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Mon

02

Jul

2007

The Fed's role in the Bear Stearns Meltdown
Monday, 02 July 2007 09:04
by Mike Whitney

The Bank for International Settlements issued a warning this week that the Federal Reserve’s monetary policies have created an enormous equity bubble which could lead to another “Great Depression”. The UK Telegraph says that, “The BIS — the ultimate bank of central bankers — pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.


The IMF and the UN have issued similar warnings, but they've all been shrugged off by the Bush administration. Neither Bush nor the Federal Reserve is interested in “course correction”. They plan to stick with the same harebrained policies until the end.

The “easy credit” which created the subprime crisis in mortgage lending has now spread to the hedge fund industry. The troubles at Bear Stearns prove that Secretary of the Treasury Henry Paulson’s assurance that the problem is “contained” is pure baloney. The contagion is swiftly moving through the entire system taking down home owners, mortgage lenders, banks, rating agencies, and hedge funds. We are just at the beginning of a system-wide breakdown.

The problem originated at the Federal Reserve when Fed-chief Alan Greenspan lowered the Feds Fund Rate to 1% in June 2003 and kept rates perilously low for more than 2 years. Trillions of dollars flowed into the economy through low interest loans creating a massive equity bubble in real estate which drove up housing prices and triggered a speculative frenzy.

The Feds’ “easy money” policy has disrupted the “debt-to-GDP” balance which maintains the integrity of the currency. By expanding circulation debt via low interest rates; Greenspan put the country on the path to hyperinflation and, very likely, the collapse of the monetary system.

The problems at Bear Stearns are the logical upshot of Greenspan’s policies. The over-leveraged hedge funds are a good example of what happens during a “credit boom”. Liquidity flows into the markets and raises the nominal value of all asset classes but, at the same time, GDP continues to shrink. That’s because the wages of working class people have stagnated and not kept pace with productivity. When workers have less discretionary income, consumer spending—which accounts for 70% of GDP—begins to decline. That’s why this quarters earnings reports have fallen short of expectations. The American consumer is "tapped out".

The current rise in stock prices does not indicate a healthy economy. It simply proves that the market is awash in cheap credit resulting from the Fed's increases in the money supply. Consumer spending is a better indicator of the real state of the economy than stocks. When consumer spending drops off; it is a sign of overcapacity, which is deflationary. That means that growth will continue to shrivel because maxed-out workers can no longer purchase the things they are making.

The underlying problem is not simply the Fed’s reckless increases to the money supply, but the growing “wealth gap” which is undermining solid economic growth. If wages don’t keep pace with productivity; the middle class loses its ability to buy consumer items and the economy slows.

The reason that hasn’t happened yet in the US is because of the extraordinary opportunities to expand personal debt. The Fed’s low interest rates have created a culture of borrowing which has convinced many people that debt equals wealth. It’s not; and the collapse in the housing market will prove how lethal that theory really is.

To large extent, the housing bubble has concealed the systematic destruction of America’s industrial and manufacturing base. Low interest rates have lulled the public to sleep while millions of high-paying jobs have been outsourced. The rise in housing prices has created the illusion of prosperity but, in truth, we are only selling houses to each other and are not making anything that the rest of the world wants. The $11 trillion dollars that was pumped into the real estate market is probably the greatest waste of capital investment in the nations’ history. It hasn't produced a single asset that will add to our collective wealth or industrial competitiveness. It’s been a total bust.

The Federal Reserve produces all the facts and figures related to the housing industry. They knew that trillions of dollars were being diverted into a speculative bubble, but they did nothing to stop it. Instead, they kept interest rates low and endorsed the lax lending standards which paved the way for millions of defaults. Now the effects of their "cheap money" policies have spread to the hedge fund industry where hundreds of billions of dollars in pensions and savings are in jeopardy.

Alan Greenspan played a major role in the housing boondoggle. On February 26, 2004, he said, “American consumers might benefit if lenders provide greater mortgage product alternatives to the traditional fixed rate mortgage. To the degree that households are driven by fears of payment shocks but willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.”

Greenspan tacitly approved the whacky financing which produced all manner of untested loans—including ARMs, piggyback loans, “no doc” loans, “interest only” loans etc. These loans are a break from traditional financing and have contributed to the increase in bankruptcies.

Millions of people who were hoodwinked into buying homes with “interest-only”, “no down” loans will now either lose their homes or be shackled to an asset of decreasing value for the next 30 years. They've been tricked into a life of indentured servitude.

A recent article in the Wall Street Journal revealed the extent of Greenspan’s involvement in the housing fiasco. Here’s an excerpt from the article:

“Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr. Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies.

"I would have liked the Fed to be a leader" in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.

"He was opposed to it, so I didn't really pursue it," says Mr.

