E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER Volume 32, No. 30, July 26, 2018

E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER
Volume 32, No. 30, July 26, 2018

After Helsinki, The Lines Are Drawn “It should be obvious to every thinking person that an improvement in US-Russian relations -- that is between the two nations that possess over 90% of the nuclear weapons in the world which, if deployed, would exterminate mankind -- is a good thing. Therefore, Presidents Trump and Putin deserve absolute credit for showing, with the Helsinki summit, how the current crisis between the two countries can be ovecome through dialogue and cooperation. However, the unprecedented hysteria of the neo-liberal establishment in the US and the mainstream media on both sides of the Atlantic in response to this summit has made it very clear that this power elite is ready to accept the destruction of human civilization rather than agree to cooperation with Russia.” That was the sobering assessment made by Schiller Institute Chairwoman Helga Zepp-LaRouche in an article written on July 21. Indeed, the reactions to the summit in the United States („shocking“, „disgraceful“, „collusion with the enemy“ even „treasonous“) were totally overblown, but reflect the desperation of the trans-Atlantic „war party“. Their rhetoric was only be outdone by the comments from the United Kingdom (cf. more below). But they did not intimidate Donald Trump, who announced on July 19, just three days after the summit, that he would invite Vladimir Putin to Washington in the autumn, setting off a new round of fireworks in the mainstream media and among the defenders of the old world order. The US President, however, defended the progress made in the first talks, including on the all-important need to reduce nuclear arsenals and fight terrorism. Since then, it has been confirmed that closed-door discussions are taking place between Russian and American officials on the START and INF treaties. In addition, proposals are being exchanged on means to reduce tensions in the Middle East, including a cease fire in Gaza and on creating conditions for Syrian refugees to gradually return to their homes, as discussed in Helsinki. Outside of the U.S. and the UK, the efforts to improve relations between Russia and the United States have been largely welcomed around the world. Chinese leaders hailed it as „conducive to the cause of world peace and development“, and for joint efforts to address common challenges. Israeli Prime Minister Netanyahu, who has been in close contact with President Putin over the past months, reacted positively to the meeting, as did Chancellor Merkel and Italian Interior Minister Salvini.
But whether it will actually prove possible to overcome the Cold War mentality and to establish a new and better world order very much depends on the outcome of the battle between the US establishment and Donald Trump. Interestingly, the hysteria has forced the so-called „deep state“ to lay bare its own, usually hidden, structures, increasing its vulnerability. The stakes are in no way „domestic“, but have direct implications for the entire world. In the above-cited article, Helga Zepp-LaRouche concludes that if Trump does manage to impose his policy, then “there is a chance, despite the current tension with China over the US trade deficit, for an entirely new international policy among nations of the world based on sovereignty, non-intervention into internal affairs, dialogue and mutual benefit. If Trump‘s opponents prevail, we are probably not far from World War III. Therefore, it is high time for those who support ‚progressive‘, ‚left‘, ‚liberal‘ policies, who have been in the same boat with the CIA, FBI and MI6 since Trump‘s election, to reflect on whether the mainstream media have not ‚nudged‘ them into the wrong corner.” Who Are the Real Traitors? In a tweet written shortly after the press conference held by Presidents Trump and Putin in Helsinki after their summit, former CIA Director John Brennan wrote that Trump‘s performance there „rises to and exceeds the threshold of ‚high crimes and misdemeanors.‘  It was nothing short of treasonous.  Not only were Trump‘s comments imbecilic, he is wholly in the pocket of Putin.“ While Brennan‘s charge of treason by Trump may not have been the first, it was cited by political leaders of both parties, and many mainstream media figures, in the barrage of attacks against the President and the summit which followed, along with an escalated vilification of Putin. Brennan has been at the center of the attacks against Trump from the beginning. It was he, together with fellow Obama intelligence official James Clapper, who joined with FBI Director Comey to organize what became a „Get Trump“ task force at the end of July 2016. Both Brennan and Clapper were instrumental in setting up a spy state in the aftermath of the 9/11 attacks, and were among the first to recognize that the election of Trump represented an existential threat to that order. And they both share a hatred of President Putin and Russia reminiscent of the worse paranoia toward the Soviet Union at the height of the Cold War.
