their time. It represents the same scientific tradition upon which the launching of modern European statecraft and science was effected through, chiefly, the Fifteenth-Century Cardinal Nicholas of Cusa and his followers such as Leonardo da Vinci, Johannes Kepler, Fermat, Leibniz, et al., through Riemann, Vernadsky, and Einstein. This notion of the type of anti-digital, analog principle called dynamics, is the great principle to which the late Albert Einstein referred in tracing the competent modern scientific method of Bernhard Riemann to its foundations in Kepler's uniquely original discovery of universal gravitation.

European culture, which was born, as European in its distinct, well-known features, at a time now approaching 3,000 years ago, has been a distinct, if, often, internally convulsive cultural formation. This formation has had two leading, mutually contradictory features, features of crucial importance in our search for needed insight into the grave crisis which grips the planet as a whole today.

This ironical character of that span of development within that civilization, from those ancient times to the present date, is key to any effective comprehension of the nature of and remedies for the presently avalanche-like threat of a global general breakdown-crisis of world civilization. Instead of viewing history as a Cartesian pool-room sort of game of kinematics, we must see this history of nearly 3,000 years as a single, dynamically coherent process of successive, qualitative changes, a process whose political-strategic expression has lately become what is named, crudely, "geopolitics." To understand the nature of and remedy for today's threat of a global breakdown-crisis, is a business to be left to "old men," or, to those younger men who have assimilated the experience of the changes spanning many preceding generations. To understand the challenge to be met by the U.S. today, we must trace the actual history of the essentials of a geopolitical crisis back about 3,000 years, from the aftermaths of the Trojan and Peloponnesian wars.

To find the remedy for the present threat to the entirety of today's civilization—with no exceptions permitted, we must begin with attention to the pre-historic origins of the principles of maritime culture which have been the dominant feature of the evolution of today's globally extended European civilization, since earlier than 3,000 years ago, to the present moments of a presently onrushing, global breakdown-crisis.

The Origin of Europe
European civilization as we have known it, emerged in a presently known form of internal cultural experience, about the time the Mediterranean region emerged from a centuries-long dark age, about 700 B.C., when a certain alliance against Tyre was formed among the maritime forces of Egypt (e.g., Cyrenaica), Ionia, and the Etruscans. To understand European civilization, and what that civilization's history means for the entire world today, we must pick up the story, so to speak, from no later than about that time.

Earlier than that, about 20,000 years ago, world civilization had emerged from a period approximating 200,000 years of an Ice Age which was a very large feature of the northern hemisphere of the Americas and Eurasia in such past times. During this frozen interval, the most advanced cultures had been transoceanic migrants. This also became true of the Indian Ocean region, and what emerged as within the vicinity of the Mediterranean coast-lines during the recent five or more thousands years. The most significant feature of these transoceanic cultures was their migrations, as in season, in what were clearly flotillas of oared sailing craft, each not remarkably different in principle from our images of medieval Viking craft, or of Christopher Columbus in 1492, flotillas deployed as would be flotillas of nuclear-powered, manned space-craft, traveling from a Moon-supported interplanetary base, to Mars.

The most significant cultural feature of these societies, is the legacy of astrogation reflected in ancient calendars of sundry cultures, and in the Egyptian-Pythagorean science of Sphaerics, the root of that scientific method of Thales, Heracleitus, and Plato, on which the specific, greatest scientific achievements of European civilization have depended.

In those times, for example, the time of transit of such a flotilla from the coast of Europe to the Caribbean, would have been on the order, and along a pathway of lapsed time of Christopher Columbus' first great voyage of discovery, a lapse of time which Columbus calculated on the basis of the tradition of the Earth's measurement by the ancient Eratosthenes, as this knowledge had been revived and also enriched by the circles of the Cardinal Nicholas of Cusa whose testament had inspired Columbus to adopt such a trans-Atlantic mission.

