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We must go back to a system of a fixed-exchange-rate system

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Guest LaRouche PAC

Lyndon LaRouche gave the following remarks at a press conference at the European Parliament in Strasbourg, France on Dec. 17. Many of the questions were in Italian or off-mike, and those that appear here should be considered paraphrases until they can be checked and/or translated.


LYNDON LAROUCHE: On the 20th of January, presumably the elected President of the United States will be inaugurated. Between now and then, it is extremely difficult to forecast exactly what will happen. The terrorism in India and Mumbai is merely typical of this interim situation and what we must be prepared to deal with. But in the meantime, the issue which is facing the coming President of the United States, who has, incidentally nominated a number of friends and collaborators of mine for his government, starting with of course Hillary Clinton as Secretary of State; but the problems that are going to confront all of them, is something I forecast on the 25th of July of 2007, where I forecast that I expected within a few days or so, we must expect the beginning of the biggest crisis of all modern history, the biggest economic-financial crisis in all history. Three days later, it broke out.


The crisis is essentially one of a financial derivatives crisis: That the system of speculation which was launched under Alan Greenspan when he began the head of the Federal Reserve System of financial derivatives has reached the point of explosion. It's over quadrillions of dollars of debt. And there's no possibility that this debt could ever be satisfied or liquidated. This presents the world with a danger, the challenge of a reorganization of the world monetary-financial system, and what I am proposing to my friends and sympathizers in the coming administration, is that we put the entire world through a financial reorganization, in the direction of the policies of Franklin Roosevelt in 1944. Not what Truman began to implement in 1945, but what Franklin Roosevelt presented at the Bretton Woods conference in 1944: That is, to create an international credit system based on a fixed-exchange rate of credit systems among nations, and to proceed to start a program of actual recovery, financial-economic recovery.


We know what the situation is in Europe, we know largely what the situation is presently in the United States. The insanity of the present government of the United States, in going to a virtual zero interest rate, much like what the yen did some years ago, in the overnight yen market, is a piece of insanity whose results we have yet to see. I would hope that this would be reversed. If it's not reversed, then we have an incalculable situation.


But in any case: That's the issue. The issue is, we must end the kind of financial system which was created since 1971-1972. We must go back to a system of a fixed-exchange-rate system. It must be based on a credit system, not a financial system. What I mean, is this: The United States is unique among nations, in the fact that we have a credit system, where European nations have financial systems, monetary systems. The difference is this: Under our Constitution, the creation of money, or credit, must be made by the President of the United States, but with the consent of the House of Representatives. This credit can be then used, and monetized, as specified by the legislation and by upholding the President's power to utter credit.


What I'm proposing, essentially, is that we use the United States' Constitution, with its provision for a credit system, through treaty agreements with other nations to create a fixed-exchange-rate credit system. The purpose is largely to generate credit, which can then be used, internationally, for building up long-term investments in the world economy. This means, taking much of the financial derivatives, which could never be paid anyway—there's no possibility of satisfying the demands of this financial system presently; there's not that amount of money will ever exist in the world, to pay off quadrillions of dollars of debt, which is largely fraudulent debt. And therefore, we have wipe this aspect of the debt of the world off the books, and go back to a credit system which is based on the idea of the nation-state, as opposed to what we're getting now, in terms of a new, funny international system, a monetary system. Go back to the nation-state, and take long-term commitments, in terms of a quarter-century, half-century, or full century, depending upon the category.


We have a problem, for example, in this respect in Asia: What I proposed of course—the initiative on this, for this proposal, be made by an agreement among the United States, Russia, China, and India, because it's in this area of the world, in Asia, including Russia's role in Eurasia, where the greatest amount of poverty and the greatest need for development occurs. We have in India, for example, 63% of the population is extremely poor, and not likely on their own powers to increase their productivity immediately. Without large-scale infrastructure, such as nuclear power and things of that sort, to regenerate that, to build up the infrastructure of nations such as India, to the point that they multiply the productive powers of labor in these countries. We have a problem in China, as we all know now. China is collapsing, as a result of the collapse of the U.S. market, the entire Chinese system is in crisis. This is going to spread throughout the world very rapidly, which is why the situation is unstable.


