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July 20, 2007 (LPAC)

Lyndon LaRouche held a closed-door discussion July 19 with 25 Washington-based diplomats representing 18 countries from Eurasia, Africa, and Ibero-America. As per tradition, LaRouche's opening remarks were recorded and transcribed, but the discussion following was strictly off-the-record.

"This is not yet August, but as I think back to Augusts in the past, I think of August 1914, August 1939." This is how Lyn began his address yesterday to a private gathering of some 25 diplomats in Washington D.C. from eighteen different countries. Lyn spoke of the "virtual state of war" between Russia and Great Britain. He told of the signs of the onrushing economic crisis, the New York Times today noting that a can of soda in Heidelberg now costs $5.52, and the collapse of Bear-Stearns. "Under these economic conditions, war becomes likely," Lyn said, noting particularly Dick Cheney's drive to start a war with Iran. "It wouldn't be war in the simple sense of World War I and World War II, but something comparable," he said. And unfortunately, it occurs in a situation where you have very poor leadership in the United States, he said. Cheney and the British typify the situation. "It's very dangerous. Anything can happen." "And governments are on vacation," he warned.

After that introduction, Lyn continued: "The world can blow up. Now the alternative is also on the table. It was put on the table in a curious fashion this past spring. A series of events. It happened at the time that I was making a visit to Moscow for the birthday anniversary of a friend of mine, a distinguished figure in the Russian system. I had some meetings there.

"But at the same time, you had the death of Yeltsin in that period, and the events that went along with that. President Clinton was there, former President Bush was there. Other figures were there. And during this interval of this spring, concluding with the meeting at Kennebunkport in Maine, with the Bush family and with President Putin of Russia, there were certain negotiations behind the scenes in which former President Clinton played a key role, and others played a key role.

"We have on the table the option, the opening of the door, so to speak, with the Kennebunkport proceedings, in which we could induce what has to happen. What has to happen is a process under which the United States government engages with the Russian government, the government of China and the government of India, to sponsor emergency action to save the world from a general financial collapse, which is what's oncoming now.

"Let me explain what that means. If the U.S. dollar collapses, as it is collapsing now, the entire world could go into something worse than a depression. If you look at the effect of the collapse of the dollar on world markets, and look at the financial condition of countries throughout Asia as well as elsewhere, a collapse of the dollar would mean a chain-reaction collapse worse than any depression of the last century.

"Now, that could be prevented. We have in United States history, in our Constitution, we have the means to do that. Roosevelt is an example of that, Franklin Roosevelt. But if the government of the United States were to engage Russia, the government of China, and India, as the four major nations who are going to co-sponsor something on behalf of the world as a whole, and say, we're going to freeze the values of currencies among these governments, and other governments, and we're going to go back to a Franklin Roosevelt approach, to organize a general world recovery.

"In other words, we're going to take over in effect, have the nations of the world, take over the IMF system, and put it under a Roosevelt-style administration. Under those conditions, we could manage this crisis and we could work our way, gradually, out of many of the financial and related problems. If we could unite nations around this issue, which has to be addressed now, the economic issue, then their interest would be in preserving that agreement. Every nation on the world would have a substantial interest in maintaining that agreement and making it effective.

"Our problem is we've been moving in part away from -- Western Europe is a junkpile. It is no longer a technological center. The United States has no high technology, except in the military sector which produces weapons. We are exporting production from Europe and from North America, into countries we're exploiting on the basis of their cheap labor. So therefore, we are not really helping these countries--though they may get SOME benefit, as the case of China, for example, illustrates--but the benefit of the people as a whole, the entire population, that does not occur, because the income is not sufficient, the rate of growth is not sufficient, to raise the standard of living around the world. What we're doing is exploiting cheap labor in these countries, or exploiting the population in order to exploit the labor. We're not developing them.

"Therefore, we need to go to a Roosevelt-type approach. We organize the world system, freeze the values of currencies, put the whole system under bankruptcy, prevent a collapse, and then unleash measures for global development over the coming 50 years. We need really a set of 50-year agreements on economic recovery. It can be done, it has to be done. It's not something that would ordinarily be considered now, but only in a time of crisis as grave as this is, are nations capable of making the kinds of sudden, sweeping changes needed to deal with a crisis of this type.

"We're at such a point, in which it's in a sense like August 1914. The British were determined to get rid of a lot of problems, and they prepared the war--it was called World War I--by starting a war of Japan against China in 1894, and Japan's war against China, launched from London, continued from 1894 to 1945. That's a big chunk of history there. We repeated World War I, in World War II. The outcome was somewhat different because of Franklin Roosevelt, but with the death of Franklin Roosevelt, we began to abandon his policies and move in a different direction. And with the assassination of President Kennedy, we began to move in the United States distinctly in that direction.

"So, we've come to a time where we have to change our ways. We also have to recognize, from looking at the month of August, and looking at the ominousness of this month, coming month of August, and compare it with 1914, compare it with 1939. We've come to a very dangerous period, but dangerous periods are times when people who recognize the danger will do things they otherwise would not do. They are willing to make changes they otherwise would not make. They'll make changes for worse, or changes for the better. This is a deadly threat; it's also an opportunity. And that's what I'm concentrating on.

"The point is very simple. My view is that we have to somehow get rid of Cheney. I think if we get rid of Cheney, with what's brewing among politicians here who are really not that courageous; they're not men of principles, they're opportunists. They're not bad people, they're just opportunists. But when an opportunity strikes in this form, where the horror hits 'em, they're capable of accepting the changes that they otherwise would never consider. And the time for those changes is now. The potential is now.

"And what I propose essentially, or have been proposing, is that the four principal nations I indicated must hopefully form a committee to sponsor a general rally of nations to reorganize the system. Because smaller nations do not have the courage or means to initiate these kinds of steps. You need to have a dominant leading power in the world, or combination of power, who opens the door to let other nations participate in this kind of reform. That's a chance. And in that case, we have to go back to a new kind of IMF system, a Roosevelt-type of IMF system, what Roosevelt had intended for the post-war period, had he lived.

"And with that kind of perspective, I think that we could organize cooperation among nations, dealing with some very obvious problems, which will lead to a solution to these problems. We also have to get rid of Cheney. That's clear. Cheney is not an American. He's nominally an American. He's British property. And he's his wife's property. She made him out of nothing, or less than nothing, and he represents the interests who want war. He represents the interests that want a war with Iran, and that could set the whole world afire. So we have to get rid of him. We invite him to go back and grow potatoes in Wyoming. That's his best opportunity.

"But this is the crisis. And the cowardice of my fellow American leaders here, in facing these kinds of issues, is a problem. But the crisis is now. More and more of America's leaders are realizing that this crisis exists. More and more people, Republicans as well as Democrats, behind the scenes, recognize that we've got to change some things here. And the effort is to, by September, or late September perhaps, to have something new in process where Cheney is no longer the landscape. The great danger is between now and September, September at Labor Day, until politicians return to Washington. The great danger is in this month of August, again as in August 1914 or August 1939. A monster could be let out, could be let loose, and maybe the world doesn't have the ability to quickly stop that monster from setting fire to the world. So we have the opportunity and great danger. We have great issues that have to be faced.

"Being a professional troublemaker as I am, I do the best I can."

Jeffrey Steinberg

On July 16, the London Guardian reported that President Bush, under the powerful influence of Vice President Dick Cheney, has tilted in favor of military action against Iran before he leaves office. According to the Guardian account, a series of meetings during June and July, involving top White House, Pentagon, and State Department officials, was used by the Vice President to assert that the diplomatic track, ostensibly pressed by Secretary of State Condoleezza Rice and Defense Secretary Robert Gates, had failed to produce any results, and that no future U.S. administration would have the courage to act militarily against Tehran. President Bush, according to the account, went along with Cheney, and once again, the prospects for a new Persian Gulf preemptive war loom large over Washington.

Highly informed sources contacted by EIR confirmed and elaborated on the Guardian leak, which came from circles close to the White House who are adamantly opposed to the prospects of an American or Israeli preventive strike against targets inside Iran. EIR's sources confirmed that President Bush had, indeed, tilted back towards supporting Cheney's position that Iran's alleged nuclear weapons sites must be hit preemptively, and that one of the most persuasive arguments mounted by Cheney and his neo-con allies, is that unless the U.S. strikes against Tehran, Israel will launch an attack, and this will create an even bigger mess for Washington.

Speaking for some of Cheney's London patrons, Patrick Cronin, director of studies at London's International Institute for Strategic Studies (IISS), a leading Anglo-American think tank, is quoted by the Guardian: "Cheney has limited capital left, but if he wanted to use all his capital on this one issue, he could still have an impact.... The red line is not in Iran. The red line is in Israel. If Israel is adamant it will attack; the US will have to take decisive action. The choices are: tell Israel no, let Israel do the job, or do the job yourself."

In fact, the consensus among American military strategists is that Israel does not have the capacity to do serious damage to Iran's now widely dispersed nuclear research program—unless it were to use nuclear weapons.

The Two Liebermans
As Cheney was making his power play inside Administration circles, he was receiving back-up from "the two Liebermans." In early July, Israel's Minister of Strategic Affairs, Avigdor Lieberman, traveled to Brussels to confer with top NATO officials, and on his return, he told Israeli Army Radio that he had won backing from the United States and Europe for preemptive strikes against Iran's nuclear sites. Lieberman, who is known among Israeli analysts as "Israel's closest thing to a National Socialist," elaborated that, if Israel were to launch air attacks against Iran's nuclear sites, NATO would join in to defend Israel in the event of Iranian retaliation. Lieberman could not have been more blunt: "We're stuck in Afghanistan, and European and American troops are wallowing in the Iraqi quagmire, which is something that is going to prevent the leaders of countries in Europe and America from deciding on the use of force to destroy Iran's nuclear facilities. Therefore," he concluded, "at the end of the day, Israel is going to have to remove the nuclear threat posed by Iran with the means at its disposal, and it won't be able to count on international cooperation." But, the Israeli minister then declared, "Europe and the U.S. will support us."

The very day that Avigdor Lieberman was threatening Israeli preemptive strikes on Iran, July 11, Sen. Joseph Lieberman (I-Conn.) introduced an amendment to the defense spending bill, demanding that U.S. intelligence agencies report to Congress every 60 days on Iran's activities inside Iraq. Although Lieberman's amendment, which contained a string of dubious or outright false claims of Iranian combat support operations against American forces in Iraq, was clearly aimed at putting the Senate on record as supporting a warlike policy against Iran, the entire Senate sheepishly voted, 97-0, in favor of the Lieberman ploy.

Lest there be any doubt that Joe Lieberman's actions were tightly coordinated with Cheney, the text of the Lieberman amendment quoted extensively from Gen. Kevin Bergner, the former top military aide to neo-con Elliott Abrams at the National Security Council, who was dispatched to Baghdad in June 2007, to conduct White House "spin control" over the war reporting. Bergner has put out a steady stream of disinformation and/or exaggerated claims of Iranian involvement in the Iraqi insurgency. Bergner's propaganda from Baghdad, according to Pentagon sources, has infuriated the Joint Chiefs of Staff, who see it as a replay of the "stovepipe" of fake intelligence, funneled from the Pentagon's Office of Special Plans to the Vice President's office, in the run-up to the Iraq invasion. This time, there is no pretense that the war propaganda is being vetted by the Pentagon intelligence services. It is being funneled directly from Baghdad via General Bergner, directly to Cheney, Lieberman, et al., and is increasingly showing up on CNN and other news outlets.

Impeach or Remove Cheney Now
The turn toward war against Iran, coming from the "usual suspects" in Washington, must be assessed against the backdrop of the July 1-2 Kennebunkport, Maine summit meeting between President George W. Bush and Russian President Vladimir Putin. The two days of discussion, hosted by former President George H.W. Bush, represented a potential strategic breakthrough in U.S.-Russian relations. President Putin proposed a long-term strategic partnership between Washington and Moscow, encompassing all of Eurasia in a security alliance, built upon Lyndon LaRouche's original strategic defense proposal, which later became President Reagan's SDI. Just days before Kennebunkport, former President Bill Clinton, in a speech in Yalta, Ukraine, had also signed on to the proposal, indicating a powerful intervention by the institution of the U.S. Presidency—along with that of the Russian Presidency—to avoid war in Eurasia for decades to come.

It was in response to that initiative that Cheney made his move, and set the United States potentially back on a course towards near-term war, a war that would soon spread from Southwest Asia to other parts of Eurasia, and ultimately lead into World War IV—pitting the United States against Russia and China.

It is for this reason that LaRouche, in a dialogue in Washington with a group of diplomats on July 19 (see transcript, this issue), asserted that the only way to avoid war at this late date, is for Dick Cheney to be either impeached or removed from office now—before the guns of August are fired.

It was also in this context that LaRouche reiterated his message to Sen. Hillary Clinton (D-N.Y.), the ostensible Democratic Party front-runner for the Presidential nomination. LaRouche called upon Clinton to take the lead in the fight to remove Cheney from office, promising that if she does so, she will be "virtually acclaimed" as the next President, by an American electorate that is overwhelmingly demanding Cheney's ouster.

LaRouche's message is also resonating among leading Republican circles, who fear a total wipeout in the 2008 general elections, if Cheney remains long on the job—and if the preemptive strikes against Iran take place. While some Republican Party voices, including former Reagan Justice Deparment official Bruce Fein, former Presidential candidate Patrick Buchanan, and retired CIA officer and American Conservative columnist Phil Giraldi, all have demanded Cheney's immediate ouster to stop an Iran fiasco, GOP leaders have so far failed to come forward to confront President Bush and force Cheney's ouster. And Congressional Democrats have chosen to dodge the Cheney bullet and opt for impotent gestures, like the all-night Senate debate over Bush Administration Iraq policy, in which Cheney's name was not mentioned once. The ultimate cowardly act was the Democratic Senate capitulation to the "Buckleyite Damn-ocrat" Joe Lieberman's Iran war gambit. Such cowardice and opportunism, LaRouche has frequently warned, could bring about the doom of the American republic and a global "permanent war" that would engulf the planet for several generations to come.