As the great melting of the glaciation proceeded, from about B.C. 17,000 into about the second millennium B.C., these migratory maritime cultures established settlements in locations such as relevant instances of today's archeologists' Mediterranean coastal sites. The rise of European civilization in Europe and North Africa, and parts of west Asia, was characterized for more than a thousand years, during the period leading into the events reported by Homer's epics, before the Mediterranean emergence from a long dark age, in the form of maritime colonies, based on a central feature of urban coastal sites fortified against hostile forces rooted in the relatively more backward cultures of the interior of the land-area.

Contrary to the essentially silly dogma of a riparian origin for civilization, the actual net progress of human culture as a whole has been centered, over hundreds of thousands of years or more, in the development of those trans-oceanic maritime cultures, based on the development of the practice of astrogation, moved into permanent coastal maritime settlements, as in Sumer, and then carrying civilization up-river into the interior. This has been a process, which defined the advantage of maritime cultures over relatively land-locked ones, until President Lincoln's victory over Lord Palmerston's Confederacy plot established the United States as a continental sovereign within its borders, and from ocean to ocean, through the impact of the development of the territory through means dependent upon the functions of transcontinental railway systems.

This emergence of strategic maritime cooperation among Egypt (Cyrenaica), the Etruscans, and the Ionians, marks the Homeric-like birth of European culture as what can be seen as European culture in retrospect today. To understand anything of strategic importance, through about 3,000 years of history until today, this feature of the origin, evolution, and sequelae of the birth of a specifically European culture, represents the basis for the knowledge which distinguishes the true statesmen from the prevalent class of self-important, political, and strategic illiterates of today.

Europe: The Conflict Within
Although Sumer was created as a colony of an Indian Ocean maritime culture, one neither European, nor originally indigenous to the people of that locality, the process of moral degeneration within Mesopotamia's development points attention to a comparable corruption which invaded the development of a Greek and Hellenistic root for European civilization in its globally extended entirety.

In the case of Sumer and later, the degradation of the status of the farmers operating among, most notably, irrigated regions, went from free "bow tenure" status, to hired cheap labor with few, or no rights to the plots they maintained, to the replacement of "bow tenure" farmers and hired servants under the knout of Seljuk slavery. The productive powers of labor collapsed repeatedly, as by effects of increasing "globalization" of the world production today, through the physical-economic effects of these social changes in practice. A similar degradation occurred when the great Baghdad Caliphate, which had become a center of wealth and wisdom during the dark days of moral decline of Rome and Byzantium, also declined during the time following the death of Charlemagne. This decline was, again, produced by suppression of the farmers under repressive, oligarchical regimes.

This experience in Mesopotamia was typical of a more widespread problem. The problem was typified as the theme of Aeschylus' Prometheus Trilogy,[2] as this specific issue was addressed as the principle of all European history from ancient, into modern times, by Friedrich Schiller in his Jena lectures on history. Schiller restated the issue of the Prometheus Trilogy as the issue of opposition of Solon of Athens to Lycurgus of Sparta.[3] The same topical area was treated by the Sicilian chronicler Diodorus Siculus,[4] and touched upon by Herodotus.[5] The issue is as follows.

The good side of the migration of the sea-people into such locations as the coastal maritime settlements of the Mediterranean region, was that these maritime cultures embodied the true foundations of the development of true scientific knowledge, and of the physical benefits to societies, per capita, of the development and application of this knowledge. Yet, as Diodorus describes the Olympia legend, the power of governing which science afforded to the inheritors of the great maritime cultural legacies, became a mode in which the science which was misused in this way, often also degenerated, and became, thus, essentially an instrument of an oligarchical class which degraded the conditions of life of subjected people to the condition of human cattle, as under the tyranny of parasitical, tyrannical hedge-funds and the swindles by such evil locusts of our present times.

