E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER

E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER
Volume 30, No. 50 - December 15, 2016
Faced with Their Failures,  European Leaders Dig Their Heels In The center of worldwide economic power has long shifted out of the trans-Atlantic world, as our readers have followed in this newsletter. The new dynamic, very much centered on China, strongly supported by Russia, India, and a myriad of other developing countries in Asia, Africa and South America that are joining in enthusiastically. Even the United States is ready for a change, as the surprise victory of Donald Trump made clear. And yet, European leaders are sinking deeper into the quagmire of the old paradigm, unable to change. Just witness their economic and strategic policies. By anyone’s account, the financial dictates of the European Union have been a disaster. Austerity and lack of investments have plunged millions into poverty as the real economies are gutted. That EU policy was resoundingly rejected by Italian voters in the Dec. 4 referendum (cf. SAS 49/16). And yet, the Eurocrats are demanding more of the same medicine. Thus, German Finance Minister Wolfgang Schäuble stated outright on Dec. 5 that there was no reason “to talk about a euro crisis,” adding that Italy “has to continue on the path that Prime Minister Renzi has taken economically and politically.” His colleagues came out with similar inane statements, just perhaps less bluntly. On Greece, where nearly 40% of the population has already been pushed below the poverty line, Schäuble threatened on the same day that more draconian budget cuts be imposed and jobs cut, or Greece will have to leave the Eurozone. The finance ministers of that same zone then decreed that Athens will have to maintain primary surpluses of 3.5% of GDP up to 2028, in order to pay the debt. But no country in the EU is anywhere near that level, Germany being the closest, with a primary surplus of only 2,1% in 2014. So, no one expects the measures to work, but they won’t admit it. Meanwhile, Mario Draghi proclaims that quantitative easing will go on forever, despite its blatant failure. Not to mention the fact that the entire trans-Atlantic financial system could blow out at any time. On Russia, it is to be greatly hoped that Donald Trump will follow through on his commitment to improve relations with Moscow, and cooperate in the fight against international terrorism (cf. below). And yet, European leaders stick to their losing paradigm of confrontation. EU foreign affairs chief Federica
Mogherini insisted the EU will not change its policy against Russia even if the United States under a President Trump does. She was echoed by British Prime Minister Theresa May, who raved against “increasing Russian assertiveness.” Meanwhile, François Hollande regularly issues impotent threats and warnings. Angela Merkel, who was de facto anointed new chief of the “cold warrior” NATO coalition by Barack Obama in his postelection trip to Berlin, is already accusing the Russians of planning cyber-attacks to influence the German legislative elections of 2017, purportedly against her. Rather ironic knowing how Obama’s NSA was spying on the Chancellor herself and presumably every other institution in Germany. And, of course, the EU sanctions against Russia are to be renewed, in spite of very strong opposition in all EU member countries. ECB and EU Intend to Punish Italy  by Imposing the Troika The European Central Bank took two decisions last week that show the firm determination by EU institutions to pursue those very policy measures which Italian voters rejected in the Dec. 4 national referendum, and to punish Italy for the “No” vote (cf. SAS 49/16). On the one hand, the ECB announced more life-support measures to the bankrupt financial system, through an extension of the quantitative easing program aimed at keeping alive the zombie banks which are full of toxic financial assets. On the other, it refused to help the Monte dei Paschi bank, and that has negative effects on depositors and the real economy. The eurozone bank announced that QE would be extended beyond the March 2017 deadline to the end of the year, and that the monthly amount of assets purchased would be reduced from €80 to €60 billion. This prompted some media to call it a “tapering”, but Mario Draghi made it clear that it is not, and that “the ECB will stay on the market”. Indeed, the bank had already reduced monthly purchases from the €80 bn mark, because it was running out of assets to purchase (cf. SAS 37/16)! Now, it has expanded the range of eligible assets to include those with a one year maturity (instead of two), and might even purchase assets with yields lower than the ECB 0,4% negative deposit rate! Der Spiegel has correctly warned that the half-trillion euros issued by the ECB under the new deadline will go to inflate the stock market and the real estate bubble, which in Germany has