Still, Mr. Greenspan's views did color the regulatory environment, facilitating growing concentration in banking and a hands-off approach to derivatives and hedge funds. That approach, broadly shared by both the Clinton and Bush administrations, is coming under increased scrutiny”. (Wall Street Journal)

So, Greenspan had the chance to “crack down on predatory lending” and he refused. Now millions of low income people are saddled with payments they have no reasonable prospect of paying off. How much of the present carnage could have been avoided if he had Greenspan done the right thing?

The “Not So Great” Depression

An article appeared this week in the UK Telegraph by Ambrose Evans-Pritchard which supports the theory that Greenspan’s “loose monetary policy” fueled a huge credit bubble, which is pushing the global economy towards a “1930s-style slump.”

The article quotes from a statement made by The Bank for International Settlements:

"Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a 'new era' had arrived".

But today we face “worrying signs” of another economic meltdown.

The BIS said that they were “starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be ‘cleaned up’ afterwards”. (Greenspan’s method) and that, “while cutting interest rates in such a crisis may help, it has the effect of transferring wealth from creditors to debtors and sowing the seeds for more serious problems further ahead.’"

“The bank said it was far from clear whether the US would be able to ignore the consequences of its latest imbalances, ($800 billion per year) citing a current account deficit running at 6.5% of GDP, a rise in US external liabilities by over $4 trillion from 2001 to 2005, and an unprecedented drop in the savings rate. ‘The dollar clearly remains vulnerable to a sudden loss of private sector confidence.”’

The BIS referred to the toxic effect of the “$470 billion in collateralized debt obligations (CDO), and a further $524 billion in "synthetic" CDOs which have spread through hedge funds industry. These CDOs are the loans (many sub primes) which were bundled off to Wall Street and turned into securities which are highly leveraged in hedge funds for maximum profitability. As Bear Stearns is discovering, these CDOs are like roadside bombs; exploding without notice whenever the stock market suddenly dips.

The BIS also cautioned about the excess of “leveraged buy-outs (mergers) which touched $753bn, with an average debt/cash flow ratio hitting a record 5.4…. ‘Sooner or later the credit cycle will turn and default rates will begin to rise.’”

The central banks around the world are increasingly worried that the Bush administration’s profligate spending and irrational monetary policies will trigger a global depression. The recent volatility in the stock market suggests that the credit boom is just about over. Once the liquidity dries up — -stocks will fall sharply.

The Housing Slump

Yesterday’s housing data, shows that sales are still weak while inventory continues to grow. Existing home sales dropped 3% while prices dropped another 2.1%. Falling prices mean that cash-strapped home owners will not be able to tap into their home’s equity for other expenses. Last year, mortgage equity withdrawals (MEWs) accounted for $600 billion of consumer spending. This year, the amount will be negligible at best.

The media and the Fed continue to mislead the public about the magnitude of the housing bubble. Fed chief Bernanke assures us that the sub prime calamity hasn’t “spread to other parts of the economy” (tell that to Bear Stearns) and the media keeps cheerily reiterating that a “turnaround” or “soft landing” is just ahead.

These claims are ridiculous. Apart from the 80 or more sub-prime lenders that have gone “belly-up” in the last few months, the rickety collateralized debt obligations (CDOs) and mortgage backed securities (MBSs) are steamrolling their way through the stock market bowling down everything their path. Bear Stearns is just the first on the casualties list. There’ll be many more before the storm is over.

Fed-chairman Bernanke knows what’s going on. He was given a full rundown by “John Burns Real Estate Consulting that the national sales information for both new and existing homes, is “misleading and covering up a deep plunge of the housing sector.” The housing market is freefalling. Existing-home sales are down 22% in May and mortgage applications have fallen a whopping 18%....In Florida home sales are down 34%, not 28% as NAR reported; Arizona sales are down 38%, not 28%; and California's down 37%, not 24% as NAR reports.”

Down 37% in California!?!

Gadzooks! It’s a landslide.

As the defaults continue to pile up; the hedge funds will take a bigger and bigger pounding. It can’t be avoided. That’s what happens when bankers abandon traditional lending standards and lend trillions of thousands of dollars to people who have bad credit and lie on their loan applications.

Thousands of these same shaky sub primes loans have been wrapped up like the Crown Jewels and sold off to Wall Street as CDOs. Now they are ripping through the hedge fund industry like a tornado in a trailer park. The media has tried to downplay the damage, but its not hard to see what is really going on. According to Reuters:

“Banks doubled the amount of CDOs outstanding in the past two years to $2.6 trillion, including a record $769 billion sold last year, according to J.P. Morgan. These figures include funded and unfunded issuance. Pimco’s Bill Gross said there are hundreds of billions of dollars of subprime residential mortgage-backed securities (RMBS), derivatives on subprime RMBS and collateralized debt obligations (CDOs) that buy subprime RMBS and/or the derivatives on the RMBS — all of which he considers "toxic waste.”’