The tendency toward pure, virtually Satanic evil, which the oligarchical systems, such as that of the Delphi cult's Lycurgan Sparta promoted, is that summed up by Aeschylus in the surviving fragment of his Prometheus trilogy. The essence of the evil which was oligarchism, is, still today, thus, expressed in the forms of the past practice of serfdom and slavery, as also in the Sun-worshipping anti-nuclear-power cult which arose among the "68ers" during the 1970s, and, most emphatically, in those fraudulent doctrines associated with Malthus and former U.S. Vice-President Al Gore's "Global Warming" hoax.

If men and women are permitted to discover the principle of the use of "fire," those men and women will not be content to be slaves.

So, all history of globally extended European culture's civilization today, is pivotted essentially on a great conflict between two, principal leading forces within European culture as a whole. On the one side, is the notion of all men and women as made in the likeness of the Creator of the universe, and thus devoted to fostering the benefit, for all nations and people, of those powers which arise from the discovery of mankind's use of those great fundamental principles of a body of science which finds its historical roots in the principles of astrogation. On the other side, is the oligarchical current, which misuses instruments of science as a power of oligarchs to hold the mass of humanity in the bondage of ignorance, and thus to be confined to that beast-like ignorance of virtual slaves which the Satan-like Zeus of Aeschylus' Prometheus Bound prescribes.

The British (e.g., "Brutish") Empire, in all its approximations, its actualities, and its imitators, is such a pro-satanic form of oligarchical practice. The use of the technological advantages of a relative monopoly on maritime power, to reduce entire nations and peoples virtually to the condition of slaves of Anglo-Dutch Liberal modes of attempted maritime supremacy.

This passion yearned toward its peak within the British empire-in-fact, from February 1763 on, as expressed in the determination, from that very moment, to crush what had been the earlier economic and related development, and the freedom, of the English colonies in North America. With the defeat of the treasonous British puppet, the Confederacy, by the government of President Abraham Lincoln, and the continued success of that U.S. republic through the course of the 1870s, the lust for the destruction of the radiated influence of the American success, became the increasingly inflamed passion of the London-centered Anglo-Dutch Liberal financier oligarchy and its predatory financier and slave-holding classes.

As the British system's promotion of that proposed "Tower of Babel" called "globalization" attests today, that empire is prepared to murder more than half the world through neo-malthusian measures of "globalization" and "Global Warming" campaigns, even to reduce the planet's population from over six billions, to less than one, in order to exterminate the legacy of the founding of the U.S. republic and of such U.S. Presidents as George Washington, Abraham Lincoln, and Franklin Roosevelt.

2. An Immortal Conflict
Neither higher ape, nor any other species of beast, is capable of either the kind of progress in potential relative population-density, per capita and per square kilometer, which the human species has made. Nor is any species of animal capable of the kind of purely satanic evil—the mass murder of tens of millions—which imperial malthusianism and its like produced, as under the Adolf Hitler regime which had been launched chiefly by London's financier oligarchy, that oligarchy centered in Montagu Norman's Bank of England. In the strictest sense, no animal species is capable of generating a culture.

Culture, so identified, has two principal aspects. On the one side, culture, as expressed as language-culture, especially as truly Classical modes of music, drama, and poetry, and in science, is a more powerful expression in nature, intrinsically so, than any political government. At the same time, the innate creative powers of men and women, afford mankind the capacity to make willful changes of the characteristics of its cultures, and its governments.

In honest theology and science, we think of man as dwelling immortally within a realm of simultaneity of eternity. The body dies, but the quality of mind which sets the human individual apart from, and above the mortal beasts, lives on through its permanent place in the efficient continuity of human culture. In other words, the effects which the development of cultures incorporates in the living human mind live on, with qualities cohering with the notion of personality, after the body has died.

This is apparent to us when we examine science from the particularly advantageous standpoint represented by the succession, in physical science, of Thales, Heracleitus, the Pythagoreans, and Plato. When we also consider the revolutions in technology of practice, which are accumulated effects expressed in current practice, we recognize that the society responds to these heritages of knowledge and circumstances and methods of practice, and does so in ways which mean, in effect, that we the living are acting with minds shaped by the circumstances created by our predecessors.