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already grown to dangerous dimensions. All bubbles end with a crash, the German weekly wrote. As for Monte dei Paschi, it was denied an extension of the Dec. 31 deadline for recapitalization. MPS is a former commercial bank which went into investment banking in 1995 and was bankrupted by its financial follies. But at the same time, the bank is loaded with €47 billion worth of Non Performing Loans, mostly consisting of credit to small industrial firms, farms and mortgage loans to families. The ECB decision is a death sentence for MPS, which will not be able to implement the “market solution” within the Dec. 31 deadline. Under EU law, it should therefore bail in shareholders, bondholders and depositors. After that, it can be “bailed out” with taxpayers’ money. However, EU budget rules won’t allow the Italian government to increase its deficit to bail out MPS. Thus, the EU strategy is to force Italy to submit to the Troika. As Merkel’s advisor Volker Wieland said in an interview to Handelsblatt on Dec. 6,  “Italy should go to the ESM” and also get the IMF “involved in the aid program”. The plan “on one side would represent a ‘shield’ in case of a debt crisis in Italy, and on the other side, ESM and IMF together could apply the right pressure to unblock reforms”, Wieland said. However, Italy might just decide to slam the door on the EU. Contrary to Greece, which was intimidated into staying in the euro with the argument that it would be helpless outside, Italy is a major industrial nation and has a trade surplus. This means that the country could perfectly face a financial attack in case of an exit from the euro, as it does not need foreign currency to pay for its imports. Syrian Armed Forces Empty  the Jihadist Pocket in Aleppo The Syrian Army has all-but cleared the Aleppo pocket of remaining jihadist fighters, meaning that the largest city in Syria is now on the verge of being fully under the control of the government in Damascus. With the painstaking liberation of eastern Aleppo, upwards of 85-90% of the Syrian population of Syria is living under government control. Contrary to Western propaganda claims, the combined Syrian-Russian-Iranian forces have gone out of their way to avoid the kind of mass killing of civilians that appears to be taking place across the border in Mosul, Iraq, where an estimated one million civilians are trapped in the city, held since 2014 by the Islamic State, as the Iraqi Armed Forces, with U.S. backing, are laying siege to the city. Since mid-October, Russian and Syrian jets have basically halted  air operations in and around Aleppo, as the ground forces have moved from neighborhood to neighborhood, taking back ground.The Russian Defense Ministry announced on Dec. 11 that nearly 80,000 civilians, many women and children, have been escorted out of the eastern Aleppo area held until recently, by rebel forces, including the Nusra Front, which was formally part of Al Qaeda until its alleged, opportunistic split last July. Some rebels have surrendered their weapons and accepted the government’s amnesty offer, and have left by a separate secured corridor out of the pocket. Noted American retired military analyst, Col. Patrick Lang, wrote last week on his widely-read website that the Russians had done an impressive job of reorganizing and retraining the Syrian Armed Forces, since the Russian military engagement began late September 2015. Indeed, during those 14 months, an exhausted and depleted Syrian Army was regrouped, as volunteer units of Palestinian and Iraqi Shia militias, along with
Hezbollah and Iranian Quds forces, were all forged into an integrated fighting force which has never before been seen in the region. Col. Lang, after a career in Army Special Forces, served as U.S. military attache throughout the region and was official liaison to the Iraqi Armed Forces during the final two years of the Iran-Iraq War. His assessment, from the start of the Russian engagement, was that the war could be won militarily, and that this was the course of action that Russian President Putin had decided upon, after it became clear that the Obama Administration would never abandon its desire for regime change in Syria or its support for outright terrorist groups like Al Qaeda’s Nusra Front. As it became clear that Aleppo was about to be liberated by the Syrian forces, John Kerry and Sergei Lavrov resumed their intense negotiations over a possible diplomatic deal, reflecting the changed “facts on the ground.” But Lavrov continued to stress that Washington’s insistence on retaining ties to jihadist groups is totally unacceptable to Moscow. President Obama proved the point last week, by issuing an executive order, lifting the ban on providing arms to any foreign forces and groups that are working with the US to fight against the Islamic State (cf. below). Two days later, Defense Secretary