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V. without larouche’s

‘four laws,’ financial

crash means chaos

“The development of the new economic paradigm is threatened

not only by war but by the incalculable danger of a new

international financial crash, equal or worse in economic effects

than that of 2007-08.”

DANGER OF A NEW

FINANCIAL CRASH

without Glass-Steagall Bank Regulation

The development of the new economic paradigm

is threatened not only by war but by the incalculable

danger of a new international financial crash, equal

or worse in economic effects than that of 2007-08.

The ability of the City of London and Wall Street to

stop Glass-Steagall bank separation laws from being

enacted in the United States and Europe since the

2008 crash, is the reason for that danger and the

Achilles’ heel of the trans-Atlantic financial system.

The runaway effects of a decade of major cen-

tral banks’ post-2008 furious issuance of cheap

debt into banking systems, combined with the lack

of Glass-Steagall bank separation which has seen

the “universal banks” become immensely larger

and more complex over 20 years, have brought the

trans-Atlantic countries’ banking systems, centered

on Wall Street and London, to the point of another

meltdown.

And what Japan’s former IMF Director Daisuke

Kotegawa has recently explained as the “financial-

ization” of those economies since the mid-1990s has

fostered 20 years of low growth, low productivity

growth, and loss of industrial strengths, making the

huge reinflated debt bubbles even more ready for

collapse.

In December 2017 as the Federal Reserve very

gingerly implements its fourth small increase in

short-term interest rates over two years, it and

the European Central Bank, Bank of England, and

Bank of Japan appear to face Scylla and Charybdis.

Junk-rated firms and sub-prime consumer debt are

so overextended due to the 9-years’ ocean of cheap

central bank money, that higher interest costs will

doom them to default. But the longer the central

bankers keep pumping the cheap debt out, the great-

er the overvaluation of such bank assets, producing

intense “reverse leverage” when they start to fall.

Accurate 2007 Forecast Ignored

In its March 19, 2007 issue, 18 months before

Lehman Brothers failed, Founding Editor Lyndon

LaRouche’s

EIR

magazine published a 10-page analy-

sis as its cover story, “How U.S. Mortgage Crisis Can

Trigger Global Crash.” Analyzing the exposure of the

post-Glass-Steagall megabanks of the United States

and Europe, to the securities and derivatives related

to the then-$11 trillion mortgage bubble,

EIR

warned

of the blowout which would accelerate over the fol-

lowing 18 months, leading to full-blown global bank

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DANGER OF A NEW FINANCIAL CRASH

panic. Members of Congress and

Figure 1

others in leading positions in the

Non-Financial Corporate Debt

United States denied the forecast

Non nancial Corporate Business; Credit Market Instruments; Liability

10,000

as impossible.

A decade earlier, the Glass-Stea-

9,000

gall Act had been eliminated after

8,000

it had preserved banking system

7,000

stability against panics and crashes

6,000

for 60 years. In early 2007, the idea

5,000

that this deregulation was bringing

4,000

on a general financial crash within

less than 10 years, was dismissed

3,000

out of hand.

EIR

Editor-in-Chief

2,000

Lyndon LaRouche’s July 2007 pro-

1,000

posal to stop the coming crash with

1975

1980

1985

1990

1995

2000

2005

2010

emergency legislation, combining

Glass-Steagall bank reorganization

with a national moratorium on

home foreclosures, was kept out of Congress by Wall

alone. The European Central Bank (ECB) has bought

Street, despite broad constituency support.

a thousand bond issues totaling 120 billion euros of

Again the choice was posed in 2009-10: Restore

corporate bonds, and in fact now is exposed to the

Glass-Steagall to prevent this from happening again,

potential large bankruptcy of the Steinoff AG mul-

or accept universal banks, using huge deposit bases

tinational. The ECB has driven corporate junk bond

as the basis for securities speculation, as inevitable,

rates in Europe down to the range of 2%, lower than

and simply draft some rules to “limit” it. Thus far,

the yield on 10-year U.S. Treasury bonds, an absurd

the wrong choice has again been made.

and dangerous situation.