The creative aspect of the individual human mind, which occurs in no other living creature, is expressed through the functions of the biologically defined base for knowledge and creative practice; but, the history of civilization shows that the human mind also expresses the appropriateness of the biological substrate of human mental behavior for some higher principle in the universe which no other living creature possesses. This defines the inherent sacredness and a certain kind of immortality of the human personality. It is this sense of human nature and its mission which defines true civilization.

Thus, this notion of simultaneity of eternity makes clear the distinction between the heredity of the beast, and the culturally determined heredity of the person in the historical development of society. That is the proper meaning, for practice, of "European civilization." Essentially, this means, as Schiller treats the contrast of Solon and Lycurgus, that European culture, with its characteristic internal conflict, is a distinct form of civilization, one whose presently efficient characteristics are approximately 3,000 years old, and are, essentially, products of the European interaction of ancient maritime cultures with the development of permanent landed settlement of maritime culture's effect on the development of fixed land areas. This means, that to produce any necessary effect of change in that culture today, we must act directly on the essential features of that heritage as it is presented to us today.

Look at this as a U.S. citizen molded in the Franklin Roosevelt legacy sees the world at large today. For this purpose, turn our attention now to the relevant implications expressed in two recent pieces published in EIR: Sky Shields' "What Exactly, Is a Human Being?: Analog, Digital and Transcendental," EIR Vol 39, No. 1 (Jan. 4, 2008), and my own "What Is The Human Mind?" Jan. 11, 2008.

Cognition & Economy
The Sphaerics expressed as a product of the great ancient maritime cultures of the Mediterranean region, as by such followers of Thales as the Pythagoreans and Plato, is a product of ancient transoceanic maritime cultures, as known to us, through relevant methods of construction, today. It is the only competent foundation of known European scientific practice, both ancient and in the modern form launched by, chiefly, the great predecessor of Leonardo da Vinci, Johannes Kepler, et al., Nicholas of Cusa. This is the source of the distinction of European science from its chief adversary, the forms of Sophistry associated, most significantly, with the degenerate representations of geometry by Euclid and the latter's followers.

That set of distinctions is expressed in the most concentrated way by the current popularity of the false doctrine of digital mathematics, and the necessary use, for serious scientific work, of analog methods of the type associated with the Leibniz-Bernouilli catenary-cued notion of a universal physical principle of least action.

The key to understanding this, is the recognition that the reliance on digital, rather than analog functions in the work of scientific discovery and its application, is a devilishly evil business.

The characteristic functional distinction which separates mankind from all lower forms of life, is the function of those creative powers of the human mind whose characteristic expressions can be presented only through the media of analog functions, but never digital expressions. Thus, the true doctrine of evil preached by Satan, is of the form of that damnable hoax known as "the second law of thermodynamics."

The universe itself is already creative. Our Sun generated a Solar system with components which did not exist within the Sun itself. Stars breed galaxies, and novae and super-novae. Life springs, by the action of an agency which does not exist in the domain of non-life. The creative powers of the human mind, which do not exist in any form of merely animal life, is a comparable distinction. The universe and mankind are of the same nature, creative.

Note then, that no principle of nature was ever discovered by digital methods, but only through forms of mental action which are uniquely expressed in the form of analog functions: i.e., in the form of universal physical principles, as Johannes Kepler was uniquely the discoverer of universal gravitation.

The distinction between the roles of digital and analog functions of mathematical physics, was underscored by the neo-Cartesian hoaxes spread by such Eighteenth Century hoaxsters as de Moivre, D'Alembert, Euler, Lagrange, and by their Nineteenth-Century followers Laplace, Cauchy, Clausius, Grassmann, Kelvin and the lunatic Ernst Mach, as by the worst of this rabble, Bertrand Russell and such among his devotees as the hoaxsters Professor Norbert Weiner and John von Neumann, as also virtually every living, certified statistical-economic forecaster of the past fifty-eight or more years.