Cheney and Bandar
While General Bergner's "wurlitzer" continues to churn out war propaganda from Baghdad, pushing the idea of military action against Iran to "save the lives of American GIs" fighting the "Iranian-backed" insurgency in Iraq, U.S. intelligence specialists have alerted EIR that there is growing worry about another aspect of the Iraq insurgency. Saudi Arabia, through Prince Bandar bin Sultan, Cheney's chief ally and the purported national security advisor to King Abdullah, has been pouring money and weapons into Sunni tribes in western Iraq, who have now emerged as what some U.S. intelligence officials brand "al-Qaeda II." These Iraqi Wahabi networks, distinct from the bin Laden/Zawaheri "al-Qaeda in Iraq" apparatus of largely foreign fighters, have emerged in recent months as a significant element within the overall insurgency. According to these sources, "al-Qaeda II" is part of Cheney's scheme—designed in London by the likes of Dr. Bernard Lewis—to promote a permanent Sunni versus Shi'ite conflict in the region.

This Cheney-Bandar effort, the sources warn, is one of the driving factors, provoking Iran, and fueling the prospects of a near-term explosion. Earlier in July 2007, an emissary of Prince Bandar delivered $750,000 to the Mujahideen-e Khalq (MEK), an Iranian exile group that formerly worked for Saddam Hussein, and which is on the U.S. State Department's international terrorist organizations (ITO) list, for having assassinated American military officers in Iran. The MEK is actively engaged in sabotage and assassination operations inside Iran—with the enthisiastic support of Washington neo-cons, typified by Daniel Pipes, who recently attended the MEK gathering outside of Paris where the Bandar money was delivered.

The U.S. Department of Justice is already investigating Prince Bandar for his role in the BAE Systems scandal, involving the $100 billion offshore covert operations fund, established under the British-Saudi "Al-Yamamah" barter deal. At least $2 billion in "Al-Yamamah" funds went directly to Bandar's bank accounts in the United States, and some of those funds went to a range of Wahabi insurgencies, according to U.S. intelligence sources. One question that Justice Department investigators should take up is whether some of those funds are now going to the MEK to fuel Dick Cheney's Iran war schemes.

Lyndon LaRouche addressed an international webcast on July 25, in Washington, D.C., which was attended by about 150 guests, and broadcast in full over the Internet, on and, where it is archived. LaRouche's opening remarks were followed by two hours of dialogue. Here is an edited transcript.

Debra Freeman: Good afternoon. My name is Debra Freeman, and on behalf of LaRouche PAC, I would like to welcome all of you to today's seminar. Just a short time ago when we met, Mr. LaRouche took up some profound questions, and the effect of those remarks is still reverberating in the halls of power here in Washington. At the same time, we are sitting on what is clearly a powder keg, in terms of the overall mood of the population, which today is, on a certain level, tired of debate, and wants to see action. I can tell you that, as we come into today's event, Congressman Conyers, who stands as the Chairman of the House Judiciary Committee, which is the venue where impeachment proceedings against Vice President Dick Cheney will begin, has taken the position that if three more members of the House sign on to Dennis Kucinich's impeachment resolution, that he will, in fact, begin impeachment proceedings. We just learned today, that that number has now dropped to two, because Congressman Brady of Philadelphia has signed on. [applause]

Up to this point, every time Lyndon LaRouche has done a presentation in Washington, D.C., within 48 hours, we have seen incredible things happen. To my mind, getting two members of Congress to sign on to this resolution—given the mood of the population, and given the fact that Mr. LaRouche is about to speak—is a piece of cake. So, ladies and gentlemen, please join me in welcoming Lyndon LaRouche. [applause]

Lyndon LaRouche: Thank you. Well, the time has come to make some history, to make a turning point in history, because there is no alternative. We have a military force, naval and others, stationed off the Indian Ocean region, which, contrary to all nonsense from idiots in the U.S. community, is a preparation for Cheney to unleash war against Iran, in terms of massive air attack. You don't move B-52s into the area, you don't move four task forces into that area, you don't do the other things that are being done unless you're prepared, while Congress is away, to launch war. The consequences of launching a war are unbelievable. This would be a different form of World War III; you could not put this back in the bottle. There are too many things that are unstable.

First of all, this occurs at a time when the world monetary financial system is actually now currently in the process of disintegrating. There's nothing mysterious about this; I've talked about it for some time, it's been in progress, it's not abating. What's listed as stock values and market values in the financial markets internationally is bunk! These are purely fictitious beliefs. There's no truth to it; the fakery is enormous. There is no possibility of a non-collapse of the present financial system—none! It's finished, now! The present financial system can not continue to exist under any circumstances, under any Presidency, under any leadership, or any leadership of nations. Only a fundamental and sudden change in the world monetary financial system will prevent a general, immediate chain-reaction type of collapse. At what speed we don't know, but it will go on, and it will be unstoppable! And the longer it goes on before coming to an end, the worse things will get. And there is no one in the present institutions of government who is competent to deal with this. The Congress, the Senate, the House of Representatives is not currently competent to deal with this. And if the Congress goes on recess, and leaves Cheney free, then you might be kissing the United States and much more good-bye by September.

This is the month of August; it's the anniversary of August 1914. It's the anniversary of August 1939. The condition now is worse, objectively, than on either of those two occasions. Either we can make a fundamental change in the policies of the United States' government now, or you may be kissing civilization good-bye for some time to come. That's the reality. Anyone who thinks differently is either just an incompetent, or an idiot, or a raving lunatic: That's reality. Are you prepared to act now? If you're not prepared to act, please leave the House of Representatives. If you're not prepared to act, please leave the Senate; and above all, leave the Federal government, in terms of the key officials, because you'll only make a mess of things. It'll be worse with you there than if you just simply got out, and left it to a minority to solve this problem.

There are two things that must be done. Let's start with the simplest thing, which is on the table now: Remember, impeachment is in the background, but impeachment is not the issue. The impeachment is getting Cheney out. You get Cheney out, now, and the situation can be made manageable. If you do not get Cheney out, you're kissing civilization good-bye. If it survives, it's not to your credit. And any Congressman who says he's not going to get Cheney out now, should leave the premises now, as a final act of decency. If Nancy Pelosi and others—if they can't get Cheney out now, if they're not determined to do it now, this month, before they leave Washington, they should quit now! Submit their resignations, and let somebody who's more competent come in, because it has to happen. Cheney has to go!

The impeachment process is not the process by which we get rid of Cheney. The process by which you get rid of Cheney is that a number of gentlemen and ladies meet, and tell this jerk that he's gone; voluntarily, would be his best option. Get him out of there. Break the command structure. Isolate the idiot in the White House; he then becomes manageable. As long as Cheney is in there, he is not manageable. He has no brains, he has no intelligence, he has no judgment—he's a fool. But he was put into the Presidency because the people who put him there knew he was a fool. They put him in under the supervision of Cheney as his babysitter. Get Cheney out. Cheney is tied to the—I can go more into that. But this is what has to happen.

Pull Back the Troops in Southwest Asia

Now, the first thing we're going to have to do: We're going to make a decision right away, to pull back the U.S. troops in Southwest Asia. You have to pull them back into holding positions. The fundamental thing we have to do, and it won't work by itself: The holding position means you're pulling the United States troops out of the conflict, into holding positions. Therefore, you are changing the positions of the U.S. troops from combatants, and the issue and the target, to a factor, in which a group of nations will make the decision to solve the problem. That, from a military and strategic standpoint, and a diplomatic standpoint, will work: It can be done. The algebra is known; a number of specialists have presented the algebra. It will work! As far as its motion is concerned, its mechanics will work, but, it won't work by itself. Not because it's not a good idea, not because it's not a workable idea, because politically, it's not adequate. You have to come up with something more. You have to come up with a group of nations, a group of powers, who recognize that the instability of this region is a threat to the continuation of civilization. And therefore, a remedy has to be forced through. And the only way, is that a group, a dominant group of nations says, "We agree. We are going to take the concerted power of our nations and insist that this happens. There will be no resistance. It will happen. We're going to have stabilization in this region."

This means what I proposed earlier. It can not be done unless we induce the idiot who's under adult supervision in the White House, without Cheney, to carry forth on what was started at Kennebunkport. Move in that direction, an inclination to move in that direction. Get Cheney out and go back into the Kennebunkport posture. At that point, the President of the United States, or the Office of the President of the United States, has to make an offer to Putin, and Putin will, without question, accept the offer. And that is, to build a coalition immediately, in the context of moving these troops, U.S. troops, away from the area of conflict, where all they are, are targets; they're not accomplishing anything, except being targets. If you want them to be targets, keep them there. The only function they're performing right now is as targets. Get them out of the target range.

All right, now, if we approach Russia and Putin, Putin will accept the offer. If the United States government proposes to President Putin that the United States, Russia, China, with the support of India, become a sponsoring committee to build immediately a group among nations who are going to address these global problems which have to dealt with immediately—because, smaller nations, individual nations can't do it. You have to change the world monetary-financial system immediately, and you can not do that with a couple of small nations. You can only do that from the top. You have to pull together the might of the world, the major powers of the world and those who will support them, and say, "We're going to change immediately the world monetary system. We're going to get rid of the floating-exchange-rate monetary system. We're going back immediately to a fixed-exchange-rate system." Because if we do not go back to a fixed-exchange-rate system, of the Franklin Roosevelt prototype, then there's no possibility of preventing a general collapse and disintegration of the world economy. It can't be done. Therefore, you have to have a power group which says, "We're going to save this planet from Hell."

One of the things which we're going to do, which is a trigger point, is to get something done in Southwest Asia: to get the U.S. troops out of the target range, and pull them into a holding position where they become a factor in negotiating the peaceful reconstruction of the region. That will not work by itself unless you have a power group which includes four powerful nations of this planet, and others, who decide that that's going to work. A power group which agrees that we're going back to a fixed-exchange-rate system, by government decree, as made by governments in concert. We're going to stop the floating-exchange-rate system, we're going to take steps to clean up the financial mess.

Most of the financial claims and the financial assets and obligations in the world today, are worthless. You have play money; the stock market is a fraud. The Treasury Department is committing a fraud. Most governments are committing fraud, and the British government is the worst of them all. The British government and the British system is the worst offender that we have to deal with on this planet. They organized this war, they organized most of the evil that is done in the world today. So, they will not be considered as having any veto rights in this matter. But the major powers are going to say: We're going to have to go back to a fixed-exchange-rate system. We're going to do it immediately, by treaty agreement, by signed agreement among countries. We're going to freeze a lot of things, and we're going make sure that things that have to be paid, things that have to go on, go on. That production is not cut; farming proceeds, food is produced, infrastructure is built, and so forth. And we'll have to build our way out of this process with steps which begin with these measures. And the measures are a matter of the will of a powerful group of nations, not just the four, but a powerful group of nations who agree that this has to be done, because Hell on Earth has to be prevented. And that's the only way it is going to happen.

And therefore, to do this, we must remove Cheney. Anyone who is not prepared to remove Cheney, should immediately leave any official position in the U.S. government—right now! And they should be told to leave; they should be impeached, hounded out of office, or whatever is necessary. Get 'em out of there. They're an impediment! Because we're going to return this government, in particular, to its people. And you see what has happened with this contempt which the leaders of Congress have shown toward the people, the contempt they've shown toward the majority of elected representatives in the Congress; toward the majority of people who are out there who are their constituents? What right do they have to say they represent the people, when they're against the people? The people want us out of Southwest Asia, and anyone who is not prepared to do that is not going to have a hearing with a great majority of the American people. More than three-quarters of the Democrats insist on this; more than half of the Republicans insist on this. Others will insist and join it en masse if they think it has a chance of surviving. That's what they want.

When you say you're going to get us out of that mess in Southwest Asia—that's even what the New York Times said today in an editorial column—when the American people hear that we are determined to actually get out of that mess in Southwest Asia, then, and only then, will the American people respond with confidence to their government. If you don't do that, you're worth nothing. You should get out of office; you're an impediment; you're an embarrassment. For the sake of your descendants, get out of office; don't disgrace them any further. They've got enough trouble with the debt you've left them, on top of everything else. So, that's the general outline of the situation.

So, you have to, on the one hand, if you don't take the drastic action—get out now!—nobody's going to listen to you. You're a fool. Shut your mouth; no one wants to hear it. Don't bother us with your babble anymore. Secondly, that's not going to work by itself. But it opens the door for something else. It opens the door for the President of the United States, under adult supervision, without Cheney, going to Putin and saying, "We need this." I guarantee you, reading the situation in Russia, Putin will say "Yes." The United States will say to China, and Putin will say to China, "We want you in on it." "Yes." China will say "Yes," because China has a number of problems which I understand very well, and they will say yes, if you speak the right way. In terms of India: India will be somewhat reluctant because it was too long under British influence, and they have to get rid of some of that problem. But nonetheless, India is seeing what is happening with the Pakistan destabilization, and Indian leaders who understand what that means, will say "Yes, we, too, have a problem. We are being used as a cat's paw in respect to Iran." The Pakistan situation is a cat's paw in respect to Iran. It's a cat's paw of those who are determined to destroy India, too. And Indian patriots don't like the United States, particularly with the current treaty proposals being shoved down their throats. India will go along, in an Indian way; it's not the same thing as China. China is simpler. If China says they're going to do it, they're going to do it.

All right. Now, four powers on this planet agree that we're going to sponsor this type of approach, to getting out of the mess which has been created in the world today, and say, "The British have to be put under adult supervision." Then we can begin to do certain things.

The Economic-Financial-Monetary Crisis

Now, the big problem we have to deal with, as I mentioned before, is the economic-financial-monetary crisis. The United States is disintegrating. If a depression occurs, the United States will see conditions you won't believe. Nothing in the past century, no depression, is comparable to what will hit the United States if this system collapses now. We don't have industry; we have destroyed our agriculture; we have destroyed our health-care system. We're destroyed almost everything that we've depended upon. And if we lose the power of money—which we're about to lose—as long as the U.S. dollar was around, and as long as world affairs were denominated in U.S. dollar exchanges, we had a certain strength in this world. Not because we were worth anything, we weren't worth anything; we threw that away a long time ago. But we were worth something because the U.S. dollar was, in effect, a reserve currency of the world. Why? Because the currency of China depended upon the value of the U.S. dollar. The currency of many countries depended upon the value of U.S. dollar; the debts were denominated in dollars. And as long as we were respectable, people would respect us, and treat us nicely, because they were afraid of the collapse of the U.S. dollar. Once the U.S. dollar is collapsing, we ain't nuttin' no more!