Russia is essential, because Russia is a Eurasian culture, not a European or an Asian culture. It's been that since about the time of Genghiz Khan.


So, under these conditions, that the raw materials which exist largely in Russia, in northern Russia, are necessary to supply the minerals needed for building up the economies of countries, such as China and India. China and India could not do this by themselves, because this involves technologies which are only known in Russia, in institutions such as the Vernadsky Institute for example, which is a specialist in this kind of area, of going into an area such as this tundra area, the Arctic region, or sub-Arctic region, to draw out the raw materials which are necessary. It's not a matter of digging in the ground, it's a matter of developing a system of raw-materials development.


Also, the future of humanity is going to go increasingly in the direction of Asia—the large populations of Asia; 40% approximately of the human race lives there, and most of it is very poor.


So, we're going to have to mobilize the Americas, especially the United States, and Europe, to play, again, a leading role in science and technology, as a part of the process of developing the whole of this planet, including Asia and Africa, developing the whole of the planet up to a condition in which humanity can succeed.


It's my belief, that under the Obama Administration, from all signs so far, that something in that direction will occur. There will be complications, as you know what governments are like, and they're always complicated. They don't provide exactly what you want, but if you get 50% or 60% of what you want, that's considered pretty good these days.


So, that's where it stands. The key problem is that, in the area of economy, there are very few people in the economics profession or otherwise, who have any actual comprehension of this problem and its nature. They didn't forecast, they didn't see it coming, and they relied too much on statistical forecasting, rather than real forecasting. Real forecasting is based on physical science; it's based on taking into account the will of people and deciding what they're going to do, and whether these ideas they have are correct or not? Are they able to forecast the results of what they intend or not?


So that's my position here. My qualifications, which have been proven many times in the area of forecasting, are actually based on a branch of science known as Riemannian physics, a physical economy conception of Riemannian physics. And I've been successful: I've been forecasting for a long period of time—obscurely, back in the 1950s, when I forecast the 1957 recession, and forecast what became the collapse of the Bretton Woods, and a number of other forecasts, and I've succeeded in this one. And as a result of my success in forecasting, people in the coming government of the new President have acknowledged that I've been right and decide that I have to play some very significant role in shaping what will be the policy of the new government.


Now, I can't make any guarantees or predictions on that, because it's a long time between now and the 20th of January, and with terrorism breaking out in India and elsewhere, and the likelihood of more terrorism in various parts of the world under these conditions, we can not exactly proceed on the basis of knowing exactly what's going to happen. We have to be prepared on the one side, with knowing what we should do, what the objectives of mankind should be, what the policies should be, what the resources are that we can use to achieve those objectives; and also have a Plan B, as well as a Plan A. Plan A is what could happen and be good for humanity. Plan B is what if that isn't provided. So you always, in policy, have to have two options: One is the best option that you should follow, and the other is what you have to do in case the first one doesn't work out. I think those of you in politics long enough know and understand that.


But that's the situation we're in. We're in the most dangerous situation: In all modern history, there has been nothing comparable to this in European experience, since the 14th century New Dark Age, the so-called —when the collapse of the House of Bardi occurred. And we're in, with the derivatives crisis, in quadrillions of dollars of debt which could never be paid, we're in a crisis which is worse than that the House of Bardi faced, and other firms, in the 14th century. It merely means, we have to proceed: Cancel what should not be debt, cancel what should not be paid; continue what must happen, must be done, without missing a step, protecting the people, protecting the individuals; protecting the cultures, as if no interruption had occurred. We can, I believe, do that, under reorganization.


But we have to have, as I said, a Plan A and a Plan B. I'm working on Plan A. And I'm warning people about what Plan B looks like: and it's awful—awful. But if it happens, we're going to have to face it, as we faced terrible things before.


Thank you.




FEMALE: [panelist, in Italian, thanks him and opens the floor to questions.]


