E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER
Volume 32, No. 5 - February 1, 2018
The Spirit of the New Silk Road Descends on Davos The World Economic Forum in Davos, Switzerland, which prides itself on bringing together once a year the elite of the financial and corporate world together with political decision makers, has once again come and gone. As the doors closed on Jan. 26 in the luxury ski resort, no Western leaders had raised any new initiatives to deal with the rapidly collapsing transAtlantic financial system. However, as Schiller Institute Chairwoman Helga Zepp-LaRouche had pointed out, the positive aspect of this year‘s WEF was the title: “Creating a Shared Future in a Fractured World”, as it referenced the call issued last year at the same venue by Chinese President Xi Jinping for a “shared future for mankind.” And indeed, the enthusiasm generated by China‘s Belt and Road Initiative was reportedly palpable among many participants, notably in the panel dedicated to that theme (cf. below). The underlying economic dynamic has clearly shifted internationally, in favor of “win win” cooperation. The New York Times grudgingly acknowledged that reality in a Jan. 29 article by Keith Bradsher headlined “At Davos, the Real Star May Have Been China, Not Trump”. The author notes that the speech given by Liu He, a top adviser to President Xi Jinping, was one of the best attended at the Forum and that the Belt and Road was a major theme of discussions, in particular among representatives from developing countries. “Participants here said the Chinese initiative was already rivaling more established, traditionally American-led, international institutions”, Bradsher wrote, before quoting Joe Kaeser, the chief executive of Siemens, as saying: “The China One Belt, One Road is going to be the new W.T.O. [World Trade Organization] — like it or not.” However, that is not a perspective that the neoconservative and geopolitical elites of the West are willing to accept (cf. SAS
4/18). Therefore, the strategic situation remains fraught with danger. One of the greatest is the implosion of the financial system, which can only be definitively stopped by implementing Lyndon LaRouche’s “four laws”. Another looming threat was raised by the CEO of one of Russia‘s leading banks, Andrey Kostin of VTB Bank. In an interview with the Financial Times on the sidelines of the WEF, he warned in the strongest terms of the extreme danger of war between the U.S. and Russia and that new economic sanctions against Russia could well be seen as a “declaration of war.” The
biggest concern of Kostin, who is known to be close to Vladimir Putin, is the build-up of arms in Europe, which risked an “accident” between Nato and Russian forces. China’s “Economic Mastermind” Calls for Fundamental Change of Financial System The Chinese delegation to the World Economic Forum in Davos was led up by economist Liu He who, while not so well known, has been the chief economic adviser to President Xi for a good number of years, but was only this year elected to the Political Bureau. It is generally understood that the major changes in China over the last five years have, to a certain extent, been due to Liu‘s advice. He was among the very few in Davos to address the instabilities in the current world financial system. In his speech, Liu reviewed the progress of the Chinese economy, mentioning that the contribution of consumption to economic growth has now reached 58%, an increase of 4% over the previous five years; the proportion of service industry to GDP has reached 60%; and over the past five years, 80 million people have moved to urban areas, with urbanization now at 58.52%, while 10 million Chinese will be lifted out of absolute poverty this year. In outlining the overall perspectives following the 19th Party Congress (cf. SAS 43, 44/17), Liu identified one major requirement, one main task, and three major battles for the government. The major requirement is transforming the economy from high-speed growth to high-quality development, moving from an economy of “is it enough” to one based on “is it good enough”, while progressing from a per capita income of $8,000 to $10,000 and higher by 2020. The main task, he said, is to apply supply-side economic reform to the economy. That includes cutting excess capacity, reducing inventory in housing, and bringing down the debt leverage ratio. The three battles are preventing risks (particularly financial risks), poverty reduction, and eliminating pollution. Overall, he said, the financial system must be made “more adaptable in order to better serve the real economy.” After some comments on the significance of the Belt and Road Initiative, which is open to all nations, as he stressed, Liu returned to the financial crisis. While noting the first signs of recovery last year and the possibility of a cyclical upswing, he also issued a warning: „At such a critical moment we must focus on the spillovers of the monetary policy of the world‘s major economies and the changes in the debt, equity, and commodity markets in the short term. In the medium term we
EIR STRATEGIC ALERT WEEKLY NEWSLETTER2 N°5 / 2018
