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RE: LaRouche - Admin - 01-26-2008

US FINANCIAL POWERHOUSE :"HOUSE OF CARDS"

Jim Miles
http://globalresearch.ca/index.php?context=va&aid=7881

America today is not the only empire, but it is one that has consistently formulated itself around the ideologies of corporate business, the military, big government, and religious self-righteousness, mass marketing itself and mass exploiting others with military back-up when needed to make itself the biggest and most powerful ever known. Superficially, the empire has used the media interface of corporate business, the well known media companies themselves such as Time-Warner, to keep the general public ill-advised and readily entertained with pulp writing, pulp broadcasting, and computer activities and internet surfing.

The government and military combine to provide “reliable information” from “reliable sources” who wish to remain “anonymous” and thus create a mystique of underhanded cleverness and consequently apparent correctness of information. The CIA along with other putative non-governmental organizations operates ‘think tanks’ and ‘institutes’ to disseminate stories and scare tactics (and significant amounts of money) within America and offshore. Religious groups, now fully into the swing of projecting their interests into the corridors of power, have become more and more publicly involved in the political process, allowing their messianic beliefs and self-righteousness to carry the balance of power, especially within the half of government known as the Republican party, with the other half, the Democrats, mentally supining themselves in order to appear no less patriotic in their pummelling of the world.

The American image still remains strong around the world, and that is readily understood as an image created by a massive corporate and government propaganda effort that displays the finest of American tinsel and glitter and gloss. It would be wonderful but highly unrealistic to imagine a world without that advertising, without the constant images that subtly extol the virtues of American freedoms and purchasing power, the easy life with powerful cars, sexy women, and all the glamour of Hollywood and all the techno-glitter of Apple i-pods. It is a society built upon these images, upon the instant gratification and apparent wealth that is created in this wonderful entity called the United States of America.

The mythologies of ‘rugged individualism’ (as compared to corporate welfare), of Disneyesque happy-ever-after-lands (now found within gated communities and barred roads that keep the uglies out), of ‘free markets’ (as compared to agricultural subsidies and illegal immigrants), of ‘productivity and growth’ (while many OECD countries have higher productivity working less time with better benefits), of a classless society (fully debunked by anyone looking at crime statistics, incarceration rates, educational levels, and many other demographic factors), of ‘rule of law’ and ‘transparency of government’ (when most military contracts are no bids, and the executive is run by a group of unelected patronage and corporate power positions) are readily bought into by a largely complacent public and accepted worldwide, at least with the powerful elites in governments, with the idealized transparency and rule of law delivered mostly through economic coercion by way of the fully non-democratic and non-transparent WTO, IMF, World Bank and various other trade agreements not supported by the populace.

Conversely, the propaganda constantly reduces the rest of the world as being ‘old’ (as in Europe), or lacking in ‘modernity’ (as in the Middle East), or being ‘corrupted cronyism’ (as in Africa and Asia), or more basically, simply the ‘other’, a lesser breed of humanity to be looked down upon, creatures that may or may not be able to uplift themselves to American standards of institutional and personal excellence, but either way are useful commodities as labourers, extractors of wealth, and maybe but not paramount, as consumers. Anything that touches upon the horrors of ‘socialism’ or ‘social democracy’ anything that denies the commodification of essentials to life, now extending to genetically modified foods, water, and the basic genetic structures of indigenous plants and animals including human genetics as well, anything that denies ownership of resources to the ‘forces of the market’ rather than to the benefit of the workers that produce the wealth or the nation that possesses it – all this is considered sacrilege to the American controlled global financial gurus and prophets.

The ‘neutral’ market must rule everything, unsullied by morals, allowing ‘la crème de la crème’ to rise to the top while the rest are uplifted by the ‘trickle down’ effect, whereas the reality shows that markets are anything but neutral, never truly free, and from many of the court cases seen as with Enron, and Arthur Andersen, highly immoral. The rich take care of themselves first, witness the savings and loans scandal of the 1980s, and Bush’s failed business attempts and the buyout of Harken Oil, and the interactions of the Saudis with BCCI, the Bank of Credit and Commerce International, and the billions of dollars made by Prince Bandar and the Saudi government, who supported the Wahhabi fundamentalist sect within their own Islamic theocracy. Nothing neutral or free, or transparent or under rule of law with these operators. The poor, those stuck in Katrina’s aftermath in New Orleans, the blacks segregated by white emigration out of Detroit, the 40 million without medical coverage, all know the lie about trickle down economics and the supposed uplifting effects of neutral market forces. The trickle down effect is negated by the sucking sound of the wealthy absorbing the profits from the huge consumer appetites created in the American public, and from the huge government demands for more money to pursue its military efforts around the world, and from laws and taxes that are written by the wealthy, for the wealthy.

This wonderful financial powerhouse unfortunately relies now more than ever before on the creation of debt to supply the wealth and keep the economy ‘growing’. It is a financial institute built with the strength of a house of cards, susceptible to any stray currents within the financial markets of the world, or susceptible to some other marketers destabilizing it all with a few puffs of air, a whisper or rumour of ‘selling’ American owned debt, causing the cards to tumble and scatter uncontrollably. Globalization has come home to roost (pardon the mixed metaphor, but perhaps one can consider the ‘house of cards’ to be the ‘roost’, a very shaky, unsteady one).

“The economy, stupid.”

Bill Clinton’s electoral campaign targeted economic factors as a crucial point in deciding the outcome of his presidential campaign. The phrase is still applicable and probably will be for a while in one manner or another. But I also relate to it on a personal basis.

Economists live in a wonderfully purified world of jargon that most outside the economic literati, such as myself, have a great deal of trouble understanding what they are truly saying. This study, the ‘science’ of money and men has been called a “ a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science.[emphasis added] " Coined at a time when economics was encountering emancipation, the relationship would end up giving “birth to progenies and prodigies; dark extensive moon-calves, unnameable abortions, wide-coiled monstrosities, such as the world has not seen hitherto!”[1] More applicable today it is a dismal science because in all reality there is nothing scientific about it.

Economists do use mathematics a lot, especially statistics, but there is no scientific method of experimental deconstruction that relates to what they do, which is mostly talk about the wonderful statistics they create. Statistics, for those who have studied them without delving into the details, can be used for both sides of many arguments, according to the manner in which a phrase is turned around that statistic and what supporting data are included or left out. Opinion polls are example of statistics that are meaningless in the ‘real’ world as they are exactly that, an opinion, not reality, although the opinions on diverse topics are often represented as great truths.

The GDP is the most obvious statistical effort to hide what is happening in the world, as most countries do have increases in their GDP when they encounter the IMF, and the World Bank, as in Mexico where the statistic does not reveal the increasing gap between rich and poor, the impoverishment of the farmers as American subsidized corn destroys their markets, and an economy that relies on the billions of dollars in remittances from illegal immigrants to support those left at home. It is all a wonderful economic fairy tale that allows the IMF and World Bank to rationalize their own economic goodness and continue on with a losing cause with no apparent remorse for the damages incurred along the way.

Trying to understand what the economic problems of the United States are took some time for me to get through the jargon, but it reduces down to a few simple applications that any householder running an intelligent monthly budget based on money in and money out can understand.

The basis of the problem is that U.S. industrial production has declined significantly over the past two decades, while the service sector has grown immensely to become the “new dominant economic sector. Debt was a critical enabler.”[2] In other words, economic ‘wealth’ and ‘growth’ in America has been created by the manipulations of a huge debt; wealth and growth are flimsy statistical apparitions that could vanish quickly if someone shouted “boo” at the appropriate time. The economy is financed by debt, and “this debt and credit revolution constitutes the third major peril hanging over the future of the United States” (the other two being the military/oil connection and the rise of the Republican theocracy).[3]

The U.S. economy has always been based on consumption as previous historical events have attested to, leading to the first level of debt, that of the consumers. Americans have kept their economy rolling as “consumer spending accounted for more than two-thirds of the $11 trillion national economy” with “many consumers unable to resist the overpowering mantra: spend, spend, spend…” that comes “pouring out of Madison Avenue’s American dream machine.” [4]

As an aside, but a significant one, it should be noted that war is also a major ‘consumptive’ enterprise, consuming large amounts of raw materials and human resources for production, consuming lives and their future contributions to a whole society on a large scale, and consuming the environment through chemical weapons and land-mines/cluster bombs left behind to consume even more after the war is ‘over’. Direct military expenditures are 4 per cent of the GDP,[5] but an accounting of all other ‘militarized’ damages as above and other militarized budgets (war in Iraq/Afghanistan, the CIA, anything related to ‘homeland terror’, aid to Israel and other countries) would raise this proportion significantly. Consumption truly is an American way of life and death. The cost of war in Iraq alone - and not including costs to Iraq per se, but costs incurred by America - is conservatively estimated at 1.2 trillion dollars[6] – a figure largely and truly unimaginable – it is simply a grotesquely big number that defies comprehension of its consequences.

But to continue with the ‘average’ American, any individual catastrophe, with the average American having a negative saving rate, can tip any particular individual into poverty: a work disability, or a medical emergency can quickly destroy a family. On a broader scale, if interest rates are allowed to increase too much, and the over-extended mortgages and huge credit card debts become too much to manage, and with the no-escape bankruptcy laws now in effect, broad swaths of the middle and working class could quickly become impoverished.

Americans have used the increased value of their homes, artificially inflated to keep the economy rolling, withdrawing over $600 billion to pay off credit card debt and for personal spending.[7] As the housing market flattens out, with the bubble burst now well under way, and as wages continue to stay flat, the economic house of cards becomes less and less stable. It is not just the consumer at fault as corporate America has financed itself as well largely through debt.

The highly volatile money markets, stock markets, and corporate financings, the deregulation that has allowed all kinds of new and complex financial structures to develop is a second major factor in the frailty of the U.S. economy. Trillions of dollars have been placed into “such opaque standards as credit derivatives, credit derivative futures, and collateralized debt obligations.”[8] Those are terms that I have yet been able to understand clearly, along with others, “even more opaque, such as split capital trusts, collateralized debt obligations, and market credit default swaps.”[9] These wonderful new enterprises in the jargon of economics – with some degree of intention – keep it a mystery except to a few acolytes who profess to actually understand it, although along the way I have come across those much more immersed in economics than myself, who were intelligent enough to admit they could not truly fathom what the terms meant either. At any rate, they appear to be high-risk management items of various kinds for buying and selling other peoples debt – to the amount of “a whopping $17.3 trillion, enough to sink the entire economy if the market takes a nosedive.” [10] These debt structures of course are all inter-twined, with personal debt beholden to the corporations, and the corporation beholden to each other and various governments, the whole structure riding along comfortably so long as no ill wind blows. “Banks simply do not understand the chain of exposure and who owns what. Senior financial regulators and bankers now admit as much.”[11]

An aspect of debt that is readily understood is the national debt – at least readily understood for its definition, but again using numbers with place values well beyond the visualizing ken of most everyone, including, I would argue, most economists who bandy the amount around with great pride in their use of truly large but objectively meaningless large numbers. The understood part is that the nation owes a ton of money to other nations from whom they have borrowed money to finance their ongoing consumption, and the other nations so far are willing to carry the debt. However, if they decide they no longer want to carry that debt, if they stop purchasing the bonds and debentures (the latter being unsecured bonds relying on the goodwill of the government to repay them, if no way else other than to print more money, or raise more taxes, and it is obvious what the American government prefers), then the value and goodwill of the dollar will collapse.

The majority of this debt is owned by international central banks in China, Japan, Taiwan and South Korea who have their own motives for “purchasing short-term Treasuries [bonds and debentures] with negative real returns, their obvious motivation was to keep lucrative export markets open.”[12] In common terms, they are trading off investment losses in order to sustain their profit making exports to the over-consuming Americans, who no longer manufacture many of the products they want to buy.

There is a fourth aspect to debt, that of the current account deficit, simply defined as “money transactions with the rest of the world.”[13] It is “the broadest measurement of how much more Americans buy…than they sell.”[14] The current account problem is tied in with the national debt. The amount borrowed is staggering, as “the US has to borrow from foreign lenders (mostly Japan and China) $900 billion annually or nearly $2.5 billion every single day to finance the gap between payments and receipts from the rest of the world”[15] My simplest definition, economics for dummies, arrives at this: Americans buy more than they sell in a year (current account); year over year, Americans have to borrow money to continue that buying spree (national debt).

All these debts added up are more than staggering, and they defy all the precepts about fiscal prudence that has ever been preached to the average working layperson, yet it is okay for the government to encourage this debt policy. Taken all in total, "All Uncle Sam's debt, including private household consumer credit-card, mortgage etc debt of about $10 trillion, plus corporate and financial, with options, derivatives and the like, and state and local government debt comes to an unvisualizable, indeed unimaginable, $37 trillion, which is nearly four times Uncle Sam's GDP [gross domestic product – emphasis added]"[16]

Perhaps it is just all numbers and the economy can once again go percolating along as the economists juggle their statistics and print more money and everyone believes that the financial house is stronger than a house of cards. In my daily transactions, the run of the mill ordinary life I lead, which in itself is a blessing compared to the majority of the rest of the world upon whose labour this wealth has been built, these thoughts rest unquietly not so far in the back of my mind anymore. War and nuclear devastation are one thing, economic collapse, while not as disastrous for the environment and the third world (I imagine Cuba and Venezuela might actually weather the financial storm, being financially isolated as they are anyway – how ironic) would certainly affect my life and those of millions of other working people. The poor would not see much change; they have next to nothing anyway. The truly wealthy might not be quite so wealthy, but they always seem to hang onto their ill-gotten gains, or conversely, perhaps go on a buying spree of now cheap enterprises within which they could employ dirt-cheap labour. It is the hundreds of millions in the middle who would be affected most. The end result might just be the military application of nuclear weapons on a chosen target, as the wounded economic beast strikes out at its media created imaginary foes, blaming the rest of the world for their own stupid culpability.

That, of course, is paranoid conjecture. Only time will tell, but in the meantime, hopefully some solutions, some soft landings, will avail themselves in order that the economic puzzle of huge debts – the house of cards - resolves itself rather than collapsing into its empty basement.

The American empire is based on this house of cards, the borrowing of huge sums of money to keep the consumptive engines burning up as many commodities as can be created. The disasters of the IMF and the World Bank and the many free trade negotiations and agreements, instruments of the empire along with the military that I have previously examined, have negatively affected hundreds of millions of people globally. Something as apparently simple as a change from American petrodollars to the Euro petrodollar (one of the reasons, not stated, that the U.S. invaded Iraq, with one of its first actions being to restore Iraqi oil to the dollar base from the euro) or the hint to the central banks that China is disposing of its American reserves, or a drastic increase and sustaining of oil prices resulting in high inflation, could pull a keystone card out of the imperial arch. Ironically it was a homebuilt housing mortgage market that seems to have triggered the stock market collapse.


If it were simply a housing market collapse, with the rest of the economy still relatively strong, it might be a short-term milder recession. The efforts of the administration to help the situation do nothing but aggravate it. The 145 billion being returned to the taxpayer has to be borrowed from foreign sources, simply adding to that debt. The spending that the Americans will do with their magnificent $800 rebate is also money that is being spent on foreign goods. Consider that “According to reports, 70% of the goods on Wal-Mart shelves are made in China.” In reference to the number of manufactured goods being produced in the U.S. it is also important to note, ”In 2007, prior to the onset of the 2008 recession, 217,000 manufacturing jobs were lost. The US now has fewer manufacturing jobs than it had in 1950 when the population was half the current size.” [17]

In an economy defined as “military keynesianism”, Chalmers Johnson writes of the necessity of “liquidating the global empire” and bringing the defence budget into line with actual need, much less than the 55 per cent of global military expenditures that it now spends. Otherwise: “If we do these things we have a chance of squeaking by. If we don't, we face probable national insolvency and a long depression.” [18]

With the enormous debt at all levels, intertwined throughout various corporations and governments, with a senseless war for strategic oil control costing billions of dollars daily and creating overwhelming negative response to the American way, the world could be in for a long haul where major restructuring of the global markets might take decades to work out. Pessimistic? For sure, but the market collapse has been foreseen as a possible/probable event by alternate media for some time, while all the local financial advisors still run the tired and true mantra of “holding on” and “riding it out”. Be prepared for a long ride.


RE: LaRouche - Admin - 01-27-2008

"ROGUE TRADER " TRIGGERS COLLAPSE;
LIE MASTERS INVENT NEW FAIRY TALE

Helga Zepp LaRouche
http://larouchepac.com/news/2008/01/26/helga-zepp-larouche-rogue-trader-triggers-collapse-lie-maste.html

Now we can all breathe a sigh of relief! The world financial system isn't in the throes of a systemic crisis after all! Monday's worldwide stock market crash was caused by a lone perpetrator, who swindled the French bank Societe Generale out of EU4.9 billion over the course of the past year, and who was able to avoid triggering the control mechanisms which normally kick in at sums in the EU100-200 million range and higher. And the poor fellow didn't even do it for his own enrichment: He gambled away EU5 billion because he had been traumatized by the death of his dad!

This outrageously tall tale was served up by this week's British press--and also, in slightly modified form, by the German Spiegel online--while French commentators preferred to point instead to its timing, coming just before Societe Generale is to release its latest annual report. The fact that the crash began in Asia and not in Paris, gives the theory a small blemish, though--one which many would rather simply conceal underneath one of those tidy little band-aids.

But these were not the only places that are coming to resemble scenes from the theater of the absurd as staged in Charenton. Already on "Black Monday," we were regaled with a flood of pictures of teary-eyed stock traders tearing their hair. And by Tuesday, the panic suddenly turned to euphoria, as the European Central Bank came in with a new financial injection, and the U.S. Federal Reserve lowered its rate by 0.75%. But as the U.S. economy slides ever more deeply into depression, threatening to bring the rest of the world economy down with it, only a few scattered idiots still harbor the illusion that yet another long-lasting orgy of profits might be set into motion after the announcement of Bush's "stimulus package" with its tax and interest cuts. As U.S. economist Lyndon LaRouche stressed, a stimulus program within the current collapsed world financial system, will simply bring on hyperinflation all the more quickly, and is therefore the stupidest thing one could possibly do. Unless there is some drastic re-thinking, this dynamic can easily spread over the entire planet, plunging the world into a new dark age, comparable only to the dark age of the 14th Century.

Meanwhile, Professor Schwab's lucrative mega-party at Davos is once again highlighting the astounding incompetence of most top corporate executives, Nobel Prize holders, and politicians, who are taking out just enough time from their apres-ski and photo ops, to demonstrate how utterly confounded they are about how to get out of the crisis. But of course, they can still cast electronic votes on which risks they consider to be the most dangerous.

- Irresponsible Homeowners -

Anyone who follows how the media are reporting on the financial crisis nowadays, can't help but conclude that all these journalists and financial experts, like German TV stock exchange analyst Anja (Ver)Kohl, (Verkohl is the German word for "hoax.") must have taken courses with Baron Muenchhausen (who was a famous teller of tall tales). Bild, for example, runs a box on its front page nominating a ZDF reporter as a "loser," simply because this gentleman was honest enough to advise small investors to sell their shares. In other newspapers, the collapse of the U.S. subprime mortgage market is blamed on "irresponsible" homeowners--and not on Alan Greenspan, the man whose low-interest policy in fact created the mortgage bubble which the financial system had so urgently needed, following the collapse of the "new market."

And naturally, it was the homeowners' fault for having taken on mortgages with variable interest rates just when the rates were practically zero, after which the rates had nowhere to go but up. The fact that the victims don't see it that way, is demonstrated by a growing flood of fraud lawsuits against the financial institutions which had only vaguely hinted at the risks facing their clueless customers. And now we have belated advice from William Poole, head of the Federal Reserve in St. Louis, who told MarketWatch.com: Trust neither what the Federal Reserve says, nor its competence. This is a lesson that cannot be repeated often enough.

It must have become quite evident, that the principle that "profit is for the few, and losses are unloaded upon the many," has deeply shaken people's trust in politics and and financial system. Incredible but true: Wall Street mogul and wannabe Presidential candidate Michael Bloomberg stood up before the press, along with Schwarzenegger, and claimed the contrary: It's the private investors who carry the risk, and the state reaps the benefit! And this crisis in confidence is made even worse by the behavior of diverse "economic experts." The head of the IFO Institute, for example, Professor (Un-)Sinn, (Unsinn is the German word for "nonsense") argues against substantial wage increases, since these would be poisonous, considering the U.S. crisis that is threatening the world economy. Germany's economy, he says, has remained competitive in recent years thanks to wage restraint, and this success shouldn't be frittered away.

The only truth in his argument, is that real wages in Germany have in fact declined over the past ten years. What Professor Unsinn doesn't tell us, though, is that wage-earners have the introduction of the euro currency to thank for this. Because, ever since German institutions relinquished their power to regulate via interest rates, their only remaining tool for setting economic standards, was to decrease wages--and that is the underlying cause of the weakness in Germany's domestic economy.

- Golden Parachutes -

And if the workers and their trade unions--who with each new day are surprised by multimillion-dollar golden parachutes for failed top executives, and whose jobs are disappearing because companies like Nokia, even after it made billions in profits, still wants to send its production abroad in order to make still more profits--are now demanding compensation for inflation and a small raise above that: then they have every right to do so. But the head of the DIW [German Institute for Economic Research], Klaus Zimmerman, says that demands for an 8-10% wage increase "aren't in keeping with the times." Hagen Lesch of the Cologne Institute of the German Economy (DIW) says they don't fit "in the landscape." And so, they resurrect the old cliche that it's the workers' excessive demands which are to blame for inflation and for the world economic crisis. They display a post-modern, but unfortunately, not relativistic understanding of space-time.

