If We Don't Make THIS kind of Reform NOW, We are Not Going to Have a Decent Planet to Live on
Lyndon LaRouche made the following remarks to a private meeting
in Washington, D.C., on Nov. 11, 2008. The transcript has been edited,
and subheads added. An introduction to this discussion is also available.
As you know, probably, as of last July, I forecast that we were at
the end of a phase of the system. And within three days, after my
forecast, on July 25 of last year, the breakup of the present monetary
system began, with what was called by some people who didn't know any
better, a "subprime crisis." It was never a subprime crisis: The idea
that a real estate bubble exploded and had a chain-reaction on the
world is nonsense. That didn't happen: It happened the other way around.
The system which was to explode, or implode, just broke loose at
its weakest point. But the problem lies, today, not in the real estate
area or otherwise; it lies in financial derivatives. The financial
derivatives system of the world is what is in the process of
collapsing. And the financial derivatives system totals to over $1
quadrillion U.S. dollars in estimated value! And this is the great
speculative bubble which has built up from 1987 on, under Alan
Greenspan and others. This is the bubble that is now collapsing.
This is a hopeless collapse, in terms of the present system. No mere reform of this present system, will save the planet.
The nearest event comparable to this, in all European civilization's
experience, occurred in the 14th Century, with the general collapse,
called a "New Dark Age," in which the entire system of Europe
collapsed. The number of villages collapsed by one-half, the population
of Europe collapsed by one-third, and it took several decades before
even the beginning of civilization returned.
The crisis we have today, worldwide, is of a similar form: A great
financial bubble, which has been growing at a great rate, while the
rate of net physical production per capita, has been collapsing. This
system is doomed in its present form. And there is no minor reform,
there's no monetary reform that could save this system. We are headed
for an absolute, total collapse of the planet, unless a change is made.
There is no hope, for any remedy, within the framework of what's called
a monetary system. But rather, as I shall emphasize here, the
alternative is the establishment of a credit system, to replace the
present monetary system.
The Crucial Role of the United States
Now, the model for the credit system lies in the United States,
historically. If you study the U.S. Constitution and the peculiarities
of the U.S. Constitution, as opposed to those of Europe, our system of
government has no resemblance in essentials, to any European system of
government. European systems of government are essentially
parliamentary systems, not federal systems. There are reforms in
European states, which have moved in the direction of a Presidential
system. The best example of an attempt in that direction was Charles de
Gaulle, as President of France, in his Fifth Republic. There was a
serious attempt to establish a nation-state system in Europe, by de
Gaulle. But since that time, there has been no successful effort, to
establish a true nation-state system, as opposed to a parliamentary
system.
Therefore, the United States has a crucial significance in this,
and without a crucial role by the United States, which seems extremely
difficult right now, because of the present Presidency and so
forth—without the United States, there is no hope for avoiding what
will be a plunge into a new dark age, resembling that which occurred in
Europe, which occurred in the 14th Century. That's the situation we
face. No simple reform, no adjustment, no monetary agreement, nothing
of that sort will work.
There are, however, very specific measures, of agreements among
governments which could change the system, could change it without
anything too radical, but it would get us through.
Now, the first thing that has to happen is, in practice, is that
unless there's an agreement of a certain type among the United States,
Russia, China, and India, we have reached a condition, where it would
be impossible to save the world from a collapse, a worldwide
collapse. The form would be this: It would be the change of the present
world monetary system, the elimination of the present world monetary
system, to replace it by a credit system, which is consistent with the
principles of the U.S. Federal Constitution. Remember that our
Constitution, and our Presidential system, was not based on a
parliamentary system; it was not based on a monetary system. It was
based on what's called a credit system.
The difference is obvious to all of you: You have two types of
systems in the world today, of any significance. One, there are credit
systems: A credit means that the money issued by a government, is
issued by a government, in the name of the government, and is
backed by the promises of the government to support the credit. This
credit, under law, can then be monetized and supply a money currency as
well as credit for development.