Ashton Carter announced that the US was sending 200 more Special Forces in to Syria, to train and equip local fighters, bringing the total to approximately 500. Lyndon LaRouche reacted to these announcements by stating that this is just a desperate attempt to revive the “old geopolitical paradigm”, and that Barack Obama does not have the power to actually change things. What the Americans should do now, he said, in addition to defeating the remaining jihadists, is to “present an economic program that provides the basis for a perspective of peace through development,” more attractive than continued war. Outside the Media Spin, What Donald Trump  Is Actually Telling Americans While the preponderance of coverage of Donald Trump focusing on some of his more gruff proposals, such as building a wall along the border with Mexico to “keep rapists out”, or his Twitter wars with opponents, one might be led to believe that the election of such a boorish lout resulted solely from his appeal to ignorant Americans, predominantly among “angry white men.” Yet, since the election, Trump has engaged in an effort to shape his presidency through a series of “Thank you” events, in which he is addressing crowds in states which he won. Apparently, he intends to keep his supporters mobilized in anticipation of the Establishment backlash his agenda will undoubtedly unleash. Since these speeches are given little substantive coverage, we offer some excerpts, showing why so many Americans find them to be “a breath of fresh air”. In Cincinnati, Ohio, on Dec. 1, he said: “One of the reasons we are so divided today is because the government has failed to protect the interests of American workers and their families, making it too easy to see ourselves as distinct groups and not unified as a whole....Washington’s politicians (have) forgotten how to appeal to the national interest, combining the skills and talents of our people in a common cause....But that is about to change.” “People are constantly telling me and telling you to reduce our expectations. Those people are fools....Anything we want for our country is now possible....Now is the time to unlock the potential of millions of Americans left on the sidelines, their
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talents unused, their dreams unrealized and their aspirations totally forgotten.” After describing his commitment to rebuilding the nation’s infrastructure, Trump turned to strategic policy, saying: “We will pursue a new foreign policy, one which finally learns from the mistakes of the past. We will stop trying to topple regimes and overthrowing governments. Our goal is stability, not chaos.” Trump insisted on the same theme on Dec. 7 in a rally in Fayetteville, North Carolina, with his nominee for Secretary of Defense, Gen. James Mattis, standing at his side. “We will stop racing to topple foreign regimes that we know nothing about, that we shouldn’t be involved with...This destructive cycle of intervention and chaos must finally come to an end.” He stressed that “We want to strengthen old friendships and seek out new friendships... We seek harmony and goodwill among the nations of the world.” In Ohio, Trump challenged the audience to “join me in this next chapter of this unbelievable and unprecedented movement...as we work toward prosperity at home, peace abroad, and new frontiers in science, technology and space....The script is not yet written. We do not know what the next page will read, but what we do know is that the pages will be authored by each one of you....I talked about our great movement, but you are the movement; I’m just the messenger.” Bank Separation, Terrorism:  Some Reasonable Voices from Washington Support for Glass-Steagall. The Vice Chairman of the Federal Deposit Insurance Corporation (FDIC), Thomas Hoenig, stated his  support for reinstating the Glass-Steagall Act at a Dec. 5 Washington, D.C., chaired by former Federal Reserve Chairman Paul Volcker. Hoenig, as reported on thestreet.com told the attendees that the repeal of that Act in 1999 created a host of risks that led to the 2008 financial crisis. The repeal, “allowed the commercial banks with the government safety net to engage in these other activities. When you did that, you provided them an expanded subsidy to do trading, whatever it is, etc. And those other institutions were now at a disadvantage, so they had to change their model.” Hoenig is cited as among those being considered to be Trump’s appointee for head of bank supervision at the Federal Reserve. At the same event,  Vice President Joe Biden condemned his own vote to repeal Glass-Steagall in 1999, calling it “the worst vote I ever cast in my entire time in the U.S. Senate.” But then he twisted it around to argue that the (bogus) Dodd-Frank financial reform must be maintained today. Donald Trump has repeatedly threatened to abolish many of the provisions of that Obama-inspired reform.
