Manhattan Town Hall event with Paul Gallagher

October 21, 2017

EIR's Paul Gallagher is the featured guest on this week's Manhattan Town Hall meeting.


DIANE SARE:  Let's get started.  I am Diane Sare from the LaRouche PAC Policy Committee, and I'm joined today by Paul Gallagher from Virginia, who is the Economics Editor for Executive Intelligence Review.  We have a great deal to discuss.

I would like to situate this meeting where we are in world history, and perhaps the most significant thing occurring this week is the China Communist Party People's Congress, which is going on right now, which Xi Jinping addressed two days ago. This is extremely significant because China in the last decades has taken measures that have lifted about 700 million people out of poverty, and the commitment of the current leadership is to continue that process with the elimination of poverty in that country by 2025 [sic].  I just thought it would be useful in your mind's eye — I don't know if there are people here today, I'm sure there are people online who have been in China recently.  Is there anyone here who has been in China recently?  OK.  I have some friends who just returned and they were describing just one detail which is near and dear to my heart because I do a lot of driving; which is that when they got picked up at the airport and got in a car to be taken somewhere for dinner, one of them said, "I had this really eerie feeling, and then I realized it was because the roads were smooth."  Because here you take a trip and you actually feel like you're in an obstacle course.  I just noticed that if you go to an area, if you happen to drive on a long highway, you get to an area which has been recently paved and you suddenly feel this sense of relief and you can actually concentrate on where you're going; or think about what you're supposed to be thinking about as opposed to how to avoid some catastrophe that's in the road.  There's also more to the hazards of driving which can be taken up perhaps a bit later, which have to do with the cultural collapse of the United States.  How many accidents are caused by people texting, for example, or checking their emails while they're driving?  How many truck drivers are driving 24 hours at a time, or something like that?  Or other people, all kinds of couriers.

Everyone in the United States is grinding to their last breath to be able to accumulate more debt, basically.  The cost of living is beyond the income for most people in this country, at least on average.  Maybe a decade or so ago, we looked at the cost of living compared to income, and I think the cost of living was something about 110% of the average income.  I'm sure it's actually much worse at this point.

What Xi Jinping did in his three and a half hour speech, the thing that Helga Zepp-LaRouche thought was the most striking, and perhaps the most polemical for Americans, is that he said the purpose of the Party leadership was to secure the happiness of the people of China.  Now, when is the last time in the United States you heard an American elected official say that their mission was to secure the happiness of the American people?  It's in the Declaration of Independence; it's considered an inalienable right of every American citizen.  "Life, liberty, and the pursuit of happiness", but generally people don't talk about it.  They say well why don't you just be satisfied if I'm not caught up in some scandal and put in jail by the end of my term; why don't you be satisfied if we can hold property taxes at a certain level while what you're getting for these taxes completely collapses?

So, I just wanted to share a little bit of what Mrs. LaRouche said in her webcast this week.  Oh, excuse me, China intends to eliminate poverty by 2020, not 2025.  I think it's about 70 million people there who remain below the poverty line, which is similar to the number of people in the United States; but we have 320 million people, China has 1.4 billion people. She said the next goal is 2035, where China is supposed to become a moderately prosperous, modern, functioning country.  Then by 2050, China is supposed to become a strong, democratic, civilized, harmonious, and beautiful country; fully modernized.

Nowadays, we have become so pessimistic and so pragmatic in the United States; if you talk about things like harmony, or beauty, or happiness, people say "What are you talking about? Forget all that airy-fairy stuff.  Fix the potholes."  There's no sense of inspiration.  I think this gets at the cultural problem we have, and also why President Trump is under such vicious attack.  Because the point of President Trump, and the attempted coup against him which is run out of London — Robert Mueller, who we've been focussing on, is only the hit man for a much bigger apparatus.  A hit man that we in the LaRouche Movement are very familiar with ourselves.  But it's from London.  Why? Because what you have right now is that this system of British imperialism, of what we've done since — particularly in the recent period — the crash of 2008, has been in the Western world; that is, Western Europe and the United States, we have printed money.  We've done trillions upon trillions of dollars' worth of quantitative easing; with what result?

Well, we saw the result when these hurricanes hit.  I was reading a report from someone I'm friends with on Facebook of Rockport, Texas; which is a small town which was completely levelled by Harvey.  They put up a post last night.  This town does not exist essentially right now.  A woman who happened to have three acres of land has set up a camp on her property; she's just filed to become a 501(c)3 so that people from all over the United States can come down and sleep in a tent to help rebuild this town.  This is outrageous!  This is the United States!  As we know from Kesha Rogers, we haven't built a new dam around Houston since 1948.  The two dams that we have there, which thank God did not disintegrate — although they were really taxed very close to their limit, and they had to keep letting off water; they were not even the complete project that was supposed to have been built in 1940, which required two more canals.  That was when Houston had a population of I think 400,000 people, not the 2.3 million people that it has today.  So how could you go from 1948 to 2017, print trillions and trillions of dollars to bail out people who did things for which they frankly should be in jail.  But instead of being in jail, they got multi-million dollar bonuses at Christmas and this and that.  Then you have this wreckage.  I don't know the situation in Florida, and I don't know the situation in Puerto Rico right now; but I am sure it is quite desperate.  In Puerto Rico, people were paying double and triple for electricity what we pay here, for a system that was already completely dysfunctional and outdated.

So, what you had over decades, is what Lyndon LaRouche has warned about for many years.  You had a takeover by the British imperial free-trade system of the U.S. economy from what it was intended to be by Alexander Hamilton and our Founding Fathers. What we have now is that the trans-Atlantic system is completely bankrupt.  Even the outgoing German Finance Minister, Wolfgang Schäuble, is warning of the disproportionate amount of derivatives and other speculative obligations carried by the European banks right now.  The situation in the U.S. I'm sure is no better, or could be worse.  This thing is going to blow.  And, the people behind that would prefer to keep us in a state of perpetual war and perpetual immiseration of the population in a last-ditch effort to save their system.  So, they are desperate, they are grasping at straws.

There's a lot now breaking because of what we have done with the Mueller dossier.  People may have seen that two people from Fusion GPS, the circulators of the Christopher Steele report, were called into the Intelligence Committee to testify; they both took the Fifth Amendment rather than testify.  In other words, we could be very close to breaking this; but the point of breaking this is not simply to stop a domestic coup against Trump and save the Presidency.  That is important, but the reason it's important is that if the United States is to join with China, because of our history, because of the principles of our Constitution and the understanding that Alexander Hamilton had of the question of human creativity which has been really furthered developed by the genius of Lyndon LaRouche; there's a certain quality of American thinking, which, when combined with what China is doing can catapult the entire planet into a whole new era.  People here could think the unthinkable which right now seems to be unthinkable, which is that your children and grandchildren would have a future that is infinitely than your future.  That they will live longer, they will be better educated.  If they are still driving cars at all, which we may be beyond what we consider a modern automobile at some point in the near future, the transport is going to be smooth and functional and fast. You're not going to spend six hours in rush hour traffic; you're not going to die of ridiculous diseases which are a function of poverty and the collapse of the standard of living.  That is the potential that is on the table.

So, there will be a lot to discuss.  I think I will close here.  Then, I think I understand there's a question for Paul; so why don't I close and then we can take the question for Paul Gallagher, and we'll go from there.

ELLIOT GREENSPAN:  Paul, you there?


GREENSPAN:  Good.  In discussion earlier today, a crucial question came up, and we wanted to raise this to you off the bat. Obviously you would get at this in the course of discussion, but with what's unfolding now coming out of the developments this week in Beijing and what portends with President Trump visiting Beijing in about 17-18 days, you have a certain opportunity. Bill Jones, in the LaRouche PAC webcast yesterday, characterized this, and he emphasized perhaps President Trump could set up a grouping within his Cabinet, a liaison to China and so on to facilitate it.  But the question is how U.S.-Chinese financial economic relations can come together in the short term?  What benefit the Belt and Road participation by the U.S. in the Belt and Road process would bring to American industry, to the American economy?  How you foresee this unfolding?  That's the question.

