Another crash is looming over the Wall Street-City of London financial system, and the warnings of it are coming faster and faster, from the IMF to the Bank for International Settlements to Britain’s Adam Smith Institute, whose report last week called it “an accident waiting to happen.” Even one of the biggest of those banks, Deutsche Bank, is itself warning of gigantic bubbles and a “sudden correction that could destabilize the financial system.” Some 10-20% of companies in the United States and European countries are going to go bankrupt with any significant rise in interest rates, they are warning — the Federal Reserve is likely to trigger that rise this week.
It is time to remember that Lyndon LaRouche made a dramatic, internationally broadcast warning in July 2007: “There is no possibility of a non-collapse of the present financial system none! It’s finished, now! The present financial system can not continue to exist under any circumstances, under any Presidency, under any leadership, or any leadership of nations. Only a fundamental and sudden change in the world monetary financial system will prevent a general, immediate chain-reaction type of collapse.” And in that broadcast, he spelled out — including in legislative actions by the United States — what could have stopped that terrible breakdown collapse of 2008.
He has spelled it out again now.
There are three countries whose leadership must prevent another descent into chaos and mass unemployment like 2008: China, which came through that chaos and has driven the biggest share of economic progress since then with worldwide infrastructure projects; the United States, whose President Donald Trump warned late last year of “a giant bubble on Wall Street” and pledged to restore growth; and Russia. The very thought of those three great powers collaborating in a new economic development paradigm — China’s “New Silk Road” of great infrastructure projects — completely destabilizes the Anglo-American elite and “neo-Cons,” and London and Wall Street themselves.
As the first authors, decades ago, of the new paradigm of great infrastructure projects now unfolding under China’s “Belt and Road Initiative,” Lyndon and Helga LaRouche are the key to the potential for that collaboration of great powers for progress. Donald Trump’s mold-breaking presidency makes it possible for the United States to take part.
The Federal prosecutor who 30 years ago was assigned to organize the “Get LaRouche Task Force” of prosecutors to put Lyndon LaRouche in prison, is now the “special counsel” trying to drive Trump out of the Presidency. Robert Mueller is trying to give President Trump “the LaRouche treatment.”
So agitated are the neo-Cons and financial barons about the possibility that the United States will join the New Silk Road, that their U.S. publication Foreign Policy has published a furious attack on the Helga LaRouche’s parliamentary campaign in Germany! They are determined to stop the progress of such a new paradigm anywhere in Europe or the United States.
But joining with the New Silk Road is exactly what the United States needs. If Trump is going to protect Americans from that “giant bubble on Wall Street” he warned of, and build a new economic infrastructure to make the nation productive and great again, this is the means. The American people need to take control over Wall Street by insisting on reinstating the Glass-Steagall breakup of the banks. That’s the first of the actions needed to bring the American economy into that international collaboration on great projects.
Following the report of the UK-based Adam Smith Institute last week that City of London banks were more overleveraged than in 2007 and “an accident waiting to happen,” two new warnings emerged today of the bigger crash threat from the U.S. and European corporate bond markets.
Deutsche Bank chief credit strategist followed up CEO John Cryan’s remarks last week that the central banks had created “bubbles everywhere,” with a warning that “asset prices globally are the most elevated in history.” This history involved is since 1800, and the measures complicated. But the bank is clearly reporting that the credit, or bond markets, are closer than ever before to the highest global average price possible, meaning the lowest global average interest rate possible. Their report says “While they remain this high there is always a risk of a sudden correction that could be destabilising to a financial system and global economy that seems to require such elevated asset prices.”
The report also points to the epidemic in Europe and the United States of bond issues with “lite” or no covenants, meaning the company’s ability to repay cannot be judged. A homey example is given by Jared Kushner’s family real estate company, which owes billions in loans on which it has lacked the revenue even to pay interest.
The latest quarterly report of the Bank for International Settlements contains a warning about a potential corporate debt crisis or collapse. It estimates that 10% of all European non-financial firms are “zombie companies” which have become completely dependent on borrowing at near-zero interest rates, and will go bankrupt with any significant rate rise. They estimate that the ratio in the U.S. corporate sector is 16% “zombies.” Recall that the IMF 2017 global review three months earlier estimated that 20% or more of U.S. non-financial firms would “default” with any significant rate rise, not necessarily the same as going bankrupt; so this is an equally serious warning. “Ultra-low rates have allowed these companies to keep operating…. “In the event of a slowdown or an upward adjustment in interest rates, high debt service payments and default risk could pose challenges to corporates, and thereby create headwinds for GDP growth.”
BIS says investors still think the central banks will return to quantitative easing as soon as any market quakes. “This underlines just how much asset prices appear to depend on the very low bond yields that have prevailed for so long.”
This week the Fed is deciding whether to start selling assets, pushing interest rates up if it announces that.