EIR Daily Alert Service

EDITORIAL

What Must Be Done Before Another Bank Crash Hits

July 24 (EIRNS)—The warning of another, devastating Europe-U.S. banking crash before the end of this year, raised by EIR in May and by a meeting of Members of the European Parliament in early July, is becoming an emergency danger. It requires a mobilization of actions to stop it.

The Italian banking system, which has just suffered three major bank bailouts combined with “bail-ins” of unlucky savers, is trying to raise capital it cannot raise, to prevent a potential collapse which could take Germany’s banks down with it. U.S.-based banks have $2 trillion of exposure to that looming collapse of bad debt and worse derivatives, centered in London.

Those Wall Street banks, unpunished and bailed out since 2008, have rapidly built up bubbles of corporate debt and commercial real estate derivatives larger than the mortgage-debt bubbles which blew out back then; and default rates and bankruptcy rates are now rising sharply in those bubbles. A scared Federal Reserve has not raised interest rates enough, yet, to trigger the crash that the IMF, for example, is warning of; but by postponing the crash trigger, it is only making it more economically devastating when it comes.

President Trump’s policy of cooperation with Russia and China, for peace and mutual benefit, is right, and must be defended against all the attacks on him for it. But it will not survive the chaos of another trans-Atlantic financial crash. And he does not have the American economic revival plans he said he had, to head such a crash off.

Action must be mobilized rapidly, ultimately by the American people and their organizations.

First, the Glass-Steagall separation of commercial from investment banking must be reinstated, with beginning effect immediately, to break up Wall Street’s gigantic speculative casinos.

Since the Glass-Steagall Act began to be torn down 50 years ago, Wall Street’s banks and funds—with their most dangerous operations always in London!—have been a succubus on the economy, which can’t grow without financial crashes, and since the 2008 crash can’t grow at all. The Glass-Steagall breakup must start now, to prevent the threatening new bank crash.

Then, credit must be issued from a national credit institution—see Founding Editor Lyndon LaRouche’s “The Lost Art of the Capital Budget” republished in EIR for July 21—credit soon in the trillions, for 20-25 year periods at low interest rates.

The purpose is high-technology investments in new, more productive infrastructure to replace the crumbling sinews of the U.S. economy, raise productivity and create productive employment again. It cannot and will not be done by private investment. President Trump must learn this, and the Wall Streeters around him like the Treasury Secretary, have to go.

A great expansion of the United States space exploration program will drive this revival, as the President had stated in a television message to the American people in March.

But facing this threatening financial crash, and meeting this emergency with action, now depends primarily on the American people effectively demanding these actions, as if it were the last weeks of a Presidential political campaign.

Then, the President’s intent to cooperate with China and Russia will become a tremendous benefit, especially from the great “win-win” building project—Beijing’s New Silk Road across Eurasia and Africa. Let such high-speed rail corridors, for example, be built across North America. The United States is potentially a full partner in the Belt and Road Initiative.

COLLAPSING WESTERN FINANCIAL SYSTEM

$11 Trillion Commercial Real Estate Bubble Quaking, Renting Boom Worsens It

July 24 (EIRNS)—Rising default rates are shaking the commercial real estate (CRE) part of the U.S. corporate debt bubble; CRE is an $11 trillion bubble when commercial mortgage-based securities (CMBS) are included.

The top 20 trans-Atlantic banks ($100 billion or more assets) hold $1.4 trillion of these assets, most of which are CMBS securities, not the properties. The default rate on CMBS, according to Moody’s ratings agency, was 4.6% in September 2015; 5.6% in September 2016; and reached 6.4% in June 2017.

For the entire $14 trillion U.S. corporate debt bubble, which has doubled in size in just seven years since the securitized mortgage debt crash, the default rate has reached 2.6%. This may not seem high, but it is triple the rate of late 2015; the highest this rate reached in the collapse of 2008-09 was 4.2%.

A July 21 article in GoldSeek.com by David Chapman, titled “The Elephant in the Room: Debt,” reports that total debt in the U.S. economy (household, business, and government debt) has reached 375% of GDP and is growing four times faster than GDP (in the U.K., that ratio is 600%!). “Trouble is on the horizon,” he says. “Delinquencies are rising, particularly on commercial and industrial loans but also on consumer loans in North America and the EU.”

Chapman’s report also observes that the United States monetary base, after continuous and dramatic increase during the whole post-2008 period of quantitative easing, has unexpectedly started to contract—like the major debt bubbles themselves.