A principle of nature appears only, as Nicholas of Cusa, Kepler, Fermat, Leibniz, and Riemann, et al., have presented the case: in the form termed by Gottfried Leibniz as an infinitesimal, as Kepler defined the universal principle of gravitation.

Lower orders of existence are defined by higher ones. This was a fact brought back into the knowledge of modern European civilization through Nicholas of Cusa's recognition of the systemic fallacy of Archimedes' hope to define the curvature of the circle by the implicitly digital method of quadrature. So, universal gravitation is not contained within the orbit, but is acting to generate the curvature universally. This prevails in such a fashion, as Kepler, Fermat, Leibniz, Jean Bernouilli, Bernard Riemann, V.I. Vernadsky, and Albert Einstein emphasized the point, that, contrary to the specific fraud by Leonhard Euler, the principle of universal action is infinitesimal in the specific sense that there is no interval so small that gravitation were not efficiently acting as a principle of change within that domain.

Hence, there is a reciprocal relationship between validly defined analog functions and universal physical principles, an appropriateness which is axiomatically prevented from appearing in digital modalities.

Sky Shields' and my own referenced pieces on this subject are of a specific such kind of relevance here. Hence, the degradation of scientific practice to the level of digital fantasies precludes any comprehension of actual principles of the universe in terms of such modalities. Here lies the brain-destruction effected by addiction to computer killer-games, and similar games, including many of the games which children are encouraged to play.

This problem, as I have just summarized it, is an expression of the same threat to humanity from the Sophist tradition of the Delphi Apollo-Dionysus cult in general, and the ban on the discovery of such universal physical principles as "fire," by the Satan known by one of his other names, the Olympian Zeus.

It has been the suppression of efficient scientific progress in the investment in scientific principles of development of basic economic infrastructure and physical productivity of society per capita and per square kilometer, which has brought down upon the world as a whole, the present new threat of an immediate plunge of all humanity, throughout the entirety of this planet, into a dark age more monstrously evil than any known to the records of human existence thus far.

That is today's British problem, as better named the "Brutish problem."

RE: LaRouche - Admin - 01-23-2008


David Leonhardt

So, how bad could this get?

Until a few months ago, it was accepted wisdom that the American economy functioned far more smoothly than in the past. Economic expansions lasted longer, and recessions were both shorter and milder. Inflation had been tamed. The spreading of financial risk, across institutions and around the world, had reduced the odds of a crisis.

Back in 2004, Ben Bernanke, then a Federal Reserve governor, borrowed a phrase from an academic research paper to give these happy developments a name: “the great moderation.”

These days, though, the great moderation isn’t looking quite so great — or so moderate.

The recent financial turmoil has many causes, but they are tied to a basic fear that some of the economic successes of the last generation may yet turn out to be a mirage. That helps explain why problems in the American subprime mortgage market could have spread so quickly through the world’s financial system. On Tuesday, Mr. Bernanke, who is now the Fed chairman, presided over the steepest one-day interest rate cut in the central bank’s history.

The great moderation now seems to have depended — in part — on a huge speculative bubble, first in stocks and then real estate, that hid the economy’s rough edges. Everyone from first-time home buyers to Wall Street chief executives made bets they did not fully understand, and then spent money as if those bets couldn’t go bad. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak.

Now, some worry, comes the payback. Martin Feldstein, the éminence grise of Republican economists, says he is concerned that the economy “could slip into a recession and that the recession could be a long, deep, severe one.” In Monday’s Democratic presidential debate, Barack Obama made the same argument: “We could be sliding into an extraordinary recession,” he said.

