The Financial Blowout is On – And It's Much Worse Than 1929
by John Hoefle
July 16 (EIRNS)--The global financial system is finished; it is now falling apart and will not recover. That is the analysis of economist Lyndon LaRouche, who has launched his own Presidential campaign in order to give the American people an alternative to the devastation which has occurred with the rise of the largest speculative bubble in history, and the even greater devastation being unleashed by that bubble's collapse.
With every new revelation of corporate fraud, with every plunge in the financial markets, LaRouche's identification of the "economic boom" of the 1980s and 1990s as a giant bubble is further vindicated. Not only has there been no economic growth--as measured in physical-economic terms--but the bubble has grown by cannibalizing the real economy.
While some among the Establishment insiders are beginning to compare President Bush to Herbert Hoover for his blind insistence that the economy is fundamentally sound, the larger point is that the financial blowout we see today is far worse than the collapse of 1929. Not only is the financial bubble much larger, even in relative terms, but the productive capacity of the economy is relatively much weaker and the culture much less able to deal with the hardship. As a result, the devastation from the crash will be far greater than that during the Great Depression.
Unless this collapse process is halted by a sharp reversal of policy, LaRouche warns, the market collapse will be the least of our problems. The very real danger, he warns, is a combination financial, political and cultural collapse which will plunge the world into a new Dark Age.
- Systemic Crisis -
"We've got a systemic issue here and it needs to be addressed with systemic responses," Sen. Jon Corzine (D-NJ) told CBS News July 15. Corzine, a former co-chairman of investment bank Goldman Sachs, is one of the Senators calling for some re-regulation in the derivatives markets.
A systemic crisis it certainly is. The growth of the financial bubble in U.S. was significantly accelerated by an influx of foreign capital, which made profit off the rise of the U.S. stock market, and also off the rise of the dollar relative to foreign investors' home currencies. That process has now reversed, with stocks and the dollar falling. Since their peak in 2000, the Nasdaq is down 73%, the S&P 500 down 41%, and the Wilshire 5000, the broadest index of U.S. stocks, down 42%, representing the vaporization of over $7 trillion in assets. Even the Dow Jones Industrial Average, perhaps the most manipulated index on the planet, is down 28% from its peak. The Dow is gyrating wildly, as investors flee and the Plunge Protection Team intervenes on an almost daily basis to keep the bottom from falling out.
As the bubble deflates, so does the dollar, with the euro now worth more than the dollar for the first time since early 2000. The dollar has fallen 13% against the euro this year, adding to the losses of European investors in U.S. markets.
The combination of a declining stock market and a falling dollar is a cause of, and a reflection of, the flight of foreign investors and their cash. For a bubble, it is a dangerous dynamic which could trigger a self-feeding downward spiral as investor flight turns to panic. Once that happens, the whole system blows.
- 'Controlled' Deflation -
To deal with this crisis, the Federal Reserve has been studying the methods by which Japan has dealt with its own deflating real estate bubble.
According to the Japan Times, Greenspan is planning "anti-deflation steps" such as an "expansion of fiscal spending, further credit easing and a weaker dollar" to keep the system from imploding.
In an extraordinarily blunt statement for a central banker, Bank of Japan Governor Masaru Hayami recently told a televised Japanese Congressional hearing that "the possibility of a worldwide move to dump the greenback [dollar] is fairly high."
- No Safe Haven -
The problem for investors fleeing the U.S. is that there is no place to go, because this is a global crisis, a deflation of the global financial system. The major European stock markets are down 40-50% from their 2000 peaks; the Japanese Nikkei is down over 75% from its all-time high. The world is two years into an accelerating market crash in which the fictitious paper values built up in recent years are vaporizing. The losses already likely exceed $10 trillion worldwide, and will climb into the hundreds of trillions as the system disintegrates.
As Lyndon LaRouche has repeatedly emphasized, there is no safe haven--the system is coming down, and the real issue is the battle over what will replace it. Either we go with LaRouche's New Bretton Woods and bankruptcy reorganization plan, or we watch as Greenspan and company ride the economy down, the way Slim Pickens rode the nuclear bomb in "Dr. Strangelove"--and with similar results.
- Signs of Life -
While most of what is occurring in Washington is dreadful, ranging from doing the wrong things to grandstanding, there are signs of a more rational approach. One source of hope is that Phil Gramm (R-Texas), a man whose career has been devoted to turning the nation over to the financial parasites, is leaving the Senate. Even in the post-Enron era, Gramm has fought tooth and claw to stop any meaningful reform. We wish him a good, and long, riddance.
The accounting reform measures proposed by Sen. Paul Sarbanes (D-Md) and the derivatives legislation of Sen. Dianne Feinstein (D-Calif) are steps in the right direction. Sarbanes described his bill as "a first, fundamental step" toward bringing the accounting problems under control, and Feinstein's bill could perform a similar function in the derivatives markets, if properly pursued.
The flaw in this approach is that this is not 1933, and we do not have the luxury of years to wait for slow-moving reform. The system is disintegrating now, and must be dealt with accordingly. If Senate Democrats are serious about saving the day, rather than engaging in Joe Lieberman-style posturing, they must turn to LaRouche, and quickly.
Italian Senator Renews Call For New Bretton Woods
Special to New Federalist
July 16 (EIRNS)--Italian Senator Riccardo Pedrizzi, president of the Senate Finance Committee and member of the Italian government coalition party Alleanza Nazionale, on July 2 issued a statement calling for a New Bretton Woods world financial system. Senator Pedrizzi was the first signer of a motion presented more than a year ago calling for such a New Bretton Woods system. His recent statement has been published in the daily bulletin of the Agenparl, a press agency that covers political and parliamentary developments, and other press agencies have also reported it, at least in part.
