E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER

E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER
Volume 30, No.41  - October 13, 2016
Is It One Minute After Midnight? The world is currently faced with two interrelated, highly dangerous crises:  the imminent implosion of the transatlantic financial system, which can no longer be kept afloat (cf. below), and the strategic confrontation between the United States and Russia focussed on Syria, which may now be playing out as a “cold” war, but could quickly turn “hot”. Countless observers on both sides of the Atlantic have warned of the immiment danger of an escalation toward world war. A turning point was reached when the Obama Administration, through State Department spokesman John Kirby, announced on Oct. 3 that it was ending all engagement with Russia on finding a solution to the conflict in Syria. That followed, as we reported, the U.S. led attack on Syrian armed forces in Deir el Zour, and the subsequent attack on a UN aid convoy to Aleppo, blamed on Russia, although with no evidence provided. That signalled the end of the ceasefire and an escalation of the rhetoric on both sides. Prior to and since Kirby’s announcement, various options have been floated as to how the United States could intervene in Syria to defeat President Assad’s armed forces. Among them, establishing a no-fly-zone over all or part of the country, implementing safe zones inside Syria for refugees, bombing the government air force directly, and supplying the jihadis with more lethal weapons, including shoulder-fired anti-aircraft weapons. All such actions would effectively strengthen the extremist, jihadis groups which the West claims to be fighting. But even more ominously, they would directly and militarily pit the United States against Russia. In response, the Russians announced the deployment of S-300 and S-400 anti-missile systems to Syria  and suspended the US-Russia agreement on the destruction of weapons-grade plutonium. Relations have broken down to the point where Washington even blocked a statement at the UN Security Council condemning the rebel mortar attack on the Russian Embassy in Damascus. With very few exceptions, Western media have systematically blamed Russia, and President Putin in particular, for the unspeakable suffering of the Syrian people and the continuation of the civil war. But one must ask just who launched the “regime change” policy in the first place to oust President Assad with the help of the most corrupt forces on the “market”; who has trained and armed the extremist, jihadi groups, which call themselves interchangeably al Qaeda, al Nusra, or ISIS; who
waged wars in Afghanistan, Iraq Libya and Syria on the basis of lies; who condones Saudi Arabia’s barbaric war against Yemeni patriots? Nonetheless, as Lyndon LaRouche has pointed out, the position of President Obama and the Pentagon is largely blustering, since they are unlikely to make good on their threats, not least because of the uprising it would cause among the American people. Concerning the acute humanitarian crisis in Aleppo, the UN Special Envoy Staffan de Mistura proposed that the Jabhat alNusra (al Qaeda) terrorist group, which the U.S. backs, be allowed to withdraw from the besieged part of the city with their weapons, in order to facilitate humanitarian aid to the civilian population now entwined with the rebels. Russia has endorsed the proposal. Deutsche Bank, the Tip of the Iceberg The Oct. 7-9 annual meeting of the International Monetary Fund was overshadowed by dramatic indications of the systemic collapse, such as the “Flash Crash” of the pound sterling and the fears of contagion from the Deutsche Bank and MPS crises. Everyone sees the collapse coming, but financial authorities reject a Glass-Steagall solution and secretly plan new forms of bail-ins and expropriation of depositors. Within two minutes in the early hours of Oct. 7, the value of the pound sterling crashed by 6%. While all sorts of explanations were offered by the usual suspects (fear of Brexit, automated sale programs and even a “fat finger”), the cause of the collapse is the extreme volatility of the system, caused by what Bank of America called “phantom liquidity” in a report issued a few days before. In other words, all financial assets priced as liquid are in reality overinflated. Thus, if someone seeks to sell assets, he suddenly discovers that nobody wants them, and the price of those assets deflates quicker that you can say “sell”. In fact, we are in an advanced stage of the systemic collapse phase which EIR identified earlier last year with the collapse of the commodity and oil bubbles. Months of central bank liquidity expansion and negative rates may have slowed down the collapse but they have also magnified its dimension and its impact. In the current phase, central banks and governments are scrambling to find a “market solution” to a banking crisis, centered around Deutsche Bank and MPS (Monte dei Paschi)in the Eurozone. The latest scheme being floated for the first is to have a group of German Blue Chip companies come in a white
