|This article appears in the September 28, 2001 issue of Executive Intelligence Review.
Save 'the Markets'? Why
by Marcia Merry Baker and John Hoefle
Even Try? Save the Economy!
[PDF version of this article]
"The Markets Are Dead! Long Live the Markets!" is the best description we could think of, to characterize the insane mind-set behind the attempt to stage a so-called Patriotic (Stock) Rally on Sept. 17, the day the New York Stock Exchange re-opened after the Sept. 11 assault, and for subsequent days. The liquidity-pumping and Plunge Protection Team tricks were aimed at keeping up a pretense that financial markets can be yanked out of collapse. On Sept. 17 alone, the Federal Reserve reportedly pumped in some $57 billion.
As for the physical economy? It was treated as contingent on the (dead) markets! It is the toleration and continuation of just this kind of thinking, that is now a strategic threat to the economic existence of the United States, and the the global system.
That first week alone, five stocks lost value for every one that rose. The record weekly trading volume was nearly 10 billion transactions. The famous 30 stocks in the Dow Index lost nearly 1,500 points in Week One. The paper is gone.
During this same ten-day period after Sept. 11, waves of credit collapse, insolvencies, and layoffs ran through the U.S. and world airlines system, and also began throughout all other vital economic sectors, from auto assembly, to paper manufacturing. Ibero-American economiestied into the United States because of the recent years' binge of "free (rigged) trade," are reeling. For example, specialty food exports (salmon, flowers, fruits) account for a high percentage of Ibero-American nations' foreign-exchange revenues, which are now next to nothing. Tourist revenues and capital inflows likewise are gone.
In the U.S. airline/aviation sector itself, the number of layoff announcements as of Sept. 21, exceeded 100,000 for that one sector in one week. Coming on top of over a million jobs cut in the U.S. economy from Summer to Summer, 2000-2001, the Sept. 11-triggered layoffs mean an instant crisis impact throughout the economy.
Thus, we face the question: how to save the economy, not the "markets." Anyone thinking otherwise is deluded or faking. On the Sept. 17 Wall Street re-opening day, at the same time that Treasury Secretary Paul O'Neill was personally at the re-opening ceremony for the New York Stock Exchange, saying, "Buy American ... don't sell," Lyndon LaRouche issued a guidance on economic emergency policy (see box), warning: Don't use terrorism for a financial bailout!
In an interview with "The LaRouche Connection" cable TV program on Sept. 19, now in international circulation, LaRouche detailed how to restore and keep economic functions going, using the principle of Chapter 11 bankruptcy measures, and providing for the public good by making a priority of vital infrastructureimmediately, airlines and railalong with manufacturing, agriculture, and other essential sectors. LaRouche reviewed how to freeze unpayable debts, restructure, and provide low-interest operating credits. (The transcript of "A Conversation with LaRouche In A Time Of Crisis," appears on p. 16.) His proposals also involve attention to the "growth factor" of new nation-serving projects of transportation, water, and other infrastructure, both in North America, and in collaboration with other nations for such priorities as the Eurasian Land-Bridge.
Bubbles Bursting Before Sept. 11
Well before the Sept. 11 assault, the financial bubbles that characterized the U.S. economy, and national and global financial systems, were popping in sequencee.g., the New Economy information-technology stocks, and the telecommunications bubble. From March 2000 through September 2001, the capitalization of stocks on the market has plunged from $18 trillion down to $11 trillion.
Meantime, the U.S. debt bubble has ballooned to a total of $28 trillion as of mid-year 2001, including $6.8 trillion in business debt, and $7.4 trillion in household debt. This debt bubble has been rising faster than Gross Domestic Producta clearly ominous sign. Growing even faster have been derivatives holdingsthe equivalent of gambling debts, which in the U.S. banking sector, hit a total of $48 trillion worth on June 30, 2001. This is a 24% increase in 12 months.
Argentina, Turkey, and other nations have been in turmoil for months, threatened by pyramids of unpayable debt burdens of all kinds.
The actions of Federal Reserve Chairman Alan Greenspan through August obviously abetted the bubble process, not the economy, with seven interest rate cuts January through Summer, and by such policy whoppers as facilitating the Great Home Mortgage Refinancing Bubble. Some $45 billion net were created through mortgage "re-fis," totalling some $500 billion, and pumped back into the U.S. economy. But by August, this dynamic was already, and inevitably, deflating.
Then there is the Great American Tax Cut. Intended to oomph consumer spending, these rebates of $300 to $600 per taxpayer, along with the general economic slump, showed up as a whopping $64 billion monthly Federal budget deficit for August. This was the largest one-month budget deficit in U.S. historyso far.
In the face of all this, millions of Americans still managed to remain in denial, as of the eve of the attack. For example, on Sept. 11 itself, the National Farmers Union had representatives from 24 states in Washington, D.C., on an NFU "National Fly-In" to lobby for a better shake in the next farm bill, under a global system they would not acknowledge was collapsing. The United Steel Workers and industry representatives were likewise in town to appeal to the International Trade Commission, for special redress, under the presumption the world economy was still intact. Other constituencies have had the same delusions. Cable News Network (CNN) has done its brainwashing part, by characterizing the actual U.S. collapse, as "Recovery," shown on its Sept. 19 website here.
But now the terrible events of Sept. 11 re-focus everyone on the fact that the economy is not a given (and never was); and government intervention must be planned accordingly.
'A Devil's Spiral'
Although offering no solution, in many European capitals there is explicit recognition of the degree of breakdown crisis at hand. On Sept. 19, the London Financial Times wrote of a "Devil's Spiral" in the U.S. economy. The Times defines this as a process of self-feeding downward events, where less business activity means falling profits; means more layoffs, less household and corporate income and spending, less "consumer confidence;" which in turn, means even worse business, and falling profits, more layoffs, and so on and on. The Financial Times offers no solution.
The demonstration that the LaRouche "Chapter 11" approachembodying the same principles used during the Franklin Delano Roosevelt periodis what's required, is seen in the case of the current "Devil's Spiral" regarding the U.S. air transporation system.
The 100,000 running total of layoffs announced by U.S. air carriers, includes 20,000 by United, 20,000 by American Airlines, 11,000 possible from U.S. Airways, and others. In turn, on Sept. 18, Boeing announced layoffs of 30,000, because of the projected drop in orders for commercial jets. In turn, by Sept. 21, the secondary and tertiary potential for layoffs involved: engine suppliers Pratt and Whitney (supplying 360 airlines worldwide), Rolls Royce, and General Electric Co.; and Fairchild Fasteners, and other parts suppliers.
What is required is citizen-enforcement of government action in the LaRouche/FDR way, to stop the spiralling collapse. Any so-called bailout or "stimulus" package based on saving hopeless financial markets, and resorting to "fix-it" tax breaks, handouts, and other diddles, will fail.