This is distinct from a monetary system. A monetary system represents a system of money, which is outside government, but which may or may not have agreement with
government. European systems, today, are not credit systems, they are
monetary systems. The monetary system, which is tied to the IMF, today,
and has been since 1971, 1972—that period—the monetary system is what
is collapsing. The monetary system is collapsing, because it is tied,
specifically now to the credit bubble, the derivatives bubbles. And
this is what's collapsing. There's no possibility at this stage any
longer, of saving the monetary system in its present form. That is, a
reform made internal to the monetary system will not work. It's too
late. We could have done something in that direction, back a year ago,
July a year ago, back in 2007. The system is so rotten today, that it
would not be possible, especially the changes that have been made by
the U.S. and other governments, in the recent months, are so radical,
that it would be impossible to reform this system. You have to
completely overhaul it and revolutionize it.
But, our American System allows us to do that, under our Constitutional system in our history.
A Four-Power Agreement
Now, what we have to do is, is establish a power bloc, to force
through a change among nations. Western Europe, despite the fact that
there are positive elements, as the case of [Economics Minister Giulio]
Tremonti in Italy, or some efforts on the part of [President Nicolas]
Sarkozy in France; there are some initiatives in the direction of
useful reforms. There are desires for useful reforms from other parts
of the world. But the requirement here, is to have a sufficiently
powerful agreement, to force through the reforms in a timely
fashion. This can only occur by an agreement among the United States,
Russia, China, and India. If the United States, Russia, China, and
India function as a bloc, other countries will join them, and we can
force through the reform. In my view, without that particular
agreement, it would be impossible to ram through the reform,
politically, at this time—not in time. We might eventually agree to it,
but it would be too late. We need change now: The world system is
collapsing at such a rate, now, that we do not have years to play with.
We do not even have many months to play with. By the end of the year,
we must be in the direction of making some kind of reform, in this
direction.
Now, what it means, is this: As those of you from China know, and
other countries, the change in the system, especially since 1971 and
1972 on, the change was a change in the relationship of China, from the
United States to China and other countries. The change was essentially
to what is called "globalization": to move production out of Europe and
the United States, and to move it into countries which have low
per-capita incomes: in other words, cheap labor. And thus production,
and infrastructure, were moved out of the United States, and increasingly out
of Europe, especially after 1989-1990, into other countries, Third
World countries in particular, which operate at a cheap-labor price.
Today, most of the production of the world depends critically, on a
margin of production in these countries, which are the export
countries, which replaced European production, U.S. production, and so
forth.
So therefore, at this point, you have two things: First of all, the
system is collapsing. Now, by the nature of the system, it means that
the countries which were used as substitutes for production from Europe
and the United States, for example, are now collapsing, because the
purchases from other countries are collapsing, as in the case of China,
where the collapse of China is a potential time-bomb for the entire
planet. Because if the collapse of China's exports continues at the
present rate, this will be a time-bomb for the entire system; and some
people understand this. Therefore, the unity of four powers, the United
States—which has a certain special power—Russia, China, and India,
represents a bloc that can force through reforms of the type that are
needed.
A Credit, Not a Monetary System
What is required is this: We have to eliminate the monetary system,
by a credit system. A credit system is not some mysterious thing. It's
essentially something which is traditional to the United States in
particular. European systems today, are monetary systems: that is,
despite agreements with government, money is controlled by agencies
outside government. This is a characteristic of parliamentary
systems—not a true Presidential system, but a parliamentary system. And
thus, money exists independently of the control of
government, although with agreement with government, but nonetheless,
under the control of outside agencies: international, financial
agencies, which actually control the monetary system, control and
regulate the money, and government plays, less and less, a role in the
control of money, in control of the monetary system. This is
characteristic in Europe, particularly since 1989-1991, in which the
control over money, with the Maastricht agreements and similar kinds of
agreements, Europe has absolutely no control over its own monetary
supply: It's controlled by outsiders, largely through London, and
through things like the oil price market.
So therefore, the creation of a credit system to replace a monetary
system, is where the solution lies. There's no way to save this
monetary system in its present form. It's so full of junk, with the
financial derivatives far in excess of a quadrillion dollars in claims,
against the nominal size of the actual production of nations, it is
impossible to reform this monetary system in its present form. You have
to put the monetary system, itself, through bankruptcy. You
will have to wipe out the greatest portion of nominal monetary assets
in the world today! Cancel them! Because the system as a whole is
hopelessly bankrupt.
