E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER Volume 34, No. 34, August 20, 2020

 E.I.R.STRATEGIC ALERT WEEKLY NEWSLETTER

Volume 34, No. 34, August 20, 2020

 

Stop the Economic Collapse and War Drive! The world is currently facing the out of control outbreak of Covid-19, an economic collapse triggered, but not caused, by that pandemic, the systemic collapse of the entire transatlantic financial system, and the increasing danger that a new Cold War will escalate into a new world war, this this time thermonuclear. To deliberate on the means to overcome these crises, just prior to the opening of the United Nations General Assembly, the Schiller Institute will hold an online conference with international speakers on September 5 and 6. Please see this week’s supplement for the invitation to the conference. At Last, Is a New Direction  in U.S.-Russian Relations Shaping up? A number of developments in the last week indicate that US President Trump is serious about engaging in negotiations with Russia to extend the START nuclear arms treaty, which is set to expire in 2021.  On Aug. 10, Donald Trump told radio host Hugh Hewitt, “We’re dealing with Russia right now on a nuclear pact....they want to do it....And it’s a great thing.  This is the biggest problem in the world today.  We’re dealing with Russia right now on that.”  This unambiguous assertion was followed by an NBC News report on Aug. 16 that administration officials “have explored various times and places for another Trump-Putin summit,” possibly in New York in September, with the major topic being a new START pact. Moreover, discussions took place on Aug. 17 in Vienna between U.S. arms negotiator Marshall Billingslea and Russia’s Deputy Foreign Minister Ryabkov,d as a follow-up to talks last month which both sides described as serious.  There is also an ongoing discussion about President Putin’s proposal for a summit of the U.N. Security Council Permanent Five members, which would be separate from a summit on a U.S.-Russia nuclear pact. The two Presidents have conferred by telephone at least six times over the past months. It is especially significant that Trump is now describing the danger of a nuclear arms race as the “biggest problem” today, given growing tensions between the U.S. and Russia, and also between the U.S. and China.  But what is also of great significance is that, with this announcement, he is returning to one of the campaign themes that won him the presidency: 

the wish to cooperate with Russia to “end the endless wars” which the U.S. has been engaged in since the terrorist strike on the U.S. on September 11, 2001. In response to Trump’s pledge to seek a new paradigm in foreign relations, the oft-called “military industrial complex” and their politicians launched Russiagate, which has since been shown publicly to be a fraud, as we have reported in past issues. An important moment in the attempt to end the collision course between Russia and the US was the Trump-Putin summit on July 16, 2018 in Helsinki.  The major discussion topic between the two was the need to prevent a new nuclear arms race, as both leaders stated that during their joint press conference.  But for the corrupt gang of reporters present, the only issue of importance was whether Trump confronted Putin on the matter of “Russian interference” in the U.S. election, based on the confidence the intelligence community had that Russia had meddled.  Trump’s response became the basis of an avalanche of ridicule and denunciation: “I have great confidence in my intelligence people,” he said, “but I will tell you that President Putin was extremely strong and powerful in his denial today.” We now know that Trump and Putin were right, and that the “consensus” of the intelligence community was not only wrong, but continued to be the basis used to disrupt any attempt by Trump to engage in constructive relations with Russia.  Trump tweeted after the press launched their attacks on him, “as the world’s largest nuclear powers, we must get along!”  He added, upon his return to Washington, “We should have had this dialogue a long time ago.” It appears that this dialogue is now, finally underway. Central Banks Ready To Break  Any and All Taboos So far, central banks have kept the bankrupt financial system afloat through unprecedented amounts of cheap money and direct purchase of assets from banks, hedge funds and zombie corporations. “Cheap money” is a euphemism: in reality; central bank money is not only for free but it also gives borrowers a reward for borrowing! That is the case, for instance, of long-term financing by the ECB, where banks receive a 0.5% or a 1% reward on the money borrowed, depending on how they use it. Bloomberg has calculated that there are some 