The brutal reality lurking behind all these contortions and Muenchhausen-style tall tales, is that the international financial oligarchy and its acolytes aim at nothing less, than to "solve" the international financial crisis by enforcing a drastic reduction in the population's living standard. And just as we can be certain that the short-term blindness of the greedy will soon be followed by the next panic attack, so also can we be certain that there is only one alternative to the policy of austerity in the tradition of Hjalmar Schacht, that is being advocated by "experts" such as Professor Unsinn. That alternative is the policy in the tradition of Franklin D. Roosevelt, as proposed by Lyndon LaRouche, of a New Deal, and of a new financial architecture, a new Bretton Woods system. And if we are to prevent the complete disappearance of popular confidence amid the peaking of the world economic and financial crisis--a crisis which is as certain to come as "amen" in church-- and if we are to prevent a repetition of Weimar conditions, then these ideas need to be put at the top of the agenda.


RE: LaRouche - Admin - 01-27-2008

WILL CANADA CHOOSE THE AMERICAN SYSTEM
OR COLLAPSE WITH THE BRITISH ?

Rob Ainsworth
http://larouchepub.com/lym/2008/3504canada_us_or_brit_system.html

Two systems are before the world.... One looks to pauperism, ignorance, depopulation, and barbarism; the other to increasing wealth, comfort, intelligence, combination of action, and civilization. One looks toward universal war; the other to universal peace. One is the English system; the other we may be proud to call the American system, for it is the only one ever devised, the tendency of which was that of elevating while equalizing the condition of man throughout the world.
—Henry C. Carey, Harmony of Interests, 1851

The legacy of Canada lies between two poles: the American and the British. Today these two antagonistic systems are best characterized by, on the one hand, Lyndon LaRouche and the Franklin Roosevelt tradition; and on the other, by the avarice and parasitism of the London-spawned hedge funds, predominantly centered in the British Cayman Islands. It is the hedge fund, the cancer of the financial system, which is at the center of the now-trembling global derivatives bubble, the greatest speculative bubble in recorded history, measured not in hundreds of billions, but hundreds of trillions of dollars.

This system, of usury, of people sacrificed to support the weight of unpayable debts, of no restrictions but those imposed by financial power; this system, which, if continued, will ruin civilization for generations to come, must be terminated and replaced with the American System, which recognizes the only source of economic wealth to be the human mind, in those creative powers which allow us to increase our power in and over nature. This distinction, between man and beast, is the central issue of economics. Economies which fail to recognize this principled difference must inevitably collapse; such was the case during the Great Depression, when almost every Western nation, except the United States of Franklin Roosevelt, was dominated by fascist or pro-fascist governments. War was and is the inevitable result of the British System, known today as Globalization. Canada must choose one or the other; there is no longer any room for vacillation.

The international financial system burns; former Federal Reserve chairman Alan Greenspan confesses to his own lifelong incompetence[1]; and European pundits use the much feared "D" word; meanwhile, the intellectual and political leadership of Canada seems to be frozen in time, gape-mouthed, unless they are blathering nonsense about the continuing prosperity of Canada's economy, the low unemployment rate, or the rising value of the dollar. If any reporting of the crisis does creep into the media, it is universally described as being isolated to the United States, or to Europe, or to a particular sector of the financial system, as if the roaring forest fire were simply the statistical accumulation of countless individually (and coincidentally) burning trees.

In these times of shameless acts, of folly, incompetence and denial, Canada has reached a physical-economic boundary condition akin to the state of collapse in America. Our infrastructure is approaching the point of failure; farms and small industrial enterprises are disappearing; the productive sector has been in recession for years, while the "booming" sectors of banking, insurance, retail, and real estate have begun to "BOOM" in a different way. Several reports on the actual state of the Canadian economy have been issued in the past months, disconcertingly at variance to the blithe forecasts of the finance minister.

Thus, Canada is faced with an existential question that most have wished to avoid. Too long have we neglected our national destiny: to build a great continental nation; not to haplessly carve out a strip of ground, stretched precariously along the U.S. border, and neglect our great hinterland. Certainly not to squat on our haunches and praise ourselves for so efficiently wasting the future's patrimony! Have we forgotten the names of our forebears, those who built our cities, farms, and industries, laid our railroads, or constructed the vital canals of the East? Will we bow to our British colonial past, or look up to a future free of divide-and-conquer games, played between English and French, or East and West?

Up to this time, most Canadians have felt reasonably insulated from the distant rumblings of economic tumult, assured by our banks that Canada's financial institutions had not been dangerously exposed to the "toxic waste" of the U.S. subprime mortgage sector. However, as this article is being written, the Canadian Imperial Bank of Commerce announced the firing of CIBC World Markets CEO Brian Shaw and the head of the unit's risk operations, Kenneth Kilgour. The departure of the two executives was preceded by revelations that CIBC, the stock price of which has plunged by 30% since September, has as much as $9 billion, and possibly more than $10 billion, worth of subprime exposure, much of which is hedged with failing bond insurers such as ACA Capital. Analysts at the bank acknowledge that CIBC could handle as much as $3 billion in losses, but beyond that, the bank will be essentially insolvent. The Bank of Canada asserts that it will do whatever is necessary to defend the private banking sector, which is far more concentrated than even the U.S. financial system. For Canada, the failure of a major bank, of which there are only five, would mean chaos.

Another threat on the horizon is the $130 billion of Asset Backed Commercial Paper (ABCP), which Canada's banks sponsor and for which they provide liquidity support. Some $35 billion of these derivatives consist of indirectly sponsored "non-bank" ABCP, while another $81 billion is directly sponsored by the banks. According to the Bank of Canada's December 2007 Financial System Review, the majority of the "non-bank" ABCP is derived from highly speculative collateralized debt obligations (CDOs), an international market in the many trillions of dollars which is ripe to explode.

Perhaps the greatest threat to Canada's economy is its massive dependence upon exporting to the United States, which accounts for as much as 45% of Canada's GDP. As the U.S. collapse accelerates, more and more sectors of Canada's economy are slammed with job losses, plant shutdowns, and recession. In the October 2007 Economic Statement issued by the Ministry of Finance, the government acknowledged that almost the entirety of Canada's productive sector was in recession—the worst being the auto sector—and had been since at least 2005. The loss of manufacturing jobs in Canada, between November 2002 and July 2007, has totalled 288,300, as much as 12-13% of the total manufacturing base, an utter disaster when considered in light of the imminent infrastructure crisis facing the nation.

The Infrastructure Crisis
In November 2007, the Federation of Canadian Municipalities (FCM) issued a devastating report entitled "Danger Ahead: The Coming Collapse of Canada's Municipal Infrastructure," which grabbed headlines at the time. It was long recognized that Canada's cities were floundering amid increasing costs and economic commitments, while being unable to run deficits or win adequate additional funds from the Federal or Provincial governments. Over the past 15 years, both the Liberal and Conservative governments have lauded themselves for their wise and scrupulous management of the economy, reducing our national debt by tens of billions of dollars, balancing the budget every year, and often posting astonishing surpluses, which the Conservatives have used as an excuse to grant extensive tax cuts. What was not explained to the credulous public, was that in order to achieve such wonderful objectives, we have gutted investment into the very systems upon which we depend to survive. The cities, faced with rising costs and no new sources of revenue, cut into their capital budgets, which, as explained in the FCM-McGill report, "do not face the same immediate pressures as operating expenditures, making capital investments easier to delay."

As a function of the rejection of the Franklin Roosevelt paradigm and the open-armed embrace of the "post-industrial" and increasingly "post-human" utopia of the Information Age, Canada's municipalities require an immediate infusion of at least $123 billion to resuscitate and replace old infrastructure, in addition to at least $115 billion to expand infrastructure systems to meet the demands of the population.a[2] It is to be emphasized that this infrastructure deficit is proportionally either on par with or worse than the American Society of Civil Engineers' assessment of the U.S. economy; its 2005 "Report Card on U.S. Infrastructure" placed America's infrastructure deficit at a staggering $1.65 trillion (EIR's own estimates place the actual infrastructure investment necessary in the several trillions of dollars).

The FCM-McGill report states that, "across Canada, municipal infrastructure has reached the breaking point. Most was built between the 1950s and 1970s, and much of it is due for replacement. Given the municipalities' already strained fiscal situation, we are rapidly approaching a tipping point on the infrastructure deficit, one that will seriously harm both our quality of life and our competiveness and productivity." The report continues, "between 1955 and 1977, new investment in infrastructure grew by 4.8 per cent annually. This was a period of intense capital investment that closely matched Canada's population growth and rate of urbanization. This period stands in stark contrast to the 1978 to 2000 period, when new investment grew on average by just 0.1 per cent per year."

Seen behind these numbers, is the shift away from successful American System policies, inspired by the actions of Franklin D. Roosevelt, and toward radical monetarist policies, typified by former Federal Reserve chairman Paul Volker's "controlled disintegration" of the U.S. productive base, initiated with the bludgeoning inflicted upon the economies of the West between 1979 and 1981. From 2000 onward, Canada's municipal capital spending rose significantly, averaging 7.5%, but the report warns, "This recent growth in infrastructure spending should not be considered a solution to the infrastructure deficit.... [T]his increase in investment has not met the annual rehabilitation needs of existing capital stock, or alleviated the backlog of maintenance and rehabilitation that accumulated over the [past] decade."

The report proceeds to reveal that "only about 41 per cent of Canadian infrastructure is 40 years old or less. The age of 31 per cent of the assets is between 40 and 80 years, while the remaining 28 per cent is more than 80 years old.... Canada has used up about 79 per cent of the total service life of its public infrastructure. Moreover, it should be noted that infrastructure deterioration accelerates with age." The report closes by asserting that "the results of the 2007 FCM-McGill survey point to a single, inescapable conclusion: that much of our municipal infrastructure is past its service life and near collapse."

Where Is the Government?
It would seem reasonable to ask what the position of the Canadian government is on this issue. Conservative Finance Minister Jim Flaherty, when questioned on the survey, told reporters that "we're not in the pothole business in the government of Canada" (meaning, meeting the needs of constituents). He said that the cities should stop "whining" and "do their job."

At the same time, Flaherty boasted of a $33 billion infrastructure fund, which the Conservative government introduced in the 2007 budget; however, despite his bragging about the largest infrastructure fund "in modern times," the truth is far from grand. The $33 billion is to be spent over seven years; and, according to Calgary Mayor David Bronconnier, the deal includes a score of pre-existing funding agreements, "repackaged" for optical effect. When questioned by this writer, several Conservative Members of Parliament insisted that this fund was exactly what was needed to solve the infrastructure crisis; yet, as it turns out, the country will be fortunate if this fund merely slows the rate of depreciation and collapse. In addition, the $33 billion fund is premised upon the forecast of continued budget surpluses in the coming years, which, considering the maelstrom on the international financial markets and the rate of collapse of the planet's physical economy, is a wishful proposition at best.

The government's response to these criticisms would be to declare that it is also taking steps, as indicated in the 2007 budget, to ensure that Canada becomes "a leader in public-private partnerships" (PPPs). The budget indicates that the models for Canada are "world leaders in promoting and engaging public-private partnerships." On the one hand, the bankrupt economy of the United Kingdom, and on the other, Australia, which "enjoys one of the most developed P3 markets worldwide," but is now in the greatest freshwater crisis in its history, due to its failure to build its water-management systems! In any case, the PPP model is already doomed, since the "credit crunch," which became a "liquidity crisis," but was really a "solvency crisis" of the entire system, has demonstrated that, when even the giant hedge fund Blackstone fails to raise sufficient cash for a puny $1.8 billion leveraged buy-out, there is no money to be had.

Canada Needs a Capital Budget
The world economy is doomed to a collapse without end, unless governments cast aside their foolish adherence to British policies of free trade, monetarism, and laissez-faire economics. It is time for Canadians to revisit their own history, for despite the insistence of today's free-market ideologues, Canada was not built by British policies or free trade! It was built in spite of the British, with the same ideas and policies that transformed the United States into the great nation which it became under the guidance of leaders such as John Quincy Adams, Abraham Lincoln, and Franklin Roosevelt.

Capital budgeting and national banking are the means at our disposal to ensure that the physical economy is developed appropriately, as emphasized by Lyndon LaRouche. In Canada, as in the United States, the government has the power to create money which can be used to develop the physical economy, creating productive jobs, and improving the productivity of the population. Neoliberal economists and financiers may scream at this assertion, yet these same hypocrites will not hesitate to throw trillions of dollars into the black hole that is their now-bankrupt financial system.

The American System is the means by which we will be able to deal with the looming physical-economic boundary conditions which are being expressed through the collapse of municipal infrastructure. The model of FDR's Reconstruction Finance Corporation is instructive. Through the RFC, Roosevelt financed the Tennessee Valley Authority, the rural electrification of the United States, and the building of other great projects. Similarly, the Bank of Canada, which is wholly owned by the government, played a crucial role in financing the construction of the St. Lawrence Seaway in the 1950s, one of the most important infrastructure projects in our nation's history, the economic and financial gains derived from which are beyond all reckoning. Or consider the government's role in the late 19th Century, under the influence of the protectionist National Policy, of financing the construction of two continental railways, industrializing the country, and settling the West; if the government had not taken up this challenge, western Canada would today not exist as an economic/political entity, and nor would Canada today have one of the highest living standards in the world.

The Canadian government, using its power to create money, can capitalize a Federal institution, new or previously existing, such as an Infrastructure Development Bank, which can then be the lending facility for billions of dollars' worth of projects, with low interest rates and reasonable terms of repayment. The revenues generated by the bank can then become new capital for lending. In this fashion, with prudent management and cooperation, we can build ourselves out of the crisis, borrowing from ourselves, and paying ourselves back. Our sovereignty is preserved, the General Welfare is promoted, including that of our posterity, and the people will be happy and industrious.

Unless Canada breaks from the accepted way of doing things, and stops capitulating to the City of London and the City's Canadian financier allies, Canada has no future. The population will not be sustained at its present standard of living, and under a general breakdown of the international order, it is uncertain that the nation could maintain its integrity. The British Empire was erected and sustained on the corpses of those who allowed themselves to be drawn into self-destructive conflicts, who fell into British cultural or geopolitical traps. Canada has been managed since 1763 primarily by turning the population against itself, ensuring that the people remain weak, divided, and preoccupied: a country easily controlled and predictable, like today's drug or cyber-culture addict.

Money is the tool of government, government is not the tool of money; no nation is sovereign if it does not control its currency. Should our current batch of ne'er-do-wells in Ottawa fail to understand this difference, and to understand that the purpose of government is to aid the people's intellectual and moral-development, there is little hope for Canada's once-bright future; however, if they take the advice of Lyndon LaRouche and the Canadian LaRouche Youth Movement, Canada will become a great nation, and realize the promise of past generations.

[1] "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. "I've been forecasting since the early 1950s. I was as bad then as I am now." Former Federal Reserve chairman Greenspan to National Public Radio, Dec. 31, 2007.

[2] In addition to this massive sum, since municipal infrastructure accounts for approximately 50% of total Canadian infrastructure, a reasonable estimate of the total investment needed for the Canadian economy would be almost $500 billion. Notably, this sum does not include any new great projects such as high-speed or magnetic levitation trains, or water-management projects such as NAWAPA, which are just as essential to the future prosperity of the nation.
 
 
   



RE: LaRouche - Admin - 01-27-2008

SIX MONTHS INTO THE GREATEST EVER FINANCIAL CRASH
http://larouchepub.com/lar/2008/webcasts/3504jan17_opener.html

Lyndon LaRouche delivered the following hour-long keynote, and then fielded questions for two more hours at an international webcast from Washington, D.C., sponsored by the LaRouche Political Action Committee on Jan. 17, 2008. The webcast was moderated by LaRouche's national spokeswoman Debra Freeman. Media archive of the webcast.

Debra Freeman: Good afternoon. On behalf of the LaRouche Political Action Committee, I'd like to welcome all of you to today's international webcast. As I think many of our listeners may recall, it was approximately six months ago, during a similar webcast, on July 25, that Mr. LaRouche made clear that we were in a situation, not where we were facing an impending financial collapse, but that in fact the financial collapse was under way. Within days of that webcast, Mr. LaRouche was proven absolutely correct, by a chain of events that occurred. On July 28, Countrywide Financial, which is the nation's biggest mortgage lender, announced a 33% drop in profits, and it's been nothing but bad news ever since then. Two days after that, American Home Mortgage, another major lender, which specialized in subprime mortgages, collapsed. By July 31, the subprime mortgage crisis was on the front page of every newspaper in the United States.

Mr. LaRouche was 100% right in forecasting the collapse. He was 100% right, when he said that the collapse had occurred. And here we are, six months later, with the debris from that collapse hitting on a daily basis. As a result of a national and international mobilization, the willingness to deal with that crisis, at least the willingness to admit that that collapse is under way, has begun to permeate political circles. Hillary Clinton's Presidential campaign stands as probably the only Presidential campaign, or at least the only one that I'm aware of, that has been prepared to put this front and center. And while that is useful, they have still failed to address the causes of the crisis, or the real solutions.

I think that today's webcast is one in which Mr. LaRouche, as he has been doing repeatedly at these international webcasts, will provide a pathway, whereby people can gain greater understanding of what it is we are facing, as a nation, as a world, indeed, as a civilization. And I believe, knowing Mr. LaRouche as I do, that he'll also provide a pathway to solving it.

So ladies and gentlemen, without further ado, let me present to you, Lyndon LaRouche.

The Crisis Is Manageable
Lyndon LaRouche: Thank you.

The presentation and discussion which is going to occur now, will be for most of you, one of the most important things in your lives—the issues. Because we are at a point, not of an ordinary crisis, not of a financial crisis, not of a mere depression, but of a global breakdown crisis, centered in the trans-Atlantic community, especially the English-speaking trans-Atlantic community, which will radiate, if it's not stopped, to bring every part of the world into a general breakdown of their respective social systems. This is one of the greatest moments, in terms of importance, in history, since the 14th Century in Europe, with its new dark age, and since similar events, like the collapse of the Roman Empire, or the collapse of the Byzantine Empire: This is the kind of period we're living in. And the danger from this crisis is greater than probably any of the precedents, other than the collapse of the Roman Empire itself.

This is momentarily a collapse. Each day, now, since Jan. 3, the crisis has been expanding in magnitude, at an accelerating rate. What you think is the extent of the crisis today, if the measures I propose are not taken, will become much worse, by an order of magnitude in the next week, and the week after that, and the week after that, until the whole system grinds into a collapse, probably some time during this year. And I'm talking about a global collapse, not a collapse just of the trans-Atlantic English-speaking community. But the thing is centered obviously in the trans-Atlantic English-speaking community. That's where the source of the infection is, from which it spreads. And that's what we have to deal with.

We also have to deal with another problem, apart from an economic problem: a problem of idiocy, which permeates the highest ranks of the Senate, and other locations, among all so-called leading economists, today. There are a few exceptions here and there. But on this question, of this crisis, except for a few people in the woodwork that I know about, there is no public expression of any comprehension of what this crisis is about, or any comprehension of what the remedies are.

Now, let me say, on that point specifically, that the primary crisis before us, immediately, is twofold: On the one hand, it's an international monetary-financial crisis, in which the collapse of the entire world international monetary system could be completed within a time as early as this year, and even sometime earlier in this year, because that's the way human events are. You can not predict the day in which that collapse would occur, but the collapse is already ongoing. And none of the governments in existence today, has any efficient comprehension of adopting measures which would actually deal with this crisis.

The crisis is manageable. It's not simply solvable: You can not simply turn back the clock and get good times back again, where you had them before. But you can bring the thing under control. And the problem I wish to address today, specifically, is the measures of control which the government of the United States and other governments must take now!, if they're going to save civilization. This is doom-time. And often in human history, it was possible up to a certain point, to prevent a civilization from disintegrating into chaos. We're in such a situation now.

But if we don't take the measures, this civilization will collapse into chaos this year. If we understand these measures and are willing to take them, we can manage the crisis, through cooperation among nations, which agree on certain principles. That's always been possible. But if we do not do that, we are living on the brink of one of the great dark ages in all human existence, globally.

'This Is Big-Time'
So: What I'll do in the course of today's remarks—I've portioned things into two sections, because I can anticipate from certain leading circles in our political system and elsewhere, that there will be certain questions addressed to me, through Debbie, which will either identify themselves, or will identify themselves categorically, by their profession or by their interest. But some of them are very highly sensitive, and the questions will come to me, not with their name attached to it, but with the category that they represent involved. And what I'm addressing most immediately, are certain leading political and other circles, inside the United States and internationally, which need to know what I know, and they do not yet know, and to make that clear.

So this is big-time. This is not small-time.

We also have a big problem of a bankruptcy of ideas and mentality among a dominant section of our culture. The more influential part of our upper 20% of family-income brackets are crazy, and corrupt. Especially the generation now between 50 and 65 years of age. That is the generation which is the most disoriented and most corrupt, especially certain influentials.

So therefore, the problem is that some of the people, including in the major press, major publications, mass media generally, and so forth, on this question, are either outrightly lying or incapable of telling the truth, because they couldn't know where to find it. And they are the most influential voices you hear, so far, from the U.S. Senate, from leaders of the House of Representatives—not all leaders, but the ones who are the most vocal and most reported—and from most Presidential candidates. They are all, by my book, idiots, and worse; because their opinions are worse than worthless. If their opinions were to prevail, the whole country will go to Hell; that I can guarantee you.