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The are eminent representatives of “deep state” forces that have protected Wall Street interests against the American population and involved the United States in wars and regime changes around the world for decades, and now seek open confrontation with Russia. But the Helsinki summit shows that Trump has broken out of the constraints imposed on him by the phoney Russiagate affair, which has put the neocons and defenders of an imperial order on their latest rampage. To charge Trump with treason shows just how much they fear they will lose control over U.S. policy completely. The punishment for conviction of treason in the U.S. is death, under Article III, Section 3 of the U.S. Constitution. In a statement released on July 21, Helga Zepp LaRouche exposed the fraud behind that charge: „one has to ask, treason against whom or what? Against the American people? Against the American Constitution?  Since when is it high treason for the President to attempt to protect the physical survival of his own people through a policy of diplomacy and dialogue?“ The flight forward rhetoric of the likes of Brennan and Clapper stems not only from the fact that their fear that the world order which they helped construct is threatened, but that they themselves face increasing scrutiny, along with their former boss Barack Obama, for their role in attempting to overturn the result of a U.S. election.  The coup they have been running, in collaboration with the highest levels of the British monarchy‘s intelligence community, definitively does violate the U.S. Constitution. Derivative Risk of European Banks  Remains Dangerously High On July 19, Mediobanca published its semi-annual report on European banks for the first half of 2017 which includes figures on the derivative exposure of major European banks, including hyper-toxic „Level 3“ assets. The figures should be considered as underestimated, as they are based on „fair value,“ book capitalization and other pricings which do not necessarily reflect the actual value. Nevertheless, they are indicative of a pathological state of things. (See http://www.mbres.it/ sites/default/files/resources/download_it/rs_bancheuropaGiugno17.pdf). According to the report, the total „fair value“ of derivative assets has decreased, but still represents 14.8% of assets and three times the banks‘ capital. Particularly critical is the amount the banks still hold of  “Level 3” derivatives, which in fact should be written off as losses, as they find no purchaser on the market and therefore cannot be priced. However, banks are allowed to put a theoretical price tag on them and keep them in the books as assets. The most critical situation remains that of Deutsche Bank (DB), which has reduced its exposure to derivatives, but since its stocks collapsed even quicker, the ratio of derivatives to capital is greater than last year. Similar to other banks, DB decreased its exposure to derivatives by 25% and to Level 3 derivatives in particular by 16%, but its share value has plunged by 40% since the beginning of the year! That means that the ratio of Level 3 assets to capital, which was 31.4% as of one year ago, given the current market value of the stock capital, has risen to 73%! Moreover, a Citigroup report from July 13 speculated that Deutsche Bank shares are headed to fall to 7.50 euros and advised to sell. Finance-magazin reports that short positions on
€1 bn have been taken against the bank by four hedge funds. Commerzbank is also being targeted by short positions on 370 million (source: Bundesanzeiger). A further decline of DB stocks under the current mark of circa €10 might put the bank on an irreversible slope towards insolvency. Last week, after a short recovery, the shares plunged for the third day in a row. Among the 21 largest European banks surveyed by Mediobanca, the largest German banks (Deutsche Bank and Commerzbank) have the highest ratio of Level 3 assets to capital (28.8%), followed by Switzerland (Credit Suisse and UBS) with 20.5%, and France (BNP Paribas, Crédit Agricole Group, BPCE Group and Société Générale) with 15.5%. Northern Europe as a whole has a 24.3% average. Italy (Intesa and Unicredit), which is usually blamed for its non performing loans (NPL) backlog, is quite low, at 7%. The report points to the fact that in 2017, due to the fall of interest margin, banks were only able to increase income (by 2.1%) thanks to trading activities, which represent 33.6% of overall activities. Sovereign Debt: The Fight Is On  for the End of the ECB’s Program In five months, the ECB is scheduled to suspend its Assets Purchase Program (APP) and there is increasing nervousness and speculation in many circles as to how the Italian “populist” government will react to a new bond crisis. In reality, there are many ways in which Italy could defend the value of its sovereign debt, but they all need maneuvering room which the country does not have inside the euro system. Thus, fears are growing in Germany that in the worst case