need to pay attention to the question of labor productivity and to the changing savings rates in the large economies. Meanwhile, deep-seated problems in the world economy have yet to be fixed. Multiple risks and considerable uncertainties come in the form of high debt, asset bubbles, protectionism, and the escalation of global and regional hot-spots. To turn cyclical recovery into sustainable growth, we need concerted global efforts.“ Japanese PM Promises Major Breakthroughs in Relations with Russia and China One of the most promising evolutions of the global strategic situation over the past period has been the decision of the Japanese government to turn the page on historical regional conflicts and improve relations with Russia, South Korea and China. Prime Minister Shinzo Abe reiterated his diplomatic positions on Jan. 22 in opening a session of the Diet, the Japanese Parliament, after reviewing domestic policies. Concerning the “vast expanse of sea” stretching from the Pacific to the Indian Ocean, Abe stated Japan would “work with China to meet the growing infrastructure demand in Asia. Japan and China share significant responsibilities for the peace and prosperity of the region, and maintain an inseparable relationship. We will fulfill the expectations of the international community by deepening our friendly relationship in a stable manner from a broad perspective. As this year marks the 40th anniversary of the signing of a peace and friendship treaty between Japan and China, Abe said he hoped there would be reciprocal visits by him and Chinese President Xi Jinping „as soon as possible“, and that a trilateral summit could be held together with South Korean President Moon Jae-in. Relations between Japan and South Korea have been rocky over the years, but Abe intends to change that. He said with President Moon, “we will work to deepen the cooperative relationship between us for a new era with a future-oriented perspective.” Significantly, it was announced on Jan. 24 that he would personally attend the opening of the Olympics on Feb. 9 in Pyeongchang, South Korea. On the relationship between Japan and Russia, the Prime Minister said that it “has the most potential of any bilateral relationship.” Further progress is also expected “on our joint economic activities on the Four Northern Islands and the eightpoint economic cooperation plan”. Those four islands have been disputed between Japan and Russia since the end of the Second World War, but Abe is confident that the territorial issue will be resolved and that Japan-Russia peace treaty will be concluded. As for Russian President President Putin, with whom he has a “deep relationship of trust”, he said “I will further enhance our relations for cooperating on the various issues facing the international community, including the issues of North Korea.” Regarding the United States, Abe stated he has forged a relationship of personal trust with President Donald Trump over the past year. The Japan-U.S. alliance, he noted, will continue to be the cornerstone of Japan’s diplomacy and security. Warnings of Coming Financial Collapse, Including from Former BIS Chief Economist In 1995, Lyndon LaRouche published his now famous “collapse function” diagram, also called the “triple curve”, thus establishing his unique authority in forecasting the nature of the collapse of the global financial system (http://www.larouchepub.com/eiw/public/1999/eirv26n30-19990730/eirv26n3019990730_023-larouches_triple_curve_collapse.pdf).
The diagram showed in a pedagogical form the diverging curves of the real economy on the one side, and of monetary and financial aggregates on the other side, that reach an unbridgeable gap. Eventually, LaRouche explained, in the attempt to save the system, central banks would face an unsolvable dilemma: either the system would blow up in a hyperinflationary spiral or it would disintegrate in a chain reaction of bankruptcies. While LaRouche’s proposed financial reform has so far been rejected, the measures adopted in 2008 did not solve the crisis, but made it worse. That has also been recognized by William White, former chief economist at the Bank for International Settlements and now at the OECD. In an interview with the Daily Telegrap h conducted at Davos and published Jan. 23, he noted that “Central banks are now caught in a ‘debt trap’. They cannot keep holding rates near zero as global inflation pressures build because that will lead to an even more perilous financial bubble, but they cannot easily raise rates either because it risks blowing up the system.” And he warned: “All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten.” And with quantitative easing (QE), “central banks have been pouring more fuel on the fire”, White said. “Nobody knows what is going to happen when they unwind QE. The markets had better be very careful because there are a lot of fracture points out there.” Moreover, credit in dollars beyond U.S. jurisdiction has risen fivefold in 15 years to over 10 trillion dollars, therefore, “As soon as the world gets into trouble, a lot of people are going to have trouble servicing that dollar debt.” To show how credit quality has deteriorated, White mentions at the onset the spreading of an unregulated debt tool, the “German Schuldschein bonds” (GSB). Schuldscheine are IOUs whose market has been historically restricted to German companies, but it has recently expanded to international customers who have no access to other forms of credit where a rating is required (GBS require none), and has turned into a form of high-risk shadow banking. 