Feeding the explosion of corporate debt has been

the vast money-printing of the central banks of the

Corporate Debt Bubbles Buckling

United States, UK, Japan, and the Eurozone: their

Now another, perhaps worse collapse is looming,

$15 trillion in lending facilities to big banks, with ef-

this time not from mortgage securities and deriva-

fective zero interest rates, has been combined with

tives, but primarily from the Wall Street and City of

roughly $14 trillion in capital and liquidity infusions

London megabanks’ exposure to an even larger bub-

by buying bonds from the big private banks.

ble in speculative corporate debt, which is showing

Just as dangerously, the large corporate borrow-

alarming patterns of defaults.

ers, especially in the United States, have been using

The debt of U.S. non-financial corporations has

the vast accumulation of debt primarily to raise stock

more than doubled in seven years, reaching more

market values of their own companies and others

than $14 trillion—$11 trillion owed to banks and the

they target for takeovers—and not for business cap-

rest to “shadow banks” such as money market mu-

ital investment, which has been persistently low. In

tual funds, pension funds, and similar funds.

Figure

some years since 2013, some 80% or more of this bor-

shows the extraordinary rate at which the banks’

rowing has been used by larger corporations for “fi-

portion—only—of that debt bubble grew, leading into

nancial engineering”; that is, buying their own stock

the 2008 crash and after it, up through mid-2015.

to drive it up, or buying other companies’ stock in

European non-financial corporations’ bond

mergers and acquisitions which have the same ef-

market debt is now at about 1.8 trillion euros, but

fect. Approximately $4 trillion has gone into driving

has grown by roughly 750 billion euros in 2016-17

up stock market indices, while betting on them; an-

Billions of dollars

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

other $4 trillion into dividends to stockholders. But

total non-financial corporations’ profits have not in-

creased since 2011; and in the three years 2013-15,

they fell.

Therefore debt leverage has jumped up. Mor-

gan Stanley bank itself published a detailed research

note on April 20, 2017 which reported that the ratio

of non-financial corporate debt to cash-from-opera-

tions is at an all-time high of 3.2:1 (2.7:1 is the highest

it has ever been before, the bank reported). Com-

panies have low and falling “interest coverage,” or

ability to even pay interest from earnings—coverage

levels like those in the 2001 recession and the 2008

crash (Figure

2).

The IMF 2017 Global Financial Stability Report

found that in the United States, the debt service to

income ratio of non-financial corporations had ris-

en quickly from 37% in 2014, to 41% in 2016. With

debt flying up relative to operating cash, and profits

declining, companies can keep servicing debt only by

borrowing more. Those corporations have $7 trillion

more debt than at the 2008 crash, but $3 trillion less

equity invested in them.

In that report, the IMF made the startling fore-

cast that any sudden interest rate rise in the Unit-

ed States economy would result in 20% of more of

American non-financial corporations being brought

to default—a default rate higher than any reached

in the mortgage sector prior to the 2008 bank pan-

ic. Shortly after that, on June 5, a report by the Brit-

ish Association of Business Recovery Professionals,

or bankruptcy experts, found that just a one-quar-

ter-percent rise would trigger defaults by as many as

80,000 businesses, one in every 25.

And this was rising rapidly; in September 2016,

the Association had found that just one in 100 com-

panies would be knocked out by a quarter-point rate

rise. And it said 96,000 companies—about one in 20

across the UK—cannot repay their debt; “they are

only able to pay interest on their borrowings.” This

is what the Federal Reserve and other central banks

face in trying to inch up short-term rates.

In the same period as the IMF and British Asso-

ciation warnings,

Handelsblatt

on May 8, 2017 and

the London

Financial Times

on May 30 published

articles by bank researchers noting that a 2008-like

debt crash could be near, triggered by an unrepayable

U.S. corporate bubble.

Handelsblatt

wrote, “A surge

in corporate loans, especially in the United States,

could unleash a new global financial crisis…. Compa-

nies worldwide took up $3.7 trillion (3.37 trillion [eu-

ros]) in new debt in the capital markets last year. The

last time a similarly high [relative] level was reached

was in 2006—just before the beginning of the last

major financial crisis.