Now, therefore, we have to put the dollar under a fixed-exchange-rate system again. And we have to start to rebuild what we've destroyed. We have to take what was being shut down, the auto industry—put these hedge funds out of business, foreclose them; they're all swindles anyway. Start to rebuild the infrastructure capacity, the hi-tech infrastructure capacity, which existed in Michigan, in Ohio, in Indiana, in other places we've destroyed. Build up our infrastructure, our mass transportation systems. Restore the growth of our agriculture. Go back to a high-tech economy again, not a Baby-Boomer economy, not a synthetic diaper economy. And therefore, if we do not mobilize to go away from what has happened to us since 1968, to get away from the '68er mentality, to get away from zero growth, to get away from post-industrial society, to go back to high-tech, to proliferate nuclear power—we need it.

I mean, the future of humanity is nuclear power. You want fresh water? You need nuclear power. We're just about to unleash a prototype of nuclear plant which is specifically designed to make not only fresh water for us, but to make fuels, hydrogen-based fuels, made synthetically from water. And the world is going to go to 800-1,000 megawatt power units, which are of a new type, a fourth-generation type, which are efficient for producing fuels from water, hydrogen-based fuels, whose waste product is water. Much better than coal; much better than anything else. And certainly much better than using up our food supply and starving people to death so we can run our automobiles, and still function.

So, therefore, we're going to go back to the American System. We're going to go back to an image of the United States as if we had remembered Franklin Roosevelt and what he did in the 1930s. What he did in the United States, saving the world from Hitler. Because without us, without Franklin Roosevelt, Hitler would have won. The British would have joined him. They already had joined him; they created him, after all. So therefore, we have to go back to that image. The world needs it.

Let's take the case of China. Now, China has a population of 1.4 billion people, and India has 1.1. Now China is—people think China is very wealthy; it's not true. There are some wealthy people in China, there are some industries in China, which are important, but also, the majority of the population of China is extremely poor. And therefore, without a revolution in technology, affecting the infrastructure and so forth, of the masses of China, the massive area, China has not got a future. Therefore, we have to think about that. We have India; we have probably 70% of the population of India, even though about 30% of the population of India, 1.1 billion people, is in fair shape, the majority is in worse shape than ever before. They're short of water, they're short of everything. They're short of the conditions of life. They need development. All of Asia needs development. Desert areas need development. So, we have to go into a period of high-tech nuclear-fission-driven growth in basic economic infrastructure.

Well, for example, one case in which we just had some agreement on, in terms of the Bering Strait Tunnel project. If we proceed—and my proposal, of course, is magnetic levitation—to build this tunnel which connects this tip of Siberia with Alaska. Now, if we do that—and preferably if we use magnetic levitation as the mechanism—we build a line which runs throughout Europe, along the route of what Mendeleyev designed as the Trans-Siberian Railroad. We run a line down through Canada, through the United States, through the Isthmus of Panama, down into South America. We run the other line through the so-called Middle East, Southwest Asia, into Africa, and build trunk lines. If we do that, we can build a transportation system which has certain very interesting characteristics.

First of all, it's fast—200, 300 miles an hour, or something like that. That's good enough, isn't it? It's a lot cheaper than air flight, a lot more efficient, and it can carry more people, and does the job. And no airport jam-ups. It's also for freight. If we can have an efficient system of moving people and freight across borders, across continents, the continent of Eurasia, the continent of the Americas, the continent of Africa: If we do that, we will have transformed this planet. If we do this with nuclear power, and go on to developing thermonuclear fusion technologies, including the management of the supply of our Periodic Table for the needs of humanity, we have then a prospect of a 50-year recovery program, because you're talking about a lot of very long-term investment in very capital-intensive heavy works, among other things. And these are like large river systems, water management systems, power systems, all these types of things, are 25- to 50-years' investment; some are longer. We have to change the character of the planet in terms of fresh water supplies, and things of that sort.

So, we have a 50-year perspective before us if we start it now properly. We have some very good ideas about what to do. We can begin to reverse the post-industrial society, and that's what we have to do. We're suffering from an ideology of post-industrial society.

Now, let's go back one step on this: Why post-industrial society? Why did this disease of post-industrial society come about?

We have a famous play by a great author, Aeschylus; it had three parts, a trilogy, but the middle part is the one we'll focus on: Prometheus Bound. You have this evil bastard, the god Zeus, Olympian Zeus, who proclaims to Prometheus, who has been taken captive, that he is going to be tortured—he can't kill him because he is immortal—but he can torture him forever, sort of the Guantanamo effect. And that he is going to be tortured because he committed the crime of lifting mankind above the level of animals, by allowing human beings to know how to use fire to improve the human condition. That's the crime that Zeus condemned Prometheus for.

The Oligarchical Model

We have lived in this world for most of what we know of it under the influence of what is called an oligarchical model. Sometimes it's called the Persian model, in the times of the Ancient Greeks, but it's generally known as the oligarchical model. The oligarchical model is typified in European history, by the Spartan model in Greece. It's typified by the Roman Empire; it's typified by the Byzantine Empire. It's typified by the Venetian system, with the alliance of Venetian bankers with Norman chivalry, which is a form of empire; and it's typified today by the Anglo-Dutch Liberal system, which has pretty much run most of the world, increasingly, since about February of 1763, when the British defeated the French and some others, and used a war in Europe to make Europe impotent; and the British East India Company—not the British Monarchy, but the British East India Company!—ran India, as a colony, with a private army, as a colony—not the British monarchy, but the British East India Company! The British East India Company ran a war against China! And they did all these kinds of things. And today, the British East India Company exists in the form of the BAE, which is being investigated for its connections to what happened on 9/11. It's the one capability on this planet that could have done 9/11—and probably did.

So, this empire: This is an oligarchical system! And the oligarchy does not like a republican state. It does not like a state in which society's policy is based on raising the productive powers of humanity, through science and technology, and the use of that, to transform the planet, to raise the standard of living, to raise the knowledge, to elevate man; but rather like something out of a nightmare of Quesnay: It's to have peasants who are treated as cows on the estate, on the assumption that the profit of the estate, as Quesnay specified, and Adam Smith admired him for this—the profit of the estate is due to the magical powers of the ownership of the title to nobility! So, you pay your peasants, who work on the farm, on the basis that you support your cows, until you decide to slaughter them. But you don't give them any more—you don't give them any credit for creating wealth. You treat them like cattle.

That's the oligarchical society. Whereas, somehow, the magical powers of ownership bestow upon the owner the riches which are produced by society: the oligarchical model.

So the historical struggle of humanity is centered around the struggle, at least in known history, the struggle for the republic, in which the commonwealth, the well-being of mankind in society as a whole, is the standard of government, the standard of policy. As opposed to government and the masses of people as an object of convenience, for a few wealthy or otherwise powerful landowners, or people-owners.

And that's the struggle. That's the meaning of the Roman Empire. That's the meaning of the Byzantine Empire. That's the meaning of the Venetian chivalry system. That's the meaning of the British Empire. And that's the meaning of every petty, tyrannical regime which has ever cursed this planet.

And therefore, the issue is, the nature of man, the nature of the human individual. Is the human individual an animal, who simply has dog-like characteristics, or cow-like characteristics, certain species-characteristics given by a biological endowment? Or is mankind the human mind? Is mankind the creative being that Zeus hated? The individual who can create, discover universal physical principles, and apply the knowledge of these principles to change the condition of life for humanity, and to conquer man's problems as a whole?

Is the individual sacred? Is the individual human being different than a mere animal? Do we have the kind of society which fosters that fact, and bases relations within society on the basis of the knowledge that the human individual is not an animal, but has a power of reason, the power of discovering new universal physical principles, and artistic principles, which no animal can do? And that we desire a society, a form of society, which we call a republic, or a commonwealth, in which the well-being of all of the people in society, and their descendants, will have a constantly improved condition of life, a constantly improved realization of the meaning of their life in the eyes of their grandchildren, and great-grandchildren, and so forth to come. And of other nations too.

And that's what the struggle is about.

Democratic Desertion

The change came with Roosevelt's death. Roosevelt represented that principle. He was the epitome of that principle, and for that reason, people like Felix Rohatyn hate him. There was a meeting in the Spring of 2005. As you'll recall, I had some success in sparking the Democratic Party and others to lead in the defense of Social Security against George W. Bush. And we had a very successful mobilization in that respect. We did save the Social Security system. But unfortunately, beginning in the Spring of 2005, my fellow Democrats deserted one side of the cause. They continued to defend Social Security, but we'd also raised the question that we had to defend the birthright of the nation, as represented by its automobile industry. Not simply for making automobiles, but for making all kinds of things, like rebuilding river systems, and so forth, which that industry, because of its tool-making capacity, had provided us, during World War II, and so forth. And still could.

We had a rotting system in the United States, and we, the members of the Congress, allowed this capacity, this idle capacity of the automobile industry, which is the machine-tool sector, the infrastructure-building capacity—we allowed that to be disassembled, and destroyed! Instead of fixing up what had happened in Katrina, in Louisiana, and so forth; instead of fixing our rivers; instead of fixing our transportation system; instead of restoring our health care system; we destroyed a precious part of our capability as a nation, of taking care of our own needs.

Who did it? The leadership of this came from the Democratic Party. There was a meeting, in which the subject was me. The meeting was organized by Felix Rohatyn, who is a fascist. He's a guy who played a key role in putting Pinochet into power in Chile, which tells you what his character is. If you knew what he did in Big MAC in New York, you know what his character is. The guy's a fascist, together with George Shultz, and people of the same type. And his argument was very clear at this meeting. His argument was: We don't want a LaRouche. Why? Because LaRouche is like Franklin Roosevelt, and we don't want another Franklin Roosevelt. We have to stop another Franklin Roosevelt.

So the Democratic Party, which Felix Rohatyn considers himself a controller of, moved to sideline what I was doing. Backed off. And you saw the result.

The Democratic Party participated in condoning a takeover of the Supreme Court, or a near takeover, by a fascist organization called the Federalist Society! That fascist organization is built around the ideas of Carl Schmitt, the man who designed the Hitler dictatorship!

Are they Nazis? Of course they're Nazis.

It's just like the Bank for International Settlements is a Nazi institution too—how the thing was organized. So, they're back at it. And Pinochet's a Nazi. Pinochet's also part of the British organization, the BAE. He's dead now, but he's still a part of it. Now his deadness makes him a much more confirmed part of it, and tradition.

Who else? George Shultz created that monster also. Others created it. Pinochet not only was Nazi in his thinking, but his government, with the backing of Shultz, and with the participation of Rohatyn, ran Operation Condor, which was a genocide operation in the Southern Cone of South America, which was run by a third-generation of the Nazis! Who were imported for that reason. This is what we're dealing with.

You say, why is it that Nazis are bad? Well, it's not just that Nazis are bad. Nazis are a product of the belief in oligarchical society. Look back in history. What did the Roman legions do? They ran extermination operations against populations too! That was their method. Exterminations as a method of controlling society. They ran the gladiator system, didn't they? What is that? The same thing.

Now the problem is, you have a mentality which is loose, typified by Felix Rohatyn, and Felix is treated as respectable in the Democratic Party! He may not have a swastika, a Hakenkreuz on his sleeve, but he has one in his heart. That's what he does. Look at what he does. Look at Big MAC in New York. It was a swindle. Highway robbery! They looted the city! They wanted to get the human beings out of there, and you had to conceal your membership card in the human race, and just show you were very rich, and you could live in New York City. Unless you came in as slave labor, or something, to maintain things.

But the problem here is this ideological problem. It permeates this society.

The Physical Conditions of Life Are Collapsing

We have, for example: Look at the United States, look what's happened to it, since 1970-71. Look at what has happened to the lower 80% of the family-income brackets of our households, as opposed to earlier, under Roosevelt, in that Roosevelt tradition. Look around the world at systems. What do you see?

The objective physical conditions of life, the conditions necessary for human qualities of life, of our people, the lower 80%, have been collapsing at an accelerating rate since 1977. Collapsing, consistently: There's been no prosperity in the United States! Not for the lower 80% of family income brackets. Anyone who says so is a fool, or a liar. Everything is worse. Look at health care. Look at the cost of housing. Look at the quality of education. For the lower 80% of the family-income brackets in the United States, everything has become consistently worse. And the means by which we had a higher standard of living, was destroyed, as part of the program of the Rockefeller Trilateral Commission. This policy destroyed the United States: destroyed our agriculture, destroyed our industry, destroyed our infrastructure.

It was continued under the Reagan Administration. It accelerated under the Bush I Administration. Clinton wasn't on to it yet; he didn't understand it yet. Bill Clinton probably now does understand it, but he didn't understand it when he was President. He made the mistake of thinking that Al Gore was human; that's a big mistake. Remember the coal mine—"16 Tons" and the company store. Al Gore owned that place, that got that song written about it. That's Al Gore. The guy's no good, and he comes from a background of a daddy who was no good either. Something that cross-bred with a possum up in the swamps of Tennessee. You know how they are.

Anyway, the problem is, the cultural problem is that our people have come to accept the idea of an oligarchical model in society, even in these United States. We accept the injustice which is heaped upon the lower 80% of our income brackets. We accept the injustice that's done in many other ways, to our own people. We sit in awe about the upper 3% of family-income brackets in the United States. We kiss the butt of some billionaire who's nothing but a thief. That's what we do. We have destroyed the idea of the commonwealth. We destroyed what we prized when we built our Constitution, in terms of Solon of Athens. We tore apart and disregarded every tradition, noble tradition of humanity, particularly of European civilization. And that's what we've done. And we've come to accept that! We've come to accept politicians who think like that. We've come to accept laws that practice that.

