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The Implications of the Strauss-Kahn Arrest

May 25, 2011 (EIRNS)—The following is a transcript of an interview given by EIR Counterintelligence Editor Jeffrey Steinberg to Lyndon LaRouche PAC-TV yesterday, in which he discussed the change in the strategic situation represented by the arrest of former IMF Chairman Dominique Strauss-Kahn.

Steinberg: First of all, what's now become pretty clear to people, particularly around the New York City environment, is that Strauss-Kahn was set up.

This was not some coincidental incident; this was not just simply a powerful person behaving badly, and inadvertently getting caught. People in the financial world know his profile, know his vulnerabilities, and also understood that he was, in many respects, the most powerful political figure behind the scenes in Europe, because he, along with Bernanke and Geithner here in the United States, were the guarantors of another disastrous mega-bailout of the entire Euro system. And his role as head of the IMF, was to bring in the outside financing, to make the whole deal work.

In other words, the IMF has large contributions coming from China, coming from Saudi Arabia, coming from other countries; the United States is the no. 1 largest contributor to the IMF. Forty percent of all of the bailout in Europe, since the beginning of this debt crisis in 2007-2008, has come from outside of Europe, officially through the IMF. Trillions of dollars in addition to that, came through certain concealed channels of funding directly from the Fed and from the Treasury Department in the United States. So, to the extent that the refinancing of the European bubble—another gigantic hyperinflationary bailout—was about to be attempted, it was on the basis of Strauss-Kahn, with the backing of Geithner and Bernanke, that this was going to be pulled off.

Now, there are some people in Europe, and certainly here in the United States, who are not totally insane, and who recognize that, were there to be another mega-bailout of Europe, and a similar process here in the United States — Bernanke's so-called QE III, Quantitative Easing Part III, another trillion dollars to Wall Street this year—then this would have blown out the entire system, in exactly the kind of Weimar hyperinflationary explosion that Lyndon LaRouche has been warning about, since the time of the 2007-1008 beginning of the blowup of the whole system.

So, clearly there were certain people who decided that this had to be stopped at all costs, because, were you to get a hyperinflationary collapse of the trans-Atlantic system, starting in Europe, running into the United States, then this would have inevitably, very quickly, become a global systemic meltdown process.

There are more functioning economic policies, more real economic activity, in places like China, in particular, India, Russia, but the onslaught of a trans-Atlantic Weimar hyperinflationary blowout, would have very rapidly spread to Asia and places like Latin America, Africa, would not have stood a chance.

So, certain circles decided that the most efficient way to block this from going forward, was by exploiting a well-known psychological vulnerability of Dominique Strauss-Kahn. They pulled the plug on this entire bailout, by taking out a key strategic player. And, no matter what's being attempted now, the efforts of Germany, France, and Britain to reach a consensus behind the replacement candidate to Dominique Strauss-Kahn, in the person of Christine Lagarde, the current Finance Minister of France, all of this will be for naught.

You can't, in this case, put the genie back in the bottle. The takedown of Dominique Strauss-Kahn means that the bailout policy, the hyperinflationary effort, is now doomed. Will they try to pull it off again? Quite possibly. But the fact of the matter is, they're not going to be able to do it. Strauss-Kahn was that kind of key player, in a key place, at a key moment, and that option has now been taken completely off the table.

So, we're in a new transitional period, where the bailout policy, the hyperinflationary printing-press operation, to deal with an absolutely impossible debt situation in the entire Euro region, is over. And there'll be scrambling—there's dinosaurs that will be flailing around in their final death throes—but the fact of the matter is, that policy is doomed. It's not going to work. And if they try to go ahead with it, it's going to cause a complete social and political explosion.

Look, right now in Western Europe, you would be hard-pressed to point to a single government in a major country that has any degree of stability. There's no government in Portugal. The Berlusconi government is on the very edge; in fact, Standard and Poor's just in the last few days downgraded the Italian debt rating, and they say, basically, there's a one in three shot that Italy is going to default on her sovereign debt. And the Italians are very good at cooking their books, so nobody even knows the magnitude of the debt exposure of Italy.

Portugal—elections coming up. The bailout package is in suspended animation, without this IMF contributing factor. The government of Britain could fall at any moment, after massive losses by the Liberal Democratic party in the local elections. There's a power struggle there, and if Nick Clegg loses the chairmanship of the party, then the Liberal Dems will pull out, and the Conservative government will fall.

Nobody knows now what's going to happen with Sarkozy. He's terribly unpopular. The French economy is in crisis. And now, one of the leading Socialist candidates to run against him, the same Dominique Strauss-Kahn that we're talking about here, is out of the equation.