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horse to support a capital increase, with or without the help of money from Qatar (the main shareholder of the bank). Such schemes, however, will depend on the outcome of the “chicken game” being played with Washington, as Die Welt wrote on Oct. 4. A precondition for the “market solution” is for the U.S. Department of Justice to greatly reduce the threatened $14bn fine (cf. SAS 40/16), by threatening a systemic collapse if it doesn’t. Die Welt published two eloquent charts: one showing foreign bank investments in German banks, which amount to one trillion, and the other showing German cross-border derivatives, which puts German banks in the first place, with Great Britain close behind. “The DOJ cannot afford to collect too great a fine, if it’s not willing to risk a new banking crisis in its own country”, Die Welt concludes. However, even if CEO John Cryan wins the “chicken game”, no bail-out/bail-in solution will work unless the bank radically changes its business model as we explained (cf. SAS 40/16). The clock keeps ticking, and Deutsche Bank’s €42 bn derivatives book is a ticking bomb. Therefore, one can expect new criminal schemes for looting depositors worldwide, with an extension of negative rates on deposits and new forms of expropriations. Mario Draghi has already signaled that QE might be extended beyond the deadline of March 2017. Europe, Too, Needs LaRouche’s “Four Laws” With the risk of a domino-style financial collapse increasingly evident, fueled by the ongoing meltdown of Deutsche Bank and the renewed exposure of the fraud committed by U.S. banks, such as Wells Fargo, there is a new sense of urgency that “something” must be done. That “something” has been identified very clearly by economist Lyndon LaRouche in the form of his “Four Basic Laws” required to avert the danger of a deadly financial and economic depression, and with it, the danger of world war. Helga Zepp-LaRouche, in an article written Oct. 8, summarized for a European public those four measures, proposed by her husband in June 2014. The first is the re-establishment of Glass-Steagall banking separation, as enacted by Franklin Roosevelt in 1933, which means the vast majority of unpayable debts and outstanding derivatives contracts would simply be cancelled. Second, every country should introduce national banking, such as that first set up by Alexander Hamilton in the young United States, to replace the current policy of credit creation by independent central banks to the benefit of gamblers. Third is the creation of an international credit system dedicated to “raising the productivity of the real economy and the living standard of the populations of all nations, which can be done by promoting scientific and technological progress and a real rise in the energy-flux density of the production process.” And fourth, the economy needs a science driver, which can be achieved “through a crash program for harnessing and using fusion energy technology as well as international cooperation on space research.” Not surprisingly, Zepp-LaRouche notes, the impulse for reorganizing the financial system in this way “is not coming from the United States or Europe,” but the closest approximation to LaRouche’s proposals “was presented by China at the recent G20 summit in Hangzhou,” in the form of “a new global financial architecture and the reform of the world economy on the basis of innovation and growth.” It is to be expected that these proposals will translate into new initiatives at the BRICS annual
summit in Goa, India, on Oct. 15-16, and that the importance of the banking facilities created by China and the BRICS (AIIB, New Development Bank, Silk Road and Maritime Silk Road Fund, Contingency Reserve Arrangement) will increase. Just as the LaRouche PAC in the United States is fully mobilized to get Congress to pass Glass-Steagall now (cf. below), also in Europe, Zepp-LaRouche concludes, “we must force the Parliaments, through a broad-based mobilization of the population, to end the casino economy with bank separation such as Glass-Steagall,” and “to reshape economic policy according to LaRouche’s Four Laws, and rebuild -- together with China, Russia, and hopefully an America reorganized under Glass-Steagall -- the countries that have been destroyed by senseless, barbaric wars.” Glass-Steagall Should Be  The Overriding Issue in 2016 US Elections The historic vote in both houses of Congress to override President Obama’s veto of the JASTA bill (cf. SAS 40/16) presents a unique opportunity to address the disintegration of the global financial system, by organizing the Congress to vote to restore bank separation on an emergency basis. Despite opposition from banking and financial lobbyists, from the White House and from Wall Street puppets in both parties, legislation to restore it has been submitted in both the House and Senate, and both parties’ platforms call for its return. Hearings were held in Congress last week on Wells Fargo, which was presented as the paragon of commercial banking and called itself the “clean bank”. In fact, it committed massive fraud, through the creation of some two million fake deposit and credit card accounts, in order to collect fees and profits on elaborate instruments, which did not even exist. This has again created tremendous anger among the population, who are demanding their