It is a loud warning signal…. The United States

could once again become the trigger and possibly the

epicenter of the next crisis.” And it blamed the Fed-

eral Reserve’s and European Central Bank’s zero-in-

terest and qualitative easing.

The

Financial Times

piece,

by author Dombisa Moyo and fi-

nancial editor Gillian Tett, was

headlined “Global debt woes are

building to a tidal wave.” But it

placed most of the weight of dan-

ger on debt bubbles in the United

States. “U.S. companies have add-

ed $7.8tn [trillion] of debt since

2010 and their ability to cover

interest payments is at its weak-

est since 2008…. Growth in the

United States and Europe is very

slow, and any recession will cause

a nasty shock to the system.”

Figure 2

Average Interest Coverage Ratio

(ratio of EBIT to interest payments)

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DANGER OF A NEW FINANCIAL CRASH

The End of the Bubble

Figure 3

Corporate Debt Default Rate

Total debt securities in the U.S.

12%

economy are, as of the IMF’s Global

Financial Stability Report, 2017, at

10%

220% of GDP, whereas in 2007 at the

height of the last (mortgage-centered)

bubble, they reached 180% of GDP.

Total debt in the economy, as of the

Long-term average

IMF’s Global Stability Report, 2018,

default rate: 3.5%

approximated $70 trillion, some 350%

of GDP.

But the banks decided during 2017

to put the brakes on new credit, indi-

‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16E ‘17E

cating that they are aware this bubble

High-yield default rate

High-yield default rate due to Energy

has rolled over its top and is headed

and Metals/Mining

for big trouble. Corporate debt growth

levelled off in the United States in 2017. Growth in

$1.5 trillion in debt. Standard and Poor’s said 162

total U.S.-based banks’ credit has suddenly dropped

U.S. companies defaulted on $239.8 billion in debt in

from 4.5% to 2-3% annually; commercial and indus-

2016, more than double the $110.3 billion total for

trial lending growth stopped entirely in early Sum-

2015. Again, this was the highest since the economic

mer 2016 and as of November 2017 was just 0.7%

collapse year 2009. Defaults have gone still higher in

above the November 2016 level.

credit card and auto loan debt, and are above 25% in

Bloomberg

reported already on April 26, 2017:

student loan debt.

“Total loans at the 15 largest U.S. regional banks de-

As the corporate debt bubble in the United States

clined by about $10 billion to $1.73 trillion in the first

reached its peak and threatened to begin the collapse,

quarter, compared with the previous three-month

its composition shifted strongly in 2017 toward “junk

period, the first such drop in five years…. A slump in

debt”—that is, junk bonds and leveraged loans, or

commercial and industrial lending sapped growth.”

loans to already over-indebted companies essential-

One example from American Banker April 25, in-

ly allowing them to pay interest—with this junk or

volving Fifth Third Bank, a large Cincinnati-based

subprime component of corporate debt growing by

regional, was reported as follows: “The withdrawal

$800 billion in 2017 alone. A further shift was away

from auto lending was said to be a conscious choice

from commercial and industrial lending to real es-

to reduce lower-return auto originations to improve

tate debt. At the same time, consumer debt sudden-

returns on shareholders equity, while the decline in

ly started growing rapidly after generally shrinking

C&I [commercial and industrial—ed.] lending was

since the 2008 crash. The Bank of England report-

described as a deliberate exit.”

ed November 9 that consumer debt in the UK was

The default rate for all non-financial corpora-

growing at a nearly 10% annual rate; credit card, auto

tions has jumped from 3.0% at the start of 2016 to

loan, and student debt all grew sharply in the United

5.0% at its end, averaging 4.2%, the highest since

States in 2009, while default rates on these catego-

2009. The default rate for “high-yield” (i.e., sub-

ries also rose. Subprime auto debt, for example, has

prime) corporate debt had more than doubled in a

higher default rates in 2017 than subprime mortgage

year to 6% at the end of 2016 (Figure

3).