Bank Separation Again Up Front on Swedish Left Party Agenda

STOCKHOLM, July 24 (EIRNS)—In a major op-ed in the Svenska Dagbladet today, Ulla Andersson, economic spokeswoman for the Swedish Left Party, calls for banking separation and a series of measures to limit the financial risks for Swedish taxpayers.

Under the headline “Giant Banks Put Sweden in a Position of Risk,” she points to the enormous proportions of the four big Swedish banks in comparison to the Swedish economy. “Sweden has a banking sector of a size that few other countries have. We are in third place, when the total assets of the banks are considered in relation to GDP. It is only Switzerland and the Netherlands that have bigger banking sectors,” Andersson writes, pointing out how this endangers employment, welfare and state finances in the event of a financial crisis.

Andersson stresses that in spite of the new EU rules on bail-in, it is the taxpayers who are taking the main risk. The country’s four big banks control 70% of all credit and are “linked to each other by owning each other’s covered bonds which means that if one bank has problems, all the others automatically enter the danger zone.” It’s also the case, she adds, that the implicit guarantee makes the banks grow even bigger as they borrow cheaper than other banks on the market. According to the Central Bank, these four banks save SEK26 billion Swedish krona yearly.

Anderson asserts that the issue is “a banking sector of enormous proportions in comparison to the country’s economy. Financial stability therefore must always be the focus.” She calls for a bank separation law and also for a public investigation of banking structures to determine how the oligopolic banking sector could be broken up. Other measures are also required, she affirms, to limit the risks in the banking sector.

In the last election of 2014, the Left Party put banking separation behind the issue of limiting the prairie fire of privatizations of the Swedish welfare and school systems. With this article, Andersson again places banking separation front and center on the party’s agenda just in time for the onslaught of a new international financial crisis.

U.S. POLITICAL AND ECONOMIC

At Democrats Press Conference, EIR Clearly Has the ‘Better Deal’

July 24 (EIRNS)—An intervention by EIR representatives was necessary to bring real economics—Glass-Steagall reinstatement, national banking, the Belt and Road—to a press conference by 10 Democratic Members of Congress today which claimed to be about economic progress for working Americans.

After Senate Minority Leader Chuck Schumer (D-NY) had admitted July 22 that the Democrats were being seen as nothing but an anti-Trump party, he and other Congressional leaders went to Berryville, Virginia today to present what was trumpeted as their new economic program: “A Better Deal.” (The slogan may have been taken from Papa John’s Pizza.)

But events proved that it was the representatives of Lyndon LaRouche’s EIR who had the better deal to present in Berryville.

Schumer, Senators Amy Klobuchar, Mark Warner, Elizabeth Warren, and Chris Van Hollen, along with Democratic House Minority Leader Nancy Pelosi and Reps. David Cicilline, Hakeem Jeffries, and Manuel Lujan, and Cheryl Bustos all managed to say very little about the economy, with no one mentioning restoring Glass-Steagall, expanding Medicare health insurance for all, or even rebuilding infrastructure. Nor reviving manufacturing and industry, which they foolishly claimed were doing quite well and needed only apprenticeships and training programs to fill the jobs.

This was no alternative to White House or Republican economics to present to the working people the Democrats were seeking in blue-collar/agricultural Berryville. About 150 journalists and local people attended the press conference.

But EIR’s Anita Gallagher intervened to remind them that the economy is sinking and facing “a blowout that makes 2008 look minor”; why weren’t they proposing loud and clear to reinstate Glass-Steagall and create a national credit bank for new infrastructure projects?

Prime Glass-Steagall sponsor Warren did not respond verbally. But in reporting the intervention, the Washington Free Beacon reported, “As the woman mentioned Glass-Steagall, Warren did a delighted dance to the amusement of her fellow lawmakers.” House sponsor Cicilline of Rhode Island later said he wanted to go big with Glass-Steagall, but was not getting (leadership) support.

European Union Angry at U.S. Russia Sanctions, and Demands White House Response

July 24 (EIRNS)—European Commission (EC) President Jean-Claude Juncker is warning the Trump administration that the EC will respond sharply to the imposition of new U.S. sanctions on Russia if these are adopted “without EU concerns being taken into account.”

Among the responses said to be under consideration according to Politico, is the EU “Blocking Statute,” a regulation stating that no decision based on extraterritorial U.S. laws is enforceable in the EU. This is the same principle China has asserted in defending its sovereign interests.