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$14.3 trillion of debt in the world at the moment with negative returns for investors, and probably as much additionally, once adjusted for inflation. This is an unprecedented situation, for which there is no way out. In order to sustain global asset values, central banks need to increase liquidity, despite the dangers. Thus, according to The Economist , a discussion has started on how the ECB, for instance, could go deeper into negative interest rates, provided that those rates, applied to loans given to banks (TLTRO), are decoupled from deposit rates, which should not decline to keep depositors from hoarding cash. Indeed, the theoretical limit to negative rates is reached when they become too punitive for depositors. To quote The Economist directly: “there is no technical floor on the TLTRO rate... it can fall to -5%, -10%, or further. Lower rates could give inflation, long subdued, the kick it needs. Meanwhile the central bank could start to raise its deposit rate, satisfying critics in Germany and elsewhere, who worry about the impact of negative rates on savers.” Think about it: a -10% rate means that when a bank borrows one billion euros, it can already count 100 million as profit. De facto, this is a haircut on the debt of the financial system. Curiously, some analysts also estimate that stock are overpriced by 10%. Stifel  investment company has issued a report forecasting a stock market crash that will generate “big suffering” and blamed the Federal Reserve for it. According to this report, the S&P 500 index is between 5% and 10% overvalued and the bubble is growing thanks to low interest rates and the increase of liquidity, both due to the Fed. Although the Stifel estimates are conservatives, it is a fact that every bubble, sooner or later, bursts. If central banks decide to go deeper into negative rates in the attempt to rescue the bubble, it won’t work. Bank stocks are starting to plunge already in expectation of defaulting commercial loans, despite the free money from central banks. And the massive increase of government debt, starting with US Treasuries, is going to put upward pressure on bond yields and impact the tens of trillions of dollars the banks hold in interest rate derivative bets and potentially blow up one of the big banks or their counterparties. The only way out is the reintroduction of the Glass-Steagall system, which would prohibit commercial banks from merging with high-risk, speculative investment banks. Kamala Harris: The Deep State’s Choice  for U.S. Vice President In the calculations of the US Democratic Party’s establishment, California Senator Kamala Harris has two crucial attributes for attracting votes as the Vice Presidential candidate of Joe Biden: she is a woman and she is colored (her mother is Indian and her father is Jamaican). Otherwise, she is a blatant opportunist, whose rise in the Party in California was carefully scripted by the elites, just as Barack Obama’s was. This year’s choice of a number two on the ticket was much more important for the Democrats than in previous years, given the total lack of enthusiasm for Joe Biden among the rank and file, his strongest argument being that he is “not Trump”. Until now, Biden’s controllers have shielded him from the media and stress, in an attempt to cover up his increasing mental incoherence, which others openly call senility. But that 