GALLAGHER:  Well, I want to thank Diane for introducing me, and Elliot for inviting me to take up this subject and the broader subject of the coming financial crash today.  But in terms of that immediate question, as he said, it's within weeks that they [Trump and Xi] could be discussing arrangements.  And what kind of arrangements could they discuss?  We've seen, as Diane was indicating, a complete unpreparedness which is now for 50 years in the American economy, not just the American government and decision-making; but an unpreparedness in the American economy.  That has been getting worse and worse over that period of time, to build the kind of productive and also protective infrastructure which was planned decades ago in places like the Texas Gulf Coast to protect the cities like Houston and Rockport, and was never built.  And was planned in New York, as people there know, and was never built; so that the subways and the transportation system filled up with salt water.  This is immediately what the economies in particular of China and of Japan — and Trump is going to visit both places and have summits with both leaders — this is what they have been leading the world in.  Not just building infrastructure, but making technological breakthroughs in infrastructure building; as for example, the bridges which were built with techniques that had never been used before and that covered spans and distances that had not been done before.  They have been doing this now for 30-40 years extremely efficiently; building high-speed rail and so forth.  But obviously brought into the design and engineering of the most important infrastructure projects on a large scale, think there of the Gateway Project and the cross New York Harbor sea gates and tunnel.  They could be brought into the design and engineering of those immediately in the context of the creation of a credit institution here in the United States which is going to fund them.

In addition, as we've been proposing now for some time, the best and grandest way for the United States to form such a credit institution for manufacturing and infrastructure — which it hasn't had now since Roosevelt — the fastest way and the best way to do that would be to allow the holders of relatively long-term Treasury debt around the world and here in the United States to trade that debt for equity in a new national infrastructure bank on favorable conditions to them with the guarantee of the Treasury.  On that basis, to participate also in the investment into such infrastructure projects here in the United States and also in joint projects as far afield as South America, Syria, Alaska, the Bering Strait crossing.  The major really great projects that have to be done could participate directly in that as well through helping to capitalize a national United States bank for infrastructure and manufacturing, and also through participating in the design teams and the engineering teams which would work on lining out, selecting these projects, getting them engineered would work in the context of such a bank.

So those are things that I can say that I've discussed, I've had the opportunity to learn from officials of both China and Japan in Washington recently, that both of those countries would be extremely interested in investing a portion of their very large holdings of our Treasury debt into equity of such a bank in order to get things going here, and also to jointly operate on great infrastructure projects internationally.  As one of them said to me, "This could not be proposed to the United States by us; this would have to be proposed by the United States to us. However, I can tell you, we would be extremely interested immediately in doing exactly this."  Those are things which, in addition to the issue of war and peace clearly, and the issue of strategic stability which Trump has to discuss there; those are things which could be on the agenda and which really could begin to be worked out fairly quickly.  I know that's just sticking a finger into a very big subject which was raised by the question, but that's what I would say.

SARE:  OK, thank you.

GALLAGHER:  Should we now continue with Q&A?

SARE:  Why don't you go ahead if you had something you particularly wanted to get across to us here today.

GALLAGHER:  OK, thank you.  Ben, if you could put up the first graphic [Fig. 1].  I did a warning back in May, which you can see there on the screen in an article in Executive Intelligence Review, that a financial crash and an economic collapse equal to or worse than the 2007-2008 crash was coming from the enormous speculative bubble of corporate debt in particular in the United States, and secondarily in Europe; and that only urgent policy changes could prevent that.  I referenced in that article an earlier one [Fig. 2] which was 18 months prior to the great financial crash of September 2008.  This was our EIR headline cover on March 23, 2007; 18 months before the crash, which made clear that we not only knew the crash was coming, but we were able to demonstrate it in a long economic analysis published in that issue of EIR.  This preceded by weeks Lyndon LaRouche making an international internet broadcast in which he confidently forecast and stated that the international banking system of the United States and Europe was finished, as he put it.  That there was no combination of policies under the then-current policy assumptions, no combination of measures which could save this banking system or prevent it from blowing out in a very short time.  He at that time immediately put forward what he called the Homeowners and Bank Protection Act, which was essentially a combination of a restoration of the reinstatement of the Glass-Steagall Act with a national moratorium on home foreclosures while the real estate price collapse was going on, until it reached its bottom.  Then the reorganization of existing mortgages at the lower capital values of the homes, essentially a combination of restoring the Glass-Steagall Act and reenacting Franklin Roosevelt's Homeowners' Loan Corporation of 1934.  He put that forward, and it's an interesting story how much constituent support that act gathered around the country in 2007-2008.  That really only by mobilizing agents of Wall Street to claim that the LaRouche Homeowner and Bank Protection Act would cause a crash, and only by sending that message through many members of Congress and through other channels, was Wall Street able to get this LaRouche proposal put aside.  But we did know it was coming.

Many others are warning now — Diane referenced Wolfgang Schäuble, who is still as of this week the Finance Minister of Germany and will be for some months to come and has been for a long time, who told the Financial Times of London — presumably he said this in English — that "Spiraling levels of global debt and liquidity present a major risk to the world economy because of bubbles which are forming due to the trillions of dollars that central banks have pumped into the markets."  He warned that the risks were greater in Europe even than they were in the United States because the balance sheets of the major banks there are weighted by huge masses of non-performing loans, even compared to the situation in the United States.  There was a warning from Standard & Poor's in May saying that the credit quality of the debt bubbles in the United States had reached the worst credit quality that Standard & Poor's had ever measured.  There was the IMF annual global financial stability report of 2017, which in its U.S. section said that "Any substantial increase in interest rates in the United States would likely lead one-fifth of all the corporations in the United States to default."  Of course, during the collapse in 2007-2008, never did mortgage defaults come anywhere near 20% of the total of mortgages; but this is what the IMF was warning of as soon as interest rates began to rise. These warnings have continued; they've been made specifically about the British financial system by regulators there.  I think yesterday was the 40th anniversary of the 1987 stock market crash.  Out came Kyle Bass [CEO of Hayman Capital Management hedge fund] to say that the stock market is in much worse condition today than it was in October of 1987, and much more ready for a crash than it was then.  He is an anti-China speculator; a partner of George Soros in trying to speculate against the Chinese currency.  But at that time, in 2007, he was known for a number of public, published warnings that the combination of mortgage-backed securities and credit derivative swaps was going to cause a crash in the immediate future.  On that level of the surface of things, he does know what he's talking about.

All eyes are focussed on some period of a couple of months which is immediately ahead of us, in which there is going to be a serious attempt to raise interest rates by at least the Federal Reserve among the major central banks.  They are as scared as they could possibly be of when that moment will actually come; they've been talking about loudly for two years without doing it. The longer they put it off, the longer they continue, and the IMF in its most recent report actually suggested that they may back down; the Federal Reserve may back down because of conditions in U.S. debt bubbles, and decide to put off raising interest rates indefinitely and even resume quantitative easing.  But when they do do it, as all secretly honest financial observers know, there is going to be a blow-out.  The longer they postpone it, the bigger these bubbles are going to be when they do blow out.

The real question, as you may know if you read about this at all, is that there are two huge expansions of credit — that is, debt — which have gone on over the past 10 years.  One by the major central banks of Japan, Europe, the United States; the other by the People's Bank of China and the publicly held large commercial banks in China — the big five commercial banks.  Both of those credit expansions have been huge.  They are comparable, and they are in the range of $15-20 trillion equivalent in each case.  All of the discussion in these warnings which are coming out now is about what is going to collapse.

As you may know, the majority of so-called financial experts in the financial media say that it is the Chinese credit expansion which is going to blow out.  So, what is the truth of that?  Obviously, what is immediately needed to stop this is, first of all, to separate commercial banking from speculative investment banking and similar things, so that these huge volumes of speculative debt which are now going bad cannot be dumped by the big banks onto all of the pension funds and savers and so forth around the world.  That's what they did in 2007-2008. Anyone who has seen the film "The Big Short" saw a demonstration of exactly how they did it.  They are now doing the same thing with unpayable auto debt, unpayable corporate debt and so forth.

So, reinstating Glass-Steagall for one thing, will stop that process because it will not allow the bank holding companies to do this, to create the securities by which they're doing this. And then secondly, more importantly, increase productivity rapidly.  That means increasing investment in high-technology infrastructure rapidly — I'll get into that.