Therefore, what we're in the process of doing, which I'm particularly in the process of doing, is, being a veteran Presidential campaigner, and of some international significance: I am not running for President, but I am running to create the situation on which the coming President of the United States, if properly selected, will take the steps which are necessary on behalf of the United States, to enter into cooperation on these principles with other nations, and under those conditions, this planet can survive, civilization can survive. We can recover again. This is not as easy as Franklin Roosevelt faced with the Great Depression. This is a much tougher problem, a much more dangerous, deeper corruption than that. And so, the precedents from that period, while valuable to us today as a lesson, are not a prescription by imitation for solving this problem.

The greatest problem we have, is the incumbent President of the United States, and the number of idiots, both Democratic and Republican, in the Congress, including the Senate, who think like they do. That's our biggest problem. Because what we need at this moment, looking back at our history, we are in a moment, that we need a Franklin Roosevelt as President. And what we have as a Presidency today has no resemblance to that, whatsoever. As a matter of fact, the question of species is also in doubt.

So therefore, it requires a special effort. The effort will, however, come in the course of the campaign—a critical point. Because if one or two figures, who are Presidential candidates, or pre-candidates at this point, step forward, as Hillary Clinton has made a step in that direction—if they step forward to take charge of the leadership of the parties going into their Presidential nomination procedures, then they will become a focal point of leadership, to counter the idiot who occupies the White House today. That's our best shot. And people from abroad will observe that, because they will say, "Yes, you have interesting ideas. It would be nice if the United States would do that." But, will the United States do that, considering the idiot we have in the White House today? And with the Cheney hanging around his neck. And with a Speaker of the House, Pelosi, who seems to be owned by a notable fascist, and is doing everything to sabotage what needs to be done to save this nation? And similar problems in the Senate.

So therefore, the first thing we have to address is the fact of a general incompetence in dealing with a specific problem we must solve, and also a massive corruption, political and moral corruption, within relevant parts of the upper 20% of our family-income brackets, notably those in politics. That's our problem.

Therefore, I could say the following, just as an example: You could imagine two politicians trained in economics. They jump out of an airplane, to take a parachute to the ground—but they have forgotten their parachutes. The first one says, "I think we're in for it." The other one says, "Don't believe any of those conspiracy theories. We're going to make it. We'll bounce back." And you'll get that from a lot of them, today.

The British Empire 'Slime-Mold'
Now, let's go back in American history to a point, which should be a point of reference today—it doesn't contain the solution, but it contains the suggestion of what the solution might be: Franklin Roosevelt, as President. Franklin Roosevelt as President saved the United States, by returning the United States to its Constitution. Measures by Roosevelt were in accord with the principle of the Constitution. The Presidents who preceded him, since the assassination of McKinley, including Woodrow Wilson, Teddy Roosevelt, Hoover, Coolidge, so forth, had actually been the enemies of the best interests of the United States, operating from the top level of the United States.

The problem that Roosevelt faced, was a problem of the British Empire. Now, the British Empire is not really a monarchy. It's a slime-mold: That is, it is a collection—and this has been the case since the beginning of the British Empire in 1763, with the Peace of Paris—an international financier cartel, largely of Anglo-Dutch denomination, but essentially bankers in the Venetian tradition, a slime-mold. They kill each other by night, and they gang up together against the human race in the morning. This is the type.

In 1763, this slime-mold, this international financial gang, took over Britain, at a time that Britain had been the victor in a war it orchestrated, called the Seven Years' War. What Britain had done, which is typical Liberal practice, is to defeat all its rivals on the continent of Europe, by inducing them to make war against each other. So Britain sat back, while Russia, and France, and Prussia, and other countries, fought each other, and came down in ruins, with the Peace of Paris, in which the British came in and collected the remains. It was the British East India Company, who collected the remains. The British monarchy is not the controlling force inside the British Empire. The controlling force is a slime-mold, called the Anglo-Dutch Liberal financial establishment. They run the empire. They are not necessarily British citizens; they're often Dutch, they are French, they're Venetian, they're New York bankers. George Shultz, for example, the guy who sank the Roosevelt monetary system, is part of this. He's a fascist. So's Rohatyn. Rohatyn's a fascist. It's not a term, it's a species designation.

And what we're faced with today, and with the Bloomberg game, is the attempt to establish a Presidency of the United States, under Bloomberg and Schwarzenegger (whose father gave him fascist credentials by birth) to establish a dictatorship in the United States, modelled immediately on that which was used by the British to create Mussolini as a dictator in Italy, the same British circles which put Hitler into power in Germany. This is the problem. We are faced with a threat of tyranny beyond belief, by this crowd. And this is what the British Empire is: It's the Anglo-Dutch Liberal system, which is a system of international finance, which in respect to each other are predatory. They eat each other, and they eat each other's children. But then, they gang up against all of the rest of us, and play us for fools.

For example, who started the war in Iraq, the last war in Iraq, that's now still ongoing? It was done by the Tony Blair government of England. Tony Blair orchestrated it. Remember the case of David Kelly? The key figure inside the United States was Dick Cheney, but not really Dick; it's his wife. His wife is the one who picked him out of the swamp, got him jobs, got him positions, and she's the terror who runs him. She's a British agent, a Fabian, part of the Fabian Society, the same thing that Tony Blair represents. So, you had American accomplices of the British Empire—which is not the British monarchy, it's the slime-mold of British or Anglo-Dutch finance—orchestrated a war in Iraq, in Southwest Asia, to destroy the United States by inducing it to destroy itself! Just in the same way that the Anglo-Dutch Liberals set up, in the early part of the 18th Century, a war called the Seven Years' War, in which the powers of Continental Europe chopped at each other. And the British came in and collected the remains, the Anglo-Dutch Liberals.

In our midst—if you think that Felix Rohatyn is an advisor to any leading figure, you should fire that leading figure, should be fired from office, particularly from the position of Speaker of the House. Because they represent a danger to the United States, as great as a traitor in a high position during warfare. She, under the influence, is a poor patsy, a poor, dumb patsy, controlled by Felix Rohatyn, who has done the most to destroy the United States House of Representatives, during her term of service, since she gained that position. These are the kinds of problems we face.

Roosevelt Used the Constitution To Save the U.S.A.
Now, go back to, again as I said, to Roosevelt: Roosevelt came into the Presidency at a point that we hadn't had—with the exception of Taft, in a sense, and Harding, who were questionable figures—we hadn't had an honest President since the British killed McKinley, in order to bring Teddy Roosevelt into the Presidency. Teddy Roosevelt, Woodrow Wilson, Coolidge, Hoover, so forth, were problems. We were almost destroyed by this. We were still a powerful nation at that time; we were almost destroyed.

Roosevelt came along. Now, Roosevelt was a descendant of a New York banker by the name of Isaac Roosevelt, who had been a collaborator of Alexander Hamilton, in his time. And Roosevelt did not stumble around, and did not innovate in some curious manner, did not violate the Constitution, but he used the Constitution precisely, and followed it, in order to organize an effort to save the United States from itself, and from what previous Presidents had done to the United States. He saved the United States. He did more than save the United States: At the time he came in, the British ruling class, including the British monarchy itself, had not only put Mussolini into power in Italy, but had put Hitler into power in Germany. Who created Hitler? It was not Germans, it was Brits. They organized it. They insisted upon it.

When Roosevelt became President, this underwent some degree of change. Roosevelt took emergency measures which were based on the U.S. Constitution. And today, we should follow exactly those precedents that Roosevelt used then, that are constitutional precedents. His constitutional conceptions are constitutional. What exists now, as a so-called "constitutional" interpretation of these matters, is not constitutional: It is something imported from abroad. This is not our Constitution.

Remember, our Constitution is derived, primarily, immediately, from the 1648 Treaty of Westphalia, the Peace of Westphalia. This was the foundation of a commitment among nations to the modern, sovereign nation-state by those nations, in 1648. This ended a long period of religious warfare, which had been induced by Venetian interests, from 1492, the Expulsion of the Jews from Spain, by the Grand Inquisitor, through the end of the war in Europe in 1648, the Thirty Years' War.

This agreement, prompted by a great Cardinal Mazarin, from France—actually an Italian, but he was stuck in there by the Pope—and this agreement on the Peace of Westphalia, on the "benefit of the other," that each people and each nation must devote itself primarily to the benefit of other nations, and by doing so, to create a bond among nations, in cooperation among nations, by which these kinds of problems can be cured.

We can not eliminate the nation-state; we do not need a Tower of Babel. Because the ability of a people to govern itself depends upon its culture. And without that culture, a people can not be self-governing. So therefore, you can not impose law upon nations, simply by just imposing law upon them. You must work through the culture of that nation, the culture of its people, and have their willful consent to cooperation of the type needed to fulfill the intentions specified by the 1648 Peace of Westphalia.

This is embedded in our Constitution, in the citation from Leibniz, in the Declaration of Independence: the "pursuit of Happiness," which was Leibniz's attack on the Liberal theory. Liberalism is not U.S. philosophy, not constitutional philosophy: Liberalism is rejected in U.S. constitutional philosophy. This principle of the "pursuit of Happiness" which Benjamin Franklin and others took from a book by Leibniz, was expressed as the great Preamble of our Constitution, the so-called Bill of Rights. And this principle of our Preamble is our fundamental law. And that is the law which is the interpretation imposed on every other aspect of our constitutional system. The Preamble of the Constitution is our fundamental law! Which expresses, echoes the Declaration of Independence, but is our constitutional law, as a Federal Republic. Every other part of the Constitution is subject to interpretation according to the specifications of that Preamble. That's our law. That was the law understood by Franklin Roosevelt.

The Federal Power of Bankruptcy
We also have another feature of our Constitution, which is different than anything you find in Europe, or at least in western and central Europe: We do not believe in monetary systems, constitutionally. The United States system is not constitutionally a monetary system. European systems are monetary systems, based on parliamentary government. There is no moral principle controlling. There are moral principles adopted in constitutions in Europe, but the essential thing is not there. In the U.S. Constitution, the creation of money, and the regulation of money is a function of the Federal government. The issuance of money is done by the consent of the House of Representatives, and enacted by the Treasury Department, under the direction of the President. It is unlawful to create money, or a form of money, in the United States, except by the Federal government, and except according to this principle, this constitutional principle. We are not a monetary system! Not constitutionally. We are a Federal Republic, and we have a credit system, which is based upon the constitutional principle reflected in our system of the creation of credit.

We also have, under the same term, as a Federal government, the power of bankruptcy. And this power of bankruptcy is very important at this time, because without exerting it, you're not going to save the United States. And if you can't save the United States, you're not going to save the rest of the world.

That means: That most of the outstanding debt, represented by financial interests, as claims upon the United States, its territories, and its people, will be put by the Federal government, into bankruptcy receivership. What should be paid, in the short term, will be paid. What should be supported in the short term, will be supported. But those sums we can not afford to pay, we shall not pay. We shall proceed under bankruptcy law, under our Federal law, to put the entire system, of money and related things, into receivership. If we do that, other countries will do it, too.

Now, what I've proposed, as you know, is that four powers in this planet must come together to share a policy, an initiative, which will save this planet from a general collapse. These four powers are, the United States (despite the idiot in the White House now); Russia, China, and India. Because, if these four nations agree on a relevant policy, not only will other nations join them, automatically, other nations, which are smaller nations, will join them in common interest. But we will solve the problem. We can organize a recovery of the world economic system, by reorganization of its financial system. We will return to a principle, if we agree among these nations, under which the same principle that applies to the U.S. Constitution, in terms of money, applies there: We will create a fixed-exchange-rate system, echoing what Roosevelt intended before he died—and I'll explain what that significance, "before he died" is.

We will therefore have a system under which loans outstanding can not fluctuate in the interest rates upon them, but will be kept within payable limits. Because, in general with the world economy as it is today, if the interest rate on long-term loans exceeds 2%, you're going to have a collapsed economy. Because you can not afford, in today's productivity, to have higher rates of interest in general, for long-term capital and related improvements. Therefore, you must have a fixed-exchange-rate system. That does not mean a gold-based system, but it does mean that we probably would do the same thing with gold that Roosevelt did with gold: We will consider it, not as a monetary asset, but as a means for settling accounts among sovereign national powers. And thus, to use that power, to maintain a counter-inflationary stability in long-term investments among nations.

If we don't do that, if we're unwilling to do just exactly that, there is no chance that the world civilization as we know it, in its present organized form, will continue to exist, as long as the remainder of this year. Because the rate of acceleration of decadence, of collapse, that is now built into the system, will accelerate to such a degree, that we can not determine on what date the system disintegrates, but it will be soon.

Mobilizing the Base
So the question is: Can we find in the United States, in particular, can we find a group of people, especially leading figures, who will come together to do what I have prescribed on this account?

Now what we're doing right now, we are mobilizing the base: The problem has been, that since the corruption from the top down, in the Senate and the House of Representatives, the corruption typified by that expressed by Nancy Pelosi, the stooge for the fascist Felix Rohatyn, that has prevented the Houses of Congress from functioning. They don't function. There are people in there who would like to function. There are good people in there, but they don't function. Because the system of "go along to get along" doesn't permit them to function properly under these conditions. With proper leadership in the Senate, and proper leadership in the House, yes, they would function. We've got to, first of all, change the Speaker of the House, right away. Otherwise, you don't care much about the United States. If you care about the United States, you will say that she needs to go, into some peaceful retirement, where her limited mental powers will find a proper realization.

So, thus, in this way, we had to go to a lower income-bracket section of the population. We went to the states and localities, working on the state level, to campaign for an action, which I prescribed, which if it is not implemented exactly as I have prescribed, means the doom of the nation. This is the Homeowners and Bank Protection Act. If that act is not instituted, in exactly the method I have specified, without changes, the system won't survive: We're finished.

Now, what we have now, is a growing mass support in the base of the population, on the state level, for that act. That the people in the Senate and the Congress are increasingly aware of the pressure coming from the states, in our mobilization for support of this act—to be implemented precisely as I have prescribed, without changes.

Why? Let me explain this act: The bankruptcy of homeowners, or nominal homeowners, can not be allowed. And we can not solve the problem by selective bailouts of some people. It won't work. You have to have a national freeze on foreclosures. Now, that has been picked up by some political figures, such as Bill Clinton and his wife. And so far, that's good. But that's not enough, as I think they know. You also have to protect the bankers simultaneously, and in the same act. Why? Because mortgages, if they're legitimate, and orderly mortgages, not some kind of fly-by-night thing, are related to banks: to chartered banks, to chartered Federal banks, to chartered state banks. These banks are now in danger of collapse and liquidation.

Therefore, you can not simply suspend these mortgages by themselves: You've got to put the banks under protection, in exactly the same act! If you don't put the bank under protection, your attempt to defend the mortgages will do no good. And if you allow the thing to continue, where the banks are being chewed up, now—by disreputable things that should be written off entirely—are being looted. As in the recent round of trying to buy out some of these hedge-fund operations which should not have been saved. They should be collapsed! Write them off the books! They're not worth anything.

We've got to save the homeowners. We've got to keep them in their houses. We've got to keep the communities stable. We've got to protect the local banks. Because, if the local, regular banks, the honest banks, are not able to conduct business, the whole economy of any part of the country will proceed to disintegrate! If you are not prepared to defend the homeowners, and the banks, the legitimate banks, in the same Federal act of bankruptcy, using bankruptcy law as the means of doing it, you aren't worth anything! And you should stop talking. Stop babbling. That's the only way you can save this system.

That is not all that's required. If we stabilize the United States politically, by the Homeowners and Bank Protection Act, then we open the door for the next required steps, which is to change national policy, probably in this time I would change it through leading pre-Presidential candidates. What you need, is an organizing voice, or more organizing voices, to get something moving behind this. If leading candidates defend the Homeowners and Bank Protection Act, as prescribed, we can save this nation. But that's only the first step towards saving this nation.

Europe Needs a Lender of Last Resort
The next step is to proceed on the international level. And that means, the President of the United States has to go to Russia, to China, and to India, and to other countries, and to propose a treaty agreement, a draft treaty agreement, which is equitable, which establishes a fixed-exchange-rate system. And this will probably bring nearly everybody in, if you do it.

For example, in Europe, as my wife has explained to people—she's German, and she knows about Germany, which many Germans don't; but she also has her contact with German experts and French experts and so forth—and has been conducting a discussion, an intensive discussion, on the question of the Lender of Last Resort. Now, the reason that Continental Europe is absolutely doomed today, under its present conditions, is there is no lender of last resort under the Maastricht Treaty and implementation. You have to reverse and cancel the Maastricht Treaty, to save Europe! And all it takes is a couple of countries who are key countries, to break out of the Maastricht Treaty, and it will disintegrate of its own accord.

In that case, then Germany, Italy, France, and so forth, will be forced to return to the principle of the lender of last resort, which is their own national government, their own constitutional government. Once they agree to return to this principle, then we can talk to Russia, to China, and India, in terms of long-term trade agreements, we're talking about 25-to-50-year trade agreements, for infrastructure, all these kinds of things. And we can have a program of expansion of the economy, development, which will give us a perspective of long-term recovery.

Once we decide, under treaty agreements of that sort, that we are going to survive, over the coming 50 years, then we shall survive. Because we will then make the decisions and be able to make the agreements which enable us to accomplish the common aims of mankind. And that's our function on that account.

Now, there are several things that have to be dealt with to clean up the garbage which is left over from the past. Go back to FDR. Now, there are two views of what the Bretton Woods Agreement was. One view, which is little known today, is the intention of Franklin Roosevelt, and that intention was very clearly declared, repeatedly, by Franklin Roosevelt, while he was President, especially during the war: President Roosevelt's intention for the Bretton Woods system, was a breakup of the British Empire. Roosevelt was committed—as I was at the time, I was in military service at the time—he was committed to the liberation of all territories from colonial occupation or oppression; and also the elimination of what we call semi-colonialism. That was his intention.

The British, and Winston Churchill, had a fit about that. And as soon as we had breached the wall in France, in the invasion of Continental Europe, immediately, those banking interests, in London and in the United States—like the Harriman bank, which had initially put Hitler into power in Germany, and also had put Mussolini into power in Italy—these banks, which had created Fascism, on the continent of Europe, with the participation of certain U.S. bankers, Wall Street bankers of the same type which I'm fighting today, like Shultz, and Harriman, and so forth—these guys made a right turn. And the British policy was to prevent the war from being won too quickly at that point.

Therefore, the war was sabotaged. For example, you had a General Montgomery, who was probably the worst commander in World War II, who ran an operation with the First Army, which screwed everything up, and prolonged the war for at least six to seven months. Other things were done, to try to eliminate the Roosevelt perspective for the post-war world. And the issue was largely expressed between Churchill and Roosevelt. Roosevelt would talk to Churchill, and say, "Winston! We are not going to do this! We're not going to put up with this any more! We're going into a world without colonialism, without people being oppressed by other people. We're going to the American System, of the conception of independent, sovereign nation-states. And every people has to have the right to have a development, a self-development, of a sovereign nation-state."

Oh! Churchill wanted none of that! He was out to defend the British Empire. So, as soon as Roosevelt was safely dead, Churchill's friends—take the case of Indo-China: Indo-China had won its independence in warfare, under Ho Chi Minh. Ho Chi Minh had been cooperating with the United States in that struggle. With Roosevelt now dead, the British ordered the Japanese to come out of the prison camps where they had been held in Indo-China, to be re-armed, and to occupy the country which had just been liberated from them. And the entire history of the Indo-China War since that time, was that creation.

A similar operation was run in Indonesia. There was a very effective liberation movement in Indonesia against the Dutch imperialism. The British backed that, with armed forces, a war that went on for some time, and created the mess which we suffer still today.

Similar things were done in the split-up of India, in the Pakistan-India split—and it was a horrible scene to see, the way it occurred. This was done, by the British.

Africa was given liberation, but not liberation: They were given the title to liberation, but no power to run their countries. Similar kind of thing.

Similar efforts were made in Central and South America. So that when this Bretton Woods agreement was presented, by Franklin Roosevelt, the intention had been to use the power of the U.S. military, that is the economic power, to convert the military power into economic power, for machine tools and similar kinds of development, to assist not only war-ravaged Western Europe, but also the nations which had been colonized or semi-colonized, to be liberated and developed, by converting the war-production capability of the United States to a peace-production capability, for the needs of these people. We proposed to make a world free of imperialism and its vestiges. That was Roosevelt's policy.

When Roosevelt died, immediately, Truman, who was an agent of the British in terms of his connections, moved to sabotage everything that Roosevelt had represented, in terms of this post-war policy of decolonization. The post-war policy of the Truman Administration was re-colonization. A British policy of recolonization.

FDR's Bretton Woods System Was Anti-British
Now, despite these changes, the United States continued on its internal economic policy, in the same direction, until the assassination of President Kennedy. And it was not just the assassination of President Kennedy that was key, it was the fact that his successor, Johnson, was terrified. And because Johnson was terrified, Johnson supported the Gulf of Tonkin Resolution, which got us into the Indo-China War.

The Indo-China War, a long war, like the Peloponnesian War, destroyed the United States, or destroyed the United States' economy, and so undermined it, that in 1971, the Bretton Woods system disintegrated under Nixon.

Now, the other view of the Bretton Woods system was that of Keynes. Keynes was at the 1944 conference of the Bretton Woods convention, and did submit a proposal. Now, people who don't know their history, will say that the Bretton Woods system was designed by Keynes. Not so. The Bretton Woods system was an anti-British, anti-colonialist position. What happened with the death of Roosevelt, was that Truman and Co., were able with their fascist friends in New York, like the Harrimans and so forth—the same people who had put Hitler into power earlier—to turn it into the "Keynesian" alternative. So therefore, Roosevelt's Bretton Woods system is made clear by his own testimony: This was an anti-colonialist system. The Keynesian system was a colonialist copy.