And the cor-

debt did in 2007.

porate “subprime” debt bubble—junk bonds and lev-

But the rates at which these categories of the

eraged loans—approximates $2.5 trillion in the Unit-

debt bubble were growing, were not as fast as the

ed States alone. Subprime mortgages never exceeded

rates at which they were being securitized by the ma-

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

jor banks, and the new debt securities

sold to mutual funds, pension funds,

individual investors, and so on. Here

too, the biggest banks were trying to

get out and dump the debt on other in-

vestors. They did the same thing with

mortgage securities and derivatives

during 2007 and 2008. These practices

were fully exposed in 2011 hearings of

then-Sen. Carl Levin’s U.S. Senate Per-

manent Investigations Subcommittee.

Their return is a sure sign that the

huge debt bubble is nearing a crash,

and a securitization practice which

lending banks were prohibited under

Glass-Steagall regulation. Re-enact-

On June 6, 1933, President Franklin Roosevelt signed the Banking Act of

ing Glass-Steagall now would stop this

1933, more commonly known as the Glass-Steagall Act, into law, thus

dumping of toxic waste all over the

separating commercial banking from investment banking, and creating the

world, which was the hallmark of the

Federal Deposit Insurance Corporation (FDIC) which provided protection for

commercial banks only.

2007-08 crash and the reason lawsuits

In November 2017 the U.S. corporate and

continue to this day pitting investors all over the

“emerging market” junk debt markets started to

world against their financial advisors and major bank

buckle, with European corporate junk next to go.

issuers of securities and debt derivatives.

The superinflated prices in the $2.5 trillion “junk

In the Fall of 2017, then-German Finance Min-

debt” part of the $14 trillion U.S. corporate debt bub-

ister Wolfgang Schäuble warned in the

Financial

ble was unable to withstand even the small and slow

Times

on October 8 that “spiraling levels of global

interest rate increases being dripped into the finan-

debt and liquidity present a major risk to the world

cial system by the Federal Reserve. In the third week

economy,” because of “bubbles forming due to the

of the month average yields jumped up to 3.8% from

trillions of dollars that central banks have pumped

3.3% in U.S. junk; a near-record $6.7 billion flowed

into markets.” Schäuble also warned that the risks

rapidly out of junk bond investment funds, accord-

in the Eurozone were becoming greater, because the

ing to the Novmber 18

Wall Street Journal

. The pa-

balance sheets of its major banks are weighted down

per quoted an analyst, “We're seeing huge outflows

by masses of non-performing loans from the 2008 fi-

from mutual funds and ETFs, so it's triggering this

nancial collapse.

domino effect.” In the telecom sector, which has

William White, former Bank of International

about $400 billion of this debt, average interest rates

Settlements (BIS) chief economist and now head of

rose faster, from 5.2% to 6.4%. The

Financial Times

the OECD Review Committee, had warned already

posted an article November 15 headlined “Conta-

at the end of 2016 that the condition of global debt

gion worries rise after junk-bond sell-off.” And at

bubbles was “worse than 2007,” and had particularly

that point a

Wall Street Journal

report of November

blamed the refusal across the European banking sys-

16 on Europe’s unpayable corporate debts informed

tems to write down or write off bad debts. Now the

that “10% of the companies in six Eurozone coun-

BIS itself, in its quarterly financial report December

tries including France, Germany, Italy and Spain are

2, warned that unstable financial bubbles were far

zombies, according to the [European] Central Bank’s

too large and that the Federal Reserve and Bank of

latest data—they are incapable of paying even the in-

England had failed in their efforts to cut off higher-

terest on their debts.”

and-higher-risk debt, by raising rates.

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DANGER OF A NEW FINANCIAL CRASH

The crash of South Africa–

Figure 4

based international retail conglom-

erate Steinhoff S.A. thus occurred

at a bad time, in the second week of

December 2017. Steinhoff lost 80%

of its share value and was immedi-

ately downgraded into deep junk

debt by Moody’s. The firm repre-

sented $21-23 billion in loss ex-

posures of banks led by Citigroup,

Bank of America, HSBC, and BNP

Paribas, and ironically, the Europe-

an Central Bank itself, which had

bought Steinhoff bonds from banks

as part of the 1000 issues purchase

described above, supposedly to

backstop against exactly this kind

of event.