We look at other nations in that way. We don't think, as we should, as we used to as Americans: We used to think of how we came here—like I can say, some of my ancestors came here in the early 17th Century, into Massachusetts and related areas, as colonists. People came here, in the original settlements—they didn't flee from Europe, in the sense of having to escape from someplace—some people did fit that category, but that wasn't the way the colonies were built. The settlements were built by people who represented the best of European culture, but an anti-oligarchical sense of European culture. People came here because they were looking for a place in which to take the best of European civilization, and move it out of Europe, where Europe was dominated by oligarchical traditions. To build a true republic based on the commonwealth model, which had been repeatedly tried in Europe, particularly beginning in the 15th Century, but had repeatedly failed, because of the return of the old oligarchical forces, who still represent nobility. You know, you bow before nobility, even to this day, in Germany. You bow to nobility, the Black Nobility, in Italy! These are the most degenerate people you can imagine. The same thing goes on in France. There are more policemen than there are people. And this is Europe. Europe is permeated with oligarchical culture. Look, you have these two Polish twin idiots in Poland, and the Polish put up with this crap.

And therefore, we came here, the founders came here, to bring the best of European culture here, to build a nation, to be a cynosure for nations of the world, as a model republic, the way that humanity should live. This is what is built into our Constitution. This is what is built into our Declaration of Independence. These are the ideas of Leibniz, and people like that. This is what Lincoln did. And we've always had a struggle in our country, between the oligarchical tendencies coming in, particularly, chiefly, from Britain, into the United States, as in New York City and so forth, but we had a republic.

A World Based on Sovereign Republics

And in the case of Franklin Roosevelt: Franklin Roosevelt found us in a low moment. We'd lost 30% of our standard of living, our income, in a short four-year period. And he led in rebuilding our nation, which was shattered. Not only rebuilding our nation, but moving to preserve this, to extend this, to eliminate colonies and similar kinds of oppression throughout the world. To promote a world based on republics, sovereign republics, which are each dedicated to serving their own people, by republican standards, and promoting republican standards of life among people of other nations, knowing that our security, and our well-being, and our purpose in living, depended upon what we did to promote these kinds of ideas, and these kinds of opportunities, among other peoples. The same rights that we desired for ourselves.

We have turned away from that.

This happened at the end of the war. Roosevelt died. Truman, who was a little bit of a pig, came in. (He was. I was there. And I saw the curly tail myself—figuratively speaking of course.) But we turned away.

The United States joined with Churchill and other Brits, in restoring colonialism! We took the Japanese troops out of the prison camps in Indochina, where they had surrendered to a force organized by the United States. Ho Chi Minh was an asset of the United States, an ally of the United States, in the freeing of Indochina from colonialism, and from the Japanese. The Japanese were put into prison camps. The ever-loving British came in, armed the Japanese, and told them to get out and take over the country, until the British could get the French in there to replace them.

We restored colonialism in Southeast Asia! The Dutch went in to conduct a long war to suppress independence in Indonesia. This happened throughout the world, in that form, and various forms. This was the Anglo-American policy. Which is what Truman represented. This is what Eisenhower understood, when he gave the speech at the end of his term as President. He understood what had taken over the United States. He gave it a name: "military-industrial complex." But the military-industrial complex was what was unleashed on the day that Franklin Roosevelt died, when Truman took over. And the thugs who had been originally—like the grandfather of present President of the United States, who'd been one of the people who had put Hitler in power in Germany—this crowd took over power in the United States, under Truman. And we haven't gotten rid of it since.

So we have, in the United States, a tendency, this oligarchical tendency, of preferring an oligarchical society in which, a few of the rich, the beau-ti-ful people—they're ugly as hell, I mean, actually. You see the way they dress. And the stuff they bare at parties. Oh! Disgusting. Anyway.

So that's what's happened to us. So therefore, there's a factor, a rottenness in our culture, which the Baby Boomer generation was brought into, and that's another story in itself, which I've told a number of times.

So, we've come to the point that we have a way of choosing. We can choose to do what I propose, which, from a strategic standpoint, is the only sequence of major developments which will get the world out of what would otherwise be a plunge into a Dark Age, something comparable to the 14th Century in Europe. We could do that. We could return to our character, as Franklin Roosevelt once did earlier, under conditions of crisis. And what I'm proposing could only be done, admittedly, under conditions of crisis. Only when these guys get down on their knees, and people admit that this isn't working, that this is a danger to human life, and they have no choice, no acceptable choice but to do what I say, on this one—then they will choose it. They will be happier. And that's the only chance for humanity.

Without the United States, it can't happen. Europe couldn't do it. Asia couldn't do it. We must be the sparkplug. That is our destiny; that's our legacy. Not to rule the world, but to be the sparkplug by which the world comes to rule itself. We have to be the sparkplug. We have to say: We're going to pull our troops back, unilaterally. We're offering everybody: We're getting out. We'll take the U.S. troops and move part of them out of Baghdad city, into the airport. We'll move them into other holding positions. We're not here to shoot, nor to be targets. Now, we've created a mess for you, haven't we? Uh-huh, good. Now you guys, get yourselves together, we're going to bring this fighting to an end. We're going to bring this to an end.

Then we turn around, knowing that won't work by itself. We'll then go to Putin. The President of the United States, whose one redeeming feature is that he seems to like Putin, or something. You never know, or understand exactly why or what goes on in that funny mind, if there is a mind at all. But this is one thing he seems to do—and we encourage that, not because it's very good, but because it's the only virtue we can find with the guy.

So, he goes to Putin and says, "We, the United States, need your cooperation. We've got to cooperate, and get these Brits under control." And Putin will say, "That's a very good idea." And "We've got to have China involved in this." Putin will say, "Yes, that's true." "And India has to be involved." Putin will say, "That's good, that's good. A better balance." And then four of the most powerful nations on this planet agree that what we're doing in Iraq, in pulling back, is the right thing to do.

But it's not sufficient, because we have a world financial crash coming down. It's fully in progress. Therefore, we have to act also together, in unity, to take certain emergency measures which will stabilize the situation, and enable us to organize our way out of this mess. If we do that, you will find that Germany will probably be the first to desert Britain on this kind of thing. They'd love it, because the Germans are really getting sodomized by the British. And they really, despite appearances, they don't like it. The Italians will laugh, and say, "Ah!" and they will be happy. The French will say, "Mmm-hmm."

But what will happen is that you will find, very rapidly, immediately, and if we solve this problem, we take this whole area of Southwest Asia, which is now a terrible crisis area, and we say, "This thing is going to be settled, peace is going to come here now," it will happen. It will happen.

Because, you know, one of the things that feeds the problems in this region, in particular, is the fact that it's a region of injustice. And the Saudi royal family is not an asset. I tell you, it's not an asset in this area. They have their own agenda, and people like Prince Bandar are really a menace.

But in this area, if we get this kind of agreement, we can bring about peace in the Middle East. It will be tough, but with that combination of power, we can do it. Because we will end the injustice. We will present a plausible, clear alternative to a perpetuation of the injustice.

And by our initiating that, initiating the measures which bring this about, we will give the United States back a position of moral leadership in the world.

Preparing the Next Presidency

Now this is going to create another problem. We have an onrushing Presidential election. We couldn't produce a farce, so we had an election campaign. What I saw this week on CNN, was the most disgusting piece of depravity that was ever concocted in the name of politics. This was absolutely obscene! CNN should run around with its tail between its legs—not somebody else's legs—but its own, for producing this piece of insanity. Completely irrelevant to anything of importance in the United States. Who cares what the price of toadstools is? We've got to get rid of war. Our people are dying for lack of health care. All these problems, and you want to talk about these odds and ends? A diversionary thing. You can have that debate in East Podunk. But we have a world war, a world depression in progress, and an explosion beyond belief. And what is going to be done by the person who is running for President of the United States? What is that person going to do, and represent as leadership, about these problems on which the fate of mankind as a whole depends? Not somebody's local opinion, or special pleading.

What do you do? You produce a clown-circus, a side-show, the most disgusting political sideshow, a complete irrelevance, to anything of importance to this nation or the world. You make the United States disgusting in the eyes of the world, by putting on such a sideshow with that CNN set-up, that clown-show. And I think the candidates should all agree not to participate in such a clown-show, again. The candidates should all boycott such a clown-show; to say, we're not going to attend that clown-show. We're not going to disgrace ourselves.

I should send a message to Hillary Clinton, for example: Hillary, get anybody else who's clean and you guys agree, you're not going to participate in a clown-show like that again. You just walk out. You won't be in it. And say why you won't be in it. We're not going to have the moneybags behind CNN, controlling CNN, dictating the politics of the United States. The politics of the United States belong to the people. The politics of the United States belong properly to those issues upon which the welfare of the nation as a whole depend, particularly when it comes to Presidential elections.

Now, there's another thing to be considered about the Presidential election. We're coming close to that now. This is now Summer. We're going into August; if we survive the perils of August, we are getting deeply into the next Presidential election. Now that has to be prepared. This is not going to be, if successful, a simple partisan election. It's not going to be Democrats or Republicans, up or down, either way. You're going to have a different kind of government. You probably will have to have a Presidential selection as a Democrat, and we have very few people qualified for that position. We're also going to have to include a composition of a significant number of Republicans in the administration. Not as window-dressing. Not as a political package. We're going to have to craft an administration which is practically going to have to run, and be elected that way, of every key position of the Executive branch. Every key cabinet and related position.

Because you need to have a team, which should begin to be built now. A team, to come in with a figure as the President, with a team with that President, who is ready to be deployed, like an army, to attack the several fronts which have to be dealt with, to deal with the problems of the world. You're going to have to pick a State Department, maybe not the Secretary of State, but you're going to have to pick from every top key area of government, a team. The parties are going to have do something about the selection of the leaders in the legislative branches, as teams, with a mission-orientation and a policy which is clear.

Because we have to reorganize this whole planet. We have to reorganize it mostly from the top down. We can not have the kind of silly politics that you've been seeing in recent years. We're now in the worst crisis in modern history; the most dangerous. And this is no time for amateurs. You've got to give the country back to the people. The people have to have confidence that the government that is coming in is their government, not a government of them, but a government which is theirs. A government which represents them and their interests; a government of competence; a government of determination.

You're going to have to come in with, not which enemy you're going to fight abroad, or who you're going to hate and who you're going to love. Who you're going to cut a deal with, and who you're not going to cut a deal with. You're going to have to cut a deal with the world as a whole: To organize an international monetary financial system, which we must do, means you have to get everybody involved in it. You may have a couple of malingerers on the outside, but in the main, most of the countries have to agree. And they have to agree not on tiddlywinks, not on bits and pieces. They have to agree on principle: How is this thing going to work? What's our general plan? What are we going to do with this planet?

And therefore, you have to now think about not only getting through the month of August, but coming out of the month of August, with an idea of what the next government of the United States is going to be. Not based on which candidate is going to win; that will happen, but that's not the point. We need a picture, an image, of what the policy of the United States should be, coming out of August, and what the government of the United States should be coming out of August; what it should be like; what's it going to do. And let's put this nonsense that we saw on CNN to one side. And anybody that runs something like CNN again, any candidate who is good should refuse, with other candidates, to participate in such a debate; refuse. We're not going into the outhouse to discuss politics. We'll have a respectable forum, and we're going to discuss what we want to discuss. We're going to discuss what the great issues are that face the future of humanity.

So, anyway, that's the general outline that we face. And we're going to have some discussion on it soon, but that's the issue. We have to see things in a holistic way, not one issue at a time. We have a planet in deadly crisis; in a breakdown crisis. We have to look at things which are very ugly, and deal with it them summary fashion, as I have indicated. The first thing is that decision on Southwest Asia. We're getting the troops pulled back, now!—in the month of August, not September! In the month of August. That's the beginning. It won't work without getting Russia, China, and India in to support the action. Once you've reached that threshold, and you've got Cheney out, then we can begin to shape up what the world is going to look like for the next 50 years.

Freeman: ...We have a number of questions that came in while Mr. LaRouche was speaking, and some that were submitted even before he began.

Emergency Legislation To Prevent Foreclosures
A number of questions, Lyn, are dealing with the current crisis in housing. The first one that I would like to ask you comes from a senior member of the Democratic staff in the House of Representatives, actually from one of the most powerful committees up there. And what she asks is: "Mr. LaRouche, as you know, several committees on the House and Senate side, including our own, have introduced legislation to rein in the private equity and hedge funds. Regarding the proposals on carried interest and the 15% vs. 35% tax payments, I did see your very cogent comment that 'they should pay their taxes.' Even our limited effort thus far, has caused quite a response from the hedge funds, and from equity fund managers. Beyond what has already been proposed legislatively by the House and Senate committees, what more do you think we should do on this?"

LaRouche: You know, battling hedge funds is like proposing to eliminate prostitution in Las Vegas. You're threatening the income of, shall we say, the procurers. But we are beyond that. We are at the point that we need emergency legislation to provide for non-foreclosure.

Look, you've got two problems. First of all, the whole banking system of the United States, the major banks, are all bankrupt in one sense. And you can't have them closing their doors, so therefore, you're going to have to provide these banks with protection. Now, you have to protect them from that which, essentially, controls them—the hedge funds, and similar funds. Therefore, you've got to protect the bank as an institution against the hedge funds, and other financial interests, which are actually larger and more powerful than they are. Because, we need the banks; we don't need the hedge funds. There's not a single hedge fund or related organization, that we need. As a matter of fact, if they would disappear, it would be much better. I would propose to the hedge funds, "Go! Before we jail you." That's the attitude.

But we have to protect the banking industry. This housing swindle—which is what it is—is run by the Federal Reserve System, because of the appendages which have been tacked to it. Remember that in 1987, we had the equivalent of a 1929 crash. It happened in October 1987. The incoming replacement for the Federal Reserve System chairman said, "Hold everything!" He should have held his mouth. But he said, "Hold everything, because I'm coming in." And you say, "We're locking the door before you get here." But he came in with this business of various methods, and others were accomplices, in flooding the market with phony dollars, with credit systems, with all kinds of things that should never have been allowed; that should have been considered illegal, immoral, and everything else.