Both the Financial Times and Politico obtained a copy of an internal memo which Juncker has reportedly prepared for a July 26 meeting of the EC, expressing concern about the effects of sanctions on European companies “doing legitimate business under EU measures with Russian entities in the railways, financial, shipping or mining sectors, among others.” The bill that the U.S. House will vote on tomorrow imposes individual sanctions for investing in Gazprom’s Nord Stream 2 gas pipeline project, the Caspian Sea oil and gas pipelines, Ukraine gas transit and the Zohr field off the Egyptian coast.

According to Politico, Juncker has said that Brussels “should stand ready to act within days,” if changes aren’t made to its satisfaction. Aside from the “Blocking Statute,” the EC also wants a public declaration from the Trump administration stating it will not impose new sanctions in a way that targets European interests. It may also resort to World Trade Organization retaliatory measures.

An EU delegation is reportedly in Washington meeting with Congressmen on the sanctions issue, Sputnik reported today. EU Commissioner Johannes Hahn for European Neighborhood Policy and Enlargement Negotiations reported that, “concerning the U.S. sanctions [against Russia] … there is still ongoing discussions between our delegation and the House of Representatives to explain something and I am not quite sure what the final decisions are, but based on that, we will make our assessments.”

STRATEGIC WAR DANGER

Iraq Seeking Closer Security Ties with Both Russia and Iran

July 24 (EIRNS)—Senior officials of the Iraqi government have been busy, over the July 22-23 weekend, developing closer security and other ties with both Russia and Iran.

Iraqi Vice President Nouri al-Maliki was in Moscow, yesterday, where he met with Russian Foreign Minister Sergey Lavrov. “We support the efforts Iraq’s leaders undertake to bring to normal the situation in the country, to eliminate the terrorist threat,” Lavrov said. “Effective is the input in those efforts by Iraq’s army and security forces.” Maliki, for his part, expressed “big hopes” for Russia’s role in bringing security to the region. “We are grateful to you for the role Russia is playing in the region,” he said. “And we have big hopes for you in maintaining the security in the region.”

At the same time, Iraqi Defense Minister Erfan Mahmoud al-Hayali was in Tehran, where a number of officials promised him Iran’s continuing support of Iraq’s fight against terrorism, including Secretary of Iran’s Supreme National Security Council Ali Shamkhani. Al-Hayali and Iranian Defense Minister Maj. Gen. Hossein Dehghan also signed an agreement to boost military cooperation between the two neighbors in a host of fields, including counterterrorism.

Based on the deal, Tehran and Baghdad will promote interaction and share experiences in the fight against terrorism and extremism, work together to ensure border security, and provide each other with training and logistical, technical and military support, reports Tasnim.

A New De-Escalation Zone Expected To Be Announced for Syria

July 24 (EIRNS)—Al Masdar News (AMN) reports, this morning, that a new de-escalation agreement is expected to be announced soon for northern Homs province. In addition to a ceasefire, the Russian reconciliation teams in the area will attempt to broker a deal that will reopen the vital Homs-Hama Highway so that commerce can once again resume in this region.

On the ground, the breaking news, this morning, is that the Syrian Arab Army’s 5th Assault Corps is within striking distance of Sukhnah. Sukhnah is the last town on the road from Palmyra before Deir ez-Zor. It’s also the last line of ISIS defensive positions before the city, which has been under jihadi siege for three years. Syrian forces have entered the vicinity of the end of the chain of hilltops stretching from Palmyra which will give them fire control over Sukhnah. “Now al-Sukhnah’s liberation is within sight and pro-government forces could reach the gates of the town, or even take it back from ISIS completely, within a single week,” AMN reports.

Other Syrian army units, in parallel with the 5th Assault Corps, have been advancing deeper into the desert south of Raqqa, capturing numerous oil fields from ISIS.

THE NEW GLOBAL ECONOMIC ORDER

U.S. Steelmakers Doing Well, Thanks to China

July 24 (EIRNS)—Under the headline “Steelmakers Worth the Most in Years, and It’s Thanks to China,” Bloomberg reports that steel prices have experienced a recovery, as indicated in its gauge of global steel stocks which have risen 45% in the past year. “That’s triple the advance in the Bloomberg World Mining Index,” it reports.

This is due to the fact that demand in China, which produces half the world’s steel, “has been surprisingly strong this year,” and some local plants had been closed to ease a worldwide glut. This in turn led to a steep drop in exports, and thus the price recovery.

According to Bloomberg, more Chinese spending on infrastructure has boosted local demand, “just as the government shuttered millions of tons of overcapacity. Those factors helped China’s exports plunge 28% in the first half.”

Lee McMillan, an analyst at Clarksons Platou Securities in New York told Bloomberg that, “It’s been over a year and a half since Chinese steelmaking fundamentals bottomed, but they still seem to be surprising to the upside…. Robust steelmaking margins have encouraged ever-higher levels of production, yet pricing has remained robust—albeit volatile—thanks to very strong Chinese steel demand.”

