EIR LEAD EDITORIAL FOR TUESDAY, JULY 13, 2021
We Are Racing into the Worst of Financial Crashes, Unless ‘Universal Banks’ Are Broken Up
July 12, 2021 (EIRNS)—Even one of the world’s leading elite banking officials now writes that the trans-Atlantic and Japanese central banks are bringing on another, worse financial crash, by perversely continuing and intensifying their failed policy of the last decade and a half. Jacques de Larosiére’s July 7 column is “Central Banks Must Change Course To Avoid Possible Financial Crisis,” on the Official Monetary and Financial Institutions Forum (OMFIF) website. Yet he will not acknowledge why the central banks are locked into hyperinflating money supply and bank reserves, nor name the only alternative to it: To break up the “universal banks” centered in the City of London and Wall Street.
On the same day, President Joe Biden issued a much-noised executive order which purports to take on “big tech,” “big Pharma,” and other monopolies with anti-trust actions and rules. Yet there is no mention in this executive order of the most all-encompassing monopolists of all, the 10 giant universal banks which have 75% of the assets and deposits of the U.S. banking system, and lend less and less of those deposits with each passing month. They, to Biden’s Administration, are untouchable.
Jacques de Larosière is former Managing Director of the International Monetary Fund, Governor of the Banque de France, Director of the French Treasury and President of the European Bank for Reconstruction and Development. But after blaming the central banks for generating a new global financial crisis, he takes the typical post-Glass-Steagall banking regulator’s superficial way of describing the fundamental concept of Lyndon LaRouche’s famous Triple Curve/Typical Collapse Function, and ignores LaRouche’s unique recipe to stop the collapse, Glass-Steagall banking regulation.
“The continuation of very low interest rates for a couple of more years,” de Larosière writes,
“would intensify already negative consequences for growth and employment. Abundant liquidity and low interest rates result not in productive investment but in liquidity hoarding. Since 2008, the M0 money supply (banknotes in circulation and bank reserves held at the central banks) has increased by 13.5% per year in major countries, four times faster than nominal [i.e., not real] economic growth. During the same period ... central bank money creation had not seeped into the economy.... Non-residential productive investment has significantly declined over the past 10 years of near-zero interest rates.”
From 1986 to 2000—after Franklin Roosevelt’s Glass-Steagall had prevented any crisis “contagion” in the banking system for 50 years—the central bankers, led by Alan Greenspan at the Fed, eliminated every Glass-Steagall Act regulation and then the Act itself, then bringing universal banking back. In seven years it crashed. They frantically pumped out bank liquidity in 2007; then bank capital in 2008; and then 12 years and counting of creating huge masses of excess bank reserves—all to save those universal banks. To bail out the City and Wall Street megabanks and preserve universal banking, the central banks have blown ever larger debt bubbles, rather than allowing these banks to be broken up and cleaned out by Glass-Steagall acts in each nation.
We wish, now, that in such areas of its “forever wars” as Afghanistan, the United States could help the rapid rebuilding and recovery of those areas of Central and South Asia which are in economic ruin. But the United States and the Western European nations cannot participate in rebuilding the economy of any nation, or any region of the world, until they break up Wall Street and the City of London and rid themselves of those huge zombies, the universal banks. Lyndon LaRouche in 2014 re-enacting and enforcing Glass-Steagall the eye of the needle of his “Four New Laws To Save the Nation(s)” from the permanent Great Recession of the 21st Century thus far. It must be passed before the monster banks and their central bank Dr. Frankensteins set off a hyperinflationary explosion or a depression crash or both.