http://www.larouchepub.com/other/2008/3513end_of_line.html
*The End of the Line for The Anglo-Dutch System*
by John Hoefle
When President Richard Nixon took the dollar off the gold reserve
standard on Aug. 15, 1971, he effectively ended the Bretton Woods system
of fixed currency-exchange rates. Nixon's action, taken at the urging of
bankers' boy George Shultz (then director of the Office of Management
and Budget), set into motion the creation of the largest financial
bubble in history, a bubble the collapse of which is now laying waste to
the global banking system and securities markets.
The mantra rising from financial circles after such disasters is that
"no one" could have foreseen the "unexpected events" which developed
from policies and decisions that "everybody" agreed to at the time. You
hear it frequently today, from people ranging from former Federal
Reserve chairman Sir Alan Greenspan, to bankers whose allegedly
"fundamentally sound" banks vaporize seemingly overnight. Who knew this
could happen?
One man did know
<http://www.larouchepub.com/eiw/public/2008/2008_10-19/2008-13/pdf/24-25_3513.pdf>,
and said so at the time, loudly and forcefully. That man is Lyndon
LaRouche, who understood the implications of the demise of the Bretton
Woods system
<http://www.larouchepub.com/lar/2008/3513lar_1971_forecast.html>, and
has been campaigning ever since for a return to Bretton Woods-style
fixed exchange rates.
LaRouche understood the matter not as a technical one about currencies,
but as a fundamental fight between sovereign governments and the
imperial oligarchs centered around the British empire and its parasitic
Anglo-Dutch Liberal financial system. Any nation which cannot control
its own currency is not sovereign, and any nation which is not sovereign
is vulnerable to assault and subversion by this oligarchy. Will society
be organized for the benefit of all mankind, or will it be organized for
the benefit of a small elite who feed off the rest?
LaRouche understood this in 1971, and that understanding formed the
basis for the creation of an international political movement to
organize mankind to educate and defend themselves. LaRouche scored a
stunning victory against prominent economist Abba Lerner at a debate at
Queens College in New York, in December 1971, in which he laid bare the
fascist roots of Lerner's outlook, and forced Lerner to admit his
self-damning belief that had Germany capitulated to the demands of
banker Hjalmar Schacht, "Hitler would not have been necessary."
The response from the parasites was immediate and predictable: Never
again, they informed LaRouche, would he be allowed to challenge them
publicly. Keep your mouth shut and follow the rules, or we will destroy you.
It was a big mistake. Rather than cowering in fear as so many had done,
LaRouche decided to fight back, drawing upon his studies of the great
ideas of history and his commitment to truth above all else.
Since then, LaRouche and his movement have been attacked by virtually
every means in the Venetian tool-kit, from physical assaults to press
slanders to prosecutorial frame-ups and even jail; hard blows were
landed, but LaRouche persisted, knowing that despite its demonstrated
power, the Anglo-Dutch liberal system was crumbling from within, that it
would inevitably collapse as a result of its own cannibalistic policies.
That day has arrived. The events of the past year, from the turmoil in
the mortgage-related financial markets to the blowout of the banking
system, have proven LaRouche's analysis of the Anglo-Dutch Liberal
system to be correct. What LaRouche saw as the inevitable result of
Nixon's action in 1971, has now exploded upon the world
<http://www.larouchepub.com/lar/2008/3513lar_1971_forecast.html>.
Bretton Woods
During July 1944, a United Nations Monetary and Financial Conference was
held at the Mount Washington Hotel in Bretton Woods, New Hampshire. The
44-nation conference established what became known as the Bretton Woods
monetary system, a key component of which was the establishment of a
fixed system of currency exchange rates among nations. Under Bretton
Woods, a gold reserve standard was established, with the U.S. dollar
pegged to gold at $35 an ounce. This arrangement was the economic
bedrock upon which the post-World War II world was rebuilt, led by the
industrial might of the United States.
Bretton Woods was a victory for President Franklin Roosevelt, and his
view that the post-war world should be free of empires and their
colonies. FDR intended to use the power of the United States and other
nations to elevate the status of the common man worldwide, and end the
domination of the economic royalists. It was a grand vision, and had he
lived to implement it, the world would be in far better shape than it is
today.
