Volume 2, Number 256

EIR Daily Alert Service

P.O. Box 17390, Washington, DC 20041-0390


With Derivatives Blowout Coming, the West Must Join Putin’s World

Aug. 16 (EIRNS)—The Bank for International Settlements has prepared a paper for the September 4-5 G20 heads of state summit in China, warning that a blowout of the derivatives market could happen at any moment, and the clearinghouse system is totally unprepared to handle such a shock.  Remember that Deutsche Bank has the biggest derivatives exposure of any bank in the world, and it has counter-party contracts with almost every TBTF bank in the United States, Europe and Japan—and Deutsche Bank has been correctly described as a “dead bank walking.” Best estimates are that the global derivatives trade is still well over $1 quadrillion, even after losses this year that have already piled up.

At this late moment, there is only one option left for the thoroughly bankrupt trans-Atlantic system:  Reinstate Glass-Steagall, cancel all of the derivatives contracts, go back to a Bretton Woods-type fixed-exchange-rate system, and launch a massive capital investment in projects that boost real productivity through Hamiltonian national banking methods, including a crash effort to achieve fusion power.  This is the heart of Lyndon LaRouche’s Four Cardinal Laws.

What that translates into, in real-world terms, is that the West must abandon the dead British System and finally join in the new Eurasia-centered system that is rapidly coming into being, under the overall political leadership of Russian President Vladimir Putin and through the realization of the Chinese One Belt, One Road program.  On Monday, the first refrigerated freight train left the Chinese port of Dalian, bound for Moscow, a journey of 8,600 kilometers, that will be completed in ten days time.  This is the latest leg of the OBOR, and it highlights the Russia-China collaboration.

In discussions with European colleagues on Aug. 15, Lyndon LaRouche declared that we are on the edge of a great victory for mankind.  The nations of Eurasia, he elaborated, are establishing a grouping, centered on leading Asia-Pacific nations that are growing rapidly, in stark contrast to other areas of the world which are sick and are dying economically.  South America has been taken over by rapists; France is a failure; Spain is a catastrophe.  The focus must be on those leading nations that have taken the initiative in this development process. Putin, LaRouche continued, has emerged as a driving force in this Eurasian alliance.  There are forces moving inside the United States, particularly in Manhattan, who can join in the Eurasian-led effort to crush the British System, which has been the enemy of mankind for the past centuries. Germany, if it to survive, must join this Eurasian development, which means dumping all of the policies associated with Merkel and Schäuble.

Russian President Putin, over the past several years, has played a pivotal role in organizing a force of nations, largely centered in Eurasia, who are taking on the characteristics of a military force that can change everything, and can win the war for peace.

In the coming weeks, that emerging alliance will be at the center of a series of historic meetings:  The Eastern Economic Forum in Vladivostok, Russia; the G20 heads of state meeting in China; the China-ASEAN heads of state meeting in Laos; the United Nations General Assembly session in New York City; and the BRICS heads of state meeting in India.  This density of activity, between now and the middle of October, provides a unique opportunity for this new emerging global leadership to set the course of history, and bring an end to the bankrupt British System.


Stimson Center Calls for Withdrawal of Nuclear Weapons from Europe, Turkey

Aug. 16 (EIRNS)—The Stimson Center issued a report yesterday calling for the removal of U.S. tactical nuclear weapons from Europe, and curtailing the B61-12 modernization program back to providing only a sufficient number of bombs for U.S. strategic aircraft. “We recommend that the U.S. forgo the procurement of B61s intended for delivery by fighter aircraft, and remove the weapons from Europe immediately,” the authors wrote. “This would save approximately $3.7 billion from FY 2017-2021, and just over $6 billion during the lifetime of the program, resources that could be used more productively to strengthen conventional forces.”