cannot continue, if he in fact elected President of the United States (the oldest in US history by the way, at 78).Therefore, Kamala Harris is considered the “President in waiting” as she would take over in the event he is openly unfit for office. Neither well known nor liked, the 55 year-old Senator was one of the first to drop out of the presidential race, due to a lack of popular support. Although she did have the financial support of more billionaires than any of the other candidates, particularly those of Silicon Valley, as well as of the old monied families of San Francisco. Some speculate she was also chosen to make sure their funds keep flowing for the Democratic ticket. During the candidates’ debates, Harris had viciously attacked Biden, calling him a sexual predator and an unrepentant racist. She dismisses those charges now as simply being “positions” taken during a debate in order to score points. That does not speak well of her integrity, but it does reflect her training as a lawyer ready to plead one side or the other, depending on the advantages. In fact, she was a prosecutor for 25 years and served as California’s Attorney General (“top cop”) for six years. During that time, she was known for being “tough on crime” and rejecting reforms of the criminal system. She was heavily criticized for refusing the earlier release of nonviolent prisoners so that they could serve as cheap labor for the state, as well as for imposing harsh jail sentences for marijuana use, for demanding high cash payments for bail, etc., all of which earned her widespread anger in the poor, Black and minority districts. (Not to mention the failure to prosecute so many financial crimes and mortgage scandals....) After the quasi insurrection recently erupted in some cities in the United States, Kamala Harris quickly adapted to the mood, endorsing the Black Lives Matter movement and the riots. But her “conversion” to what is perceived as the fight against racism and police brutality reeks of hypocrisy, and has infuriated progressives in the Democratic Party, and Afro-American grass roots movements. Trailing after another trend, she has  become a fervent defender of the Green New Deal, which would finish off what is left of industry in the United States, and lead to depopulation. Donald Trump Ponders Pardon for Snowden President Donald Trump confirmed on Aug. 15 that he is “strongly looking into” a pardon for Edward Snowden, to allow him to return to the US as a free man. Snowden, a technician of the National Security Agency, turned whistle-blower in 2013 and disclosed the now-famous volumes of documents proving that the NSA was illegally conducting mass surveillance of countless numbers of American citizens (not to mention all the foreigners).    The US Department of Justice is seeking his extradition from Russia, where he is living in exile, but there is no way he could expect a fair trial. “There are a lot of people that think that he is not being treated fairly. I mean, I hear that,” Trump had told The New York Post .  “It’s certainly something I could look at.” For journalist Matt Taibbi, the fact that Snowden “has been in permanent exile while the creators/defenders of the illegal surveillance program he exposed have not only gone unpun

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ished, but have been feted and given high-profile media jobs, is an ongoing outrage.” Some conservatives are also favorable, including Michigan Congressman Justin Amash, Senator Rand Paul, and Representative Thomas Massie, who tweeted: “Employees of the US government violated the Constitution and lied to Congress and the American people about it. @Snowden exposed them. This is bigger than him. If he’s punished for his service to the Constitution, there will be more violations of the Constitution, and more lies.” Just as with Snowden, the charges of endangering national security should be dropped against Julian Assange, the founder of Wikileaks who is now wasting away in a high-security prison in London, pending extradition to the United States. Fifty Years Ago, Germany Launched  Its  Ostpolitik Despite the Obstacles The unprecedentedly open threats coming from US interests against the Nordstream 2 gas pipeline project between Germany and Russia (cf. SAS 33/20) calls to mind the controversy over Germany’s first natural gas agreement with the then-USSR 50 years ago. In spite of the arm-twisting tactics by geopolitical circles in America and the entire array of antiSoviet networks, a deal was signed on Feb. 1, 1970, which envisaged the delivery of newly-designed large steel pipes to connect Soviet natural gas fields with Western Germany, which would provide 3 billion cubic meters of gas annually. The gas-pipeline deal was financed by the Foreign Trade Bank of the USSR and a consortium of 17 German banks led by Deutsche Bank. That deal paved the way to the German-Russian “Treaty of Moscow”, signed between the German and Soviet leaders, Willy Brandt and Leonid Brezhnev, on Aug. 12, 1970. It proclaimed the principle of non-violence in bilateral relations, the beginning of serious detente and de-militarization efforts, as well as increased economic cooperation modeled on the gaspipeline agreement. On the 50th anniversary of the Treaty of Moscow, German Foreign Minister Heiko Maas went to Moscow. It would have been more than appropriate for him on that occasion to do more than the diplomatic minimum, and to take the discussions on pressing problems in bilateral and international relations beyond the business-as-usual level. But the present German government shows far less sovereignty in pursuing its genuine interest in having good relations with Russia, than the Brandt government of the time. Indeed, the two 1970 German-Soviet agreements were signed in the context of a still-waging Cold War, and in defiance of a US pipe embargo on the USSR imposed in 1962. A constructive contribution from Germany at this point would be to actively promote the summit of the permanent five members of the UN Security Council, as proposed by Russian President Putin, possibly even offering Berlin or another German city as the venue for it. The urgent items on the agenda, as the Schiller Institute has proposed (cf. this week’s supplement), should be a serious commitment to eliminate poverty, launch a crash program for economic development, and set up counter-measures to fight the ongoing Covid-19 pandemic and potential new ones. For the time being however, the German government is torn between its loyalty to the geopolitical straitjacket of 

