EIR Daily Alert Service


Lyndon LaRouche: Economic Reality Has To Be Installed

April 27 (EIRNS)—The United States and the trans-Atlantic financial system are right now plunging towards a financial blowout bigger than that of 2007-08.  Today’s corporate debt bubble, at $14 trillion, is bigger than the $11 trillion mortgage bubble of 2007-08, and the 20% level of defaults projected for these debts today, is far greater than that actually experienced in mortgages a decade ago.  We are already into “The Big Short,” where Wall Street is lending money to suckers to help them buy up its securitized worthless debts—and then betting against its own customers.

The hysteria exhibited in Wall Street’s daily public outbursts against Glass-Steagall, reflects the banks’ awareness of the coming blowout.

Nothing like the present situation has ever been experienced anywhere before—nothing in the present world situation bears any comparison whatever to that of 2007-08, for example.

NASA Mission Controller Gene Kranz, who went on to be the key Mission Controller for Apollo 13, described in his 2009 book Failure Is Not an Option, how his boss, the legendary Mission Controller Chris Kraft, had walked up to his desk just two weeks after Kranz had first joined NASA at Langley in 1960. Kraft said, “Everyone else is tied up.  You’re all I’ve got. We’re coming up on our first Redstone launch. I’d like you to go down to the Cape, get with the test conductors and write a countdown.  Then write some mission rules. When you finish give me a call and we’ll come down and start training.”

Kranz went on to say that “the shock on my face must have registered,” as Kraft continued, “ ‘I’ll tell Paul Johnson to meet you at Mercury Control and give you a hand.’

“My days as an observer were over, my chance to get up to speed ended…. From my work, most recently at Holloman Air Force Base in New Mexico, I knew about flying, systems, procedures and checklists.  I could figure out what a countdown should contain. Mission rules were different.  There had never before been such a mission in U.S. history—I would just have to give it a shot. Since there were no books written on the actual methodology of space flight, we had to write them as we went along.”

The situation is the same today. There is no instruction manual. What is known is that the crash must be preempted by an in-depth mobilization of the population—like a mobilization for war, but a mobilization for the economy in depth. Consider Franklin Roosevelt’s “100 Days” program. EIR Founding Editor Lyndon LaRouche spelled out what this means in his “Four New Laws” of June 2014. The revolution welling up from his “Basement” scientific research team is reverberating this, in conjunction with his “Manhattan Project.”  It was seen in Basement team leader Benjamin Deniston’s 15-minute presentation to the Manhattan Schiller Conference on April 13, and in Basement team leader Megan Beets’ April 15 Manhattan class on “Fusion: Uplifting the Human Species.”  It is found throughout the Manhattan Project’s music work led by the Schiller Institute’s music director John Sigerson.

“What you can test for, is what you’re doing in the Basement there, and that works,” LaRouche said today.  “It’s functional. What we have done in the Manhattan area, has been a revolution of achievement. So, if you want to sink, you can sink, by being silly. If you want not to sink, then what you have to do is you have to behave yourself.”

LaRouche noted that the United States and other nations have an intrinsic power of economy shown in super-high growth-rates as impulses during certain periods. But then “the thieves came and shut it down, and spread the myth that this is the way the system works. But that’s a myth! It doesn’t work that way.” What is being done in the Manhattan Project, the creation of a force for economic creativity, must be continued. There has to be the generation of a process of development. Economic reality has to be installed. If that is done, there won’t be a problem, because gates will open—sooner or later. “The problem in economies occurs when economies are being destroyed. If you look at it the way I look at it,” LaRouche said, “we have the gates of prosperity looking at us.  But we’ve got to maintain them—that’s the difference.”


Harbingers Appearing of a Bigger U.S. Debt Crisis

April 27 (EIRNS)—Outstanding debt of U.S. non-financial corporations is now just under $14 trillion, having zoomed up from $8 trillion less than a decade ago, and that bubble is now showing first signs of a huge breakdown on the 2017 horizon, which will take the economy down again. A crash centered in the corporate debt bubble could be worse than the blowout of the $11 trillion mortgage bubble in 2007-08, the blood and tears from which are still running. The choice was posed to elected officials and the public 20 years ago, whether to remove Franklin Roosevelt’s last bulwark against financial panics, the Glass-Steagall Act. After the terrible consequences of that mistake came 10 years ago, the choice was posed again in 2009-10: Restore Glass-Steagall, or accept Barack Obama’s Wall Street-approved substitute, the Dodd-Frank Act. Again, the wrong choice was made. Now there is one more chance, requiring not only Glass-Steagall but Lyndon LaRouche’s Four Laws to save the nation.