elected officials take action. As a result, while CEO John Stumpf was promising prompt remedial measures at Congressional hearings, several members were asking how many other banks have engaged in such criminal behavior. The drumbeat for prosecution is growing. Representative Maxine Waters, the ranking Democrat on the House Financial Services Committee, angrily denounced the bank, and said she had come to the conclusion that it “should be broken up. It’s too big to manage.” Waters knows full well that, while Congress currently has no legal power to “break up the banks,” that would be done through passing a new Glass-Steagall Act. That’s where the example of the mobilization of citizens, to force Congress to override Obama’s veto on JASTA, is relevant. Spearheaded by LaRouchePAC, in collaboration with the association of family members of the victims of 9/11, a powerful counterforce emerged in opposition to the Saudi Monarchy and their partners -- including members of the Obama administration and networks tied to the British Royal Family -- who tried the usual tactics, of bribery and bullying, to keep Congress in line. This mobilization was so effective that only one Senator, and a little over 20% of House members, voted to uphold President Obama’s veto. It was the first time one of his vetoes had been overridden. Nothing short of such a mobilization is required now to force the Congress to come back to Washington, before the Nov. 8 elections, and push through Glass-Steagall. Such action would be unprecedented, with the elections less than a month away. Yet, as LaRouchePAC has pointed out, any candidate who fails to act now for such a legislation does not deserve to be elected.
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Debate on Two-tier Banking  Resurfacing in Europe Since the financial crash of 2008, the Civil Rights Movement Solidarity (BüSo) has been the only political movement in Germany that has consistently pushed for strict bank separation as a precondition for cleaning up the system. But now, given the dire condition of Deutsche Bank, the issue is coming back on the table. On Oct. 4, Carsten Schneider, the financial policy spokesman of the SPD group in the Bundestag, who had previously vehemently refused to consider any separation of bank activities, told ARD Morning Magazine, he thought that keeping the “monopoly casino” within a bank, “makes it that much more difficult to protect normal depositors.” He criticized Deutsche Bank’s managers for failing to change their business model after the crisis of 2008, focussing instead exclusively on investment banking. Schneider called for bank separation legislation on the level of the European Union. On Oct. 6, European Parliament (EP) member Fabio De Masi was much more explicit on the issue, charging in a press release that Chancellor Merkel’s statement that no taxpayer money would go to bail out Deutsche Bank was not credible, since such “zombie banks” are too big and too systemic, to be allowed to fail. De Masi, a member of the Left Party, regretted that the majority groups in the EP “still block effective reforms of the banking sector and the separation of investment and commercial banking. However, this is required to be able to erect a firewall around the financial system and to allow the controlled bankruptcy of toxic investment banking.” From Italy, Professor Alberto Bagnai, an anti-Euro blogger with a large following, made a forceful intervention for the reintroduction of Glass-Steagall at a public event on Sept. 22, which has been posted in video form on the internet. The current fraudulent practices, he stated, “did not come about because Saturn entered into opposition with Venus, but because of a precise political choice which they sold you, and you swallowed it. It was the political choice of privatizing the banking system and abolishing separation between deposits/savings management and speculative activity.” Another Italian, Guido Salerno Aletta, a constitutionalist and commentator for several publications, wrote an editorial carried by the Teleborsa news agency calling for terminating the model of universal banks, in favor of bank separation. German Study on Infrastructure Investments Exposes Idiocy of Balanced Budget Policy A new German report shows that public investments in infrastructure increase not only productivity, employment and wealth, but also tax revenues. Its conclusions deliver a severe blow to the absurd Maastricht parameters and to Wolfgang Schäuble’s “black zero” policy of a balanced budget, as it states explicitly that the improvements are achieved through government borrowing – i.e. deficit spending. The fact that the study was commissioned by the German Industry Ministry headed by Sigmar Gabriel, who is Deputy Chancellor and SPD chairman, reflects the split in the coalition government between the SPD and the CDU-CSU, which backs Schäuble’s line.(Available here: http://www.bmwi.de/BMWi/Redaktion/PDF/Publikationen/Studien/renditen-oeffentliche-investitionen,property=pdf,bereich =bmwi2012,sprache=de,rwb=true.pdf The authors state that “public investments involve fiscal costs which are offset by tax returns due to reduced money transfers and higher tax revenues and social security contributions.