"$2.6 trillion"! That's enough to bring down the whole economy. And, as Bear Stearns proves, the whole mess is beginning to unwind pretty quickly.

“Foreign investors have been the dominant buyers of these exotic debt instruments in recent years, owing to their insatiable demand for yield. ‘If investors start dumping them, oh boy, watch out for some massive credit widening," said Dan Fuss, Vice Chairman at Loomis Sayles. (Reuters)

If the hedge fund industry follows the downward slide of the housing bubble, foreign investors will run for the exits. In fact, this may already being happening.

China sold $5.8 billion in US Treasuries in May; the first time they have dumped USTs on the market. This may be the first sign of “capital flight” — -foreign investment fleeing the US for more promising markets in Asia and Europe. The greenback’s survival now depends on the generosity of foreign bankers. If they refuse to recycle our $800 billion current account deficit by purchasing US bonds and securities, then the dollar will sink like a stone and lose its place as the world’s reserve currency.

More Housing Blowdown

Last Friday, the stock market took a 185-point nosedive on the news that Bear Stearns was trying to raise $3.2 billion to rescue its battered hedge fund. According to the New York Times, however, Bear was only able to came up with "$1.6 billion in secured loans to bail out one of the 2 hedge funds".

The funds are the latest victim of the sub-prime meltdown which Bernanke and Paulson assured us was “largely contained”. In fact, Paulson even said, "We have had a major housing correction in this country," and "I do believe we are at or near the bottom."

Anyone who believes Paulson should take a look the chart linked below: http://www.belowthecrowd.com/photos/ackman.jpg?ref=patrick.net It illustrates that how loan “resets” will continue to pound the housing market for at least another year and a half getting steadily worse as inventory grows.

The disaster is so bad that even the realtors are beginning to tell the truth. As one agent noted, “It’s a bloodbath.”

But the debacle in housing is only the first part of a much larger problem—a global liquidity crisis. Banks and mortgage lenders have already begun to tighten up their lending practices and many have abandoned sub prime loans altogether. (20% of the housing market in 2006 was sub prime) Now the focus has shifted to the stock market, where banks are beginning to see that “risk” has not been properly calculated. That means that if more hedge funds collapse, the banks may not be able to cover the losses.

The Bear Stearns fiasco has had a chilling affect on lending. In fact, the New York Times reported on 6-26-07 that “After years of supersize private equity deals…the buyout boom may be about to hit a bump…Rising interest rates and tougher terms from investors may signal that private equity players will soon be struggling to continue reaping the outsize returns that have made the buyout business so lucrative.” (Private Equity Investors Hint at Cool Down” NY Times)

Liquidity is drying up in the private equity business. The troubles at Bear Stearns has changed the credit-landscape overnight. Bankers are nervous, money is getting tighter, and liquidity is vanishing.

"We know that these holdings are not unique to Bear Stearns," said Professor Joseph R. Mason, co-author of a recent study warning of dangers in securities backed by home loans to high-risk borrowers. "It would be hard to find a Wall Street firm that hasn't created similar funds."

That’s right; the industry is waist-deep in these sub-prime time-bombs. Shaky loans and rising foreclosures threaten to knock the foundation blocks out from under the stock market and set off a wave of panic selling.

Could it have been avoided?

Perhaps, if there were better regulations on rating bonds and restricting leverage.

Consider this: one of Bear Stearns hedge funds took a $600 million investment and leveraged it 10 times its value to $7 billion. Their portfolio was chock-full of dicey CDOs and “illiquid assets” such as timber holdings in foreign countries and toll roads. These assets are difficult to price and nearly impossible to quickly auction off if the market suddenly takes a downturn.

It looked like Merrill Lynch & Co., was going to auction off $850 million of Bear Stearns CDOs this week, but backed off at the last minute. (They were reportedly only offered 30 cents on the dollar!) Once the hedge funds start selling these CDOs, then everyone will know how little they're worth. That could trigger a wave of selling that could bring down the stock market. Even if that scenario doesn’t play out, the Bear Stearns incident ensures that CDOs in other hedge funds will be face a substantial downgrading that could take a big chunk out of their bottom line.

And, there’s a bigger fear on Wall Street than the fact that 2 hedge funds are headed into bankruptcy, that is, that a sudden tightening of credit will send the over-leveraged stock market into a downward spiral.

The market is particularly sensitive to any rise in interest rates or tougher lending standards. It's become addicted to cheap credit and any break in the chain will cause equities to plummet.

Economist Henry C K Liu sums it up like this:

“The liquidity boom has been delivering strong growth through asset inflation without adding commensurate substantive expansion of the real economy. …. Unlike real physical assets, virtual financial mirages that arise out of thin air can evaporate again into thin air without warning. As inflation picks up, the liquidity boom and asset inflation will draw to a close, leaving a hollowed economy devoid of substance. …A global financial crisis is inevitable”. (Henry C K Liu “Liquidity boom and looming crisis” Asia Times)

In other words, the “virtual” wealth of Wall Street is a chimera which was created by the Fed's inexorable expansion of debt. It can vanish in a flash if the sources of liquidity are cut off.

