E.I.R.STRATEGIC ALERT

E.I.R.STRATEGIC ALERT



WEEKLY NEWSLETTER

Volume 29, No. 13 - March 26, 2015

LaRouche: A Major Shift Is Occurring

In a number of discussions over the past two weeks, in particular since German Foreign Minister Steinmeier made a pointed intervention in Washington on March 12 against escalating the crisis with Russia, Lyndon LaRouche has emphasized that the world is now being swept by a global process, which is based on “new ideas,” not habits and precedents from the past.

Other examples LaRouche gave, besides the sober assessments of the need to avoid nuclear war, are the exciting perspectives of the New Silk Road policy, together with the Asian Infrastructure Investment bank, and the campaign for Glass-Steagall in the United States, which is being spearheaded by Democratic presidential hopeful Martin O’Malley (cf. below).

These are reflections of a global process underway, beyond the isolated events or interventions as such, even if the actors concerned may not be aware of it.

The underlying reason is that the methods and policies carried out under the trans-Atlantic financial system have proven to be utter failures. Physical productive output has been overpowered by speculation, while the rate of scientific discovery applied to production has plunged, thus robbing peoples of their future. Today, the old mindset of geopolitics is being overturned by China’s strategy of “win-win” cooperation among nations, together with the BRICS initiatives for economic development oriented to the future needs of mankind.

LaRouche described this process as “a major shift which is not yet secured, but is promising.” There’s no guarantee it will succeed, but “we have a better chance that we seemed to have several weeks ago.”

Asian Infrastructure Investment Bank about to Take Off

As the March 31 deadline for the creation of the Asian Infrastructure Investment Bank (AIIB) approaches, a number of European countries have suddenly announced their intention to be among the founding members.

While many Asian countries had quickly jumped on the chance to help found the bank proposed by China in 2013 to exclusively fund infrastructure projects, the so-called developed countries were much more reserved, due to heavy-handed pressure from Washington.

That changed on March 12, when the British government announced it would become the 28^{th founding member of the AIIB, apparently hoping to profit from the “first-mover advantage”, as the Financial Times noted (cf. SAS 12/15). That broke the proverbial dam. Soon afterwards, in a joint declaration, the governments of France, Germany and Italy declared their intention to join. Then came Luxembourg, Switzerland and New Zealand, followed by the probable coming on board of Australia and South Korea.}

The United States, however, still remains glaringly absent, despite the repeated offers by Chinese officials. In fact, on March 18, the Chinese daily Xinhua ran an article headlined: “So, Washington, What Are You Waiting For?”, which begins with “Welcome Germany! Welcome France! Welcome Italy!”

The Obama Administration fears that the new bank will compete with the World Bank and the Asian Development Bank, which are dominated by the United States and Japan. When China attempted, after the 2008-2009 financial crash, to increase its say in the IMF and the World Bank, the request was rejected out of hand by the United States Congress.

Therefore, China decided to use its 3 trillion dollar currency reserves to create a new financial institution – the AIIB -- exclusively committed to issuing credit for infrastructure in non-developed countries. This initiative coheres with the “win-win” strategy of the New Silk Road, which is meant to be advantageous for all countries along the way.

Beijing is expected to release its implementation plan for hundreds of major infrastructure projects along the Silk Road “Belt and Road” at the Boao Forum for Asia March 26-29, according to Xinhua. These include railways, roads, energy, information technology and industrial parks to be started in the coming years. The projects will spread across “Kazakhstan, Kyrgyzstan, Tajikistan, Pakistan and China’s other neighboring countries.”

The article in Xinhua notes that while the Trans-Pacific Partnership which the United States is pushing, explicitly excludes China, “the AIIB is open to all interested parties, including the United States. So Washington, what are you waiting for?”

O’Malley’s Campaign for Glass-Steagall Gains Steam, as Economy Tanks

Former Maryland Governor Martin O’Malley, who is considering running as Democratic presidential candidate in 2016, has stepped up his campaign for separating the banks. During an appearance in the state of Iowa, where the first contest in the race for presidential nominee traditionally occurs, he published an article in the Des Moines Register, the state’s leading paper, on March 20, under the title “Prevent Another Crash, Reform Wall Street.”

