EIR Daily Alert Service, MONDAY, MAY 28, 2018

MONDAY, MAY 28, 2018

Volume 5, Number 105

EIR Daily Alert Service

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

EDITORIAL

Financial Circles Vote Down Government in Italy, in Another Step Towards Financial Crash

May 27 (EIRNS)—Trampling on democracy and probably on the Italian Constitution, the European Central Bank and London-centered “financial circles” have used Italy’s state President as their puppet in blocking a clear majority government. The open reason: It might violate the crippling rules of the euro in pursuing real economic growth, or even decide leave the Eurozone.

In refusing the coalition government of the Lega party and the Five Star Movement party, which was qualified by a majority of voters in March 4 elections and a majority of parliamentary seats, State President Sergio Mattarella openly admitted who was directing his hand. He said financial circles and foreign investors in Italy’s state bonds intensely disliked the government’s nominated finance minister and his potential break with the Eurozone. Italy’s state bonds are mostly bought by big London and European banks and sold for liquidity to the European Central Bank, which holds them now.

The “financial circles’ ” votes were the only ones that counted, this time.

But what is happening in these “financial circles”? They are choking in highly speculative corporate “junk debt,” and derivative contracts on that debt; now the rise in dollar interest rates is driving them toward mass defaults and the collapse of banks.

Look at Deutsche Bank, the biggest bank in Germany, actually controlled from its London investment bank divisions. Two months ago the European Central Bank (ECB) ordered Deutsche Bank to make an “emergency scenario” for having to wind up its investment bank; the ECB clearly knew something serious was wrong at the bank with the world’s biggest derivatives exposure. Now, Deutsche Bank is firing employees en masse at its investment bank, the division which has been driving the whole bank for 15 years (lately, into big losses). Two analysts concurred for CNBC that the bank’s stock and capital, recently fallen from 26 billion to 21 billion euros, could soon go to zero “with very bad consequences for international markets in the near term.”

Actions by Germany for Deutsche Bank’s reorganization, proposed in 2016 in EIR by Helga Zepp-LaRouche, president of the Schiller Institute, are becoming the only way to stop the collapse of the bank and its ramifications into the London/Wall Street trans-Atlantic banking system.

And those actions—including Glass-Steagall separation of the investment divisions to protect the industrial/commercial lending bank—would be prohibited under the Eurozone’s regulations and bank resolution rules, including new ones it’s adopting now!

It’s the same with banks throughout the financial system, exposed to the huge “everything bubble” of speculative debt which is now getting toxic.

What the denied Italian government was “threatening” to do in opposing these regulations and even leaving the Eurozone if necessary, is a step into the only solution to preventing another crash worse than 2008.

That solution is presented in Lyndon LaRouche’s “Four Laws” to restore productivity growth and scientific/technological breakthroughs, published in 2014 with emphasis on the United States economy, whose financial system is in the same perilous condition. President Trump called for one of those steps, restoring the Glass-Steagall Act, back in 2016; and talked about another, building a new economic infrastructure for America. But action has not been forthcoming, as British intelligence has triggered all-out attacks on his presidency and tried the kind of coup, which they just saw succeed against Italy.

The voters of both nations now face elections in which they have to force through those actions LaRouche proposed, and not allow anything to deter them.

COLLAPSING WESTERN FINANCIAL SYSTEM

Moody’s: ‘Particularly Large Default Wave’ Coming on Company Debt

May 27 (EIRNS)—The ratings agency Moody’s Investors Service has given the clearest warning yet of the possibility of a U.S. corporate debt blowout on the horizon.

A new report issued by Moody’s says that the junk debt in the U.S. corporate sector now amounts to approximately $3.7 trillion, and that $2 trillion of that belongs in a new designation created by Moody’s: “highly speculative” (graded B1 or lower) as opposed to merely “speculative.”