China's rapid economic expansion has been going on now for just about 30 years.  The longest period of financial stability in the United States really been the period of enforcement of the Glass-Steagall Act from roughly 1933 to 1985, when it was fully enforced.  That's the only period in which there was continuous the threat of bank panics and general financial collapses.  China has a Glass-Steagall law, and it is in effect; and recently has been more strongly enforced because of challenges to it by the formation of what we call non-banks in China — what we might think of as hedge funds and private equity funds here.  In the middle 1990s, when the major Chinese public commercial banks were formed through action of the People's Bank of China and through legislation, they were also separated and not allowed to participate in merchant banking activities, investment banking activities; and have not been allowed to do that since that time. China has a Glass-Steagall law; it is really the only major economy in the world which has a currently enforced Glass-Steagall law.  It isn't called that, but it's called that in informal discussion among Chinese economists.

If you look now at the credit expansion, the debt expansion which has taken place by the central banks of Japan, Europe, and the United States, it has created — since 2010, only seven years ago — $7 trillion in new corporate debt; corporate debt has more than doubled in a period of seven years in the United States.  $1 trillion in new auto debt; $1 trillion in new credit card debt; $2 trillion in new household debt overall; $11 trillion of new debt in seven years.  And that is not counting government debt, which has increased by $7 trillion, or student debt which has increased by $600 billion in that period of time.  Those four big central banks — and I'm including also the Bank of England — alone have bought $14 trillion of this debt during that period of time.  That's the quantitative easing; that's not the bail-out which took place in 2008, where they were buying the stock of the biggest banks.  They were guaranteeing their assets, lending them huge volumes; a lot of that has been paid back.  We're talking about the currency that was printed by the Federal Reserve and the other central banks in order to directly transfer to the major banks of those countries; which then in turn used it to create a now 10-year-long era of effectively 0% interest rate credit for speculation.  That is, 0% interest rate credit for the securities' markets of the trans-Atlantic world.

For example, the Japanese central bank owns 75% of all of the exchange-traded funds on the Nikkei stock exchange; owns them.  The Swiss central bank owns $80 billion worth of U.S. stocks.  The European Central Bank owns $90 billion of U.S. corporate bonds; many of which are below investment grade.  The Federal Reserve owns $2.1 trillion of mortgage-back securities — really derivatives — and $2.4 trillion in United States Treasuries; largely short-term Treasuries.  This has made the price of debt close to zero if you're on the securities' market, and if you are not dealing junk.  But the share of what they call junk is growing; most especially in the U.S. corporate debt bubble.  Recall the total bubble grew by $7 trillion since 2010; about $2.5 trillion is and has become junk debt.  That means either junk bonds or what they call leveraged loans.  $800 billion in new junk debt just in 2017 through September.  The rest of that corporate debt bubble, approximately 80% of it, the so-called "good debt", the non-junk debt being loaned at rates like 1% to the biggest corporations, has been thrown into the stock market.

We got a couple of examples just on Friday, when Wells Fargo announced that it was being investigated both internally and also by Federal regulators for foreign exchange fraud.  How many successive fraud cases and crimes does this make for Wells Fargo over the last year?  Its stock went up on Friday after that announcement.  General Electric announced revenue and profits for the quarter which were universally reported to be completely dismal; its stock went up for that day.  The best example, perhaps, is a small company you may have heard of, ExxonMobil. In 2006, Exxon reported that it had $365 billion in revenue. Eleven years later, it had $226 billion in revenue — 40% less. It reported in 2006 that it had profits of $40 billion; in 2017, its profit was $7.8 billion — about 85% less.  It reported in 2006 that it had free cash flow available to pay out to stockholders or to invest of $33.8 billion.  In 2017, that was about $6 billion — one-sixth.  It said it had it had $6.6 billion of debt back in 2006; in 2017, it had $29 billion in debt — five times as much.  Its revenue dropped 40%; its profits and cash flow collapsed by more than 80%; its debt more than quadrupled.  Its stock price over that period went up from $75 to $90.  It bought a modest 14 million shares of its own stock with the 0% credit that was being made available.

For the major central banks as a whole, this debt expansion added up to about $15 trillion.  You put that $15 trillion in expansion of debt on top of no productivity growth.  Since 2000, the average growth in labor productivity in the United States has been 0.5% per year.  The average growth in what is called total factor productivity, a significantly more important measure I'll explain in a minute, that has averaged 0.3% annual increase.  You put $15 trillion in debt on top of that, and then look at the labor markets and what has happened to the labor forces in the United States and Europe.

In the United States in the 1980s and the 1990s, of the people who were newly eligible to enter the labor market during those two decades, about 75% - 80% of them did enter the labor market during those two decades and stayed in it; they were still in it either working or looking for work at the end of that decade.  In the decade from 2000 to 2010, of the potential eligible new entrants into the labor force during that decade, 30% of them actually entered the labor force and stayed in it. During the Obama Presidency, between 20% and 25% of the expansion of the labor force that could have occurred, actually occurred. So, you had a collapse in the quality of employment and in the portion of the labor force which was actually taking part in any way at the same time as this $15 trillion money printing was being thrown at the securities' markets and bringing them to the point of a crash.

Now keep in mind, President Trump came into office with the stated intention to fund $1 trillion worth of infrastructure building, and to do that at least in part from some kind of national bank or national fund.  So, the big private equity companies on Wall Street — BlackRock, for example — set up an infrastructure fund; $50 billion they said was either in it or committed to it, and the others on Wall Street did similar things and had huge amounts, they said, of private capital ready to invest in infrastructure.  But they had conditions, and they stated publicly what their conditions were, at least through the financial media.  They wanted a 10% annual return on their investment.  This is while interest rates were between 1% and 2% on major corporate debt, and less than that for investments in stocks and securities and derivatives speculation.  They wanted 10% annual return in order to invest in infrastructure, and they wanted all of their invested capital back in ten years.  Now compare that to China.  In China, the government-to-government loans being made by the Chinese Ex-Im Bank for example and being made domestically and internationally by the other public commercial banks in China are typically 30-year pay back loans at 1% to 2%.  But in the United States, Wall Street intended to make infrastructure investment into what they called "deep junk" debt; and that was going to be how we handle President Trump's intention to invest $1 trillion in infrastructure.

This lawyer who I was talking to the other day, who used to be a Congressman from the Midwest, in a meeting discussing our national infrastructure bank proposal, asked me "What's Wall Street's view going to be on this?  They're going to oppose it, right?" He said, "They are definitely opposing it, and going to oppose it, because we're putting Hamilton into infrastructure investment, and taking financier profit out of it.  So, they are going to oppose that."  But their policy is to pin Trump to this stock market boom which is getting ready to crash.  Their policy is to make him own that stock market boom and identify with it, cut taxes to keep it going, and if there is any infrastructure investment, to put it in the frame of that junk debt.

China's debt expansion has been approximately the same magnitude; in fact, it may have been somewhat more new credit, new debt created through those public commercial banks in China. Now, we find that two-thirds of the corporate debt in China, two-thirds of all of it — it's concentrated in 22 companies. They are, all 22 of them, involved either entirely or to a very great degree in infrastructure building and in energy development.  I'll just quote Asia Times for example in an analysis on Thursday:  "A great deal of Chinese corporate indebtedness should be viewed as public works investments by the Chinese sovereign" — the Chinese government.  "The point to take away is that we are not looking at a speculative bubble in corporate debt, but at a heavily concentrated investment in state-sponsored infrastructure."  They continue:  "Manufacturing, health care, and other major corporate sectors in China actually show declining debt leverage.  The bulk of corporate debt has built up in energy production, power production, rail development, high-speed rail, airlines.  Sectors that in many other countries would be funded directly via the state budget. China has been borrowing mainly to expand infrastructure." Rather surprisingly, the ratio of net debt to earnings of these 22 companies — they're all large companies, obviously — will fall from 3.71 in 2016 to 2.5; that is, they will be less leveraged with debt by a significant amount in 2017 and 2018 than they were in prior years.  So, this $20 trillion, if you call it that, debt expansion from China over the past decade, is backed by at least $10 trillion in infrastructure, public assets alone. Furthermore, the firm of PricewaterhouseCoopers has done several recent studies this year, showing that the value of China's capital assets in infrastructure, in the Belt and Road countries, — we're not talking about in China, which are now scores of them all over the world — the value of China's capital assets is rising by 40-50% every year, and is already in the order of hundreds of billions of dollars.