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There, he notes that according to one study, the 2008-2009 crash cost every American $120,000, in bailouts to the major banks. What that means is that that money did not go into the real economy. He goes to say that “The most serious structural reform we can make is reinstating the 1933 Glass-Steagall Act that kept commercial banks separate from investment banks. Under Glass-Steagall, our country did not see a major financial crisis for nearly 70 years. If that law hadn’t been repealed in 1999, the crash would have been contained.”

Indeed, the financial industry today has $15 trillion in assets, but about half of that is controlled by only five banks. They are simply too big, concludes O’Malley, and a threat to the economy.

In addition to Glass-Steagall, the former governor lays out other steps to be taken: bank directors must be punished for fraudulent behavior; persons appointed to head regulatory agencies and the Justice Department must be willing to prosecute those who commit or permit crimes; and banks that are fined must not be allowed to subtract those amounts from their earnings, and therefore avoid paying taxes on them. None of that is the case now.

O’Malley’s intervention is particularly important, as he is stating publicly what every American already knows: the real economy in the United States, contrary to what the statisticians and establishment media are pouring out, has not entered a recovery since 2008-2009. Jobs may have been created, but they are mainly very low-paid, temporary or part time. Living standards have certainly not gone up, but inequalities have, as the top 1% of the population now owns as much wealth as the bottom 90%.

What has also gone up is corporate debt to feed the stock market bubble and corporate after tax profits. The debt of both financial and non-financial corporations went from a total of $5 trillion in 2001, to $11 trillion in 2009, and $15 trillion at the end of 2014. After-tax profits went from $500 billion in 2001 to $1.4 trillion in 2009, and then to $1.75 trillion in 2014. That is an average increase in both categories of roughly 9% a year.

But during the same period, corporations’ capital expenditures -- the purchases of new business equipment, structures, and software -- grew only from $925 billion in 2001 to $1.14 trillion in 2014, an increase of just 22%, or just over 1% a year.

David Stockman, the former director of the Office of Management and Budget under President Ronald Reagan, recently reported in his blog “Stockman’s Corner,” that from the beginning of the year until early March, U.S. business had borrowed $214 billion. Of that, they expended $128 billion to buy back their own stocks, plus $21 billion was spent on just one large merger of IT companies. Thus, three-quarters of the debt taken on was used to blow up the stock market bubble, not to grow the economy.

Greek Parliamentary Committee to Audit the Public Debt

The Speaker of the Greek Parliament, Zoi Konstantopoulou, announced March 17 that a parliamentary commission will be set up to audit the country’s public debt and determine which parts are legitimate and which are not. This will be the first official audit of a country subject to a Eurozone bailout.

Such an initiative is the least that should be done, Konstantopoulou added, “toward society and the European community in order for the truth to be revealed and for justice to be served.” The full membership of the commission will be announced in early April, and it is hoped that, by June, the first findings can be presented.

The Commission’s task will be to define what part of the public debt is legal and should be paid. Konstantopoulou brought up cases of corruption and bribery, such as Siemens and armament programs, which have contributed to the accumulation of public debt, which will be considered illegal. She also pointed to many historical examples of debt cancellation, including the London Agreement of 1953 for Germany. The audit, in her view, will be a “very powerful negotiating tool of society, the people” not just for Greece but all of Europe.

We would add that if Greece’s “European partners” do refuse its request for a debt conference and a dramatic reduction of its debt, the findings of the audit commission will still be useful for Greece’s Plan B, since it will define the debts that the Greek government will not recognize.

Other speakers at the March 17 conference, who will be playing a leading role in the commission, included SYRIZA Member of the European Parliament Sophia Sakorafa and Professor Eric Toussaint, an active member of CAMDT, the Committee for the cancellation of Third World debt.

Already in 2011, while a member of the Greek Parliament, Sakorafa had called for an official audit of the Greek debt along the Ecuadorian model. She was expelled from the PASOK Party after she refused to vote in favor of the first loan agreement.

The latter was a member of the Ecuador debt commission set up by President Raphael Correa in 2008, the only official one of its kind. Back in 2012 and 2013, he was invited by current PM Tsipras to Greece to discuss the situation.

At the press conference, Toussaint spoke of the question of “odious” debt, i.e., debt contracted not in the interest of the general welfare of the nation. Odious debt can be applied to the entirety of the EU246 billion of the bailout by virtue of the fact that the vast majority of it went directly to foreign banks. Moreover, it came with a “conditionality” that has virtually destroyed the Greek economy and impoverished up to half the population.