MALE: [italian] [two questions]


LAROUCHE: Well, what we have to do is very simple, actually, from an American standpoint, from the U.S. Constitution. There are complications in the case of Europe, but from the American Constitution, this is not a difficult problem, because our Constitution was devised to deal with precisely this type of problem. What we do, is you put the chartered banks, we call them in the United States, and the equivalent banks—that is the real ones, not the speculative banks, but the ones who deposit savings, who use national money, national contributions as credit and loan this money out under specified terms—under that case, you take the credit system, linked with the chartered banking system, that is, the regular banking system, and you say, "We're putting these things into bankruptcy reorganization, but they will keep their doors open, and will function under government protection."


This also means protection of treaty agreements among governments, to create a fixed-exchange-rate system planetwide, which will have the same objective, of cooperation among sovereign nation-states to protect their essential banking system; and also, at the same time, to designate certain objectives, which should be the objectives of the separate, sovereign governments and their cooperative relations: These to ensure that we immediately go back to a real, productive economy, in agriculture, industry and basic economic infrastructure. And this means, we have to designate, first of all—we're talking about quarter-century-, half-century-, and century-long kinds of agreements on development. That's your credit system.


We have to also balance, through a fixed-exchange-rate system, we have to balance the payments, the scheduled payments back and forth among these nations. It's my belief that we can actually do much better immediately, than we're doing right now, if we do that. What's needed, is governments to have the courage, to take this kind of action, and to take them jointly and quickly. For example, the issue of nuclear power is going to be leading one. Because without that, we certainly can not meet certain requirements, and water management and other things which are needed on this planet as a whole. But governments will have to come to agreements on this kind of thing.


And we can succeed: We've done it before, we've done similar things before. We just simply have to use our imagination and take the lessons we've learned and apply them.


CLAUDIO CELANI: His second question—why cutting the rates is an insanity?


LAROUCHE: Oh, well, this is nonsense! For example, I've been fighting for a 4% rate, a basic banking rate, in the United States for some period of time. Without that kind of protection, you can not maintain a credit system.


Japan tried this with this overnight rate, before. Japan kept collapsing as a result of this. A zero interest rate is insanity. The only alternative to zero interest rate, is for the government to make an outright grant! If governments vote for an outright grant, as for a humanitarian purpose, or some related purpose, that's fine. But a 0% interest rate corrupts the banking system, and you must have a stable—you must have security for people putting their savings into banks! You've got to protect—I think a 4% rate for open market activities, and a 2% rate, or 1.5% to 2% rate for special government credit systems is about the range you want to operate in.


MALE: [in English] One question, there are some countries in [italy's border?], that say that their credit system is actually in a good condition because they didn't expose themselves too much to the subprime insanity. Do you think this is true? Do you think there are countries that are sheltered by the banking system acting in different way, sheltered from the disaster?


LAROUCHE: I don't know exactly what the situation is in the Italian system now. I've known that traditionally, the Italian system was oriented much more to the localities and to those kinds of interests, and I thought, actually back in the 1970s, I thought things were much better than they are today.


But take another case, take the case of India: India has a relatively stable credit system, as of now—that is, internally. It's making some progress. Whereas China took a much bigger risk in relying upon the U.S. market; and when the U.S. market and the European market began to collapse, then China is now in desperate situations. So there are obviously relatively conditions for better or worse among nations. I think the instinct of Italy, until at least recent developments, I'm not up to—I thought the Italian orientation for a credit system was essentially much better. I think the bell towers helped to have some of that effect.


MALE: [in Italian]


MALE: [also Italian]


LAROUCHE: Well, basically, we're talking about the paradigm for this in the case of George Soros. George Soros is the biggest drug pusher on this planet. He's a drug pusher in Asia, he's a drug pusher in Europe, he's a drug pusher in the Americas. He also was a big power in the election campaigns in the United States, and look as though Mr. Obama is not pleased with the result of this sort of thing.


So, for example, you take a farmer on the borders of Afghanistan, will grow a crop of opium, a crop of about $600 valuation. By the time that product reaches Europe, it has a price of $6 million. So that, the traffic coming out of Afghanistan, and other locations, through transit in the Carpathian region, into Europe, as in from the Caribbean throughout all South American states, except Colombia, and inside the United States, is one of the biggest ulcers on this planet. And if we don't control and stop this kind of speculation, which is associated with Mr. Soros, as probably the most evil single individual on this planet today, we don't have sovereignty in any part of Europe.