Internationally, the report says, a full 58% of all non-financial companies are now given the debt rating “speculative” by the ratings agency; and 40% are given the rating “highly speculative.”

Getting to the point, the report, as quoted by CNBC on May 25, says, “Strong investor demand for higher yields continues to allow all but the weakest issuers to avoid default by refinancing [their] maturing debt. A number of very weak issuers are living on borrowed time while benign conditions last.” These are the so-called “zombie companies” much discussed in financial analyses of the European economies; and again, Moody’s is raising the possibility this may approximate 40% of non-financial companies.

The report concludes that “The record number of highly leveraged companies has set the stage for a particularly large wave of defaults when the next period of broad economic stress arrives.”

That stress period has arrived, in fact, with dollar-linked interest rates rising at a faster pace than the Federal Reserve is raising its key rates. Plunging currency values hitting those countries with large amounts of dollar debt, such as Argentina, Turkey and Brazil, are one sign. The U.S. corporate debt bubble itself is set to implode at some point in this process, as Moody’s and the IMF warned already one year ago. Though not reported here, there has been a 4% drop so far in 2018 in the value of the average corporate bond, internationally.

Intersecting this is the indication that the “long time Deutsche Bank has been taking to die” may soon come to an end unless that giant derivative bank is thoroughly reorganized.

Italian President Vetoes Savona as Finance Minister, Conte Government Fails

May 27 (EIRNS)—Italian State President Sergio Mattarella acted as a traitor to Italy and as a puppet of the Empire by rejecting the list of ministers presented by incumbent Prime Minister Giuseppe Conte, who then resigned his mandate.

In his official statement, Mattarella said that he accepted all ministers except Paolo Savona as Finance Minister, justifying this with Savona’s known positions which would have led “to Italy’s exit from the Euro.” Mattarella then drew a hysterical picture of investors fleeing, the stock market collapsing, the interest rate spread rising, and “savers” being threatened as a result of the message sent by Savona being in the government.

(The President has the power to reject members of the proposed government team, but in doing this, he is bound by the will of Parliament. In this case, the views of the proposed Finance Minister are identical to the will expressed by Parliament.)

Previous to Mattarella’s announcement, there had been incredible interference. French President Emmanuel Macron had called Conte to pressure him to drop Savona. Now the most probable perspective is a technocratic cabinet which, however, will be voted down by Parliament, and therefore will have the mandate to organize early elections.

The Truth Behind the Italian Debt Cancellation Proposal

May 25 (EIRNS)—Although the proposal to “cancel” €250 billions Italian debt is not included in the coalition contract of the new Italian government in formation, international media continue to focus on that, adding to the general narrative about the barbarians taking over Rome. The proposal, which was floated at some point during government negotiations, is not as odd as it may sound. Here is the explanation.

The European Central Bank has bought over €2 trillion of sovereign assets since 2015. The ECB has bought such assets from banks, crediting those banks with the corresponding liquidity on the ECB account. In economic textbooks this is called “debt monetization.” When a central bank does that, it de facto freezes that portion of debt, and can eventually decide to destroy it. The ECB is freezing that debt, as it rolls over bonds at maturity.

It is not necessary to cancel that debt. It would be enough to roll it over with bonds with a 50- or 100-year maturity, some economists suggest, pointing to the fact that other central banks, such as the Federal Reserve, have already excluded such assets from the accounting of the federal debt.

STRATEGIC WAR DANGER

U.S. Ups Tensions with China via ‘Freedom of Navigation’ Sailings in South China Sea

May 27 (EIRNS)—Two U.S. Navy warships sailed near the Paracel (Xisha) Islands in the South China Sea today, U.S. officials told Reuters, Sputnik reported. Meanwhile, China is deploying military assets in the South China Sea to secure its claims there.