The report particularly highlights the risk of keeping nuclear bombs at the Incirlik Air Base in Turkey. “During the failed coup in Turkey in July, power to the base was cut off and the Turkish government prohibited U.S. aircraft from flying in or out. Eventually, the base commander was arrested and implicated in the coup planning,” the authors wrote. “Whether the U.S. could have maintained control of the weapons in the event of a protracted civil conflict in Turkey is an unanswerable question.”

Russians Back in the Mediterranean

Aug. 16 (EIRNS)—The Russian government has recently submitted a document to the Duma for ratification which would make the Russian air base in Latakia permanent. What this means, Alexander Mercouris wrote yesterday in The Duran, is that, for the first time in its modern history, Russia will have a proper, permanent base in the Mediterranean; that is, beyond the conclusion of the current war. For Syria, this means two things: It not only guarantees Russia’s support for the present Syrian government, but also provides Syria with a measure of protection it has never had before from Israeli air incursions, which are apparently a lot less frequent now than they were before September 2015, when Russian planes first began arriving in Syria.

Since World War II, the Mediterranean has largely been an “American lake,” Mercouris writes, but now the Russian base “does have the potential to change drastically political and military perceptions in its eastern half.  There is now the prospect of Russian fighters flying over the eastern Mediterranean in regular patrols, monitoring U.S. warships and aircraft in the area, and making Russia’s presence felt in the area as it has never been felt before.” This, of course, depends on the outcome of the present war. “By establishing a permanent base there Russia has just raised the stakes, a fact that undoubtedly explains the intensity of the conflict.”

In addition, the Russians established a new arrangement with Iran, under which Russia has launched a new series of airstrikes in eastern Syria out of a base in Iran. The strike aircraft, Tu-22M3 Backfire bombers and SU-34s, took off from Iran’s Hamadan air base. This is the first time Russian planes have used an Iranian airdrome for the operation in Syria, TASS noted today. “The airstrike destroyed five large depots with armament, ammunition, fuel, militants’ training camps in the areas of the communities of Serakab, Al-Bab, Aleppo and Deir ez-Zor, and also a large number of militants. The arms and ammunition depots, the training camps, and the command posts destroyed by the airstrike were used to provide supplies for the militants operating in the area of Aleppo,” the Defense Ministry said.

Ban Ki-Moon Denounces Saudi Crimes in Yemen: Another Médecins Sans Frontières Hospital Bombed

Aug. 16 (EIRNS)—Yesterday the Saudis followed up their bombing of a school and residential area in Yemen over Aug. 13-14 weekend, with the bombing of a Médecins Sans Frontières (MSF, Doctors Without Border) hospital in Hajjah province. Local officials say 15 people were killed in the strike (MSF says 14); 20 others were wounded, and the hospital’s emergency room was destroyed. A hospital official said that the nearest Houthi militia activity was 35 miles away. “Today’s airstrike appears to be the latest in a string of unlawful attacks targeting hospitals, highlighting an alarming pattern of disregard for civilian life,” said Magdalena Mughrabi, an Amnesty International official. Al Masdar News agency reported this morning that the Saudis followed the bombing up by smothering the capital Sana’a and the surrounding areas with even more airstrikes.

United Nations Secretary General Ban Ki-Moon denounced the actions by the Saudi-British-American coalition in strong terms. A press statement from his UN office read: “Hospitals and medical personnel are explicitly protected under international humanitarian law, and any attack directed against them, or against any civilian persons or infrastructure, is a serious violation of international humanitarian law.”

UNICEF’s Yemen representative Julien Harneis said yesterday that the number of children killed in Saudi airstrikes in Yemen has risen sharply in the recent period. He refuted the Saudi claim that the earlier airstrike on the weekend, the one that hit a school and killed 19 people, mostly children, was targeted at Houthi recruitment for their militias. Aid agencies say well over 2,000 children have been killed or wounded since the start of the war.