But nonetheless, despite the fact that this was merely a colonialist copy, in the United States, we maintained, internally, an economic system which was very much like the intention of Roosevelt. We maintained that up until the death of Kennedy, when things began to go bad at the time, after Kennedy had been killed. So therefore, today, when people say the "Keynesian system," that's a way of covering up the fact of this.

So, we maintained a protectionist economy, up through Kennedy, up through Kennedy's Presidency, and lost it rapidly after that point, especially after 1968.

Then, in 1971, we lost our honor; we lost everything. The British took over, through George Shultz, the same George Shultz who, in the same period of time, put a fascist dictator, Pinochet, into power in South America, in Chile. The same George Shultz who owns Schwarzenegger today (whose father was a real Nazi), who ran a Nazi-aided operation in the Southern Cone of Americas during the first half of the 1970s. And has not improved his morals since that time—or Schwarzenegger's either.

So this is what the issue is. We had a system, which is the Roosevelt Constitutional system, for decolonization of the world. Now if we look at things today, look at Asia and Africa, and the struggles in South America and Central America, you see a similar situation. The mission, the long-term mission for humanity now, if we get out of this crisis, is to fix this problem: We have large populations in Asia, most of whom are extremely poor. By their own unaided means, they could not solve the problems as they must be solved. However, with international cooperation, long-term cooperation, long-term agreements, the development of infrastructure, the development of other things needed. For example: The need for the thorium cycle of fission power, in India. India's a very poor country. It has some people in it, who are not so poor. But 70% are desperately poor, and their condition of life is worsening. Without thorium-cycle nuclear power, India can not in practice recover from this mess.

China has a similar problem. It has certain technological progress, certain achievements, but it also has vast needs of development. This requires nuclear power; it requires cooperation in infrastructure. It requires long-term agreements. The same thing is true of all of these countries, of the world. We need these long-term agreements, which must be treaty agreements, based on a fixed-exchange-rate system, like that of Franklin Roosevelt's design for the Bretton Woods system. That's what's required. And therefore, what we do is move from an act like the Homeowners and Bank Protection Act, to stabilize the U.S. economy sufficiently, to begin to move on the other things, to give us the room to move on the other things we must move to—including immediate long-term agreements, starting no later than January of the coming year, with the nations I indicated: the United States, Russia, China, and India. We must have a long-term agreement, or series of treaty agreements, with those and with other nations, which govern the way we are going to develop this planet economically, for the future of humanity! For a thousand or two thousand years to come.

Defending the principle of sovereignty of a people, because a people has embedded in its culture, its language, or the use of its language, it has the deeper aspects of mentation. A people that's denied that, and is supposed to speak an argot, moving from one country to another, and speaking some kind of a pidgin—they lack that cultural continuity of development, and the people are turned into virtual slaves, or approximations of that. So, we know that we must maintain national sovereignty, national cultural sovereignty among nations. And therefore, national sovereignty must be expressed in terms of cooperation among sovereigns, to develop long-term agreements on common objectives, for up to a thousand years or so to come. That's what we require.

And that is what should be laid on the table of the next President of the United States, properly selected.

LaRouche's 'Triple Curve'
Now, let's go to the first of these Triple Curves, to explain where I come in on this thing [Figure 1]. This was something which I first produced, actually in the end of 1995, and published for the first time in January of 1996. It was published as a feature of my pre-Presidential election campaign that year. And what it describes is the actuality at that time, of the U.S. financial-economic situation. The three values are simply: You have the issue of money, Monetary Aggregate, issued by governments or by other means, other agencies. You have also then, the generation of Financial Assets, as distinct from just simply money assets, which are related to monetary assets. You also then must compare this with the per-capita, per-square-kilometer productive powers of labor, in physical terms, including infrastructure, as well as other aspects of productivity.

Now, what has been happening, especially at an accelerating rate, since 1971 in particular, and at an accelerated since 1987, since October of 1987, has been an increasing decrease of the physical output per capita of the population of the United States, per capita and per square kilometer. What has been happening at the same time, is this has been sustained, as especially under Greenspan, by an accelerating rate of monetary emission. The U.S. government, in various forms, has been extending the emission.

Now the emission has been used by a multiplier factor, which is insane, to increase the rate of financial aggregates outstanding. So now, you see an accelerating rate of financial aggregates' growth, relative to an accelerating rate of decline of physical production. For example: infrastructure. The New York streets, for example, under Bloomberg. The New York streets are collapsing under Bloomberg. Maybe it's an expression of their dislike for the man!

Now then, we come to a second one, a second case, which I published in 2000 [Figure 2]. There was a change that occurred that time, in which the United States entered into a long-term, deep, depression. This happened before George Bush was able to pollute the White House, that is, George Bush, Jr. But what had happened was, you had the rate of monetary aggregates, that you had to generate to sustain the financial explosion, and financial aggregates expanded. So, as a result of that, with a continued collapse of the physical output, per capita and per square kilometer, you had entered into a collapse phase of the U.S. economy, a terminal collapse phase. So, by the time Bush came in, as President, in January of 2001, the United States economy was already doomed under its existing policy. It was doomed to collapse at an accelerating rate, over the period of the decade. And it did.

That's the problem we have to fix. We have a bankrupt system, 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, 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 nature of national interest and human interest, and human rights. That's our only chance.

Now, most people have a problem with this, including people who may be asking questions not too distant from now. "I don't understand it," they will say. "I don't understand what you see." "Won't it be sufficient...?"

Now, the problem we have: We have two kinds of people who are ignorant of economics: those who are honestly ignorant, and those who are inherently dishonest. And the latter outnumber the former. In other words, "How can I cheat?" This is Economics 101 today: "How Can I Cheat?" Not "How Can I Earn?" Well, we abolished earning: We shut down our factories, we stopped building our infrastructure, we shut down our farmers. We allowed Al Gore, who was reputed to have been eaten by a polar bear—which likes fat. Polar bears like fat. They see a guy walking up there, with fat, "This guy, what a fat head! He must be fat all over. We'll eat him!"

But, these kinds of ideas of sophistry, the same kind of sophistry in an extreme form, which sank ancient Greece under Pericles, the same kind that we're repeating today. This is our problem. And as a result of the popularity of sophistry: "All my friends tell me...."

The Human Mind Is Not Digital
Well, let me take one more little side issue, because it's so crucial to understand this problem, which most people don't. Let's take computer games. Killer computer games. What's the difference between a man and a monkey? And how does this apply to understanding computer games? Because computer games are designed on the basis of two things: First of all, they were designed to kill; they were designed to train a mass of the population, and retrain soldiers, as killers, who would shoot more often and at more people. And it worked! In order to train soldiers to kill more profusely, they invented games; they went to the computer industry to produce games, which are point-and-shoot training games. Then, late in the 1990s, when the subsidies to the computer industry were collapsing, under the previous arrangement, then, the computer industry, which otherwise would have gotten suddenly poor, went into mass production of the computer killer-game industry.

They produced this killer wave: We are on the verge of having suicide-prone mass-killers, just like you talk about in the Middle East, inside the United States. These mass-killers will be from our own youth, and they will be from youth who have been indoctrinated in playing computer games. And those who produce these games, are fully aware of this. And our study of case-histories shows that the secret of these games is, the children don't play the games. The games play the children.

One of my experiences earlier in life—oh, a quarter-century ago, or more; back in the 1960s, actually—was, I had been an old chess player. And I got away from it, because I got bored with the game, couldn't stand it any more. I went to all the games. I didn't win tournaments, but I was a blindfold chess player, simultaneous blindfold chess, all these kinds of tricks which I was good at, when I was younger and quicker. But then I said, "I gotta change." So, I looked at the game of "Go." And after a little too much playing the game of Go, I realized what it does to your mind—and I said, "never again!"

Now, the game of Go does not have a bad intention as such. It has a negative effect on the mind. But it does not have a bad intention. Killer games have a bad intention. And the intention which is built into the design of the games, is that you think that the person is playing the game on the Internet? Uh-uh! The game is playing him! And the firm that runs the game, and monitors it, is playing him! Or her.

So the point is, first of all, it has all the defects of Go, with all the necessary moral failures added. Kill! Kill! Game ends! Game ends! Game ends! Die!

When does game end? When the law enforcement agency or other official comes on the scene—and you stop killing the people, and kill yourself. That's exactly what happened in Virginia, exactly that.

And all the time this is happening, the companies that run the games on the Internet, are monitoring the games. They're coaching the games. Controlling and manipulating the minds of the players!

You have also a similar effect on MySpace, another mass-brainwashing operation produced by the digital industry. Facebook, another one, and so on and so forth. We're seeing the development of mass terrorism potential, inside the United States, based on these games! And the effect in the United States will be comparable to what we have in Southwest Asia, as so-called terrorism. But coming from inside the United States, generated, and monitored, and controlled by computer companies that manage these games, while the poor suckers who are playing them are being managed.

We allow it.

The other aspect of this thing, which is what I refer to in this case, is that the human mind is not digital. There is no digital mathematics that can represent the processes of the human mind, as distinct from those of a monkey. The human mind is creative by virtue of functions we associate only with analog devices. Creativity, as expressed by a human mind, corresponds generally to an analog function. We've done some work on that.

In the case of economics—coming back to that: in economy today, what is taught as economics, is Cartesian kinematics, a projection, a statistical projection. There are virtually no competent economists engaged in long-term forecasting—none! But many incompetent ones! And every one is wrong. Because it does not correspond to human behavior.

Human behavior is creative. Look at yourself. Now stand next to a picture of a gorilla or a chimpanzee. Or a baboon if you prefer. And say, "what's the difference between me, and a baboon, and a gorilla, or a chimpanzee? What do I do? I can think."

"Well, prove that."

Well, what is the population-density of baboons, chimpanzees, and gorillas. How many millions per square kilometer can you have, of chimpanzees, baboons, and gorillas? Now, what is the rate of growth of world population, per capita and per square kilometer of the human species? What's the difference? The difference is discoveries, which take two forms: of scientific principle, physical scientific principles, and Classical artistic principles. And these things enable human beings to increase the potential of the human species, as no other living creature can do.

This power comes as a result of what we call creativity, which does not exist in any digital system. But the only way you can represent it, mathematically, is by analog systems. That does not cause it, but it's capable of reflecting that.

So the point today, is people are living in a digital society, whose deleterious effects are enhanced, increased, by the role of these games, and similar kinds of entertainment. Look at the attention span of a young kid, 16-to-25 years of age! What is the typical attention span? What is it, 30 seconds? 15 seconds? Strictly as a result of MySpace. Take a MySpace addict, a typical MySpace addict: What is the length of their concentration span, measurable? What is the length of concentration span of a game player, on a killer game? These guys are babblers! They have no concentration span, whatsoever.

So we're destroying a section of a population, by destroying their minds, destroying their mental capacities, and turning them potentially into mass killers. And this is what our policy is.

It Is Time for a Global Peace of Westphalia
And this is the way we teach economics. Gore is typical of this. Gore is an exemplification of evil. Why? Because he denies the existence of creativity. For example, the case of India. He says he's for reducing carbon emissions—it doesn't mean a damned thing. He doesn't know what he's talking about! But! What does he mean? He's against the development of the fission process, for thorium-fission cycle. The thorium-fission cycle, using a material called thorium, which is rather abundant in India, used in proper devices, can be placed locally to provide power in locations, to improve water management and do a lot of other things. So the people of India require a very large increase of this process, set into motion. And to do this, you have to have a nuclear reaction which charges the thorium—which is not military problem at all—which thus gives the local village and so forth the ability to have a nuclear plant which provides what it can't get otherwise: freshwater.

Take for example, the Deccan in southern India: In southern India, the supplies of water have depended for long time, on drawing down fossil water! Now fossil water in southern India, in the Deccan region, means water which was put down there before the beginning of the Ice Age, 2 million years ago, the first ice age we know of. So, fossil water, which has been buried there for 2 million years, is now the recommended resource, for providing water for a village in southern India. It's crazy. With a nuclear plant, on the coast—and India has a very small area, relative to the coastline—near the coast, you can produce from seawater, you can produce freshwater in quantities, and economically, for these people. And improve the conditions of life.

So the United States government, in its infinite lack of wisdom, has tried to ban the thorium cycle from use in India, along with the British. So, the point is that humanity progresses through technological progress, and so forth.

What we represent as the American System is this: Europe has a very special kind of quality. Remember that about 19-20,000 years ago, we had great ice ages, all over the northern hemisphere, not every part of it, but a lot of it. Ice was thick, habitation was poor. The most advanced cultures were maritime cultures, people sailing in flotillas of boats, using astronavigation, to go large distances, up to 1,000 miles or so, or 2,000 miles, across oceans, or down oceans, from one place of residence to another place of residence, as the seasons change. And we know of these things, because through the study of astronomy, we recognize that some of these astronomical cycles which are built into the calendars are of that character: that only a society which was based on astronavigation, a maritime culture, could possibly have generated these features of those calendars: 25,000 years, 50,000 years, 200,000 years. Long-range calendars for cycles.

So in this process, the Mediterranean area and its adjoining areas became developed, as a maritime culture. This happened over thousands of years, but what we know of most of it, started about 700 B.C. with the emergence of an alliance among Egypt—that is, the case of Egypt, the Etruscans, and the Ionians, against Tyre. And this process led to the development of European civilization, which had a promising start, but kept being destroyed by empires, or the development of European empires, such as those of the Romans, or the Byzantine Empire, or the empire of the Venetians of the medieval period; and the attempted modern empire.

The issue has always been, in European civilization, in particular, that the tendency has been by oligarchs, to degrade the lower 80% or more of the family-income brackets of a population to virtual animals, by denying them access to the process of developing creativity and new discoveries. This was the issue posed by Aeschylus in his great Prometheus Trilogy and other writings. We take the distinction of mankind from the animal, which is the creative powers of the human mind, which don't exist in any animal, which the strength of humanity lies in there, and we suppress that in large parts of populations, with various kinds of oppression—colonial and other oppression.

So we take a society which had the most advanced power in the planet, which was European society as it developed in recovery from the dark age of the middle of the 14th Century; we corrupt it by things like the Grand Inquisitor, and the emergence of Liberalism, and the creation of empires based on Liberalism. And we subject the entire planet to this cruelty. And we call that, "the way things are." We call that, "common sense."

The time has come when the requirements of maintaining humanity, the technological requirements and scientific requirements are such, that humanity can no longer exist under what has been the practice of much of European civilization over the period to date. We must take what we resolved in Europe in 1648, the Peace of Westphalia, and commit ourselves to the entirety of the human race, to all of it: It has the rights which are granted to Europeans among themselves by the Peace of Westphalia.

So, that, to bring things to this close, as I presume the questions'll be pouring in shortly, is what I have to say today.
 
 
   



RE: LaRouche - Admin - 02-24-2008

BERNANKE's STATE OF THE ECONOMY SPEECH : "YOU ARE ALL DEAD DUCKS"  

Mike Whitney
http://globalresearch.ca/index.php?context=va&aid=8118


Even veteran Fed-watchers were caught off-guard by Chairman Bernanke's performance before the Senate Banking Committee on Thursday. Bernanke was expected to make routine comments on the state of the economy but, instead, delivered a 45 minute sermon detailing the afflictions of the foundering financial system. The Senate chamber was stone-silent throughout. The gravity of the sitution is finally beginning to sink in.

For the most part, the pedantic Bernanke looked uneasy; alternately biting his lower lip or staring ahead blankly like a man who just watched his poodle get run over by a Mack truck. As it turns out, Bernanke has plenty to worry about, too. Consumer confidence has dropped to levels not seen since the 1970s recession, real estate has gone off a cliff, credit-brushfires are breaking out everywhere, and the stock market continues to gyrate erratically. No wonder the Fed-chief looked more like a deck-hand on the Lusitania than the monetary-czar of the most powerful country on earth.

Bernanke's prepared remarks were delivered with the solemnity of a priest performing Vespers. But he was clear, unlike his predecessor, Greenspan, who loved speaking in hieroglyphics.

Bernanke:

As you know, financial markets in the United States and in a number of other industrialized countries have been under considerable strain since late last summer. Heightened investor concerns about the credit quality of mortgages, especially subprime mortgages with adjustable interest rates, triggered the financial turmoil. However, other factors, including a broader retrenchment in the willingness of investors to bear risk, difficulties in valuing complex or illiquid financial products, uncertainties about the exposures of major financial institutions to credit losses, and concerns about the weaker outlook for the economy, have also roiled the financial markets in recent months.”
Yes, of course. The banks are ailing from their subprime investments while Europe is sinking fast from $500 billion in unsellable asset-backed garbage. The whole system is clogged with crappy paper and deteriorating collateral. Now there are problems popping up in auction rate sales and the normally-safe municipal bonds. The whole financial Tower of Babel is cracking at the foundation.

Bernanke continues:

Money center banks and other large financial institutions have come under significant pressure to take onto their own balance sheets the assets of some of the off-balance-sheet investment vehicles that they had sponsored. Bank balance sheets have swollen further as a consequence of the sharp reduction in investor willingness to buy securitized credits, which has forced banks to retain a substantially higher share of previously committed and new loans in their own portfolios. Banks have also reported large losses, reflecting marked declines in the market prices of mortgages and other assets that they hold. Recently, deterioration in the financial condition of some bond insurers has led some commercial and investment banks to take further markdowns and has added to strains in the financial markets.
Bernanke sounds more like an Old Testament prophet reading passages from the Book of Revelations than a Central Banker. But what he says is true; even without the hair-shirt. The humongous losses at the investment banks have forced them to go trolling for capital in Asia and the Middle East just to stay afloat. And, when they succeed, they're forced to pay excessively high rates of interest. The true cost of capital is skyrocketing. That's why the banks are protecting their liquidity and cutting back on new loans. Most of the banks have also tightened lending standards which is slowing down the issuance of credit and threatens to push the economy into a deep recession. When banks cramp-up; the overall economy shrinks. It's just that simple; no credit, no growth. Credit is the lubricant that keeps the capitalist locomotive chugging-along. When it dwindles, the system screeches to a halt.


"DOWNSIDE RISKS TO GROWTH HAVE INCREASED"

Bernanke again:

In part as the result of the developments in financial markets, the outlook for the economy has worsened in recent months, and the downside risks to growth have increased. To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so. The virtual shutdown of the subprime mortgage Bear-Stearns-Troubles Nov-07  market and a widening of spreads on jumbo mortgage loans have further reduced the demand for housing, while foreclosures are adding to the already-elevated inventory of unsold homes. Further cuts in homebuilding and in related activities are likely.....Conditions in the labor market have also softened. Payroll employment, after increasing about 95,000 per month on average in the fourth quarter, declined by an estimated 17,000 jobs in January. Employment in the construction and manufacturing sectors has continued to fall, while the pace of job gains in the services industries has slowed. The softer labor market, together with factors including higher energy prices, lower equity prices, and declining home values, seem likely to weigh on consumer spending in the near term.

So, let's summarize. The banks are battered by their massive subprime liabilities. Housing is in the tank. Manufacturing is down. Food and energy are up. Unemployment is rising. And consumer spending has shriveled to the size of an acorn. All that's missing is a trumpet blast and the arrival of the Four Horseman.
How is it that Bernanke's economic post-mortem never made its way into the major media? Is there some reason the real state of the economy is being concealed from 'we the people'?

Bernanke continues:

On the inflation front, a key development over the past year has been the steep run-up in the price of oil. Last year, food prices also increased exceptionally rapidly by recent standards, and the foreign exchange value of the dollar weakened. ...(If) inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central bank's policy flexibility to counter shortfalls in growth in the future.

Right. So, if the Fed's rate-cutting strategy doesn't work and the economic troubles persist (and prices continue to go through the roof) then we're S.O.L. (sh** out of luck) because the Fed has no more arrows in its quiver. It's rate cuts or death. Great. So, we can expect Bernanke to hack away at rates until they're down to 1% or lower (duplicating the downturn in Japan) hoping that the economy shows some sign of life before it takes two full wheelbarrows of greenbacks to buy a quart of milk and a few seed-potatoes.

Sounds like a plan!

We don't blame Bernanke. He's been remarkably straightforward from the very beginning and deserves credit. He's simply left with the thankless task of mopping up the ocean of red ink left behind by Greenspan. It's not his fault. He should be applauded for dispelling the decades-long illusion that a nation can borrow its way to prosperity or that chronic indebtedness is the same as real wealth. It's not; and the bill has finally come due.

Of course, now that the low-interest speculative orgy is over; there's bound to be a painful unwind of hyper-inflated assets, falling home prices, tumbling stock markets, increased unemployment, and a generalized credit-contraction throughout the real economy. Ouch. Who said it was going to be easy?

Bernanke's summation:

At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt....It is important to recognize that downside risks to growth remain, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated, or that credit conditions may tighten substantially further.
(Editor's translation) "Discount everything I've said here today if the economy blows up---as I fully-expect it will---from decades of regulatory neglect and the myriad multi-trillion dollar Ponzi-schemes which have put the entire financial system at risk of a major heart attack".

Bernanke's candor is admirable, but it is little relief for the people who will have to soldier-on through the hard times ahead. Perhaps, next time he could spare us all the lengthly oratory and just forward a brief cablegram to Congress saying something like this:

"We are deeply sorry, but we have totally fu**ed up your economy with our monetary hanky-panky. You are all in very deep Doo-doo. Prepare for the worst."

Our sincerest regrets,

The Fed.