The gigantic bubble of cor-

porate debt used for their own

stock-buying, mergers and acqui-

sitions, financial engineering, and

general Wall Street-pumping, is

made more unpayable, and more

dangerous, by the continuing lack

of economic growth, productivity growth, or growth

in business capital investment in the trans-Atlantic

economies.

Despite the extreme descriptions by Wall Street

and London financial analysts of the amount of debt

in the Chinese economy, this financial crash is threat-

ening from the universal banks of Europe and the

United States. The structure and practices of these

banks are a critical part of the incalculable danger of

a bank panic worse than 2007-08.

Some 35% of the assets of the 12 largest U.S.-

based banks are securities, although they are sup-

posed to be commercial banks receiving deposits and

making loans. The nominal derivatives exposure of

these banks has grown to $265 trillion, 30% more

than their exposure 10 years ago and 12 times U.S.

GDP. The five largest Chinese public commercial

banks, by contrast, have very little exposure to the

derivatives markets, accounting for less than 3% of

global derivatives contract issuance despite their size

and extremely large issuance of credit. They do not

own securities broker-dealers or other kinds of “non-

banks” and investment firms.

For this reason—regulation according to the

Glass-Steagall principle (Figure

4)—these

banks are

far better able to handle non-performance of loans,

defaults, and bankruptcies, and Chinese regulators

have been able to crack down on credit creation of

“non-banks” by about 40% in 2017 without harming

the state-owned commercial banks.

The purpose of the latter, has been to lend, on a

very large scale, for the creation of new, productive

infrastructure and other physical-economic assets—

as is the purpose of commercial banks in the “Amer-

ican System” tradition, and also very large govern-

ment credit institutions in U.S. history such as the

Reconstruction Finance Corporation of President

Franklin Roosevelt’s administrations.

Until Glass-Steagall was abandoned in the 1990s,

there were no U.S.-based “megabanks” or “universal

banks”; none held more than 6% of the total assets in

the banking system as a whole. From the late 1990s

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

the Wall Street banks exploded in size, and this has

continued since the 2008 crash, so that now just six

banks hold two-thirds of the deposits and assets in the

entire banking system. They also exploded in com-

plexity: A New York Federal Reserve study of 2012

showed that whereas in 1995 the largest bank hold-

ing companies typically had 100-300 subsidiaries, by

2011 they each had 2,500-4,000 subsidiaries, vehicles

for every manner of securities and derivatives specu-

lation. The derivatives markets themselves exploded

in size under the impact of this deregulation, from

nominal values totaling about $70 trillion in 1997 to

more than $700 trillion in 2008. These derivatives

markets would have brought all the biggest U.S.- and

Europe-based banks to bankruptcy at once in late

2008, had not governments bailed most of them out.

After the crash they accumulated, on average, 30%

more derivatives exposure.

Today, as a result, these megabanks are still greatly

overleveraged, as has been repeatedly emphasized—

in the face of further deregulation campaigns—by

the most credible American bank regulator, Feder-

al Deposit Insurance Corp. (FDIC) Vice-Chairman

Thomas Hoenig. Hoenig has reminded that the ma-

jor banks lost, on average, more than 6% of their total

assets during the 2007-08 meltdown, and had very

large derivatives losses; therefore the “European

level” (Basel III) of a 5% capital ratio is completely

inadequate, and so is the 6% target ratio under Dodd-

Frank in the United States. The 5,500 or so non-sys-

temic “community banks” in the United States, for

example, have an average capital ratio of 16%, and

almost none have any derivatives exposure at all.

The Adam Smith Institute in the UK, which did

an analysis of the mid-2017 Bank of England “stress

tests” of the biggest British bank, made the same

point: The stress tests are not modelling even the

degree of asset losses the big European banks took

in 2008-11, although a corporate debt bubble on the

verge of crashing now is considerably larger than the

mortgage bubble which blew up a decade ago. And

many of the universal banks in the United States

and Europe went on failing these mild central banks

stress tests right up to the 2017 round.

