* John Hoefle: Foolish Fed's Rate Cut Pumps Hyperinflation
Richard Moore
This article appears in the February 8, 2008 issue of Executive
Intelligence Review.
Foolish Fed's Rate Cut Pumps Hyperinflation by John Hoefle
Panic can be a dangerous thing, especially when it is the response
by a central bank to global economic disintegration, and panic is
just what the Federal Reserve did with its two interest-rate cuts
in January. The combined 1.25 percentage-point cut was precisely
the wrong move, amounting to more of the poison which has already
killed the patient. The Fed is trying to save a system which cannot
be saved, and in doing so, is leading the nation and the world into
a Weimar Germany-style hyperinflationary blowout. We are headed,
in the analysis of Lyndon LaRouche, into a "global breakdown crisis,"
a self-feeding downward spiral in which the financial system, the
physical economy, and the political structures all collapse, leading
to a chaos not seen since the Dark Age of 14th-Century Europe.
Open warfare has broken out among the power groups who see themselves
running the world. This is an end-of-game fight for survival, to
see who winds up on top of whatever pile of rubble remains, and
this type of fight will destroy virtually everything in its path.
The alternative to this jackal-eat-jackal free-for-all, is for
nations to act together in a harmony of interests, to protect their
populations by putting the financial system through bankruptcy, and
beginning to rebuild their tattered economies.
Have you ever wondered just why it is, that the financial markets
are so obsessed with interest rates? Why a relatively trivial quarter
of a point change can be treated as if the future of mankind were
at stake? Have people lost their minds, or is something else going
on, or maybe both?
The answer is, both. The fixation on interest rates is really a
veiled reference to the giant gorilla in the room which no one wants
to acknowledge: debt. From households to corporations to governments,
debt has assumed a central role, and our economic policy has come
to revolve around our ability to service existing debt and incur
new debt. The fixation on interest rates is actually a fixation on
debt.
After World War I, huge debts were imposed on Germany, at the same
time that its economy was stripped of its ability to pay those
debts; so the German government resorted to printing money to meet
the reparations demands and protect its people. This process
accelerated to the point where a non-linear transformation occurred,
and the value of the currency imploded in a spectacular hyperinflationary
collapse.
The Fed's actions, combined with the Bush/Paulson stimulus package,
the injections of money by central banks into markets around the
world, and related measures to try to salvage the global financial
system, have reached the point where we are now on the verge of a
Weimar-style collapse of the dollar, taking what remains of the
global financial system with it.
The alternative to this, is to admit that the huge debts that have
been incurred cannot be paid, and instead of destroying ourselves
in a vain attempt to pay them, write them off. It will, in the long
run, be far less painful than descending into a new Dark Age. We
write them off, and start again, this time with sane economic
policies.
Open Warfare
An historic battle between the British empire and the American
nation-state is now playing out before our eyes, with the efforts
of the British to lure the United States into a hyperinflationary
suicide, in the guise of protecting the system. While much of this
fight is being waged on unseen battlefields, reflections of it can
be seen if one knows where to look. Barclays, the giant British
bank, played a role in triggering the collapse of the subprime
lenders in March 2007, when it demanded that New Century Financial
buy back some $900 million of mortgage loans; shortly after, New
Century, the second-largest subprime-mortgage lender, filed for
bankruptcy. Barclays also played a role in the Bear Stearns hedge-fund
crisis of last Summer, which fed the collapse of the global
securitization system, the engine which converted unpayable debts
into an even larger pool of speculative, and ultimately worthless,
assets. The Canadian Imperial Bank of Commerce (CIBC), a British
wolf in Canadian clothing, launched an attack on Citigroup; at the
same time, CIBC was covering up significant problems of its own.
The pressure at Citigroup grew when another British bank, HSBC,
took its SIVs onto its balance sheet, making it more difficult for
Citigroup not to do the same. The issue is not that Citigroup had
problems, but that the British were exploiting those problems in
open financial warfare against the United States.