The U.S. Freedom of Navigation Operations (FONOPS) aim to counter what Washington sees as China’s efforts to limit freedom of navigation in strategic waters, Australia’s Special Broadcasting Service (SBS) reports. Though this operation was planned months in advance, and SBS says similar operations have become routine, this one comes at a sensitive time—just days after the Pentagon disinvited China from a major U.S.-hosted naval drill, where China had been an invited observer in previous years. At the same time, the United States is seeking China’s help in North Korean diplomacy.

U.S. officials, on condition of anonymity, said the Higgins guided-missile destroyer and the Antietam, a guided-missile cruiser, came within 12 nautical miles of the Paracel Islands, or what China calls the Xisha Islands, located among a string of islets, reefs, and shoals over which China has territorial disputes with its neighbors. China is redeploying significant military forces there, including bombers and surface-to-air missiles, Sputnik reports. China says are they are purely defensive, and has urged Washington “not to hype up” the so-called “militarization” of the South China Sea.

THE NEW GLOBAL ECONOMIC ORDER

Putin-Abe Video Call to ISS Astronauts: Solving Problems in Space Helps Us on Earth

May 26 (EIRNS)—This evening in Moscow, Japanese Prime Minister Shinzo Abe and Russian President Vladimir Putin made a joint video call to the Japanese and Russian astronauts on the International Space Station (ISS). Putin told them, “You have done more than 50 experiments and research projects, solving problems in space. You create an amazing and necessary atmosphere for solving our problems here on the Earth.” He spoke to Russian cosmonaut, ISS Expedition 55 Commander Anton Shkaplerov and Japanese astronaut Norishige Kanai. As TASS reported, this was the first-ever video call jointly made to space by Putin and a guest. Putin has otherwise made several individual calls.

The video call was displayed on a screen in the St. Andrew Hall of the Grand Kremlin Palace. Also present was Dmitry Rogozin, newly appointed head of Roscosmos, Russia’s space agency. Prior to the call, Abe and Putin had talks and dinner. Following the video call, they had a signing ceremony, and held a news conference. In the evening, they went to the Bolshoi Theater for ceremonies marking the cross year of “Russia in Japan” and “Japan in Russia.”

There was much to the video exchange between the ISS and Moscow. Abe told the astronauts about his talks with Putin, which covered ways to cooperate. Putin praised Japan. “Japan makes a considerable contribution to the International Space Station, as not only do Japanese nationals and researchers work in space, but also Japanese specialists do a large amount of research and there is a huge amount of equipment.”

Japanese astronaut Kanai said, “Russia boasts a lengthy history of space exploration, but Japan has developed its own technology to do research in outer space, so one-plus-one equals not two, but three, or even four. Cooperation pays off greatly.”

On peace talks with Japan, Putin said, “For our part, we will be striving so that compromises acceptable for both sides can be found…. I cannot say what they [the compromises] might be like because if I could say, we would have already signed a corresponding document [the peace treaty with Japan]. In order to boost security, we must do our best to increase trust,” he said, reported TASS.

“One of the ways to increase trust is to build cooperation. I have already said, speaking about North Korea, that the more cooperation, the more chances to develop normal relations and to create the conditions for solving old global problems such as the peace treaty,” Putin said. Concerning commitments to broader agreement, “We will be creating the conditions for joint work on the Kuril Islands and on the whole, we will be enhancing our cooperation,” he said.

Putin and Macron Talk in St. Petersburg, as Companies Sign Major Deals

May 25 (EIRNS)—Russian President Vladimir Putin and French President Emmanuel Macron held four hours of talks, twice as long as scheduled, at St. Petersburg’s Constantine Palace yesterday. The talks focussed on the future of the Joint Comprehensive Plan of Action (JCPOA) on Iran’s nuclear program. “Our position—the position of Russia—is well known. We believe the deal must be preserved,” Putin told reporters after the talks.

While confirming France’s commitment to preserve the JCPOA, Macron said it should be complemented with framework agreements on the future of Iran’s nuclear program after 2025, as well as on the Islamic Republic’s missile program and regional activities. Macron also said he has already started discussing those issues with Iranian President Hassan Rouhani.  In response Putin, said Russia does not object to those negotiations with Tehran, but such talks should not put the JCPOA in danger.