Senator Pedrizzi's statement came on the same day as the most noted author of the New Bretton Woods proposal, U.S. Presidential pre-candidate Lyndon LaRouche, appeared in Rome at a seminar devoted to the same topic. (See p. 5 for LaRouche's speech.) The candidate and economist shared the podium with Dr. Nino Galloni, an economist and director general of the Italian Labor Ministery, and Sen. Oskar Peterlini, initiator of another parliamentary motion calling for a New Bretton Woods conference.
- Pedrizzi's Statement -
"After the shocking cases of Enron and WorldCom, both linked to the Arthur Andersen story, it is clear that even the American system of control has failed. For Italy it is necessary to define some reference points in a way that whoever is a consultant cannot at the same time also have the role of internal auditors and certification firms. In this regard we are studying a specific law. Financial globalization is creating interdependencies and fallout from one system to another. We have to develop measures of protection for market minorities, often representing citizens--shareholders--savers, because the ultraliberal idea of a market that is able to reform by itself, which produces virtues through the sublimation of egoism, is largely contradicted by reality. While the governments are not able to influence the fundamental economic processes, the speculative bubble is getting out of the control of the big finance that created it."
With the world facing such a scenario of "global crisis", for Sen. Pedrizzi there is only one answer: "To organize at the international level the necessary forces for a reform of the global monetary and financial system, a New Bretton Woods decided by the governments that can, through continental great projects of economic development, relaunch the world productive economy, renewed dialogue, and peaceful cooperation and employment."
- In the Parliament -
In fact, there is already substantial dialogue going on within the Italian political establishment on the New Bretton Woods proposal.
Through his association with the LaRouche movement, Sen. Peterlini drafted a motion--a platform--calling for just such a reorganization, which was presented in the Italian Parliament at the end of February, and has drawn remarkable support. In the Senate, prominent names like former Prime Minister Giulio Andreotti and former Labor Minister Cesare Salvi, signed the document; in the House (Chamber of Deputies), former Ministers Maccanico, Melandri, and Treu, as well as current Defense Committee chairman Ramponi, signed.
More than 100 members of both branches of Parliament--more than 10% of the entire Parliament--have so far signed the resolution, which keyed off the outbreak of the Argentine financial crisis. After blaming the crises on the IMF policy, it lists a six-point reconstruction program for Argentina which "various political, economic, social, and religious forces in Argentina have put at the center of discussion:
"1. A peso-dollar decoupling, without devaluation or other forms of dollarization, de facto a new currency without obligations towards the current system;
"2. Measures of exchange and capital control, like those that in the '50s were able to protect currencies;
"3. Creation of a 'national bank' to issue new, long-term and low-interest-rate credits to expand productive investments in industry and agriculture, particularly in middle-sized enterprises;
"4. Freeze of all foreign debts and the opening of an investigation on the legitimity of the debt still owed;
"5. Creation of a defense coordination with other nations on the continent, aiming also to create a Latin American common market.
"6. Reintroduction of the inviolable principle of national sovereignity against any form of interference from globalizing supranational structures."
The motion directs the Italian government to support Argentina's "process of regaining national sovereignty in formulating economic policy", to support an Argentine debt moratorium and organize support from the European Union.
As far as concerns the international financial crisis, the motion directs the government "to carry out at all levels the demand of a revision of the IMF role and policies; to consider the initiative of proposing to convoke a new international conference, at the level of heads of state and government, such as the one which was held in Bretton Woods in 1944, aiming at establishing a new international monetary system and at taking necessary measures to eliminate the mechanisms that have led to the creation of the speculative bubble and the systemic financial crash, as well as to start programs of reconstruction for the world economy."
Extracted from the New Federalist News newsletter
Note by Dr. Amir Ali: The New Federalist is a useful newsletter, I recommend you to subscribe and read it regularly. Lyndon LaRouche is an economist-cum-politician and an anti-Zionist. He is neither a supporter of Islam nor a supporter of Islamic systems. However, he is against the American interference in the Muslim world affairs and war in Afghanistan. According to his analysis there is a group of Christian Fundamentalist-Zionist-Secularist pseudo-intellectuals in the West led by Americans who are conspiring to wage a thirty year religious war against Islam to destroy the religion and its adherents. My own independent studies of the last twelve years agree with his conclusions. In February 2002 his organization, LaRouche in 2004, published a report titled, ZBIGNIEW BRZEZINSKI AND SEPTEMBER 11, which confirmed my own personal analysis of anti-Islam policies of the U.S. government but I did not know how deeply these policies were rooted in the intellectual circles of the U.S. I am planning on writing an excerpt of his report and publish it on the Internet. If you would like to read his report in its entirety write to: LaRouche in 2004, P.O. Box 730, Leesburg, VA 20178. I am looking at 2004 to find a candidate whom Muslim Americans could support. Despite the Bush administration waging an anti-Islam war, I still find him lesser of the two evils, that is, any other Democratic candidate will hand over the U.S. government to the Israelis. Whereas Bush has become a spokesperson of Ariel Sharon, he has not handed over the entire government of the U.S. in Sharon's hands the way Al Gore, Joe Lieberman or any other Democratic candidate is expected to. In this situation I am looking at Lyndon Larouche as a possibility for Muslim American support in 2004. Due to the LaRouche opposition to Zionism he has enemies in the U.S. media as well as within the U.S. government and he is expected to face steep uphill opposition and his chances of winning anything are extremely slim. LaRouche has been marginalized in the American media, so has the position of American Muslims in America, therefore, it should not be an obstacle for our support for LaRouche.