inner-NATO relations and its passive resistance to the most highly radicalized geopolitical positions in the West. German industry, for example, has repeatedly voiced its opposition to the continuation of the sanctions adopted against Russia over the Ukraine issue. In the past six years, those sanctions have in many cases eliminated half or more of the output of German Mittelstand firms, particularly in the eastern part, where relations with Russia have been traditionally strong. Italy: The New Bridge in Genoa  Shifts the Mood in the Country Some northern European media reacted with sarcasm to the inauguration of the “San Giorgio” bridge in Genoa, on Aug. 3, asking “how the Italians’ self-esteem could be fall so low” as to consider the building of a simple bridge to symbolize the “rebirth” of the nation. True, there were pompous aspects in the inauguration ceremony, but the method, not the bridge in itself, is what it counts, and it could become a  model for relaunching the Italian economy after decades of zero growth and deindustrialization. The new bridge, which connects the port to the A10 highway, and from there to France, Northern Italy and the rest of Europe, and also provides a rapid inner-city connection, replaces the old “Morandi” bridge, which collapsed on Aug. 14, 2018, killing 43 people. That tragedy was the result of a lack of maintenance by Autostrade per l’Italia (ASPI), the private company controlled by the Benetton family, which the latter has since agreed to sell back to the government. It was decided to rebuild the bridge in a crash program, bypassing all the bureaucratic and pseudo-environmentalist and pseudo-anti-corruption rules which have made it impossible to build large infrastructures in Italy for decades. As a product of the the 1992 “Clean Hands” coup, which destroyed the traditional political parties, a dictatorship of the financial markets was established over the country. It included the sell-out of state-owned companies and infrastructure, the Morandi bridge among others. The new owners proceeded to loot the privatized assets, extracting profits but neglecting needed repairs. The new Genoa bridge, at one km in length and 45 meters high, was built in record time. Once the judicial investigation allowed, the demolition of the old bridge began in Feb. 2019 and was completed on Aug. 12. The new bridge was then built in only ten months, using the most modern technologies and working around the clock, seven days a week, regardless of weather conditions and, since March 2020, under lockdown conditions. The success has shifted the mood in Italy, and created a consensus on adopting “the Genoa Model” for all other large infrastructure projects. That would require a fundamental change in the law, which is a challenge for the anti-growth M5S, the main coalition partner in the Conte government. Belarus: Another Color Revolution  in the Making in Europe Following the presidential election on Aug. 9 in Belarus, developments are following the classical lines of a color revolution, while the  shadow of the bloody Euromaidan coup in Ukraine hangs heavy over the situation. Consider the following elements of the well worn script: the targeted country is  allied with and has borders with Russia and is a member of the 