Puru Saxena draws the same conclusion in his article “A Gradual Transition”:

“Thanks to the Federal Reserve’s expansionary monetary policies over the past 5 years, US asset-prices have risen considerably; also known as the “wealth effect”. At the end of last year, the market capitalization of the US stock market rose to a record-high of US$20.6 trillion, matching the value of household real-estate, which also rose to a record-high at the same time. On the surface, this may seem like brilliant news, however you must realize that this “wealth illusion” achieved by an ocean of money and record-high indebtedness is only a consequence of inflation."

Code Red: Subprime Chernobyl

We expect that the mounting losses in CDOs and the continuing defaults in the housing industry will precipitate a “severe credit crunch” which will end in a stock market crash. A report which appeared yesterday in the UK Telegraph appears to agree with this analysis. Lombard Street Research predicted that:

“Excess liquidity in the global system will be slashed. Banks Capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the US ‘hard landing”’ (“Banks set to call in swathe of loans” UK Telegraph 6-26-07)

Three of the main hoses which provide liquidity for the market, have either been cut off or severely damaged. These are "securatized" subprime CDOs, corporate mega-mergers and hedge fund leveraging. Without these instruments for expanding debt; liquidity will dry up and stocks will fall. The period of "easy credit" will end in disaster.

We should now be able to see the straight line that connects the Fed's low interest rates to the impending stock market meltdown. The problems began at the central bank.

Presidential candidate Rep. Ron Paul (R-Texas) summed it up best when he said:

“From the Great Depression, to the stagflation of the seventies, to the burst of the dot.com bubble; every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and artificial “boom” followed by recession or depression when the Fed-created bubble bursts”.
 
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a guest said:

0
Implementing a Single Global Currency will save $ trillions and reduce international financial risk
Mike Whitney identifies several risks in the international economy, with many starting with the U.S.'s less than prudent financial management. These risks are moved overseas with the excessive trade and fiscal deficits. In a Global Monetary Union, with a Single Global Currency, there would less international exposure.
The long term answer to global financial instability and currency fluctuations is the Single Global Currency.
The world should move as soon as possible to a Single Global Currency because the benefits far outweigh the costs. (Not to worry, the process will be gradual so those who earn their living by currency trading can smoothly transition to other work.)
The Single Global Currency will be managed by a Global Central Bank within a Global Monetary Union, just like the European Central Bank within the European Monetary Union, or the Eastern Caribbean Central bank, etc.
The benefits of a Single Global Currency will be substantial:
- Annual foreign exchange transaction costs of $400 billion will be eliminated.
- Worldwide asset values will increase by about $36 trillion.
- Worldwide GDP will increase by about $9 trillion.
- Global currency imbalances will be eliminated.
- All Balance of Payments problems will be eliminated.
- Currency crises will be prevented.
- Currency speculation will be eliminated.
- Currency fluctuations, and the need for hedging, will be eliminated.
- The need for foreign exchange reserves, now over $4 trillion, will be eliminated and these funds can be used for more productive purposes than maintaining an inefficient foreign exchange system.
If a monetary union in Europe works (still an issue for a number of economists) for 13 countries, soon to be 15 and then 22, then why not plan for monetary union for 192 countries?
For more information, please visit the website of the Single Global Currency Assn. at (home). Our goal is implementation by 2024 and we published the book, "The Single Global Currency - Common Cents for the World" and invite comments, suggestions and criticisms. The 2007 Edition is available from Amazon.com and the Single Global Currency Association, and the original 2006 version is online at the association's website at http://www.singleglobalcurrenc...about.html and at the REPeC Munchen personal archive at http://mpra.ub.uni-muenchen.de/1175/.


 
July 03, 2007 | url
Votes: +0

a guest said:

0
in recent G* meeting itis the british who defended hedge fund agasint any regulations-ofcoursersamericans follow what the british ask them to(and not the other way around as made out to be)
"German labour minister Franz Muentefering has compared hedge and other speculative funds to locusts ravaging fragile economies and enterprises for short-term gains."






Lyndon LaRouche: The Issue Is Globalization
See also: the full EIR feature article in PDF format

The following opening statement was delivered by Lyndon LaRouche, at a Feb. 8 meeting of diplomats in Washington, D.C.



I'd like to bring to your attention an item in the latest edition of the London Economist magazine. I recommend that you look at it, particularly the article on page 12, which is a one-page reference to a special central feature in the same edition of that magazine: because this refers to what I'm going to deal with here today.