This, by the way, is what Lyndon LaRouche said in the 1950s and 1960s the United States should do.  He was not just forecasting the breakup of the Bretton Woods system at that time. He was saying what had to be done, instead.  He said that the United States following its tremendous expansion in industrial production and productivity in World War II, really, through the '30s into World War II, should have continued that expansion in the Third World.  That what it should have done was to transition from those huge investments in productivity in the United States, to the export of capital goods and infrastructure into what was then called the countries of the Third World — many Marshall Plans.  He didn't use that term at that point, but effectively many Marshall Plans instead of the one which had already ended and was for Europe alone.

Just as people now compare the Belt and Road Initiative to 10 or 20 Marshall Plans, what LaRouche was saying in the 1950s and the 1960s was that that was what that expansion outward to the world as a whole, which is exactly what the Belt and Road Initiative is, for China after nearly 30 years of continuous domestic productivity growth, profitability growth, infrastructure investment, that that expansion outward is what the United States had to have done.

Instead, what the United States did, and Lyn was very ruthless on this in the '60s, in particular, was to invest in a big consumer boom.  The Eisenhower Federal Reserve, under Arthur Burns and others, in Eisenhower's administration in particular, pushed U.S. credit policy instead towards a consumer boom: everything from second cars to lots of toys for the kids, to household appliances to hula hoops, and so forth, this was what was bought with the continuing credit expansion in the United States in the '50s and early '60s, till the Kennedy break with this.  And that's exactly what LaRouche was attacking at that time, and that is exactly what the IMF and all the others like it are advising China to do right now.

You can find that anywhere:  "China should cut this Belt and Road stuff, it's all very nice, it's harmonious for the world, but it's too much of a credit expansion in infrastructure. Instead they should be investing in increasing consumer consumption in China." Exactly the same question that they have decided to answer in the way that they have answered it.

And as Bill Jones was saying in the webcast last night, this was not by any means something that Xi Jinping simply proposed in late 2013, and everyone in the Chinese leadership said, "Oh, yes, of course. This is our fate.  Our future is the Belt and Road Initiative." They did not.  Many people, including many Chinese economists, even now, have still been resisting the idea that the Belt and Road Initiative  is the dynamic of the Chinese economy for the future, as well as the productive dynamic for the world economy for the future.  And as Bill was saying, what you're seeing in the proceedings of the Chinese party congress going on now, the real consolidation of that view as it was put forward four years ago by Xi Jinping.

Now, will people see this crisis?  Are you going to be able to make people see clearly the oncoming crash of corporate debt and the collapse of the economy that will follow if we don't prevent it?  The answer is, only if you have a positive alternative, if you have a policy which is like the Belt and Road policy to present instead.  It's a joke between me and my wife: Back in the late 1960s — John Sigerson might remember this — in Philadelphia, the LaRouche movement published a newspaper for a while called The Crisis.  And my wife, when she was out at factory gates with this newspaper, reported that workers would say to her, "What's the crisis, honey?"

That kind of gender insensitivity would probably get them fried on Twitter or Facebook, now, but it didn't at that time. What did happen at that time, was that those workers who were jocularly asking, "What's the crisis, honey?" those workers were stepping at that very moment in 1969 and 1970 into a crisis, that would devastate the next generation, their children and their grandchildren; was going to lead to their being now the parents and grandparents of young people who are living in their parents' homes, people in Generation X, who have never been able to make do except by constant struggle just to make ends meet, whereas their parents and grandparents did much better.

Then if you put on the third slide [Fig. 3], this is just an approximation and you can see that line there is 1970 of the decline in Median Real Weekly Earnings of U.S. working people since that time.  And the blue line which branches off represents the fact that in the 1980s, as we exposed at that time, the U.S. government dramatically changed the way it was calculating inflation and obviously inflation is one of the things determining real wages.  If they had kept the same measures defining inflation throughout, you would have had the red line, and in that case, you would have had approximately a 15-20% decline in the median real wage of those workers and their children and grandchildren, who were cavalierly asking, "What's the crisis, honey?" back in 1969 and 1970.

Deindustrialization was starting at that time, the so-called Southern Strategy, eventually leading to the thorough deindustrialization of the United States and to the past 15-20 years' deadly opium and suicide epidemic among working age people, in the formerly industrial areas of the United States. The space exploration program had been dramatically shrunk by about 85% in just three years during the Vietnam War. No major infrastructure investment was going to occur in the United States for the next 45 years a that time — none.

Recently, Helga LaRouche pointed out that this was also what Lyn understood about the Russian economy, the Soviet economy, when he made that famous forecast in 1983, that the Soviet system would collapse in five years — he missed it by one year — unless they accepted the major cooperative technology and infrastructure program known as the Strategic Defense Initiative, as a joint program of the United States and the Soviet Union. She said that what Lyn recognizes they had in the Soviet Union — invention, they had scientific development — they did not invest in infrastructure.  That was a complete blank, a zero in the Soviet economy.  What investments were made were shoddy; the example of the Chernobyl nuclear plant for example, which was effectively the 1941 atomic pile in Chicago, when Fermi and others were trying to develop nuclear energy:  It was that atomic pile on a giant scale was the Chernobyl nuclear reactor and was no more protected than that was.

But that was the lack of infrastructure investment in the Soviet Union, made them loot the countries of Eastern Europe and brought their system to collapse.

It has not occurred in the United States since World War II, and the results, the fourth slide [Fig. 4] shows infrastructure investment as a percentage of GDP in the United States, going back to the 1950s.  You see how sharply it rose during the impulse of Kennedy's nuclear development, water development, Apollo Project and so forth, and then how steadily it fell ever since then, to where it is now less than 1.5% of GDP.  Compare it to China, where it is consistently 9% of GDP every year.  And most of this investment in infrastructure in the United States now is done by municipalities, not by the federal government.

And the effect [Fig. 5], this is Total Factor Productivity. What that means is labor productivity the way you read about it, is simply the total GDP, the total output which could be anything, divided by the total number of hours worked by the workforce.  That doesn't tell you much.  Total factor productivity is something different:  It's an index which attempts to measure the impact of technological advance on labor productivity. It's complicated, but it essentially looks at what has been wrought by technological advance on productivity in the economy.

You can see that there was a golden age of productivity in the United States and that it began with Roosevelt's 1930s and that that decade actually had the largest steady increase in technological productivity of any decade in American history. The studies which were done of it, made absolutely clear that this rate of growth, which was in the order of 3-3.5% per year, that this rate of growth was the result of the great projects in infrastructure of the New Deal, and the way in which those great projects challenged the companies that were working on them, just as we see in the Chinese bridge-building and so forth today. They challenged the companies which were working on them to develop completely new technological methods and inventions in order to carry them out.  And the result of that, even more than the war mobilization of the 1940s, the result of that was the most rapid growth in technological productivity in the U.S. economy at least in the whole period in which this index has been measured.

By comparison, the National Bureau of Economic Research here, estimated in a study in 2014 that the rate of growth in total factor productivity in the Chinese economy in the period of 1999 to 2011 had been 3.11% annually.  So comparable to this, comparable to the golden age of productivity in the United States economy, not what you see after that, and if we continued it one more bar to the right, to the period since 2010, you would be at zero. Which is why the zero growth in total factor productivity, which is why the average since 2000 is below one-half of 1%.

There's a fellow who just wrote a book, Robert Gordon, a very famous economist, on The Rise and Fall of American Growth, all about total factor productivity.  He won all sorts of prizes for it.  The most surprising thing that he details there, is that the information technology (IT) revolution did not produce any growth in productivity at all.  In May, the Organization of Economic Cooperation and Development, the OECD, put out a similar report and held a big conference in Paris about it, because of the surprise of the disappearance of productivity growth, in the United States and European economies.  And, they said, especially in the sectors directly related to IT, that's where the greatest absence of productivity growth was.