Briefed throughout the day on Monday about various manifestations of the onrushing financial crash of the entire global system, Lyndon LaRouche commented: "I'm not impressed with what's happening today. Why? Because it already happened. The system has already come down.'' The outstanding debt on the books of the banks can never be paid. Silly panicked fools are rushing to collect, but they are finding out that the money isn't there. And yet, there are still schmucks out there who protest, "But, I don't see it. Prove to me that the system has already collapsed.''

LaRouche elaborated: You have to look at the "bookends of the crisis," the two extremities. On the one side you have the yen carry trade and on the other side non-payment. The money is not there now to cover the takeovers because the money was not there from the beginning to fund the takeovers. You had a flood of money pumped into the system through the mechanism of the yen carry trade and similar things. Nearly zero interest money went out from Japan into Australia and New Zealand, and on from there to other parts of the world, where it fueled a speculative explosion of hedge funds, private equity funds, etc. The whole system was doomed to blow out, and the timing was largely subjective. When would time run out on the ability to collect on the unsustainable debt? As long as no one tries to collect on the debt, everyone can pretend not to be bankrupt.

That all ended in the recent period. The yen carry trade is blown out, and all that is happening now, is a desperate effort to minimize what has already occurred. The defeat of the Abe LDP government in Sunday's upper house vote in Japan is but one more signal that the whole yen carry trade debacle is over. The money ain't there no more, and now Abe is finished.

Today, the word in Germany was that the collapse of IKB was just a "small bank gone under,'' with no systemic implications. Oh yeah? How long is that fantasy going to last? The explosion already occurred, and the rubble is already falling down from the sky. Just because you haven't been hit on the head yet doesn't mean it isn't so. Stand in the same place for much longer and you will be devastated by the debris. The conditions have existed for some time in the international process, and it has now reached the point of ripeness. Now the storm has hit, and wishful denial of reality is not a very good commodity at this point in time. The present system is dead and the only question is when the undertaker will arrive.

The system is crashing, and Congress is caught up in busy work, of no relevance to reality. That has to change right now. They cannot leave town for the scheduled August recess, or else Cheney and his British masters will unleash a war that will wipe out 40-80 percent of mankind before the dust settles. The rate of collapse of the entire global financial system is going to accelerate now. It is full speed ahead.

In this context, Lyndon LaRouche announced that he will be devoting much of his time in the immediate period head to a draft election platform for the Democratic Party to address what has to be done. This is the context for the immediate removal of Dick Cheney from office. With the system gone, we need a functioning Executive branch, and that means Cheney has to be removed from the premises.

Upon hearing how much money was dropped by helicopter internationally yesterday in a futile effort to prevent a meltdown of the entire financial system, Lyndon LaRouche observed that in the U.S. alone the rate at which the Federal Reserve emitted money ($38 billion in three separate injections) was an order of magnitude of the annual income of the U.S. Internationally, the total was in the hundreds of billions of dollars. On Thursday, the European Central Bank (ECB) had injected 95 billion euros and on Friday another 61.5 billion euros. Central Banks in Japan and Australia also threw up a wall of money in a desperate effort to stanch the bloodletting. Other Central Banks said they were on standby and would follow the others like lemmings if necessary. But this was all to no avail as markets collapsed in Asia, Europe, and Ibero America. Even in the U.S. the Dow ended down.

As Lyndon LaRouche said, the U.S. and the world at large are entering a phase very similar to what happened in Germany in 1923. Back then the hyperinflationary bubble was relatively isolated to one country--Germany. Thus, it was possible to have an outside intervention through the Dawes Plan to at least temporarily restore some order. However, today, since the crisis is international, no one can provide the equivalent of a Dawes Plan. The world as a whole is now in a condition which requires a general reorganization of the international financial system into a fixed exchange rate system. The entire world financial system must now be put through a financial reorganization. Given the rate at which Weimar 1923-style hyperinflation is now hitting the U.S. economy and also the world economy, an immediate reorganization of the type specified by Lyndon LaRouche is now urgently needed.

The action required is for the United States to call in Russia, China and India as the core nations to deal with the problem. That, of course, requires the ouster of Cheney and the leadership of Lyndon LaRouche.

From the standpoint of the urgency of the situation, what is now required is not commentary, but action.

Lyndon LaRouche developed the moral standpoint from which we must act. We are not going to bail out any of the speculators who have created this mess. Jim Cramer can scream all he wants. We are not going to bail out him or his associates. We are going to act to save the U.S. economy and to create a decent order in world affairs. People better get used to it, because that is the way it has got to be.

We have to have a bail out of the people, not of the speculators. The predatory speculators did this to the world economy. Our government submitted to their predatory regime. The U.S. economy can and must be saved, but only if we don't try to save the speculators. They created the mess. They are going to suffer the consequences. We will save the banks, as opposed to the speculators, because the banks are necessary to keep flows of credit going into the real physical economy. But the speculators created the John Law Bubble and they are going to eat it.

Today, the ghost of Herbert Hoover is speaking through the body of George W. Bush, promising a "pot in every chicken." The only problem is that the price of a dub has suddenly gone up. You now need a wheel-barrel full of $500,000 bills to pay for it.

Don't have any illusions that there are experts somewhere who know what the problem is and how to solve it. People who might otherwise be described as sensible are not answering their phones in the middle of the crisis. They are hiding. They don't want to talk.

In this kind of crisis, which Lyndon LaRouche has uniquely forecast and is uniquely prepared to solve, in which no one else is ready to bite the bullet, we have to say what the nature of the crisis is and what must be done. We are the only ones who can act. Lyndon LaRouche's voice must be heard and heeded. He knows what to do. The others do not. And there is no chance for this planet to survive without Lyndon LaRouche's leadership.

Therefore, as Lyndon LaRouche said: This is not a time for commentary. This is a time for revolution. This is my baby.


The world central banks have poured $323 billion into the monetary-financial system in the last 48 hours, writes the British Guardian on the morning of Saturday, Aug. 11.

Screaming headlines in the British press read: "Central Banks Pour Billions-But Global Slide Continues," The Guardian; "City Hit by Biggest Crisis for a Decade," the Daily Telegraph; "World Markets under Strain of Credit Crisis," and "Dead Mortgages Create Global Panic," The Times.

The London stock market took a battering on Friday, with the FTSE 100 index losing 3.7%, wiping out over 64 billion pounds from leading shares ($130 billion). This compares with -10.84% in October 1987 and -5.72% on 9/11. Mining companies, hedge fund traders, and banks were hit hard. Big losers included Man Group, with 9%; mortgage lender Northern Rock, 9.6%; Lonim, 7%; BHP Billiton, 6.7%; Barclays Bank, 6.4%, wiping out 3 billion pounds of its market value.

The FTSE collapsed 232.9 points to 6038.3, prompting one trader to say, "This is absolutely unprecedented. In the last 15 minutes of trading we dropped 50 points. That's serious 'get me out, I don't want to be in this any more, I'm scared,'" according to today's Daily Telegraph.

Meanwhile the Bank of England has kept a low profile, saying nothing about injecting money. It does not have to make a decision because, according to the Guardian, it introduced a new money market system under which it has a permanent, unlimited standing facility available to commercial banks to draw on if they want to. The rate is, 6.75%, one percentage point above the going rate. But it is not known if it has been utilized yet, since announcements don't have to be made.

Prime Minister Gordon Brown, only last month Chancellor of the Exchequer, is quoted saying, "There will always be issues in the markets and of course we cannot insulate ourselves from events in all parts of the world. I think the important message about the British economy is that we have done everything in our power and will continue to do so to maintain the stability of the economy."


In interview today with the Italian daily Corriere della Sera, former Italian Finance Minister Giulio Tremonti, currently deputy chairman of the Italian Chamber of Deputies, also says that the current financial crisis is a global one.  

"For many years," Tremonti answers in the current interview, when questioned about this forecast, "I have criticized the excesses of globalization, warned against 'fatal risks', I spoke about protectionism and Colbertism. For many years, experts and wise men held me for a fool. Let us see today who is a wise man and who is a fool".

"The issue is, that with globalization, the financial economy has decoupled from the real economy and self-multiplied dizzyingly," Tremonti explains. "If a fund offers you 100 for a firm worth 10, you must worry exactly why they are offering you 100! National and supra-national authorities try to exert oversight, but it is a kind of oversight no longer sufficient in relation to the dimension and global power of finance".

On the question of whether Europe will be affected by the collapse, Tremonti answers, "I tell you three things, two negative and one positive. A crisis of the financial economy always becomes a crisis of the real economy. The crisis of America always becomes crisis of the world. The positive thing is that government and monetary authorities, if they understand it and if they want, can still intervene".

Tremonti is not asked during the interview, "what must be done about this crisis?" However, as he stated at a June 6, 2007 EIR public event in Rome, he knows very well, and substantially agrees with the solutions put forth by Lyndon LaRouche.  Tremonti's remarks are reported on in the article, "LaRouche Holds Dialogue With Italian Senators on New Monetary System"  

Now that the credit boom has officially gone bust and the financial markets are in meltdown, it's time to assess what is going wrong , and what has gone really wrong.  By any stretch of the imagination, this is not a slow leak at all, liquidity is drying up very fast and many deals-in-progress -- including leveraged buyouts, mergers and acquisitions and private equity deals -- are not going to happen because the buyers are  beginning to vanish and there  are  very few bids, and many offers.

Distress selling by hedge funds has emerged as the hidden cause of the contagion spreading through the global financial system.  Billions were wiped from the value of listed companies around the world last week, with several major indices experiencing their worst day in more than four years, despite the injection of over USD 2 50 billion of liquidity by central bankers -- most notably the European Central Bank, the Federal Reserve and the Bank of Japan.  The silence of the Bank of England   has been deafening.  Initially, turmoil was limited to credit markets but it quickly spread to global stock markets after central banks were forced to intervene to keep markets from collapsing completely.

It is becoming clear that hedge funds, which from one perspective are supposed to help stabilise the financial system by diversifying risk and providing liquidity, were instead at the centre of the  unfolding turmoil at the end of last week.  Problems spiralled when top investment banks including Goldman Sachs, Lehman Brothers and Merrill Lynch -- whose prime brokerage arms act as lend ers to the hedge funds -- insisted that the hedge funds settle a greater proportion of their debts at the end of the trading day than they had done previously.  Other banks are said to have followed in hiking  their margin calls.  The increased payments forced hedge funds to perform distress selling of assets to cover their losses.  When analysing trading patterns, Thursday and Friday were characterised by remarkably light but very volatile trading with those who didn't have to sell staying at home while those who were forced to sell being ruthlessly punished  for doing so.  

This appears to have brought about a one-in-a-100-year event in which there are extremely unusual correlations in financial markets that no one appears to be prepared for and everyone is very scared  to take or hold on to risk.  Financial stability was further shaken as hedge funds' losses mounted, compounding fears that some funds could collapse. Goldman Sachs's Global Alpha fund, the US fund s -- AQR  Capital Management, DE Shaw & Co, Renaissance Technologies -- and New York
based Tykhe Capital were significantly down.   In particular, Renaissance Technologies, a USD 26bn fund run by the billionaire and former Mathematics Professor -- James Simons -- said it had lost 8.7% of its value in the last 10 days.   In a letter to investors, Mr Simons suggested that the hedge funds, which rely on computer models were all reacting similarly, causing ripples of downward momentum.  "We have been caught in what appears to be a large wave of de-leveraging on the part of quantitative long/short hedge funds," he said.  Many so-called quantitative funds with supposedly low-risk strategies involving investment in both debt and equities were particularly hard hit because weeks of turmoil in the credit markets made it impossible for them to sell debt, forcing them to sell more stable equity assets at a  significant loss.

It has also emerged that many funds had invested in the same companies, causing prices in otherwise unconnected companies to fall dramatically.  Because hedge funds borrow much of the money they invest from banks, the concern is that contagion could spiral again when the markets reopen.

At the root of last week's uncertainty are poorly performing home loans, mostly those given to borrowers with weaker credit histories or who have overextended themselves by taking on large amounts of debt. These so-called subprime loans are going into delinquency and default at alarming rates, and the worst of the problem is still ahead.  The real problem loans are expected late this year and throughout next year. Housing and financial analysts think that lenders dangerously weakened lending standards in  2005 and 2006, when there was a flurry of exotic home loans and adjustable-rate mortgages. Many of these loans are due to bump up to higher interest rates late this year and next year. And since home prices are falling or stagnant, and banks  are wary of lending, these loans may prove hard to refinance.

Years ago, banks held home loans on their balance sheets. Today, they're sold on the secondary mortgage market, where they're pooled together, bundled and sold to investors as so-called mortgage-backed securities. The big investment banks such as Bear Stearns, Lehman Brothers and others are deeply involved in this, and may also have extended credit to some of the buyers of these securities.  Generally, better-quality loans are sold to Fannie Mae, the quasi-government agency that does some of this packaging. The riskier loans have been issued by so-called private lab el issuers, Wall Street firms that sell these bonds to investors   in the US and abroad.

Gavyn Davies, Gordon Brown's former economic adviser and former chief economist at Goldman Sachs,  has warned that central bankers around the world would need to address serious deficiencies in the regulatory system once th is crisis had blown over. Meanwhile the Financial Services Authority  has beg un to audit  UK banks to assess their exposure to the US sub-prime mortgage crisis and to highly leveraged corporate loans following a similar move by the US Securities & Exchange Commission (SEC).  The S EC is looking at the books of major investment banks to see how they  are valuing their mortgage-backed securities.   Regulator s fear that major Wall Street  and European banks might be masking the size of their subprime losses.

The International Monetary Fund  has weighed in with an appeal for calm, playing down the extent of underlying problems. The Washington , DC, based institution sai d, "We continue to believe that the systemic consequences of the reassessment of credit risk that is taking place will be manageable. The fundamentals supporting strong global growth remain in place."  President George W Bush and his economic team are  also talking up the US economy and saying that the fundamentals remain strong. Most economists think the housing sector's problems will shave a full percentage point of growth from the US economy this year. As long as employment indicators remain strong and consumer confidence robust, there shouldn't be a recession. But if credit problems in the banking sector become a full-blown credit  collapse and people can't get loans to buy homes or cars or to start businesses, the US economy would be hit very hard and the global economy would suffer too.  