Harneis said the humanitarian situation was deteriorating as violence escalated, and the country became increasingly cut off. “You have got this real pressure cooker with a collapsing economy and a collapsing health system,” he said. He said that the destruction of the health care system would mean an additional 10,000 children under five would die this year from preventable causes such as diarrhea and measles: “This is one example of the second- and third-order effects of the Saudi campaign that I keep talking about.”


Report Warns Derivatives Clearinghouse Failures Could Bring Down International Financial System

Aug. 16 (EIRNS)—The leading institutions of the bankrupt trans-Atlantic financial system issued a report today warning that there are no mechanisms now in place which can prevent a blow-out in the $600 trillion-plus global financial derivatives bubble, if any major party defaults on derivatives.

Lyndon LaRouche has warned for 30 years that derivatives, which are inherently fictitious, must simply be written off, a measure which can be effectively carried out under a restored Glass-Steagall regime. But Wall Street and the City of London insist that the danger of an uncontrollable chain of derivatives defaults such as that which blew out the global system in 2007-2008, has been resolved by centralizing derivatives trading in a few “clearinghouses,” which would ensure derivative trades would be covered, in defaults.

The Bank for International Settlements’ Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions (IOSCO)—representing between them the world’s central banks and securities regulators—prepared the report, which admits that the CCPs (the clearinghouses), which are supposed to be the risk managers and guarantors for derivatives contracts, have no means to do so, and that the CCPs themselves have become a threat to the system.

The Wall Street Journal summarized the content of the BIS/IOSCO report: “Clearinghouses still have shortcomings in their risk-management and recovery practices, which could have marketwide ramifications in the case of default.” Business Insider admitted that the results of that survey “are slightly terrifying,” because if the clearinghouses don’t work, derivatives are “just unexploded nuclear bombs nestling deep in the financial system.”

The Financial Stability Board (FSB), headed by the Bank of England’s Mark Carney, today issued a note “calling for public comment from the industry to help develop resolution strategies and plans for winding down CCPs in a global financial shock. Respondents have until Oct. 17 to reply to questions set out by the FSB,” the Wall Street Journal reported.

The Journal coverage implies that the report was prepared on the insistence of China, the current head of the G20, which has placed the safety of central clearinghouses “high on the agenda” of the Sept. 4-5 G20 summit. When China took over the G20 in December 2015, it immediately revived the G20 International Financial Architecture Committee, forcing discussion of the global system back on the agenda.


China Pushing Growth Agenda for G20 Summit

Aug. 16 (EIRNS)—Three top Chinese officials told reporters in Beijing today that China would propose a joint initiative to revive global economic growth at the Sept. 4-5 Summit of the G20 countries in Hangzhou, where President Xi Jinping will deliver the keynote speech. The officials said that details of the proposal are still being worked out, but it “will include reforms aimed at strengthening the global financial system and promoting technological innovation,” AP reported.

According to Xinhua, Vice-Foreign Minister Li Baodong told reporters that “China will put forward a blueprint for innovation-driven growth … to find new drivers of global growth.” Li reiterated China’s hope that the G20 can move out of short-term responses, and address “a governance mechanism with long-lasting effect,” China Daily reports.

Vice-Finance Minister Zhu Guangyao specified that “the summit will further focus on dealing with pressing risks facing the global economy and financial market,” while Yi Gang, Vice-Governor of the People’s Bank of China, told reporters that “China has called on G20 members to refrain from competitive devaluations and facilitated discussions on the foreign exchange market within the G20 framework, the first time in G20 history, to build confidence in the market,” and that it is expected that “on financial reform, the summit will produce outcomes on establishing an open and prudent financial system, setting up a macroprudential policy framework and developing inclusive finance.”

Zhu noted that if people cannot feel the benefits of globalization, and if globalization “cannot truly improve people’s lives,” they will not support it.

China has made sure the Western would-be “Gods of Olympus” will find themselves facing an expanded group of developing sector nations at this summit. “The summit will have the best representation of developing countries in G20 history. China has invited a record number of developing countries, including Chad, Chair of the African Union; Laos, Chair of the Association of Southeast Asian Nations (ASEAN); Senegal, Chair of the New Partnership for Africa’s Development (NEPAD); Egypt; and Kazakhstan,” Xinhua emphasized yesterday.