..The power of finance no longer lies with banks, or with governments as such. There's a vast hyperinflation, in which the banks themselves are being looted, the major banks of various countries are being looted by a financial firestorm, a whirlpool, which is being driven largely from London, but using heavily the Japan carry trade as a source of monetary aggregate, for the wildest financial speculation the world has ever seen on a global scale.
behind the pews



This is aggravated by the destruction of the economies, the physical economies, of Europe and the Americas. This is part of a drive toward a unipolar world, under globalization.



Now, looking at the U.S. Presidential candidacies: It's a farce. These people that are running are not a farce, but what they're saying is a farce. It's totally irrelevant to anything of importance to the world today; but it's very important to them, because it's an ego-trip.

But the realities are far different. You should know, first of all, that we are on the verge of the greatest financial crisis in all modern history: that is, in modern European history since the great crash in the middle of the 14th Century.

The urgent financial situation is absolutely impossible; there is no solution. Present policies will lead to an absolute disaster, globally. Not just the United States, the whole world will go down; because, obviously, a collapse of the U.S. economy would mean a collapse of the China economy: because China depends currently upon exports to the United States.

A similar thing is true with respect to the rest of the world. Europe, continental Europe, is essentially non-functional. It has a role to play, but, it is not an independent power. The nation-states of central and western Europe are not functional, apart from the British, which is significant.

We recently had an incident that occurred involving China; that incident involved the illumination of a U.S. satellite passing over China. And, then there was a second incident, where China has shot down one of its own bodies in space, with the aid of a laser-guidance system. Now, this is not the most sophisticated system that can be used; but, it portends what is going on.

For example, China today is expending more effort in terms of scientific personnel on developing laser and related systems than the United States was expending during the 1980s. It's a much higher level, over 300 such cases. You never had that in the U.S. The problem that comes up that causes this, is the behavior, particularly, of the present Bush Administration in two terms, which has been moving toward a globalized world: which is why I referred to this China coverage in Britain, in which the intention is to have a world system of weapons, controlled entirely by the United States, which would be able to rain death on any part of the world it chooses. It is assumed that the economy of the United States is broken down, the economy of Europe is broken down; they are no longer industrial economies.

We are now, in the United States, as in continental Europe, we are in a post-industrial economy. In an economy of stupid people, who don't know how to do anything, because they are not bred to do anything, they're not educated to do anything. So, you have the idea of a kind of super-science-fiction kind of system, around the planet, in which the United States can rain death on any part of the system it wants.

Now this kind of thing is foolish. Because an automatic system, or a quasi-automatic system of the type that's being proposed now from the United States by this Administration, is vulnerable. Automatic systems depend upon the control system which controls them.

Therefore, if I'm Chinese, I'm going to develop a system to knock out the control system. We have enough junk flying around the planet in outer space, that we can create all kinds of things, one nation can create all kinds of things which can wreck the functioning of the control system. And, what you're seeing as was developed in Russia, which is echoed in India and in China—you're seeing the development of systems which could be used to disrupt such a control system, by going after the control mechanism.
The Drive for World Empire

That's what is at stake. So therefore when you're talking about important issues, like the issue of Southwest Asia or the current Iran issues, these are not the real issues. These are issues, but they are not the real issues.

The real issue is the attempt by a group centered in the United Kingdom, and integrated with forces in the United States, typified by the circles represented by the Bush Administration—these circles are moving toward total globalization. The environmentalist turn of the current President of the United States is a featured example of that.

What they're headed for, is a world empire, a world empire of a type which is modeled on what happened when Byzantium collapsed as an imperial force, around A.D. 1000. At that point, the Venetian financier oligarchy took control of the European Norman chivalry, and ran what was called a medieval (ultramontane) system, which was based on attacking Islam and also on anti-Semitism, back during the period of 11th, 12th, and 13th centuries.

What you're looking at is an apparently stateless system like that in medieval Europe under the Crusaders and the Venetian oligarchy. Today Venice is still a factor—the Venetian oligarchy; but, the key thing is the Anglo-American or the Anglo-Dutch liberal financial oligarchy,*[1] which is now running the world. It's crazy, but it's running the world.
Defend National Sovereignty

And Britain is a power which says we can not have a globalized system if there is a big power alliance in Asia plus the United States: that is, if the United States, Russia, China, and India are determined to defend the principle of national sovereignty, and agree to agree on defending that principle of national sovereignty, then, globalization cannot happen. Therefore, the immediate enemy, the target of what Cheney represents, and what Blair represents in London, are Russia, China, and currently India. These are the primary targets. Not Iran, Not Iraq. Not Southwest Asia. Southwest Asia, including Iran, are targets precisely because they are the door to an open attack on China, Russia, India, so forth. And that's what we've said.

Now the politicians in the United States, the ones who are running for office, are largely from the U.S. Senate. They are not quite as stupid as they seem. What they are, is they are opportunists. You, looking from the outside, must recognize, that when they run for office, they become prostitutes, walking the streets looking for customers. But when they are in the Senate they tend to be a little better quality. The problem is, when they're running for office, as for President, they become stupid even in their behavior in the Senate, because their Senatorial actions are conditioned by their Presidential campaign ambitions. So we now have that kind of situation.