The British were apoplectic at the prospect of a Rooseveltian/American
System world, and pulled out all the stops to defeat it. With the death
of Roosevelt in 1945, and the ascension of Harry Truman, the empire
struck back. The fear of a Soviet attack and the spread of communism was
used to create a Cold War environment, under which the British empire
became the top strategic ally of the United States, and FDR's grand
vision was swept away. In the name of fighting communism, Truman and his
Anglophile controllers sold FDR and America down the river. (The
parallels to today's "war on terror" should not be missed.)
The British set out to systematically dismantle the American economy, as
a way of restoring their own dominance in the world. They had to move
slowly, because the memory of FDR and what he had done for the nation
was fresh in people's minds, as were the abuses of the economic
royalists he had fought, and because the American people would fight
back if they understood what was planned.
One of the biggest obstacles to their plan was the Bretton Woods system,
and the stability it provided to the U.S. and the global economy. For
the British plan to succeed, Bretton Woods would have to be eliminated.
Pandora's Box
Nixon's 1971 decision effectively ended the Bretton Woods system, and
introduced the era of speculation which has engulfed the world in the
ensuing three decades. Pandora's Box was opened, and the evils of
oligarchism were unleashed afresh upon the world.
Neither the United States nor the world has been the same since. Nixon's
action, in conjunction with the launching of the rock-drug-sex
counterculture and the cartel-building "world company" assaults of 1968,
were aimed at destroying the basis for American industrial supremacy and
the co-option of America back into the imperial system. The Baby Boomer
generation, growing up under the hyped-up fear of thermonuclear
annihilation, turned its back on science and sought escape in
entertainment, opening the door for the oligarchs to destroy the nation.
Absent Bretton Woods, the oligarchy began to use its immense financial
power to manipulate global currencies, and thus nations. The
orchestrated oil hoax of 1973-74, with its introduction of financial
speculation in the oil market via the spot market, created a huge pool
of "petrodollars," with which the City of London could wage war against
nations. These petrodollars, combined with the proceeds of the British
empire's "Dope, Inc." drug trade, were instrumental in restructuring
Wall Street in the 1970s, paving the way for the junk bonds of the 1980s
and the derivatives of the 1990s.
The protections put into place under FDR were systematically dismantled,
as the American economy was transformed from an industrial power into an
economy based upon services and speculation. We became a nation of
consumers rather than producers, our manufacturing "outsourced" to
nations where labor was cheaper, falling for the lie that this would
make us more competitive, when it was actually destroying us. Under the
guise of "free markets" and globalization, we turned our own economy
into a haven for speculation and the formation of giant corporate
cartels, whose allegiance lay not with the nation, but with the
financiers. We had become, in essence, that against which we fought the
American Revolution.
The End of the Line
As the speculative bubble came to dominate the U.S. and world economies,
feeding it became paramount. Among other things, this led to a sharp
run-up in real estate values, to provide "wealth" which could be turned
into mortgage debt, and then into a wild assortment of securities to be
used, with lots of leverage, to play in the derivatives markets. To keep
the mortgage-debt flowing, as prices rose into the stratosphere, the
bankers repeatedly loosened the requirements for home loans. This
process, which was driven by the banks and the derivatives market,
ultimately exploded. This was falsely portrayed as a "subprime" crisis,
but in reality it was the death throes of the financial system itself.
In mid-2007, the failure of two Bear Stearns hedge funds signalled the
collapse of the global securities market, as speculators realized the
game was over and began to try to cash out. The market for speculative
paper quickly dried up, sending the nominal valuations plunging. The
market which had grown phenomenally through leverage, began to collapse
in a reverse-leverage implosion. Speculators had borrowed trillions of
dollars to place bets, gambling that they would win enough to pay back
their loans and still turn a nice profit. This game worked for quite a
while, but it quickly turned nasty when the market seized up. Suddenly,
the speculators found themselves losing on their bets, leaving no
profits to pay off their loans, and thus losing on both ends. Assets
began vaporizing by the trillions, and worried lenders began demanding
more collateral on margin calls, causing sales of assets which further
depressed prices, in a vicious, reverse-leverage spiral.
The "solution" to this blowout adopted by the central banks, was to
begin to flood the financial markets with liquidity
<http://www.larouchepub.com/lar/2008/3513jail_bankers.html>, through a
series of interest rate cuts and cash injections. Though they had sworn
to impose discipline on the markets, the central banks quickly
capitulated under the pressure of enormous losses, in a
hyperinflationary panic. The injections quickly escalated from the
billions, to the tens of billions, to the hundreds of billions, as they
raced to plug the holes caused by the savage deflation of the valuations
in the system. But no matter how much money they injected, the system
kept collapsing.