So that is not the same as developing a crash program for fusion power; it's not the same as building high-speed rail, it's not the same as nuclear desalination.  It does not have the kind of effect of protecting the cities on the Texas coast, and New York City and so forth, from devastation in hurricanes. Repeatedly, over and over again, it did not and does not have that effect.

The history of the American System is very much the opposite: There's a really instructive example just across the George Washington Bridge from you, probably a lot of you have been there — [Fig. 6] this is Paterson, New Jersey, this is where Alexander Hamilton started building the American economy. This is where the Report on Manufactures of Alexander Hamilton actually took shape.  It's a big falls, as you can see; in 1780, Colonel Hamilton, Colonel Lafayette, and General Washington had lunch somewhere along that bluff that you see at the right, over the falls and Hamilton immediately got the idea, there's a lot of power there.

If you look at the next slide [Fig. 7], this is what he did with it.  In 1780, Hamilton, then Treasury Secretary, and four others, formed the Society for the Establishment of Useful Manufactures, which existed continuously from 1780 until 1967, and which ran what became Paterson, New Jersey for decades from 1790 on.  They formed that by taking the Treasury securities that they owned and pooling them into a corporation — the Society for the Establishment of Useful Manufactures — and borrowing against them, and building an infrastructure.  You can see, in this,  — this is a diorama  — you can see where the chasm where the falls are, in the wet season, a lot more is coming over it than in the previous photo; this is second only to Niagara Falls in the United States for volume of water.  You could see that they built a small dam up above the falls, at the upper left, and then a series of canals bringing water down into the valley and eventually back into the river; those were called mill races. And those canals drove water wheels, and this is not the romantic Dutch wooden water wheels, we're talking about iron water wheels, which took the water from the bottom of the water wheel, not as it flowed over the top; water wheels which were designed to operate in the most efficient way and they started a factory there to make textiles, and it promptly went bankrupt, because one of Hamilton's collaborators in this had a speculative bent, William Dewar, and he went off to Ohio and speculated with some of the money that they had and they went bankrupt.

Hamilton came in, while still running the Treasury, and directly took over running the Society for Useful Manufactures. They completed this infrastructure; this shows you only one of the canals which brought water around the area and back down into the valley; they actually built four and by 1820, there were 25-30 factories producing everything from iron goods, to textiles, to clothing, to dyes, to guns,  in that valley. This was the beginning of American industry right there.

They failed at their first factory, but they built an infrastructure, of then an extremely modern kind; one which competed with steam for another 40 years after that.  And then, if you could see in the extreme left, in 1910, the Edison Electric Company built a hydroelectric plant there for the Society for Useful Manufactures.  The Hamilton Society in 1910 commissioned and paid for that hydroelectric power plant, which then multiplied the efficiency, the productivity of the use of the water by six times.  It got three times the power from half the amount of water; this actually competed with steam almost up to that point, and then hydroelectric power became the dominant infrastructure.

This is how the American system worked.  The conclusion that you would have to draw, is that if you can present, if you want people to see this crash, and that is about to happen, the alternative you have to present is the one that is outlined in LaRouche's Four Laws.  It begins with the Glass-Steagall reinstatement, above all, now to stop the process by which the major universal banks are dumping that bad debt onto unsuspecting, or even some suspecting, funds, pension funds, and institutions in the United States and Europe; and secondly, to create a national infrastructure bank in direct cooperation, immediately informing it, with China in particular, with the Belt and Road, to develop — one last slide [Fig. 8]  —  a tremendous expansion in the space program. This is just to give you an idea of how rapidly space exploration collapsed in the United States after the Apollo Project — actually during the Apollo Project: That's the relation of the NASA budget to the GDP of the United States.  That one peak is 1967, and then it immediately collapsed, and has been below 1% of GDP ever since then, and still falling.  That gives you an idea of what happens with a Vietnam War, with no national credit institution to fund this kind of thing.

And it immediately came up, when we put out the statement on Aug. 31st that Wall Street had created these natural disasters, that LaRouche's Four Laws had to be enacted in order to turn them around, this last slide [Fig. 9] is an op-ed which appeared immediately after that in the Houston Chronicle which was called "What Would Jesse Jones Do?"  In other words, if the United States had a Reconstruction Finance Corp., a national credit institution capable of doing everything from the smallest, in a situation like this, from making loans to farmers whose cows have all drowned, so they can rebuild their herds; up to the biggest, building the Grand Coulee Dam, building the Verrazano Bridge, building the Bonneville Power Plant.  This, if we had this kind of a national credit institution, we would not be having these devastating natural disasters, with huge loss of life, this immense of loss of wealth which costs much, much more than if we had invested the wealth into building these kinds of projects.

This is what we can do directly with, — and Trump can literally start to arrange it two and a half weeks from now, directly with China, directly with the Belt and Road.

So I'll stop there and see if there are any questions.

Q: This is John Sigerson. I'd like you to comment directly on Secretary of State Tillerson's recent disparaging remarks on the China Belt and Road, specifically, his disparaging of the credit mechanism and the financing mechanism that he has done; although he did say that he was willing to discuss some other, alternative mechanism.  I was wondering whether this was part of your typical, blustery negotiating position that Trump is wont to do on many subjects? Or is this an indication that he really is being pulled in the direction of Wall Street?

GALLAGHER:  I mentioned a little company called ExxonMobil earlier, and what they had done to themselves since 2006.  I think he was there.  And I think that what he said, what it represented, is the dominant Wall Street/financial economist's view of how economic growth takes place.

It's completely, totally wrong.  On the surface, they claim to be able to maintain it, but it's completely and totally wrong, and I don't necessarily think you have to assume that Tillerson was somehow bending to pressure from something, except from the pressure of the strong presence of Wall Street and of New York real estate billionaires and so forth around this administration, who as I said earlier, are trying to pin the administration to the stock market boom, and the effects of deregulation in industry, the removal of some regulations, especially on small companies, pin it to the idea that that is somehow going to pull the Trump administration and the U.S. economy through a big recovery of the kind that Trump wants to cause and has been already talking about.  I think that they believe — remember also that when Lyndon LaRouche got the Strategic Defense Initiative adopted by the Reagan administration, the strategic effects of that, and the long-term effects of that were profound all over the world.  But they did not go with any greatly improved understanding of Lyn's economic policies, by anyone in that administration.  There were a couple of exceptions in the National Security Council at that time; they were not particularly high-ranking people.  Otherwise, if you remember, it was Henry Kissinger's so-called Caribbean Basin Initiative and other things which were the shiny objects that drew the attentions of the principals in the Reagan administration.

At the same time as they were doing exactly the right thing strategically, and they had a sense for technology, nonetheless, to come back to your immediate question, I think that this is what — I would guess that this is what Tillerson actually thinks: That the way in which China is expanding credit now into Belt and Road projects for the development of these other countries is incalculable in terms of what its debt effects will be, and therefore, since we've never done it,  — since he's never been associated with any entity private or public that's done it — he doesn't believe that it will work.

So I'd say it's a combination of that pressure on the Trump administration as a whole, and Tillerson's own mindset coming from the industry which has, of all industries, has piled the greatest volume of nonproductive, speculative debt on itself in the last 10 years — it's orders of magnitude higher than any other industry, from the smallest shale wild-catters up to the ExxonMobil, it's what they actually think.  And I don't think it is in any way associated in his mind with an anti-China strategic view at all.

Q: [follow-up]  OK.  I would just modestly suggest that this would be a great opportunity to shoot off an emergency open memorandum to Tillerson, in the spirit of the kinds of memos that Lyndon LaRouche was wont to do on many such occasions.

GALLAGHER:  As the old show said, "You asked for it, you got it."

Q:  Hi Paul, Alvin here, in New York.  You've explained in physical terms, what it is both in terms of the collapse of the United States as well as the rise of China, and so, Lyn's Triple Curve Function comes to mind very clearly, and we're getting ready to get this point of discontinuity again.  And then, in my mind, I also see a reverse of the Triple Curve Function and that would be what China's doing, where you see the exact opposite of Lyn's function on the destruction of the United States.