In the next breath, of course, Mr. Obama suggested that the right policies might still help, while Mr. Feldstein has said that a recession isn’t yet a sure thing. And much of the great moderation is real. Computers allow managers to run their businesses more efficiently and avoid some of the wild swings. The Fed and central banks in other countries have learned from their past mistakes.

But a recession is now more likely than not. It may well have started already. The Philadelphia Fed reported Tuesday that the economy shrank in 23 states last month, including Ohio, Missouri and Arizona, and was stagnant in seven others. California and Florida, with their plunging home values, may soon join the recession list.

The bigger question is how severe the recession will be if it does come to pass. The last two, in 1990-1 and 2001, have been rather mild, which is a crucial part of the great moderation mystique. There are three reasons, though, to think the next recession may not be.

First, Wall Street hasn’t yet come clean. Even after last week, when JPMorgan Chase and Wells Fargo announced big losses in their consumer credit businesses, financial service firms have still probably gone public with less than half of their mortgage-related losses, according to Moody’s They’re not being dishonest; they just haven’t untangled all of their complex investments.

“Part of the big uncertainty,” Raghuram G. Rajan, former chief economist at the International Monetary Fund, said, “is where the bodies are buried.”

As Mr. Rajan pointed out, this situation is more severe than the crisis involving Long Term Capital Management in the late 1990s. That was a case in which a limited set of bad investments, largely at one firm, had the potential to drive down the value of other firms’ holdings in the short term. Those firms then might have stopped lending money because they no longer had the capital to do so. But their own balance sheets were largely healthy.

This time, the firms are facing real losses, which will almost certainly curtail lending, and economic growth, this year.

The second problem is that real estate and stocks remain fairly expensive. This shows just how big the bubbles were: despite the recent declines, stock prices and home values have still not returned to historical norms.

David Rosenberg, a Merrill Lynch economist, says that the stock market is overvalued by 10 percent relative to corporate earnings and interest rates. And remember that stocks usually fall more than they should during a bear market, much as they rise more than they should during a bull market.

The situation with house prices looks worse. Until 2000, the relationship between house prices and rents remained fairly steady. The same could be said about house prices relative to household incomes and mortgage rates. But the boom of the last decade changed this entirely.

For prices to return to the old norm, they would still need to fall 30 percent across much of Florida, California and the Southwest and about 20 percent in the Northeast. This could happen quickly, or prices could remain stagnant for years while incomes and rents caught up.

Cheaper stocks and houses will benefit many people — namely those who don’t yet own a home and still have most of their 401(k) investing in front of them. But the price declines will also lead directly to the third big economic problem.

Consumer spending kept on rising for the last 16 years largely because families tapped into their newfound wealth, often taking out loans to supplement their income. This increase in debt — as a recent study co-written by the vice chairman of the Fed dryly put it — “is not likely to be repeated.” So just as rising asset values cushioned the last two downturns, falling values could aggravate the next one.

“What people have done is make an assumption that these prices could continue rising at the rate they had been,” said Ed McKelvey, an economist at Goldman Sachs. “And that does seem to have been an unreasonable assumption.”

Certainly, there are some forces to push in the other direction. Outside of Wall Street, corporate balance sheets remain remarkably strong, while the recent fall in the dollar will help American companies to sell more goods overseas.

But it’s hard not to believe that the economy will pay a price for the speculative binge of the last two decades, either by going through a tough recession or an extended period of disappointing growth. As is already happening, banks will become less willing to lend money, households will become less willing to spend money they don’t have and investors will become more alert to risk.

Welcome to the new moderation.