Varoufakis Says No to QE, Proposes a Plan for Massive Productive Investment

Speaking at a conference in Cernobbio, Italy, March 14, Greek Finance Minister Yanis Varoufakis declared that instead of quantitative easing (QE) for speculation, productive investment is needed.

“QE is all around us and optimism is in the air,” Varoufakis said. “At the risk of sounding like a party pooper ... I find it hard to understand how the broadening of the monetary base in our fragmented and fragmenting monetary union will be transformed into a substantial increase in productive investments.” As our newsletter has often written, he said it would just fuel the equity bubble internationally.

Instead of that, he proposed that the European Investment Bank be used for a different type of QE. The EIB could ask the governments “to lead a program for an investment recovery, which I would like to call the Merkel Plan. Let us imagine that it is 100% financed by bonds issued by the EIB, with the ECB operating on the secondary markets, ready to buy EIB bonds. This would solve the ECB operational problems, because suddenly, it would only buy a triple-A paper, without worrying about the different sovereign bonds and at the same time it would avoid the mentioned problems, which QE has had elsewhere and will increasingly have in Europe with inflated asset prices, through relaunching investments.”

Thus the EIB, in his view, could serve as the vehicle for a

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“New Deal” for Europe that would see massive investment in large-scale infrastructure projects, and financing of small and medium-sized enterprises in order to put people back to work in productive jobs.

Tremonti: Brussels Reforms Are Worse Than Margaret Thatcher’s

On March 18, former Italian Finance Minister and current Senator Giulio Tremonti took to the Senate floor after a report by Prime Minister Matteo Renzi, to blast the EU policy towards Greece. Given the current level of suffering of the Greek population, he said, not even Margaret Thatcher would have dared to push for such EU reforms. He went on to compare Brussels to the court of Roman Emperor Elagabalus, one of the most degenerate Roman emperors (r. 218-222 AD).

This was Tremonti’s first high-profile intervention after the government was forced to resign in Dec.2011, by an EU-wide conspiracy in which the ECB played a leading role. Both former U.S. Treasury Secretary Timothy Geithner and former Spanish Prime Minister Zapatero have published evidence of the plot to overthrow the government, of which Tremonti was Finance Minister, and eventually replace it with a technocratic cabinet headed by Mario Monti, which applied the same kind of austerity in Italy which has almost killed Greece. Thus, when speaking about Greece, Tremonti speaks also for Italy and on behalf of the growing support in Italy for the Greek battle in the EU.

“The problem is not that Greece entered Europe, but that Europe entered Greece. The causes of the crisis are not, as some say, related to the obscure and opaque Greek government budget, an almost negligible entity. The real Greek tragedy came from the private financial side, and starting with the euro. In a euphoric dimension starting in 2002, an enormous flow of capital was lent by European banks to Greek society, joyfully financing the Olympics, swimming pools and cars (the latter not exactly ‘Made in Greece’) and various illusions.

“For a decade, merriment was bilateral, both among the debtors, and also the creditors, who were cashing huge flows of receivable interest. Fatally, the crisis came. See, on the basis of the law of market economy, if debtors fail, creditors fail, too. In the case of Greece, the opposite occurred. And thus, aid to Greece, including what we generously made, helped everybody and especially German and French creditor banks -- everybody except the Greeks.

“After the European cure, Greek government debt rose and Greek GDP fell. And yet, in a compulsive way, Europe demands from Greece more privatization, more liberalization. Looking at the current condition of the Greek people, not even Margaret Thatcher would ask for such measures!”

Basic European values, Tremonti said, are no longer “those of our historic tradition,” but those of a “pre-Christian and pagan past.” “I want to be clear: Elagabalus, with his set of values and his lifestyle, would perfectly fit in the Luxembourg court.” Historian B.G. Niebuhr remarks that “the name Elagabalus is branded in history above all others” because of his “unspeakably disgusting life.”

U.S. to Deploy Military Personnel to Ukraine, Despite Warnings

After weeks of back and forth delays, the Pentagon announced on March 19 that American military personnel would be going to Ukraine by late April to conduct training of the Ukrainian armed forces. That marks a victory for Assistant State Secretary Victoria Nuland and other Administration neocons, who have been pushing for confrontation with Russia.

