E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER Volume 32, No. 48, November 29, 2018

E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER
Volume 32, No. 48, November 29, 2018

Corporate Debt Bubble Threatens  Imminent Financial Crash In former times, central bankers used to speak out only once a year. Since the 2008 financial crisis, hardly a week goes by in which they do not “talk” to markets or give orders to governments. What has not changed, however, is the use of understatement whenever a larger problem threatens the system. The International Monetary Fund is no exception. Therefore, when the IMF takes to its on its IMF blog to issue a strong warning on leveraged lending as a bubble ready to burst, it is worth listening. Indeed, our newsletter has underscored since May-June 2017 that this is where the great danger of a new and larger crash lies. What the IMF calls “leverage lending” are loans to already over-indebted corporations, that  constitute a growing part of the $14-15 trillion corporate debt bubble, including because of the “reverse carry trade” provoked by the rise in interest rates in the United States. For a decade, under the Quantitative Easing policy, the Federal Reserve printed money that was going out of the United States as it was being printed. It went to places like Brazil, South Africa, or through Hong Kong into commodities speculation in China. When the U.S. began raising interest rates and decreasing the tax rate, all of a sudden the United States itself became an attractive destination. And literally trillions of dollars have flowed back in, particularly over the course of 2018. That, in turn, has fed the corporate debt bubble at a truly alarming rate. It can only pop at a certain point, as a growing number of observers are warning. The danger is such that it is urgent for the largest powers in the world, the United States, China, Russia and India (the EU has self-excluded itself by its very nature) to come together and establish the measures needed to face the collapse. The first step is to put the commercial banking sector in safety by separating it from the investment banking sector, under a new Glass-Steagall Act. Then, the above mentioned four powers should come together to establish a global credit system based on the Bretton Woods model. Why the Need for a New Bretton Woods Today? The monetary order established in the wake of the July, 1944 conference in Bretton Woods, New Hampshire was a gold-reserve system, with fixed exchange rates which could be adjusted only by sovereign action of single governments and not by the markets. It prevented currency speculation on any significant scale 
and maintained quite stable relationships of national currencies to each other, but more important, it created a World Bank. As EIR Economics Editor Paul Gallagher has pointed out, that, more than everything else, was the main intention of President Franklin Roosevelt (FDR) when he launched the Bretton Woods process. He wanted the world, after the Second World War, to have a true industrial and infrastructure world bank which would invest in projects and infrastructure in developing countries, and be capitalized by the industrially developed countries. A precondition for such a system to work is to have fairly stable currencies. Otherwise, Gallagher explained, a long-term investment would be granted, and then “while the loan was being serviced, the currency of the receiving country would progressively collapse to the point where it wasn‘t worth anything anymore.” That actually happened with Mexico, for example, during the NAFTA agreement. Therefore, in addition to wanting an international development bank, FDR wanted an international monetary arrangement which would guarantee the safety of the credit granted, by making the currencies stable. The Bretton Woods system went on to supply the thrust for 25 years of increased productivity and relative prosperity. That, until it was finally taken down in favor of the British system, starting with the crisis of August 1971 through 1973, when the dollar was decoupled from gold reserve and the world went into the floating rate system of currencies and of private production of money. Lyndon LaRouche and the Schiller Institute launched an international campaign in 1988 for the establishment of a New Bretton Woods system, and propose today that the U.S., Russia, China and India take the lead in creating such a new international credit order. Ukraine  Provocation Aims to Sabotage Trump-Putin Summit With preparations underway for a potentially historic meeting between Presidents Donald Trump and Vladimir Putin at the G20 summit in Buenos Aires, the Ukrainian government decided to create an international crisis by violating the territorial waters of Russia in the Sea of Azov on Nov. 25. The three Ukrainian warships involved were detained by Russia, giving President Poroshenko the occasion to declare martial law by decree. Russian Foreign Minister Sergey Lavrov charged that the incident had been pre-planned, and was the result of a direct order from the Kiev regime. The obvious aim of the operation is to so 
EIR STRATEGIC ALERT WEEKLY NEWSLETTER2 N° 48 / 2018
