E.I.R. STRATEGIC ALERT

Volume 31, No.18  - May 4, 2017
Ten Years Later, Harbingers  of a Much Larger Debt Crisis Appear With “quantitative easing” and zero-interest money printing and lending by Trilateral central banks now in its tenth year, a huge bubble of debt has expanded, dominated by $14 trillion in U.S. corporate debt alone, up 75% from $8 trillion in 2008. Rising defaults and suddenly curtailed credit for commercial, industrial, and auto loans, indicate the bubble is heading towards a collapse. A new report on corporate debt defaults by Standard & Poor’s (covering only companies with credit ratings) finds that the energy and natural resources sector had an increased number of defaults in 2016, accounting for $239.8 billion in debt, which is more than double the $110.3 billion total for 2015. That is the highest rate since the collapse of 2009. S&P’s report is global; but 68% of all the debt originated in U.S.-based banks. The telltale signs came from three of the biggest banks last week. It was revealed that Goldman Sachs’ very poor firstquarter results were due to defaulting corporate loans. The bank lost tens of millions of dollars on companies including Peabody Energy and Energy Future Holdings Corp. As for Wells Fargo and JPMorgan Chase, their underhanded tactic was described in a Bloomberg article on April 27. These two banks are cutting the subprime auto loans they extend “dramatically” as by 35-50%. At the same time, they are taking the auto loans they’ve already made off their books, by packaging them into securities and selling them off as assetbacked securities/with derivatives to “money-market managers.” And Morgan is lending to those same managers to enable them to buy more! “But giving money managers the chance to invest in debt that banks are increasingly reluctant to touch themselves can at least create the perception that they are foisting trash onto customers,” one investment adviser is quoted. In the same way, the toxic mortgage bonds, CDS and CLOs went out from the Wall Street banks to greater fools worldwide in 2007-08, as the crash of those toxic assets loomed. In yet another harbinger, it was reported that total loans at the 15 largest U.S. regional banks declined by about $10 billion to $1.73 trillion in the first quarter, compared with the previous three-month period, the first such drop in five years, according to data compiled by Bloomberg . Commercial and industrial lending has not grown for six months, and total bank
credit growth has suddenly and sharply dropped. These are signs that this gigantic bubble of corporate debt, pumped up by “financial engineering”, that is, buying their own stock or other companies’ stock in mergers and acquisitions, is now headed for big trouble. In 2007, Lyndon LaRouche urged the U.S. Congress to reenact Glass-Steagall legislation immediately to stop the looming crisis. That was not done, resulting in the debacle of the past ten years. To stop an even greater crash today, it is even more  indispensable to implement bank separation, as is being increasingly discussed,  along with a national banking system. Donald Trump’s First One Hundred Days The war over which forces will control the Trump Administration is raging, its outcome not yet decided. What is clear for the LaRouche Political Action Committee is the need for the popular support which propelled Donald Trump, with his antiestablishment rhetoric, into the White House, to unite behind the agenda put forward by Lyndon LaRouche, doing away with geopolitics and the financial casino economy, and returning to the original American system of economics. LPAC is fully mobilized to make that happen, but the opposition is fierce. Otherwise, the first one hundred days of the Trump presidency afforded the mainstream media another chance to trash his policies and his person. While not surprising, since they have generally been in lock-step with the leaders of both parties and the intelligence community (the deep state) who want to perpetuate the Bush-Obama heritage, the coverage reflects the deep hysteria over the possibility that Trump will break out of the traps set for him, and return to the promises of his campaign. Trump has fulfilled some of those promises, which has produced vitriolic response from the bankrupt establishment, beginning with pulling out of the Trans-Pacific Partnership and some action against the “man-made climate change” mafia, which threatens to collapse the Paris climate accords. But there are two broad, yet crucial areas, which have been the focus of his enemies, which will ultimately determine whether his presidency can be good for the U.S. and the world, and these have been the subject of an unprecedented campaign of fake news (lies) and intelligence warfare: Trump’s relations with Russia and China, and his efforts to rein in Wall Street and City of London financial predators. Trump had also promised to end the policy of permanent
