E.I.R.STRATEGIC ALERT

E.I.R.STRATEGIC ALERT



WEEKLY NEWSLETTER

Volume 30, No.11 - March 17, 2016

Draghi Launches an All-out Assault on Savings Deposits

Apparently, Mario Draghi wants history to remember him as being in the footsteps of the famous Lombard bankers, who securitized European finances into the collapse of the 14^{th century, or the Sienese bankers who invented derivatives instruments in 1630 and engineered the Great Tulip Bubble and collapse. That might explain why he steered the monetary system into unthinkable, unprecedented waters -- the realm of negative rates.}

Draghi announced a new set of measures on March 10, in a desperate attempt to save the euro system. They include:

*The main central bank rate is down to an absolute zero (0.00%) from 0.05%;

*The marginal lending facility (for banks to borrow overnight funds) is at 0.25%;

*The rate on deposits at the central bank dropped even further into the negative realm, from -0.3% to -0.40%;

*Quantitative Easing will go from 60 to 80 billion euros per month, and will for the first time include bonds of non financial institutions.

* A new Targeted Long Term Refinancing Operation will be launched, to extend four-year loans at rates that can be as low as the central bank deposit rate (i.e. negative). Concretely, that means that banks will pay back less money than they were granted at the end of the four-year period.

The official purpose of all these measures is to halt deflation and boost bank credit to the economy. But QE started one year ago, and it had no effect on either of those the two targets. Inflation in the Eurozone is nearly at zero (0.1%) and credit to non financial institutions has even decreased by 0,7%! In one year, the ECB purchased bank assets amounting to over 713 billion euros, but banks did not use that money to finance the real economy.

The new measures will deliver the last blow to European savers, who are already getting next to no returns on prudent investments. In the Eurozone, there are €3.3 trillion worth of bonds with negative yields. In Germany, interest on almost 80% of government bonds are below zero, for a total volume of €880 billion, according to data from Bloomberg. Total deposits in Germany, i.e., current and saving accounts combined, are one third of all saving deposits in the Eurozone, and people are earning little if any interest on that money.

No wonder the German Handelsblatt characterized Draghi’s measures as a “frontal attack on German savers”. The negative reactions in Germany have reached such dimensions that observers in London are beginning to seriously fear a backlash that could lead to a breakdown of the euro.

What all this proves, Helga Zepp-LaRouche wrote on March 11, is the hopeless state of bankruptcy of the entire financial system. In that situation, “it is inexcusable for governments to allow such a system to be propped up for one more day. The casino economy of the mega-speculators must immediately be closed and replaced by a Glass-Steagall system.”

China Gears Up the Economy with Science as the Driver

While the international media is busy predicting that the Chinese economy is in for a “hard landing,’’ and is bringing the world economy down with it, Chinese leaders gathered in Beijing for the annual meeting of the National People’s Congress, the country’s legislature, are viewing the slowdown soberly, but with an ambitious plan to continue their development policies. Under the “new normal’’, with the collapse of the world export market, China is putting a premium on innovation and the development of science and technology.

This has been the orientation of the Chinese leaders since the initiation of the “reform and opening up’’ in 1978 and as a result, 600 million out of poverty were lifted out of poverty within three decades, a result never before accomplished anywhere. The government now intends to move rapidly to raise the skill levels of the working population as well as to advance the scientific prowess of the nation as a whole.

On the first day of the Congress, March 7, Chinese Foreign Minister Wang Yi underscored the notable progress of China’s Belt and Road initiative since it was launched in 2014. Thirty countries are already involved in building it, and the number is growing. The initiative was launched by China, he said, but “the opportunities belong to the world.”

The Minister of Science and Technology Wan Gang told reporters on March 11, that total government R&D spending will amount to 2.5% of the state budget, a 10% rise from last year. But this doesn’t tell the whole story, as 77% of the R&D spending today is provided by individual firms and companies.

Just during the past year, China has developed a new jet plane and is in the forefront of high-speed rail development. The Chinese have also developed a new type of pressurized water reactor in the nuclear industry and are working on designing a commercial a high-temperature, gas-cooled reactor. They have also made gains in the field of high-resolution satel

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lites and have produced two super-computers, just to name a few achievements.