When a public investment program generates sufficiently large tax revenues, it reduces the government debt ratio for the coming generations.” The study considers a program of public investments in three areas: transportation and digitalized infrastructure, schooling and higher education. On transportation, it regrettably focuses only on roads, but even such a limited scope is enough to prove the point. Thus, the study considers a program for roads involving a yearly investment of an additional 10 billion in the first five years and 6 billion in the following years, which would lead, in a prudent assessment, to an increase of productivity after 20 years, equivalent to a financial return of 10%. The program would produce a budget surplus already after 9 years, and “the positive effects of infrastructure investments on employment and wages will be evenly spread out among the various household groups. Additionally, long-term unemployment and short-employment both decrease.” As for all-day schools and day care centers, the study calculates a lack of some 4 million places in full-time facilities for children aged 3 to 18. To provide such places would cost 6 billion per year and a one-shot investment of 20 billion. The government, it proposes, could budget the expense with 10 billion in the first five years and 6 billion in the following years. The program would have two positive economic effects, according to the authors: first, a gradual increase in the percentage of the working population with a diploma, and second, the possibility for more parents to work if all-day facilities are provided for the children. The program would increase the GDP at a growing rate, going from 0.30% in the first year to 1.1% after 20 years. Jobs would also increase by 174.474 in the first year and by 522.075 in 20 years, as would wages, and the initial budget deficit would give way to budget surpluses after 6 years. A similar, albeit more modest result, is achieved with the same amount of money invested in universities. Colombian People Defeat the “Peace” Plan with Narco-Terrorists Contrary to all predictions, in a referendum on Oct. 2, Colombian citizens delivered a stinging defeat to President Juan Manuel Santos, by soundly rejecting his “peace” plan with the narcoterrorist Revolutionary Armed Forces of Colombia (FARC), the world’s largest cocaine cartel that has committed heinous atrocities in the country for decades. Santos had tried to pass off his agreement with the FARC as the way to end the years of bloodshed; but in reality it was a thinly-disguised British plan for shameless drug legalization, which from the very beginning had the complete support of the Obama Administration. State Department emissary Bernard Aronson spent months in Havana personally negotiating with the narco-terrorists, and it was expected that the “Yes” vote approving the agreement would win hands down. Instead, the “No” won with 50.21% of the vote, to the shock and surprise of pundits worldwide. As an unnerved Washington Post described it Oct. 3, this was “a Brexit-style backlash that defied pollsters’ predictions and left supporters of the deal in tears.”  Among those crying hardest were former British Prime Minister Tony Blair, the longtime political godfather of Santos, who risked everything on the peace deal, and lost. It vote was also a big setback for the Obama Administration, which had gone so far as to offer to remove the FARC from the State Department’s list of terrorist organizations. A smiling Secretary
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of State John Kerry had personally delivered Obama’s stamp of approval for the plan when he attended the Sept. 26 signing of the agreement in Bogotá. It it the case that Wall Street has long hoped to cash in on a greater portion of the international drug trade. Already back in June 1999, then New York Stock Exchange president Richard Grasso met in the Colombian jungle territory run by the FARC, with the narco-terrorist group’s chief financial officer, Raul Reyes, to discuss “mutual investments.” Today, Colombia is far and away the world’s leading cocaine source, producing more coca than Peru and Bolivia combined. Since 2013, Colombian coca production has doubled, rising by 39% in 2015 alone, most of the increase occurring in territories under FARC control. Now, desperate efforts are underway to salvage the accord. On Oct. 7, the Norwegian Nobel Committee announced it had awarded Santos this year’s Nobel Peace Prize, in what can only be considered an endorsement of the Colombian President’s efforts to keep his fraudulent peace plan alive. And on Oct. 8, the Washington Post revealed the interesting fact that Norway “had a special stake in this year’s peace prize,” since its government has for four years served as a “guarantor” for the FARC negotiations. China Aims to Enhance Science Cooperation with Belt and Road Countries Chinese leaders