Now, what do you do in that case? Well, what you do for a monetary
reform to a credit system, you use the U.S. Constitution. Because of
our Constitution, we can create, as Roosevelt did that formally, we can
create a credit system. To replace a monetary system.
Now, what you do under this case, and with agreement with the
United States, and its Constitution, with Russia, China, and India, it
can be done. What you do, is you say, we put all the claims which are
equivalent of monetary or credit claims in two piles. One pile we call
"monetary." That's the manure pile. The other we call the "credit"
pile. Now under the U.S. Constitution, money, when the Constitution is
followed, is created only by the will of the government. It is done by
the Executive branch of government, with the consent of the House of
Representatives, and things flow from that. This credit being issued,
is also authorized for monetization: So, the credit can be issued as
loans for projects, or international loans, and part of it can actually
be monetized, under the condition under which it was uttered.
Particularly, if we had a national banking system, which we don't have
presently, we could convert the Federal Reserve System, which is
bankrupt, into a national banking system, as Hamilton proposed. Then it
would do that, automatically. We do need a national banking
system in each country. That doesn't mean they're the only banks, but
it does mean you use a national banking system to control the
relationship between government and the banking system as a whole, in
general.
Put the System Through Bankruptcy Reorganization
If you do that, then you do a bankruptcy reform: You take the hopelessly bankrupt system—we're talking about quadrillions of dollars of claims,
of monetary claims, especially as located in these speculative markets
of derivatives and related kinds of things—we have to wipe most of this
off the books! It can never be paid. It was foolishness, it was a lie,
it was done largely since 1987, under Alan Greenspan's insanity. This
we have to wipe out.
What do you do? You have to protect those things which are
productive, and are necessary for the government and necessary for the
population. Therefore, you create a pile called the "credit pile." What
you do, is you take every obligation, and every asset, which is
valuable to society, currently, or necessary and meritorious—you take
the monetary value of that, and you assign that to the creation of
credit, government credit, a credit system. And you leave the remainder to rot.
Then, at that point, you enter into agreements, with
governments—and this is where the relationship of the United States,
Russia, China, and India occurs; there are many ramifications to this
thing—under the case, what we do first of all, is you create among
these governments, and others who will join them, you create a credit
system to replace the present monetary system. That doesn't mean that
every nation is involved immediately; it means these nations and others
who wish to join, will join immediately. Now, we enter into an
agreement which amounts to a revival of the Bretton Woods system. What
we do, therefore, is, we create a credit system, as an international
system, as a fixed-exchange-rate system. And we issue credit,
by agreement among these countries, as a fixed-exchange-rate system. We
then proceed, to expand world production, involving these countries, through the new credit system, leaving the useless money, the useless claims, to rot.
In doing that, two things happen, particularly with these countries
involved, because the future of the planet, economically, is
concentrated in Asia, where the greatest single concentration of
population and the need for growth exists. The other area, which has a
similar character, is Africa. Now, Asia and Africa are also two areas,
which contain a lot of the raw materials assets required for the
development of production in the world.
Therefore, if this part of the world develops, several things
happen: First of all, you have in China, and you have in India, and
other countries in Asia, you have a tendency where 60-70% of the
population is essentially destitute, because of the present structure
of prices, prices paid. A small part of the population of these
countries, varying from case to case, has, shall we say, a modern
standard of living, a modern ability to produce. A great part of the
population remains outside! While there's infrastructure development in
China, it is not sufficient to compensate, for example, for these
needs. The development of resources for developing raw materials, that
is, mineral raw materials, is not sufficient. The raw materials, the
minerals, lie there in the ground, but you just can't extract them, you
have to develop these resources. And you have to mobilize the flow of
this into the expansion of production to include that: India, China,
are typical of this—but also all of Asia.
You have a parallel situation in Africa. Africa is one of the
larger repositories of raw materials, necessary for humanity in the
coming period. But under the present conditions, with the lack of
infrastructure, you can not develop those raw materials! So therefore,
what you have, is a part of the world, over 40% of the world in Asia,
essentially, and a large part in Africa, and you have comparable
situations in South America, where you have large resources, which are
undeveloped, which could be developed, but the infrastructure
development needed, has not occurred yet.