We are grateful to:

.  Dr George Feiger, based in Berkeley, California, USA, for " Two Faces of the Same Coin;"
.  The ATCA Editorial Team, based in Canary Wharf, London, for "Contagion and Systemic Risk? ECB Injects Record Euro 95bn post Major Disturbance ;"  
.  The ATCA Editorial Team, based in Canary Wharf, London, for " Flight to Quality as Markets finally  
A ppreciate R isk ;"
.  Robert McNally, Chairman, London Chamber of Commerce Property and Construction Group, for "Erosion of Commercial Real Estate as a Solid Asset Class ;"
.  Alexander Hoare, CEO, C Hoare and Co,  Private Bankers, based in the City of London, for "Destructive Creativity, Leverage and The Derivatives Market ;" and
.  Dr Harald Malmgren,  CEO, Malmgren Global, based in  Washington, DC, for " The Fear of Central Bankers -- Flight from Illiquidity, Derivatives  and Heightened Risk of Contagio n ; "

in response to, " Are the Currency Markets Warning that there is Trouble Ahead?  The Precipitous Decline of the US Dollar and its Impact on the World."

For and on behalf of DK Matai, Chairman, Asymmetric Threats Contingency Alliance (ATCA)

ATCA:  The Asymmetric Threats Contingency Alliance is a philanthropic expert initiative founded in 2001 to  resolve complex global challenges through collective Socratic dialogue and joint executive action to build a wisdom based global economy.  Adhering to the doctrine of non-violence, ATCA  addresses  asymmetric threats  and social opportunities arising from climate chaos and the environment ; radical poverty and microfinance ;  geo-politics and energy; organised crime & extremism ;  advanced technologies -- bio, info, nano, robo &  AI; demographic skews and  resource shortages; pandemics; financial systems and systemic risk ; as well as transhumanism and ethics.  Present membership of ATCA is by invitation only and has over 5,000 distinguished members from over 120 countries:  including 1,000 Parliamentarians ; 1,500 Chairmen and CEOs of corporations ; 1,000 Heads of NGOs ; 750  Directors at Academic Centres of Excellence ; 500 Inventors and Original thinkers ; as well as 250 Editors -in -Chief of major media.  

Following up the previous calls of 1997, 2000, and 2006, in which thousands of prominent personalities from all over the world, among them former heads of state, members of parliaments, unionists, entrepreneurs, city officials, church members, members of the military, and so forth, demanded a reorganization of the world financial system, the Chairwoman of the Schiller Institute, Helga Zepp-LaRouche, has written the following new call, which will be circulated worldwide by the Schiller Institute. It should be published on the Internet and in various newspapers with the names of the signers, and will be presented to the American Congress and the parliaments of the world.

The systemic crash of the world financial system is in full swing. Shaken loose but not caused by the collapse of the subprime mortgage market in the U.S. and the end of the inflationary yen-carry-trade in Japan, the house of cards of "creative financial instruments," as Alan Greenspan has dubbed various credit derivatives, has thereby caved in. Because the takeover craze on the part of the hedge funds and private equity funds has been rising higher and higher over the recent years and months with ever wilder predatory raids, the investment banks which have financed the majority of these takeovers, are now left sitting on these worthless credits. More U.S. mortgage financiers will declare insolvency, more banks will go under in the vortex of the credit crisis. In the U.S. there are currently almost 10 trillion dollars in mortgage loans, over a third of which are bad credit risks. In Germany the examples of the IKB-Bank and the Westdeutsche LandesBank have shown that boards of directors are finding it hard to admit the quantity of their losses.

The myth that the central banks have an endless number of possibilities to always bring a crash under control, is exploding: they now find themselves between the Scylla of the fight against inflation with higher interest rates--which is urgent in the face of the obvious inflation of food, raw materials and oil, but would lead to bubbles like that of the U.S. mortgage market, and the like, bursting even more,--and the Charybdis of the credit crisis, which has been unleashed by the reversed leverage collapse. If the central banks try to stop a chain reaction by infusing liquidity in the range of hundreds of billions, as just occurred within 24 hours during the second week of August, this only means that there will be a hyperinflation like that in Weimar Germany 1923--only this time not in one country, but worldwide.

It is a dilemma from which there is no way out: the system is finished.

Catastrophic consequences are threatened for the world population. If countries can no longer finance their functions, societies threaten to sink into chaos. The model of so-called globalization is today totally bankrupt, just as the communist model was in 1989-91. All the principles which are associated with it, such as "outsourcing" (that is, the shifting of highly qualified jobs into cheap-production countries), "shareholder value" society, "money-makes-money," "just-in-time" production, "benchmarking," etc. have been rejected. The condition of collapsing infrastructure in the G-7 countries is the best indicator of the wreckage of the unregulated free market economy.

In order to stop the intolerable suffering which an uncontrolled collapse of the world financial system threatens to unleash on the population, we, the undersigned, demand, the immediate convoking of an emergency conference which must decide on a new global financial architecture in the tradition of the Bretton Woods System initiated by Franklin D. Roosevelt in 1944.

We, the undersigned, also point out, that the Italian Parliament has taken up LaRouche's proposal, and in a resolution on April 6, 2005, called on the Italian government to convene "an international conference at the level of Heads of State and Government, to globally define a new and more just monetary and financial system."

The necessity for such a fundamental reorganization is all the more urgent today, but the potential for its realization has also grown. For an irony of history is responsible: Because when the Soviet Union began to unravel in 1991, the neo-conservatives in the government of President George Bush, Sr., decided to transform the American republic, according to the "Project for a New American Century," into an empire. This "force doctrine" rested on the proposition, that neither one nation, nor a group of nations, could be allowed to threaten the dominant position of the United States, in a political, economic, or military respect.

But now the neo-conservatives in the Bush/Cheney regime, with their policy of preventive war and regime change, have ensured that the process of cooperation among the nations of Eurasia and Latin America, which normally would have taken decades, has accelerated, under the influence of the American unilateralist policy. An array of heads of state of important countries have made it clear, that they have decided to defend the general welfare of their populations against the encroachment of the financial institutions associated with globalization. Therefore, the chances of putting the question of a just new world economic order on the agenda, have enormously increased.

But it would be a dangerous illusion to believe that a successful reorganization of the bankrupt world financial system could succeed without, or against, the United States. Therefore, we, the undersigned, declare ourselves in favor of cooperation with the "real" America, in the tradition of the American Revolution and the Declaration of Independence, that America which is connected with names such as Alexander Hamilton, John Quincy Adams, Abraham Lincoln, Franklin D. Roosevelt, and Martin Luther King, and which is inspired by Lyndon LaRouche today. America must be a part of the new community of principle of sovereign republics, which is bound together through the common interests of mankind.

In recent months Lyndon LaRouche has pointed out again and again that only the combination of a transformed America, together with Russia, China, and India, would be strong enough to put the question of a new monetary system on the agenda. But that does not mean that other nations could and should not participate as partners with these four large nations.

In order to correct the failures of development, which have occurred due to the paradigm shift of the past 40 years, and above all, since the abandonment of the system of fixed exchange rates by U.S. President Richard Nixon, in 1971, and which led, after the dissolution of the Soviet Union, with unrestrained globalization, to today's brutal vulture capitalism, we must implement the following measures:

The emergency conference for a New Bretton Woods must immediately thus resolve:

The current world financial system must be declared hopelessly bankrupt and be replaced by a new one.

A system of fixed exchange rates must be agreed upon immediately.
Derivatives speculation must be prohibited through an agreement among governments.

There must be put into effect a comprehensive reorganization, or, as the case may be, a stretching-out of debts.

There must be put in place new credit lines, through state credit creation, in the tradition of Alexander Hamilton and the American System, which will make possible productive full employment, through investments in basic infrastructure and technological revival.

The completion of the Eurasian Land-Bridge, as the kernel of the reconstruction of the world economy, is thus the vision which will not only bring about an economic miracle, but also can become a system of peace for the 21st Century.

A new "Treaty of Westphalia" must guarantee the opening up and development of raw materials for all nations on this Earth, for at least the next 50 years.

We, the undersigned, are of the belief that the system of "globalization," with its brutal vulture capitalism, has economically, financially, and morally failed. In its place, man must again be put in the center, and the economy must serve the general welfare first and foremost. The new economic order must guarantee the inalienable rights of all mankind on this planet.


This morning the ECB pumped extra money into the market, in the range of 7.7 billion euros – their fourth intervention since last Thursday (which brings the total intervention volume to almost 212 billion euros). "After the greed, fear reigns" headlined an article in the Wiesbadener Kurier today, which was echoed in numerous other German news dailies.

Among bankers, fear couples with a deep embarrassment over the failure of the leading institutions to act competently: "Where are the governments?," and "where is the BAFIN?," an article in the German Die Welt daily today reports. Die Welt's cry for help is in reference to financial market watchdog head Jochen Sanio, who 10 days ago spoke of a banking crisis resembling that of 1931, before taking off for several weeks of vacationing in the forests of Canada.

One banking analyst in Frankfurt said to EIR News Service today that there is utmost urgency now to discuss how to get out of the trap of these allegedly "creative instruments" that have proven to be not only risky, but also destructive, and we can't just rely on the ECB for emergency interventions like those in the past three trading days.

He said that figures like Alan Greenspan belong to the past, and indeed, Deutsche Bank's hiring him as a chief consultant, has provoked a lot of mockery among banking people in Frankfurt. The fact that Deutsche Bank hired Greenspan reveals the disorientation among the top echelons of the banks, the analyst said. After all, the bankers have either been totally uninformed or too incompetent to see what the risks of Greenspan's "instruments" have been, so no solution should be expected to come from these same bankers.


Hours after Coventree Capital's announcement this morning, a second fund--in what will be a worldwide flood of such "runs" against Asset-Backed Commercial Paper (ACBP) funds by tomorrow's rollover deadline--has halted withdrawals in the midst of an investor run on its assets. Sentinel Management Group Inc., a 30-year-old, $1.6 billion "high-yield money management fund" based in Northbrook, Illinois, asked the Commodities Futures Trading Commission for permission to halt investor withdrawals, even while claiming that all of its paper was of the highest grade.

Most of Sentinel's investments are in the short-term commercial paper called ACBP, which as LPAC has reported since Aug. 8, is at the heart of a $1 trillion liquidity crisis as the Aug. 15 date for redemption or rollover of large volumes of this paper arrives.

"Investor fear has overtaken reason and has induced a period in which most securities have simply ceased to trade," said Sentinel Management in a letter to its clients--or former clients--which got right to the heart of the problem. ACBP "conduits," often set up by and for banks, invest not in the faith and credit of corporations as with corporate bonds, but in the computer-modeled "value" of various collateral assets, many of them based in the collapsing U.S. mortgage bubble and now plunging toward zero value, as Bear Stearns was the first to announce one month ago. Sentinel's client letter continues, "We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value."

The wave of similar announcements by hedge funds and other in coming days will trigger a second wave of the international bank credit crisis which hit last week.

During the late 1980's an opportunity came my way to become an option dealer in the London capital market. At that time I was not a practising Muslim and, given that the pay in this line of work could be enormous, I accepted without a second thought. As the years went by, it occurred to me that the size of my pay packet bore little relation to the benefit enjoyed by society as a result of my work. Others had misgivings of their own. Accountants complained of the hidden risks that banks were taking 'off balance sheet' and, from time to time, government ministers would make a scapegoat of the derivatives market when other excuses were not forthcoming. Regulators scrambled to recruit staff who could understand what the traders were doing but offerred low rates of pay and, therefore, sufferred from a persistent lack of qualified staff.

As the derivatives booty trickled down in ever greater quantities, the financial establishment began to seek a wider economic justification for the existence of this market. The business schools, progenitors of modern option valuation techniques, were only too happy to help. The increasing diversity of hedging products provided a more complete spectrum of risk management tools and was therefore of benefit to society, they told us. But we in the market saw a different story unfolding. XYZ bank would lure the poorly paid treasury manager at the Kingdom of Somewhere-Or-Other into a complex swap deal that only a PhD in Nuclear Physics could properly value. So the bank would book a multi-million dollar profit the very day the deal was closed and the Kingdom's officers would never know any better. Derivatives departments began to swarm around corporate clients like bees around a honey pot.

Of course the scam couldn't last forever. By the early 1990's, Bankers Trust traders were caught discussing the size of the "rip-off factor" on a Procter and Gamble derivatives deal. We know this because the episode was taped and made public on behalf of the company. It was one of many large derivatives losses accrued by clients that had acted on the eager encouragement of their bankers. Soon Orange County and Metallgesellschaft would fall into the same trap at a cost of hundreds of millions of dollars more.

"We can protect you against market volatility" the investment bankers tell their clients. But the market volatility is caused by the activities of those very same investment bankers, and so the clients are sold nothing for something. Protection against a danger that never needed to exist in the first place. Sadly, the world learned little from the derivatives explosion. By the time the internet boom collapsed, a new generation of clients was learning about the motivations that really drive bankers and advisors. The clients tend to be offerred the products that provide financial institutions with the highest profit margin.

What if every country had pure gold coins as its currency? Then what would be the point of the foreign exchange market? What would be the point of exchanging one ounce of American gold for one ounce of Japanese gold? Who would need currency derivatives? Who would need to pay commission on foreign currency transactions? We see very quickly where this idea leads. An end to a trillion-dollar-a-day market that produces huge profits for the financial establishment. But of course profit is not necessarily indicative of productive effort. Theft is a good example of this principle. If we want to achieve a more efficient economy, we must promote systems in which people work in productive pursuits rather than unproductive ones. The foreign exchange market is an unproductive pursuit in that it exists because of an unnecessary monetary convention. Change the convention, in other words adopt a different monetary standard, and all those clever dealers can become doctors and teachers instead!