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Eurasian Economic Union; the star of the opposition, Svetlana Tichanovskaya, a housewife turned presidential candidate, who got 10% of the vote, has charged massive vote fraud by incumbent President Alexander Lukashenko; and Minsk is engulfed in demonstrations, complete with clashes with security forces, mass arrests etc. Moreover, the infamous US regime change foundation, the National Endowment for Democracy, is very active in Belarus. In 2019 alone, it spent nearly $2 million and in 2018, $1.5 million, on various training programs in “youth activism,” “advocacy,” “independent press,”  etc.. Right on queue, the European Union, led by the “frontline states” Poland and Lithuania, threaten to impose sanctions unless the Minsk authorities accept their mediation between the authorities and opposition with a view to overturning the election results and holding a new vote with international observers. In addition to Tichanovskaya, who has since fled to Lithuania, there are other forces are at play, including two aspiring candidates who had been barred from participating in the elections, Valery Tsepkalo and Viktor Babariko, both of whom are very much a part of the country’s elite, with extensive international connections. Tsepkalo, a former Belarus ambassador to the United States, who as part of the Lukashenko government had created the country’s first high tech park before having a falling out with the President in the last 2 years. He left the country after his candidacy was rejected by the election commission after failing to collect the required number of signatures. Speaking from Kiev, he just announced the formation of a “National Salvation Front for Belarus” and a fund called the ‘Belarus of the Future,” to support the opposition. The supervisory council of the fund includes opposition politicians Anatoly Lebedko, the leader of the United Civil Party which has observer status in the European People’s Party at the European Parliament, and Stanislav Bogdankevich of the same party, who is the former head of the National Bank. Babariko, who headed one of the country’s largest banks, Belgazprombank, for 20 years, was arrested on June 11 by the Belarusian State Control Committee on charges of largescale tax evasion and money laundering. Barbaric claimed that the situation was politically motivated. But he did send his campaign manager to manage Tichanovskaya’s campaign. Tikhanovskaya announced, from her base in Lithuania, the initiation of a Coordination Council for the transfer of power, which should include members of civil society, famous Belarusians and true professionals of their trades. She called on the government to cooperate. One of the coordinating centers of the color revolution seems to be London’s Chatham House, where former British Ambassador to Minsk, Nigel Gould-Davies,  heads the Russia and Eurasia program. Since Dec. 2019, he has been assisted by Anais Marin, who doubles as the UN special rapporteur on human rights in Belarus and has been denouncing the Belarus authorities for human rights violations. On 15 August  Lukashenko held a telephone call with Russian President Vladimir Putin after which the former said they had reaffirmed their commitment to strengthening their ties. It was stressed that  Belarus is a member of the Eurasian Economic Union and the Collective Security Treaty Organization led by the Russian Federation.

China To Increase Investment in High-Speed Rail, in Domestic Consumption Push In light of an increasingly hostile global environment, and of possible boycotts in the international market, China has shifted its overall development policy toward production for the domestic consumption market. One major aspect of that is transportation networks throughout the vast country. In terms of trains, for example, a new construction program has been drawn up, providing for 200,000 km of new rail by 2035, about 70,000 of which will be high-speed, which is the double of the up current 35,000 km. All cities with a population of 200,000 or more will be connected by regular rail, and all cities with 500,000 people or more will be connected by high-speed rail. China is also working on the next generation of magnetic levitation (maglev) trains that should be able to travel at speeds of 600 kph. That announcement was made after the successful maiden test run of a vehicle on a test track at Tonji University in Shanghai on June 21. Though the train-set did not run at top speed of 600 kph,  various important features were tested. Prototype vehicles are approved for construction in 2021, and up to nine new maglev lines are planned for the future. They are designed to fill the gap between high-speed rail and airplane flight. In the first half of 2020 already, China invested $207 billion in combined railway, highway, waterway and civil aviation infrastructure, of which $46.9 billion was in railways, according to China Daily of Aug. 13. That makes the country’s transportation infrastructure investment alone 5 to 10 times that of every country on Earth! Rail and other critical infrastructure is financed through two methods of directed credit. First, China’s four largest stateowned commercial banks—the Industrial & Commercial Bank of China, the Bank of China, the Agricultural Bank of China, and the China Construction Bank—make ample loans directly to the China Railway company, the China Railway Rolling Stock Corporation (CRRC), which builds the rail equipment, etc. This is overseen by China’s three “policy banks.” Secondly, the national government and local governments purchase bonds issued by China Railway Corporation, CRRC, and so forth. With this method, China could almost immediately deploy directed-credit to build maglev and high-speed rail development projects as they are unveiled. Unfortunately, such methods are not possible now in the European Union, nor in the United State