Former Mexican Ambassador Jorge Eduardo Navarrete reflected the enthusiasm felt by many around the world that China is this year’s host, when he told Xinhua on Aug. 14: “It is significant that a country committed to economic growth policies, in contrast with those favoring stabilization policies, is presiding over the G20…. The objective should be growth, employment and social progress, not stability and stagnation…. In 2016, we need a country like China … to push in this direction; to lead the group in the adoption of efficient policies that will ensure economic growth, job creation, and social development.”

Lavrov Reports On Upcoming Summit, BRICS Has a Political Role To Play

Aug. 16 (EIRNS)—Russian Foreign Minister Sergey Lavrov told TASS that the Oct. 15-16 BRICS heads of state summit to be held in Goa, India, will elevate the alliance from a largely economic partnership to a political alliance. “Considering that BRICS represents nations from all developing regions of the world, this is a highly important format to align approaches towards key international problems within its framework,” Lavrov reported. The proposed broadening was initiated by other BRICS members, not by Russia, he said. Although no new members will be added at the October summit, Lavrov encouraged “opinion allies” to cooperate with the five-member bloc, which is comprised of Brazil, Russia, India, China and South Africa.

China, ASEAN Reaffirm They Will Solve Disputes Via Negotiation

Aug. 16 (EIRNS)—Senior officials of China and ASEAN met in Manzhouli in northern China today in preparation for the ASEAN Summit in Laos next month. Further advancing the breakthrough at the ASEAN Foreign Ministers’ meeting in Laos in July, where the ASEAN communiqué made no mention of the fraudulent Hague Arbitration Court ruling, but called for disputes in the South China Sea to be dealt with through diplomatic relations between the countries directly involved (i.e., not outside forces), the officials today released a draft to be approved at the Summit which, according to Xinhua: “agreed to continue to implement the Declaration Of Conduct (DOC) and reaffirmed plans to solve disputes via negotiation; manage differences with a regional framework of regulations; deepen maritime cooperation, and move forward negotiations on the Code of Conduct in the South China Sea to safeguard the peace and stability of the region.”

The meeting also agreed on the importance of the China-ASEAN senior diplomats’ hotline to address maritime emergencies, and a joint statement on the application of rules about accidental encounters between China and the ASEAN in the South China Sea.

Putin Reiterates Warming Ties with ‘Friend Turkey’

Aug. 16 (EIRNS)—In a meeting with visiting Kazakhstan President Nursultan Nazarbayev in Sochi, Russian President Vladimir Putin reiterated Russia’s commitment to improve relations with Turkey. “We are making a sincere effort to re-establish our relations in all dimensions with Turkey—the one who is our friend, and [with whom] we have been establishing cooperation for many years,” Putin said. He added that Turkish President Recep Tayyip Erdogan’s Aug. 9 visit to Russia demonstrated the desire of both countries to work to improve relations comprehensively.

Putin also thanked Nazarbayev for his efforts in mending Turkey-Russia relations; Nazarbayev, in turn, expressed his appreciation that Turkey-Russia relations are reviving.

Turkish Prime Minister Binali Yildirim, speaking to the Turkish daily Karar, suggested a three-stage plan for resolving the Syrian war in cooperation with Russia. In the first stage, “It will be a solution that will absolutely preserve Syria’s territorial integrity,” Yildirim said in the interview published Aug. 15. Apparently it would not allow for autonomous states such as one controlled by the Syrian Kurdish Democratic Union Party (PYD) and its military wing, the People’s Protection Unit (YPG), which Ankara considers a wing of the Turkish Kurdistan Workers Party (PKK), which Ankara is fighting inside Turkey. “Therefore, a state structure like the PYD in this country [Syria] will be out of the question,” said Yildirim. For similar reasons, Turkey is unhappy that the United States is now allied with the Syrian Kurdish PYD/YPG in fighting Islamic State terrorists.