Germany: Merkel, the coalition, is extremely fragile. And Germany is being pressed to still be the checkbook for the bailout of the Mediterranean countries of Europe, and now that has just been taken off the table with the elimination of the IMF factor.

You've got to also look across the Atlantic here in the United States. We know from people close into this Administration, that Bernanke and Geithner were completely taken by a shock, by what happened to Strauss-Kahn. And so, they are scrambling to figure out what to do. And they have no solution.

Bernanke and Geithner had intended to put another trillion dollars into a bailout of Wall Street sometime this year, and they realized that they don't even have the support among the regional Federal Reserve presidents. They probably could not get a majority in the Open Market Committee to get support for another bailout of Wall Street. And they certainly won't be able to get that through Congress, going into a very hotly contested election year coming up in 2012.

What they're banking on, is playing brinksmanship, and letting the whole situation reach a break point, and then hoping that, like in September 2008, with the collapse of Lehman Brothers, the threat of AIG going under, that Congress would basically chicken out, and refuse to accept the genuine alternative proposed by Lyndon LaRouche back then, in the Homeowners and Bank Protection Act, and that they'll pony up another trillion dollars.

So, there is no alternative on the horizon, with the sole exception of LaRouche's proposal for an immediate implementation of Glass-Steagall.

We have H.R. 1489 in the House, and just this morning, there are two other cosponsors who've just signed on. So, there is a Glass-Steagall bill before the House of Representatives. We expect a parallel bill, maybe an identical bill, to be introduced very shortly into the Senate. And the fact of the matter is, that there is no alternative to a full-blown return to Franklin Roosevelt's 1933 Glass-Steagall.

This would mean that the $17-20 trillion in bailout of Wall Street gambling debts will be charged back to Wall Street. We'll create a separate, functioning, weakened but functioning, and regulated, commercial banking system, and Wall Street, quite frankly, will choke to death on the fact that they've suddenly been given their gambling debts to settle on their own.

The brokerage houses, separated out from the commercial banks, will simply fade off into the horizon, because they will be the bad bank. They'll be the hopelessly bankrupt element. But, good riddance to them. Because we don't need that part of the banking establishment, if we recreate viable, functioning commercial banks again.

So, this Strauss-Kahn elimination is an extremely big, dramatic, earth-shattering political event. And remember: It was a decision that was taken by certain elements within the trans-Atlantic establishment, who decided that another bailout would bring everything down, and would bring the house of cards down on their heads as well.

So, it was an act of political warfare, which means that there's a political war going on, and that's not something that is over and done with, with the takedown of Dominique Strauss-Kahn. That was, if anything, Lexington and Concord. That was the opening shot of a fight for a return to sane policies, in the entire trans-Atlantic region. And with the bailout off the table, there are no middle grounds. It's either Glass-Steagall, or the whole thing is doomed.

And now the bailout option is gone, and therefore, the fight for Glass-Steagall takes on a whole different character. Bernanke and Geithner, and President Obama, who's slavishly controlled by these guys on Wall Street and in London, have no options left.

There are members of Congress who haven't figured this out yet. We've been at town hall meetings with members of both the House and the Senate, from both parties, and it's very clear that the word hasn't gotten to them yet, that Bernanke, Geithner, Wall Street, London—they don't have any clout any more. The game that they're playing is pure bluff, and to the extent that we get a groundswell of support, and push through Glass-Steagall now, there is absolutely nothing these people can do about it. There's nothing they can do to stop it. You'll see, if this is pushed through, if a Glass-Steagall clean bill were to arrive on the desk of President Obama, that would probably be the factor that tips him over the edge, and lands him in St. Elizabeth's Hospital.

Interviewer: Or in Queen Elizabeth's bedroom.

Steinberg: He's already there, I'm afraid.

Interviewer: What Shifts are Occurring Globally After the Takedown of Strauss-Kahn?

Steinberg: Well, we've just had a dramatic strategic change. The takedown of Strauss-Kahn means that the hyperinflationary bailout option has been removed. This means that all of the major strategic players, all of the leading governments of the world, especially the Four Powers—the United States, Russia, China, and India—are going to have an opportunity to reflect on new political opportunities now, as the result of the fact that the power of this British imperial faction, the power, if you will, of the Inter-Alpha Group, has been suddenly greatly reduced, because they don't have the ability to organize a bailout of their bankrupt system.

Remember, it's predominantly the major private banks that have incurred all of this gambling debt, and which are completely, irreversibly, hopelessly bankrupt. So, Royal Bank of Scotland, Banco Santander, all of the Inter-Alpha Group banks, and then allied and related banks, like Honking and Shanghai (HSBC)—they're all finished. They are completely bankrupt, and their only option was a continuation of the hyperinflationary bailout policy, which would have brought down the entire trans-Atlantic system through a slightly different means.