whip up anti-Russian hysteria in the West that President Trump will cancel the tentative summit with the Vladimir Putin, where crucial questions of war and peace should be discussed. Quo vadis Europa? French President Emmanuel Macron, backed by the hard-core Eurocrats, is touting himself as the champion of greater integration of foreign, security and migration policies in the European Union, not to mention the creation of a European army (cf. SAS 47/18). But at a time when popular protests in the EU are growing due to the plunge in living standards , and to the blatant interference from Brussels into matters of national sovereignty, any such supranational push is likely to backfire in a big way. The number of people living below the poverty line in Europe is about 90 million and growing. Since the financial crisis of 2008, in particular, living conditions in many countries have severely deteriorated, as the gap between rich and poor continues to widen. In Italy, the people at risk of poverty rose from 15 million to 18 million since the 2008 crisis, with over 4 million people living in absolute poverty. That goes a long way to explaining why a so-called “populist”, and anti-establishment government was voted in. But throughout the old continent, the same pattern is obvious (cf. below). China, on the contrary, has lifted some 800 million citizens out of poverty over the last decades, thereby building up a middle class of 300 million people, and has committed to totally eradicating extreme poverty by the year 2020. In 2010, the EU set itself the (modest) goal of reducing poverty by 20 million by the year 2020, but the number has increased since then, according to its own statistics. Accordingly, despair and pessimism for the future are plaguing the EU. Of course, the parameters in Europe and China cannot be compared as such, but the trend is clearly going the wrong way in Europe... and the right way for China – as well as for those Third World and emerging countries that have joined the Belt and Road Initiative. It is time for European leaders to seriously reflect on the causes of that difference. It is after all the case that the economic policy pursued by the Chinese leadership under Xi Jinping is much closer to what used to be known as the American system of political economy, or the credit policy that allowed for post-war reconstruction in Europe, and in particular for the German “economic miracle” -- than to the neo-liberal monetarism espoused by Brussels and the current leaders of the European Union. One Fifth of All Britons Now Live in Poverty, Warns UN Rapporteur The UN rapporteur on extreme poverty and human rights, Philip Alston, ended a two-week fact-finding mission to the United Kingdom on Nov. 16 with startling conclusions. In a country which is the world’s fifth largest economy, he called the levels of child poverty a “social calamity” and “economic disaster”. The percentage of children living in poverty could rise to 40% by 2022, he warned. Currently, about 14 million people, or one fifth of the population, live in poverty and 1.5 million are destitute, being unable to afford basic essentials, according to statistics from the Institute for Fiscal Studies and the Joseph Rowntree Foundation. In a statement released, Alston charged that the government has inflicted “great misery” on its people with “punitive, meanspirited, and often callous” austerity policies driven by a political desire to undertake social re-engineering rather than economic necessity. He charged that the austerity policies are in breach of 
four UN human rights agreements relating to women, children, disabled people, and economic and social rights. Not content, with reading facts and figures, the UN Rapporteur visited many towns and cities in the UK to talk with the people in hardship and gather first-hand knowledge of their problems, which he will document in his report. Everywhere, he said, it was “obvious to anyone who opens their eyes to see the immense growth in food banks and the queues waiting outside them, the people sleeping rough in the streets, the growth of homelessness, the sense of deep despair that leads even the government to appoint a minister for suicide prevention, and civil society to report in depth on unheard-of levels of loneliness and isolation.” Alston also denounced the notorious welfare system, which has plunged many into destitution, charging that its design and implementation harmed claimants’ mental health, finances and work prospects, and benefits sanctions were “harsh and arbitrary.” In addition, a report issued last week by the Imperial College of London found that life expectancy for the poor has decreased over the past six to seven years, even as the gap between rich and poor expands. EU Threatens Greeks’ Right to Food Greece was supposed to become the “success story” of the European Union’s program of  “rescuing” a bankrupt country through social austerity. The results are devastating, as even the former head of the Eurogroup, Jeroen Dijsselbloem, admitted last September saying the program had failed, due to over harsh conditions. A non-profit think tank Dianeosis recently issued a report showing that the average Greek household’s disposable income collapsed by 42%, or 513 euros, between 2009 and 2014. Salaried workers lost 38.6% of their income, while the selfemployed lost 40.3% and pensioners saw their income fall 32.5%. Hardest hit were 18-29 year olds with a drop in income of 44.8%. People with a university degree suffered a 45.1% loss of income on average, which explains why so many well-educated Greeks have left the country to seek employment elsewhere. According to a statement by the Hellenic Federation of Public Hospital Workers, there has been a 30% increase in demand for care at public hospitals, while 60% of the medical equipment is in need of immediate replacement and the funds available have not increased. The effects of austerity on the population  in terms of food security were studied by the Amsterdam-based Transnational Institute (TNI), which just issued a report entitled Democracy not for sale: The struggle for food sovereignty in the age of austerity in Greece.  