In addition to basic science research, the government plans to engage in industrial upgrading. The investments should provide a clear improvement in the people’s livelihood, Wan said, to ensure popular support for the government’s ambitious science programs.

What was not mentioned by Wan Gang, but was noted by Premier Li in his report, was the success of the Chinese lunar program. While it doesn’t come under the specific purview of the Ministry of Science and Technology, it retains a central role in all of China’s striving to become a major technological power. And what they will find on the far side of the Moon, during the very first such mission, opens tremendous vistas for all of mankind (cf. SAS 6/16).

Talks on Solution for Syria Move into a Critical Phase

In the run-up to the second round of Geneva negotiations on the future of Syria, which opened March 14, U.S. Secretary of State John Kerry traveled to Saudi Arabia on the 11 th, where he delivered a clear message to his interlocutors at the highest level not to sabotage the Geneva talks.

Kerry also put pressure on them to end their disastrous Yemen war. From there, Kerry flew to Paris to meet with his counterparts from Great Britain, France, Germany and Italy on March 12.

Meanwhile, Kerry’s collaboration with Russian Foreign Minister Sergei Lavrov has kept the momentum going on Syria. Under joint US-Russian monitoring, the ceasefire has largely held, with a handful of violations per day. In effect, the efforts by Saudi Arabia and Turkey to wreck the ceasefire and dash any chance of a diplomatic solution to the five year Syrian war have failed so far.

Now, Riyadh is covertly attempting to stir up a major crisis in neighboring Lebanon, which is now housing a million Syrian refugees. From among them, the Saudis are reportedly funding and arming a Sunni fighting force, hoping to catch Hezbollah in a weakened position, with forces deployed in Syria and with some of the group’s most experienced fighters exhausted, injured or killed from the Syrian combat. In addition, the Saudis recently reneged on $4 billion in pledged military aid to the Lebanese Armed Forces, a decision praised by Israeli PM Benjamin Netanyahu.

The Saudis have also begun deporting Lebanese workers from the Gulf, cutting off remittances that account for 15% of Lebanon’s annual revenues. If the Saudis cannot prevail in Syria, it appears they are looking to launch another surrogate war against Iran, by throwing Lebanon into chaos.

State Department officials are also worried that Israel, in a de facto alliance with Saudi Arabia, is preparing new military strikes against Hezbollah. U.S. diplomats have warned Lebanese government officials not to take any actions that could provide Israel with a pretext to attack.

In what could be another sign of a strange-bedfellows alliance emerging in the Middle East, Israel and Turkey, a major supplier of the jihadis in Syria, are in the final phases of secret negotiations to restore full diplomatic ties.

In this situation, it is crucial to press ahead with the Geneva diplomacy. Vladmir Putin’s surprise announcement to begin troop withdrawal from Syria was timed to coincide with that crucial meeting. What has yet to be put on the agenda, is the need for a crash program of reconstruction and development of the entire Middle East area (cf. below).

The EU’s Unworkable, Irresponsible Deal with Turkey’s Erdogan

Last week was a truly black one for the European Union. In addition to the insane measures announced to save the euro system, there was the absurd attempt to buy off the Turkish government to solve the so-called refugee crisis.

As widely reported by Western intelligence services and the media, Ankara is supporting jihadi organizations in Syria and Iraq, including ISIS, sabotaging the ceasefire efforts to put an end to the war, brokered by Russia and the United States, and attacking the Kurds, who are one of the most effective forces fighting ISIS and al Nusra.

In sum, Turkey is actively contributing to the atrocious conditions that are forcing people to become refugees. Receiving billions of euros from the EU to prevent more from coming is not likely to change that policy.

But that aspect was not brought up in the deal worked out last week, or at least not publicly. Nor was much said on the flagrant moves by President Erdogan to shut down the opposition in the country, and go for dictatorship. Not to mention that the entire EU arrangement of trading off migrants is itself shameful.

It is just as absurd to think that closing the EU’s external borders with the help of Frontex will stop the flow of refugees. A look at the map of Europe is enough to realize that desperate people who are fighting for survival will always find a way to cross borders.

The only reasonable way out of the crisis is for EU leaders to support all possible measures to put an end to the wars and conflicts in South-West Asia – including denouncing those “allies” that are fomenting them – and to launch an in-depth economic reconstruction plan, such as EIR’s Phoenix Program, in conjunction with China’s New Silk Road policy (cf. SAS 46, 49/15).