RE: LaRouche - Admin - 01-26-2008


Mike Whitney

"This is going to be a rough week. Fastening your seat belts may not be enough for this ride. Better superglue yourselves to the floorboards and pray for God's mercy." -- James Howard Kunstler; "Fullblown Panic"
On Monday [21st  of January], fears of a US recession spilled over into Asian markets sending stocks tumbling. Indexes were hammered across the board in what turned out to be the worst day of trading since 2001. In India, the Bombay Sensitive Index plunged 1,408 points, to 17,605. In China, the Shanghai Composite dropped 266 points (or 5.5%) to 23,818, while in Japan, the Nikkei fell 535 points, to 13,325 points. The bloodletting stretched across the continent and into Europe where shares nosedived by more than 4% by mid-morning “putting them on track for their biggest one-day fall in more than four and a half years.”

The huge sell-off is a sign that global investors do not believe that the Fed's rate cuts or President Bush's $150 billion “stimulus package” can revive the flagging economy or breathe new life into the over-extended US consumer. After Monday's sharp downturn, the prospects for averting a deep and protracted recession are slim to none.

Economics Professor Nouriel Roubini summed it up like this nearly a month ago:

“The United States has now effectively entered into a serious and painful recession. The debate is not anymore on whether the economy will experience a soft landing or a hard landing; it is rather on how hard the hard landing recession will be. The factors that make the recession inevitable include the nation's worst-ever housing recession, which is still getting worse; a severe liquidity and credit crunch in financial markets that is getting worse than when it started last summer; high oil and gasoline prices; falling capital spending by the corporate sector; a slackening labor market where few jobs are being created and the unemployment rate is sharply up; and shopped-out, savings-less and debt-burdened American consumers who — thanks to falling home prices — can no longer use their homes as ATM machines to allow them to spend more than their income. As private consumption in the US is over 70% of GDP the US consumer now retrenching and cutting spending ensures that a recession is now underway.

On top of this recession there are now serious risks of a systemic financial crisis in the US as the financial losses are spreading from subprime to near prime and prime mortgages, consumer debt (credit cards, auto loans, student loans), commercial real estate loans, leveraged loans and postponed/restructured/canceled LBO and, soon enough, sharply rising default rates on corporate bonds that will lead to a second round of large losses in credit default swaps. The total of all of these financial losses could be above $1 trillion thus triggering a massive credit crunch and a systemic financial sector crisis.” ( Nouriel Roubini Global EconoMonitor)

Decades of stagnant wages have left the American worker hamstrung and unable to continue to account for 25% of global consumption. Tightening credit and lack of personal savings have only added to his problems. The American consumer is overworked, underpaid, and tapped-out. That means that aggregate demand will fall dramatically across the world triggering increases in unemployment, decreases in capital expansion, and widespread slowdown in business activity. These are the beginnings of a deflationary spiral that will wipe out trillions of dollars of market capitalization in the real estate, equities and bond markets. Even gold and oil will retreat significantly. (as we saw in Monday's results)

The present crisis is not the result of normal market forces, but price fixing at the Federal Reserve and the financial engineering of the main investment banks. If there had been sufficient regulation of the Central Bank's activities---so that interest rates had not been kept below the rate of inflation for over 31 months straight--- than the trillions of dollars in low-interest credit would not have flooded into the real estate market inflating the biggest housing bubble in US history. Despite his feeble excuses, Greenspan's role in destroying the US economy is no longer in doubt. Even the far-right Op-ed page of the Wall Street Journal conceded Greenspan's culpability in Saturday's edition. Here's what they said:

“Amid the daily market turmoil, and to help prevent a crash, it helps to step back and remember how we got here. With the benefit of hindsight, everyone can see that the U.S. economy built up an enormous credit bubble that has now popped. Our own view -- which we warned about going back to 2003 -- is that this bubble was created principally by a Federal Reserve that kept real interest rates too low for too long. In doing so the Fed created a subsidy for debt and a commodity price spike.”

Greenspan's low interest rates ignited a speculative frenzy that resulted in humongous equity bubbles. The Fed's “cheap money” policy created artificial demand for housing which drove prices to unsustainable levels. Now the real estate market is crashing; foreclosures are skyrocketing, inventory is at historic highs, construction-related jobs are drying up, and housing prices "across the country" are plummeting for the first time since the Great Depression. These are the real results of Greenspan's "low interest" fake prosperity.

