EDITORIAL
Obama Threatens Russia, While the U.S. Real Economy Crumbles
Feb. 3 (EIRNS)—President Barack Obama continues to stage one provocation against Russia and China after another, with Defense Secretary Ashton Carter this week floating a defense budget that can only be described as a commitment to World War III. That budget calls for billions of dollars in new spending to beef up U.S. and NATO forces in Europe and in the Asia-Pacific, while also launching a $1 trillion modernization of the U.S. thermonuclear strategic triad.
Lyndon LaRouche observed on Wednesday that this entire swindle is a dangerous bluff, given that the U.S. is in the advanced stages of a physical economic breakdown. “There is a precipitous decline in the mental life of the U.S. citizenry,” LaRouche warned. “Our productive capacities as a nation are gone. All we have is a tiny residue for show purposes.”
Indeed, that January monthly survey by the Federal Reserve into loan requests from the manufacturing and commercial sector show a dramatic decline—more than 11%. The banking sector on both sides of the Atlantic is crashing down. Among the major U.S. and European banks, stock values have crashed by more than 30% since January 1, 2016. Handelsblatt declared today that “Deutsche Bank in Free Fall,” adding that the real center of the collapse of European finance is not in the periphery, but is centered in Germany and France, the industrial heartland of Europe. One financial publication estimates that Deutsche Bank is sitting on a pile of debt that is 70% “impaired.”
But, as Lyndon LaRouche emphasized, the collapse of the financial sector is due to the collapse of the real productive economy. The physical economic breakdown process is the driving factor. “Obama is the commander-in-chief of an incompetent force, and the British are not doing any better.”
The case of California is exemplary. At the close of World War II, California had emerged as a key part of the Arsenal of Democracy, with shipbuilding, aircraft manufacturing, and major research laboratories, including Lawrence Livermore, the Jet Propulsion Lab, and CalTech. All of that has been wiped out, at an accelerating rate in recent years, under Schwarzenegger and Brown.
Our concern, therefore, is to rebuild the real economy, and that starts by recognizing and reversing the mistakes that have been made, consistently, since the death of Franklin Roosevelt. It begins with our educational and training programs, which have been destroyed. The productive powers of the young generation of Americans are non-existent, particularly when compared to the level of productivity just two generations ago.
This reality underscores the sheer insanity of President Obama’s provocations against Russia and China, which will only have the effect of accelerating the onrushing collapse of the productive powers of the American people.
Obama has to be removed from office, before he, on British orders, starts a thermonuclear world war. Wall Street and London, which are already hopelessly bankrupt, must be wiped out. We need a clean slate, starting with a global cancellation of all the accumulated gambling debts. They are worthless, so just cancel them all. As former chief economist of the BIS, William White, said at the recent Davos World Economic Forum, there needs to be a global Jubilee, as has been required, repeatedly, over the last 5,000 years.
Wipe out the gambling debt, launch an FDR credit policy, to create jobs, launch training programs for the under-skilled younger generations, tap into the skills of the older generations as we rebuild—and cut out all of the insanity around preparations for war against Russia and China.
Competent Western military strategists acknowledge that Russia has gone through a genuine qualitative revolution in its war-fighting and war-avoidance capabilities. That includes new generations of military equipment and well-trained personnel. The top NATO maritime commander recently commended the Russians on their technological leap in their submarine warfare capabilities.
Only an insane, desperate British oligarchy—and their stooges like Obama—could contemplate modern war against major powers like Russia and China, who have no intention of posing a strategic threat. The gravest threat to world peace and survival is the accelerating collapse process in the trans-Atlantic region. The shutdown of NASA and the gutting of the automobile sector, with their embedded machine-tool-design capabilities, was the death knell of the once powerful American System economy of the United States.
STRATEGIC WAR DANGER
Cohen: Obama Can’t Hide from His Responsibility for World War III
Feb. 3 (EIRNS)—Last night, during his weekly appearance on the John Batchelor Show on radio, New York University’s Prof. Stephen F. Cohen placed responsibility for the growing war danger directly in President Obama’s lap. He said that Obama can’t hide from the Pentagon decision to build up U.S. military forces in Eastern Europe, announced by Secretary of Defense Ash Carter yesterday.
“This is his decision,” Cohen said. “We knew it was possible when NATO talked about it at the summit in Wales [in Sept. 2014]; now it’s happened. NATO has resolved—that means, the White House—to quadruple its military power around Russia.”
“What we now have, is a moment when the new Cold War has become much hotter, due to a decision taken in Washington,” Cohen said. “It makes the new Cold War more militarized and makes it more dangerous than the preceding Cold War, because [then] we didn’t have our military power on Russia’s borders.” Cohen went on to describe how, in the early 1990s, the U.S. declared the danger of nuclear war over when it wasn’t. Russia was out of the arms race, but the U.S. continued, particularly with its missile defense programs and withdrawal from the ABM Treaty in 2002. The U.S. claimed that this was to counter Iran, but everybody knew, Cohen said, that it was aimed at Russia. So, Russia responded by beginning to rebuild its nuclear capabilities, an effort which continues at a high priority today.