50% of the German Schuldschein debt is now abroad. A case in point is the just bankrupted UK company Carillion, which had raised 112 million pounds through GSBs. “Pharmaceutical companies are subject to laws forcing them to test for unintended consequences before they launch a drug, but central banks launched the huge social experiment of QE with carelessly little though about the side-effects”, White observed. “We are running out of ammunition. I am afraid that at some point this is going to be resolved with a lot of debt defaults.” Russiagate: Pressure Growing on the FBI as Andrew McCabe Steps Down Reports in the last days in the U.S. media, as unreliable as these may be, are asserting that special counsel Robert Mueller will soon decide whether to charge President Donald Trump with obstruction of justice. Mueller, a career-long hitman for AngloAmerican intelligence agencies, in the last days interrogated Attorney General Sessions, issued a subpoena to former Trump adviser Steve Bannon, and is said to be preparing to conduct an interview with the President himself. Adding to the frenzy, the New York Times reported on Jan. 25 that Trump had ordered White House counsel Don McGahn last June to fire Mueller, and McGahn threatened to resign, rather than act on that request. The anti-Trumpers jumped on this, saying it proves the President has been obstructing jus
EIR STRATEGIC ALERT WEEKLY NEWSLETTER 3N °5 / 2018
tice! All this has made for sensationalist headlines, but that has gone on for well over one year now, with nothing to show but charges and counter-charges. Meanwhile, Republicans in Congress have compiled evidence of serious “improprieties” by leading FBI officials. That may be the reason why the deputy director of the agency, Andrew McCabe, suddenly decided to step down on Jan. 29, instead of waiting for his retirement in March.McCabe was in charge of the investigation on then Secretary of State Hillary Clinton’s use of her private email account for official communications, at the same time that his wife was receiving election funds from the Democratic Party, which is a blatant conflict of interest. In addition, there is evidence that leading FBI officials used the infamous dossier written by former MI6 agent Christopher Steele and paid for by the Clinton campaign, to obtain a warrant from the secret FISA court, to conduct surveillance on the Trump campaign. A classified memo drafted by Rep. Devin Nunes, the chair of the House Permanent Select Committee on Intelligence, was released to all House members last week. It is believed to include evidence that the FBI knowingly used a fake dossier to obtain the warrant. Former FBI Director James Comey himself admitted, in testimony before the Congress on June 8, 2017, that the dossier was “salacious and unverified.” This comes on top of devastating evidence, from text messages between top FBI investigators involved in Russiagate, that show obvious bias against Donald Trump. In one of the texts, FBI counterintelligence expert Peter Strzok admits he believes there is „no there there“ in the investigation, i.e., no evidence of Russian meddling or Trump collusion, yet the investigation must go on. In a text sent the day after the election, Strzok wrote to FBI lawyer Lisa Page that “Perhaps this is the first meeting of the secret society,” obviously meaning a covert group to bring down the just elected President. This turn of events led an unhinged Washington Post to comment in a Jan. 27 editorial that those investigating the FBI are destroying “faith in the idea of impartial law enforcement. It amounts to an assault on the rule of law.” In response to this hysteria, Rep. Trey Gowdy, member of the House Intelligence Committee, told Fox News the following day, that anyone who wants to know if the Steele dossier was used in court proceedings, and who paid for it, would also want the Nunes memo to be made public. Dangerous Escalation in Ukraine Toward War with Russia On Jan. 18, the Verkhovna Rada passed a law aimed at the military reconquest of the self-proclaimed Donetsk and Lugansk People’s Republics in the eastern Donbass region. The law de facto invalidates the Feb. 2015 Minsk II accords, which called for a ceasefire and for local elections to be held in the Donbass. Declaring that region to be “temporarily occupied” by an “aggressor” (i.e., Russia, which denies having forces there), the law empowers Ukrainian President Petro Poroshenko to use the Army even without the parliament‘s permission. Chairwoman of the Russian Federation Council (Senate) Valentina Matviyenko instantly responded: “This law buried the Minsk agreements. This law is conducive to the unaccountable and uncontrollable use of military power, the use of weapons, and it allows imposing martial law. Not one step has been taken towards a peace process. This is very alarming and troublesome.“ Boris Gryzlov, Russia’s authorized representative to the conflict resolution group, denounced the Rada’s “step towards a