They reveal that an estimated 38.9% of rural citizens in Greece in 2017 were at risk of poverty, rural unemployment soared from 7% in 2008 to 25% in 2013 while rural income per capita dropped by 23.5% during the crisis years (2008-2013).The number of households with children unable to afford a protein-based meal on a daily basis doubled from 4.7% in 2009 to 8.9% in 2014. The report charged: “Not only did austerity measures increase poverty and food insecurity, it further consolidated an agri-food business regime that will perpetuate inequalities in access to and control over food.” Indeed, the structural reforms implemented have favored larger food retailers and private traders to the detriment of small-scale producers. That contributed to the fact that food prices increased at faster rates than in the rest of the Eurozone in spite of the sharp fall in labor costs. Olivier de Schutter, former special rapporteur on the Right to 
EIR STRATEGIC ALERT WEEKLY NEWSLETTER 3N °48 / 2018
Food (2008-2014) at the UN and a member of the UN Committee on Economic, Social and Cultural Rights, told the Greek daily Kathimerini that the European Union could be in violation of  Greeks’ right to food. In that case, the victims could take the EU to court. Article 340 of the Treaty on the Functioning of the EU, he said, “states very clearly that the damage caused as a result of the fault of the EU institutions is damage that should be compensated for. I know some people are thinking about this and I’ve been asked to provide advice on this possibility,” he said. Mass Strike Ferment Developing in France The “Yellow Vest” movement amplified its mobilization over the week following the national actions that took place throughout the country on Nov. 17, to protest against the anti-social policies of the government, including an outrageous rise in fuel prices in the name of “ecology” (cf. SAS 48/18). On Nov. 24, over one hundred thousand (according to the usual underestimates of the government) again participated in various actions, including a huge demonstration in Paris. Unfortunately, it degenerated into violence and plundering after being infiltrated by a few wellknown violent groups. But the government responded to the scattered violence with heavy repression, which was strongly condemned by former French presidential candidate Jacques Cheminade, who blasted their incompetence. The Yellow Vest movement itself, which developed in a spontaneous way, clearly lacks experience in managing large crowds. Despite the provocations, the movement is expected to grow and has already gained support from other sectors of the working population, in particular from farmers and fishermen, two categories which are directly hit by the rise in energy and fuel costs. There are also reports of a number of policemen who are sympathetic to the movement, and have offered advice on how to set up the road blocks, etc., to ensure security and reduce the resentment of the drivers stuck in their cars. Moreover, many mayors, in particular in rural areas that are struggling to survive, and who have seen state subsidies for social projects slashed, are supporting the protestors. Indicative of the deep-seated discontent in the population is the fact that this year an embattled Emmanuel Macron decided last week not to visit the annual congress of the Association of Mayors of France for fear of being heckled and booed. This is the very first time that a President of the Republic has not attended. Jacques Cheminade, in a statement released Nov. 21, said that what is developing in France is “the ferment of a mass strike”, which is not “a strike in the usual sense of the term”, but a ferment expressing the frustrations and despair of a people faced with a government (and an opposition) that remains deaf to their needs and demands. These are people who are responding to the closing of local factories and of public services, who need  their cars and tractors to work and fuel for heating. But they “also want their labor to be respected and the future of their children to be protected. It is by refusing to respond to this simple and just demand that Emmanuel Macron has become the symbol of an unjust and arrogant policy”. He is therefore sinking into total unpopularity. What is needed, he pointed out, is a government that represents the people against “the dictatorship of investment banking and of the internet giants,” and joins other countries in the fight for a new international order to improve living conditions and nature. 