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war and “regime change,” and to seek a dialogue with Russian President Putin, in particular on a coordinated war on terrorism, which was wildly attacked by the deep state. A setback occurred when the neocons in the Trump administration used lies provided by the British to convince Trump to attack a Syrian air base, in retaliation for Assad’s alleged use of chemical weapons (cf. below). While that threatened the effort to achieve a rapprochement with Russia, subsequent developments show that Trump has not dropped the intention to work with Vladimir Putin, and the Russians have left the door open. Izvestia reported on April 24 that, at the request of U.S. Secretary of State Rex Tillerson,  Russia had restored the Syria deconfliction memorandum for flight safety in Syria. Further, the North Korea crisis has led to joint efforts between the U.S. and China, with Trump clearly engaging in a deepening dialogue with President Xi. (cf. below). On this strategic flank, Trump should listen to Lyndon LaRouche: meet with Putin as soon as possible to resolve the various crises, and collaborate with Xi, Putin and Japan’s Abe to resolve the Korean crisis, while backing the global infrastructure initiative launched by China. As for crushing Wall Street and City of London imperial forces, the center of this fight is over Glass-Steagall. It is time for Trump to stop hinting that this is his policy, and to make a decisive move to forge a bipartisan coalition to push it through. At the same time, he should welcome Chinese infrastructure investment in the U.S. Rapprochement between China and the U.S. on Diplomatic Solution for Korea Headlines in the establishment media in the United States and Europe screamed repeatedly last week that the U.S. was about to launch an attack on North Korea, and that a major conflict was brewing and threatened to lead to world war, because of the unbalanced, unpredictable President Trump. In actual fact, while the US has built up a stronger deterrent force in and around the Korean peninsula, Donald Trump has had at least two phone discussions with his Chinese counterpart since their April 6-7 Mar-a-Lago summit, focused on coordinated diplomatic efforts to resume talks with North Korea, aimed at denuclearizing the peninsula. Trump has gone out of his way to praise Xi’s cooperation on the issue, saying he “is doing an amazing job as a leader.” Trump also showed sympathy for North Korean President Kim Jong-un, who suddenly had to take responsibility of his nation at the age of just 27, when his father died. During recent interventions, both Trump and his Secretary of State Rex Tillerson have stated there are no plans for regime change in Pyongyang. In an interview with NPR on April 28, Tillerson said “we do not seek regime change, we do not seek a collapse of the regime, we do not seek an accelerated reunification of the peninsula,” but we seek “a denuclearized Korean Peninsula -- and again that is entirely consistent with the objectives of others in the region as well.” The U.S., he added, hopes to ensure Pyongyang that they “do not need nuclear weapons to secure the existence of their regime”, which is a new initiative. Behind the scenes, the Trump Administration has sought counsel from former Defense Secretary William Perry, who helped negotiate the 1995 nuclear disarmament deal between Washington and Pyongyang. The Trump Administration has conveyed to the Chinese leadership what one source called the “four no’s”  or four pre
conditions for resuming direct talks with North Korea, which have been stalled for years, following the Bush Administration’s repudiation of the 1995 agreement, and the Obama Administration’s policy of tighter sanctions and no dialogue, which was misnomered “strategic patience”. The preconditions are:  no more nuclear weapon tests; no work on more advanced ballistic missiles; no efforts at constructing a nuclear warhead; and no exporting of advanced missile technologies. The Chinese, for their part, are supportive of these objectives, which are consistent with China’s long-standing policy of pushing for a nuclear-free Korean peninsula. Beijing is calling for both suspension of North Korean nuclear tests and of U.S.-South Korean military exercises, but stresses it has the military capabilities to strike any side that crosses Chinese red lines for defense. If there is no movement forward, the danger of war will be heightened. Any military confrontation would come at a devastating price -- even if the conflict remained strictly conventional.  