“The decision to fortify NATO borders now makes clear that Russia will rely on its very large arsenal of tactical nuclear weapons,” Cohen said. “It’s written into their official doctrine that ‘we reserve the right to use our nuclear weapons if the existence of the Russian state is threatened by overwhelming conventional forces.’ NATO may now be compiling on Russia’s borders overwhelming conventional forces.” This danger is heightened, Cohen pointed out later in the interview, by the U.S. B61-12 nuclear bomb modernization, a bomb designed to be more “usable,” a word that had been banned from the nuclear lexicon by Ronald Reagan in the 1980s but which has been brought back by Obama.
“To say this is dangerous is to understate the situation. It was all predictable yet Washington has gone ahead anyway. Once Washington implements this quadrupling of its forces, we are in a much more dangerous situation in terms of possible nuclear confrontation than we ever were during the Cold War. Obama can’t hide from this anymore. The buck stopped there. He signed off on this. It is an enormous escalation of the Cold War in the direction of hot war.”
COLLAPSING WESTERN FINANCIAL SYSTEM
‘Deutsche Bank in Free Fall’ Warns Handelsblatt
Feb. 3 (EIRNS)—The talk in Frankfurt, London and as far away as Australia, is that Deutsche Bank is headed to be the next “big one” to fail, and that may be a lot sooner than people think. Germany’s leading financial daily Handelsblatt runs the headline, “Deutsche Bank in Free Fall,” writing that the bank’s shares lost one-third of their value since the beginning of the year, and this is only the beginning of February, and announcing an annual loss of €6.8 billion for 2015. Everyone seems to know that the bank is buried under of mountain of fines, including $2.5 billion by U.S. and British authorities for its part in rigging benchmark interest rates. This figure could go to $12 billion because of other pending cases on illegal activities.
The bank’s shares, trading at €177 prior to the crisis, collapsed to €30 by the end of 2015, and on Feb. 2, they hit an all-time low of €15.54. An article in Australia’s Financial Review points out that the shares are “trading on a price to book valuation of 0.34 times, which implies the market thinks that almost 70% of its loans are impaired and some nasty news is just around the corner.”
All this has eaten into Deutsche Bank’s notoriously low capital holdings. It seems the only way it can raise capital is through issuing CoCo, or contingent convertible, bonds. The CoCos are the bail-in bonds whose payout is made only when the stock price exceeds a certain amount. More important, if the bank gets into trouble, the bonds are converted into stock; i.e., bailed in. Deutsche Bank’s CoCos are being “kicked around in the gutter” and are trading at about €85 cents, and falling. Still, the bank hopes to sell €4 billion worth, although no one is holding their breath.
Financial Review cites Paul Schulte, the Chief Executive of SGI Research, who warned that the bank is not only sitting on a bad mountain of bad assets dating from the previous crisis, but is holding “a large book of commodity-related derivatives that are under stress from the collapses in most commodity prices.” Oh really, everyone knows that Deutsche Bank has the world’s largest portfolio of derivatives.
Deutsche Bank is not alone, opines Schulte: “This has been brewing under everyone’s nose, because while people thought that the problem was periphery banks in Ireland or Spain, the actual problem is that Deutsche Bank, and the French banks with lots of toxic debt in commodities, are over-stretched; badly run; have no sense of risk management, and are organs of state capitalism.”
While Deutsche Bank shares have fallen by 30%, those of Citi are down 22%; Goldman Sachs −16%; JP Morgan −14%; Morgan Stanley −23%; Bank of America Merrill Lynch −22%; and Credit Suisse −22%.
Fed’s No. 2 Implies U.S. Financial Trouble May Stop Rate Hike
Feb. 3 (EIRNS)—New York Federal Reserve Bank chief William Dudley gave an interview to Market News International this morning—taken to be opening the possibility of a Fed reversal on raising interest rates—in which he emphasized that “financial conditions are tightening” in the U.S. economy.
Most people might have been forgiven for thinking those conditions were loosening rather than tightening. Long-term U.S. interest rates are considerably lower now, than they were before the Fed raised rates on Dec. 16. And every other trans-Atlantic central bank is pushing its rates deeper and deeper below zero.
But Dudley was referring, in fact, to a most critical measure—bank credit quality, the financial institutions have in each others bonds. That is dropping, making interbank lending more difficult, because it means banks’ ”credit ratings” within the financial markets are deteriorating. This deterioration is most extreme with Deutsche Bank, as reported above.
