A Crash is Looming, But a New Bretton Woods Is Within Reach!

by Brian Lantz and Harley Schlanger

Sept. 22–On July 25, 2007, as the first signs of the crisis began to emerge—the financial crisis that would ultimately lead to the collapse of Lehman Brothers and the near-collapse of the global financial system—economist Lyndon LaRouche opened a webcast with a warning that the system had reached a point of no return.

The world monetary financial system is actually now currently in the process of disintegrating. There’s nothing mysterious about this; I’ve talked about it for some time, it’s been in progress, it’s not abating. What’s listed as stock values and market values in the financial markets internationally is bunk! These are purely fictitious beliefs. There’s no truth to it; the fakery is enormous. There is no possibility of a non-collapse of the present financial system–none. It’s finished, now! The present financial system cannot continue to exist under any circumstances, under any Presidency, under any leadership…. Only a fundamental and sudden change in the world monetary financial system will prevent a general, immediate chain-reaction type of collapse.@s1 The cost of all this, in human lives and misery, is almost beyond calculation, and will only be touched on here, briefly.

While industry and agriculture have been starved of credit, the reign of “quantitative easing” has actually done nothing to stabilize financial markets. The central banks of Europe, Japan and America are now themselves choking on a total of approximately $14.5 trillion equivalent (at face value) of bank, government and corporate financial paper that they have purchased since 2008.@s3 This deployment of “helicopter money” has only increased financial indebtedness, while also producing a dramatic growth of the S&P 500 Index from its low in early 2009–this, itself, a sign of increasing financial instability, as “Ponzi scheme” financial betting replaces long-term productive investment.

%% Debt as the Trigger %%

An important feature of the building financial crisis has been the growth of corporate, government and personal debt. Worldwide, in the ten years since the 2008 global financial crisis, the debt held by nonfinancial corporations has grown by $29 trillion, and since 2007, the value of corporate bonds outstanding from nonfinancial companies has nearly tripled to $11.7 trillion, according to a McKinsey & Company piece, “[[Are We in a Corporate Debt Bubble?]]” [[https://www.mckinsey.com/mgi/overview/in-the-news/are-we-in-a-corporate-debt-bubble%5D]] The McKinsey article, written by Judy Lund, continues,

Over the next five years, a record $1.5 trillion worth of nonfinancial corporate bonds will mature each year; as some companies struggle to repay, defaults will most likely rise…. The average quality of borrowers has declined. In the U.S., 22% of nonfinancial corporate debt outstanding comprises “junk” bonds from speculative-grade issuers, and another 40% are rated BBB, just one notch above junk. In other words, nearly two-thirds of bonds are from companies at a higher risk of default, including many U.S. retailers. Through “shadow banking” mechanisms the totals could be significantly higher.

%% Calls for a Return to Glass-Steagall %%

As the enormity of the current unfolding crisis begins to sink in with certain more astute members of the Establishment, it is not then surprising that there are again urgent calls from additional quarters, for a return to Glass-Steagall banking regulation with its implications.

Among the most prominent of the new calls for Glass-Steagall is a white paper issued by the U.S. credit union association, the National Association of Federally Insured Credit Unions (NAFCU). Its report, titled “Modernizing Financial Services: The Glass-Steagall Act Revisited,” was followed by a September 11 op-ed in {The Hill} by the organization’s Executive Vice President for Government Affairs and General Counsel, Carrie Hunt. While understating the danger of a financial crash today, the subtext of Hunt’s piece is clear: By not restoring Glass-Steagall after the Crash of 2008, the speculative orgy of the “Too Big to Fail” banks that precipitated the crash when housing prices collapsed–which she characterizes as “excessive, unbridled risk taking”–absolutely continues today.

By not acting to ensure that, “banks’ past misdeeds are not normalized or accepted as status quo,” U.S. lawmakers’ protection of the TBTF banks means that nothing was done to prevent the growth of these banks, and the size of their debt holdings has swelled to unsustainable levels, which Hunt says “will have a catastrophic impact on the American economy and wreak havoc on consumers’ financial well-being.” Hunt writes that a “modern approach” to Glass-Steagall—

would restrict the banks’ ability to make risky bets with consumers’ savings and reduce their overall size, thereby limiting the likelihood of future bailouts and economic turmoil. developed through his study of the discoveries of scientists and physical economists of the past, such as Johannes Kepler, Gottfried Leibniz and Bernhard Riemann. He made advances on their work through his own unique discoveries, parallel to the earlier “American” approach of Benjamin Franklin and Alexander Hamilton.