Tulsi Gabbard Introduces Bill to Stop Support for Jihad. President Obama issued a directive on Dec. 8, authorizing delivery of lethal weapons to “foreign forces, irregular forces, groups, or individuals engaged in supporting or facilitating ongoing U.S. military operations to counter terrorism in Syria.” By doing so, he unilaterally waived the provisions of two defense Acts that prohibit such deliveries as well as financial assistance to countries that support terrorism (cf. above). In response, Democratic Representative Tulsi Gabbard from Hawaii introduced a bipartisan bill the same day to block the Obama Administration’s outrageous action. The “Stop Arming Terrorists Act” (SATA) is co-sponsored by Democrats Peter Welch of Vermont and Barbara Lee of California, and Repub
licans Dana Rohrabacher of California and Thomas Massie of Kentucky. It would “prohibit any Federal agency from using taxpayer dollars to provide weapons, cash, intelligence, or any support to al-Qaeda, ISIS and other terrorist groups,” and also “prohibit the government from funneling money and weapons through other countries who are directly or indirectly supporting terrorists,” Gabbard specified. “Under U.S. law it is illegal for any American to provide money or assistance to al-Qaeda, ISIS or other terrorist groups. If you or I gave money, weapons or support to al-Qaeda or ISIS, we would be thrown in jail,” Gabbard charged. “Yet the U.S. government has been violating this law for years, quietly supporting allies and partners of al-Qaeda, ISIL, Jabhat Fateh al Sham and other terrorist groups with money, weapons, and intelligence support, in their fight to overthrow the Syrian government.” Indeed, President Obama’s last-gasp decision is tantamount to an open admission that his Administration, and elements of the US intelligence establishment, have been in bed with jihadist terrorists all along--and is doing everything possible to saddle the incoming administration with a nightmare situation, in which it becomes impossible for the US to disengage from the permanent wars of the past 15 years. An Unexpected Confession on Globalization from Bank of England Governor Faced with a wave of “populist” upsurges in the trans-Altantic world, the top monetarists of that world are desperately looking for ways to hold on to their power. In that context, the governor of the Bank of England Mark Carney dedicated a key speech in Liverpool on Dec. 5 to the reasons why “the people” reject globalization. Many citizens in advanced economies, he said, “are facing heightened uncertainty, lamenting a loss of control and losing trust in the system... Rather than a new golden era, globalization is associated with low wages, insecure employment, stateless corporations and striking inequalities.” We would not disagree with that. Moreover, when the financial crisis hit, “the world’s largest banks were shown to be operating in a heads-I-win-tails-youlose bubble; widespread rigging of some core markets was exposed; and masters of the universe became minions.” Mr. Carney noted that economic activity in advanced countries today is still still 13% lower than  before the crisis, and even 16% lower in the UK. “Over the past decade, real earnings have grown at the slowest rate since the mid-19th century,” while inequality has grown. The figures he cited are instructive: in the United States today, the top 1% of households receive 20% of all income. Globally, “the share of wealth held by the richest 1% in the world rose from one-third in 2000 to one-half in 2010.” Unfortunately, Mark Carney, like his colleagues, has no solutions to offer. As a matter of fact, he did not even mention the One Belt, One Road initiative in his presentation. One Belt, One Road Initiative and  Eurasian Economic Union Come Together The Shanghai Institute for International Studies (SIIS) and the Dialogue of Civilizations Research Institute (DOC) held a joint seminar on Dec. 8 in Shanghai on Eurasian economic development and infrastructure. According to the DOC website, the prospects for implementing mega-infrastructure projects as
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part of the Eurasian Economic Union, One Belt One Road initiatives, were among the key subjects discussed. Dr. Vladimir Yakunin, co-founder of the DOC, posed two differing concepts about globalization -- the current neoliberal paradigm of “global governance, such as the IMF, the Federal Reserve, and even the UN,” or that currently led by China’s growing involvement in the world economy, based on development, through the Silk Road. The former, he said, has been rendered “defunct” by the latter. Yakunin pointed to the collaborative approach of the Silk Road and the European Economic Union (EAEU), posing the question: “How do we make sure that the simultaneous development of these different centres of growth leads to synergy, not conflict? The Silk Road Economic Belt and the Eurasian Economic Union may yet show us the way.” Prof. Li Xin of SIIS and a member of the Supervisory Board of DOC, noted that China’s initiatives are ways “to ensure we do not fall into the static trap of becoming overly reliant on an established understanding of spheres of interests”, i.e. on geopolitics. China Alone Is Increasing Funds  for Fusion Energy Research The “fourth basic law” for economic growth proposed by Lyndon LaRouche stipulates the need for every country to have a “science driver”, which translates