Consequently, banks’ lending conditions are being tightened, except in commercial real estate (so far).
The Federal Reserve’s regular monthly loan survey for January 2016 shows demand for credit shrinking as the economy falls. As CNBC reported it: “Demand for commercial and industrial loans has plunged in 2016, with declines happening across business sizes. Large- and medium-sized businesses had an 11.1% decline, while demand from small businesses fell 12.7%.”
CNBC quotes one investment firm’s chief economist, “ ‘Furthermore, banks reported that the weakness in demand for loans from businesses was primarily because the latter were scaling back their investment plans…. With the mining, manufacturing and agriculture sectors all hurting, we hadn’t expected much from business investment this year, but the drop off in loan demand is worse than we would have expected.’ ”
Expect a Wave of Sovereign Debt Defaults in the Caribbean, Moody’s Forecasts
Feb. 3 (EIRNS)—In a Feb. 2 statement, Moody’s Investors Service warned that because the Caribbean region has become “one of the most indebted regions in the world,” it is at risk for sovereign debt defaults, and probably soon. Puerto Rico, which just submitted a proposal to bondholders to restructure its $72 billion debt, with a 45% “haircut,” could just be the “tip of the iceberg” in a regionwide crisis, said Elena Duggar, Moody’s Senior Vice President.
Jamaica is most vulnerable, with a debt-to-GDP ratio of about 130%, Moody’s asserts, but several other regional governments are in the same boat, with debt loads ranging from 70% to 99% of GDP. Antigua and Barbuda, and Granada, are in precarious condition, each with debt equaling 107% of GDP, followed by Barbados with 103%. Several of these small nations have been subjected to brutal IMF austerity regimes.
Duggar argued that the crisis is due to the dependence of most of the region’s economies on “cyclical industries that are susceptible to external shocks.” Add in the frequency of natural disasters, she told EFE news service, and the situation becomes very challenging, because it means these economies “have not succeeded in achieving fiscal adjustment”—austerity—or reducing their debt-to-GDP ratios “without a debt restructuring.”
With very low economic growth, Duggar predicted, “it’s foreseeable that in the short and medium term, there will be more sovereign debt defaults in the region.”
U.S. POLITICAL AND ECONOMIC
Hispanic Legislators Insert Reality into Debate on Puerto Rico
Feb. 3 (EIRNS)—When former Washington, D.C., Mayor Anthony Williams proposed during a Feb. 2 hearing of the House Subcommittee on Indian, Insular and Alaska Native Affairs, that any restructuring of Puerto Rico’s $72 billion debt could only come afternecessary austerity reforms had been implemented, supervised by an independent financial control board, he provoked a sharp response from Hispanic legislators present in the room.
Rep. Nidia Velasquez (D-NY) emphasized that Puerto Rico must be able to restructure its debt now because of the dire humanitarian crisis, “which is unfolding!” She began by quoting a statement from the 1970s by the Emergency Financial Control Board in New York City (“Big MAC”) which imposed brutal austerity on the city. “Big MAC” boasted that it had reduced the city’s deficit by “shedding more than 60,000 jobs.” Look what Puerto Rico has done without a control board, Representative Velasquez said, making clear that imposing an outside financial authority to dictate policy could have disastrous consequences. She documented the array of harsh austerity measures already imposed on the island over the past two years, and stressed, Puerto Rico needs debt relief, not more austerity.
Next, asserting that Puerto Rico has been a U.S. colony since the military intervention of 1898, Rep. Luis Gutierrez (D-IL) added that the island “belongs to, but is not part of, the U.S.A.” The Congress has “full plenary powers” over Puerto Rico, he said, and challenged the statement by Thomas Mayer, a lawyer for the predatory Oppenheimer Funds, who claimed that the group’s clients were “only senior citizens.” That’s hogwash, Gutierrez said.
“You have a very diversified portfolio. Did you inform people of the precarious state of [Puerto Rican] bonds when you sold them? We are not responsible for what you sold.” Debt restructuring must be a priority for Puerto Rico, Gutierrez underscored. Addressing the subcommittee chairman, he asked, “Can you provide some incentive to provide jobs? Economic activity, instead of expanding welfare? Congress has to take its heel off the people of Puerto Rico.”
THE NEW GLOBAL ECONOMIC ORDER
German-Chinese Technology Cooperation
Feb. 3 (EIRNS)—Kicked off after the German-Chinese consultations last November, the Fraunhofer Institute for Production Facilities and Construction Technology in Berlin has worked with ZhongDe Metal Group in Jieyang, Guangdong Province, to build up a special Institute for Technology Transfer in that region of China, to promote cooperation in the common development of new technologies. A focus of the project is to involve German Mittelstand firms in the high-tech sector in joint R&D projects, going beyond simple trade relations between Germany and China. Jieyang is a seaport on the 21st Century Maritime Silk Road and is designated to become a leading hub for Mittelstand relations between Germany and China.