The second stage, Yildirim said, would be to establish a state without any sectarian, ethnic or regional formations which have supremacy over others:  “Namely, a structure will be formed that will eliminate the main defect of the current bloody problem in Syria,” he said. “As there will be no sectarian structure, this also means that [Syrian President Bashar] al-Assad will not be there in the long-run.”

This wording is interesting, since until now Turkey has demanded that Assad be removed as part of an agreement. Now the demand is that Assad, “will not be there in the long-run.”

The last stage is a return of the refugees. “When a solution is put in place, Syrians who had to flee and seek refuge in regional countries, including Turkey, will return to their country within the scope of a plan,” said Yildirim.

U.S. support for the PYD and the YPG, is one of the key points of tension between the Turkey and the U.S. The U.S. and allied victory in Manbij, which defeated and removed the Islamic State from that town, was accomplished with the ground forces of the Syrian Kurdish YPG. The operation was planned since May—well before the coup attempt in Turkey. The U.S. promised Turkey not to allow the YPG to operate east of the Euphrates. Now Turkish Foreign Minister Mevlut Cavusoglu is demanding the U.S. keep its promise: “The United States, and President  Obama personally, made a promise… The U.S. needs to keep its promise. This is our expectation,” Cavusoglu said, reported Hurriyet.


Florida Vulnerable to Zika Epidemic on a Par with Puerto Rico, Virologist Warns

Aug. 16 (EIRNS)—Florida-based virologist Tim Tellinghuisen of the Scripps Research Institute, is warning that a Zika epidemic of the magnitude now hitting Puerto Rico is not at all out of the question for Florida, the Palm Beach Post reported Aug. 13.

About 1,000 people a week are being infected with Zika in Puerto Rico, and U.S. Surgeon General Vivek Murthy said that by year’s end, he expects one in four Puerto Ricans will have been infected. Currently, there are 10,690 reported cases on the island, but Ana Rius, head of Puerto Rico’s Health Department, estimates that figure as low. Over the next five months, she told a radio interviewer, at least 200,000 people could be infected, Primera Hora reported today.

Something similar “could very much happen here” in Florida, Tillinghuisen says. There are currently 470 official Zika cases in Florida, 30 of which are confirmed to have been locally transmitted in the Miami-Dade neighborhood of Wynwood. But, according to Sen. Bill Nelson (D-FL), the Centers for Disease Control and Prevention (CDC) believes that for every confirmed case, there are four or five that go unreported. That would put the state total well over 2,000.

Despite the insistence by state and Federal officials that the situation in Wynwood is contained, there is now at least one confirmed Zika case identified outside of that one-square-mile area, in Palm Beach County, and another case confirmed in El Paso, Texas in an individual who reportedly became infected while visiting Wynwood. The Texas Department of State Health Services notes that this is the first case of the virus spread domestically between states, Breitbart News reported.

Obama Desperate To Pass TPP During Lame-Duck Congress

Aug. 16 (EIRNS)—President Barack Obama is desperate to pass his signature Trans-Pacific Partnership (TPP) before leaving office in January, and, according to Politico, he is dispatching much of his cabinet around the United States to drum up support for the free trade bill that the overwhelming majority of Congressional Democrats staunchly oppose.  According to Politico, Obama cabinet officers will be appearing at public events at 30 cities around the country in the coming weeks, focusing on districts where the 28 lonely House Democrats who back TPP are running for re-election.  Both Donald Trump and Hillary Clinton have denounced the free trade deal; the AFL-CIO is heavily mobilized against it, and Progressive Democrats, including Elizabeth Warren have an email list of 5 million names, who will be receiving a steady stream of anti-TPP mailings.  Obama is planning to attempt to ram through a vote on TPP in the lame-duck session of Congress, following the November elections.

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