Foolish Bush Tries to Flee Financial
`Appointment in Samara'
July 1, 2006 (EIRNS)—The following statement was released todayby the Lyndon LaRouche Political Action Committee.
The Bush Administration cannot just repeatedly raise interest rates as a way for dealing with this global financial crisis, said Democrat Lyndon LaRouche, chairman of the LaRouche Political Action Committee (LPAC), on the eve of the FOMC meeting. It won't work, and people in the financial community and the Administration know it.
In response to reports that the Federal Reserve chairman had been warned not to raise the Fed Funds rate by 1/2 percent because such a high increase—twice the usual hike—would blow out numerous hedge funds that are actually run by major U.S. and other banks, LaRouche, said, "So what. These institutions will go under anyway. Trying to avoid that reality is like the classic tale, 'Appointment in Samara.' There are some things that you cannot avoid. The Administration has no choice; it's going to happen anyway."
Speaking just after the June 27 seminar on the New Bretton Woods, held by EIRNA in Berlin, Germany, LaRouche said that the Benjamin Bernanke policy of raising rates, following Greenspan's 16 successive rate hikes, is no policy at all.
Instead, stated LaRouche, a real solution involves putting a cap on interest rates, and directing credit to productive employment-generating enterprises, like infrastructure, while cutting off credit to the speculators, who use low interest rates and easy credit lines to build financial bubbles.
"You have to have a low basic interest rate, at the same time you have to have credit controls," LaRouche said. "But, you have to have the right kind of government to do this; a government that provides directed credit for productive activity. You put a lid on the interest rate, and the government supplies credit only where it is wanted—to productive activity that generates real wealth.
"You have to dry out the speculation. Now, this would create a collapse in certain speculative areas, but then you put the credit into productive economic activities—like employment-generating large infrastructure projects.
"What is needed is that the Federal government gets Congress to authorize the credit, but the credit is only spent as it goes out in infrastructure development and increased employment in productive areas. The government and Congress have to slap on Federal controls so that the speculation in capital gains is stopped.
"If certain things collapse, you keep the flow of credit into the physical economy: areas that will not collapse. Through this approach, used by Franklin Roosevelt when he became President, the economy will bounce back—but you have to have the nerve to sweat it out.
"We don't think the President has either the brains or the guts to do this; if he does, we will be pleasantly surprised. But such a solution is unlikely to come from the poor fool in the White House, who has serious mental, and emotional, problems."