The telltale signs this week come from three of the biggest banks. Goldman Sachs’s very poor first-quarter results were revealed to be from defaulting corporate loans. Goldman makes corporate and “industrial loans” from its Salt Lake City division. The Salt Lake Tribune reported April 24: “Goldman Sachs’s fixed-income revenue was so unexpectedly weak in the first quarter that last week’s earnings report left the stock tumbling and Wall Street buzzing over what happened. [Fixed income revenue was $1.6 billion, Goldman’s worst quarter in a decade—ed.] Traders got burned by a constellation of souring debts…. The bank incurred tens of millions of dollars in losses on companies including Peabody Energy and Energy Future Holdings Corp. Borrowings from retailers including Rue 21 Inc., Gymboree and Claire’s Stores also soured, the people said.”

A Bloomberg headline this morning read, “Wells Fargo, JPMorgan Chase Wary of Auto Loans, Pack Them in Bonds.” The story is straight out of “The Big Short” movie, although the details are complicated. These two banks are cutting their auto loans—their subprime loans “dramatically,” as by 35-50%—and getting auto loans they’ve made off their books, by packaging them into securities and selling them off as asset-backed securities/with derivatives to “money-market managers.” And Morgan is lending to the managers to enable them to buy more of these! “But giving money managers the chance to invest in debt that banks are increasingly reluctant to touch themselves can at least create the perception that they are foisting trash onto customers,” one investment advisor is quoted. Thus went the toxic mortgage bonds, CDS (credit default swaps) and CLOs (collaterized loan obligations) out from the Wall Street banks to greater fools worldwide in 2007-08, as the crash of those toxic assets loomed.

Edmunds just substantially lowered its estimate of U.S. auto sales in 2017 because auto debt, interest rates on it, and dealer incentives are far too high to continue.

In another harbinger, Bloomberg reported today that, “total loans at the 15 largest U.S. regional banks declined by about $10 billion to $1.73 trillion in the first quarter, compared with the previous three-month period, the first such drop in five years, according to data compiled by Bloomberg…. A slump in commercial and industrial lending sapped growth.” One example from American Banker April 25, involving Fifth Third Bank, a large Cincinnati-based regional bank, was reported as follows: “The withdrawal from auto lending was said to be a conscious choice to reduce lower-return auto originations to improve returns on shareholders equity, while the decline in C&I [commercial and industrial] lending was described as a deliberate exit….”

Commercial and industrial lending has not grown for six months, and total bank credit growth has suddenly and sharply dropped—signs this gigantic, own-stock-buying, merging and acquiring, financial engineering, Wall Street-pumping bubble of corporate debt has now “rolled over” its peak and is headed for big trouble.

Who Has Most ‘Level 3’ Derivatives in Europe?

April 27 (EIRNS)—The Italian Banking Association (ABI) published figures for Level 3 assets in the European Union, which show that the highest proportion of capital belongs to German banks, with 35.5%. Next come British banks, with 25.4%, and French banks with 20.5%. Italian banks, which are being vilified by the EU because of their losses on commercial loans, have “only” 15%.

Level 3 assets are derivatives that have no market price; they are much more illiquid than non-performing loans (which have physical assets as collateral). They are assets collateralized with debt, so toxic that nobody would purchase them. The European Central Bank and the European Banking Authority (EBA), however, have allowed Too Big To Fail banks to price Level 3 derivatives according to the banks’ own models, and turn losses into assets.

A resolution citing the ABI report and calling for changing the EBA stress test methodology has been filed at the Finance Committee of the Italian Chamber of Deputies by Deputy Sebastiano Barbanti and others from the Democratic Party, calling on the government to push for a change in European stress test methodologies, “giving priority on assessing Level 3 assets” and “organizing an ad hoc stress test.”