In a further sign of this steel import substitution because of greater Chinese demand, so far in 2017, two new American metallurgical coking-coal plants have opened up for the first time in years—one in Pennsylvania and one in Kentucky.

SCIENCE AND INFRASTRUCTURE

China To Start Mass Production of Fuel for HTGR Nuclear Reactors

July 24 (EIRNS)—China National Nuclear Corp. (CNNC) has started the world’s first assembly line production of spherical fuel elements (“pebbles”) to supply the high-temperature gas-cooled reactors (HTGR) it plans to build, use, and export. A pilot program has been completed, producing 2,000 fuel elements, demonstrating the transition from a pilot plant to an industrial manufacturing plant, said Wang Shoujun, president of CNNC. The commercial factory will produce 300,000 fuel pebbles per year.

The fuel will be used by the Shidaowan HTGR demonstration reactor being built in Shandong province. A small HTGR research reactor was built first at Tsinghua University, which has been conducting research on the project for three decades. The Chinese reactor is derived from the German pebble bed reactor program, which was stopped before reaching commercialization.

There has been interest in China’s 4th generation nuclear technology from Saudi Arabia and the United Arab Emirates, and China plans to actively market it for export.

China and Russia Cooperating in Navigation and Arctic Commerce

July 24 (EIRNS)—China and Russia are moving forward on projects that come under the umbrella of the strategic partnership the two nations have established. A “pilot zone” will be created to test the joint use of Russia’s GLONASS and China’s BeiDou satellite navigation systems. There have been paper agreements to make them inter-operable, but this is the first practical test. The zone was discussed at the bilateral working group on road transport on July 18-20 in Chengdu. The joint operation will be tested on passenger and freight routes that are going through China to a checkpoint on the border in the Russian Far East, Primorsky territory, said the Russian Transport Ministry on July 21. The two sides also discussed the possibility of opening a route going through Siberian cities, Novosibirsk, Irkutsk, and Zabaykalsk, and Chinese cities of Manzhouli, Yingkou, and Dalian.

The GLONASS system contains 24 operational satellites, and BeiDou has 35 satellites in orbit. Both systems (as well as the American GPS) were designed and developed by the military, and have strategic military applications.

At the same time, Russian-Chinese cooperation on the “Arctic Silk Road” is taking shape. On June 20, China’s National Development and Reform Commission and the State Oceanic Administration published the “Vision for Maritime Cooperation Under the Belt and Road Initiative.” In an article published in The Diplomat on July 21, University of Adelaide lecturer Nengye Liu reports that China’s June 20 document officially incorporates the Arctic in the Belt and Road Initiative. The Northern Sea Route, Liu reports, could shorten the distance between China and Europe by ten days, as compared to going through the Strait of Malacca and Suez Canal.

Russia considers that under the “Ice-Covered Areas” stipulation in the Law of the Sea, the Northern Sea Route is in their exclusive jurisdiction. Russia used to have a compulsory guidance policy, that Russian ships had to accompany foreign vessels through the route, but abolished that in 2012. “Uninterested in challenging Russia’s jurisdiction,” as Liu puts it, China has sailed this route three times, all with pre-approval from Russia.

OTHER

Indonesia and Philippines Act in Tandem on Drugs and Mining

July 24 (EIRNS)—Indonesian President Joko Widodo (Jokowi) has declared a war on drugs, widely acknowledged to be just as tough as the war on drugs by Philippine President Rodrigo Duterte in the Philippines. Speaking in Jakarta on July 22, Jokowi said: “I have told you, just be firm, especially with foreign drug dealers who enter the country and resist. Gun them down. Give no mercy. We are indeed in an emergency situation in dealing with drug trafficking.”

The Jakarta Post reported that National Police chief Gen. Tito Karnavian said a lot of drug dealers thought that Indonesia was a potential market because they considered its drug laws weaker than those of Singapore, Malaysia and the Philippines.

On mining, Duterte announced in his State of the Nation speech Sunday that he was adopting a policy that is like that of Indonesia—mining companies will only be allowed to do mining in the country if they also build processing facilities.

Duterte said it is “not enough that we mine this wealth. What is more important is that we convert the raw materials thereof into finished products for international and local purposes. That way, it will not only be the few who are the rich but also the poor, who are many, who will benefit therefrom. Therefore, I call on our industrialists, investors, commercial barons to put up factories and manufacturing establishments right here in the Philippines to process our raw materials into finished products.”

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