LaRouche - Admin - 02-24-2008

SPECULATIVE ONSLAUGHT.  CRISIS OF THE WORLD FINANCIAL SYSTEM THE FINANCIAL PREDATORS HAD A BALL

F. William Engdahl
http://globalresearch.ca/index.php?context=va&aid=8158

Colossal Collateral Damage

The multi-trillion dollar US-centered securitization debacle began to unravel in June 2007 with the liquidity crisis in two hedge funds owned by Bear Stearns, one of the world’s largest and most successful investment banks. The funds were heavily invested in sub-prime mortgage securities. The damage soon spread across the Atlantic to a little-known German state-owned bank, IKB. In July 2007, IKB’s wholly-owned conduit, Rhineland Funding, had approximately €20 billion of Asset Backed Commercial Paper (ABCP). In mid-July, investors refused to rollover part of Rhineland Funding’s ABCP. That forced the European Central Bank to inject record volumes of liquidity into the market to keep the banking system liquid.

Rhineland Funding asked IKB to provide a credit line. IKB revealed it didn’t have enough cash or liquid assets to meet the request of its conduit, and was only saved by an emergency €8 billion credit facility provided by its state-owned major shareholder bank, the Kreditanstalt für Wiederaufbau, ironically the bank which led the Marshall Plan reconstruction of war-torn Germany in the late 1940’s. It was soon to become evident to the world that a new Marshall Plan, or some financial equivalent, was urgently needed for the United States economy; however, there were no likely donors stepping up to the plate this time.

The intervention of KfW, rather than stopping the panic, led to reserve hoarding and to a run on all commercial paper issued by international banks’ off-books Structured Investment Vehicles (SIVs).

Asset Backed Commercial Paper was one of the big products of the asset securitization revolution fostered by Greenspan and the US financial establishment. They were the stand-alone creations of the major banks, set up to get risk off the bank’s balance sheet.

The SIV would typically issue Commercial Paper securities backed by a flow of payments from the cash collections received from the conduit’s underlying asset portfolio. The ABCP was a short-term debt, generally no more than 270 days. Crucially, they were exempt from the registration requirements of the US Securities Act of 1933. ABCPs were typically issued from pools of trade receivables, credit card receivables, auto and equipment loans and leases, and collateralized debt obligations.

In the case of IKB in Germany, the cash flow was supposed to come from its portfolio of sub-prime US home mortgages, mortgage backed Collateralized Debt Obligations (CDOs). The main risk faced by ABCP investors was asset deterioration—that the individual loans making up the security default—precisely what began to cascade through the US mortgage markets during the summer of 2007.

The problem with CDOs was that once issued, they were rarely traded. Their value, rather than being market-driven, were based on complicated theoretical models.

When CDO holders around the world last summer suddenly and urgently needed liquidity to face the market sell-off, they found the market value of their CDOs was far below book value. So, instead of generating liquidity by selling CDOs, they sold high-quality liquid blue chip stocks, government bonds, precious metals.

That simply meant the CDO crisis led to a loss of value in both CDOs and stocks. The drop in price of equities triggered contagion to hedge funds. That dramatic price collapse wasn’t predicted by the theoretical models built into quantitative hedge funds and led to large losses in that part of the market, led by Bear Stearns’ two in-house hedge funds. Major losses by leading hedge funds further fed increasing uncertainty and amplified the crisis.

That was the beginning of colossal collateral damage. The models all broke down.

Lack of transparency was at the root of the crisis that had finally and inevitably erupted in mid-2007. That lack of transparency was due to the fact that instead of spreading risk in a transparent way as foreseen by accepted economic theory, market operators chose ways to "securitize" risky assets by promoting high-yielding, high-risk assets, without clearly marking their risk. Additionally, credit-rating agencies turned a blind eye to the inherent risks of the products. The fact that they were rarely traded meant even the approximate value of these structured financial products was not known.

Ignoring lessons from LTCM

With that collapse of confidence among banks in the international inter-bank market, the heart of global banking and which trades in Asset Backed Commercial Paper, the banking system stared a systemic crisis in the face. A crisis now threatened of a domino collapse of banks akin to that in Europe in 1931, when the French banks for political reasons pulled the plug on the Austrian Creditanstalt. Greenspan’s New Finance was at the heart of the new instability. It was his Age of Turbulence, to parody the title of his ghost-written autobiography.

The world financial system had faced a systemic crisis threat as recently as the September 1998 collapse of the Long-Term Capital Management (LTCM) hedge fund in Greenwich, Connecticut. Only extraordinary coordinated central bank intervention then, led by Greenspan’s US Federal Reserve, prevented a global meltdown.

That LTCM crisis contained the seed crystal of all that is going wrong with the multi-trillion dollar asset securitization markets today. Curiously, Greenspan and others in positions of responsibility systematically refused to take those lessons to heart.

The nominal trigger of the LTCM crisis was an event not foreseen in the hedge fund’s risk model. Its investment strategies were based on what they felt was a predictable mild range of volatility in foreign currencies and bonds based on data from historical trading experience. When Russia declared it was devaluing its rouble currency and defaulting on its Russian state bonds, the risk parameters of LTCM’s risk models were literally blown out of the water, and LTCM with it. Sovereign debt default was an event that was not "normal."

Unlike the risk assumptions of every risk model used by Wall Street, the real world was also not normal, but rather highly unpredictable.

To cover their losses LTCM and its banks began a panic sell-off of anything it could liquidate, triggering panic selling by other hedge funds and banks to cover exposed positions. In response, the US stock market dropped 20%, while European markets fell 35%. Investors sought safety in US Treasury bonds, causing interest rates to drop by over a full point. As a result, LTCM’s highly leveraged investments started to crumble. By the end of August 1998, it lost 50% of the value of its capital investments.

In the summer of 1997 amid the hedge fund-led attacks on the vulnerable currencies of Thailand, Indonesia, Malaysia and other Asian high-growth "Tiger" economies, Malaysia’s Prime Minister Mahathir Mohamad openly called for greater international control on the murky speculation of hedge funds. He named the name of one of the largest involved in the Asian attacks, George Soros’ Quantum Fund. Because of US pressure from the Treasury Department by Secretary Robert Rubin, the former head of Goldman Sachs, and from the Greenspan Fed, no oversight of opaque offshore hedge funds was ever undertaken. Instead they were let to grow into funds holding more than $1.4 trillion in assets by 2007.

Fatally flawed risk models

The point about that LTCM crisis that rocked the foundations of the global finance system, was who was involved and what economic assumptions they used—the very same fundamental assumptions used to construct the deadly-flawed risk models of the asset securitization debacle.

At the beginning of 1998, LTCM had capital of $4.8 billion, a portfolio of $200 billion, built from its borrowing capacity or credit lines loaned from all the major US and European banks hungry for untold gains from the successful fund. LTCM held derivatives with a notional value of $1,250 billion. That is one unregulated, offshore hedge fund held a portfolio of options and other financial derivatives nominally worth one and a quarter trillion dollars. Nothing of that scale had ever before been dreamed of. The dream rapidly turned into a nightmare.

In the argot of Wall Street, LTCM was a highly geared fund, unbelievably high. One of its investors was the Italian central bank, so awesome was the fund’s reputation. The major global banks who had poured their money into LTCM hoping to coattail the success and staggering profits included Bankers Trust, Barclays, Chase, Deutsche Bank, Union Bank of Switzerland, Salomon Smith Barney, J.P.Morgan, Goldman Sachs, Merrill Lynch, Crédit Suisse, First Boston, Morgan Stanley Dean Witter; Société Générale; Crédit Agricole; Paribas, Lehman Brothers. Those were the very banks that were to emerge less than a decade later at the heart of the securitization crisis in 2007.

Speaking to press at the time, US Treasury Secretary Rubin declared, "LTCM was a single isolated instance in which the judgment was made by the Federal Reserve Bank of New York that there were possible systemic implications of a failure, and what they did was to organize or bring together a group of private sector institutions which then made a judgment of what was in their economic self interest."

The source of the awe over LTCM was the "dream team" who ran it. The fund’s CEO and founder was John Meriwether, a legendary trader who had left Salomon Brothers following a scandal over purchase of US Treasury bonds. That hadn’t dented his confidence. Asked whether he believed in efficient markets, he once modestly replied, "I MAKE them efficient." The fund’s principal shareholders included the two eminent experts in the "science" of risk, Myron Scholes and Robert Merton. Scholes and Merton had been awarded the Nobel Prize for economics in 1997 for their work on derivatives by the Swedish Academy of Sciences. LTCM also had a dazzling array of professors of finance, doctors of mathematics and physics and other "rocket scientists" capable of inventing extremely complex, daring and profitable financial schemes.

Black-Scholes, fundamental flaws and risk models

There was only one flaw. Scholes’ and Mertons’ fundamental axioms of risk, the assumptions on which all their models were built, were wrong. They had been built on sand, fundamentally and catastrophically wrong. Their mathematical options pricing model assumed that there were Perfect Markets, markets so extremely deep that traders' actions could not affect prices. They assumed that markets and players were rational. Reality suggested the opposite—markets were fundamentally irrational in the long-term. But the risk pricing models of Black, Scholes and others over the past two or more decades had allowed banks and financial institutions to argue that traditional lending prudence was old fashioned. With suitable options insurance, risk was no longer a worry. Eat, drink and be merry...

That, of course, ignored actual market conditions in every major market panic since Black-Scholes model was introduced on the Chicago Board Options Exchange. It ignored the fundamental role of options and ‘portfolio insurance’ in the Crash of 1987; it ignored the causes of the panic that in 1998 brought down Long Term Capital Management – of which Scholes and Merton were both partners. Wall Street blissfully ignored the obvious along with the economists and governors in the Greenspan Fed.

Financial markets, contrary to the religious dogma taught at every business school since decades, were not smooth, well-behaved models following the Gaussian Bell-shaped Curve as if it were a law of the universe. The fact that the main architects of modern theories of financial engineering—now given the serious-sounding name ‘financial economics’—all got Nobel prizes, gave the flawed models the aura of Papal infallibility. Only three years after the 1987 crash the Nobel Committee in Sweden gave Harry Markowitz and Merton Miller the prize. In 1997 amid the Asia crisis, it gave the award to Robert Merton and Myron Scholes.

The most remarkable aspect of the incompetent risk models in use since the origins of financial derivatives in the 1980’s, through to the explosive growth of asset securitization in the last decade, was how little they were questioned.

LTCM had ace Wall Street investment bankers, two Nobel Prize economists who literally invented the theory of pricing derivatives on everything from stocks to currencies. To top its all-star LTCM lineup, David Mullins, the former vice-chairman of the Federal Reserve Board under Alan Greenspan quit his job with the Maestro to become a partner at LTCM. Despite all this, the traders at LTCM and those who followed them to the edge of the financial abyss in August 1998 did not have a hedge against the one thing they now confronted—systemic risk. Systemic risk was precisely what they confronted once an "impossible event," the Russian state default, had occurred.

Despite the clear lessons from the harrowing LTCM debacle—there is no derivative that insures against systemic risk—Greenspan, Rubin and the New York banks continued to build their risk models as if nothing had taken place. The Russian sovereign default was dismissed as a "once in a Century event." They were moving on to build the dot.com bubble and, in the aftermath, the greatest financial bubble in human history—the asset securitization bubble of 2002-2007.

Life is no Bell Curve

Risk and its pricing did not behave like a bell-shaped curve, not in financial markets any more than in oilfield exploitation. In 1900 an obscure French mathematician and financial speculator, Louis Bachelier, argued that price changes in bonds or stocks followed the bell-shaped curve that the German mathematician, Carl Friedrich Gauss, devised as a model to map statistical probabilities for various events. Bell curves assumed a mild form of randomness in price fluctuations, just as the standard I.Q. test by design defines 100 as "average," the center of the bell. It was a kind of useful alchemy, but still alchemy.

That assumption that financial price variations behaved fundamentally like the bell curve allowed Wall Street Rocket Scientists to roll out an unending stream of new financial products each more arcane and complex than the previous. The theories were modified. The "Law of Large Numbers" was added to say that when the number of events becomes sufficiently large, like flips of a coin or rolls of die, the value converges on a stable value over the long term. The Law of Large Numbers, which in reality was no scientific law at all, allowed banks like Citigroup or Chase to issue hundreds of millions of Visa cards without so much as a credit check, based on data showing that in "normal" times defaults on credit cards were so rare as not to be worth considering.

The problems with models based on bell curve distributions or laws of large numbers arose when times were not normal, such as a steep economic recession of the sort the United States economy today is beginning to experience, a recession comparable perhaps only to that of 1931-1939.

The remarkable thing was that America’s academic economists and Wall Street investment bankers, Federal Reserve governors, Treasury secretaries, Sweden’s Nobel Economics Prize judges, England’s Chancellors of the Exchequer, her High Street bankers, her Court of the Bank of England, to name just the leading names, all were willing to turn a blind eye to the fact that economic theory, theories of market behavior, theories of derivative risk pricing, were incapable of predicting, let alone preventing, non-linear surprises. It was incapable of predicting bursting of speculative bubbles, not in October 1987, not in February 1994, in March 2002, and most emphatically not since June 2007. It couldn’t because the very model created the conditions that led to the ever larger and more destructive bubbles in the first place. Financial Economics was but another word for unbridled speculative excess.

A theory incapable of explaining such major, defining surprise events, despite Nobel prizes, was not worth the paper it was written on. Yet the US Federal Reserve Governors—above all Alan Greenspan, US Treasury secretaries, above all Robert Rubin and Lawrence Summers and Henry Paulsen—prevailed to make sure that Congress never lay a legislative or regulatory hand on the exotic financial instruments that were being created, created based on a theory that was utterly irrelevant to reality.

On September 29, 1998, Reuters reported, "any attempt to regulate derivatives, even after the collapse—and rescue—of LTCM have not met with success. The CFTC (the government agency with nominal oversight over derivatives trading-w.e.) was barred from expanding its regulation of derivatives under language approved late on Monday by the US House and Senate negotiators. Earlier this month the Republican chairmen of the House and Senate Agriculture Committees asked for the language to limit the CFTC's regulatory authority over over-the-counter derivatives echoing industry concerns." Industry of course meant the big banks.

Reuters added that "when the initial subject of regulation was broached by the CFTC both Fed chairman, Alan Greenspan, and Treasury Secretary Rubin leapt to the defense of the industry claiming that the industry did not need regulation and that to do so would drive business overseas."

The combination of relentless refusal to allow regulatory oversight of the explosive new financial instruments from Credit Default Swaps to Mortgage Backed Securities and the myriad of similar exotic "risk-diffusing" financial innovations and the 1999 final repeal of the Glass-Steagall Act strictly separating securities dealing banks from commercial lending banks opened the way for what in June 2007 began as the second Great Depression in less than a century. It began what future historians will describe as the final demise of the United States as the dominant global financial power.

Liars’ Loans and NINA: Banks in an orgy of fraud

The lessons of the 1998 Russia default and the LTCM systemic crisis were forgotten within weeks by the major players of the New York financial establishment. Flanked by MBA whiz kid ‘rocket scientist’ analysts, bell curve models and fatally flawed risk models, the financial giants of the US banking world launched a wave of mega-mergers and began to create ingenious ways of getting lending risk off their books. That opened the doors to the greatest era of corporate and financial fraud in world history, the asset securitization bonanza.

With Glass-Steagall finally repealed in late 1999, at the urgings of Greenspan and Rubin, banks were now free to snatch up rivals across the spectrum from insurance companies to consumer credit or finance houses. The landscape of American banking underwent a drastic change. The asset securitization revolution was ready to be launched.

With Glass-Steagall gone, now only bank holding companies and subsidiary pure lending banks were directly monitored by the Federal Reserve. If Citigroup opted to close its Citibank branch in a sub-prime neighborhood and instead have a new wholly-owned subsidiary, CitiFinancial, which specialized in sub-prime lending, work the area, CitiFinancial could operate under entirely different and lax regulation.

CitiFinancial issued mortgages separately from Citibank. Consumer groups accused CitiFinancial of specializing in "predator loans" in which unscrupulous mortgage brokers or salesmen would push a loan on a family or person far beyond his comprehension or capacity to handle the risks. And Citigroup was only typical of most big banks.

On January 8, 2008 Citigroup announced with great fanfare publication of its consolidated "US residential mortgage business," including mortgage origination, servicing and securitization. Curiously, the statement omitted CitiFinancial, the subsidiary with the most risk.


Basle I loopholes

The driver pushing the banks towards securitization and the proliferation of off-balance-sheet risks including highly leveraged derivatives positions was the 1987 Basle Bank for International Settlements Capital Adequacy Accord, known today as Basle I. That agreement among the central banks of the world’s largest economies required banks to set aside 8% of a normal commercial loan as reserve against possible future default. The then-new innovation of financial derivatives were not mentioned in Basle I on US insistence.

The Accord originally had been intended by Germany’s ultra-conservative Bundesbank and other European central banks to rein in the more speculative Japanese and US bank lending which had led to the worst banking crisis since the 1930’s. The original intent of the Basle Accord was to force banks to reduce lending risk. The actual effect for US banks was just the opposite. They soon discovered a gaping loophole—off-balance-sheet transactions, notably derivatives positions and securitization. Because they were left out of Basle I banks need not set aside any capital to cover potential losses.

The elegance of securitization of loans such as home mortgages for the issuing bank was that they could take the loan or mortgage and immediately sell it on to a securitizer or underwriter who bundled hundreds of such loans into a new Asset Backed Security. This seemingly genial innovation was far more dangerous than it sounded. Lending banks no longer needed to carry a mortgage loan on its books for 20-30 years as was traditional. They sold it on at a discount and used the cash to turn the next round of credit issuing.

That meant as well that the lending bank now no longer had to worry if the loan would ever be repaid.

Fraud a la mode

It didn’t take long before lending banks across the United States realized they were sitting on a bonanza bigger than the California gold rush. With no worry about whether a borrower of a home mortgage, say, would be able to service the debt for the next decades, banks realized they made money on pure loan volume and resell to securitizers.

Soon it became commonplace for banks to outsource their mortgage lending to free-lance brokers. Instead of doing their own credit checks they relied, often exclusively, on various online credit questionnaires, similar to the Visa card application where no follow-up was done. It became common practice for mortgage lenders to offer brokers bonus incentives to bring in more signed mortgage loan volume, another opportunity for massive fraud. The banks got more gain from making high volumes of loans then selling for securitization. The world of traditional banking was being turned on its head.

As the bank no longer had an incentive to assure the solidity of a borrower through minimum cash down payments and exhaustive background credit checks, many US banks, simply to churn loan volume and returns, gave what they cynically called "Liars’ Loans." They knew the person was lying about his credit and income to get that dream home. They simply didn’t care. They sold the risk once the ink was dry on the mortgage.

A new terminology arose after 2002 for such loans, such as "NINA" mortgages—No Income, No Assets. "No problem, Mister Jones. Here’s $400,000 for your new home, enjoy."

With Glass-Steagall no longer an obstacle, banks could set up myriad wholly-owned separate entities to process the booming home mortgage business. The giant of the process was Citigroup, the largest US bank group with over $2.4 trillion of group assets.

Citigroup included Travelers Insurance, a state-regulated insurer. It included the old Citibank, a huge retail lending bank. It included the investment bank, Smith Barney. And it included the aggressive sub-prime lender, CitiFinancial, according to numerous consumer reports, one of the most aggressive predatory lenders pushing sub-prime mortgages on often ignorant or insolvent borrowers, often in poor black or Hispanic neighborhoods. It included the Universal Financial Corp. one of the nation’s largest credit card issuers, who used the so-called Law of Large Numbers to grow its customer base among more and more dodgy credit risks.

Citigroup also included Banamex, Mexico’s second largest bank and Banco Cuscatlan, El Salvador’s largest bank. Banamex was one of the major indicted money laundering banks in Mexico. That was nothing foreign to Citigroup. In 1999 the US Congress and GAO investigated Citigroup for illicitly laundering $100 million in drug money for Raul Salinas, brother of the then-Mexican President. The investigations also found the bank had laundered money for corrupt officials from Pakistan to Gabon to Nigeria.

Citigroup, the financial behemoth was merely typical of what happened to American banking after 1999. It was a different world entirely from anything before with the possible exception of the excesses of the Roaring ‘20’s. The degree of lending fraud and abuse that ensued in the new era of asset securitization was staggering to the imagination.

The Predators had a ball

One US consumer organization documented some of the most common predatory lending practices during the real estate boom:

"In the United States in the first decade of the 21st century there are many storefronts offering such loans. Some are old -- Household Finance and its sister Beneficial, for example -- and some are newer-fangled, like CitiFinancial. Both offer credit at rates over thirty percent. The business is booming: the spreads, Wall Street says, are too good to pass up. Citibank pays under five percent interest on the deposits it collects. Its affiliated loan sharks charge four times that rate, even for loans secured by the borrower's home. It's a can't-miss proposition. Even if the economy goes South they can take and resell the collateral. The business is global: the Hong Kong & Shanghai Banking Corporation, now HSBC, wants to export it to the eighty-plus countries in which it has a retail presence. Institutional investors love the business model and investment banks securitize the loans. These fancy terms will be defined as we proceed. The root, however, the fodder on which the whole pyramid rests, is the solitary customer at what's called the point of sale… points and fees can be added to the money that's lent. CitiFinancial and Household Finance both suggest that insurance is needed. This they serve in a number of flavors -- credit life and credit disability, credit unemployment and property insurance -- but in almost all cases, it is included in the loans and interest is charged on it. It's called "single premium" -- instead of paying each month for coverage, you pay in advance with money on which you pay interest. If you choose to refinance, you will not get a refund. It is money down the drain, but at the point-of-sale it often goes unnoticed.

