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This article appears in the March 1, 2013 issue of Executive Intelligence Review.

Financial System on Steroids:
Shut Down the Casino Economy

by Helga Zepp-LaRouche

[PDF version of this article]

Feb. 22—After the virtually unanimous support for the policy of miraculous multiplication of money—the so-called "quantitative easing" of "Helicopter Ben" Bernanke and European Central Bank (ECB) President Mario Draghi—expressed by the G20 countries at their Feb. 15-16 meeting in Moscow, some representatives of the financial world are getting the jitters. The ultraconservative Swiss newspaper Neue Zürcher Zeitung even mentioned the hitherto taboo H-word (hyperinflation). At the same time, the markets are being flooded not only with money, but also with various ersatz versions of a banking system that would separate commercial from investment banking—all of which only have one purpose: to conceal the speculation and prolong the dancing on the volcano for just a little longer.

On Feb. 18, an article in the Neue Zürcher Zeitung warned that the super-easy money policy makes it only a matter of time before high inflation, or even hyperinflation sets in. Charles Gave of the Hong Kong research firm GaveKal pointed out the real reasons for the impending crisis point: namely that Europe is a huge Potemkin village; behind its facade, Southern Europe is in a death spiral caused by the destruction of the industrial base in Italy, Spain, and France since the introduction of the euro. Two days earlier, the same newspaper attributed the surge in stock prices to "monetary policy steroids," with reference to Lance Armstrong, the fallen star of the Tour de France. The stock market rally will ultimately prove to be a poisonous gift from the central banks, and the financial house of cards will once again collapse, the paper wrote.

Even if the Zeitung thinks it has to quote other people—investors and analysts—in order to say this, it is still the truth. Southern Europe is indeed in a death spiral. In Greece, for example, people only have access to 268 of 900 essential medicines; the suicide rate is rising throughout southern Europe; a huge brain drain from the South is benefitting Germany and Northern Europe in the short term, but is destroying the foundations for economic recovery in the South: a Potemkin village in Europe, while the financial policy of the entire trans-Atlantic region and Japan is on drugs. The central bankers' gift of a Trojan Horse makes the mega-speculators happy, while proving disastrous for all.

Lyndon LaRouche warned in his Friday webcast on Feb. 15, that behind the easy-money policy of the central banks of the U.S., EU, U.K., and Japan, there is a clear intention to let the unpayable debt of the financial system vanish into thin air from hyperinflation, and to expropriate the wealth of large mass of the population, while designing a new currency system only for the benefit of members of the "club" of the international financial elite. That statement may seem shocking at first, but its truth is obvious to anyone who thinks through the "no matter what it costs" policy of ECB chief Draghi & Co., or who has thought about Germany's hyperinflation of 1923. Then as now, there were war profiteers who benefitted from the hyperinflationary policy by fleeing in time into material assets, industrial plants, mines, etc., and, after the currency reform, strengthened their positions.

Glass-Steagall Is the Way To Go

Fortunately, the financial establishment is by no means unanimous regarding this unlimited opening of the monetary floodgates. As the minutes of the latest meeting of the U.S. Federal Reserve's Open Market Committee (FOMC) on Jan. 29 show, the number of participants who reject Bernanke's policies is increasing from "some" to "many." For the first time, there was open discussion of phasing out the hyperinflationary money generation, and of the associated difficulty that this policy means that the Fed would destroy many of its own titles, so that a phase-out is impossible as long as the casino economy is maintained.

Richard Fisher, the Fed chief in Dallas (Texas), and Thomas Hoenig, deputy chairman of the Federal Deposit Insurance Corporation (FDIC), are the leaders of a growing faction of Fed governors, bank regulators, and regional bankers in the U.S. who are working for the full re-establishment of Franklin Roosevelt's Glass-Steagall Act. This is based on their recognition that the hyperinflation policy of Bernanke & Co. will have catastrophic social, political, and economic consequences.

LaRouche's Political Action Committee has launched a national campaign for the reinstatement of Glass-Steagall. The most recent success of this mobilization is that South Dakota's legislature has become the seventh in the country where a resolution has been submitted supporting that policy. Activists are reminding their state legislators, Congressmen, and Senators of their duty to defend the general welfare, as specified in the U.S. Constitution. Given that many parts of the United States are in just as bad shape economically as Southern Europe, this conflict has become hand-to-hand combat between U.S. patriots and Wall Street lobbyists.

Germany: Sticking with Monetarism

So far at least, the situation in Germany is still relatively underdeveloped in this respect. To be sure, the federal government has now presented, in coordination with the French government, one of the many ersatz variations of banking separation, namely its "draft legislation on protection against risks and on planning the reorganization and closing down of banks and financial groups." But it unfortunately remains completely within the framework of monetarism, even recommending further nesting of the major banks for the purpose of continued speculation, and not even mentioning the term "real economy."

This draft legislation corresponds exactly to what Richard Fisher has opposed about the Dodd-Frank Act and its so-called Volcker Rule, namely that a completely non-transparent financial sector is made even more problematic by complex regulations, making the situation worse. The German government's draft law reflects the fact that its authors and their employers do not want to give up speculation and monetarism.

But it is a matter of life and death in the immediate future, to break with this adulation of the monetary system, and to return to a policy that prioritizes the physical economy, as a precondition for the continued existence of mankind. And in the current situation, this can only happen with the full Glass-Steagall separation of the banks, because either money is made available to continue high-risk speculation and gambling, or a credit system will be created exclusively to finance the real economy.

Hyperinflation is already in full swing. It is already visible in asset values, whereas the consumer goods indices are being deliberately manipulated. The explosion of prices for real estate, energy, and food gives a foretaste of what is threatening to explode.

Translated from German by Susan Welsh.

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