Indonesian Economy Is Looking to the Future with Chinese Assistance in Infrastructure
Feb. 3 (EIRNS)—Indonesia is gearing up to boost its economy with the help of Chinese support for infrastructure development, says Lupita Wijaya in an op-ed in the Jakarta Post today. One of the most important of these infrastructure projects is the lucrative Jakarta-Bandung high-speed railway. On Oct. 16 2015, Indonesia’s National Development Planning accepted a $5.5 billion bid from a Chinese consortium to build a new 140km long, 250kph railway between Jakarta and Bandung; construction was due to begin by the end of 2015 and conclude in 2019. However, the construction of the railway has not begun since Indonesia’s Transportation Ministry has not issued the necessary business and construction permits, Nikkei Asian Reviewreported. The Ministry said the consortium needs to adjust details in its design and development plans before the final two permits can be issued.
China is also building a number of coal-fired power plants in Indonesia. Most of China’s power projects in Indonesia are handled by its state-owned power generation company, China Huadian Corp.,Jakarta Post noted. This corporation started the construction of a coal-fired power-plant in West Java in 2004. The next year, Huadian developed an in situ coal-fired station in South Sumatra. There were six projects funded by Huadian alone: four of them still under construction, one completed, and another project in Balikpapan in the contract bidding stage.
Moreover, Indonesian President Joko Widodo is in sync with the Chinese President Xi Jinping’s vision of building a Maritime Silk Road. President Widodo’s vision is to make Indonesia the “world’s maritime fulcrum.”
SCIENCE AND INFRASTRUCTURE
China Plans 2016 Expansion in Space Projects, and Broadening Its Science Research Capabilities
Feb. 3 (EIRNS)—China’s Aerospace Science and Technology Corporation (CASC) has confirmed that China is planning its next manned launch, the Shenzhou-11 mission for later this year, after a three-year gap. This year will also see the launch of China’s second small orbiting module, Tiangong-2. The Tiangong series is designed to develop and test the technology that will be needed for the full-sized manned station in the next decade. Shenzhou-11 will dock with Tiangong-2, which will have improved life support, for longer crew stays, and will demonstrate orbital refueling of spacecraft, among other improvements. China’s first 20-ton full-sized space station module is to be orbited by 2020.
There will be test launches of the next in the series of China’s rockets this year—the heavy-lift Long March 5, which is needed to launch the station modules and other heavy payloads, and the medium-lift Long March 7, which will launch the future unmanned cargo vehicle, Tianzhou.
China is, at the same time, studying the scientific laboratories that are doing leading-edge research around the world to find the best approaches for its expansion.
China plans to build new national laboratories, according to Bai Chunli, President of the Chinese Academy of Sciences, Xinhua reports today. Speaking at the International Seminar on National Laboratory Management yesterday, Bai said that innovation-driven development is the basis of China’s scientific and technological reform strategy. The seminar was attended by 13 laboratory directors from China, and seven from other countries: the U.S., Germany, the U.K., Sweden, Italy, Japan, and Singapore.
One goal of China’s plan is to build laboratories that are broad-based, rather than being dedicated to a single discipline. The Chinese Academy has more than 65,000 researchers.
OTHER
French TV Documentary Exposes Ukrainian Nazi Militias
PARIS, Feb. 3 (EIRNS)—On Feb. 1, French cable TV Canal+ broadcast a 50-minute exposé of the fascists behind the Maidan coup in Ukraine, by respected journalist Paul Moreira, “Ukraine, the Masks of the Revolution,” on a program called “Spécial Investigation.”
It is a well-done investigation on the neo-fascist movements which made the Maidan revolution possible, and which are still operating in security functions, separate from the police or military forces of the country, and are “tolerated” by the Ukrainian government and by its foreign protectors. Moreira exposes, one-by-one, the Right Sector, the Azov Battalion, and Svoboda, as extreme-right violent movements. He shows how, just months after Maidan, the Right Sector took over the role of border patrol between Ukraine and Crimea, explicitly to provoke a famine in Crimea, by blockading all trade from coming in.
Leading American figures are shown describing the U.S. role in the Maidan putsch. These include: former Treasury Secretary Larry Summers, retired Gen. David Petraeus, and Obama’s Assistant Secretary of State Victoria Nuland, a former advisor to war-monger Dick Cheney.
The documentary concludes that the Maidan revolution wouldn’t have been possible without these neo-fascist groups, and shows horrifying, new filmed material of their bestiality. The Ukrainian Embassy in Paris tried unsuccessfully to cancel the program, and Sputnik reports it will be rebroadcast on Feb. 8. An unofficial post of the video is available on YouTube.