North Korea has a vast arsenal of artillery pieces and missiles that are all within range of the South Korean capital of Seoul, which is just 30 kilometers from the DMZ separating the North from the South. Abe-Putin Meet, Support Restart  of Six Party Talks on Korea At the April 27-28 talks in Moscow between Russian President Vladimir Putin and Japanese Prime Minister Shinzo Abe, the improvement of bilateral relations ended up sharing the top of the agenda with the recent flare-up of tensions on the Korean Peninsula. The two leaders have forgd close working relations, and established large-scale economic cooperation to develop eastern Siberia, which dovetails China’s Belt and Road policy, in which Japan and especially Russia are very much involved. Likewise, for the Korean peninsula, the solution of is to integrate both the North, which borders both China and Russia, and the South into the Belt and Road developments. As for the current crisis, Putin and Abe called for a restart as quickly as possible of the six-party negotiations (North Korea, South Korea, Russia, China, the US, and Japan), which had been suspended in 2009. “We are urging all the states involved in regional affairs to refrain from military rhetoric and seek a calm and constructive dialogue,” Putin told journalists after the talks with Abe. Voicing his agreement,  Abe said, both countries, “call on North Korea to fully comply with the United Nations Security Council’s resolutions and refrain from further provocations.” The two leaders also discussed progress on the signing of a peace treaty between Russia and Japan, for which the Kuril Islands are a major issue. Four of the southernmost islands are claimed by Japan (known as the Northern Territories), while Russia now occupies them all. The two leaders are seeking to resolve this thorny issue by adopting the “new paradigm” approach, that is through joint economic development of the islands beneficial to all. That includes the possible creation of an “energy highway” featuring a gas pipeline from the Russian island of Sakhalin to Hokkaido, as well as other transport infrastructure across the islands connecting with both Russia and Japan. Other joint projects involve fisheries, medicine, tourism, and very importantly on the human level, charter flights should be launched soon to the disputed islands for Japanese citizens from Hokkaido, so they can visit the graves of their ancestors.Overall, progress was made on implementation of over 80 projects of cooperation that were approved and for
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malized as documents last December, during President Putin’s visit to Japan. Far from the confrontational stance the EU has adopted, Abe stressed again on April 29 that “Russia’s meaningful participation is necessary for solving global problems. I will continue dialogue with Putin and we will work on this together.” Cheminade: France Is Entering Troubled Times As Jacques Cheminade stressed to RT in two interviews following the first round of the April 23 French presidential elections, the result was a “victory for the Stock Exchange and the megabanks”, as shown in the 4% rise in the Paris stock exchange the next day. But it is only “a temporary victory”, because the system remains in place and “we are moving into a time of troubles”. On the one hand, you have a dangerous nationalism, “which is the specialty of the Le Pen family”, Cheminade said, and on the other, “you have the financial empire that sponsored Emmanuel Macron,” while the traditional political parties (the Republicans and the Socialists) were rejected (cf. SAS 17/17). What will be decisive are the legislative elections, Cheminade went on, which are scheduled for June 11 and 18. “What is clear is that the new President will not have a majority in the Parliament.” At this point, Emmanuel Macron is likely to defeat Marine Le Pen for two reasons, other than the overwhelming support of the mainstream media: 1) the French population is afraid her anti-immigration policies could provoke a civil war in  a country with 6 to 9 million inhabitants of North African origin, and 2) the fear of a break with the current system is very strong, in particular among the retired people in France who massively voted for Macron and Fillon and who are attached to the euro system like a hanged man to the rope…  However, a victory for Le Pen cannot be totally excluded in such convulsive times. Especially since she suddenly reversed her defense of a total break with the single currency, in an attempt to woo Fillon voters. The most recent polls indicate that the race is getting tighter. What emerged from the first round is a pattern similar to the one which