U.S. Deploys THAAD Anti-Missile System Two Weeks before South Korean Election

April 27 (EIRNS)—With the South Korea election less than two weeks away, on May 9th, and while the likely winner, Moon Jae-in, is openly denouncing the deployment, the U.S. nonetheless deployed an operable THAAD (Terminal High Altitude Area Defense) system today, including the X-band radar which peers deeply into Chinese and Russian territory. It is the X-band radar which both China and Russia have warned creates a severe shift in the strategic balance, which they will be forced to counter. China is already imposing sanctions, mostly unofficial, on South Korea due to the plan to deploy the system.

Candidate Moon, through his spokesman, on April 26 called the deployment “strongly regrettable” and “very inappropriate” as it denies the next government of the right to make the policy decision on the controversial missile defense system.

The special April 26 briefing at the White House for the members of the Senate produced no new policy, confirming that the Trump administration will use more pressure tactics on North Korea while working with China to reach a peaceful solution. The readout from the Pentagon calls for North Korea to return to dialogue, although it was the U.S. under Barack Obama that refused to talk to the North, and the Trump Administration has made no public offer to engage in talks. It is simply not clear if there are private discussions with China and others to renew the Six-Party Talks or any other dialogue, while there is no question that the U.S. is deploying missiles and warships into the area, clearly threatening an attack.

Pacific Command chief Adm. Harry Harris, speaking before the House yesterday, said that the U.S. wants to “bring Kim Jong-un to his senses, not to his knees.”

A North Korean official, Son Choi-won, told CNN after the White House talks that “As long as America continues its hostile acts of aggression, we will never stop nuclear and missile tests.”

The City of London’s Financial Times is reporting that Trump sent an envoy to tell former President Jimmy Carter to stay out of the issue. In 1994, when Clinton was close to launching an attack on North Korea, Carter went to Pyongyang and worked out a deal with Kim Il-Song which became the Agreed Framework, starting a peace process which was only sabotaged when Bush and Cheney came to power. Carter had requested and received a briefing on Trump’s Korea policy from the Trump administration. It is not clear whether the FT report is British subterfuge or real.

Only talks which include the North can end this buildup to war. China’s Ambassador to the U.S. Cui Tiankai again called for talks, and for both the U.S. and Pyongyang to refrain from further provocations.


Tension, Attacks Continue over Glass-Steagall

April 27 (EIRNS)—Financial and “investor” media attacks on restoring Glass-Steagall continue; following the Wall Street Journal and Seeking Alpha attacks April 26, and the dozens of major debunking attempts over the past three weeks, even the South China Morning Post in Hong Kong was drafted in service to London’s opposition to Glass-Steagall on April 27. All of the attacks date from the April 5 introduction of the Senate 21st Century Glass-Steagall Act, and the reporting that its sponsors (now 6) had received some form of encouragement from President Trump’s chairman of the National Economic Council Gary Cohn.

Today’s issue of Washington publication The Hill included an article on Rep. Jeb Hensarling’s (R-TX) “Choice Act” deregulating Wall Street, a legislative offer to Wall Street, very distant from Glass-Steagall. But in listing “five factors” affecting the Choice Act’s prospects, The Hill included this: “Two members of Trump’s inner circle, economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin, have both expressed support for a modern version of the Glass-Steagall Act, a Depression-era law that separated consumer and investment banking. They will have the President’s ear….”

One reliable report is that the discussion of Glass-Steagall by Cohn, responding to Sen. Elizabeth Warren’s (D-MA) question at a meeting with Senate Banking Committee members April 4, was not vague, grudging or a mere passing remark, but was the most extensive and detailed comment that Cohn made about any subject in that meeting. In response to a Republican Senator there, Cohn reportedly again discussed investment bank versus commercial bank “culture,” and his view that they should not be combined in the same financial institution.  It was, of course, the original Glass-Steagall Act of 1933 that separated the two.

The attacks on Glass-Steagall, in number, volume and tone are indicative that the City of London and Wall Street, knowing the signs of an approaching financial crisis, are very nervous about Glass-Steagall’s prospects and are commissioning well-fed “scholars” and “fellows” to try to debunk it. American elected officials, dangerously, are not aware of those signs or have dismissed them; EIR is acting to change that.

Duterte Joins the Schiller Institute War on the ‘New York Slimes’

April 27 (EIRNS)—Following the New York Times April 25 editorial openly threatening Philippine President Rodrigo Duterte, demanding he be tried in the International Criminal Court (ICC) and concluding “This is a man who must be stopped,” Duterte fired back that it is the New York Times that must stop publication, due to its multiple crimes.