military conflict resolution,” noting that it followed the “U.S.‘s decision to supply Ukraine with lethal weapons.” Indeed, in an article on the website of the American Committee for East-West Accord, well-known journalist Max Blumenthal recalled that in Oct. 2016, under the Obama Administration, the Pentagon began arming the Azov Battalion, which espouses racialist, fascist ideology, but was nonethless incoporated into the Ukrainian National Guard. At the time, the Texasbased AirTronic company began to deliver $5.5 million worth of PSRL-1 rocket propelled grenade launchers to Azov, with the battalion‘s website in June 2017 carrying photos showing its fighters testing them. Then, in Nov. 2017, “an American military inspection team visited the Azov Battalion on the front lines of the Ukrainian civil war to discuss logistics and deepening cooperation. Images of the encounter showed American army officers poring over maps with their Ukrainian counterparts, palling around and ignoring the Nazi-inspired Wolfangel patches emblazoned on their sleeves.” Blumenthal warned that Azov is also recruiting in right-wing organizations across Europe: “Foreign fighters are promised training with heavy weapons, including tanks, at Ukrainian camps filled with fascist fellow travelers.” Gilbert Doctorov, a member of the same American Committee for East-West Accord, noted on Jan. 21 in Consortium News that “Kiev has written off the population of the two republics. It has cut off all transport and telecom links. It does not pay pensions and assistance to the needy. It closed the banking system and there are no commercial ties.” He suggested that Poroshenko’s now extremely unpopular regime sees full-scale war as a way to get the money promised, but so far withheld by the West, and to avoid having to soon pay $14 billion per year in interest and principal, equal to half its GDP. Although the situation is extremely dangerous, talks are continuing between the US Special Representative Kurt Volker and Russian presidential aide Vladislav Surkov on deployment of a UN mission into the Donbass. The Arctic Sea Route Generates Enthusiasm and Challenges The world‘s largest-ever conference on the Arctic, with some 3,000 participants from all over the globe, took place in Tromso, Norway, more than 200 miles north of the Arctic Circle, from Jan. 21 to 26. Tromso is famous as the jumping-off point for great Arctic exploration missions, and the center for Arctic hunting in the 19th and 20th centuries. The focus of interest of the Arctic Frontiers 2018 Conference is the Northern Sea Route, or the Arctic Route, as an alternative sea route between Europe and Asia. The ongoing melting of the Arctic ice – a phenomenon of the far North not to be confused with non-existent global warming – makes this sea route practicable already today. Russia is now building a series of the world‘s largest icebreakers in order to expand the use of this route. And China officially included the route in its Maritime Silk Road in June 2017, and has just released its first official white paper on the “Polar Silk Road”. While not an Arctic country, China became an observer of the Arctic Council in 2013, and is highly interested in using the new sea routes, which will cut down transportation times considerably. The new paper commits China to participate in Arctic affairs in accordance with the basic principles of “respect, cooperation, win-win results and sustainability.” At the Tromso conference, Japan‘s Ambassador in Charge of
EIR STRATEGIC ALERT WEEKLY NEWSLETTER4 N°5 / 2018
Arctic Affairs, Keiji Ide, confirmed to TASS that his country is also interested in development of the Northern Sea Route, and long-term cooperation with Russia. He noted that the Japanese are closely following the Yamal LNG (liquefied natural gas ) project, which began last year in Russia’s Yamal peninsula, and which also enjoys significant Chinese investment, as well as in the idea of building infrastructure for LNG production in Russia’s Kamchatka Peninsula, which is in the Pacific near Japan. “Thank God, your President Putin and our Prime Minister Abe enjoy warm, good relations, so we will be developing economic cooperation with Russia,” he told TASS . The independent Russian natural gas giant Novatek was of course represented in Tromso. That company’s Yamal and associated Murmansk projects are the largest construction projects underway in Russia, and perhaps in the world. Novatek‘s partner Total of France notes on its website that Total and its partners had to “design a new breed of vessel: the LNG icebreaker tanker”, which allows for LNG transportation all year long without the assistance of ice-breakers. “Measuring 300 meters and boasting a capacity of 172,600 cubic meters, the ship can sail in ice of up to 2.1 meters thick. In all, 15 LNG ice-breakers will be gradually commissioned between now and 2019....” Helga Zepp-LaRouche Featured in “Xinhua Silk Road Information Service” Under the title “BRI Is the Most