But the important thing for nations to understand, is that there are four key nations on this planet, on which the fate of the planet as a whole depends. These four nations are the United States, Russia, China and India. If we can establish an agreement among Russia, China, India and the United States, to defend the principle of sovereignty and to make agreements which will serve that purpose, then we can defend the world from chaos and we can come out of the current mess.

I emphasize that here, because this is reality. What you get from the press here, is not reality. What you get from the mouths of politicians running for office here, is not reality. The reality is that the Anglo-American crowd, of which we have a big chunk inside the United States, is typified by the Bush Administration, and also by dubious Democrats like Gore and Lieberman. This crowd is moving around the policy of globalization, a global reduction of the population of the planet, total control over the planet of a medieval type, of a type based on the model of Venice, the Venetian financial system, which was the imperial power of the Middle Ages, which was allied then with the private interests of the Norman chivalry.

What we're getting today is a pattern of private armies, eliminating state power, replacing this with private armies controlled by large corporations such as the Halliburton complex, which is taking the place of the military forces. These are the policies which are inside the United States government. These are the policies associated with Cheney today, to eliminate the military. They don't care if they lose the United States Army; they'll transfer the power to private forces, such as Halliburton. They're destroying the rest of the world economically; they hope to establish an empire.

This is the real issue. And the threats to Russia, China, and India in Asia, are the real issues. Because, if the United States defends the right of Russia, China, and India to have national sovereignty, then we can unite the world around the idea of restoring the principle of national sovereignty, and can eliminate these evils. If we do not understand this, if we think that the issue is Iran, or we think the issue is Iraq, then we are fools. Because these are merely the doorways into the major crisis.

And what you see with the talk now in response to this discussion of the Chinese development of laser-assisted—and they're not just laser-assisted, we're talking about all kinds of systems way beyond lasers involved in this, which are being developed by serious countries. And these issues have come on the table now. And, when they start talking about China and its lasers; about breaking China; when they talk about attacks on Russia; when they talk about trying to disrupt India's sovereign development of its own economy, you're getting signs of what the real issue is.

The issue is globalization. And this little issue of the publication, the London Economist, if you read it carefully with what I have just said in mind, you will know exactly what I'm talking about.

So the question is, we have to have a system which deals with a general collapse of the world financial system. The world financial system is now immediately doomed. Nothing could save it in its present form. It's finished. There is no way to reform it, you must eliminate it. There are ways to eliminate it.

There are ways to deal with that; but, we must save the nation-state system. We must set up a system under which nation-states are protected in their rights to sovereignty; and, we must organize methods of cooperation in the economic field, as well as otherwise: where we provide not competition, not cutthroat treatment of one nation by another, but we provide security for the nations of the world for their development.
The FDR Legacy

And, this goes back to Franklin Roosevelt's death. When Franklin Roosevelt died, we had one policy. The policy of the United States was, that all the former colonialized nations would be free in their national sovereignty. The United States would take the great industrial military power we had built up, we would use, we would convert that, to develop the world, to develop the nations, like India, to develop projects for Africa, which were the projects that Roosevelt threw in the face of Winston Churchill in Morocco.

But, the moment that Roosevelt died, the Anglo-Dutch Liberal crowd, using President Truman, took over and reversed every policy that they could that Roosevelt represented. My view today, to sum it up, is, the policy of the United States must be—and this is what I fight for—to return to the policies of Franklin Roosevelt at the moment of his death, or to the modern equivalent of those policies.

We must set up what Roosevelt intended as the United Nations, as a system of cooperation among respectively sovereign nation-states, which must cooperate in their common interests and establish treaty-systems which provide for the separate, and independent role, but cooperative role, among nation-states. By treating this part of our memory, of our historic memory, and going back to that point, saying, "This is the policy the United States must return to, the policies of Franklin Roosevelt up until his death." And look at nearly everything that was done after that as a big mistake.

We are forced to do that now, because the entire financial monetary system which has dominated the world increasingly, especially since the Nixon Administration, especially since the middle of the 1960s, that system is now finished. And if we don't replace it, we will have chaos on this planet, and we will not have much to salvage, that's the essential part. And I think this is the crux.

I think every other leading issue of this jigsaw puzzle, is irrelevant. We must establish, among nations, a consciousness that this is the problem: that we have to understand what the meaning is of four major world powers, leading world powers, which, if they can come to an agreement on this issue, we can create a system under which all nations can be protected, including the nations that are too weak to fight for themselves.

That is what I think are the real issues on the table at this time in history.

  • Cf. Carroll Quigley, The Anglo-American Establishment: From Rhodes to Cliveden (New York:


    =======Books in Focus, 981).