Now we see the British press pushing the United States to attempt
to "protect" itself through monetary stimulus. They are subtle about
it, talking in the typical British way out of both sides of their
mouths, some even warning that we have no choice but to continue
down the bailout path even though it is the wrong thing to do. When
it comes to deception, Perfidious Albion is a well-practiced master.
The British are targetting nationalistic tendencies among the
political and financial institutions, trying to wipe out what are
sometimes called "national champions." Citigroup is one such "national
champion," in the sense that it represents an American power base
which is an obstacle to a worldwide British Empire. Another of these
"national champions" is Sociiti Ginirale, the French bank which has
just been hit with a huge scandal. (We are not defending the actions
of these banks here, but describing them as obstacles to imperial
goals, and thus coming under attack. It is an important distinction.)
The Sociiti Ginirale Affair
The affair at Sociiti Ginirale, as widely reported, involved the
allegedly fraudulent activities of a single trader, one Jirtme
Kerviel, who is blamed for Eu5 billion in losses. The blaming of
huge losses on a single trader is a time-dishonored tradition among
bankers, who would prefer to throw a single individual to the wolves
rather than take responsibility themselves, but the issue of even
a big loss such as this one is not particularly interesting when
the system itself collapsing. What is interesting about the Sociiti
Ginirale affair is the way it appears to be a part of the larger
fight for global domination.
EIR is still investigating this affair, but our preliminary findings
raise some very interesting suspicions. The first is the timing.
Sociiti Ginirale officials say they discovered the fraud on Jan.
18, and completed their investigation Jan. 20. That is, they
discovered it on a Friday, investigated it over the weekend, and
on Monday, the 21st, began unwinding Kerviel's trades. That Monday,
when the U.S. markets were closed for the Martin Luther King holiday,
was the same day that world stock markets plunged in the general
range of 5-8%. Knowing that the U.S. markets would drop sharply
when they opened on Tuesday, the Fed initiated an emergency cut of
three-quarters of a point before the markets opened, and then,
presumably did its usual covert injections as the Dow plunged some
460 points; the Dow ended the day down just 128 points. The
intervention was touted as a success, but in fact was a disaster,
because the real issue is not the stock market but the dollar, and
the Fed's action was dangerously hyperinflationary. To LaRouche and
EIR's investigators, the whole affair smelled like a trap to panic
the Fed into lowering interest rates.
French President Nicholas Sarkozy was reportedly livid that he had
not been informed of the matter beforehand, and has stated unequivocally
that he has no intention of allowing Sociiti Ginirale to be taken
over by a foreign bank. Even more interesting were reports circulating
in France that an American-French alliance against the British had
formed around the NYSE Euronext stock market, the company formed
by the merger of the New York Stock Exchange and the Paris-based
Euronext. This alliance, it was suggested, was aimed at turning
Paris into the center of European finance, displacing the City of
London.
The role the British may have played in this operation is still
under investigation, but it is worth noting that Sociiti Ginirale,
like many banks, conducts its derivatives trading through London,
the center of the global derivatives trade.
As a response to the Fed's stupidity, LaRouche proposed that the
U.S. immediately adopt a two-tiered system of interest rates, with
low interest rates for specific productive projects, and higher
rates for all other lending. The upper tier rate would be maintained
at a level above that of the European Central Bank, which LaRouche
identified as part of the British assault on the dollar. The move
would seriously hurt, perhaps even bankrupt, the British interests
who have been shorting the dollar to drive it down, and attract
capital to the U.S. and the dollar. It would also serve to dry up
some of the overall speculation in the markets, in preparation for
the necessary implementation of the Homeowners and Bank Protection
Act.
The need for such policies was made even more acute with the Fed's
decision on Jan. 30 to cut the Fed Funds rate another half a point,
to 3%, which LaRouche characterized with his customary bluntness
as "clinically insane."
"Bush and Bernanke are out to sink the dollar," LaRouche said. "This
has to be clearly said, and it has to be stopped.... This policy
means Weimar Germany, 1923, hyperinflation revisited, and it is
absolute lunacy for any government to take, or follow."
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