Germany’s Misguided Green Policy  Spells Economic Disaster It is often claimed that Germany is the EU country that has most benefitted from the austerity policies of Brussels and the Troika (European Commission, ECB, IMF), to build up a huge export surplus while insisting on murderous budget cuts in other, mainly South European, countries. But the notorious “zero deficit” policy of former Finance Minister Wolfgang Schäuble and his successor Olaf Scholz has also taken its toll on the German population. According to the most recent estimates, one out of six children in Germany is threatened with poverty, while poverty among senior citizens is increasing at an alarming rate, as pension payments are so low. Meanwhile, home rental prices have soared to the point that monthly rent accounts for over 50% of the income of many low income families. As a result of the lack of public spending on infrastructure, 20% of the highways and 40% of the federal roads are in need of repair, not to mention thousands of bridges. The same could be said of hospitals, schools, etc. that have seen their budgets slashed. At the same time, in the name of the Merkel government’s ill-advised “energy transition”, the price of electricity is soaring. A major facet of that policy is the complete exit from nuclear energy, which is already nearly accomplished, as well as the complete shutdown of the coal industry (cf. SAS 44/18). That has led to hefty protests, in particular in the lignite-mining region of Lausitz in Eastern Germany on the border with Poland, where the closing of the mines will put 20,000 workers out of a job directly. As association of some 30 municipalities of the region, the “Lausitz Roundtable”, met on Nov. 19 and agreed on a memo addressed to the German government, calling for a development perspective funded by 60 billion euros over the next 30 years (compared to the 1.5 bn the government has committed to altogether). The association demands an industrial future for Lausitz, Germany’s second-largest mining region, and infrastructure development, particularly in the rail sector. Rather than giving priority to an illusive “climate protection”, the Roundtable proposes jobs should be created and maintained in industrial production such as paper mills, iron ore works and other sectors, that depend on calculable and reliable electricity supplies which could never be ensured by solar and wind power. All in all, some 80,000 jobs are threatened in the region by Berlin’s obsession with global warming and its anti-industry outlook. Battle over China Policy Rages in Washington On Eve of Trump-Xi Summit With a meeting between U.S. President Trump and China’s President Xi Jinping planned for Dec. 1, when the two are in Buenos Aires for the G20 summit, the battle over U.S. policy toward China has broken into the open. Despite extremely harsh rhetoric from certain officials of the Trump Administration, contrary to the President himself, insiders are sending out private assurances that the bilateral relationship is too important to be threatened by increasing tit-for-tat tariffs. Clearly, the large trade deficit the U.S. has with China will not be reduced by escalating a trade war, and the small scale of the revival of manufacturing the U.S. has experienced since Trump was elected, cannot replace the present need for goods from China.  Further, the two are engaged in a high stakes collaboration to resolve the long-term crisis on the Korean peninsula. 
EIR STRATEGIC ALERT WEEKLY NEWSLETTER4 N° 48 / 2018
Even as Trump has taken protectionist measures against China, he has said he expects that both sides would eventually reach a mutually satisfactory resolution. However, the anti-Trump neocons are committed to do whatever it takes to sabotage the potential for a successful summit in Buenos Aires. Anti-China extremists such as Senator Marco Rubio have demanded sanctions against China for human rights violations, while Vice President Mike Pence launched a series of provocations against China and its Belt and Road Initiative at the recent APEC summit, saying the U.S. will not “offer a constricting belt or a one-way road” to its partners, and will not “drown our partners in a sea of  debt” (cf. SAS 47/18). Joining the anti-China chorus was U.S. Trade Representative Robert Lighthizer, who charges Beijing with “unfair, unreasonable and market-distorting practices”. He was seconded by Peter Navarro, the Director of the White House National Trade Council and co-author of the China-bashing book, Death by China . While Navarro seemed to praise Trump for standing up against “globalist elites” in imposing tariffs on China, he accused unnamed “globalist billionaires” of being part of a “Chinese government influence operation” pressing Trump to get a deal with China at the G20 -- implying that favorable comments by Trump toward a deal with China was the result of Trump caving in to globalist pressure. Larry Kudlow, the Director of Trump’s National Economic Council, publicly scolded Navarro, saying “his remarks were way off-base....I actually think he did the president a great disservice... He was freelancing and he’s not representing the president or the administration.”  