Those Who See Danger of Financial Crash—Mobilize for LaRouche’s Four Economic Laws
If an epidemic spread of the COVID-19 virus occurs in enough countries to make it a pandemic, it may become a trans-Atlantic financial and banking crash in the process. Warnings of a “Lehman Brothers moment” are being sounded in Europe, whose major nations’ physical economies were already deeply depressed, and whose markets in China for automotive and engineering products, etc. have drastically contracted for this quarter at least. The six-month-long fall of U.S. Treasury interest rates has suddenly turned into a dramatic dive to the lowest levels in history, whacking U.S. banks’ profits and now threatening to whack their $200 trillion in interest-rate swap derivatives. This week’s hefty plunge in the stock markets is being led by the stocks of banks and their derivatives partners, insurance companies.
The economic activity of the United States and major European economies—and to an increasing degree, that of China—is based overwhelmingly on spending for consumption; their financial systems in the floating-exchange-rate era are based on financializing and securitizing consumption, while globalizing and cheapening production. It is consumption which has taken the longest-lasting blow in China’s outstanding public health battle to save human life. And this will happen in other countries which may experience large-scale epidemics. These would be the makings of a financial blowout—whether or not we are at the “Lehman Brothers moment” this week or next.
Net income or profit of U.S.-based banks was already 11% down in the fourth quarter, compared to the same quarter of 2018, according to the FDIC’s quarterly bank profile released Feb. 24. This was because interest rates swooned in that quarter from the time the Federal Reserve started pumping out daily tens of billions in “repo” liquidity (mainly to non-banks) on Sept. 17, and resumed quantitative easing on Oct. 4. Banks cannot make money lending under those conditions. The global corporate bond bubble reached a record $13.8 trillion at the end of 2019, inflating by $2.1 trillion or 16% just in that year. One-quarter of these are junk bonds; another half of them are rated BBB, one step above junk. A new OECD report says, “today’s stock of outstanding corporate bonds has lower overall rating quality than in any previous cycle.” That was before the loss of markets began with the virus spread in China.
Now there is one choice of action available in the face of these threats: Mobilize for the fast implementation of Lyndon LaRouche’s “Four New Laws To Save the Nation.” These actions in turn can mobilize high-productivity production and demand within the nation—including agricultural production—as China is now restoring its industrial production with large amounts of directed bank credit.
Most immediate of those actions laid out by LaRouche for a crisis: Restore Glass-Steagall bank separation to prevent a City of London- and Wall Street-centered crash from devastating the real economy; and create and direct national banking credit into expanded high-technology production and infrastructure-building, with the use of frontier technologies and scientific research. Public health and hospital facilities preparation to save lives from an epidemic, is only one of the jobs in front of us—the necessity is to lift up production and productivity with new, high-technology capital goods, above all in infrastructure.
These are actions LaRouche spelled out and called for over decades, with every serious epidemic threat to human life in any continent or country, and as defense against each of the many financial crashes of the floating-exchange-rate speculative casino. They must be taken now; an immediate summit of heads of state and government of the United States, Russia, China, India and perhaps other nations is needed to coordinate taking them.