Take, for example, the purchase of furniture. A bedroom set might cost two thousand dollars. The sign says Easy Credit, sometimes spelled E-Z. The furniture man does not manage these accounts. For this he turns to CitiFinancial, to HFC or perhaps to Wells Fargo. While the Federal Reserve lends money to banks at below five percent, these bank-affiliates charge twenty or thirty or forty percent. You will have insurance on your furniture: to protect you, they say, from having it repossessed if you die or become unemployed. Before the debt is discharged, dead or alive, you will have paid more than the list-price of a luxury car or a crypt with a doorman.

Midway you'll be approached with a sweet-sounding offer: if you'll put up your home as collateral, your rate can be lowered and the term be extended. A twenty-year mortgage, fixed or adjustable. The rate will be high and the rules not disclosed. For example: if you satisfy the loan too quickly, you'll be charged a pre-payment penalty. Or, you'll pay slowly and then be asked to pay more, in what's called a balloon. If you can't, that's okay: they knew you couldn't. The goal is to refinance your loan and charge you yet more points and fees.

In prior centuries, this was called debt peonage. Today it is the fate of the so-called sub-prime serf. Fully twenty percent of American households are described as sub-prime. But half of the people who get sub-prime loans could have paid normal rates, according to Fannie Mae and Beltway authorities. Outside it's the law of the jungle; the only rule is Buyer Beware. But this is easier for some people than others.

Why would a person overpay by so much? In the nation's low-income neighborhoods, sometimes called ghettos or, in a more poetic euphemism, the inner city, there's a lack of bank branches. In the late 20th century, many financial institutions left the 'hood in the lurch. They refused to lend money; they refused to write insurance policies.

In the 1980’s this author interviewed a senior Wall Street banker, at the time recovering from some kind of burnout. I asked about his bank’s business in Cali, Colombia during the heyday of the Cali cocaine cartel. Speaking not for attribution, he related, "Banks would literally kill to get a slice of this business, it’s so lucrative." Clearly they moved on to sub-prime lending with similar goals in mind, and profits as huge as in money laundering drug gains.

Alan Greenspan openly backed the extension of bank lending to the poorest ghetto residents. Edward M. Gramlich, a Federal Reserve governor who died in September 2007, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford. When Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan. Greenspan ruled the Fed with nearly the power of an absolute monarch.

Revealing what was most certainly the tip of a very extensive iceberg of fraud, the FBI recently announced it was investigating 14 companies for possible accounting fraud, insider trading or other violations in connection with home loans made to risky borrowers. The FBI announced that the probe involved companies across the financial services industry, from mortgage lenders to investment banks that bundle home loans into securities sold to investors.

At the same time, authorities in New York and Connecticut were investigating whether Wall Street banks hid crucial information about high-risk loans bundled into securities sold to investors. Connecticut Attorney General Richard Blumenthal said he and New York Attorney General Andrew Cuomo were looking whether banks properly disclosed the high risk of default on so-called "exception" loans — considered even riskier than sub-prime loans — when selling those securities to investors. Last November, Cuomo issued subpoenas to government-sponsored mortgage companies, Fannie Mae and Freddie Mac, in his investigation into what he claimed were conflicts of interest in the mortgage industry. He said he wanted to know about billions of dollars of home loans they bought from banks, including the largest US savings and loan, Washington Mutual Inc., and how appraisals were handled.

The FBI said it was looking into the practices of sub-prime lenders, as well as potential accounting fraud committed by financial firms that hold these loans on their books or securitize them and sell them to other investors. Morgan Stanley, Goldman Sachs Group Inc. and Bear Stearns Cos. all disclosed in regulatory filings that they were cooperating with requests for information from various unspecified, regulatory and government agencies.

One former real estate broker from the Pacific Northwest, who quit the business in disgust at the pressures to push mortgages on unqualified borrowers, described some of the more typical practices of predatory brokers in a memo to this author:

The sub-prime fiasco is a nightmare alright, but the prime ARMs hold potential for overwhelming disaster. The first "hiccup" occurred in July/August 2007 - this was the "Sub-prime Fiasco," but in November 2007 the hiccup was more than that. It was in November 2007, that the prime ARMs adjusted upwards.

What this means is that upon the "anniversary date of the loan" the Adjustable Rate Mortgage adjusts up into a higher payment. This happens because the ARM was "purchased" at a teaser rate, usually one or one and one half percent. Payments made at that rate, while very attractive, do nothing to reduce principal and even generate some unpaid interest which is tacked onto the loan. Borrowers are permitted to make the teaser rate payments for the entire first year, even though the rate is good only for the first month.

Concerns about "negative amortization," whereby the indebtedness on the loan becomes more than the market value of the property, were allayed by reference to the growth in property values due to the bank-created bubble, which it was said was normal and could be relied upon to continue. All that was promoted by the lenders who sent armies of account executives, i.e., salesmen, around to the mortgage brokers to explain how it would work.

Adjustable interest rates on home loans were the sum of the bank’s profit - the margin - and some objective predictor of the cost of the borrowed funds to the bank, known as the index. Indexes generated by various economic activities - what the banks around the country were paying for 90 day CD’s or what the banks in the London Interbank Exchange (LIBOR) were paying for dollars - were used. Adding the margin to the index produces the true interest rate on the loan - the rate at which, after 30 years of payments, the loan will be completely paid off ("amortized"). It is called the "fully indexed rate."

I am going to pick an arbitrary 6% as the "real" interest rate (3% margin + 3% index). With a loan amount of $250,000.00 the monthly payment at 1% would be $804.10; that is the "teaser rate" payment, exclusive of taxes and insurance. This would adjust with changes in the index, but the margin remains static for the life of the loan.

This loan is structured so that payment adjustments only occur once per year and are capped at 7.5 % of the previous year’s payment. That can go on, stair stepping, for a period of 5 years (or 10 years in the case of one lender) without regard to what is happening in the real world. Then, at the end of the 5 years, the caps come off and everything adjusts to payments under the "fully indexed rate."

If the borrower has been making only the minimum required payments the whole time, this can result in a payment shock in the thousands. If the value of the home has decreased twenty-five percent, the borrower, this time someone with stellar credit, is encouraged to give it back to the bank, which devalues it at least another twenty-five percent and that spreads to the surrounding properties.



According to a Chicago banking insider, during the first week of February 2008, bankers in the U.S. were made aware of the following:

Chase Manhattan Bank ("CMB") has sent out an unlimited number of statements to its customers about Lines of Credit ("LOC’s". The terms of its LOC’s, which, have been popular in the past, are now being manipulated and the values of the properties securing them are being unilaterally adjusted down, sometimes as much as 50 percent. This means homeowners are faced with making payments on a loan to buy an asset that is apparently worth half of the principal amount of the loan and paying interest on top of that. The only sensible thing to do in many cases is walk away, which results in a major loss in equity, reducing the value of all surrounding properties and adding to the avalanche of foreclosures.
This is especially aggravated in cases of "Creative Financing" LOCs - those that were drawn on equal to between ninety and one hundred percent of the value of the property before the bubble burst…
CMB has automatically closed credit lines that have "open" credit on them - meaning that the borrower left some money in the LOC for the future - over an 80% ratio of the amount of the loan to the value ("LTV") of the property. This has been done on a mass basis without any reference to the "property owners."
Loan to Value limits mean that the amount of money which the lender is willing to loan cannot exceed the stated percentage of the property value. In common practice, an appraiser would be hired to assess the value of the property. The appraisal is informed by comparable sales of other properties which have sold in an area that, with a few exceptions, must be no more than one mile away from the subject property. That was merely the tip of the mortgage fraud bonanza that preceded the present unfolding Tsunami.

The Tsumani is only beginning

The nature of the fatally flawed risk models used by Wall Street, by Moody’s, by the securities Monoline insurers and by the economists of the US Government and Federal Reserve was such that they all assumed recessions were no longer possible, as risk could be indefinitely diffused and spread across the globe.

All the securitized assets, the trillions of dollars worth, were priced on such flawed assumption. All the trillions of dollars of Credit Default Swaps—the illusion that loan default could be cheaply insured against with derivatives—all these were set to explode in a cascading series of domino-like crises as the crisis in the US housing market unraveled. The more home prices fell, the more mortgages facing sharply higher interest rate resets, the more unemployment spread across America from Ohio to Michigan to California to Pennsylvania to Colorado and Arizona. That process set off a vicious self-feeding spiral of asset price deflation.

The sub-prime sector was merely the first manifestation of what was to unravel. The process will take years to wind down. The damaged products of Asset Backed Securities were used in turn as collateral for yet further bank loans, for leveraged buyouts by private equity firms, by corporations, even by municipalities. The pyramid of debt built on assets securitized began to go into reverse leverage as reality dawned in global markets that no one knew the worth of the securitized paper they held.

In what would be a laughable admission were the consequences of their criminal negligence not so tragic for millions of Americans, Standard & Poors, the second largest rating agency in the world stated in October 2007 that they "underestimated the extent of fraud in the US mortgage industry." Alan Greenspan feebly tried to exonerate himself by claiming that lending to sub-prime borrowers was not wrong, only the later securitization of the loans. The very system they worked over decades to create was premised on fraud and non-transparency.

Credit Default Swap crisis next

As of this writing, the next ratchet down in the US financial Tsunami was the monocline insurers where, short of a US government nationalization, no solution was feasible as the unknown risks were so staggering. That problem was discussed in the previous Part IV.

Next to explode will be the imminent probability of meltdown in the $45 trillion market in Over-the-Counter Credit Default Swaps (CDS), the brainchild of J.P. Morgan.

As Greenspan made certain, the CDS market remained unregulated and opaque, so that no one knew what the scale of the risks in a falling economy were. Because it is unregulated it often was the case that one party to a CDS resold to another financial institution without informing the original counterparty. That means it is not obvious that were an investor to try to cash in his CDS he could track down its payer of the claim. The CDS market was overwhelmingly concentrated in New York banks who held swaps at the end of 2007 worth nominally $14 trillion. The most exposed were J.P. Morgan Chase with $7.8 trillion and Citigroup and Bank of America with $3 trillion each.

The problem had been exacerbated by the fact that of the $45 trillions of credit default swaps, some 16% or $7.2 trillion worth were written to protect holders of Collateralized Debt Obligations where the mortgage collateral problems were concentrated. The CDS market was a ticking time bomb with an atomic detonator. As the credit crisis spreads in coming months, corporations will be forced to default on their bonds and writers of CDS insurance will face exploding claims and non-transparent rules. A claims settlement procedure for a market nominally worth $45 trillion did not exist as of February 2008.

As hundreds of thousands of Americans over the coming months find their monthly mortgage payments dramatically reset according to their Adjustable Rate Mortgage terms, another $690 billion in home mortgage debt will become prime candidates for default. That in turn will lead to a snowball effect in terms of job losses, credit card defaults and another wave of securitization crisis in the huge market for securitized credit card debt. The remarkable thing about this crisis is that so much of the sinews of the entire American financial system were tied in to it. There has never been a crisis of this magnitude in American history.

At the end of February the Financial Times of London revealed that US banks had "quietly" borrowed $50 billion in funds from a special new Fed credit facility to ease their cash crisis. Losses at all the major banks from Citigroup to J.P.Morgan Chase to most other major US bank groups continued to mount as the economy sank deeper into a recession that clearly would turn in coming months into a genuine depression. No Presidential candidate had dared utter a serious word about their proposals to deal with what was becoming the greatest financial and economic meltdown in American history.

By the early days of 2008 it was becoming clear that Financial Securitization would be the Last Tango for the United States as the global financial superpower.

The question now was posed what new center or centers of financial power could conceivably replace New York as the global nexus. That we will examine in Part VI.



Endnotes:



1.UNCTAD Secretariat, Recent developments on global financial markets: Note by the UNCTAD secretariat,

TD/B/54/CRP.2, Geneva, 28 September 2007.

2.For a treatment of the little-known political background to the 1931 Creditanstalt crisis that led to a domino collapse of German banks, see Engdahl, F. William, A Century of War: Anglo-American Oil Politics and the New World Order, 2004, London, Pluto Press, Chapter 6.

3. Schroy, John Oswin, Fallacies of the Nobel Gods: Essay on Financial Economics and Nobel Laureates, in http://www.capital-flow-analysis.com/investment-essays/nobel_gods.html.

4. For a fascinating treatment of the fundamental theoretical flaws of economic and financial market models used today, and what he calls the high odds of catastrophic price changes, I recommend the book by the Yale mathematician and inventor of fractal geometry, Benoit Mandelbrot, in Mandelbrot, Benoit and Hudson, Richard L., The (mis) Behavior of Markets: A Fractal View of Risk, Ruin and Reward, Profile Books Ltd, London, 2004.

5. Cited by Inner City Press, The Citigroup Watch, January 28, 2008, in www.innercitypress.org.citi.html.

6. Rainforest Action Network, Citigroup Becomes Mexico’s Largest Bank after Banamex Merger, August 10, 2001, in http://forests.org/archive/samerica/cibemexi.htm.

7. Lee, Matthew, Predatory Lending: Toxic Credit in the Inner City, 2003, InnerCityPress.org.

8. Andrews, Edmund L., Fed Shrugged as Sub-prime Crisis Spread, The New York Times, Dec.18, 2007.

9.Zibel, Alan, FBI Probes 14 Companies Over Home Loans, AP, January 29, 2008.

10 Private communication to the author.


RE: LaRouche - Admin - 02-24-2008

THE US FINANCIAL SYSTEM, THE DEBT BUBBLE AND THE CANCER OF EXCESSIVE DEREGULATION

Rodrigue Tremblay
http://globalresearch.ca/index.php?context=va&aid=8163

"It's...poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end."

Warren Buffett, American investor

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

John Maynard Keynes (1883-1946)

"New money that enters the economy does not affect all economic actors equally nor does new money influence all economic actors at the same time. Newly created money must enter into the economy at a specific point. Generally this monetary injection comes via credit expansion through the banking sector. Those who receive this new money first benefit at the expense of those who receive the money only after it has snaked through the economy and prices have had a chance to adjust."

Friedrich A. Hayek (1899-1992), Austrian economist



When Fed Chairman Ben Bernanke says the economic situation is worsening, you'd better believe him. In fact, the U.S. credit markets are collapsing under our very eyes, and there is no end in sight as to when this will stop, let alone reverse itself. 1- Leading economic indicators for the U.S. economy are falling; 2- Consumer confidence sentiment is falling as mortgage equity withdrawals are drying up; 3-employment numbers are falling; 4- the January 2008 report on the U.S. service economy indicates that it contracted early in the year for the first time in 58 months; 5- the number of new jobless claims is still dangerously high; 6- The housing crisis is getting up steam; banks have to place larger and larger subprime losses on their balance sheets, thus undermining their capital bases and bringing many of them to the brink of insolvency; 7- the credit-ratings agencies are under siege; 8- bond guarantee insurance companies are in the process of loosing their triple-A ratings and some are on the brink of bankruptcy; 9- the $2.6 trillion municipal bond market is about to take a nose dive, if and when the bond insurers do not pull it through; 10- the leveraged corporate loan market is in disarray; 11- the more than a trillion dollar market for mortgage- and debt-backed securities could collapse completely if the largest American mortgage insurers continue to suffer crippling losses; 12- large hedge funds are losing money on a high scale and they are suffering from a run on their assets; 13- in the U.S., total debt as a percentage of GDP is at more than 300 percent, a record level (N.B.: in 1980, it was 125 percent!); 14- and, finally, the worldwide hundreds-of- trillion dollar derivatives market could implode anytime, if too many financial institutions go under during the coming months, as most of these transactions are inter-institution trades.



There are a few positive straws in the wind, such as the fact that manufacturing output seems to be holding up pretty well, as the devalued dollar stimulates exports, but the overall economic picture remains bleak. This is a tribute to the U.S. economy's resiliency.

This mess all begun in the early 2000s, and even as far back as the early 1980s, when the Fed and the SEC adopted a hands-off approach to financial markets, guided by the new economic religion that "markets can do no wrong." What we are witnessing is the failure of nearly thirty years of so-called conservative debt-ridden and deregulation-ridden economic policies.

It must be understood that the most recent subprime problem really began in 2000, when the credit-rating agency of Standard & Poors issued a pronouncement saying that "piggyback" mortgage financing of houses, when a second mortgage is taken to pay the down-payment on a first mortgage, was no more likely to lead to default than more standard mortgages. This encouraged mortgage lending institutions to relax their lending practices, going as far as lending on mortgages with no down-payment whatsoever, and even postponing capital and interest payments for some time. And, with the Fed and the SEC looking the other way, a fatal next step was taken. Banks and their subsidiaries decided to follow new toxic and risky rules of banking.

Indeed, while traditionally banks would borrow short and lend long, they went one giant step further: they began transforming long term loans, such as mortgages, car loans, student loans, etc., into short term loans. Indeed, they got into the alchemist business of bundling together relatively long term loans into packages that they sliced into smaller credit instruments that had all the characteristics of short-term commercial paper, but were carrying higher yields. They then sold these new "structured investment vehicles" (SIVs), for a fee, to all kinds of investors who were looking for higher yields than the meager rates that alternatives were paying. And, since banks were behind these new artificial financial assets, the credit-agencies gave them an AAA-rating, which allowed regulated pension funds and insurance companies to invest in them, believing they were both safe and liquid. —They were in for a shock. When the housing bubble burst, the value of real assets behind the new financial instruments began declining, pulling the rug out from underneath the asset-backed paper market, (ABCP) which became illiquid and toxic. With hardly any trading on the new instruments, nobody knew the true value of the paper, and thus nobody was willing to buy it. This crisis of confidence has now permeated to other credit markets and is threatening the entire financial system as the contagion spreads.

As late as 2003-04, then Fed Chairman Alan Greenspan was not the least worried by the subprime-financed-housing-mortgage bubble but was instead encouraging people to take out adjustable-rate mortgages, even though interest rates were at a thirty-year low and were bound to increase. Even in late 2006, newly appointed Fed Chairman Ben Bernanke professed not to be preoccupied by the housing bubble, saying that high prices were only a reflection of a strong economy. Mind you, this was more than one year after the housing market peaked in the spring of 2005. History will record that the Fed and the SEC did nothing to prevent the debt pyramid from reaching the dangerous levels it attained and which is now crushing the economy.

On a longer span of time, when one looks at a graph provided by the U.S. Bureau of Economic Analysis (BEA) and which shows the relative importance of total outstanding debt (corporate, financial, government, plus personal) in relation to the economy, one is struck by the fact that this ratio stayed around 1.2 times GDP for decades. Then, something big happened in the early 1980s, and the ratio started to rise, with only a slight pause in the mid-1990s, to reach the air-rarefied level of 3.1 times GDP presently, nearly 200 percent more than it used to be.

The adoption of massive tax cuts coupled with government deficit spending policies, and deregulation policies, by the Reagan and subsequent GOP administrations, all culminating in a grotesque way under the current administration, contributed massively to this unprecedented debt bubble. It took many years to build up the debt pyramid, and it will take many years to unwind it and to reduce this cumulative mountain of debt to a more manageable size.

That is the big picture behind this crisis. It is much bigger than the S&L crisis of the 1980s, which looks puny in comparison with the current one. That is why I think this crisis will linger on for at least a few more years, possibly until 2010-11.


LaRouche - Admin - 03-01-2008

THE INTERNATIONAL SYSTEMIC CRISIS AND THE ROOSEVELTIAN WAY OUT
http://larouchepac.com/news/2008/02/28/larouche-rome-international-systemic-crisis-and-rooseveltian.html


"The International Systemic Crisis and the Rooseveltian Way Out," held in rooms provided by the Italian Senate. Other speakers included with Alfonso Gianni, Undersecretary in the Ministry for Economic Development, and Cati Polidori, President of the Young Entrepeneurs' Association (CONFAPI).

Helga Zepp-LaRouche, president of the German political party Civil Rights Movement Solidarity, spoke on the urgency of stopping the Lisbon European Union Treaty, designed to replace Europe's nation-state system with a supranational dictatorship, run from Brussels on behalf of the financier oligarchy. The event was attended by around 40 people of various institutional, political and economic stating. It was introduced and moderated by Claudio Celani, and included several questions from the audience. Interpretation between Italian and English was sequential.

The two-hour event was recorded by Radio Radicale.it, and is posted on their website in mp3 format (62MB); it can be listened to or downloaded from www.radioradicale.it

CELANI: [introduces Lyn and Helga, in Italian]

LYNDON LAROUCHE: On the 25th of July last year, I gave an international webcast, announcing that we were on the edge of the immediate collapse, of the greatest collapse in modern history, of the world present financial-monetary system. Within a week, that collapse began. It began particularly with the collapse of a real estate bubble which had been building up in the United States for some time.

But that bubble was only a weakest point in the entire world system. The entire international financial system is now in the process of disintegrating. There is no possibility for the continued survival during the period of months ahead. And there are certain reactions by leading forces which recognize, exactly, that months ahead, this whole system in its present form will disappear. The development of the election campaign in the United States currently, and also the developments around the Lisbon 2 agreement being proposed, which would eliminate the existence of nation-states in Continental Western Europe, are symptoms of this kind of preparation.

This has a long history, which I could explain, but we have limitations of time here, and also since we have to do the sequential translation, I will play down some things which are extremely important, which may come up in discussion.

I'll indicate what the two great problems are: First of all, you have both events are being steered from London, not from the United States, but from London. Both represent the fact that, especially since 1971, the United States' dollar has nominally been a leading factor in the world, but it has not been a U.S. dollar, it has been an international dollar. I'll describe the one well-known feature defining that difference between the 1968 picture of the dollar, and the 1971-72 picture. Up to the middle of 1971, the U.S. dollar had been a keystone of a fixed-exchange-rate system. Up until the assassination of John Kennedy in the United States, that has been a solid arrangement. A wave of assassinations, including that of Kennedy, changed the world situation politically, and the result of the assassination of Kennedy, we had the so-called prolonged Vietnam War, Indo-China War.