For LaRouche and these scientists mentioned above, an economy is not about financial profits or “monetary theory”–which has been the basis of all neo-liberal economic “theory,” a thinly-disguised justification for looting populations, and one which has been hegemonic in the British Empire for 300 years. Rather, physical economics is about applying the most advanced scientific discoveries to the production and distribution of goods, to provide an improving standard of living for all people, while at the same time investing in the future, in areas which will lead to the scientific and technological progress needed to provide for the next generations.

On the other hand, the current, continued exponential growth of global debt and the growth of the utterly fantastic derivatives {casino mondial} of fictitious wealth can only continue through the issuance of new borrowing and increasing debt. As an inverted pyramid, it is only held up by increasingly weakening streams of revenue (debt service) bled from the remaining real economy. And this is what we have seen, particularly in the United States over the recent decades. This has been rigorously presented in Lyndon LaRouche’s series of heuristic “Triple Curves” of a “typical collapse function,”@s6 as the hyperbolic growth of financial and monetary aggregates, sustained by the third curve, the downward-plunging curve of the actual physical inputs/outputs of the real economy.

At the current moment, the growth of the global derivatives market appears to have fallen slightly, ostensibly due to “trade compression efforts.” However, the quadrillion dollar derivatives bubble remains as the main explosive, and the debt is the now-ticking detonation charge.

For example, in the “emerging market” economies, fueled by the speculative dollar carry-trade, these nations are saddled with more than $8 trillion in corporate and sovereign debt, of which more than $249 billion comes due in the next year. With rising interest rates, and a stronger dollar, speculators are fleeing from these emerging markets and their currencies, making dollar-denominated debt payments far more costly, and defaults inevitable. Witness the current currency and economic crises in Turkey and Argentina, systemically spilling over into Europe and Europe’s banks–and then into the United States through derivatives “hedging.”

Along with emerging market debt, U.S. corporate debt, student loan debt, and car loan debt have all grown exponentially, and all of this debt is then “securitized” into derivatives products, in the way that mortgage-backed securities are. The growing debt is the live “detonator.”

This is the terminal condition of the process described by LaRouche’s “collapse function,” and President Donald Trump’s actions, as valiant and well intentioned as they have been–as President he cannot succeed without our help. The demands to “save the cancer!” come from the British Empire, via the central banks, City of London and Wall Street, intent on saving their global monetary system, which is indeed the British Empire itself. Given the collapse of the real economies of the “West” caused by this blood-sucking, this system can now collapse at any time, with catastrophic consequences.

The reality of this crisis is now increasingly being acknowledged. The immediate threat to be addressed is the global debt bomb of derivatives, and the explosive charge of debt, built up by what have been unlimited flows of Central Bank quantitative easing and accompanying measures. The “bomb” could simply be detonated by the Federal Reserve attempting to now “taper” QE and raise interest rates.

The realization that one must take away from all of this, however, is that this crisis is fundamentally not about financial paper and algorithms. The matter at hand is existential for mankind as the failing British Empire’s monetarist financial system has already riven the world. It is this failing and homicidal British Empire that is threatening a geopolitical “Thucydides Trap” and thermonuclear war, attempting to manipulate the United States against its natural allies Russia and China and their growing “South-South” alliance for cooperation and peaceful development.

%% President Trump and Solutions Today %%

The Belt and Road Initiative of China’s President Xi Jinping is already transforming much of the world, engendering optimism about the future. Even if censored and blocked out in the mass media, a multitude of projects and people-to-people exchanges have made enormous, positive changes in the relations among nations and made physical changes on the ground. As a consequence of the Trump presidency and the Belt and Road, and the influential ongoing work of the LaRouche movement, the “fundamental and sudden change” that economist and statesman Lyndon LaRouche called for in 2007 can be fully realized now!

This change is now the substance of the urgent call by Helga Zepp-LaRouche, founder of the Schiller Institutes, as well as the intervention of the national flagship campaign of Kesha Rogers, Independent candidate for Congress in the Texas 9th Congressional District. The urgent requirement now, as emphasized by those two leaders, is for the convening of a “Four Powers” summit of President Trump, President Xi Jinping, President Vladimir Putin and Prime Minister Modi. {The purpose of that summit is the prompt creation of a New Bretton Woods financial system, of fixed exchange rates and sovereign credit, replacing a now collapsing monetarist dis-order with a New Paradigm of “win-win” development.} The Donald Trump Presidency means that a New Bretton Woods summit among the leaders of the four leading–but very different—nations of the U.S., Russia, China and India, can now be organized.