The Challenge of Development
So therefore, we have not only the question of a reform of a
monetary system, to prevent a collapse of the system; we have the
challenge now, of taking these areas of development, which involve
large raw materials deposits, at the same time, a very large part of
the population—and a large part of the population of the world is
living at substandard conditions, with no immediate prospect of
significant improvement—therefore, the frontier of humanity, for
centuries yet to come, involves this thrust of development. It means,
then, a reversal of the present tendencies in Europe and in
North America, away from becoming post-industrial societies, toward
playing a key supporting role in freshly generating technologies which
will support this development in Asia and in Africa, and also
similarly, in South America. But South America's much closer to the
United States, and so forth, has largely a European cultural
population, and therefore, dealing with that is much different than it
is in dealing with other parts of the world which have a different
cultural heritage.
So therefore, there are two things involved: First of all, is to
mobilize a section of the planet, which can be mobilized, which has
to be mobilized—Russia knows it needs to mobilize! Russia is facing an
existential crisis, not as severe as China's right now, but it's an
existential crisis. They can not simply continue to function the way
they're going. Changes are required. China knows that a change is
required, from the present situation. India is less unstable in some
respects than China, because its characteristics are different, but all
of Asia is in this condition. Africa's in a known condition.
The problem in South America, even though it's a different part of the
world, and has different characteristics, is similar.
So therefore, we have to think not merely about a monetary reform,
or a credit reform: We have to think of a credit reform in terms of a
mission-orientation, of a system of sovereign nation-states, globally,
for an extended period to come. Automatically, in this kind of process,
if you have this agreement of the type I've indicated, among the four
leading nations, and those who join them immediately, you will go
immediately to a gold-denominated, fixed-exchange-rate system. So you
will begin to operate in one part of the world, even if the rest of the
world has not yet joined; you'll be operating under treaty agreements,
among a bloc of nations, a powerful bloc of nations in these terms. And
you're moving back in the direction we have to get, to solve these
problems: a fixed-exchange-rate system.
What we would do, probably, and I would do in the
United States, if I had my druthers, is take the Federal Reserve
System, which is now bankrupt; the Federal Reserve System is hopelessly
bankrupt. I say it: It's true. Merely, the axe has not the head off,
yet, but it's gone! What you have to do, is put it through
bankruptcy reorganization. Now, since it has a Federal government
relationship, which the Federal government has to deal with, you simply
do what Alexander Hamilton would have done, and intended to do, had he
had his choices, despite Andrew Jackson—and convert the Federal Reserve
System, as a set of assets, and use the power of government by an Act
of Congress, and the Executive branch, to convert it into a National
Bank. That does not mean it's the bank that controls everything in the
banking system. You are going to restore the private banks, the state
banks, and the Federal banks, the chartered banks. But you need a
vehicle interfacing between government and the Treasury Department, and
the private part of the banking system, to mediate the handling of
long-term agreements, and the handling of other things which are done
on behalf of both government interest and on the part of the institutions.
So, if we create this seed crystal, of these four nations, and
others who join them, we now can have, any time we decide to do it—if
the President of the United States says, to the President of Russia and
to the President of China, and to the government of India, and some
other countries: "Let's make this agreement!", the United States has
Constitutionally, the Constitutional apparatus and the authority, to do
this! So we don't have to worry about what somebody in England says, or
some other part of the world says—if these countries agree, on a
certain mission-orientation, to act now, we can start a process toward
a recovery of the planet as a whole. And once we start that process, we
then can go on to the major business of getting other parts of the
world involved in it. But we need to make a break.
The American Presidential System
Now, we have, of course, a new President-elect of the United
States, and provided he lives—I understand there are some threats to
his life—the prospects don't seem good on the surface from his
behavior, but if forces like that combine, the way the American
Presidential system works, the President of the United States will be shaped
by the approach to such an agreement. Sometimes a President determines
the way the U.S. government goes, sometimes he does not. Sometimes he
dominates, in a bad way. Sometimes he dominates in a good way. But our
system is not a system of a President; it is a Presidential system,
in which the entirety of the Federal government is essentially a
Presidential system in its character. And the other branches of
government are essentially auxiliary to our control-mechanism, which
determine and shape the Presidency.