The crisis came to a head in mid-March, when the collapse simply
overwhelmed the central banks, leading to the open bankruptcy of Bear
Stearns, and with it, the death of the system. The astonishing speed
with which the system collapsed can be seen in a series of extraordinary
actions by the Federal Reserve over an 11-day period:
* On Friday, March 7, the Fed announced that it would increase to
$100 billion the amount of money it would loan to depository
institutions through its Term Auction Facility (TAF), the special
bailout mechanism it created in December to get the banks through
the end of the year. To date, the TAF has held seven auctions, two
in December which lent $20 billion each, two $20 billion auctions
in January, two $30 billion auctions in February, and one $50
billion auction in March, with another scheduled for the week of
March 24. Also on March 7, the Fed announced plans for a March 27
auction of $100 billion in repurchase agreements with primary
dealers, a group of 20 securities firms with which it deals
directly. All of these loans are for 28 days, and the Fed is
accepting a wide range of securities as collateral.
* Two business days later, on Tuesday, March 11, the Fed announced
the creation of a new Term Securities Lending Facility (TSLF), to
lend up to $200 billion in Treasury securities to the primary
dealers, again in 28-day loans against a wide range of collateral.
The Fed also expanded swap lines it had previously established
with the European Central Bank and the Swiss National Bank,
raising the amounts to $30 billion with the ECB and $6 billion
with the SNB. These measures were coordinated with the G-10
central banks.
* On Friday, March 14, the Fed and the Treasury helped arrange an
emergency loan, of an unspecified amount, to Bear Stearns through
J.P. Morgan Chase.
* On Sunday, March 16, the Fed announced yet another new lending
facility, this one to loan an unlimited amount to the primary
dealers, beginning March 17. The Fed lowered the primary credit
rate (discount rate) by a quarter-point, to 3.25%, and lengthened
the maximum time for such loans to 90 days from 30 days. The Fed
also agreed to guarantee $30 billion of virtually worthless
securities held by Bear Stearns, as part of its "shotgun marriage"
takeover by J.P. Morgan Chase.
* Finally, on Tuesday, March 18, the Fed cut the primary credit rate
another three-quarters point to 2.5%, and cut the Fed funds target
rate by a similar amount, to 2.25%. The Fed has cut the Fed funds
rate five times since September, when it stood at 4.75%.
Hyperinflationary Bailout
At the same time that the Fed is pouring money into the system with
unprecedented speed, the government is moving ahead with a series of
bailout measures
<http://www.larouchepub.com/lar/2008/3513jail_bankers.html> designed to
transfer the losses of the banking system to the public. In addition to
the hundreds of billions of dollars of loans given to the banks through
the Federal Home Loan Banks, the government is using the Federal Housing
Administration to refinance and insure mortgages, and expanding the role
of Fannie Mae and Freddie Mac in buying larger mortgages, effectively
putting the taxpayers on the hook for the huge real estate losses
working their way through the system. On top of that, we have the Bush
stimulus plan and the apparent intervention by the Fed to keep the stock
market from collapsing.
The futility of this approach was demonstrated by the fact that, despite
all the interventions, the Fed was unable to prevent the collapse of
Bear Stearns, the fifth-largest investment bank in the nation. We have
now entered what is, in effect, an open-ended bailout of the U.S.
banking system, in which the hundreds of billions spent so far will soon
turn into trillions.
The fatal flaw in this approach, as LaRouche has warned, is that it is
inherently hyperinflationary. That hyperinflation has already begun, and
the money pumped into the bailout---money which serves no economically
useful purpose---will only accelerate the process. This means that the
faster the government pumps in the money, the faster the value of the
dollar will collapse, and the faster the global economy will collapse.
(For a pedagogical lesson on hyperinflation, we recommend the reader log
on to the LaRouche Political Action Committee website,
www.larouchepac.com, and view the 80-minute video "Firewall: In Defense
of the Nation-State <http://www.larouchepac.com/firewall>.")
Time for LaRouche
It has taken 37 years for the process set into motion by Richard Nixon
in 1971 to destroy the global economy. During that entire period,
LaRouche and his international political movement have been a consistent
voice for reason, organizing in the streets and in the halls of
government for a return to the sound economic policy of the American
System, and an end to Anglo-Dutch Liberalism.
We have now reached the point where all of us must decide: Do we go back
to what works, or do we descend into fascism and chaos, and a new Dark
Age? That is the question we ask you to keep in mind, as you read the
following reports.