scenario, Italy will not honor the Target 2 liabilities, whose main creditor is the Bundesbank. Target 2 is a fraud in itself, since it is based on a monetization of debt done with a fake currency, the euro. Under the Target 2 system, the ECB buys government bonds from banks, and the relevant banks are accounted a credit at the ECB (i.e. money) in exchange. But the liability is put on the account of the national central bank of the nominal assets. No other central bank in the world acts in that way. It is as if the Federal Reserve, which also purchases assets by issuing liquidity, were to demand that a different entity cover the costs. The Bundesbank, under this scheme, has accumulated the most credit at the ECB: €976 billion, and the Bank of Italy the highest debt, at 465 billion. Economists such as Thomas Mayer from the Flossbach von Storch Research Institute and Clemens Fuest of the IFO institute claim that at the end the day, since countries such as Italy will not be able to foot the bill, either the Bundesbank will never see that money or only with a severe haircut. They have thus proposed that the Bundesbank unilaterally withdraw from the Target 2 system. In reality, if it became necessary to balance any such an account, the central bank holding the liability could always sell the bonds in order to pay the bill – likely at a loss because the value of the assets would drop. But if the country leaves the Eurozone, it could be done by issuing a relatively small amount of national currency. The debate on this is complicated for laymen to follow, but it does indicate that many are preparing for the big crisis to explode at the end of the year. A different approach is also being envisaged. Corriere della
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Sera has reported rumors that Italian Treasury Minister Giovanni Tria is planning to visit China in order to discuss the possibility for Bejing to help sustain the Italian government debt once the ECB ends its purchases. This has not been confirmed, but it is plausible given Tria’s good connections to China. One possibility is that the Chinese purchase Italian debt and re-invest it in a newly created Bank for Infrastructural Investments, to finance for instance those infrastructures in Southern Italy which the Chinese wanted to build already in 2011, and which were vetoed by the EU and by Hillary Clinton. Voices in Germany  That Welcome Dialogue with Russia German Chancellor Angela Merkel waited four days before making a statement on the Trump-Putin summit and kept it quite neutral:  “I find that it should become normal again for Russian and American Presidents to meet.” Still, it was far from widespread hysteria in the media. Others, however, in Germany have more frankly reflected the positive sentiment of the German and European peoples. German economist Folker Hellmeyer, who spoke at the International Schiller Institute conference in Bad Soden on July 1, ran an assessment of the Trump-Putin dialogue in his July 20 daily newsletter. He noted that differently from President Obama, who suspended the dialogue format as part of his geopolitical escalation tactic, Trump “relies on dialogue, diplomacy, although the world regularly labels him as anti-diplomatic due to the form of his conduct. This gap is fascinating and not enough explained in the media.” (cf. https://www.wallstreet-online.de/ nachricht/10743091-forex-report-faszinierend) Although Trump was forced to correct his statements after the summit, nevertheless “yesterday he continued his line and has invited President Putin to Washington for further consultations next Autumn. We welcome this policy by US President Trump highly, because this policy is a declaration of war against the neocon establishment, which pushes a regime change policy (this is more than alleged influencing elections!) and therefore is responsible for as yet unpunished violations of international law.” Although Folker Hellmeyer is no friend of Donald Trump and in particular of his trade policy, he recognized that “challenging the neocon establishment, which is rooted in both parties, in the administration, the intelligence services and the US media circus, involves significant personal risks. The fact is that the will for peace and, with that, for humanism (war is the ultimate anti-human – see Irak, Syria, Libya, WWI and WWII!) and prosperity is only possible through mutual dialogue. “In that context. Donald Trump provided reasons to be hopeful this week. It feels like a luxury to be allowed to have hope!” The head of the German-Russian Forum Matthias Platzeck expressed his satisfaction with the results of the summit in an interview with WDR radio. “I am happy that a long phase of lack of communication is over. Like it or not, here we have the leaders of the two largest nuclear powers. Russia has 6,200 nuclear warheads ready for use. Therefore just from the standpoint of security on Earth, this meeting was for me very important.” He welcomed the end of the „verbal spiral of rearmament.... “They agreed to stop escalation in nuclear weapons and maybe to reduce them. They agreed to guarantee security for Israel