Important Strategic Initiative”, Xinhua ’s Silk Road Information Service published an essay that Schiller Institute Chairwoman had written in October 2017 (http://en.silkroad.news.cn/2018/0122/80814.shtml). The introduction to the essay notes that “Ms. Helga ZeppLaRouche, the founder of the Schiller Institute mentions in her report named Self-Governance of Mankind that, the Belt and Road Initiative is the most important strategic initiative on the planet, since it provides a solution for several of the most challenging problems humanity faces today. “The Belt and Road Initiative overcomes geopolitics, the introduction notes, which was the cause of numerous wars in history and two world wars in the 20th century, by replacing it with an inclusive win-win- cooperation of potentially all nations on earth.... The BRI is clearly a conception defined from the standpoint of the future; it is not an extrapolation of developments of the past, but from the necessity, where mankind has to be in 35, in 50 or 100 years from now. The introduction also quotes the following passage: “The New Silk Road is not just transport from A to B, nor just infrastructure or economics. In order for the ‘New Silk Road spirit’ to catch on in Germany and European nations in general, it is extremely important that the economic activity be combined with a dialogue of the best classical expressions of the cultures of those countries participating in the BRI. Only when the people of Europe discover the beauty of Chinese literati painting, Confucian philosophy, or Chinese folk songs, as more and more Chinese people are beginning to love the music of Beethoven, Mozart and Verdi, and likewise get to know the best of all the other cultures, will they open their hearts and understand, what the new paradigm is all about.” Background: How the British Sabotaged U.S.-Russian Joint Deployment of SDI Secret cabinet documents released last month by the British National Archives reveal how, in 1992, the British government of then Prime Minister John Major moved to sabotage efforts by then Russian President Boris Yeltsin and then U.S. President
George H.W. Bush to agree on a joint ballistic missile defense system. Such an agreement would have seen the revival of the original Strategic Defense Initiative proposed by President Ronald Reagan in March 1983, of which Lyndon LaRouche was a key architect. Here, we need to take a step back in time to 1982-83, when LaRouche led a public campaign for the United States and the Soviet Union to cooperate in building an anti-ballistic missile defense system using technologies based on “new physical principles”, which would destroy any such weapons it the air before they could strike the ground. It would have transformed the doctrine of Mutually Assured Destruction to Mutally Assured Survival. At the same time, LaRouche was conducting a back channel discussion with Soviet officials on the subject on behalf of the Reagan Administration. When the Soviets finally rejected Reagan’s SDI offer, LaRouche correctly warned that the Soviet economy would collapse within some 5 years. By the end of 1991, the USSR had collapsed, and the Russian leadership was ready to cooperate on the SDI. In Jan. 1992, at a special UN Security Council meeting of heads of State and Governments, President Yeltsin proposed a “global defense system for the world community” “based on a reorientation of the United States Strategic Defense Initiative, to make use of high technologies developed in Russia‘s defense complex.” That issue was also taken up in Feb. 1992 during Yeltsin’s official visit to Camp David, most likely by Yevgeny P. Velikhov, deputy chairman of the Russian Academy of Sciences and a member of the Russian delegation. By the following June, during another Bush-Yeltsin Summit in Washington, a joint committee was set up to work out details of cooperation. The newly declassified British documents reveal that George H.W. Bush „was prepared to discuss sharing that technology with Boris Yeltsin, after they met at Camp David in February 1992, and declared a formal end to the Cold war.“ Material in the disclosed files includes descriptions of what the program would entail, including “a mixture of land based and space based systems,” and “particle beam, lasers, and even chemical lasers to knock out incoming missiles.” The documents cite British diplomats expressing grave concern over associating Russia as a partner, since it would render the British nuclear deterrent less efficient. Ultimately, under pressure from the British, Washington rejected the offer. In April, 1993, Yeltsin made a similar proposal to President Bill Clinton, and then again, in 2007 in Kennebunkport, President Vladimir Putin made the offer to President George W. Bush. In 2011, during the Obama Administration, then Russian ambassador to NATO Dmitri Rogozin proposed to create a joint program for the Strategic Defense of Earth, using the same technologies to defend the planet from threats from space, including meteors and asteroids. But Her Majesty’s government very likely opposed all such golden opportunities for cooperation.
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 Germany