Now, you've also stated that the blowout, which is inevitable if we allow it to happen, would be as bad or worse than 2008.  And in my mind, what goes through, well, what's the worst is World War III. And this is all in the context that it plays a further urgency in our minds, or importance in our minds on how we must reach the saner elements of our population to urge Trump to move him to join the Belt and Road Initiative  in the next two and half weeks or so.  I know that people like you are working from your end at the higher levels to try and get that within the administration, but how should we approach this, keeping the One Belt, One Road in mind to uplift people, but that really, there's a connection between a blowout and World War III, as an empire would dare to risk, to save its own ugly ass.

GALLAGHER: Well, first of all, I don't want it to be thought that I'm working at the higher levels of the Trump administration.  I wish I were, but I'm not.  We're working very hard on Congress, and trying to work on people in business who may have these kind of connections, but it's an uphill struggle, absolutely to get this forward, and we really need, as I was discussing before we started — we really need to get more trans-Atlantic cooperation on this also, because it is an uphill battle to get these policies fairly considered, in this administration, and most certainly in this Congress.

But in terms of what you specifically say, I can't really, and I don't really want to draw a line that I would know how to draw between the kind of collapse that would now occur with the debt blowout of this sort and World War III.  Obviously, the danger would dramatically increase for a number of instant pressures which would arise, if that occurred.

But what I think makes it worse, is that we've already seen, since about 10 or 12 years ago, that on the one hand the labor force of the United States has been very much hollowed out; someone asked me about this last night, Asuka from New York, because of the figure that we use a lot of 95 million people out of the workforce and that this figure is really essentially meaningless.  What is meaningful is, as I mentioned before, that for decades before 2000, of all the people that could enter the workforce in a given decade, 75 or 80% were entering.  And after 2000, that suddenly became 30% and then between 20 and 25%, while Obama was President.  Obviously, that points you directly to about 15-20 million people in their late teens up to their 40s who have become almost unemployable; and the drug problem is a very, very serious problem in that.

If there's another crash and another collapse, what on Earth are we going to have in terms of the condition of the American population and the American labor force?  How could we then recover?  I think that's really the worst thing — obviously, I'm not saying that's worse than World War III — that is the worst thing that will clearly result, if we don't stop the banks from what they're doing right now, from this offloading process which leads to the whole thing blowing out; if we don't break them up with Glass-Steagall; if we don't put productivity through infrastructure credit into the economy and internationally as fast as we can, this is the worst thing that I can see clearly is going to result.

But what you raise certainly could result, because the pressures to go to war will suddenly become much greater, and as Helga keeps pointing out, the advances of the Belt and Road dynamic, particularly into Europe and into the Middle East, and Africa, and South America, will come under tremendous pressure, under the conditions of another financial collapse in the trans-Atlantic.

Q: [follow-up]  Thanks.  I didn't want to make a leap like that, necessarily, but I found that very helpful.

GALLAGHER:  We certainly don't any of us want to make that leap!

Q:  You started by describing Wall Street wanting a 10% return on a 10-year bond, etc. to finance infrastructure, giving the devil their due, then infrastructure would usually take a longer time, 30 years, to produce a result, and in an open economy like the United States as you pointed out, there's tertiary benefits and secondary benefits for the act of constructing a major project; but those benefits don't flow to the party that is doing the infrastructure financing.

One the other hand, the Chinese economy is a closed-loop economy, still, and to some extent, as they invest in developing countries, they can capture secondary benefits through direct economic activity in the country related to the infrastructure project.

So in terms of looking at the cost or the value of an infrastructure project, how could there be devised, other than starting a bank, which is a control feature, closed-loop — how could there be devised, call it a reward on some basis for the lack of a specific return related to an infrastructure financing? That is a problem I think that maybe would be worth trying to solve.

GALLAGHER:  I would say, this is why Alexander Hamilton, when he formed the First National Bank, and obviously, he was informed directly by the experience and the projects he was involved in, which I was showing one of them, the way he proceeded was to get the Congress to say out to all "your tired, your poor, your nonperforming holders of U.S. debt and colonial debt," and so forth, bring it all to me; put it in this bank, you're not going to get paid anything for 20 years on your principal, but you're going to get, in most cases, 6+2% annual return.  So you're going to put it with us for a long period of time, you're going to get a good return; it's going to be backed by the taxes that we are enacting in order to finance the dividends of this bank.

That's why Congress, again, in 1816, did exactly the same thing.  And at that time the U.S. debt was no longer tired or poor or huddled masses, it was sound debt, but nonetheless they did exactly the same thing, stretched it out over the same period of time, with the same kind of reward for the holders of U.S. debt.  And then Abraham Lincoln in a slightly different way, did the same thing again in 1861 and 1862 in order to generate the credit, the greenback currency credit.

So, obviously, that's what we can do again now.  All those holders of all that $7.5  trillion of relatively long-term, publicly held U.S. Treasury debt:  Bring it here, put it in this bank, for 20 years or more!  And capitalize this bank, turn it into equity with a dividend of 4 or 5%.

And the crucial thing is how do you organize the selection of the investments that bank is going to make, the selection of the projects?  How do you organize the directors and the experience of the directors in order to make sure that it's carried out in the way that Harry Hopkins and Harold Ickes made sure that great infrastructure projects of Roosevelt were not encumbered by graft and incompetence and so forth.  That's the key thing:  how are you going to invest it?

Q: [follow-up]  The problem with that is, number 1, municipal bonds are a method of raising infrastructure money and those are tax free, tax exempt, and that's inducing investors to avoid paying taxes on the income related to those bonds.  So that would be similar to your suggestion.  In the case of Harry Hopkins, there were no other choices, we were in a Depression. And gluing together a big bank and getting people to march into that, seems unrealistic.  So is there a way to do it, on a more indirect basis?

And I'll shut up at this point.

GALLAGHER: Well, there's going to be — direct and indirect, I don't really understand the difference  —  but you're obviously recoiling against big.  But we're currently investing, nationally, in infrastructure about $200 billion a year, and that covers everything, from the fixing of the windows on an elementary school, to the building of a new bridge.  And the great majority of that is being done by municipalities, by state and local governments not by the federal government. The federal government is effectively investing nothing.

And against that, we have the demand, the obvious need, for multiple trillions of dollars of investment in infrastructure. We have to do something big. This is one way to do it.  I'm only suggesting that we do it the way that Alexander Hamilton did it, because that's clearly one way to do it which worked.  It worked again, in the Second National Bank;  it worked again for Lincoln and so forth.  So that's why we're suggesting, do it that way.

But there is going to be plenty of return for the companies that carry out these projects and for the local banks which make loans to those companies which are carrying out the projects —

Q: [follow-up]  Those are secondary and tertiary returns.


Q: [follow-up] Not to the direct provider of the money.

GALLAGHER:  Yeah, because, like the Reconstruction Finance Corp., as the final report of the RFC said when they wrapped it up in '56, it wasn't intended to make a profit, but over the long term it did.  But that was not its purpose.  Its purpose was to carry out the national purposes of the United States, and that was a big thing:  It was $55 billion worth of credit, of lending over that period of time.  For that time it was very big.  It operated as a lending institution overwhelmingly, and really, in a certain way as a commercial bank, and that's exactly how our Hamiltonian bank should operate, as a commercial bank.  It's got to be big, and it's going to make it possible for things to get done that are going to raise the productivity of everybody participating, and therefore, raise the profitability of a lot of the corporations and local banks that participate.  It's going to discount their loans; it's going to buy the infrastructure bonds of municipalities that are newly issued.  That's what I'd say.

Q: This is Steven from New York area.  My question is is about pathos and Donald Trump.  With the release of the JFK papers coming the 26th of October, I think that's going to be a complete game-changer.  Now, he's already said, during his election time, he wants to get possibly, maybe get rid of the Federal Reserve.  Everybody knows that JFK had a riff with the Federal Reserve; now when all these papers come out, Donald Trump might reinforce getting rid of the Federal Reserve.  Then, on top of that, what I see is that he wants to give a projection of power across the world, but not necessarily start a war, or say that America's the police of the world, but give that same projection and bring China and Russia into the fold, namely North Korea.

At this point, Russia and China upped their sanctions, just like we have; they've move troops around, they've made statements. So, if we do go to war, which I  don't think it'll come to, what I see is that Donald Trump is going to realign the world through North Korea, by bringing China and Russia into the fold of Western politics and bring a power to be respected.