today into the development and use of thermonuclear fusion energy and space research. In both areas, China is making notable progress, although the country began with a tremendous handicap compared to Western countries. More specially on fusion energy, Chinese scientists have been conducting experiments in the EAST (Experimental Advanced Superconducting Tokamak) reactor in Hefei. Just recently, EAST set a world record by creating a high-density hydrogen plasma that burned steadily for 100 seconds. “It is a milestone event,” Professor Luo Guangnan, deputy director of the EAST facility, told the Dec. 8 South China Morning Post. It is a “confidence boost for humanity to harness energy from fusion.” Indeed, Chinese fusion scientists are now confident that they can proceed in the design of their next-step – the Chinese Fusion Engineering Test Reactor (CFSTR). The article states that China is “the only nation increasing funding for fusion,” noting the shutdown of the MIT Alcator in the United States. Prof. Luo noted that “The funding in Europe has been dwindling, a proposal for the construction of new research facilities in the U.S. was rejected by Congress, and progress in Japan has also stagnated.” As a result, in “each of our experiments in recent years, the number of foreign participants easily exceeded 100.”The article reports that Chinese fusion scientists are “leaving other nations in the dust.” “It is hoped that the proposal for CFETR construction can be approved by the government within the next five years,” Chinese fusion pioneer, Dr. Wan Yuanxi, told an international fusion conference in November. The CFETR would go into operation in 2030, generating 200 MW of electricity initially, and then be up-graded in the following decade to around one GW. The conservative approach would be to wait and see the results of ITER’s first fusion experiments, a joint project of the EU, Japan, South Korea, Russia, the US, India and China, but ITER’s first plasma experiments are now delayed to 2025. So, rather than waiting, China plans to move into the stage of an engineering a reactor, confident that the ITER’s goal will be reached.
Whatever Goes Wrong, Blame It on Putin! Both the Washington Post and the New York Times ran articles last weekend citing anonymous reports from U.S. intelligence agencies which claimed definitively that Russia had intervened in the U.S. election to aid Donald Trump. The stories – taken up by all the mainstream media in the United States and in Europe -- center on the charge that the Russian government was responsible for hacking emails exchanged by leading officials of the Hillary Clinton campaign, in an effort to discredit her candidacy. There are also allegations that the broader intent was to cast doubt on the U.S. election process itself. No evidence, it must be stressed, not a single fact, has been given to support the charge. The headlines are categoric, but nothing in the actual articles backs them up. That has not stopped Congressional leaders from both parties from engaging in hyperbolic Putin-bashing. Top Democrats sent a letter to President Obama, demanding he “declassify” intelligence on Russian intervention in the election. Obama’s adviser Lisa Monaco responded, saying Obama ordered a “full review” of the evidence, while both the Homeland Security and the Director of National Intelligence said they are “confident that the Russian government directed the recent compromises of emails from U.S. persons and institutions.” As for the Republicans, John McCain, who has in the past called for a “Moscow Spring” to overthrow Putin, has declared Putin guilty of attacking “American democracy”, while his sidekick, Sen. Lindsey Graham, who won less than 1% of the vote before dropping out of the Republican primaries, practically declared war on Russia. “I think”, he said, the Russians did interfere in the elections, and “I want Putin to personally pay a price.” In response, President-elect Trump, who has emphasized the importance of reversing the anti-Russian policies and provocations of the Obama administration, told Time magazine, “I don’t believe they interfered,” adding these charges have become a “laughing point.” His team responded to the New York Times article by pointing out the intelligence agencies making the charges “are the same people that said Saddam Hussein had weapons of mass destruction.” Investigative journalist Glenn Greenwald, who worked with Edward Snowden to expose illegal NSA spying, commented in The Intercept of Dec.10, that no evidence has been provided for any of these claims. “What we have instead are assertions, disseminated by anonymous people, completely unaccompanied by any evidence, let alone proof.” Evidently, the purpose of this bizarre, bipartisan effort is to derail the efforts of Trump not only to pull the world back from a potential nuclear confrontation between the U.S. and Russia, but to establish a dialogue for collaboration in areas of mutual concern, starting with crushing jihadist terrorists in Iraq and Syria.
E.I.R. STRATEGIC ALERT        www.eir.de  Published by: E.I.R.GmbH,  Bahnstr. 9a, 65205 Wiesbaden Tel.: 0611/73650, Fax: 0611/7365101, Email:  info@eir.com Verantwortl. f. d. Inhalt: Dean Andromidas, Claudio Celani Subscription: EUR 3000/ ISSN  0936-7527 © E.I.R. GmbH  Alle Rechte vorbehalten, auch die des Nachdrucks von Auszügen, derphotomechanischen Wiedergabe und der Übersetzung, Printed in Germa