The two leaders also discussed Syria and both expressed their support for a broad dialogue involving the Syrian government, members of the Astana Group and the Small Group, comprising the United States, the United Kingdom, France, Jordan and Saudi Arabia.

With respect to Ukraine, Putin and Macron agreed that there was no alternative to the Minsk agreements. When asked about prospects for a Normandy Four summit—France, Germany, Russia and Ukraine—the Russian President said that the peace process in Donbas is making little progress, while the Kiev government demonstrates little interest in settling the conflict.

Putin and Macron also discussed economic cooperation, with several large economic deals being signed between Russian and French companies in St. Petersburg. France’s Total signed a memorandum of understanding to participate in the Arctic LNG 2 project, after talks between the two Presidents on May 24. Arctic LNG 2 is the second liquefied natural gas plant of the Russian gas company Novatek, to be launched in 2023. Its capacity will exceed 18 million tons of LNG per year.

Russia’s state nuclear company Rosatom and France’s nuclear authority signed a deal on Russian-French partnership on peaceful uses of atomic energy. Rosatom’s trading branch operating on the foreign market, Tenex, and Électricité de France (EDF) signed a contract for recycling regenerated uranium from France. The contract will be implemented in 2022-2032. The value of the contract for the whole package of regenerated uranium handling services is $1 billion.

U.S. POLITICAL AND ECONOMIC

Democrats’ Spying on Trump Campaign Boomerangs on Them

May 27 (EIRNS)—Rep Lee Zeldin (R-NY) introduced a resolution May 22 calling for the appointment of a second special counsel to investigate possible misconduct by the Department of Justice and the FBI during the 2016 Presidential race, The Hill reported May 22.

Representative Zeldin held a press conference with 11 other Republican congressmen, stating, “The Justice Department cannot be expected to investigate itself.”

In March, DOJ Inspector General Michael Horowitz said he would investigate whether the FBI and DOJ abused their surveillance powers by using information from Christopher Steele, a former British MI6 agent, and paid by Democrats, to monitor Carter Page. Democrats attacked such an IG investigation.

On May 22, Zeldin and 11 other Republicans, including Freedom Caucus head Rep. Mark Meadows (NC), Jim Jordan (OH), and Ron DeSantis (FL), unveiled a 12-page House resolution calling for another prosecutor to look into why the FBI concluded its probe into Hillary Clinton’s emails, and how the investigation into President Trump began.

Zeldin pinned this new call on the latest development: “In just the past few days we learned that the DOJ, FBI or both appeared to have planted at least one person into Donald Trump’s presidential campaign to infiltrate and surveil the campaign,” he said.

On May 22, Boston Herald columnist Adriana Cohen, in reporting the Zeldin press conference, said that former CIA head Brennan and Director of National Intelligence Clapper may wind up criminally investigated and the CIA and FBI exposed just as they were in the 1960s: “If it is confirmed that the Obama Administration used the U.S. intelligence agencies and the Justice Department to go after political opponents—to keep Democrats in power through a Presidential election cycle—Attorney General Jeff Sessions should immediately un-recuse himself from the Russia ‘collusion’ witchhunt; shut it down, and open a criminal investigation into all parties involved….

“It would be the height of irony if it is established that Democrats, who have been screaming Russia, Russia, Russia, for the past two years, making Putin out to be the bogeyman, themselves used police state tactics, including spying, waging a massive disinformation campaign against Trump and his associates, and other scurrilous actions eeerily similar to Communist regimes.”

She takes aim at Mueller: “Special Counsel Robert Mueller would be wise to wrap up his investigation before he’s accused of being the last act in a chain of conspiracy that would implicate Obama, Brennan, James Comey, Hillary Clinton, and others. The truth is coming out….