My question is, do you see this as being a feasibility, that Donald Trump could be using these papers that come up next as his "Trump card"?

GALLAGHER:  My simple answer, would be no, and from what you said, I don't think you see it as a feasibility either.  He's not seeking to start a war, and I think he's very definitely not seeking to bring China and Russia into the U.S. strategic orbit, or under U.S. strategic direction by any means.  He doesn't seem to have ambitions of that kind at all.

We have to look at it in a different way:  China has set loose upon the world, an offer, and as I mentioned earlier, Bill Jones discussed last night, this wasn't even seen as necessarily even the right thing to do or an important thing to do even by many economists and official in China when Xi Jinping first started the Belt and Road.  Now it appears they do.  They've put before the world an offer of exactly the kind of  investment that I was just discussing with the previous questioner; and that they are willing to make those kinds of investments over long periods of time — what they call "patient capital," they're going to wait a long period of time.  We don't have that definition here of "patient capital," but in China they do; it's a very rigorous definition that they use.  They're willing to make that available, for the most important productivity projects in any one of these countries, obviously with a certain rough, overall design, that started out, as Helga and Lyn did, with the World Land-Bridges across the Eurasian continent with a certain rough design;  but nonetheless, this is a matter of increasing the productivity and decreasing the poverty in countries all over the world.  They have that offer out there.

It's not geopolitical.  It doesn't involve saying "I want you on my side in a war against so-and-so."  No matter how inconceivable they may think that war is, they're not saying to any country, "I want you on my side in this war."  They are very much put under pressure, put under the gun by the North Korean crisis right now.  They definitely do not want war there, and they definitely do not want the collapse of the North Korean regime either, because of what that will cause, and they're in a very difficult spot to pursue this policy, what Helga calls the "Confucian policy" of mutual benefit.  They're trying to do it.

I don't think by any means that Trump gets that, in any full sense, but the fact that there are mutual benefits  to be had, he can see that.  That's why I really think we could see something happening on this trip to Asia; it's really up to us, what we do.

I have to defer to you on the papers; I did read that something like 2,500 new pages of papers are going to be released; I have no idea whatsoever what that is going to show. Or why the President decided finally to do it, except maybe he just likes to do what no other President wanted to do, like fire the head of the FBI — there were a lot of Presidents that wanted to do that but couldn't do it, couldn't get up the nerve to do it, four at least, right?

And as far as the Federal Reserve:  We do have to have a national banking institution.  If you eliminate the Federal Reserve you've got to replace it immediately with the kind of National Bank I'm talking about, but with additional authorities; and conversely, if the Federal Reserve were not a perverse tool of Wall Street, which it is, it would be the easiest thing to convert into a Hamiltonian National Bank, that there is.  But they have a perverse Wall Street directed policy, which is completely against this.

Q: [follow-up]  I can just say, I've been to the Federal Reserve, recently and when you walk in, the Rothschilds name is actually there.

DENNIS SPEED:  I'm going to respond before the next person: We've been involved in a campaign for the past three weeks to get out a dossier.  The purpose of getting out the dossier is to stop World War III, and I would suggest that the people that are in the room should get out the dossier, because it would actually alleviate your anxiety about whether there's going to be a world war. The entire function of the dossier has been to vector it, distribute it, before the China trip.  The China trip is going to start in two weeks.

So we have to have a rapid, extensive escalation of distribution of that material, and contact with people, and mobilization of people, similar to what we used to do, particularly in electoral campaigns.  Some people who are here have been involved in those, and it involves a kind of very focussed, very intensive street presence.  Not just a presence on the internet, because that will not work.  It's an important presence, it's a crucial presence for places we cannot be.  But in New York City, we can be in New York City!  And our presence on the street, will cause that problem  that you're referring to, and was referred to earlier by another questioner, to be directly addressed.  And that's literally why we composed it, why we're distributing it, that will be its effect.

There are other things we say about it, maybe as we get to the conclusion, Diane may have some other things say. And I would not assume that the release of the pages is not in fact, an indirect effect of things like what we're doing.

Q:  [Suzanne Klebe] Hi Paul:  You mentioned in your presentation the question of Trump's proposal for the $1 trillion in infrastructure and what happened in that.  And of course, now the situation's even very different because of what happened in Houston, in Florida and Puerto Rico, and now the destruction of the fires on the West Coast.  So my question is, what is happening around actual emergency reconstruction and how this is going to be funded, both from the federal government, and what is actually occurring?  You also mentioned the Gateway Project, and my understanding is that something is beginning on that.

So I wanted to know, both what's happening in Congress — I mean, this is going to have to be done quickly, because these are emergency situations.  I don't what it would be, but it would obviously be much more than a trillion, and it's going to have to be funded.

Secondly, do you think that that will also tie into discussions that will take place when Trump goes to China?  And are there any efforts coming from China, Japan and others to discuss anything around this needed emergency infrastructure?

GALLAGHER: Wow. Well, there is already these disasters, in addition to the hundreds of lives that have been lost already, at least $50 billion in simply new debt voted by Congress, and we're still fairly early in the recovery stage, not the rebuilding stage but the simple recovery stage; and it's going to be more than that immediately, because I understand that the first one that passed was $15-some billion, the House then passed another $37 billion; the Senate hasn't passed that yet, and is actually talking about raising it further.  So, we're going to be heading for the realm of $100 billion, that these preventable disasters will have cost only just sticking the national nose into the recovery process, without any provision of any kind for rebuilding or building of new infrastructure in any of those areas, or more particularly, building the protective infrastructure which those areas needed, which have been put off for 50 years, or 30 or 40 years depending on the case.  In the Puerto Rican case it's more like a century.

So it's going to be an immense volume of debt if they keep going at it in this way; or else, it's going to be cut off at a certain point, leaving people to suffer and to die and to be without even the most basic things like housing, in the way that this happened to a lot of people after Katrina.

I should mention that immediately after that, the next real round of meetings that we had in Washington on Capitol Hill in Washington, mostly with staff, some with members of Congress about Glass-Steagall and a national credit bank, were quite different than the ones before.  The best way to describe it is that we had told these people about Lyn's Four Laws and these proposals, in some cases numerous times before; they had never heard a world in effect.  But after the three successive hurricanes and earthquakes in Mexico at the same time, then all of a sudden, they started to hear what we were saying, and people started getting serious, and saying, "Well, this is a really interesting idea.  Who's against this? And what do they say against it?  You tell us the arguments against your proposal, we can't really think of any."

The places where there were no meetings, we walked in and there were meetings; some of them were long meetings on this subject.  Clearly, the national reaction which was one of temporarily at least of pulling together, and of realizing how unprepared all these places had been , that national sentiment hit these elected officials in such a way.  And we heard them saying, "I have legislation to bury the power lines in Florida," for example, something which could have been done at any time in the last 80 years.  But no idea how to fund it, no idea even how much would need to be invested to do that.  So the very primitive beginnings of wanting to connect this big pile of wealth which we're now having to spend, because we didn't invest before, we didn't protect people before, we didn't look to the General Welfare before, now it's costing us all of these hundreds of billions.  And the primitive beginnings of thinking about, could we do this in a different way so we get to the actual reconstruction part of it, not just the recovery part, which as things are going now, we're never going to get to, and especially Puerto Rico is never going to get there.

So, yeah, all of a sudden, there are a lot of ideas of that primitive kind floating around, about infrastructure legislation, in the Congress.  I think that's why Wall Street is pushing back so hard and saying, "don't think about anything but a tax cut now" on the administration; don't think about anything but the stock market and how it continues to go up and this means you're having a recovery  — don't worry about these other things.

But in terms of Trump's trip, I would bet that issues will be raised, from the Chinese side, from the Japanese side, perhaps also from the South Korean side, that issues will be raised of certain things that need to be done in the United States that they could help with, specifically.  I will bet that that will happen, just from a few meetings and a few conversations.

SPEED:  We're going to make these the last two questions.

Q: [Jason Ross] I got a question about the bank.  Also just a brief note.  An October 1992 Act of Congress mandated the release of the JFK assassination files in 25 years.  That's this October; that's what's happening.  It's up to President Trump to refuse or accept the release of all those files, so he had some decision-making in it, but that's where the date comes from.