led to Donald Trump’s victory in the United States. A clear dividing line appears between the poor who voted Le Pen and the well-to-do who chose Macron. Areas which voted massively for Marine Le Pen are the old industrial belt of France, that has collapsed over the past 30 years: the coal mines and textiles industries in the North, the steel industries in the East near the German border, and down to the Mediterranean coast. These are also areas of heavy immigration since many were specifically brought there to work for industry. Those who voted for Macron live in the better-off areas of France: from Brittany and Bordeaux in the West to Lyon and Grenoble in the East. In terms of social categories, the highest score for Le Pen came from workers,  37%, to a mere 16% for Macron. The lowest vote for Le Pen were middle-level 14%, which represented the highest vote for Macron: 33% ! He also swept the larger cities, while she won in the poorer suburban and rural areas. Cheminade reiterated that he could not vote for Le Pen or for Macron, but called on his supporters to vote “according to their conscience.” Beyond politicking concerns, Cheminade told RT that his “mission is to be a catalyst to organize a vast alliance in France against the world of money. Internationally, France needs to ally with the BRICS, and with the vision the Presient Xi Jinping
has, and which is shared by Vladimir Poutine, of a win-win system in the world.” He also expressed support for lifting the sanctions against Russia, and for Russia to do the same toward France. “EU Position on Crimea Is Ahistoric and Stupid” The former Deputy Defense Minister of Germany Willy Wimmer visited Crimea last week, where met with the Prime Minister and the President of Parliament, and visited the Russian Navy in Sevastopol. Interviewed by Sputni k , he denounced the recent remarks of the EU’s top foreign policy official Federica Mogherini, who said Europe would never accept a Russian Crimea.   “This is far from any historical reality,” Wimmer, a former OSCE official,  countered. “You have to look at things clearheaded: if there hadn’t been a putsch in Kiev... then events would not have developed in this way.... The cause lies in the Kiev coup, definitely not in the Russian Federation.” Against this background, he goes on, “What Ms. Mogherini is saying doesn’t bear any relationship to what really happened. This is political stupidity, you can’t call it anything else, because the forces that provoked this putsch are the same forces with which Ms. Mogherini and Brussels have a special connection.” Concerning the sanctions, Wimmer says that they were launched by “the people in Washington who are responsible for the coup in Ukraine — Joe Biden said so publicly – then went and twisted the arms of the Europeans to impose these sanctions.” He finds it intolerable that Europe would support a regime in Kiev that deployed national -socialist forces in the Donbass. Wimmer, who visited war cemeteries in Crimea, also confided that, along with millions of German families, his own has suffered from the World War: his father was taken prisoner by the Soviet Army near Crimea, and when he was repatriated from the POW camp because of ill health, he died on the train returning to Germany. “My conclusion is that there can only be one consequence, in view of all the things being orchestrated now by NATO: We do not want a war! We do not want any victims. That is also what the overwhelming majority of Germans want.” Schiller Institute Addresses Belgrade Conference on New Silk Road and Europe The role that Central and Eastern European countries can play in China’s One Belt One Road Initiative (BRI) was the theme of an academic conference that took place on April 24-25 in the Serbian capital of Belgrade, with the participation of two representatives of the Schiller Institute, Elke Fimmen and Christopher Lewis. Coming just under three weeks before the international Belt and Road Forum to be held in Beijing May 14-15, the event was organized by the Institute for Asian Studies and the Center for Asian and Far Eastern Studies, at the Faculty of Political Sciences of the University of Belgrade. Serbia is a key country for implementing China’s planned economic corridor from the port of Piraeus in Greece into Central and Eastern Europe (CEEC). In 2016, Serbia saw its GDP grow by 2.8%, largely as a result of Chinese investments into its industrial and infrastructure facilities. For the same reason, the World Bank projects a GDP growth of 3.5% in Serbia for 2019, as compared to the EU average of 2%. Newly elected Serbian President Aleksandar Vucic, who was Prime Minister before assuming the presidency, will attend the international May 14-15 Belt and Road Forum.