But back to options. Modern option contracts have a variety of features in common that can be summarised as follows. An option is a right not an obligation to enter into an underlying contract of exchange at or before a specified future date (the expiry date). The buyer of that option pays a price (the premium) to the seller (the writer) of the option. The option may give its holder the right to buy a specified asset (the underlying) from the option writer, gold for example, such being a call option on gold. Or the option may give its holder the right to sell the underlying asset to the option writer. This would be a put option. Every option has a strike price, this being the price at which the holder may buy or sell the underlying upon exercise of the option. And every option has a nominal size, this being the amount of underlying that the option holder may buy or sell at the strike price. A 15 December 2001 European call on gold at $400 per ounce in 100 ounces gives its holder the right to buy 100 ounces of gold from the option writer at $400 per ounce on the 15 December 2001, if the holder so wishes.

If we exclude those financial contracts which are of themselves haram (bonds and forward foreign exchange for example), then we are left with a set of underlyings such as equities and commodities upon which a derivative contract may be based.

Curiously, even where acceptable forms of underlying such as these are concerned, a key valuation element in arriving at the fair value of an option contract remains the rate of interest. The Black Scholes formula proposes that since an option can be perfectly hedged through constant trading in the underlying, the option position should be riskless and hence earn the buyer the riskless rate of interest on the premium that was paid for it. (In reality, constant trading of the underlying asset to achieve the perfect hedge is unattainable, and so option prices behave in ways that are not entirely predicted by Black-Scholes.) For the unhedged option, the contract becomes one of pure uncertainty. Neither party knows whether the option will be exercised, as it is dependent upon the condition of the market at a future date.

The first problem with the standard option contract from a Shariah perspective is that a contract of exchange in which both payment and underlying are deferred is widely held to be prohibited. The second problem is the uncertainty that exists with regard to whether or not the option will be exercised. Thirdly, if the option contract is judged to be halal, the question then arises as to whether that option can itself be sold to a third party, as is the case in the market for warrants for example. Fourthly, by buying a put option and selling a call option, a trader can replicate a short position in an underlying asset. Where these options are cash settled, the trader can be seen to achieve the same cash-flows as a short seller of that underlying. Shariah scholars have agreed that selling what one does not own is a prohibited commerical activity, and the possibility that such an activitiy can be synthesised through the use of options must therefore call into question their validity under Shariah. There is a fifth problem that pertains to more complex option contracts where the strike price itself varies according to an agreed formula. Such is the case with a serial option. For example, a one month 'at-the-money' serial call with daily resets gives the holder a series of one day call options whose strike price is the price of the underlying asset at the previous day's close of trading. As this price is unknown in advance, the strike price itself cannot be known. This represents further gharar.

Under Bay al-Urban, a deposit is paid on an item that a prospective buyer may purchase at a later time. Should the buyer not complete the purchase, the deposit is lost. This contract has been used as a justification for Islamic options by some writers who argue that the deposit can be seen as the premium paid by the buyer of a call option. The problem is that the scholars do not widely allow bay al-Urban. According to Ibn Rushd in Bidayat al-Mujtahid:
Within this topic is the sale of the urban (sale with earnest money). The majority of jurists of different regions hold that it is not permitted, but it is related from a group of the Tabi'un that they permitted it, among them are Mujahid, Ibn Sirin, Nafi ibn al-Harth and Zayd ibn Aslam. The form it takes is that a person puchases a thing and delivers to the seller part of the price on the condition that if the sale is executed between them this earnest money will form part of the price of the goods, if it is not executed the buyer will forgo it. The majority inclined toward its prohibition, as it is from the category of gharar, mukhatara and the devouring of wealth of others without compensation. Zayd used to say, "The messenger of Allah (God's peace and blessings be upon him) permitted it". The Ahl al-Hadith said that this is not known from the messenger of Allah (God's peace and blessings be upon him).

Under Khiyar, which is allowed by the jurists, the buyer of an item has the right to undo his purchase if the seller specifically allows as part of the terms of the sale. This is in other words an option to cancel a previously agreed sale. All buyers have a right to cancel a sale following purchase but before leaving the presence of the seller (khiyar al-majlis). This right is different to that expressly given by the seller to the buyer under sale with an option (bay al-khiyar), where the buyer may leave the presence of the seller for a specified period of time before returning to cancel the sale and take back the money that was paid.

Ibn Rushd in Bidayat al-Mujtahid comments:
Permissibility of option is upheld by the majority, except for al-Thawri and Ibn Shubrama, as well as a group of the Zahirities. The reliance of the majority is on the tradition of Hibban ibn Munqidh, which contains the words "and you have an option for three days", and also what has been related of the tradition of Ibn Umar: "The parties to sale have an option as long as they have not parted, except in sale with an option". The reliance of those who prohibit it is (on the argument) that it constitutes gharar and that the basis of sale is that it is binding, unless definitive evidence is produced for the permissibility of sale with an option from the Qur'an or authentic sunna or ijma. They also said that the tradition of Hibban is either not authentic or it is specific to the case of a person who complained to the Prophet (God's peace and blessings be upon him) that he was deceived in sales. They said that the tradition of Ibn Umar and the words in it, "except sale with an option", have been interpreted through another version of this tradition in which the words "that he says to his counterpart: 'Choose'," have been recorded.

In khiyar it is difficult to see any analogy that would lead us to the acceptance of the modern option contract as described above. Khiyar relates to a halal contract of exchange that has already taken place, whilst a modern option relates to an exchange that is yet to take place. In the case of khiyar, the exchange of one or both countervalues is effected immediately. In the case of the modern option contract, future delivery applies to both the payment and the underlying asset. In addition, uncertainty as to the materialisation of the exchange exists with the modern option contract but not in khiyar.

Disagreements among traditional scholars in the matter of khiyar arise in minor details, such as the length of time for which the buyer has the option to return the goods, or who is liable for any damage to the goods whilst the buyer is in posession of them during the option period. These scholars do not seem to have disagreed upon those fundamental principles which distinguish khiyar from the modern option contract.

It is my view, having been involved in derivatives dealing, that the potential exists in this market to cause a serious breakdown in the financial system. The degrees of leverage that are afforded by option contracts can be so high that large unpredictable market moves in underlying prices may one day lead to the insolvency of a major financial institution. Liabilities cannot be perfectly hedged even where that is the intention, and some traders deliberately do not hedge their option portfolios because such action would limit the potential for high returns. The case of Long Term Capital Management in the United States, rescued by a Federal Reserve bail out in 1998, demonstrates the degree of risk that can be incurred. The question is whether the central bank or other authorities will be able to move quickly enough, or in large enough measure, to prevent future failings.

When looked at from the Islamic perspective, as with so many other Islamic financial products, it seems that theory needs to be stretched in order to justify an Islamic option contract. The macro-economic arguments for their existence are of dubious merit, based as they are on minimising risks which do not need to exist in the first place. Better to structure the economic system such that it does not suffer from continuing volatility. If there was no such thing as interest, there would be no such thing as interest rate options. The same with foreign currency. What we are seeing in the Western world is the emergence of financial products that are a symptom of a system that has gone wrong. Islamic financiers who look at the products of this system as a paradigm are making a big mistake.

Sheila Samples

Sometimes I'm amazed at how much I know about the financial markets and the economy. I don't understand any of it, but I know a lot of stuff, thanks to my friend and mentor, Richard Walrath, who's been to the market more than once. He says when George Bush brags that the economy is booming, he's probably right. The economy is exploding with a big boom, and Walrath says now we are engaged in a great battle to see how long this country can endure.

The Fed just poured a bunch of money into the market, which was news to me, but Walrath said the Fed has been manipulating the market for years, especially during the Bush years. "There was great fear the United States was going to follow Japan into a period of deflation and recession -- maybe even a depression," Walrath said. "Interest rates were cut close to zero while hundreds of billions of dollars were added to the National Debt through tax-cuts for the rich and 'Big Bidness.' And it gets worse just at the time the National Debt limit has to be raised again."

With things as bad as they are, Walrath says it's going to be interesting to see how this crisis is handled. Congress may have to return early to pass legislation to raise the National Debt. But it makes more sense to me -- since the bulk of our lawmakers were so eager to get out of school for recess, that Bush could decide to handle the whole thing like he does everything else to avoid partisan jawboning or oversight -- just dash off an Executive Order.

But the National Debt is just one of many problems battering our economy. Walrath points out a major problem is "all those margin accounts out there with people getting calls to come up with some real money because their stock is down. As you might expect, this led to speculation in housing -- let's flip it -- and millions of people who couldn't afford to pay their rent bought houses."

Wait a minute...Let's flip it? What does that mean? Nothing comes to mind -- okay one thing does -- but Walrath never takes such a cavalier attitude about economics. Let's flip it, Walrath says is when "--you buy the house with no intention of ever living in it. You add a kitchen, spruce up a bathroom, and "flip" it, or put it back on the market, hoping to make a profit.

This goes on all the time, Walrath says, but there were more flippers than buyers this time around because it cost almost nothing to own a house while you were waiting to sell it. That's sub-prime credit. You could buy a house with no money down, no income, no job, no assets.

Of course! Now I understand. If you buy a house with no money down, you have little or nothing invested. Just walk away. Let the banks worry about selling them. But to whom will banks sell them? What are the banks going to do? "That's why houses for sale are now piling up all over the country," Walrath said. "It's a terrible situation."

Donald Trump begs to differ. When you're in a hole, keep digging as hard and as fast as you can. Trump's advice, according to Walrath is to "just go back and make another deal with whoever holds the mortgage. Trump says you'll get a better deal this time than the one you had before. Don't walk away from it -- go make another deal. The last thing the bank wants is your house. What are they going to do with it? They can't find anybody to buy it."

So, who's flipping whom in this credit seizure?

According to an unsigned editorial in Saturday's Wall Street Journal, the root cause of this credit correction was the Federal Reserve's willingness to keep money too easy for too long. The Journal warns an "emergency rate cut, as some in the market seem to be anticipating or hoping for -- carries the risk of introducing even greater moral hazard into the financial system."

We can't have immorality in our financial system, now can we? Oh, the horror!

While chiding Democrats such as Senator Hillary Clinton for proposing a $1 billion federal bailout fund for homeowners at risk of default and foreclosure, the Journal goes on to channel Barbara Bush's flash of morality when speaking of homeless Katrina victims -- "No one wants to see someone lose his home to foreclosure. But many of those most at risk bought their homes with little or no money down, and so have very little at stake economically. Bringing in the feds to bail them out would send precisely the wrong message -- that risky or overly aggressive borrowing will be rewarded by the government rather than punished in the marketplace. To the extent that bad loans were made, the market needs to clear, not be propped up by federal-aid programs."

Unfortunately, despite what the Journal and the endlessly bleating "Money Heads" on TV would have you believe, millions of Americans are in deep trouble. CNBC's Jim Cramer "flipped out" last week in a torrent of truth about the current economic situation.

Walrath agrees, and says if we continue in the direction we're headed, Bush's "boom" will make the Savings and Loan bail-out look like a Girl Scout Cookie Sale.

According to Walrath, there are four sets of losers in this housing meltdown...

~~Those caught with the homes they bought for flipping purposes are not going to be able to find buyers. They are going to lose whatever they have invested, plus whatever mortgage payments they make. It may be cheaper for them just to walk away.

~~Those who own homes will see the value of their houses go down because of the current oversupply due to overbuilding when interest rates were lower and people were buying homes with little or nothing down with the idea of flipping the houses as soon as possible.

~~Those who bought homes with variable-rate mortgages are having trouble making payments because those payments keep going up, and there's nothing they can do about it. Many did not even realize they had such a mortgage. Millions are going to lose their homes.

~~And then, there's the murky many -- the banks and the hedge funds which ended up with mortgages used as collateral for junk bonds, which ended up as holdings by French and German and English banks, not to mention those in this country.

"This is the dog that worried the cat that killed the rat that ate the malt that lay in the house that Jack built, and we ain't seen nothing yet," Walrath says.

"When it comes to saving the rich from losing money, no expense will be spared. Actually," Walrath mused, "the economy is good -- if you're rich. For the rest of us, there's not much to write home about."

Helga Zepp-LaRouche

The core meltdown of the world financial system, which has been in preparation for a long time, has now occurred, with the collapse of the subprime mortgage market in the United States. Beginning with two hedge funds belonging to Bear Stearns, a series of such funds have gone to ground due to speculative failures, and the turbulence has finally spilled over into the international markets and implicated financial institutions in Germany, France, Great Britain, and Australia. And that is only the beginning.

While most of the press internationally is in full cover-up mode, the near collapse of the German "industrial credit bank" IKB has shocked some in Germany into recognizing the situation (see accompanying article). Jochen Sanio, head of the German banking regulatory agency BAFIN, admitted that this amounted to the "worst banking crisis in Germany since 1931." According to the Süddeutsche Zeitung, the "whole German banking system" was in danger, which was obviously the reason for a temporary rescue of the IKB by the German government and the Kreditanstalt für Wiederaufbau (Reconstruction Finance Agency), at the tune of 8.1 billion euro (over $11 billion).

But this is only the tip of the iceberg; more U.S. mortgage banks, such as American Home Mortgage, are in serious distress. One reason for that lies in the practice of so-called "adjustable mortgages," whereby the buyers can acquire real estate they cannot afford, and in which, for a certain period of time, rather low interest rates on the mortgages fall due, but then, after a prescribed period, at most two years, are automatically raised. When the higher rate goes into effect, the payments rise in the range of hundreds of dollars per month. The adjustable mortgage market went into full swing in the Spring of 2005, thus, an avalanche of increases in the rates has occurred precisely at the present time.

All in all, increases in the interest rates on adjustable rate mortgages affect 12% of all mortgages in the United States, raising mortgage payments by a trillion dollars. In October alone, mortgages will be jacked up by over $50 billion, and eventually all categories of mortgages will be threatened. According to Moody's, between 1995 and 2005, about 3.2 million homeowners bought houses on the basis of subprime mortgages or similar credit-terms, and thus, it is expected that about 2 million of these homes will be lost in the next months. The flood of housing foreclosures has led to a dramatic collapse in real estate prices; because of the exposed position of the financial institutions, it will become considerably harder to get new mortgages, and the effect on the real economy, including jobs in the construction sector, will be catastrophic.