German Elections, a Predictable Disaster

In elections held March 13 in three German states, Chancellor Angela Merkel and her coalition government of Christian Democrats (CDU) and Social Democrats (SPD) paid the price of sticking with their failed policies. The popular backlash mainly worked to the benefit of the extremist, xenophobic Alternative for Germany party (AfD), riding on the wave of a massive anti-refugee media campaign, which got 24% in Saxe-Anhalt, 14% in Baden-Württemberg and 12% in Rhineland-Palatinate.

While the refugee crisis was an important issue, it was by no means the only reason for the discontent among the population. The CDU and SPD have resolutely ignored for years now the growing anti-EU sentiment among the population, while staying the ruinous course of defending the euro system and the monetarist paradigm. They have also given in to the Obama Administration by supporting the sanctions against Russia, in spite of a massive drop in trade and in jobs among the exporting companies, many of them medium-sized.

At the same time, they have not shown commitment to enter broader cooperation with the New Silk Road strategy of China nor with the BRICS, which would give the population a perspective for a future. Even more dramatically in the short term, they have not acted to get a real reconstruction program in Syria off the ground.

Both coalition parties chose to ignore a clear warning that was issued in early Feb., when a DIMAP opinion poll showed that not more than 24% of the voters still had confidence in the ability of the CDU to handle the many economic problems, and only 16% for the SPD. That was an unmistakable signal of

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voter alienation. In that light, the dangerous rise of the extremist AfD was not so surprising. Hopefully, it will deliver, at long last, a healthy shock to the ruling class.

One exception to the overall voting patterns, is that the SPD of Rhineland-Palatinate’s Minister President Malu Dreyer did make slight gains, likely due to her personal fighting spirit and her campaign for a national infrastructure program to provide homes and jobs for Germans as well as integrated refugees. Dreyer was able to defeat the CDU’s candidate Julia Klöckner, who went with anti-refugee populism and provided the AfD with extra votes at the expense of her own CDU.

France: New Labor Law Has Workers Up in Arms

Under pressure from the IMF, the OECD and the European Commission, French President François Hollande and the government announced, in late Feb., their scheme to reform the French labor laws, stigmatized as the main obstacle to job creation in a country where unemployment remains over 10%.

To summarize the logic behind it: labor protection today is excessive, but if it were less punitive for employers to lay off employees, they would feel freer to hire more. Today, in 75% of all dismissal litigation cases, the Labor Tribunal orders financial penalties on employers firing workers for reasons other than economic hardship. Therefore, the reform proposes to ease the national rules on labor relations, to adapt employment contracts to the specific conditions of a company, letting employers negotiate individually with employees, or on a case by case by a local union, or through consultation with the company workforce.

In that way, employers can demand less advantageous work and wage conditions, before signing a contract. At the same time, it will make it easier to lay off employees, making the jobs more precarious. The law also has a special paragraph to legalize the model pushed by the U.S. multinational “Uber”, a company that only pays “free-lancers” for a given “task” on a case-by-case basis.

The reform is the French version of the Danish model of “flexisecurity”. In fact, the proposal is not French at all. Back in May 2013, a report of JP Morgan in London, said that to “save the Eurozone”, national Constitutions and labor laws of the “post-fascist” era had to be done away with.

That was subsequently done in Italy under PM Renzi’s “Job Act” and in Spain by Mario Rajoy and his followers, where economists are still trying to figure out if the thousands of “new”, unproductive and badly paid jobs in the service economy were the result of this reform or of other factors.

The first opposition to the initiative came from Hollande’s own socialist party, and several party officials resigned from their leadership positions. On March 9, nearly 500,000 people, including 100,000 young people, demonstrated all over France.

The initiative comes on top of heavy protests against many other government programs, such as the reform of local governments, the extremely severe farming crisis, and the state of emergency to be inscribed in the Constitution.

As of today, only 13 months away from the next presidential elections, only 15% of French voters have a positive opinion of Hollande and many in his own party think he should not run for a new term.