“Trump should also declassify information the DOJ has been withholding from Congress, so lawmakers entrusted with oversight can obtain pertinent documents and information without excessive redactions and further stonewalling.

“The Democrats have overplayed their hand and karma is now nipping at their heels.”

Putin Complains Trump-Russia Probe Hurts U.S.-Russian Relations

May 27 (EIRNS)—Russian President Vladimir Putin said that the investigations targetting President Trump are interfering with improved relations with Moscow, reported Associated Press, whose Vice President Ian Phillips took part in an international news meeting in St. Petersburg with Putin on May 25.

Putin stated that he has had little contact with President Trump. “We are hostages to this internal strife in the United States,” Putin said on the sidelines of the St. Petersburg International Economic Forum. “I hope that it will end some day, and the objective need for the development of Russian-American relationships will prevail.”

In his wide-ranging remarks to reporters, and also during the televised conference, Putin also said he would step down at the end of his presidential term in 2024, adhering to the Russian Constitution term limits for two consecutive presidential terms.

SCIENCE AND INFRASTRUCTURE

China’s Queqiao Lunar Relay Satellite Heads for Its L2 Communications Orbit

May 26 (EIRNS)—Queqiao (“Magpie Bridge”), the relay satellite for the Chang’e-4 mission, carried out a braking maneuver at the Moon yesterday, to put it on a trajectory to reach the “halo” orbit needed to be the communications link between the Earth and the spacecraft on the far side of the Moon. The second launch, with the far side lander and rover, will take place toward the end of this year.

“There was only a short window for the braking,” explained project manager Zhang Lihua. “And Queqiao had only one chance, due to limited fuel.” The tricky braking maneuver took place just 100 km above the surface of the Moon. It will now take about two months for the relay satellite to reach its station.

Space experts worldwide recognize the challenge and importance of the mission. “Doing things in space, especially at a far distance from Earth, remains hard, so success is far from assured,” space historian John Logsdon said after the May 21 launch. “Spacefaring countries around the globe are focussing a great deal of attention on lunar exploration,” he said, “and this far side capability, if it comes into being, puts China in a leading position….”

The landing would be a “world historical first,” explained Bernard Foing, a prominent European lunar scientist. It would provide a “deep space opportunity to study the far side,” which, has a different composition than the sites that have been previously explored, he said.

Trump Signs Space Policy Directive-2 To Deregulate Commercial Use of Space

May 25 (EIRNS)—Yesterday, President Trump signed Space Policy Directive-2, “Streamlining Regulations on Commercial Use of Space,” in order to “reform America’s commercial space regulatory framework.” The policy is to “ensure that government regulations adopted and enforced promote economic growth; minimize uncertainty for taxpayers, investors, and private industry; protect national security, public safety, and foreign policy interests; and encourage American leadership in space commerce.”

The actions to be taken are directed to the Secretaries of Transportation and Commerce, who will now be responsible for all aspects of commercial space. They are directed to consider “replacing prescriptive requirements in the process with performance-based criteria.” What this will mean for NASA’s historic responsibility for setting standards and criteria for safety, remains to be seen.

“The President is committed to ensuring that the Federal government gets out of the way and unleashes private enterprise to support the economic success of the United States,” said a White House statement. But the space program is not being seen “supporting economic success” as a science and technology driver for the economy. In a briefing for reporters, a White House official explained: “We realized that budgets are limited, and this is not going to be a Cold War race where we drop almost unlimited amounts of money on a problem. So if we’re really going to … do our space exploration activities, we need to grow the economy. And one of the best ways we think of to grow the economy in fact is to deregulate it….”

Space Directive-1 was signed on Dec. 11, 2017. It added one sentence to the Obama space policy, inserting that America would go back to the Moon. So far, NASA is instructed to leave it to the private sector to develop small lunar landers and NASA will develop payloads that it will pay private companies to fly.

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