“Well, it’s about time that their publication also must stop,” he told the press when asked about the editorial. “New York Times—assholes, assholes. You cannot even criticize your own mistake. Invading a country, making up excuses before the world that is not true, then you have the gall to say stop. You better stop your publishing.”

Secretary Ernesto Abella, presidential spokesperson, had earlier denounced the Times’s editorial, titled “Let the World Condemn Duterte,” for supporting the appeal to the ICC “based on a complaint filed by a lawyer of a self-confessed assassin.” The complaint is based on the testimony of a man who claims he was part of a death squad in Davao, claiming that Duterte, who was mayor at the time, had ordered him and others to kill criminals.

Abella noted: “The President was democratically elected to attack corruption and crime that have made so many Filipinos hostages to the criminals who had prospered through the rampant drug trade and other criminal activities that plagued our nation for decades.”

EIR and the Schiller Institute have invited Duterte and his representatives to join their next demonstration in front of the Times’s Manhattan offices, to denounce its lies on behalf of the murderous British Empire and its assets around the world.

New Lethal Drug Causing Spike in U.S. Heroin Overdose Deaths

April 27 (EIRNS)—The powerful, synthetic opiate, carfentanil, used as an elephant tranquilizer, which drug dealers are using to lace heroin they sell to users, is a new lethal component in the U.S. heroin epidemic which is dramatically increasing the number of heroin overdose deaths in several states, the Washington Post reported today.

Newtown Police Chief Tom Synan, head of the Hamilton County Heroin Coalition in Ohio, told the Post that “we’ve never seen death like this before.” In early 2016, Hamilton County, whose county seat is Cincinnati, and almost 50 law enforcement agencies, had an average of 50 to 70 reported overdoses a week, and 4-5 deaths. But one month after authorities learned that carfentanil had hit the county, “overdoses skyrocketed” with about 170-200 calls in a single week last August. Four of those users died.

Carfentanil is 10,000 times as powerful as morphine and is difficult to detect. An amount equivalent to just a few grains of salt—2 milligrams—can be lethal, and it is now linked to fatal overdoses in Illinois, Colorado, Wisconsin and Minnesota over the past several weeks. Although it surfaced in 2000, its use surged in mid-2016, hitting communities in Ohio, West Virginia, Kentucky and New Hampshire.  Rosie Hebron, Virginia’s forensic epidemiologist for the Office of the Chief Examiner reports that carfentanil is almost impossible to detect in toxicology tests, making it more difficult for authorities to identify quickly changing formulas, and warn the public.

Because carfentanil, like fentanyl to which it is related, can be absorbed through the skin or by inhalation, police and lab workers dealing with it must wear protective gear. The Post reports that the volume of carfentanil and fentanyl overdose calls are overwhelming police and first responders, who are being diverted from other calls. “We on the front lines are struggling every day to keep people alive,” Synan told the Post.


Putin-Abe Summit Augurs Closer Russo-Japanese Cooperation

April 27 (EIRNS)—Today’s summit meeting in Moscow between Russian President Vladimir Putin and visiting Japanese Prime Minister Shinzo Abe ensures closer Russo-Japanese cooperation in the coming period and greater stability in that part of the world.

Expressing great concern over the war-like situation developing in the Korean Peninsula, both leaders called for the quickest restart of six-party negotiations, TASS reported. “We are urging all the states involved in regional affairs to refrain from military rhetoric and seek a calm and constructive dialogue. We see the quickest restart of six-party negotiations as a common task,” the Russian leader said at a joint press conference. Abe stated that, “President Putin and I have agreed that Japan and Russia will cooperate and call on North Korea to fully comply with the United Nations Security Councils resolutions and refrain from further provocations.”

The two leaders also acknowledged the growing trade relations developing between Russia and Japan. “It is good that the situation in the economic cooperation sphere has started recovering after a certain decline. Growth of mutual trade was noted in January-February of this year,” Putin said, TASS reported. The amount of accumulated Japanese investments in Russia also increased from $1.3 billion in 2015 to $1.7 billion last year, Putin said.