This corruption by drug trafficking, is one of the greatest evils on this planet today. And George Soros, who, as a teenager was running errands for the Nazis who were shipping Jews into concentration camps for execution, has not been killing Jews lately, but he's applied the same lessons and methods he learned, and has talked about, when he was a teenager in Hungary—has been applying those same methods of finance and gangsterism throughout the world today. And governments are treating people like that with respect! Which is a mistake. This is a crime! And should be treated by all governments as crimes.


The failure to treat this as a crime, has opened the door to most of the evils on this planet today. If we protect our children, our citizens against a drug traffic, then we have a basis for morality. If we do not protect our children, and our markets, our economy, from these drug traffickers, we don't have sovereignty, and that's the problem I think we see in Europe today. Is that the influence of these drug traffickers and their political associates, have undermined the sovereignty of the nations of Europe today. And I think our dealing with that, ruthlessly, in all parts of the world, is the thing that will open the doors for establishment of full sovereignty of nations, again, now.


MALE: [in English] I've would like to ask you to ask you a question all day. I'm an observer from the Spanish newspaper [inaudible]. I would like to ask you about the last plan approved here in the European Union, for using the fight against climate change some new technologies, new green technologies, adapting the economy to these new green technologies, the solution or one way to use this crisis for a new start of the industry. Do you think something like that?


LAROUCHE: Well, the key thing here, is a human being is not an animal. A human being is a creative, or potentially creative, as no animal is. Human beings are capable of increasing the productive powers of labor, of the population, and the standard of living, by will. And therefore, anything that destroys, or impairs the mind of the individual human being, or corrupts their education or corrupts their opportunities, is a threat to humanity. It's a threat, because it springs from an ignorance, or disregard of the difference between man and a beast.


And therefore, that is crucial. Maintaining programs, which are oriented toward technological progress, scientific and technological progress, to increase the productive powers of labor and raise the physical standard of living of mankind, and enable to sustain a growing population on this planet, these are the measures which are required.


MALE: [in English] Just a last question. I knew that a couple of years ago, you had this [public] meeting with Minister Tremonti—at the time he wasn't a Minister of Economy, but he was in a position. Can you remind us the main topics of the discussion and the common point that you may share or join with Mr. Tremonti?


LAROUCHE: Well, Tremonti is a very brilliant, and I think somewhat courageous individual, who I would tend to agree with most of the time. And sometimes we have a little disagreement on this or that, but we are friends, I wish the best for him and I think he wishes the best for me. And I think our differences can be resolves in the normal course of events.


For example, he tends to still cling to a Keynesian system; I don't want a Keynesian system. I want a system for Italy of the type that most Italians used to want: an American System. By which I mean, Franklin Roosevelt, of course.


MALE: [in Italian, something about the economic views of "Papa Ratzinger."]


LAROUCHE: Well, my views on this thing of course, is, that I believe that a developed language-culture of a people is an integral part of their ability to function. And that therefore, the problem that is posed to us in the attempt to find more cooperation, international cooperation among nations in Europe and elsewhere, is that if we lose sight of the role of a developed language-culture in the functioning of a people, and fail, lose sight of that in the search for unification across borders, that's a mistake. Because there's subtleties in the creative powers of the human mind which are associated with the development of these cultures in language forms. And therefore, it is necessary to have an affirmation of national cultural characteristics, as the basis for the nation-state. And anything that interferes with that is, in my experience, is a danger to the productive powers of labor.


When we went from a fixed-exchange-rate system, among sovereign nation-states as the policy of the post-war period, that was a mistake! Because a fixed-exchange rate was a basis for having nations of different cultures, respective sovereign, enter into long-term conditions of cooperation, and sharing creativity. For example, if you take the history of Italy, for example, particularly from Dante: The development of a language culture and its revival was an essential part of the creativity which we saw in the Renaissance in Italy. And if you lose that, if you go to argot, instead of a cultured national language-culture, you lose—for most of your people—you lose their productivity. And the defense of productivity must be the standard by which we judge these kinds of questions.

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