Then we had, in 1968, the breakdown of the political system in part with the 68er phenomenon. The political structure of the system began to crumble with '68. Nineteen seventy-one, the floating of the dollar, led to another big swindle, which, most people have not recognized yet: Most people should know that the British paid the Saudis $3 for each barrel of oil the British take from the Saudis. And by the time that oil reaches the market in Amsterdam and similar places, it's now $100 or approximately that. A very unmagical trick.

So, the entire system is fraudulent, but what happened was, to cause this, was that we had a so-called "oil price crisis," in the early 1970s as a result of the '71-'72 change in the monetary system. Then we had the orchestrated "oil price shock" of the '72-'73 period. As a result of that, we had the creation of the "Amsterdam dollar," and we can say, in an English pun, that was the beginning of the "damn dollar" to replace the U.S. dollar. So, from that point on, the U.S. dollar was no longer U.S. property, in effect, but became an Anglo-American dollar, controlled through the oil spot market out of Amsterdam and similar places. There were chain reactions centered largely on London, in the international markets on all kinds of commodities, which erupted from that point on.

And in this process, you had a fundamental shift occurring, between 1968 and 1975, in which, instead of having the nations of Europe and the United States as being the prime drivers of the world physical economy, there was now a great shift in progress. You've seen that in Italy, where in northern Italy at least, there was a significant improvement in industrial and agricultural activities into the late 1970s. Since the 1968 period-1975 period, there has been a general decline in the physical productivity in agriculture and industry in Europe and North America, in particular. What has happened is, production has been shifted to the cheap labor markets of the world. In fact, China, for example, is actually losing money on its relationship with the United States. Because the money that China as a nation gets for producing for the United States, is less than what it costs China to produce that product.

You have a similar situation, but a different one, in India. India has 1.1 billion people, which is compared to 1.4 billion people in China. In India about 70% of the population is extremely poor, as poor as it was years ago, and the most acute expressions of poverty are increasing and spreading. It's like Africa: We have parts of the world which are producing products cheaply for the world market: But! if you look at the population of the countries which are doing this, they are not able to sustain their own population from this production.

There has been no success in the world economy since the end of the 1960s. There has been contentment for some people who are very rich, and a diminishing quality of life for those who are not very poor. For example, just looking at the price and availability of health-care in countries such as Italy and Europe, or the United States: We have, for example, the Mayor of New York, who in my view never earned any money at all, was confronted with the fact that he alleged is worth $11 billion. He protested: "I am not worth $11 billion! I'm worth $40 billion!"

Now, I should tell you that this same Mayor of New York, which is to come to another part of this point, is by Italian standards of the 1930s: He is a fascist. His policy is that of corporativism, the same thing as Mussolini and Volpi di Misurata. The same program that was brought into Hitler through Schacht. There's a similar policy that's coming out of London under different names right now. And London is also running Bloomberg in New York. London is also working now, in the public press, actually, to destroy one of the leading candidates in the United States: Barack Obama. But at the same time, London is also supporting Obama against Hillary Clinton. The intention is to make Bloomberg the leading national candidate in the United States.

Well, this is not unusual for European experience, for those who know the history of Europe in the 20th century. Periods of great financial crisis, particularly financial breakdown crisis, lead to desperate measures by those relevant financier interests who have political power. And throughout the euro system, that is already present, at the same time, that it's happening inside the United States. However! There's a problem: The present financial crisis can only be compared to what happened in Europe when the Bardi bank from Lucca collapsed, and Europe went into a dark age, the so-called new dark age, where half the parishes of Europe disappeared, and one-third of the population disappeared. We face potentially a greater crisis than that, today.

But there are alternatives. There are solutions: What I propose in particular, to all relevant circles, is that the United States government undergo a change of heart, and of personnel, in which, in this year, in the first half of the year, the United States government should be induced to approach Russia, China, and India, to enter into a new agreement on a fixed-exchange-rate system.

You have to look at two key facts about the world situation to understand this: First of all, there has been no global prosperity in the past 20 to 30 years. There have been pockets of actual income, and some artificial income, which is purely monetary but not real. For example, the housing boom in the United States and Europe is totally fraudulent. But the cost of housing is greater than the salary-incomes of the people who can sustain it. And these prices are not real prices, they're inflated prices. As you see now, the prices of real estate will tend to collapse back to one-quarter or one-fifth of what they are today. And even that amount of economic activity, is not based on reality, it's based on credit. It's based on credit which is purely fictitious. It's on bills that could never be paid, credit that could never be repaid. On top of that, the total nominal income or obligations of the world, are in hundreds of trillions of dollars, and in dollars it's up in the quadrillions. So that, under these conditions, there's no possibility that you could ever resolve this debt in its present form.

All right, at the same time that we've got a worse crisis than in the 14th century, we have the major producing countries of the world, like China, India and so forth, operating below breakeven for the population as a whole. In other words, the shift of production from Europe and the United States, into the developing sector, was not based on competitive considerations! What the conditions were, that production was exported from Europe and the United States, to countries which had not received sufficient income to maintain their own populations. So therefore, the collapse of Europe and the U.S. in particular, would mean a chain-reaction collapse of the economies of Asia, as well as Africa and South America. You have to look at Europe in the terms of the 14th century, to understand this phenomenon.

This is a 21st century new dark age potential!

Now, if you study the rate of collapse of population in the Middle Ages, in the middle of the 14th century, which is something Italian historians ought to be able to master, when the chain-reaction collapse of the Lombard banking system occurred. The collapse of credit resulted in a beginning of an increased death rate in the population of Europe as a whole. This rate of decay, this rate of shrinkage of the population, then accelerated into a steep decline in population. Half the parishes of Europe vanished! The population of Europe collapsed by one-third, within a period of about a generation. And then, continued to collapse at a more leveled-off rate. This is the typical S-curve of collapse of a population of this type: a slow decline, then a steep decline, then a slower decline. The world population today, under these conditions, is between 6.5 to 7 billion people. What happens with this kind of collapse? You get a global new dark age collapse if we allow it to occur. Civilization as we know it now would disappear. The level of population would ebb toward about 1 billion people.

But there are solutions for it, as the Renaissance showed, and that's why my proposal for the United States to Russia, China, and India, is very important. As you know, Europe no longer—that is, west of Russia and so forth—no longer has any real sovereign independence in dealing with these kinds of problems. Globalization has undermined, grievously, the sovereignty of the European states.

But we have an irony at the same time: China knows, more clearly than any other country, its vulnerability to this kind of crisis. India has a slightly greater resilience in its system. But the threat is existential, nonetheless. The basic problem is, that the world is not presently producing the amount of physical wealth, including infrastructure required to sustain a population of over 6.5 billion people.

But! In Europe and in North America in particular, we have the potential in terms of technology, embedded in the people, embedded in the culture, to have a revival of physical economic output. As you look at the history of the Mussolini regime, you know you can't do it with just infrastructure. You have to do with the kind of infrastructure, which is based on increasing manufacturing and agriculture output. It means high-technology innovation. European civilization has still the ability, under emergency conditions like Roosevelt used, to reactivate the potential of productivity in the European population: a reversion to modern, mass-transportation as opposed to reliance on the automobile; unleashing the now-largely suppressed nuclear energy potential. The actual cost of nuclear power, which is reported to be high is a fraud: It is not that high, it's artificially high! If you actually put a mass investment into nuclear power, you will convert the world from dependency upon petroleum into developing not only nuclear power for local use, but for the generation of synthetic hydrogen-based fuels, to replace petroleum.

We have, admittedly, a population which has lost production skills—they've been out of work for 25 to 30 years. They depend upon old men, you know, like me to get production going again. But, we know how to do that, from past experience. Roosevelt did that, with the recovery in the United States.

So therefore, if we have 30- to 50-year agreements, with China, with India, and with other countries—long-term monetary and financial treaty agreements—China in particular has a great need for European technology, to deal with its own internal population crisis. And since Deng Xiaoping, this has been their policy. India is committed to going to the thorium cycle in nuclear power, for small-scale thorium plants. Because the people in India are very poor and very unskilled, as you find, generally, in Africa. The African farmer is productive by African standards, but he lacks the infrastructure to make his productivity efficient. So we in Europe, if we are wise, and in the United States, can make agreements with these countries: We have a great need for imaginative leaders, who will react to the stupidity of much of our politics over the past 30 years, for programs we already have developed, but we know exist. There is no problem that humanity has which is not potentially solvable under good leadership of a tradition type that we used to have in the United States.

Now the problem is this—my concluding point here—is this, we have a crisis in elections and government in Europe and in the United States. We have it on both sides of the ocean. It's acute. We have a threat of a return to fascism on a scale far beyond anything that we've known before in the past: You have a dictatorship threatened for Europe, under the new treaty agreement, the Lisbon agreement— no longer will there be any government control over the government of Europe. At the same time, we face that in the United States in the current election campaign.

All right: Obama is not going to be elected. Obama is being backed by London to bring down Hillary Clinton, and then they're going to put him out of business. Look at the leading British press: The scandal is brewing, they're going to bring him down. They've been backing up Obama to bring down Hillary Clinton. If they think that Hillary Clinton is brought down, they bring him down. Then the Mayor of New York becomes the Democratic Presidential candidate. And his program is fascist, just as fascist as you can imagine from past European experiences. So naturally, I'm part of the organization inside the United States, determined to make sure this sure this does not happen. And there are a great number of people in the United States of influence who share my concern, including senior figures who've been part of government or the institutions of government over a long period of time. I'm determined to crush this. And I'm doing everything possible to goad my friends into joining me in doing it.

My concern, also, at the same time, is, though I admit that Western Continental Europe does not have much political power any more, and if this Lisbon agreement goes through, we'll have a lot less. But I think we can mobilize things, and build up the confidence to take the measures which are needed to lead the world out of this nightmare, by methods of Franklin Roosevelt. The nations which represent European civilization must awaken to their mission, of restoring the kind of technological progress, which made Europe great in the past.

And you can count on one thing: We can all go to Hell, in a sense, but we have a chance to win. The chance to win lies in the achievements of our culture, and if we can awaken ourselves to confidence in our cultural legacy, we can win! It is a war we can win, but it is a war we could lose! Do we have the will to win? That's my message.



LaRouche - Admin - 03-08-2008

THE GRIM REALITY OF ECONOMIC TRUTHS
Pablo Ouziel
http://www.globalresearch.ca/index.php?context=va&aid=8261


It is always good to know as a citizen that your leaders think everything is under control, for this reason I can only begin to imagine the relief people in the United States must feel when President Bush publicly acknowledges; "I believe that our economy has got the fundamentals in place.² I must admit however that I struggle to understand where the president is getting his data from and I dread to think what things will look like by the time he admits that ³fundamentals² are not really ³in place². According to Alan Greenspan "as of right now, U.S. economic growth is at zero², ³home prices will continue to weaken² and a boom in oil prices is going to "go on forever". As he puts it, the US is ³clearly on the edge."

I remember the time when General Motors Corp. was considered a pillar of the American dream, a fundamental of the economic miracle. Now, after reporting a quarterly loss of $722 million, compared with a profit of $950 million a year earlier, and offering buyouts to all of its 74,000 United Auto Workers employees, GM is clearly not a part of the sound fundamentals which President Bush likes to describe. The same seems apparent with MGIC Investment Corp., the largest U.S. mortgage insurer, which posted a record quarterly loss of $1.47 billion and is also being kept out of the Œpresidential fundamentals equation¹.

Things are so bad in the United States that during the Senate Banking Committee hearing, Treasury Secretary Henry Paulson resorted to aliens from outer space to describe how things are looking; "If someone came down - a man came down from Mars - and you were trying to explain the regulatory structureŠ it's a patchwork quilt, in many ways." I don¹t blame him for looking for such far fetched metaphors when many economists and banking industry experts according to Time magazine, ³believe the subprime crisis could metamorphose into the biggest debacle to hit the sector since the Savings & Loan catastrophe of the 1980s, which caused some $500 billion in losses to the banking industry." As Merrill Lynch economist Kathy Bostjancic elaborates ³the impact here could be far larger (than the S&L crisis) in terms of the dollar amount and the spillover effects into other parts of the economy, particularly the consumer."

Doug Duncan, chief economist with the Mortgage Bankers Association, in his updated 2008 forecast says "the principal concern of the current credit crisis lies in the possibility that banks will eventually run out of capital," as Dean Baker, co-director of the Centre for Economic and Policy Research, a Washington think tank, adds, "the amount of debt that's likely to go bad is virtually certain to be in the high hundreds of billions of dollars, and it wouldn't surprise me if it ends up crossing a trillion."

In short, what we have here is the worst housing slump in a quarter century, an economy which in January alone lost 17,000 jobs, and The Standard & Poor's 500 Index which has fallen three consecutive months, the longest losing streak since 2003. We also have Americans whose December monthly expenditure on debt service, housing, medical costs, and food and energy bills has risen to an unprecedented 66.9 percent of their total spending, the highest since records began in 1980. According to Ron Blackwell, chief economist at the AFL-CIO, "American workers are suffering a generation-long decline in living standards and rising economic insecurity." To add to this, the four-week moving average of new claims for state unemployment is at the highest level since October 2005, and the University of Michigan¹s consumer sentiment index is marking its lowest point since February 1992 when the economy was emerging from a recession.

I would like to know what the president¹s fundamentals are. The White House seems to be isolated from reality. Data provided by the Mortgage Insurance Companies of America trade group clearly states that U.S. foreclosure rates have risen to their highest since at least World War II, and defaults on privately insured U.S. mortgages have risen 37 percent in December from the same month a year earlier. RealtyTrac Inc. is reporting that foreclosure rates have risen 75 percent in 2007, and the number of homes that have been repossessed, or taken back by the bank, have jumped 50% nationwide last year. According to The National Association of Realtors Pending Home Sales Index, pending sales of previously owned homes have fallen a steeper-than-expected 1.5 percent in December, and prices of existing U.S. single-family homes have slumped 8.9 percent in the fourth quarter versus a year earlier, the largest decline in the 20-year history of a national home price index. The National Association of Realtors has also reported that sales by homeowners have fallen in January to their lowest reading since the group began reporting annual sales pace in 1999, something which Northern Trust chief economist, Paul Kasriel describes as ³more doom and gloom."

To add to this, home prices continued their plunge during the last three months of 2007, setting a real estate trade group's record for the biggest-ever quarterly drop, the steepest ever recorded by the National Association of Realtors (NAR), which has been compiling the report since 1979. A Merrill Lynch report in January forecasted price declines of 15% in 2008 and another 10% in 2009 before markets begin to recover. On top of this, mortgage applications volume tumbled 22.6 percent during the week ending Feb. 15 according to the Mortgage Bankers Association's weekly application survey, while Standard & Poor's Ratings Services said its rating outlook on US homebuilders remains emphatically negative and it believes a recovery is not yet in sight, as six of the nation's largest mortgage lenders have temporarily stopped foreclosure proceedings, in a joint effort to cool the raging foreclosure crisis through a project known as Project Lifeline.

Things are so bad in the housing sector, a sector which one would deem as part of the fundamentals of a sound economy, that in a conference call with analysts, Kenneth Lewis, the chief executive of Bank of America, pointed out that more borrowers appear to be giving up on their homes as prices fall, noting a "change in social attitudes toward default." Not surprising considering that CIBC World Markets forecast U.S. house prices will end up sliding 20% before the market stabilizes, and estimates 50% of U.S. homeowners who took out below-prime mortgages in 2006 will end up owing more than their house is worth. As Michael Englund, chief economist at Action Economics put it, "there seems to be a sense of a very deep-seated collapse in the economy."

The Philadelphia Federal Reserve's index of manufacturing activity in the U.S. Northeast also indicated the same disparity between Bush¹s sound fundamentals statement and reality, showing the manufacturing sector in the key heartland of the US is suffering its lowest output for seven years. "As far as this indicator is concerned, a recession, and a severe one at that, is already underway," said Paul Ash-worth, of Capital Economics. For Merrill Lynch, the collapse in the outlook for activity six months out was even more worrisome since it posted the steepest decline in the 40-year history of this report.

America¹s "new business cycle" which began in the 1980¹s has created as Thomas Palley ex Chief Economist with the US-China Economic Security Review Commission puts it, large trade deficits, manufacturing job loss, asset price inflation, rising debt-to-income ratios, and detachment of wages from productivity growth. It has used financial booms to support debt-financed spending, an easing of credit standards to support borrowing, and cheap imports to ameliorate the effects of wage stagnation. As Palley puts it, with "debt burdens elevated and housing prices significantly above levels warranted by their historical relation to income, the business cycle of the last two decades appears exhausted.²

According to the New York Times, the sound fundamentals Bush likes to refer to, are alarmingly parallel to the ³Japan¹s lost decade², when the Japanese economy after a long boom in the 1990¹s, was stopped by a sharp fall in the real estate market causing a stretch of stagnation which ended only a few years ago. Clyde V. Prestowitz, president of the Economic Strategy Institute in Washington, says ³the American economy is very fragile now," a sentiment which is echoed by Nouriel Roubini, an economics professor at the Stern School of Business at New York University, who warns that "the roughly $100 billion in bad loans reported by banks to date could increase nearly tenfold, as the defaults spread beyond the subprime mortgage loans to consumer loans, credit cards and corporate lending."

European Central Bank council member Guy Quaden points out that "it is clear that the slowdown in the U.S. will be more pronounced than previously foreseen." According to Bank of Italy governor, Mario Draghi, in the meeting held in Tokyo by the finance ministers and central bank chiefs of the Group of Seven industrialized nations, "Bernanke said that while house prices are falling, they can't say how long and deep the crisis will be." But as lawmakers, politicians and bankers continue to debate about the current state of the American economy, what is clear is that the latest consumer price index (CPI), the government's main inflation indicator shows that for the year ending in January, all prices were up 4.3 percent. Excluding the temporary surges after Katrina, inflation hasn't been higher since July 1991. As for the producer price index, year over year the PPI is up 7.4% the fastest pace since 1981. As Robert Brusca, chief economist at FAO Economics says, with this data at hand, ³it will be hard for Mr. Bernanke to testify...and hold to the fiction of inflation as under control and the Fed as master of tamed inflation expectations." Yet Bernanke is telling lawmakers that `²inflation expectations appear to have remained reasonably well anchored,² and George Bush is convinced that fundamentals are in place.

As for now, while talk of subprime exposure has diminished, Ted Wieseman, an economist at Morgan Stanley, warns that ³investor worries about potential further writedowns are shifting in a big way from subprime residential mortgages to commercial real estate lending.² Also as major retailers reported chilly January same-store sales, Wal-Mart with a meager 0.5% increase, Target with a 1.1% drop, Macy's with a worse-than-expected 7.1% decline, Kohl's with an 8.3% plunge and Nordstrom with a 6.6% drop in comps, the National Federation of Independent Business said its index of small business optimism slipped to the lowest reading since January 1991, when the U.S. was mired in recession.

To add to this economic and social carnage, Macy's Inc. has reported that it plans to cut 2,300 jobs across the country, Hasbro Inc the second-largest U.S. toy company, expects a 14 percent to 15 percent increase this year in the costs of made-in-China products, Time Warner has reported a 41 percent decline in fourth-quarter profits, Office Depot a 85% plunge in profit, and Jeffrey Garten, professor of international trade and finance at Yale School of Management has said that the United States "is beginning to look like a bargain-basement."

Of course, if the world¹s economic engine looking like a bargain-basement is a reflection of sound fundamentals, then I must accept my misreading of today¹s economic reality and subscribe to George Bush¹s sound fundamentals equation.


RE: LaRouche - Admin - 03-09-2008

FDR METHODS CAN LEAD THE WORLD OUT OF THE NIGHTMARE
http://larouchepub.com/lar/2008/3510rome_roosevelt.html

Lyndon LaRouche addressed a forum in Rome on Feb. 28, on "The International Systemic Crisis and the Rooseveltian Way Out," held in rooms provided by the Italian Senate. The event was attended by around 40 people of various institutional, political and economic stating. It was introduced and moderated by Claudio Celani, and included several questions from the audience. Interpretation between Italian and English was sequential.

The two-hour event was recorded by Radio Radicale.it, and is posted on their website in mp3 format (62 MB); it can be listened to or downloaded here.

Lyndon LaRouche: On the 25th of July last year, I gave an international webcast, announcing that we were on the edge of the immediate collapse, of the greatest collapse in modern history, of the world present financial-monetary system. Within a week, that collapse began. It began particularly with the collapse of a real estate bubble which had been building up in the United States for some time.

But that bubble was only a weakest point in the entire world system. The entire international financial system is now in the process of disintegrating. There is no possibility for the continued survival during the period of months ahead. And there are certain reactions by leading forces which recognize, exactly, that months ahead, this whole system in its present form will disappear. The development of the election campaign in the United States currently, and also the developments around the Lisbon 2 agreement being proposed, which would eliminate the existence of nation-states in Continental Western Europe, are symptoms of this kind of preparation.

This has a long history, which I could explain, but we have limitations of time here, and also since we have to do the sequential translation, I will play down some things which are extremely important, which may come up in discussion.

I'll indicate what the two great problems are: First of all, you have both events are being steered from London, not from the United States, but from London. Both represent the fact that, especially since 1971, the United States' dollar has nominally been a leading factor in the world, but it has not been a U.S. dollar, it has been an international dollar. I'll describe the one well-known feature defining that difference between the 1968 picture of the dollar, and the 1971-72 picture. Up to the middle of 1971, the U.S. dollar had been a keystone of a fixed-exchange-rate system. Up until the assassination of John Kennedy in the United States, that has been a solid arrangement. A wave of assassinations, including that of Kennedy, changed the world situation politically, and the result of the assassination of Kennedy, we had the so-called prolonged Vietnam War, Indo-China War.