have increasingly stressed that their approach to ensuring economic growth and ending poverty is based on innovation and scientific breakthroughs. Now, in the framework of the One Belt, One Road project, China seeks to extend such cooperation to all the countries along the route. Under a special plan just issued by the Chinese Ministry of Science and Technology, the National Reform and Development Commission, the Ministry of Commerce, and the Ministry of Foreign Affairs, China will bring in over 150,000 science and technology personnel from those countries for exchanges or training in China, and over 5,000 young people representing scientific talent. Such innovative collaboration, the statement reads, will stimulate “the enthusiasm and creativity, and deepen the cooperation by laying a solid basis of scientific talent.” China intends to sign basic memoranda of cooperation with Belt and Road countries for setting up laboratories (cooperative research centers), technology transfer centers, centers for the popularization of science, and an international platform for innovative cooperation, as well as encouraging enterprises along the route to set up their own R&D centers, focusing on producing practical results for implementing the Belt and Road goals. The areas of cooperation include agriculture, energy, transportation, information and communication, resources, environment, marine, advanced manufacturing, new materials, aerospace, medicine and health, disaster prevention and reduction, and other key areas. The importance and impact of China’s efforts were fully acknowledged by the President of the World Bank at the justconcluded IMF/World Bank meeting in Washington, D.C. on Oct. 7-9. When asked about the role of China in achieving the stated goal of ending extreme poverty by the year 2030, Jim Yong Kim replied: “Well, first of all, he said, without China we’d have no chance to even think about ending extreme poverty. China lifted 700 million people out of extreme poverty over the last two to three decades. So there’s still people living in extreme
poverty, but not very many. China itself is determined to bring that number down to zero in the very near future.” Africa Inaugurates First Modern  Electrified Railway On Oct. 5, Ethiopia and Djibouti officially opened a new electrified rail line connecting their capitals, built and financed by China. Leaders of both countries hailed the Addis Abeba-Djibouti railway as a testament to Chinese-African friendship. The 752.7 km long line, with a designed speed of 120 kmh, was constructed by China Railway Group and China Civil Engineering Construction Corporation with a total investment of $4 billion. It will reduce travel time from 7 days to 10 hours and give landlocked Ethiopia faster access to the sea port of Djibouti, through which more than 90% of Ethiopia’s imports and exports -- in particular, energy and food – pass. The capacity of the current road system has long been overwhelmed. Electrification, which is far less expensive than using diesel locomotives, is possible because of the government’s investment in large hydroelectric power projects. “The railway is constructed on the basis of Chinese railway technology standards while taking into account the national conditions of Ethiopia and Djibouti,” Zeng Deli, a project manager of the China Railway Group, told Xinhua . The project took only six years to build, Zeng added, which should be viewed as some kind of miracle even in China. Over the course of the project, Chinese teams trained more than 15,000 local workers to help build it and to run the line in the future, and the training programs will continue. The modern, standard-gauge railway runs parallel to a decrepit, meter-gauge railway built over 100 years ago by Europeans. The government plans to establish industrial parks in cities along the line. Overall, as we have reported, Ethiopia has managed to achieve impressive economic development over the past years and is a key ally in Africa of China’s One Belt, One Road initiative. It is on that backdrop that a destabilization operation was launched against the government a few weeks ago. Indeed, ethnic tensions are being stoked among the Oromo ethnic group, the second-largest in the country. In the latest incident, a festival near the capital degenerated into a stampede after provocations were launched. The chairperson of the opposition Oromo Federalist Congress, Merera Gudina, accused police of firing tear gas and shots into the air to disperse antigovernment protesters. Merera made his statement from Washington, where he is at home, since being made a Reagan-Fascell Democracy Fellow at the National Endowment for Democracy, which is the main “regime-change” institution in the U.S.. Most of the opposition leaders who are quoted on the incidents reside in the U.S., where they have been given fine positions at the NED, Harvard, or other “elite” institutions.