But if the United States Presidency decides to move in that
direction, the forces of the Presidency can control the President of
the United States. And therefore, the President of the United States
will be inclined and steered to do useful things, for the sake of the
United States and for its allies. So that's what's required.
If we do that, then we can deal with other parts of
the world, which eagerly join. The problem now, is the attempt to pick
off one country at a time, to agree with this—the kind of negotiations
that are occurring between London and Sarkozy of France, is completely
hopeless! Nothing good can come out of this! It's absolutely useless.
And the results we'll see, in the coming meeting [the Nov. 15 G-20
meeting—ed.], will be terrible results. They'll be inconsequential;
it'll be chaotic. No solution will be presented! Something may be presented and called a "solution." But, calling a pig a person does not make it human. This will not work.
Nothing presently planned, by the coming meeting, will do any damned good, at all—but will only make things worse. Only a reform of the type I've described, is within sight as a feasible change in the system.
What I've said, also implies that we would go away from a
floating-exchange-rate system, not only to a gold-reserve system, or a
regulated system of the type that Roosevelt prescribed in 1944, as
opposed to what Truman did after 1945: What Truman did, what was done
under Truman, was not Roosevelt's intention. Remember, that Franklin
Roosevelt's intention was to eliminate all imperialism, to get rid of
colonialism, and to use the vast economic power we had assembled in the
war, to build up other countries, through a partnership to eliminate
colonialism, and to establish a system of nation-states on this planet.
Truman was different: Truman was actually an enemy, a political
enemy of Franklin Roosevelt. He belonged to a different faction, an
opposing faction. Roosevelt died. Truman took over—in a sense, Winston
Churchill took over. And if President Roosevelt, who had intended to eliminate
colonialism throughout the planet, through a process of development,
was replaced by a President who cooperated with the British to restore colonialism—as in the case in Indochina, as in the case in Indonesia, and so forth and so on, around the planet.
So what happened under Truman, was not the actual
intention of Roosevelt. If we go back to 1944, at Bretton Woods—against
Keynes! Keynes was a fascist and an imperialist! That's frankly what he
was; his famous 1937 General Theory, published in Berlin, in
which he said his system would work better in Nazi Germany than it
would in a free country. He was right. The Keynesian system was adapted
to a colonial/imperial system, and we functioned under a monetarist
system, with imperialistic characteristics, especially since 1971 to
the present time: It's been one of our big problems.
So, going back to the Roosevelt intention, of
1944-early 1945, with a reform of this type, does give us an answer.
This means that we have to have a fixed-exchange-rate system; we have
to have a hard-currency system; it means we have to have a lot of
regulation of prices. You can not have free, floating prices. Because,
if you're not covering the costs of production, by undercutting prices,
so that you try to produce below the cost of production, you're not
going to have development.
The World Needs Infrastructure
This also means, that this will not work without a very large-scale
investment in basic economic infrastructure. For example: Take the case
of Asia, North Asia.
North Asia is a repository, part of Russia, but North Asia in
general; the Siberian area and below, is a repository of concentration
of raw materials which are necessary for the development of Asia as a
whole. But you just can't go in there, and get those raw materials; you
have to have a system of development, which develops the territory in
which the raw materials lie. You can't just go down and dig them out.
You have to have a system, and Russia used to have a system of that
type, under the old Russian system, in infrastructure, in minerals. And
therefore, to develop this area, you require large-scale, modern
transportation systems; you need power systems, which means nuclear
power systems, and so forth; otherwise you can not develop these
territories. This means developing magnetic levitation systems in place
of rail systems, restoring rail systems where they fit the bill, and
all other kinds of infrastructural development which are necessary for
high-technology investment and production. Without that, we can not
accomplish our mission.
Therefore, we have to have very large-scale international
agreements on creation of credit, for large-scale infrastructure
projects, of especially international interest. You can do nothing in
Africa, without a large investment in basic economic infrastructure:
mass transportation, power, water management, and so forth. These
countries, given freedom—true freedom—could tend to develop themselves.