Navarro will not be present at the G20 summit. As of now, the outcome of the talks there between Donald Trump and Xi Jinping remains far from certain. Asia Century: Japan and Russia  Move Toward a Peace Treaty Japanese Prime Minister Shinzo Abe was the first of the G7 leaders to recognize that the future lies in Asia, not least because of the tremendous attraction of the “new paradigm” embodied in China’s Belt and Road Initiative. Besides improving historically charged relations with Beijing, Abe has effected an impressive rapprochement with Russia. Thus, on Nov. 14, Russian President Vladimir Putin and Japanese Prime Minister Shinzo Abe met in Singapore, on the sidelines of the ASEAN annual meeting, and agreed to accelerate negotiations for a treaty formally ending World War II between the two countries. At the heart of the current diplomatic effort is a revival of a 1956 plan for Russia (then the Soviet Union) to return two of the four islands comprising the Northern Territory to Japan. Last September, Putin used the occasion of the East Economic Forum in Vladivostok to publicly call on the Japanese Prime Minister to reach a deal with him as soon as possible. Abe is scheduled to visit Russia in January 2019 to advance the talks, and the two leaders hope to finalize a deal by the time Putin visits Japan in June 2019 for the G-20 heads of state summit. One month later, Japan will have upper house elections, and the signing of a treaty, as well as the return of the two southern islands, would greatly boost Abe and the LDP. However, many difficult issues need to be resolved before the final agreement can be inked: Will Abe pledge that the US will never be allowed to build military installations on the two returned-islands? (In November 2016, during a summit in Lima, Peru, he had called for the Northern Territories to be demilitarized.) Conversely, will Putin agree to bar Russian military forces from the two northern islands retained by Russia?
Shinzo Abe, Vladimir Putin, Donald Trump and Xi Jinping will all be in Buenos Aires on Nov. 30-Dec. 1 for this year’s G-20 summit, and there will be bilateral meetings involving all four leaders. The critical question is whether the Trump-Xi meeting will achieve a breakthrough in the trade dispute that has already impacted the global economy. Questions also arise as to whether the improving dynamics between Japan and Russia and Japan and China will go forward whether or not the US-China relationship is repaired.Both Russia and China have played an important role in the rapidly improving ties between South Korea and North Korea, which is crucial for promoting cooperation in Asia. A Russian plan to revive the inter-Korean railroad and build gas pipelines through both countries is moving forward. A Grande Premiere: InSight Mission  Looks Deep Into the Interior of Mars At approximately 21.00 on Nov. 26, NASA’s latest Mars mission began with the landing of the InSight spacecraft on the Red Planet. The landing has been described by NASA as “seven minutes of terror”, as during that time, the spacecraft has to slow down from 20,000 kph to basically zero before landing. InSight (Interior Exploration using Seismic Investigations, Geodesy and Heat Transport), which took off seven months ago,  is a lander, not a rover, and does its scientific work standing still, on a boring spot on the red planet. In the photos it takes of its surroundings after it lands, you will not see the majestic mountains or tempting craters that have characterized previous lander/rover sites. InSight will land on what has been described as akin to a parking lot -- a flat, empty piece of land that presents few engineering challenges to the already very challenging entry, descent and landing on Mars. In fact, it doesn’t matter where on Mars InSight lands, because its work will be done underground, for the first time in history. As described by InSight Principal Investigator Bruce Banerdt at NASA’s Jet Propulsion Lab, “It’s InSight’s job to study the deep interior of Mars, taking the planet’s vital signs -- its pulse, temperature and reflexes.” InSight carries three sets of scientific instruments. A suite of seismometers will detect tremors anywhere on Mars, which could be generated internally by Mars quakes, or from external impacts. Scientists will study the propagation of seismic waves, which will tell them about the layers beneath the surface, and composition of the core. The Heat Flow and Physical Properties experiment will burrow nearly 5 meters in depth to measure the temperature, and expel some heat to see how it dissipates. The last experiment will use radio waves to observe the wobble in Mars’ axis, which will provide information on the planet’s core. A half-dozen nations contributed to the InSight mission. Major contributions were the seismometers from France, and the hardware, or Mole, that will dig into the soil for the heatflow experiment, which was built in Germany. 
E.I.R. STRATEGIC ALERT        www.eir.de  Published by: E.I.R.GmbH,  Bahnstr. 4, 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 Germa