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Prof. Menshikov: LaRouche Forecast This Crisis Because He Saw What Others Refused To See

Oct. 17, 2008 (EIRNS)—Today's issue of the Russian weekly Slovo carries the distinguished Russian economist Prof. Stanislav Menshikov's article, "The Crisis Leaps Across the Planet." With the authority of over half a century of observing and analyzing the world economy, Russia's leading senior expert on the U.S. economy explains to Russian readers how Lyndon LaRouche's forecasts of the current financial breakdown crisis have proved to be uniquely accurate.

"Among the few economists who look at root causes, and therefore see what others cannot see," writes Menshikov, "is the American scholar Lyndon LaRouche, representing the physical school of economic science."

Government officials and economics experts refused to admit, even very recently, even that the crisis is worldwide, "and when they did admit it," notes Menshikov, "they pretended that the crisis had burst upon us quite unexpectedly." In stark contrast, Menshikov quotes what LaRouche said in his webcast of July 25, 2007, as "the first to state the far-reaching conclusion" that a major financial crisis had begun: "The world monetary financial system is actually now currently in the process of disintegrating."

Menshikov cites an even earlier diagnosis given by LaRouche, in a commentary broadcast on a Moscow radio station on June 15, 2006, "when the speculative boom in the world economy was still at its height." LaRouche said, on that occasion, that the whole world was facing "the prospect of a threatened early, chain-reaction collapse of the present world system, comparable to the collapse of the Lombard banks into the so-called New Dark Age of the Fourteenth Century. Only a principled change in the world's present monetary-financial system could halt this presently ongoing collapse."

Prof. Menshikov's article proceeds to document, phase by phase, the development of the biggest speculative bubble in history, ever since the abandonment of the old Bretton Woods fixed exchange-rate system in 1971. He reviews how floating exchange rates and global deregulation set the stage for huge and unpredictable cross-border movements of short-term speculative capital. This was the process, he points out, that brought on the so-called Asian currency crisis of 1998, followed by Russia's government bond default and the demise of the LTCM hedge fund. Then came an even bigger orgy of derivatives speculation, increased hedge fund activity, and the repeal of the Glass-Steagall Act, which had kept ordinary banks out of such speculative business. On all of these points, Menshikov cites LaRouche's record of diagnosing the pathology of this process.

Menshikov presents a chronology of the latest attempted "bailout" measures, step by wilder step, noting that "Lyndon LaRouche categorically opposed the Paulson Plan." Here he reports LaRouche's latest warnings, about hyperinflation, something that many officials and analysts in Russia prefer to hope will not come to pass. Will the bailout infusions hold things together? Menshikov writes, "There are many open questions here. The chief one is how these countries plan to finance such colossal infusions. In Western Europe, for example, the sums involved are equivalent to over 10% of GDP. Government budgets do not possess such reserves. There's effectively nobody from whom to borrow such sums of money. Yet, a steep increase of the money supply threatens to bring about exactly what LaRouche forecast: hyperinflation."

Stanislav Menshikov summarizes LaRouche's proposals for "immediate radical reforms" to prevent a prolonged and devastating economic collapse. Here, Menshikov highlights the element of LaRouche's New Bretton Woods proposals, which current ersatz "Bretton Woods" schemes ignore, namely, the need to put the whole speculative system through bankruptcy reorganization.

LaRouche insists, as Menshikov reports, that "there must be decisive measures to clean up the banking system, up to and including putting its most rotten segments through bankruptcy. The activity of the hedge funds and all other derivatives trading must be put under government control or banned altogether. Without the surgical removal of this cancer of speculation, it will be impossible to end the financial crisis."

He notes LaRouche's program of "coordinated action by leading world powers," starting with the U.S.A., Russia, China and India, and including Japan, Germany, and Francem for a new fixed exchange-rate system, and coordination of "long-term capital investment in the development of the power industry and transport infrastructure worldwide, for the next 20-50 years. Such a program would provide a firm base for the sustained development of the world economy, with an emphasis on tangible production, and the greatest possible reduction of the amount of resources spent on non-productive, speculative activity."

Anybody who thinks such proposals are "utopian," writes Menshikov in conclusion, should realize that the failure of the very principles of the current system necessitates "thorough-going curative treatment, and reconsideration of its principles."

A full English translation of Stanislav Menshikov's Oct. 17 Slovo article will appear in the Oct. 24 issue of Executive Intelligence Review. The English edition of his authoritative book, The Anatomy of Russian Capitalism, was brought out by EIR News Service last year and is available here.