    =====================





    =======================================================
    ================

    from -----http://www.larouchepub.com/lar/2007/3416where_the_future.html

    This article appears in the April 20, 2007 issue of Executive Intelligence Review.

    Where the Future Lies
    by Lyndon H. LaRouche, Jr.


    British evil designs.

    " since the days of foolish Louis XIV, it has been a persisting, pro-imperial, Anglo-Dutch Liberal "geopolitical" strategy, sometimes called a Fabian strategy, to lure targeted rivals into wars by which they ruin themselves to Anglo-Dutch Liberal strategic advantage. This was the way in which the British East India Company acquired its private world empire, through the so-called "Seven Years War" culminating in the February 1763 Peace of Paris, and the London determination, from 1763 on, to crush those American colonies which had been crucial in Britain's war to wrest Canada from France.

    The U.S. War in Indo-China and the current U.S. military operations and postures in Southwest Asia, are typical of the ways in which London has induced the U.S. government to, repeatedly, play the fool in this way. Indeed, many among our Baby Boomers in the U.S. Congress are still playing the role of official dupes of that strategic game.

    World War Three, or its equivalent, is a proposition now on the table, a policy to be openly rejected now, or to be adopted by default. The London-centered, still-as-always-geopolitical intention, is to pit the U.S.A. into a virtual, even an actual, nuclear war against Russia, China, and India. The number of suckers ready to bite that bait, within the U.S. Senate, for example, is more disgusting than it should be considered surprising. A Baby-Boomer fish, running for President or otherwise, that would swallow Gore's "Global Warming" swindle, is clearly prepared to swallow almost any similarly baited hook.


    The brief, but crucial role of that de facto political boss of the British East India Company, the Eighteenth Century's Lord Shelburne, in his 1782 accession to the post of Prime Minister, was not only a crucial turning-point of inflection in course of world history; it has crucial relevance for any competent understanding of the strategic crisis of this planet today.

    Not only did Shelburne maneuver the Americans' allies, the U.S.A., France, and Spain, into separate peace negotiations, but, with the assistance of relevant freemasons under British control, notably the Martinist freemasonry, orchestrated the series of 1782-1789 developments leading into the self-destruction of U.S. ally France, that in a series of events which began with the atrocious farce which the British orchestrated as Philippe Egalité's July 14, 1789 assault, armed and directed by him personally, at the Bastille. This was the assault conducted ostensibly on behalf of Philippe's crony Jacques Necker's candidacy for Prime Minister of Louis XVI's France.[2] These events included such delicacies as the succession of that Reign of Terror, and that Bonaparte tyranny which Count Joseph de Maistre's Martinist freemasonry orchestrated as the economic spoiling of continental Europe for British imperial advantage.

    Thus, following the American defeat of London's Cornwallis, there was a period of more than seventy years, from those France events of 1782-1789 through the U.S. victory over London's Confederacy in 1865, during which the British Empire's control over the world's monetary-financial systems was frequently challenged, but without actual success. However, by the time of the U.S. Philadelphia Centennial celebration of 1876, the U.S. 1865 victory led by President Lincoln over the globally orchestrated, anti-U.S. schemes of Britain's Lord Palmerston, had created a new situation in the world at large. A new situation had emerged, in which the anti-monetarist American System of political-economy was widely regarded as the available alternative to submitting to the imperial tyranny of the same neo-Venetian Anglo-Dutch Liberal form of monetary system which has dominated the world afresh, since August 1971.[3]

    "Geopolitics" was the name of the British imperial reaction to the post-1865 copying of the key features and intentions of the Hamiltonian American System, among a significant number of nations within the continent of Eurasia, and also spreading into Central and South America. "Geopolitics" meant, in fact, defense of William of Orange's Anglo-Dutch Liberal strategy for blocking and destroying the threat represented by the rival influence of conceptions and policies, such as those of France's Jean-Baptiste Colbert, leading into the design for what became the constitutional form of of the U.S.A. economy. The result of President Lincoln's victory over the British puppet known as the Confederacy, was the outbreak of open warfare under London's direct supervision of the continuing 1895-1945 Japan policy of war against China, Korea, and Russia, and the London-orchestrated Balkan wars leading into what became known as World War I. Lord Kitchener's invasion of Sudan has remained an included, featured pivot of British imperial geopolitics, worldwide, to the present-day in Darfur.

    This continuing geopolitical impulse of the post-1865 times, led, thus, into both World War I, and to the initial British sponsorship of Benito Mussolini and Adolf Hitler, leading into what became known as World War II. It was the motive for a Franklin-Roosevelt-hating Prime Minister Winston Churchill's continuing influence, even after his ouster, over the U.S.A. under Roosevelt's successor, Harry S Truman.[4]

    U.S. President Franklin D. Roosevelt had managed to outflank the early-on Hitler backers in London and Wall Street, to the effect that the United Kingdom had dumped Edward VIII, to join, later, with Roosevelt, and with Stalin, in defeating what would have otherwise become a long world empire under the Hitler system. However, the same London and Wall Streets which Roosevelt had temporarily weaned away from Hitler's cause, soon showed, under President Harry Truman, that once Hitler were out of the way, it was the legacy of Franklin Roosevelt which London now wished to uproot, even by methods which amounted to a return to some crucial features of the Hitler system.