End of the Yen Carry Trade
Much more dramatic than this situation, is the fact that the collapse has been accelerated by another process with very much more far-reaching consequences, namely the drying-up of the Japanese yen carry trade. With it, dried up the paradise of cheap liquidity, which for years permitted investors to borrow advantageously in yen at a zero interest rate, in order to invest in higher-interest-rate sectors around the world. The flood of liquidity from this source amounted to $500 billion, which has been as good as cut off. In the face of rising interest rates, now speculators who have contracted cheap yen credit, and were met with losses in the American mortgage market and in the hedge funds, have sought desperately to turn their investments into cash in order to pay back their yen loans, which has led to an up-valuation of the yen. Again, this increases the losses of the speculators. The reverse leverage, leading to the collapse of the speculative pyramid, is in full swing.

Banks and financial institutions are suffering from a kind of withdrawal shock. Because, while the takeover mania by the hedge funds and private equity funds has recently reached dimensions never known before—worldwide, the hedge funds in the first half of 2007 have taken over companies worth $2.3 trillion—they are sitting on a debt mountain of $1.5 trillion, of which a portion, in light of the always growing reach of the capital markets, threatens to become bad debt. The credit institutions, in a panic, are trying to get these debts off their books by year's end, because they could otherwise not undertake any new financial operations. For the market of mergers and takeovers, the honeymoon is definitely over.

Analysts from Crédit Suisse are warning that the banks are having great difficulties in selling new bonds—if they can't do this, the credit lines to the hedge funds and other market participants must be cut off, which must lead again to a cascade of liquidations.

We are now experiencing how the greatest liquidity bubble in the history of the financial markets is beginning to burst. Lyndon LaRouche incisively recognized the beginning of this development when he identified Nixon's intervention on Aug. 15, 1971, namely the loosening of the fixed-exchange-rate system, the separation of the dollar from the gold reserve standard, and the creation of the Eurdollar market, and with it, of private credit creation, as the beginning of a process which would lead to a new depression.

Alan Greenspan, who can take dubious credit for his part in this development, going down in history as "Mr. Bubble," is responsible for the recent explosion of the casino economy. After the Crash of 1987, which showed parallels with "Black Friday" of 1929, he had the glorious idea of inventing "creative financial instruments." To that category belonged, among other things, credit derivatives. By 1998, the volume of credit derivatives amounted to $180 billion. When, in September of 1998, the LTCM hedge fund, in the context of the Russian state bankrtupcy and the GKO crisis, threatened to go bankrupt, the G-8 nations decided to set a huge liquidity-pumping machine into motion. In 2006, the volume of the "wonder-weapons" of financial transactions, the so-called collateralized debt obligations (CDOs), reached a fabulous $3 trillion.

Through these "structural products," the bankers package credit risks of totally different kinds of debtors into bundles, divide them into different classes of risk, and sell them to investors. The defenders of this practice argue that the hedge funds thereby play a positive role, because they spread the risk onto many shoulders. This theory has only one devastating flaw: As long as all asset prices are rising, everything functions wonderfully—because there is also no risk; but at the moment a reverse-leverage collapse sets in, the linkage between the different market segments through the hedge funds drags the whole system into collapse.

A Drying Up of Liquidity
A further problem arises from the fact that, through the instrument of the credit derivatives, a house of cards has been built up. The difference between creditors and debtors is wiped out, the debtor appears at the next moment as a creditor to another debtor, who again gives out credits from his side, and so on. This is, at the same time, the mechanism for the wondrous multiplication of money. Because when the market participant receives such a loan, this loan becomes the reserve capital for loaning a new credit to someone else. And thus, a further spiral goes into effect. Greater credit issuance provides more room for greater securitization; the creation of more liquidity again allows for greater credit issuance.

As they say, as long as the speculative bubble can inflate further, as long as the credit issuance increases, everything is fine (at least in the monetary realm, but not in the real economy, which has been sacrificed in this process). But if, as now, in the event of poor quality mortgage markets, there comes a break, and, as a result of the drying up of the liqudity pump which follows from the end of the yen carry trade, there occurs a reverse-leverage process in this pyramid, then the illusion bursts, and the system crashes. What we experience today, is the psychologically highly interesting process of how limitless greed, in the nature of physical lust, turns, almost overnight, into limitless angst. If no one believes any more that the emperor has new clothes, everyone sees that he is naked.

At the moment that the subprime mortgages, which were bundled into interest-bearing securities such as CDOs, fell in value, the banks and other financial institutions could no longer loan or borrow on the basis of these CDOs, as reserve capital or collateral. As a result, the global wave of liquidity dried up. A further aspect of the sell-off began when the banks had difficulties in financing the takeover of Chrysler through the private equity firm Cerberus (the locust fund which significantly bears the name of the hound of Hell).

Then where do we stand? Are those right, who say that there need only be a "straightening out" of the markets, and a little bloodletting, and then let the central bankers and established powers again take control?

It is interesting that an unorthodox newsletter in France, La Chronique Agora, asked July 31, under the headline, "Stockmarket Crash: Can You Still Escape?" The writer answered: "I don't think so. This time the crisis is too deep and the worry well installed.... This time the alert on the credit markets is of unprecedented magnitude. Long minimized, its gravity is becoming more obvious each day.... The ongoing phenomenon marks the end of an epoch: that of the illusion of unending world liquidity."

The next weeks will leave no doubt that Lyndon LaRouche is right, and all his critics will be discredited. There is nothing to expect from the Bush Administration, as long as Vice President Dick Cheney remains in office. Therefore, everything depends upon whether the world heeds what former Mexican President José López Portillo recommended in 1998: "Listen to the wise words of Lyndon LaRouche."

Richard C. Cook

The immediate triggers are being described quite well: the collapse of the U.S. subprime mortgage market; the vulnerability of the rest of the economy to the subprime undertow, due to the “efficiency” of the markets in spreading risk; the worldwide overextension of cheap credit; the failure of large institutional investors and Wall Street brokerages to behave responsibly; and the long-term effects of the U.S. trade and fiscal deficits which are now coming home to roost.

Amazingly, some commentators have been asking “if the monetary crisis will affect the producing economy,” and whether a recession lies ahead. In reality, the U.S. producing economy has been in a recession for the last year. This is shown most clearly by the decline in M1, the portion of the money supply immediately available to people for making purchases.

The causes of the M1 decline are two-fold. One is the weak purchasing power of American consumers, at least half of whose decently-paying manufacturing jobs have been eliminated by the outsourcing, mergers, and productivity improvements during the past two decades. The other is that while many of the U.S. corporations not connected to housing have been doing all right, their success has been tied to overseas investments and sales, such as GE and GM who are heavily invested in China.

This type of business activity props up the stock prices of these global corporations but does little for the working American. The presumption that overflow earnings from stockholders will benefit the rest of our domestic economy is the essence of “trickle-down,” supply-side economics and is part of the justification for the system that makes the rich richer and the poor poorer.

But as Barron’s reported earlier this year, much of the profits from the global corporations are being held as retained earnings for future growth, rather than being passed on to stockholders as dividends. Because of the heavy debt load corporations carry today, they are all in a grow-or-die mode. Again, the result is deficient purchasing power which works to negate the already dubious trickle-down effect.

The recession has been masked by four factors: 1) the government’s phony GDP numbers, where the “churning” of financial transactions masquerade as production; 2) the froth on the stock market that took the Dow Jones Average (DJA) from a little over 11,000 to a record-breaking 14,000 during a one-year period that ended with the decline that began in mid-July; 2) the propensity of the American consumer, which is now ending, to continue to buy goods and services on credit, including necessities of life like health care; and 3) modest growth in low-paying service economy jobs, which also may be coming to an end.

These lesser bubbles have mirrored the big ones that are bursting as lenders lose confidence in the ability of borrowers to repay. These are the housing bubble, affecting consumers; the acquisition bubble, affecting equity funds; and the speculation bubble, affecting hedge funds.

As the house of cards comes tumbling down, the leading question on financial websites and blogs is how deep will the decline go. Will it stop at the level of the recessions of previous decades, including 2000-2002, with a decline that is reflected in the DJA of somewhere around thirty-five percent from its peak? Or will it be the “Armageddon” scenario which would take us to depression-level conditions? Of course there are multiple possibilities based on a decline somewhere between a recession and a depression that would share some of the characteristics of each.

Muddying the waters is the fact that the DJA is much less reliable as a measure of economic health today than in the past. This is because today the vast majority of financial transactions now take place within the furtive secrecy of the equity, hedge, and derivative markets. No one really knows what is going on, except that on any given day an announcement is made that another fund or company has been wiped out.

Neither the Federal Reserve nor the U.S. government believes they have an obligation to gather or publish data that will help the public gauge the effects of these crises on their homes or jobs. Some might call this negligence a crime against democracy. In fact the Federal Reserve made tracking even more difficult by ceasing to report the M3 macro-currency numbers, but researchers have shown that growth in M3 is soaring while M1 goes down.

What appears to be happening right now is that the Federal Reserve, which oversees the U.S. economy on behalf of the financial, corporate, and government elites, is deliberately trying to squeeze as much debt out of the economy as it can. It is doing this with interest rates that are high relative to actual conditions, while trying to avoid the Armageddon scenario.

The Fed is carrying out its “soft-landing” policy by holding credit tight while introducing “liquidity” into the markets on a day-by-day basis through use of overnight “repos” and by cutting the discount rate for bank borrowing. Conservative columnists like George Will and Bob Novak watch and shake their pom-poms from the sidelines.

But “liquidity” is just a fancy name for more loans. The one thing we can be certain of is that every loan bears interest charges which someday, somehow, will have to be paid by a person who works for a living.

And if you wondered where the Fed got the $34 billion in liquidity it pumped into the markets on Friday, August 10, you weren’t the only one. The answer is that the Fed has a secret room upstairs where it keeps a large “printing press.” It’s legalized counterfeiting, but as with any counterfeit money, if people accept it in trade it acts just like the real stuff—for a while.

The danger, which many commentators are pointing to, is that the Fed will ignite a hyperinflation, which may be what is happening and may actually be intentional because it devalues debt. It’s what happens when debt is used to pay off debt and is in fact an invisible tax. Such inflation is difficult to discern, again because of the government’s rigged statistics. The most important indicator to watch is the price of oil, which doesn’t show up in “core inflation.”

But there are signs that the “soft landing” is working, such as a modest increase in U.S. exports. Reflecting the weak dollar, China is now charging more for its own exports, which will stimulate our industry here at home. And the Fed’s discount rate cut last Friday sparked a modest stock market rally.

Meanwhile, there is a debate over whether quasi-public agencies like Fannie Mae and Freddie Mac should be used to spread the housing market losses across the entire taxpaying population. While society as a whole is made poorer, many individuals who might have lost their homes or jobs are spared some pain. So it’s hard to argue against it. But this type of bail-out would benefit individual homeowners more than the big banks, so the conservative politicians and commentators oppose it.

But there’s a bigger picture. The strategy of the Fed is likely to allow the recession to proceed but it does want to get the economy moving again before the downturn goes too far. In fact they probably plan to do it in time for the 2008 presidential election.

The Fed wants to see a recovery in place by then so the American public will go back to sleep and elect another politician who will steadfastly protect the privileges and powers of the magnates who, through the Fed, rule the world. Even if a new president has some progressive ideas, he or she won’t be able to alter much if a recovery has started.

The “soft landing” is a political power play.

It’s what they did in 1984, when Ronald Reagan was reelected on a campaign theme of “It’s morning in America,” after the Fed let up following the twenty percent-plus rates it used to trash the producing economy from 1979-83. The Fed did the same with the housing bubble to get George W. Bush reelected in 2004.

The financiers’ worst fear is that if things get too bad the American people might elect a reformer in 2008. So far the corporate press has kept two such reformers—Ron Paul and Dennis Kucinich—in the shadows. Now that Hillary Clinton is starting to sound more progressive, they’ll attack her overtly since she is too big a player to be ignored. The Washington Post has already begun.

So we’ll see if the Fed’s plan succeeds as well over the next couple of years as it has in the past. In the meantime, what remains firmly in place is the monetarist regime through which the financiers and the Fed have ruled America for the past thirty-six years, since President Richard Nixon closed the gold window for international exchange in 1971.

During this period, we have seen several interlocking phenomena: 1) interest rates that on the whole have been much higher than the previous period of the New Deal and its aftermath, lasting into the 1960s; 2) inflation that has eroded eighty percent of the value of the dollar; 3) replacement of our producing industrial economy with a service economy dominated by high finance; 4) almost continuous warfare with a clear objective of world domination whose purpose is to shore up the dollar as the world’s reserve currency; 5) ever-deepening public, private, and household debt; 6) the ever-widening gap between rich and poor, with increasing numbers of the poor, homeless, and hungry who are left out of the nation’s economic life; 7) a crisis in the nation’s crumbling infrastructure; and 8) the constant whipsawing of over 200 million ordinary people.

It’s our citizens who are batted around like ping pong balls between alternating conditions of boom and bust as every few years many of them watch the overnight disappearance of their homes, pensions, savings, health insurance, and jobs. Added to this is the stress that has eroded the health and even life expectancy of the U.S. population.

It’s a horrible picture created by a filthy system. It’s why religious leaders for thousands of years have characterized usury, and a culture ruled by usury, as a crime against God and humanity. The monetarist rule of the Federal Reserve is legal, institutionalized usury. Over the years they have mastered all the tools of the trade, the objective of which is to continually allow the financial superstructure to skim the cream off the producing economy. Come to think of it, isn’t that how the Mafia used to work with its protection and loan-sharking rackets?

And can anything be done about it? Of course.

In previous articles on the Global Research website and elsewhere, this writer has offered a list of reforms—mostly monetary—that can and should be made. They all involve the recognition of credit as a public utility, part of the societal commons, not the private playground of the financiers, with the Fed as their facilitator.

Low-cost credit overseen by the federal government was the basic building block of the New Deal. It was done by strong people with an ideal of public service, though in many respects they didn’t go far enough and relied too much on World War II and armaments to attain a full-employment economy. We now need a New Deal for the 21st century that would correct the flaws of the last one, resolve the present crisis, and carry us into a future that will benefit everyone, not just the privileged few.

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