The head of the U.S. Army in Europe, General Ben Hodges, defended the decision, claiming that it did not mean that the Washington had concluded that the Minsk agreements reached in February had failed. Those agreements, however, did suffer a serious setback last week, when the Poroshenko government submitted a bill to the Supreme Rada, that was to provide for greater autonomy for the eastern Ukrainian regions. But the language submitted and passed by the Supreme Rada contained a “poison pill” demanding that the separatist forces surrender before any talks about federalism or autonomy could begin.

That action plainly violated the Minsk Accords, which led Russian Foreign Minister Sergei Lavrov to call upon Chancellor Angela Merkel and President Francois Hollande to “save Minsk.” He warned that “provocateurs in Kiev” could now stage an incident to blow up the cease-fire and create the circumstances for a flow of arms into Ukraine forces.

The fact that NATO and American Administration actions are driving the situation towards confrontation was highlighted by Russia’s Ambassador to Denmark, Mikhail Vanin, who delivered a pointed public warning that if Denmark went ahead with plans to participate in the US-NATO missile defense program, “Danish warships will be a target of Russian nuclear missiles.”

Meanwhile, Russia has been conducting “snap maneuvers” in the west of the country, clearly testing readiness for a full-scale conflict with NATO. The ongoing maneuvers involve the deployment of nuclear weapons-armed submarines and the forward positioning of some of Russia’s mobile strategic forces. While Western media portray these movements on Russian territory as an act of aggression, the U.S. maneuvers throughout Eastern Europe are presented as initiatives to “ensure peace”.

In fact, the Supreme Rada recently passed legislation providing for five NATO maneuvers in Ukraine during 2015, including three led by the U.S.

NATO Secretary General Stoltenberg also announced last week that he was prepared to consider a Ukraine application to join the alliance if it were submitted. Shortly thereafter, Gen. Philip Breedlove, NATO Supreme Commander, called for the arming of Ukraine, even though he acknowledged that such action could escalate the crisis with Russia.

German Initiative to Establish Economic Cooperation along the New Silk Road

The prestigious German Wirtschaftsclub Russland (WCR, Economic Club Russia) has reaffirmed its intention to grant an award, in December 2105, to a small and medium-sized entreprise (Mittelstand) with an outstanding engagement in economic relations along the New Silk Road.

The crisis between the West and Russia must be overcome through a new Eurasian-wide perspective, wrote the president of the club, Karin von Bismarck, in an official release. To improve relations, real entrepreneurial virtues are needed, coupled with a culture of respect and innovation and new ways of entrepreneurial activity. In her view, the term “new Silk Road” here serves as a “symbol of international cooperation, as a bridge between Asia and Europe, between the European Union and the Eurasian Economic Union.”

In that spirit, more WCR events will be held from now until July in Moscow, Khizhinow, Minsk, Kiev, Hanover, Munich, Tbilisi, Erivan, Shanghai, Hong Kong and Beijing.

The WCR initiative dovetails thoughts voiced just a few days earlier by former Chancellor Helmut Schmidt, who remains a gray eminence in foreign relations, in an exclusive interview with the Bild Zeitung, in which he warned of the danger of the new “cold war” becoming a “hot war.” The roots of the pres

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ent crisis in and over Ukraine, he said, lie in the ill-conceived decisions by Europe’s leaders at the beginning of the 1990s: “The fundamental mistake was made at Maastricht a quarter-century ago, where the foundations for the EU expansion to the east were laid… in total disregard of history.”

Indeed, the 1992 Maastricht Treaty defined an expanding Europe at the expense of a then very weakened Russia, a Europe based on classical Western anti-Russian geopolitics, and later also directed against the Moscow-initiated plan to create a Eurasian Economic Union (EEU). When the Ukrainian government of President Yanukovych considered joining the EEU instead of the EU, the West immediately escalated the anti-Russian putsch of February 2014 on the Maidan.

Since that time, calls for constructive negotiations between the EU and the EEU as an alternative to the destructive sanctions and to the Ukrainian quagmire have been issued repeatedly from outside of governments, but with no clear reference to the Eurasian Landbridge and the New Silk Road. That will apparently now change with the WCR initiatives. It is certainly time to put an end to the destructive designs of Maastricht, on various fronts, and to return to the healthy impulse that swept Germany and Western Europe after the fall of the Berlin Wall in 1989, i.e., of forging far-reaching economic development with the east and far east of Eurasia.