Then we had, in 1968, the breakdown of the political system in part with the 68er phenomenon. The political structure of the system began to crumble with '68. Nineteen seventy-one, the floating of the dollar, led to another big swindle, which, most people have not recognized yet: Most people should know that the British paid the Saudis $3 for each barrel of oil the British take from the Saudis. And by the time that oil reaches the market in Amsterdam and similar places, it's now $100 or approximately that. A very unmagical trick.

So, the entire system is fraudulent, but what happened was, to cause this, was that we had a so-called "oil price crisis," in the early 1970s as a result of the '71-'72 change in the monetary system. Then we had the orchestrated "oil price shock" of the '72-'73 period. As a result of that, we had the creation of the "Amsterdam dollar," and we can say, in an English pun, that was the beginning of the "damn dollar" to replace the U.S. dollar. So, from that point on, the U.S. dollar was no longer U.S. property, in effect, but became an Anglo-American dollar, controlled through the oil spot market out of Amsterdam and similar places. There were chain reactions centered largely on London, in the international markets on all kinds of commodities, which erupted from that point on.

And in this process, you had a fundamental shift occurring, between 1968 and 1975, in which, instead of having the nations of Europe and the United States as being the prime drivers of the world physical economy, there was now a great shift in progress. You've seen that in Italy, where in northern Italy at least, there was a significant improvement in industrial and agricultural activities into the late 1970s. Since the 1968 period-1975 period, there has been a general decline in the physical productivity in agriculture and industry in Europe and North America, in particular. What has happened is, production has been shifted to the cheap labor markets of the world. In fact, China, for example, is actually losing money on its relationship with the United States. Because the money that China as a nation gets for producing for the United States, is less than what it costs China to produce that product.

You have a similar situation, but a different one, in India. India has 1.1 billion people, which is compared to 1.4 billion people in China. In India about 70% of the population is extremely poor, as poor as it was years ago, and the most acute expressions of poverty are increasing and spreading. It's like Africa: We have parts of the world which are producing products cheaply for the world market: But! if you look at the population of the countries which are doing this, they are not able to sustain their own population from this production.

There has been no success in the world economy since the end of the 1960s. There has been contentment for some people who are very rich, and a diminishing quality of life for those who are not very poor. For example, just looking at the price and availability of health-care in countries such as Italy and Europe, or the United States: We have, for example, the Mayor of New York, who in my view never earned any money at all, was confronted with the fact that he alleged is worth $11 billion. He protested: "I am not worth $11 billion! I'm worth $40 billion!"

Now, I should tell you that this same Mayor of New York, which is to come to another part of this point, is by Italian standards of the 1930s: He is a fascist. His policy is that of corporativism, the same thing as Mussolini and Volpi di Misurata. The same program that was brought into Hitler through Schacht. There's a similar policy that's coming out of London under different names right now. And London is also running Bloomberg in New York. London is also working now, in the public press, actually, to destroy one of the leading candidates in the United States: Barack Obama. But at the same time, London is also supporting Obama against Hillary Clinton. The intention is to make Bloomberg the leading national candidate in the United States.

Well, this is not unusual for European experience, for those who know the history of Europe in the 20th century. Periods of great financial crisis, particularly financial breakdown crisis, lead to desperate measures by those relevant financier interests who have political power. And throughout the euro system, that is already present, at the same time, that it's happening inside the United States. However! There's a problem: The present financial crisis can only be compared to what happened in Europe when the Bardi bank from Lucca collapsed, and Europe went into a dark age, the so-called new dark age, where half the parishes of Europe disappeared, and one-third of the population disappeared. We face potentially a greater crisis than that, today.

But there are alternatives. There are solutions: What I propose in particular, to all relevant circles, is that the United States government undergo a change of heart, and of personnel, in which, in this year, in the first half of the year, the United States government should be induced to approach Russia, China, and India, to enter into a new agreement on a fixed-exchange-rate system.

You have to look at two key facts about the world situation to understand this: First of all, there has been no global prosperity in the past 20 to 30 years. There have been pockets of actual income, and some artificial income, which is purely monetary but not real. For example, the housing boom in the United States and Europe is totally fraudulent. But the cost of housing is greater than the salary-incomes of the people who can sustain it. And these prices are not real prices, they're inflated prices. As you see now, the prices of real estate will tend to collapse back to one-quarter or one-fifth of what they are today. And even that amount of economic activity, is not based on reality, it's based on credit. It's based on credit which is purely fictitious. It's on bills that could never be paid, credit that could never be repaid. On top of that, the total nominal income or obligations of the world, are in hundreds of trillions of dollars, and in dollars it's up in the quadrillions. So that, under these conditions, there's no possibility that you could ever resolve this debt in its present form.

All right, at the same time that we've got a worse crisis than in the 14th century, we have the major producing countries of the world, like China, India and so forth, operating below breakeven for the population as a whole. In other words, the shift of production from Europe and the United States, into the developing sector, was not based on competitive considerations! What the conditions were, that production was exported from Europe and the United States, to countries which had not received sufficient income to maintain their own populations. So therefore, the collapse of Europe and the U.S. in particular, would mean a chain-reaction collapse of the economies of Asia, as well as Africa and South America. You have to look at Europe in the terms of the 14th century, to understand this phenomenon.

This is a 21st century new dark age potential!

Now, if you study the rate of collapse of population in the Middle Ages, in the middle of the 14th century, which is something Italian historians ought to be able to master, when the chain-reaction collapse of the Lombard banking system occurred. The collapse of credit resulted in a beginning of an increased death rate in the population of Europe as a whole. This rate of decay, this rate of shrinkage of the population, then accelerated into a steep decline in population. Half the parishes of Europe vanished! The population of Europe collapsed by one-third, within a period of about a generation. And then, continued to collapse at a more leveled-off rate. This is the typical S-curve of collapse of a population of this type: a slow decline, then a steep decline, then a slower decline. The world population today, under these conditions, is between 6.5 to 7 billion people. What happens with this kind of collapse? You get a global new dark age collapse if we allow it to occur. Civilization as we know it now would disappear. The level of population would ebb toward about 1 billion people.

But there are solutions for it, as the Renaissance showed, and that's why my proposal for the United States to Russia, China, and India, is very important. As you know, Europe no longer—that is, west of Russia and so forth—no longer has any real sovereign independence in dealing with these kinds of problems. Globalization has undermined, grievously, the sovereignty of the European states.

But we have an irony at the same time: China knows, more clearly than any other country, its vulnerability to this kind of crisis. India has a slightly greater resilience in its system. But the threat is existential, nonetheless. The basic problem is, that the world is not presently producing the amount of physical wealth, including infrastructure required to sustain a population of over 6.5 billion people.

But! In Europe and in North America in particular, we have the potential in terms of technology, embedded in the people, embedded in the culture, to have a revival of physical economic output. As you look at the history of the Mussolini regime, you know you can't do it with just infrastructure. You have to do with the kind of infrastructure, which is based on increasing manufacturing and agriculture output. It means high-technology innovation. European civilization has still the ability, under emergency conditions like Roosevelt used, to reactivate the potential of productivity in the European population: a reversion to modern, mass-transportation as opposed to reliance on the automobile; unleashing the now-largely suppressed nuclear energy potential. The actual cost of nuclear power, which is reported to be high is a fraud: It is not that high, it's artificially high! If you actually put a mass investment into nuclear power, you will convert the world from dependency upon petroleum into developing not only nuclear power for local use, but for the generation of synthetic hydrogen-based fuels, to replace petroleum.

We have, admittedly, a population which has lost production skills—they've been out of work for 25 to 30 years. They depend upon old men, you know, like me to get production going again. But, we know how to do that, from past experience. Roosevelt did that, with the recovery in the United States.

So therefore, if we have 30- to 50-year agreements, with China, with India, and with other countries—long-term monetary and financial treaty agreements—China in particular has a great need for European technology, to deal with its own internal population crisis. And since Deng Xiaoping, this has been their policy. India is committed to going to the thorium cycle in nuclear power, for small-scale thorium plants. Because the people in India are very poor and very unskilled, as you find, generally, in Africa. The African farmer is productive by African standards, but he lacks the infrastructure to make his productivity efficient. So we in Europe, if we are wise, and in the United States, can make agreements with these countries: We have a great need for imaginative leaders, who will react to the stupidity of much of our politics over the past 30 years, for programs we already have developed, but we know exist. There is no problem that humanity has which is not potentially solvable under good leadership of a tradition type that we used to have in the United States.

Now the problem is this—my concluding point here—is this, we have a crisis in elections and government in Europe and in the United States. We have it on both sides of the ocean. It's acute. We have a threat of a return to fascism on a scale far beyond anything that we've known before in the past: You have a dictatorship threatened for Europe, under the new treaty agreement, the Lisbon agreement— no longer will there be any government control over the government of Europe. At the same time, we face that in the United States in the current election campaign.

All right: Obama is not going to be elected. Obama is being backed by London to bring down Hillary Clinton, and then they're going to put him out of business. Look at the leading British press: The scandal is brewing, they're going to bring him down. They've been backing up Obama to bring down Hillary Clinton. If they think that Hillary Clinton is brought down, they bring him down. Then the Mayor of New York becomes the Democratic Presidential candidate. And his program is fascist, just as fascist as you can imagine from past European experiences. So naturally, I'm part of the organization inside the United States, determined to make sure this sure this does not happen. And there are a great number of people in the United States of influence who share my concern, including senior figures who've been part of government or the institutions of government over a long period of time. I'm determined to crush this. And I'm doing everything possible to goad my friends into joining me in doing it.

My concern, also, at the same time, is, though I admit that Western Continental Europe does not have much political power any more, and if this Lisbon agreement goes through, we'll have a lot less. But I think we can mobilize things, and build up the confidence to take the measures which are needed to lead the world out of this nightmare, by methods of Franklin Roosevelt. The nations which represent European civilization must awaken to their mission, of restoring the kind of technological progress, which made Europe great in the past.

And you can count on one thing: We can all go to Hell, in a sense, but we have a chance to win. The chance to win lies in the achievements of our culture, and if we can awaken ourselves to confidence in our cultural legacy, we can win! It is a war we can win, but it is a war we could lose! Do we have the will to win? That's my message.


 
This presentation appears in the March 7, 2008 issue of Executive Intelligence Review.
Demand a Referendum on EU Lisbon Treaty
by Helga Zepp-LaRouche

Moderator Claudio Celani introduced Helga Zepp-LaRouche, the chairwoman of the German political party Civil Rights Solidarity Movement (BüSo). She spoke on the European Union's Lisbon Treaty, and the need to uphold national constitutions.

Celani: Why do we have to save the constitution, Helga?

Zepp-LaRouche: I think that Europe is confronted with a much bigger danger than the average person knows. In November, French President Nicolas Sarkozy had a closed meeting in Strasbourg with some French European Parliamentarians, and said, according to the British press, that if there were a referendum on the Lisbon Treaty, in every country where such a referendum would take place, it would be lost. So, on Dec. 13, the heads of state had the summit in Lisbon and signed the so-called reform treaty, the Lisbon Treaty. And there can be no doubt that the strategy was to say, "Let's ratify it as quickly as possible, through the parliaments, without public debate—neither in the media nor in the parliaments—of any significance, because if such a debate would take place, it would not go through."

So in Germany, the new text was not published, and if people wanted to find out what was agreed upon, they would have to take the old text of the European constitution, which was vetoed in France and in Holland in 2005 [and therefore did not take effect anywhere in the EU], and then look at the changes separately, alongside it, and then inject "Article 5, point 9, subsection 2—the word changes from A to B," and then inject that some 400 times. You can be sure that maybe two parliamentarians and maybe one journalist did that, but the majority, for sure, did not. Because the text is so impenetrable in the first place, that nobody can understand it, who is not a skilled state jurist.

Only after a law student in Leipzig undertook the labor to inject these changes and then publish it on some websites of one parliamentarian, was the government of Germany forced to take the unofficial version and circulate it, because they would have made a bruta figura if they had not done it. [laughter]

In the meantime, some extremely honorable law professors have written expert analyses, which I want you all to urgently look at, because they reveal what is really going on, and I'm quoting in particular Prof. Karl Albrecht Schachtschneider, who was one of the four professors who filed a lawsuit against the Maastricht Treaty and the introduction of the euro; Prof. Hans Klecatsky from Austria, who is one of the founders of the Austrian Constitution; and other professors, like Professor Hollander, and many others. I have studied the new text, from the standpoint of the expert analyses which they wrote, and I will give you a short summary of what I found.

The most important is, that it would change the relation of the European states, from an alliance of states into a single federal state, which from that point on, once it's ratified, would be ruled as an oligarchy, without the participation of the national parliaments. For example, the so-called General Clause means that the European Council and the European Commission would have to decide policies in all areas, except foreign policy and security policy. The European Parliament would be heard, but have no say, and the national parliaments have no say whatsoever. So parliamentarians, rather than fulfilling 80% of the Brussels guidelines, would fill 100% of the guidelines.

The Road to World War III
Then you have the so-called Solidarity Clause, which really is a bombshell, because it means that if there is the need to fight against terrorist actions in any country—and the notion "terrorist action" is not defined, it's a very vague notion—each country, even if it disagrees, has to participate in military action, in wars of aggression, in peace missions in third countries—so, out of area of the European Union—and it basically means there is no more veto right for those countries that do not agree. So, without public debate, or debate in national parliaments, the European Union is being transformed also into a defense alliance with the explicit obligation for rearmament and out-of-area interventions.

Now, if you look at the fact, that of the 27 European Union countries, 22 are also in NATO, where the Solidarity Clause naturally exists also, you have an intertwining of NATO and the European Union, in an almost 90% fashion, and that, if you think about the implication of that, then you understand why Russia and China have, for a while, equated NATO's eastward expansion with the European Union's eastward expansion. The Russians, I know from many discussions, look at NATO's policy of encirclement of Russia as the potential road to World War III.

Now the way this European Union transformation is sold to the Europeans, is to say, "Oh, Europe must be strong, we must unite against the aggressive American unilateralism with Bush and Cheney in the whole world, so we must have a strong Europe." But this is one of the many lies which are spread, because if you look at this interfacing of NATO and the European Union, then you actually see the danger.

If you have a Bloomberg fascist government in the United States and a Lisbon dictatorship in Europe, I have the distinct fear that we are on a road to World War III. And how quickly this can go, you not only see in the demand of U.S. Defense Secretary Robert Gates for more troop engagement in Afghanistan in the south; you see it in the quick action of the European Union in moving on the independence of Kosovo, long before the independence of Kosovo was declared, and where you had complete disagreement among European Union members, but the European Union bureaucracy anyway deployed 1,800 soldiers and police, and therefore, they said, "We don't care what the opinion of the members is all about." The recognition of the independence of Kosovo opens a Pandora's Box: Because now you have the Basques, you have the Turks in [Cyprus], you have Ossetia, Akhazia, Taiwan—this opens a box which is very dangerous, and as one Russian statement said, it threatens to bring down the entire Peace of Westphalia order in the world.

One last point: Professor Schachtschneider pointed out that it also reintroduces the death penalty in Europe, which I think is very important, in light of the fact that, especially Italy was trying to abandon the death penalty through the United Nations, forever. And this is not in the treaty, but in a footnote, because with the European Union reform treaty, we accept also the European Union Charter, which says that there is no death penalty, and then it has a footnote, which says, "except in the case of war, riots, upheaval"—then the death penalty is possible. Schachtschneider points to the fact that this is an outrage, because they put it in a footnote of a footnote, and you have to read it, like really like a super-expert to find out!

So, I think we need to have a public debate about that. I think that this is such a grave change of the constitutions of Europe, that there must be a debate and referendum! I do not say I'm for or against, but I think it's so grave, there needs to be openness and then the people have the right to vote, do they want this or not? I want to ask you all to join me in mobilizing the European populations for such a debate and such a vote.
 
 
   
 
This presentation appears in the March 7, 2008 issue of Executive Intelligence Review.
Demand a Referendum on EU Lisbon Treaty
by Helga Zepp-LaRouche

Moderator Claudio Celani introduced Helga Zepp-LaRouche, the chairwoman of the German political party Civil Rights Solidarity Movement (BüSo). She spoke on the European Union's Lisbon Treaty, and the need to uphold national constitutions.

Celani: Why do we have to save the constitution, Helga?

Zepp-LaRouche: I think that Europe is confronted with a much bigger danger than the average person knows. In November, French President Nicolas Sarkozy had a closed meeting in Strasbourg with some French European Parliamentarians, and said, according to the British press, that if there were a referendum on the Lisbon Treaty, in every country where such a referendum would take place, it would be lost. So, on Dec. 13, the heads of state had the summit in Lisbon and signed the so-called reform treaty, the Lisbon Treaty. And there can be no doubt that the strategy was to say, "Let's ratify it as quickly as possible, through the parliaments, without public debate—neither in the media nor in the parliaments—of any significance, because if such a debate would take place, it would not go through."

So in Germany, the new text was not published, and if people wanted to find out what was agreed upon, they would have to take the old text of the European constitution, which was vetoed in France and in Holland in 2005 [and therefore did not take effect anywhere in the EU], and then look at the changes separately, alongside it, and then inject "Article 5, point 9, subsection 2—the word changes from A to B," and then inject that some 400 times. You can be sure that maybe two parliamentarians and maybe one journalist did that, but the majority, for sure, did not. Because the text is so impenetrable in the first place, that nobody can understand it, who is not a skilled state jurist.

Only after a law student in Leipzig undertook the labor to inject these changes and then publish it on some websites of one parliamentarian, was the government of Germany forced to take the unofficial version and circulate it, because they would have made a bruta figura if they had not done it. [laughter]

In the meantime, some extremely honorable law professors have written expert analyses, which I want you all to urgently look at, because they reveal what is really going on, and I'm quoting in particular Prof. Karl Albrecht Schachtschneider, who was one of the four professors who filed a lawsuit against the Maastricht Treaty and the introduction of the euro; Prof. Hans Klecatsky from Austria, who is one of the founders of the Austrian Constitution; and other professors, like Professor Hollander, and many others. I have studied the new text, from the standpoint of the expert analyses which they wrote, and I will give you a short summary of what I found.

The most important is, that it would change the relation of the European states, from an alliance of states into a single federal state, which from that point on, once it's ratified, would be ruled as an oligarchy, without the participation of the national parliaments. For example, the so-called General Clause means that the European Council and the European Commission would have to decide policies in all areas, except foreign policy and security policy. The European Parliament would be heard, but have no say, and the national parliaments have no say whatsoever. So parliamentarians, rather than fulfilling 80% of the Brussels guidelines, would fill 100% of the guidelines.

The Road to World War III
Then you have the so-called Solidarity Clause, which really is a bombshell, because it means that if there is the need to fight against terrorist actions in any country—and the notion "terrorist action" is not defined, it's a very vague notion—each country, even if it disagrees, has to participate in military action, in wars of aggression, in peace missions in third countries—so, out of area of the European Union—and it basically means there is no more veto right for those countries that do not agree. So, without public debate, or debate in national parliaments, the European Union is being transformed also into a defense alliance with the explicit obligation for rearmament and out-of-area interventions.

Now, if you look at the fact, that of the 27 European Union countries, 22 are also in NATO, where the Solidarity Clause naturally exists also, you have an intertwining of NATO and the European Union, in an almost 90% fashion, and that, if you think about the implication of that, then you understand why Russia and China have, for a while, equated NATO's eastward expansion with the European Union's eastward expansion. The Russians, I know from many discussions, look at NATO's policy of encirclement of Russia as the potential road to World War III.

Now the way this European Union transformation is sold to the Europeans, is to say, "Oh, Europe must be strong, we must unite against the aggressive American unilateralism with Bush and Cheney in the whole world, so we must have a strong Europe." But this is one of the many lies which are spread, because if you look at this interfacing of NATO and the European Union, then you actually see the danger.

If you have a Bloomberg fascist government in the United States and a Lisbon dictatorship in Europe, I have the distinct fear that we are on a road to World War III. And how quickly this can go, you not only see in the demand of U.S. Defense Secretary Robert Gates for more troop engagement in Afghanistan in the south; you see it in the quick action of the European Union in moving on the independence of Kosovo, long before the independence of Kosovo was declared, and where you had complete disagreement among European Union members, but the European Union bureaucracy anyway deployed 1,800 soldiers and police, and therefore, they said, "We don't care what the opinion of the members is all about." The recognition of the independence of Kosovo opens a Pandora's Box: Because now you have the Basques, you have the Turks in [Cyprus], you have Ossetia, Akhazia, Taiwan—this opens a box which is very dangerous, and as one Russian statement said, it threatens to bring down the entire Peace of Westphalia order in the world.

One last point: Professor Schachtschneider pointed out that it also reintroduces the death penalty in Europe, which I think is very important, in light of the fact that, especially Italy was trying to abandon the death penalty through the United Nations, forever. And this is not in the treaty, but in a footnote, because with the European Union reform treaty, we accept also the European Union Charter, which says that there is no death penalty, and then it has a footnote, which says, "except in the case of war, riots, upheaval"—then the death penalty is possible. Schachtschneider points to the fact that this is an outrage, because they put it in a footnote of a footnote, and you have to read it, like really like a super-expert to find out!

So, I think we need to have a public debate about that. I think that this is such a grave change of the constitutions of Europe, that there must be a debate and referendum! I do not say I'm for or against, but I think it's so grave, there needs to be openness and then the people have the right to vote, do they want this or not? I want to ask you all to join me in mobilizing the European populations for such a debate and such a vote.