Greenspan is not the only one responsible for the present calamity. The financial markets have been reconfigured in a way that accommodates all manner of corruption. The new model, “structured finance”, allows worthless "subprime" loans to be dressed up as valuable assets---stamped with a triple A rating--- and sold to unsuspecting investors. The Wall Street Journal explains how our $800 billion current account deficit created a circular loop which channeled vast amounts of borrowed money back into US markets:

"That capital flow and debt subsidy, in turn, became fuel for smart people in mortgage companies, investment banks and elsewhere to exploit. In a sense they created a new financial system -- subprime loans, SIVs, CDOs, etc. -- that is enormously efficient and brought capital to new places. But thanks to low interest rates and human enthusiasm, this debt spree also got carried away. ”

"Got carried away"? Now there's an understatement. Stock markets across the world are crashing because the insatiable greed of a few market-heavyweights gunked up the whole system with worthless mortgage-backed slop.

The Wall Street Journal admits that a new “structured debt” market was created to package dubious subprime liabilities (from “no doc”, no collateral , “bad credit” loan applicants) and sell them to hedge funds, insurance companies and foreign banks as if they were precious jewels. The WSJ avers that this is the way that “smart people exploit” the opportunities from lavish “capital flows”.

But was it “smart” or criminal?

Fortunately, that question was answered this week in an extraordinary outburst on cable TV by market-insider and equities guru, Jim Cramer. In Cramer's latest explosion, he details his own involvement in creating and selling “structured products” which had never been stress-tested in a slumping market. No one knew how badly they would perform. Cramer admits that the motivation behind peddling this junk to gullible investors was simply greed. Here's his statement:


(We used to say) “The commissions on structured products are so huge let's JAM IT.” (note “jam it” means foist it on the customer) It's all about the 'commish'. The commission on structured product is GIGANTIC. I could make a fortune 'JAMMING THAT CRUMMY PAPER' but I had a degree of conscience---what a shocker!--We used to regulate people but they decided during the Reagan revolution that that was bad. So we don't regulate anyone anymore. But listen, the commission in structured product is so gigantic. (pause) First of all the customer has no idea what the product really is because it is invented. Second, you assume the customer is really stupid; like we used to say about the German bankers, 'The German banks are just Bozos. Throw them anything.' Or the Australians 'M O R O N S' Or the Florida Fund (ha ha ) “They're so stupid let's give them Triple B (junk grade) Then we'd just laugh and laugh at the customers and Jam them with the commission...That's what happened; that's what happened....Remember, this is about commissions, about how much money you can make by jamming stupid customers. I've seen it all my life; you jam stupid customers.” See the whole damning confession on: [1]

Trillions of dollars in structured investments (CDOs, MBSs, an ASCP) have now clogged up the global financial system and are dragging the world headlong into recession/depression. Cramer's confession is a candid admission of criminal intent to defraud the public by selling products which people--within the financial industry---KNEW were falsely represented by their ratings. They sold them simply to fatten their own paychecks and because there is no longer any regulatory agency within the US government that curtails illicit activity.


As the stock market continues its inexorable downward plunge, foreign central banks and investors need to determine whether they were deliberately ripped off and aggressively pursue legal alternatives. They should initiate a boycott of all US financial products until an appropriate settlement for the hundreds of billions in losses due to the “structured finance” swindle can be negotiated. That is the best way to serve their own national interests and those of their people.

Deregulation has destroyed the credibility of US markets. There is no oversight or policing agency. It's the Wild West. The assets are falsely represented, the ratings are meaningless, and there's a clear intention to deceive. That means that the stewardship of the global economic system is no longer in good hands. There needs to be a fundamental change. As the “nightmare scenario” of global recession continues to unfold; we need new leaders in Europe and Asia to step up and fill the void.