From Volume 6, Issue 52 of EIR Online, Published Dec. 25, 2007

Global Economic News

Biggest Bank Bailout Yet, Protects Nothing

Dec. 19 (EIRNS)—The European Central Bank, Federal Reserve, Bank of England $548-billion-in-one-day bailout of European and British banks on Dec. 18, may have the financial world agog. But it's "ineffective, useless, amateur hour," said a New York Republican Party economist on Dec. 18, in a discussion with EIR. What has to be written off is not 10%, but 80-90% of the "value" of the trillions in these banks' securities assets.

Citibank is at the head of a parade of big banks at the point of insolvency right now, as these writeoffs are gradually forced upon it. In this situation, the economist said, lending to these banks, however many hundreds of billions in short-term loans—piling up their liabilities, against bad assets—will produce no result except hyperinflation.

The action of protecting chartered banks from the current financial crash—LaRouche's "firewall" against bank insolvency—is diametrically opposite to the policy of central banks' printing any huge volume of bailout loans to try to "liquify" the trillions in toxic securities these banks hold as assets, the economist said. This firewall idea must be grasped by members of Congress, who are now paralyzed in the face of the crash.

Northern Rock's Bailout Can't Save a Sinking Ship

Dec. 19 (EIRNS)—The Bank of England's bailout of the failed Northern Rock bank could cost every taxpayer 1,800 pounds (over $3,600), according to the British newspaper the Guardian on Dec. 18. The total cost of 57 billion pounds is as much as Great Britain's entire annual education budget—just for one failed bank. That illustrates the criminal idiocy of the "wall of money" policy being followed by the world's central bankers, including the U.S. Federal Reserve, in face of a global economic collapse in which all leading banks are bankrupt.

Such policies can only lead to hyperinflation of the sort experienced in 1923 Weimar Germany. The only solution is to put in effect a firewall as proposed by LaRouche's Homeowners and Bank Protection Act. LaRouche calls for the government to put a moratorium on foreclosures so that people can stay in their homes, and guarantee that the chartered banks stay in operation, while the long-term process of sorting out the rotten debts is carried out.

Instead of attempting to bail out the trillions in bad debts at taxpayer expense, the worthless paper must be written off as part of the process of reorganizing the monetary system on a sound basis, in which new, government-backed credit is issued for the financing of productive investments in real wealth-producing physical economic infrastructure.

Britain's Northern Rock bailout was denounced by Liberal Party shadow chancellor Vincent Cable, though without a proposed solution. Said Cable: "It is outrageous that the taxpayer should now be carrying all the risk involved in keeping this bank afloat while having no direct control over its affairs. The government is ensuring that if any sale is achieved, the benefits will go to speculative investors and not back to the taxpayer." Meanwhile, Bank of England governor Mervyn King revealed that, in November 2006, Prime Minister Gordon Brown (who was then Chancellor of the Exchequer) was warned by a top advisor that "urgent action" needed to be taken to deal with the potential collapse of one leading retail bank. Brown never acted on the warning and did not draft safeguards such as deposit insurance, King told a parliamentary select committee on the Treasury.

Wall of Money Brings Famine

Dec. 19 (EIRNS)—Record prices for major agricultural commodities and a reduction in the volume of food aid means there is a serious risk that global hunger will worsen next year, according to the United Nation's Food and Agricultural Organization (FAO) report published on Dec. 17. This is the end-result of the hyperinflationary "wall of money" policies being carried out by the central banks—famine.

The warning by the FAO came as wheat prices jumped to an all-time high, soybean prices hit a new 34-year high, and corn rose to an 11-year high on strong demand and tight supplies reflected in extremely low global inventories. The food price hikes are the result of hyperinflationary money-pumping policies, and the long-term failure to invest in agricultural production and infrastructure.

Jacques Diouf, FAO director general, saw a serious risk of poor people getting less food next year because of the impact of high food prices and a reduction of volume of food aid. What Diouf does not say is that there had been a serious drop in agricultural production for several years, and it would get worse.

In this report, the FAO asked for financial support for a voucher system to help farmers in poor countries buy seeds and fertilizer, both of which are rising in price, in an effort to boost local production. Rising prices for crude oil and natural gas, the major feedstock for fertilizer, have pushed manure prices to levels not seen in the past two decades. Seed prices have risen on higher demand from emerging countries.

The FAO's call came as countries continued to take unilateral measures to protect their food markets. China said it would scrap a tax rebate on agricultural commodities exports to clamp down on foreign sales.

Weimar Hyperinflation: A Worldwide Crisis

Dec. 21 (EIRNS)—The reality of Lyndon LaRouche's forecast of worldwide Weimar-like hyperinflation is becoming more and more obvious, as is recently evident, for example, in the report by Gazeta newspaper of Kazakhstan, which says that food prices are spiraling upward in most Central Asian nations.

In many Central Asian and Caucasus states, the inflation rate has hit double digits. In Kyrgyzstan, for example, it reached 20.1% during the January-October 2007 period, the National Statistics Committee announced. Although Uzbekistan denies it, the IMF claims Uzbekistan's inflation rate is now 12.2%. In Kazakhstan, inflation was 13.4% for the first ten months of 2007, according to the State Statistics Agency. The story is similar in the Caucasus. In Georgia, the country's statistics agency reported inflation at 11.2%. It was roughly the same in Azerbaijan—11%.

Both Kyrgyzstan and Tajikistan rely on wheat imports from Kazakhstan, which has lately found it more lucrative to export surpluses to China and India. Reports from Tajikistan, where inflation is running at 14.9%, say the price of a 50 kg bag of flour has risen by 20% over the last year. In Uzbekistan, which is scheduled to hold a Presidential election on Dec. 23, regional media outlets have reported that the price of flour has skyrocketed in recent months, rising between 10% and 37% depending on quality.

Scattered small-scale protests and panic buying have been reported throughout the region, and news of panic buying were reported from both Kyrgyzstan and Tajikistan.

Citigroup Can't Find $10 Billion for Russian Deal

Dec. 20 (EIRNS)—The big news in Russian finance today is that Vladimir Potanin, owner of Norilsk Nickel, was unable to go ahead with his planned buy-out of his partner, Mikhail Prokhorov. The reason is that his lender, Citigroup, lacked the liquidity to provide the $10 billion loan Potanin had negotiated. Now, Russian wires comment, Potanin may lose the opportunity to consolidate his control of the world's biggest producer of platinum group metals, as aluminum magnate Oleg Deripaska, head of Russian Aluminum (Rusal), is standing by to purchase Prokhorov's 11% stake in Norilsk Nickel if Potanin can't do it.

All rights reserved © 2007 EIRNS