    Among relevant circles in Boston and Manhattan, most notably, the leading intention at that time, and since, has been to assimilate Boston[5] and Manhattan into London, as early as this might be pulled off. The assassination of President John F. Kennedy, and the ruinous effects of the U.S. plunge into the trap of a Indo-China war led, thus, to the near-triumph of what President Eisenhower denounced as the "military-industrial complex" represented, today, by the intimate alliance of Prime Minister Tony Blair, Al Gore, and the Bush-Cheney Administration.

    Under the currently ongoing parody of the "Peloponnesian War" in Southwest Asia, by President George W. Bush, Jr., Cheney, and Britain's Prime Minister Tony Blair, that with the foolish complicity of many leading Sophists among the Democratic Party's currently leading figures, the wrecking of the U.S. and its economy is nearly completed today. So, Fabian Society agent Al Gore's "Global Warming" swindle, now added to the already existing mess, has, suddenly, nearly destroyed the U.S. Democratic Party as a viable leading institution—unless we can reverse this awful error now.

    For the moment, a London-directed Al Gore is deployed to induce the U.S. to wreck itself with an insane plunge into Gore's proposed "Bio-Foolery"; but, do not be so naive as to assume that the powers behind the curtain in London intend to destroy themselves, economically and otherwise. Blair and his like are intended to be dumped, once their assigned role has been, so to speak, "used up." New policies are on the drafting board for those upcoming times.

    Until recently, there is a great fear within certain Anglo-Dutch Liberal circles, including U.S. figures associated, as Henry A. Kissinger and Felix Rohatyn were, with George Shultz in putting Augusto Pinochet's mass-murderous, fascist dictatorship into power in Chile. The fear behind pushing the Bush-Cheney Administration into power in Washington, has been, that a new world financial crisis would bring a resurgent patriotic echo of President Franklin Roosevelt back into power. At the moment, the Anglo-Dutch Liberal followers of Prince Philip and the late Nazi-SS veteran Prince Bernhard, manifestly wish, that the virtual national suicide of the U.S.A. be accomplished by the Bush-Cheney Administration. This arrangement, however temporary the intention, has brought the matter to the point, that, apparently, these treasonous fellows have almost finished off the possibility that the U.S.A., or even its memory, could become again an effective obstacle to an Anglo-Dutch Liberal world empire of the sort called "globalization."
    Both Philippe and Necker were established members of relevant, quarreling international circles of the leading freemasonries of that time. Philippe was already notorious as a British asset during his Paris quarrels with Benjamin Franklin, whereas Necker had married into the same social circles as his wife's former suitor, Edward Gibbon of Decline and Fall of the Roman Empire notoriety. The bloodier features of the French Revolution were steered from the office of Lord Shelburne's Jeremy Bentham in the British Foreign Office's "Secret Committee" operations which ran the most significant events, such as the Danton and Marat, and Robespierre of what was called, euphemistically, "the French Revolution." One today might be tempted to say, "After all, it seems that so little has actually changed!"

    [3] The Anglo-Dutch Liberal form of world monetary system established by the followers of Venice's "New Party" leader Paolo Sarpi appeared as a new form of attempted world-rule by monetary usury. The American System of political-economy, as revived by President Franklin D. Roosevelt, is defined by the principles of the U.S. Federal Constitution as a credit system, as leading U.S. economists such as Henry C. Carey followed Alexander Hamilton's principles of national banking on this account.

    Boston's Harvard University, where British "courtesy agent" in the Confederacy tradition of "The Agrarians," William Yandell Elliott, had created the Henry A. Kissinger of the Augusto Pinochet affair and Operation Condor, imperfectly, as if from mud, and where Judge Lowell, acting on Lord Shelburne's behalf, had earlier founded the gentleman's practice of treason in America.


    The recent director of Harvard’s Carr Center for Human Rights, Michael Ignatieff, proposed in the New York Times in May 2004 that we should give U.S. presidents the authority to preventively detain U.S. citizens and to engage in “coercive interrogations” should the United States experience another terrorist attack like 9/11. Ignatieff argued that “defeating terror requires violence” and “might also require coercion, secrecy, deception, even violation of rights.” “Sticking too firmly to the rule of law simply allows terrorists too much leeway to exploit our freedoms,” he said.[1]



    In addition to Harvard’s top human rights academic arguing on behalf of “torture lite,” Harvard Law School’s Alan Dershowitz supports “torture warrants” so that U.S. presidents can torture detainees in so-called “ticking bomb” cases.
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    July 07, 2007
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