and to cooperate in the de-nuclearization of North Korea. That is what I take into consideration for an assessment of the meeting.” He further noted that the agreement to ensure conditions for the return of refugees in Syria as important especially for the Europeans who are hit by the migration crisis. Russian Defense Ministry Provides Updates On New Strategic Weapons The new strategic weapons that Russian President Vladimir Putin first revealed during his address to the Federation Council on March 1 aim to increase the country‘s defense capabilities and ward off outside aggression, according to the Russian Defense Ministry (cf. SAS 10/18). On July 19, just a few days after the Trump-Putin summit in Helsinki, that Ministry issued an update on the equipment, which underscores the urgent need for dialogue rather than confrontation among armed forces. The update included the following elements: * A MiG-31K fighter jet carrying a Kinzhal hypersonic missile participated in an exercise in early July with Tu-22M3 bombers. The drill was designed to plan, prepare and jointly use the Kinzhal air-launched missile systems and long-range Tu-22M3 missile-carrying bombers. The Kinzhal travelling at hypersonic speeds, according to the Russians, is actually invulnerable to the existing air defense and anti-missile systems. http://tass. com/defense/1014048 * The development of the Avangard hypersonic missile system with the gliding cruise warhead has been completed. The Deputy Commander of Russia‘s Strategic Missile Force for Armament Sergei Poroskun, whose command is preparing to receive the new weapons, said that the system features combat capabilities that “make it possible to reliably breach any antimissile defenses.” * The Sarmat ICBM will be ready for its first flight tests sometime this year, having just completed pop-up tests. * Trials of the Poseidon nuclear submarine drone (formerly called “Status 6”) are also set to begin. As of today, comprehensive experimental work on the underwater drone is coming to an end and industrial enterprises have carried out measures for checking the joint operation and the reliability of all the drone‘s systems and assemblies, the Defense Ministry‘s press office said. *The Burevestnik nuclear-powered cruise missile is also being prepared for flight testing and work on an unlimited-range missile is going according to plan. The project “will make it possible to start designing a totally new sort of weapon - a strategic nuclear complex armed with a nuclear powered missile,” the ministry official noted. * The last weapon on the list is the Peresvet laser system, which has been accepted into the Russian Aerospace forces, but very little detail is otherwise provided. The Peresvet is the first Russian combat complex based on new physical principles. The infrastructure needed to support it is being built and crews are receiving advanced training on how to operate and deploy it. Syria: A Welcome Example of What U.S.Russia Cooperation Can Achieve The situation in Syria has moved rapidly towards a positive resolution since the Trump Administration decided last year to cooperate with Russia in eliminating the threat of terrorist groups and allowing the Syrian Arab Army to retake terroristcontrolled areas, so as to restore security, achieve reconciliation and begin reconstruction there. This has been most system
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atically carried out in the southern part of Syria, in Daraa and on the Syrian side of the Golan Heights, these two provinces bordering Jordan and Israel. In late June, Washington reportedly told the leaders of the Free Syrian Army not to expect any more support and advised them to settle their differences with the Damascus army peacefully. Many factions of the FSA did then engage a reconciliation process and join the the fight against ISIS and Al-Nusra terrorists in that area, which is part of the “de-escalation zone” agreement reached by Russian and U.S. military leaders. The rebels/terrorists who refused to join the reconciliation process were offered safe passage to Idlib. In the past two weeks, the Syrian army, backed by Russian air forces, moved into Qunaitra in the Golan and forced both ISIS and Al-Nusra out of many villages, leaving them in a thin strip along the Israeli border. Without support from Israel, they will not be able to resist the advancement of the Syrian army for long. The recent visits to Moscow (just days prior to the TrumpPutin Summit in Helsinki), by both Israeli Prime Minister Benjamin Netanyahu and by Ali Akbar Velayeti, the key advisor to Iranian supreme leader Ali Khamenei, were clearly related to the Syrian settlement. The obvious outcome of Israeli and Iranian talks with President Putin on the one hand, and the Putin-Trump discussions on the other, is that Israel’s security will be guaranteed by ensuring that Iranian forces and allied Lebanese Hizbollah are pulled out of Syria, or