Diplomacy Advances Amidst Nuclear Build-up in United States and Russia

Russian President Putin is vigorously pursuing a diplomatic solution to the crisis in Syria, together with Washington, in the face of escalating plans to encircle both Russia and China militarily. Gen. Philip Breedlove, NATO Commander-in-Chief, recently testified on Capitol Hill that he wants a permanent combat brigade to be stationed along the Russian borders in Eastern Europe and the Baltics. At the same time, Washington is going ahead with plans for the $4 billion modernization of its tactical nuclear weapons in Europe, including the new B61-12,, in violation of the Non-Proliferation Treaty (NPT).

The Pentagon, under Secretary of Defense Ashton Carter, is pressing for a total of $1 trillion over the next decade to modernize the nuclear arsenal, including all three legs of the strategic triad.

Russia has been engaged in a slow, but steady modernization of its nuclear weapons and delivery systems ever since NATO broke the 1990 agreement around German reunification, providing that there would be no eastward expansion of the western military alliance. Officials both from NATO and from the Pentagon frankly acknowledge that Russia has made major breakthroughs in that modernization effort, yet almost all channels for disarmament negotiations have been shut down, ever since the start of the Ukraine regime change program in 2013.

The danger of thermonuclear war is thus greater today than it was at the height of the Cold War. That is the urgent message delivered by a wide range of strategic thinkers from all the countries involved. The Obama Administration, apparently with the sole exception of Kerry, is so far impervious to these warnings.

Washington is also beefing up its war-fighting resources in the Asia-Pacific. Nowhere is this more obvious than in the Obama Administration’s push to deploy the THAAD missile defense systems to South Korea. Those systems are useless against the ostensible target, North Korea, but are part of a missile defense that would cover China and the Russian Far East.

The Chinese and Russia Foreign Ministers, Wang Yi and Sergey Lavrov, issued a stinging joint statement last week opposing the THAAD deployments. Wang Yi made clear that China is looking for any venue to resume talks with North Korea. So far the Obama Administration has insisted that North Korea must abandon its nuclear program as a precondition for any talks. But that is unacceptable for both Beijing and Pyongyang (cf. SAS 8, 10/16).

Meanwhile, the US and South Korea have been conducting war games, based on a scenario of a regime-change invasion of the North this month, and for the first time ever, there are more US nuclear-weapons armed submarines in the Pacific Ocean than anywhere else.

President Obama’s Fictitious Accountof His Legacy

A by now widely circulated article by Jeffrey Goldberg in the Atlantic, based on a series of interviews with President Obama, reads more like a whitewash than an accurate account of the most important foreign policy decisions of the Obama Presidency.

In fact, from the decisions to go to war in Libya to the events leading up to the cancellation of the planned bombing of Syria in Sept. 2013, to Obama’s relationship with the Saudis and with Turkish President Erdogan, the entire lengthy account is tailored for Obama’s legacy, and bears little resemblance to reality.

The overall slant of the interview is that the real war-hawks in the Obama Administration were his two Secretaries of State -- Hillary Clinton and even more so, John Kerry, who had pressed for bombing Syria. The disaster of the Libyan adven

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ture is conveniently blamed on the Europeans, mainly David Cameron and Nicolas Sarkozy.

Moreover, Goldberg asserts that Obama never trusted the Saudis. Why then, we ask, does he refuse to declassify the damning 28 pages on the Saudi role in the 9/11 terrorist attacks? And while Obama may have notoriously bad personal relations with Israeli Prime Minister Netanyahu, he has been Israel’s most loyal and reliable guarantor of security.

There is not a word in the long article on the President’s penchant for special operations or his regular Tuesday meetings where he decides who should be killed by drone, and no word on torture or the prisoners still held illegally in Guantanamo. The fact that he went to war in Libya and Syria without Congressional approval is also covered up.

When real historians sit down to catalogue the Obama years, if they are serious, they will either toss the Goldberg interview into the garbage can or treat it as a piece of clinical psychological evidence of the President’s narcissism -- and of the journalist’s penchant for toadying.

The Empire Strikes Back: Attempts to Break Apart the BRICS Focus on Brazil

The neo-liberal opposition in Brazil, on behalf of Wall Street and the City of London, has been waging a campaign for the ouster of President Dilma Rousseff on various cooked-up charges of corruption ever since her re-election in Oct. 2014. An obvious purpose of the operation is to weaken the South American flank of the BRICS group of countries (Brazil, Russia, India, China, South Africa) which is forging a viable alternative to the trans-Atlantic dominated world order.