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Other CEEC countries have also profitted greatly from Chinese investments over the past few years, but that input cannot reverse overnight the negative impact of the over 20-year process of deindustrialization, imposed first by IMF-imposed “shock therapy” after 1990, and then by EU austerity and conditionalities. All the more so as Brussels is putting obstacles in the way of major China-CEEC or bilateral initiatives. Indeed, EU countries in Eastern Europe are being told that EU law prohibits them from making use of the EU10 billion project fund offered by China, since they have allegedly reached their “budget limits” already. That explains why an important share of the investments have gone into into Western Balkans countries, such as Serbia, which is not yet an EU member. Similarly, the Belgrade-Budapest high-speed railway project, which China is building and financing, has met with fierce opposition from the EU. Europe clearly has to change course, if it wants to survive. That perspective was laid out in the speech by Elke Fimmen, who reviewed the principles of China’s own economic miracle and achievements in its fight against poverty, which China today is offering to the whole world with the Silk Road policy. She also urged the audience to study the Schiller Institute’s World Land-Bridge report as a road map towards this future. https://www.eirshop.de/produkt/the-new-silk-road-becomes(the-world-land-bridge-2/) Finally, Serbian National TV conducted an interview on the Schiller Institute’s evaluation of the strategic perspective and potential of China’s Silk Road policy, which was to air after the conference. China’s Belt and Road Initiative:  A Golden Opportunity to Help Develop Africa The Chinese government, contrary to the EU, has risen to the challenge of making the development of the African continent a priority of the 21st Century. Thus, it will also be a “vital issue” of the upcoming Belt & Road Forum in Beijing on May 14-15. That was confirmed at a meeting at the China Africa Press Centre (CAPC) on April 23, by the Deputy Director General of African Affairs of the Ministry of Foreign Affairs, Dai Bing. China has defined ten major cooperation projects in several regions of Africa to support industrialization, agricultural modernization, infrastructure, construction, and human development among others, Dai explained. They are designed to “help Africa crack three hard nuts. Namely: lack of infrastructure, talents and funding.” China has appropriated a fund of 60 bn US dollars to assist Africa, with three different components. The first 5 bn “are with no strings attached, consisting of interest free loans intended to improve livelihood in Africa.” Then, 35 bn are for “preferential loans to Africa to build infrastructure, for projects with positive economic and social benefits.” Lastly, 20 bn are designed to facilitate Sino-Africa funds and capacity building of Small & Medium Enterprises in Africa. In addition, Dai said that China planned to invest another 100 billion dollars on the continent. As regards China’s international policies directed towards Africa, the Chinese official pointed, without mentioning it, to a major difference with the EU policy of dictating conditions for aid. “We will not interfere in personal affairs of your countries. We will never impose our policies on your country. Our bilateral relations are founded on principles of non-interference, no political strings attached.” Regime change should not affect our activities, he added. Moreover, beyond direct investment activities in projects,
China has pledged to train 30,000 Africans in various areas, including agriculture and trade, and scientific cooperation remains high on Beijing’s agenda as well. South Africa and China signed, on April 25, an agreement to set up the first joint scientific research center, which will focus on mining and minerals technology. In a seminar in Addis Ababa, Ethiopia, on April 25, the envoy of the Ethiopian PM noted that the Belt & Road Initiative “is a golden opportunity to bring about regional integration and sustainable growth for Africa”, as it will affect millions of people. Ethiopia was one of the first to benefit from Chinese investment, and continues to reap the benefits of it, as the Ethiopian Consul General in Frankfurt, Mehreteab Mulugeta Haile, has detailed in a number of events organized by EIR and the Schiller Institute. Finally, OPCW Agrees to Send Team to Site  of Alleged Chemical Weapons Attack in Syria Over three weeks later, the Organization for the Prohibition of Chemical Weapons has finally agreed to send inspectors to Khan Sheikhoun, the site in Syria where a chemical weapons attack by the Syrian government is alleged to have occurred on April 4 (cf. SAS 15-16, 17/17). The director general of the organization Ahmet Uzumcu announced that the Assad government has “already stated that they would support this mission, actually they have invited us to go via Damascus.” He continued that “the problem is that this area is controlled by different armed opposition groups, so we need to strike some deals with them to ensure a temporary ceasefire, which we understand the Syrian government is willing to do.” However, the OPCW is not yet mandated to visit the Shairat air base in the central Syrian province of Homs, from which the attack was allegedly launched, although the Syrian and Russian governments have both demanded they do, since they argue that it would show that no chemical weapons are or were stored there. Russia is also still insisting that a “balanced team” of experts go to both locations, rather than relying on remote investigations, Mikhail Ulyanov, the head of the nonproliferation department in the Russian Foreign Ministry, said April 28. “We insisted that OPCW experts must visit the scene of the incident, select the samples themselves and thoroughly get to the bottom of the details,” he stressed. Contrary to many Western political leaders and media, Uzumcu noted that the OPCW has not come to any conclusion as to who was responsible for the alleged attack, but only that sarin or a sarin-like substance was used. Pressed by journalists as to whether or not Assad still has chemical weapons, Uzumcu had to admit: “There are claims that Syria still possesses chemical weapons, but we are not able to substantiate these claims. We are not in a position to confirm whether they have chemical weapons in their possession.”
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