So, now, Putin in Russia—to take that as one example—has a lot more breathing room, because the Pirates of the Caribbean, the Russian financiers who are an appendage of the City of London financial oligarchy, have been greatly weakened. Their own bankruptcy is now a factor here. So, Putin is going to have more both political maneuvering room, and remember: Among the funds that the IMF was drawing upon for this bailout policy, was the revenue stream of countries like Russia, China, Brazil—so, in a certain sense, one of the main sources of looting, and criminal looting, of these countries, has now been taken out of the equation.

So, they're going to have to think through how they're going to respond to the need for a whole new policy, and to the extent that they see a Glass-Steagall drive succeeding in the United States, then that will open up even far greater possibilities for real collaboration, and for a global physical economic recovery.

Now, the other factor to bear in mind, which is crucial in this whole situation, is that the disintegration of the real economy in practically every part of the world, especially the trans-Atlantic region, extending into Africa and South and Central America, has been the principal trigger for a mass strike—a wave of protests demanding fundamental change in policy.

We saw it erupting the Middle East. In a certain sense, the first eruptions occurred here in the United States, in August of 2009, when we had thousands of people turning out in protest against what they understood to be the disaster of this Obamacare, so-called health care reform, that was really a copying of the Tony Blair, British health care system of genocide, which Blair himself and the British had adopted directly from Hitler's early euthanasia program.

So, you had that phenomenon, where thousands of people would turn out for Congressional townhall meetings, in the summer of 2009, and that momentum continued. We saw the eruptions in North Africa. First in Tunisia, and then in Egypt, and now you've got this whole Arab Spring phenomenon, as it's been labeled. Just in the past two weeks, in the run-up to local elections in Spain, young people in Spain have taken to the streets en masse. You've had a kind of a replay of Tahrir Square in Cairo, in every major city in Spain, where young people, facing an absolute no-future situation, are demanding dramatic change.

So, in Spain, the youth unemployment figure is 43%. And that doesn't just apply to low-skilled young people. People with high levels of educational skills and training in Spain, under 30 years old, are having an equally impossible time finding a job.

So, you have these social eruptions all over the place. And now, in the United States, more and more of the base of the population, facing the reality that all 50 states in the United States are physically bankrupt, and they're facing a collapse of vital services — from police to fire to medical care, to especially education — you have demonstrations going on every day in practically every state capital in the United States, protesting cuts in the education budget. Teachers are being laid off. There's talk about a million teachers' march on Washington, early this summer.

And in the midst of all of this, last Friday, the 20th of May, the President of the AFL-CIO, Richard Trumka, gave a speech in Washington, in which he delivered a Declaration of Independence from the Democratic Party, and especially from President Obama. And what they basically said is, the Democratic Party has been sitting on the sidelines, or actively engaging in the destruction of working families in every part of the United States. And that is no longer going to be tolerated.

Now, we already have the International Association of Machinists, a leading trade union of some of the most highly skilled workers in the country, endorsing H.R. 1489, the Glass-Steagall bill introduced by Marcy Kaptur and others. They had 300 or so members of the union up on Capital Hill just a few weeks ago, lobbying for, among other things, the passage of Glass-Steagall. If the entire AFL-CIO sees this as the decisive battle front here in the United States, and you get the full weight of the tens of millions of still trade union members in this country, then that can be a major contributing factor, especially at a point when the population in general, is fully mobilized.

This is not a Republican-Democratic issue. There are many police, fire, teachers, other kinds of crucial municipal workers, who, if you ask them their political affiliation, would probably say that they are Tea Party members. But, in fact, not the Tea Party of Dick Armey, and the Republican leadership, who are pushing a policy of just straight-out murderous austerity. This is just part of what was much more clearly defined as the mass strike process, beginning back in the summer of 2009, and now building more and more momentum.

So we're getting a lot of institutional support for this. There are Democrats who, six months or a year ago, would have run for cover the moment that they saw LaRouche PAC organizers walking in their direction, with the Obama Mustache poster, and they're now coming around, and they're saying, "We hate to admit it, but now we understand why you gave Obama the mustache, and we have to agree with you."

So, this is the political climate already, that was building momentum at the point that Strauss-Kahn went down last week. So, you've got a political break at the top, because a significant trans-Atlantic faction said, No More Bailouts! And you've got an energized population, taking to the streets in many parts of the world, and the thing that bridges these two phenomena, is LaRouche's policy agenda, starting with implementing the Glass-Steagall act in the United States.