But! Without large-scale infrastructure, which they're not equipped to develop, they couldn't launch that kind of development.
This means, also, the world itself, at large, requires a return to
large-scale rail or magnetic levitation transportation systems, which
we've been destroying in the post-war period. It means other kinds of
development of that type.
It means also, a new tariff system, a protectionist system, which
guarantees to each nation, that its investment in production, which
everybody has supported, presumably, is going to be protected in price.
We can not have a low-price economy. The problem in China, for example,
is, the prices at which China is able to have an export market, the
prices are too low! You can not maintain China's population with those
prices. And the reason this was done, was to lower the price of
production below the cost of production! So we moved production out of Europe, and out of North America, we moved it to prices below the actual, physical cost of production,
considering the capital investment in technology. Therefore, you take
and dump on China and other countries, you dump an export market for
them, but then you don't allow them to earn enough to support their
entire population in development. The same thing happens in Africa. The
same thing has happened in South America and Central America, in recent
periods, mainly since the 1970s.
So we need these kinds of reforms, now! And that's the direction we have to go in. That's the option.
Billions Are Already Imperiled
If we're not willing to move in the direction I've indicated here,
in these remarks so far, today, then, I tell you, that the situation
for humanity on the planet as a whole is worse today, than it was in
Europe in the 14th Century, in the onset of what was called the New
Dark Age. We have over 6.5 billion people living on this planet today.
With the present conditions, much of that population is already
imperiled: the question of food supplies, alone, problems of disease
and related things; the food crisis is grave on this planet, today, as
many of us know: Without an increase in productivity, physical productivity,
which means a change in these conditions, and the introduction of
protectionist conditions, we're going to have a holocaust. We now have
between 6.5 and 7 billion people on this planet: If we don't do
something now, we're going to end up, in a couple of generations, with
about 1 billion, or less.
So, we have an existential crisis on this planet. The present
monetary system, the present systems, especially since 1968-71/72, the net physical output of the United States, since 1968, since the fiscal year of '67-'68—the net physical output per capita of the United States has
been continually shrinking! There has been no net physical growth, per
capita, per square kilometer, in the United States since fiscal year
'67-'68.
You have a similar condition, but a worse condition, in Europe
today, especially in Germany: In Germany, the most obvious collapse has
occurred.
So, if these reforms are not made, with the goal of a protectionist
system, which ensures that long-term investment is promoted and
encouraged, and technological progress and the investment that goes
with it, is encouraged, we are headed—right now—for a new dark age!
Not some time down the line. What has happened, at an accelerating
rate, since the end of July of 2007, has already been a run into a
crisis.
One of the problems here, is that every economist who engages in
forecasting has failed, in this entire period. They failed in the long
term, but they've also failed, in particular in the past year and a
half. Every economist in the world, that I know of, has been generally
incompetent in forecasting, during this period. Incompetent,
particularly—you have people who are publishing reports to the effect
that this crisis will soon be over. It will never be over! Without this
reform I've indicated, it will never be over! Life on this planet is
headed for a dark age, unless the kind of reforms I've indicated occur
now. There is no other solution. And any forecaster who says differently, you know is incompetent.
And that's why I say—I return to it—the key to a reform, as I see
it today: There's no possibility of a necessary reform, unless you
reach agreement of the United States, Russia, China, and India. If
those countries agree on the general directions I indicate, and are
prepared to act in that direction, other nations will join
them—obviously, Japan will join them, automatically! Korea will
automatically join them! Other countries will immediately join them,
because they're part of the same system, the East Asian system. That
whole area of East Asia, Northern Siberia, the area around Korea, the
same thing—these are areas that have immediate potential for
very significant development! And these countries, given the chance,
will leap to that, and take advantage of that.
But without that kind of reform, without that orientation, without agreements where we can create large masses of new credit—that
is, under a credit system, while junking the old monetary system—if we
can't do that, there's no chance for humanity at all. And anyone who
forecasts differently is wrong, and dangerously wrong.
If we don't make this kind of reform now, we're not going to have a decent planet to live on for some time to come.