The offensive intensified on March 4, with the grandstand arrest of former President Lula da Silva, a close ally of Rousseff, for questioning regarding contracts of the national oil company Petrobras.

The deployment of the Daily Telegraph’s notorious International Business Editor Ambrose Evans-Pritchard to Brazil in the first week of March signals that the British Empire crowd intends to take direct control over what they hope will be the final phase of the ouster of Rousseff. Evans-Pritchard headlined the last of his three articles filed from Sao Paulo on March 7 “Downfall of Brazil’s Lula Marks End of BRICS Fantasy.”

With Russia and South Africa in deep crisis, and China forced to spend its foreign reserves, he wrote, “the BRICS concept has become meaningless.” Suddenly, “the drive to impeach Mrs. Rousseff looks unstoppable”. The London crowd hopes that current Vice President Michel Temer will take over to lead a “pro-market government” that takes on the needed austerity and reform.

Rousseff is facing two impeachment tracks: one for violating the laws on keeping a balanced budget (!), the other stemming from the “Operation Carwash” corruption case which targets anything remotely nationalist, be it the state oil company, the nation’s top construction and engineering firms, the father of the nuclear industry, the ruling Workers Party, former President Lula da Silva, and now Rousseff herself.

The judge running “Carwash”, Sergio Moro, who was trained in Harvard and at the U.S. State Department explicitly models it on the “Mani Pulite” (Clean Hands) operation, deployed by the oligarchy to take down the political system in Italy in the 1990’s.

Immediately after Lula da Silva’s arrest for questioning (he was since released), British outlets in Argentina began to put out the line that former Argentine President Cristina Fernandez de Kirchner “would be next” to be indicted or even jailed.

Reviving the True Mission of NASA

Compared to the United States as it was in the early 1960s, during the presidency of John F. Kennedy, when the advances of NASA sparked tremendous scientific and technological optimism, today’s America is a far different, far sadder place. Then, the dynamic created by the space program reverberated through the whole economy, as innovations in physical processes led to significant annual improvements in productivity, back when productivity was still a meaningful measure of economic progress.

U.S. manufacturing, driven by these improvements, especially in the machine tool sector, produced an expansion in GDP in the 4-5% range annually. The numbers of those engaged in productive employment grew each year, and wages rose, swelling the ranks of the middle class. The civil rights movement raised the hopes that minorities would soon be included in the American Dream.

The optimism in this period was not simply due to improvements in the quality of life, much of which was driven by spin-offs from NASA activity. What the space program did, which was far more significant, was to generate an excitement among the majority of people about the advance of science. There was a profound appreciation that the investment in space was not just about nuts and bolts and circuitry, but about making new discoveries, applying human creativity to learn more about the universe we inhabit, and, in the process, make discoveries about the extraordinary capabilities of human beings.

This optimism about the future was jolted with the assassinations of the 1960s, beginning with President Kennedy himself, and terribly eroded by the Vietnam war, not to speak of the imperial wars of the last 15 years, and the virtual shutdown of the manned space program under President Obama. In the absence of a science driver, the American economy has been driven by a succession of speculative, financial bubbles. There is now an unprecedented gap between the few super-rich, who profit from the bubbles, and the growing number of poor, along with a collapse in overall education and intelligence, and a loss of hope for the future, typified by the growing number of those dying from drug and alcohol addiction.

In his campaign to revive NASA, Lyndon LaRouche has insisted that only by taking up the higher mission of mankind, to go out into the universe and make discoveries, will America be able to emerge from the present cultural degeneration and launch a new Renaissance.

LaRouchePAC Policy Committee leader, Kesha Rogers is coordinating this campaign, which has already re-moralized some of the older scientists and engineers who worked with NASA when manned missions were regular events. A major conference convened by Rogers near the Johnson Space Center in Houston brought a number of NASA “alumni” together, not to indulge in nostalgia, but to discuss how to revive the spirit of the early years. Follow-up meetings have been planned.

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Verantwortl. f. d. Inhalt: Dean Andromidas, Claudio Celani

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