On the Russia-Japan Peace Treaty issue, Abe said specific steps have been taken following President Putin’s visit to Japan in December 2016. “Vladimir, at our meeting in my home town of Nagato, we expressed determination to solve the peace treaty issue,” Abe said. “In the four months that have passed since then, specific steps have been taken to achieve our common goal,” he reported at the press conference.

Belt and Road a ‘Golden Opportunity’ To Aid African Development

April 27 (EIRNS)—At the inauguration of an April 25 seminar on the Belt and Road Initiative in Addis Ababa, Berhane Gebre-Christos, special envoy of the Ethiopian Prime Minister, said that “the Belt and Road (B&R) Initiative is a golden opportunity to bring about regional integration and sustainable economic growth for Africa,” reported Xinhua. “The B&R is a project that will affect millions of people, and it will be one of the most important issues of the 21st century,” he emphasized.

Also addressing the seminar, China’s Ambassador to Ethiopia, Li Yafan, pointed out that it was being held in preparation for the B&R Initiative forum scheduled for mid-May in Beijing. “Ethiopia,” he said, “was among the first in the continent to show interest in the China-initiated B&R,” Xinhua reported. Ethiopian State Minister of Foreign Affairs Hirut Zemene hailed China’s contribution to infrastructure development in particular, mentioning the Addis Ababa light rail and the Ethiopia-Djibouti rail projects. Other speakers pointed out that China’s infrastructure development projects in Africa have helped in boosting employment while enabling skills development and technology transfer.

Another speaker, Resident Representative to Ethiopia of the United Nations Development Program (UNDP) Ahunna Eziakonwa-Onochie, emphasized that “China is playing an important role in addressing the infrastructure gap in Africa,” according to Xinhua. Sub-Saharan Africa is desperately short of power generation and adequate transport networks. The UNDP official noted that only 35 percent of the population has access to electricity, and Sub-Saharan Africa has the lowest road and railroad densities among developing regions.

On April 25, in Pretoria, following his meeting  with the visiting Chinese Vice Premier Liu Yandong, South African President Jacob Zuma “hailed China’s commitment to supporting Africa’s independent growth, expressing hope for closer cooperation with China in international and regional affairs” adding that, “he was pleased to see quick implementation of his consensus with the Chinese president on setting up the South Africa-China High Level People-to-People Exchange Mechanism (PPEM),” China Daily reported today.


China’s Orbital Refueling Mission a Success

April 27 (EIRNS)—It was announced today by representatives of China’s Central Military Commission, that the first refueling of a Chinese spacecraft in space has been a success. The ability to transfer fuel to an orbiting craft is a critical technology that will be needed to keep China’s future space station in its proper orbit.

The complex 29-step refueling process, which involves the transfer of toxic and corrosive chemical fuels, was managed by ground control, and requires extremely precise seals between the craft. No leaks or other problems were detected. During the announcement at Mission Control of the success, letters of congratulations were read to the gathered scientists and engineers from the Central Military Commission and the State Council.

The announcement came in the midst of a live half-hour program on CGTN (formerly CCTV) called, “Destination Space.” The special program included an interview with Christian Feichtinger, the head of the International Astronautical Federation in Paris, who reviewed the European Space Agency’s cooperation with China. Also interviewed was Tarik Malik, a U.S.-based expert on the Russian space program. He described the mission as “an amazing success.” Asked about U.S. cooperation with China, Malik said that there is “a new President, so this may change the situation with U.S.-China cooperation.”

Yang Yuguang, Chinese space engineer and frequent CGTN commentator, asked if astronauts would be onboard during refueling, explained that this is not possible with the Tiangong-2 orbiting module, which has only one docking port. But it will be possible with the station, which has two, so can accommodate an emergency return vehicle for the crew during refueling. He also said that the three refuelings that Tianzhou-1 will do should be enough fuel to keep Tiangong-2 operating for its two-year lifespan.

Asked if there will be an exchange of astronauts from other countries when China has its space station, Xu Yansong, director of international cooperation for the China National Space Administration, who has previously been interviewed by EIR, said there are bilateral agreements with ESA for training and to do experiments. ESA astronauts are learning Chinese, he said, so the crews don’t have to speak English. He also mentioned the agreement with the UN to involve developing countries in China’s space program. For the future, Xu said, orbital fuel depots similar to Tianzhou, will be used like a gas station, to fuel space ships that are headed for the planets.

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