at least out of areas close to Israel. In return, Israel should end its support to the terrorist groups and its frequent military attacks on Syria. Netanyahu can then claim victory for forcing the Iranian forces to leave, and the Iranians can claim victory when all the areas controlled by the terrorists in Daraa and Qunaitra have been liberated by the Syrian army. The other two areas that are still active conflict zones are Idlib in the north-west of the country along the Turkish border, and Hasakeh in the north-east between the Turkish and Iraqi borders. Large parts of Idlib have been controlled by terrorist and U.S. and Turkish-backed rebel groups including the FSA. It is also the destination of tens of thousands of terrorists who refused reconciliation in other parts of Syria and were provided safe passage there. Many of the different groups are now involved in fierce fighting, assassinations and outright slaughter among each other. All indications are that this area will follow the same fate as southern Syria, whereby Turkey will have to push the factions it controls, like Ahrar Al-Sham and the FSA, to negotiate a settlement with the Syrian government, while the others will be eliminated. The Advisor to the Syrian State Minister for Reconciliation, Ahmed Munir, told RT-Arabic TV on July 19, that many tribes and villages have been sending emissaries to the government and to the Russian Reconciliation Center in Hmaimim Airport in Lathakia, to start a reconciliation process and allow the state to regain control of their towns and bring back public services and security. The process of eliminating the terrorists in Idlib will be far more violent due to the large numbers concentrated there and also to the lack of any exits, forcing them to take a last stand. But the Syrian army does not seem to be in a rush to start that operation, before southern Syria is completely secured. Most of the parties are thus coming to realize that a solution to the tragic seven-year war is in their own interests, and that enhanced cooperation between Russia and the United States will contribute to reconciliation and return of the refugees.
China Rejects Accusation of  “Debt Book Diplomacy” in Africa The Belt and Road Initiative is expected to get renewed impetus at the Tenth Summit of the BRICS group (Brazil, Russia, India, China, South Africa), that will take place in Johannesburg, South Africa, July 25-27. In the run-up to the event, President Xi Jinping paid state visits to Senegal, Rwanda and South Africa, where several agreements on trade and infrastructure investments were discussed. In September, Beijing will be host to the summit on China-Africa Cooperation, to be co-chaired by South Africa. Just prior to Xi‘s arrival in Dakar, his first visit to a West African country, Senegal President Macky Sall praised „the concrete achievements the Chinese development model has made in economic, social and cultural areas,“ while preserving its rich history and culture. Africa, he said, could learn a lot from China‘s successful experience. In spite of the undeniable benefits the joint projects carried out with the Chinese in Africa have yielded, Western outlets continue to accuse China of strapping African countries with unpayable debts in order to gain political leverage and access to raw materials. According to Wang Yiwei, the director of the Institute of International Affairs at Renmin University in Beijing, cited in a July 12 Global Times article, China does not extend to any country loans beyond their capacity to repay, but it does help them to build what they need. While Western media and politicial leaders now refer to “debtbook diplomacy” to describe China’s approach to Africa, Wang says that phrase better applies to the West’s own policy, as it issued loans to African countries but without building up self-reliance, real sustainable development, and industrialization . Indeed, research from the China Africa Research Initiative at Johns Hopkins University (USA) shows that China provided loans worth $114.4 billion to Africa from 2000-2016, which accounts for only 1.8 percent of Africa‘s total external debt, the Global Times notes. It also cites Shen Shiwei of the Charhar Institute, who found that the IMF and World Bank own 36%  of African debt. They and other “giant investors in Europe and the US” have far stronger leverage than China, Shen wrote in a recent article on CGTN . At the opening ceremony of the Seventh China-Africa Think Tank Forum in Beijing on July 4,  Assistant Foreign Minister Chen Xiaodong stated that China and Africa “have walked an extraordinary path in developing relations and cooperation, and our peoples have benefited greatly from it. Yet a minority of Westerners are blinded by their ‚pride and prejudice‘ and choose not to see it.... Maybe there is more than a hint of ‚sour grapes‘ here.“
E.I.R. STRATEGIC ALERT        www.eir.de  Published by: E.I.R.GmbH,  Bahnstr. 9a, 65205 Wiesbaden Tel.: 0611/73650, Fax: 0611/9740935, 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 German