Chinese Builder of Nicaragua Canal Is Confident It Will Work

The head of China’s construction company HKND, Wang Jing, rejected the concerns over the project to build a canal through Nicaragua, that were presented to him by a BBC interviewer March 18. The HKND began initial work on the site of the canal in December, but will proceed in earnest next month after an environmental impact assessment is published.

The canal, which will link the Atlantic and Pacific Oceans, will be three times as long as the Panama Canal (278 km), and much wider and deeper, so as to accommodate the next generation of huge container ships. China is convinced that a new canal is necessary to handle the enormous expansion of world trade, which is planned by the BRICS.

Wang told the BBC that his company estimates that the canal will cost $50 billion, and take five years to complete. The 42-year-old billionaire rejected the objections of all the opponents and skeptics of the project, saying: “Actions speak louder than words.... We’ll convince them by succeeding.” He added that he didn’t pay much attention to those who think the project cannot be finished in five years “while sitting indoors looking at a map.”

He expressed his confidence in the companies chosen: “For decades now, Chinese firms have built up a wealth of experience and expertise with large infrastructure projects. So having Chinese companies leading this project adds enormously to its prospects of success. This is our strength.”

As for the critics who say that the canal will not be a viable commercial venture, he pointed out that shipping is the cheapest form of transport, and that 90% of world trade is by sea, and added that the location of industry is irrelevant “because this canal is connecting East and West.”

Because Nicaragua is one of the poorest countries in the world, and has only rudimentary infrastructure, HKND will first have to build ports and roads that can handle the heavy construction equipment. Thus, the new canal will transform the economy and people’s lives, and benefit the entire world economy at the same time.

Report from Sharm El-Sheikh: a New Egypt Is Emerging

EIR correspondent Hussein Askary was in Egypt over March 9-16 to cover the Egypt Economic Development Conference (EEDC) and the International Water Technology Conference, both held simultaneously in Sharm El-Sheikh in south Sinai.

The EEDC was a resounding success, both emotionally and economically for Egypt as a nation. The title of the conference, “Egypt of the Future”, very clearly set the tone that it is the future which is the objective, not achieving short term advantages. This is a new Egypt, Askary stressed to us. All the previous practices in dealing with economic and political affairs are no longer valid, although major issues are still not resolved. 30 years of economic destruction through the IMF, World Bank and the U.S. and EU free trade policies have brought this nation’s physical economy to its knees. But now work will start to rebuild it.

The conference had three components. 1. a donors conference, where Saudi Arabia, the UAE and Kuwait donated $12 billion to be deposited in the Egyptian central bank and used for financing government infrastructure programs. 2. the presentation of the Egyptian government’s own visions and projects to the investors. 3. contracts and Memoranda of Understanding (MoU) with foreign companies.

The largest government project is the new Suez Canal Development Project, which will constitute 30 to 35% of the national economy once completed. The Suez international industrial and logistics centre will stretch across the three governorates of Port Said, Ismailia, and Suez and include six sea ports. The project will require $15 billion investments into utilities, as well as 6 gigawatts of power, and will include three economic zones covering an area of 500 km2.

On the second day of the EECD, Transport Minister Hani Dhahi announced some of the major plans for transport and logistics projects. His ministry, Dhahi said, had signed 6 agreements worth US$2.2 billion. Among them: an agreement with China’s AVIC International Holding Co to create a company to build trains in Egypt (worth $500m); a MoU to build a railway line with electric trains running from Alexandria to Abu Qir with the Italian firm Trenitalia ($10 million); a goods railway line between the Gulf of Suez port of Ain Sukhna and Helwan City south of Cairo; an agreement with UAE’s Dubai Ports World to build a liquid bulk storage terminal at Ain Sukhna; and a $250m contract for a new, multipurpose terminal in the Port of Alexandria.

Other ambitious projects are planned in agriculture as well as in energy, which we will report on in a future issue.

From being in Egypt for a week, Askary told us, and talking to people at all levels of society, it becomes clear that the whole nation has set its eyes on the future, and that the momentum exists to build it.

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