I had a question for you about the National Bank, you referred to the National Bank, the Second National Bank, and I know that a major part of what we'd looking at today would be that China has expressed willingness to invest in U.S. infrastructure, etc.  In your proposal for a national bank for manufacturing and infrastructure, you've called for a distinction where these foreign investors, such as if China is becoming a stockholder, it wouldn't be voting, it wouldn't be making decisions where the bank would go; and to make up for that, you also had a different way of paying the dividends, an indirect way, where the bank's projects wouldn't be required to directly pay the dividends but you would institute specific taxes so that society as a whole, the government as a whole could indirectly reap the rewards and thereby finance the dividends to the stockholders in the bank.

I don't want to be too technical in the question, but if you could say more about that, because I have a difficult time describing that, when I'm talking to people about the proposal.

GALLAGHER:  It was actually momentarily objected to, in one discussion that I had with a Chinese official, the non-voting shares part of it.  Again, copying Hamilton, but I would suppose it's negotiable.  And I think more important, if you think of the task force for investment in U.S. projects that was formed in San Francisco — remember a couple of weeks ago — there were a number of leading Chinese-American businessmen and others, with some input, obviously, from the embassy, that is, from the government in China, and some input from the side of the government of California, at least, there was a task force formed in order to prepare and investigate and even design major projects in the United States  — in California, at least — in which they couldn't be invested.  Now, that aspect is the most critical thing for a National Bank of this kind to do:  It's got to invest, as Hamilton said, in a way that's going to mobilize the credit of the country and put it in the hands of those who can use it most productively.  That means it's going to have to be at levels of technology and need, which really raise productivity, and that kind of decision-making should involve exactly that kind of task force that was just formed out there. The Board of Directors of the Bank should involve in staff committees exactly that kind of task force, so that they will be planning what is going to be done.  IN some cases, like high-speed rail crossing the United States, they will also have to be assisting with the engineering and even the production, because the American economy, as you know well, doesn't produce train sets of any kind, let alone high-speed train sets, electric rail trains sets; doesn't produce the kind of transformers required in any mass volume, and so on; so they would have to be involved in that way.

Q:  Howard in New York.  Hi Paul.  I was thinking from reading the papers this week, that the Long Island Railroad is supposed to be repaired from Hurricane Sandy, and the tunnels are not supposed to be done until 2025, and Hurricane Sandy happened in 2012.  Obviously, we have massive needs.  Another thing that hit me with all the fraud we have on Russia-gate and Mueller and all these things, is also the financial, possibly a fraud, but just  — I don't know what to make of it:  You have this thing called bitcoin and a thousand of other imitation currencies, which is supposedly based on a mathematical equation.  And there's something like $200 billion invested in this thing internationally.

It sounds like totally crazy, but on the other hand,  $200 billion, that's like our yearly infrastructure bill or whatever. So I wanted to know what you thought about that?

GALLAGHER: [laughs]  I didn't want to discuss crypto-currencies.  I'll leave it to Dennis, in his wisdom as to whether I should say anything about crypto-currencies.  I'd rather not.

SPEED:  I don't think it's necessary.  I think crypto-currencies are a kryptonite discussion.  [laughter]

GALLAGHER:  Suffice it to say, Howard, there's no connection between that and the introduction of the greenback, no connection between that and what was proposed in Greece to return to the drachma — it's not at all the same thing.

SPEED:  So, having avoided any tales from the crypto, I'd like to ask you, Paul, to do a summary statement.  I'd like to point something out, because a lot of people do not know it, which is that in 1974-75 and immediately subsequent, Paul was the leader of the New York organization, when I first came to work in New York in April of 1977, he the National Committee member in this area.  And we had a legendary fight, or it should be legendary, with Felix Rohatyn at that time, when the Municipal Assistance Corporation, or Big MAC was imposed on the City of New York.  It had a 33-year charter which ended in 2008, and that year, everybody celebrated it by Bloomberg being in office!  So there was no real change.

But Paul had an exchange back at that time, or we had an exchange with David Rockefeller, who was no great fan of ours, and from that period we were very aware, — Lyn had been writing from 1974-75 for the International Development Bank proposal and many other things, about what are the two worldviews.  Paul's already talked about it.  But I was caused to think about it, as we were getting some of the questions, because underlying many of the questions is there are two worldviews on the question of the nature of economy and the nature of man.

And so, Paul, in your response, whatever you're going to say in summary, I just wanted to recall that, since you're as much a part of the Manhattan Project as anybody I know, and specifically with respect to this question that you've been taking up here, today.

GALLAGHER:  OK, I should point out, just for clarity, that I was brought up in Queens, but I'll go along with the Manhattan Project membership, for sure.

I had a more recent exchange with Felix Rohatyn, 10 years ago at a conference in a big think tank in Washington, where there were a number of us that were intervening and there were a number of Congressmen speaking, and Rohatyn was there.  And at certain point, I got the floor, and brought up Franklin Roosevelt's methods of investing in infrastructure and the New Deal, and also in investing other things, developing the productivity of the economy in the New Deal.  And Rohatyn reacted, there were various other people who started to answer, and particularly one of the Congressmen got angry; but Rohatyn simply said, "We don't need Roosevelt.  No.  We do not any longer need Roosevelt.  We now have deep private markets,..." and so on, he went on, "we don't need to use any methods of Franklin Roosevelt."

And Rohatyn's identified for 40 years with public-private partnerships and with so-called infrastructure banks based on public-private partnerships.  That's been shown now, over that entire period of time, to be a failing strategy, a failing practice; and not only in the United States, but also there are recent reports of some spectacular failures in private attempts to rebuild the Autobahn in Germany, between Hamburg and Dortmund, where the private company, true to the principles of 10% return on investment every year, and all our capital back in 10 years; having failed to get that, because there was a crash 10 years ago and so there wasn't that much truck traffic on that Autobahn, they are demanding, and they will probably get under their contract, that the German government simply pay them, the 10% annual return, during the time they were building the road, and the full return of their capital, which, since it's now 10 years later, they will probably get it all from the German government.

This has happened, this fleecing, has happened, time and time and time again, with so-called privately built infrastructure, or public-private partnership infrastructure here; so that when we put out the thing last year, "Hamilton not Rohatyn," we were really talking about not only a method that worked as opposed to a method that doesn't work; at the same time, we're talking about view of the human being which is the American System — that is that a country grows and develops wealth on the basis of its own productive capacities, on the basis of its own inventions, and the expansion of its own productive capacities, and only trades secondarily.

As opposed to the British system.  And that view goes with the view that the human being is inherently inventive.  Look at Jason and Ben's class from this past Wednesday night, and particularly the quotations that John Sigerson read from Abraham Lincoln about the unique, inventive quality of the human being, and how it expresses itself in an economy.  That came from Hamilton:  Lincoln was a devoted Hamiltonian; in part through Henry Clay, but he himself was completely familiar with Hamilton's policies and Hamilton's works.  And he also corresponded with Biddle, the head of the Second National Bank: He had the same policy and the same view of the inventiveness, the capacity for discovery  and  increased productivity of the human species, coming from the inventiveness of the individual human being.

The British System was the opposite:  That the wealth of the country comes from its trade, from producing a few things and selling them, from its trade and its ability to develop financial services.  That's Rohatyn's view of it, that the United States, in his view was a leader in infrastructure, internationally.  I mean, from any sane view, we're about at the back of the pack. But from his view, the United States is a leader, because it has such deep financial service capabilities in order to make these new infrastructure projects possible all over the world.  But it just hasn't happened, it doesn't happen. Because what they want out of this is financiers' profits.

And as I'm saying, what we're demanding in Lyn's laws, is a massive investment in the productivity of the economy which does not involve profits for financiers that get involved in supposedly financing.  It involves the productivity of the people who build it.

So that's what I would say.  I don't know if Rohatyn has given that up, at this point, at his age, but it definitely has been a failure.  And it was a fight that was worth having, back then.

SPEED:  All right, well, thank you, Paul for this presentation.

GALLAGHER:  Thank you for the invitation.

SPEED:  There will be some questions as soon you are off the screen, but what we're going to do is we're going to conclude now, because some of us have some work to do particularly on the Mueller campaign, and there's also our solfège class will be starting.  So, thank you very much.



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