This New Bretton Woods initiative is being taken to the United Nations this week, as well as to Capitol Hill in Washington, D.C., supported by prominent international endorsements. (See the Petition elsewhere in this issue.)

In July 2016, prior to the Republican convention, Trump shocked the bankers when he stated that he favored a return to Glass-Steagall bank separation. CNBC television reported that “Wall Street is not pleased” by this. Trump intervened directly in the Republican Platform hearings, insisting, along with campaign manager Paul Manafort, that Glass-Steagall be included in the party’s platform. The plank said simply, “We support reinstating the Glass-Steagall Act of 1933, which prohibits commercial banks from engaging in high-risk investment.”

Trump’s commitment to Glass-Steagall was reaffirmed by spokesman Sean Spicer, following a meeting between Trump and community bankers in March 2017. The President answered a question from Bloomberg News on May 2, 2017, about whether he still supports Glass-Steagall, by saying, “I’m looking into that right now … There’s some people that want to go back to the old system [Glass-Steagall], right? So we’re going to look at that.”

Since his inauguration, President Trump has worked to revive U.S. manufacturing and, between the months of July 2017 and July 2018, the Bureau of Labor Statistics has [[reported]] [[https://www.cnbc.com/2018/08/03/job-gains-for-the-manufacturing-industry-are-the-most-since-1995.html]] a gain of 327,000 jobs in manufacturing, which is the largest gain since 1994-95. However, this increase in manufacturing job growth is not enough to turn the tide, given the ongoing collapse of U.S. infrastructure, nor halt the huge “sucking sound” emitted from the City of London’s “Square Mile” and from Wall Street.

The net physical economic output of the United States is negative. The real-world, physical consequences of disinvestment are just now being further highlighted by the devastating effects of Hurricane Florence in North and South Carolina, following the similarly disastrous hurricanes Harvey and Maria, the effects of which have not been mitigated. Nor has the prospect of future such threats been addressed. Likewise, consider the ongoing drought in the Western United States, with life-threatening water shortages and forest fires. It is also necessary to remind ourselves of the collapsing transportation grid in the New York City/New Jersey region, and consider the most recent “Report Card” of the American Society of Civil Engineers, which gave U.S. national infrastructure a grade of D+.

The continued destruction of the current and future creative and productive capabilities of the nation must be fully recognized and addressed. Causally, the continued collapse of physical economic activity is today visible in unemployment, destroyed living standards, the epidemic of heroin and other opioids, a skyrocketing suicide rate, and mass-killings that dominate our American landscape today.

This is an all-encompassing crisis, and agitation for Glass-Steagall, by itself, is not sufficient. It only begins to address the underlying axioms, as presented by LaRouche. LaRouche’s Four New Laws–and the approach to physical-economic development contained therein–are cardinal measures, and must further inform our drive for the leading four nations on the planet to convene a New Bretton Woods summit. It is the system of British monetarism itself which must be overturned, as Franklin Roosevelt acted against it in his time. American citizens are now weighing in, mobilizing with Texas Congressional candidate Kesha Rogers and the LaRouche PAC’s national 2018 Campaign to Win the Future. This approach must become the affirmative policy of the U.S. government, and, as we demolish the Russiagate coup attempt, President Trump will be freed up to take these urgently required measures.

[1].^Lyndon LaRouche webcast, July 25, 2007, published in [[{Executive Intelligence Review}, August 3, 2007]]. [[https://larouchepub.com/eiw/public/2007/eirv34n30-20070803/04-29_730.pdf]]

2.^See “[[Goodbye, George Baily: Decline of Rural Lending Crimps Small Town Business]],” [[https://www.wsj.com/articles/goodbye-george-bailey-decline-of-rural-lending-crimps-small-town-business-1514219515]] {Wall Street Journal}, Dec. 25, 2017.

3.^See “[[Central Bank Balance Sheets]],” [[https://www.yardeni.com/pub/peacockfedecbassets.pdf]] Yardeni Research, Sept. 25, 2018.

4.^Office of the Comptroller of the Currency, [[Quarterly Report on Bank Trading and Derivatives Activity]], [[https://www.occ.gov/topics/capital-markets/financial-markets/derivatives/dq218.pdf]] second quarter, 2018.

5.^See: [[So, You Wish to Learn All About Economics]], [[https://store.larouchepub.com/product-p/eirbk-1984-3-0-0-epub.htm]] by Lyndon LaRouche.

6.^For LaRouche’s Triple Curves, see [[Dennis Speed’s presentation]] [[https://larouchepub.com/eiw/private/2018/2018_30-39/2018-35/pdf/25-37_4535.pdf]] in the August 31, 2018 issue of {EIR}.