The FDIC’s Hoenig holds that because these are

still universal banks, mixing lending and Federal de-

posit insurance with the whole spectrum of securi-

ties speculations, they should be compelled to main-

tain a capital ratio of 10% of all their assets, including

the full value at risk in their derivatives exposure.

Banking experts truly familiar with the practices

of these universal banks—especially their multitude

of investment banking and broker-dealer units—

point out that the collateral backing which regula-

tions like the Dodd-Frank Act are requiring for the

banks’ speculation and trading, are similar to back-

ing which the same banks thought they had provided

for these speculations before the crash. They were

wrong. When the liquidity in credit markets froze,

not just those particular speculations, but all assets

plunged, because it was so difficult to sell them, or to

make interbank borrowings against them.

Precisely because they were universal banks, all

involved in similar speculations and trades, and com-

pletely interconnected in doing so, they suffered loss-

es across nearly all their units and what seemed like

“capital fortresses” were swept away, leaving them

insolvent. As Federal Reserve Chairman Ben Bernan-

ke acknowledged to the Financial Crisis Investigative

Commission in 2011, all but one of the 12 largest,

most interconnected universal banks based in the

United States became insolvent at once in September

2008. They would all have failed without hundreds

of billions in Federal bailouts and more hundreds of

billions in liquidity loans from the Federal Reserve.

This is the nature of the kind of general bank

panic and financial crash which was avoided for 60

years due to the success of U.S. Glass-Steagall bank

regulation, which was copied in the post-War decades

by many European countries.

Moreover, even one of the authors of the Volck-

er Rule, U.S. Sen. Jeff Merkeley of Oregon—who has

adopted sponsorship of the 21st Century Glass-Stea-

gall Act—has acknowledged that the complexity and

opacity of these megabanks’ trading activities made

it impossible to determine whether the Volcker Rule

has worked or not. The Volcker Rule had been put

forward by its sponsors as “the modern version of,

or substitute for, Glass-Steagall.” It has failed as such.

The fact that in 2017, with a debt crash looming,

only China of the major nations protects its commer-

cial banks with Glass-Steagall-type regulation, is a

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DANGER OF A NEW FINANCIAL CRASH

major factor in the gravity of the threat of financial

breakdown and the economic collapse which fol-

lowed the last crash.

Even at this moment to stop the megabanks’

practice of transferring the risk from this huge mass

of endangered debt and derivatives, to depositors by

“bail-in,” to investment funds by securitization, and to

taxpayers, Glass-Steagall must be restored in the Unit-

ed States and Europe. This critical situation under-

lies the sudden appearance of high-profile attacks on

Glass-Steagall in leading media of New York, London,

and Washington, DC during 2017. All of the attacks

date from the April 5 introduction of the U.S. Senate

21st Century Glass-Steagall Act, and the reporting that

its sponsors had received some form of encouragement

from President Trump’s head of the National Econom-

ic Council, Gary Cohn. The attacks on Glass-Steagall,

in number, volume, and tone have become indicative

that the City of London and Wall Street, knowing the

signs of an approaching financial crisis, are arrogant-

ly—perhaps suicidally—determined to stop the bank

breakup which could prevent it.

See following two-page spread on LaRouche’s

1995 Triple Curve and collapse forecast.

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

LaRouche’s

1995

Triple Curve:

A F

Financial aggregates

Monetary

aggregates

Time

Physical economic

input/output

“The

top curve

is a hyperbolic, self-feeding growth of ﬁnancial aggregates —

what might be called ‘shareholder values,’ nominal shareholder values as

accountants would account for them, or the equivalent. The

second curve,

which is the monetary expansion, both by Treasuries and Central Banks,

which was feeding the money-ﬂow in, to help pump up the growth of this

ﬁnancial bubble. Then the other tendency, the

third curve,

which I dated from

1971, is the accelerating decline in real physical output and consumption, in

terms of productive potential per capita and per square kilometer.”

–Lyndon

LaRouche, January 2002

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DANGER OF A NEW FINANCIAL CRASH

ve:

A Forecast of the Trans-Atlantic Collapse

Global Derivatives vs Debt and GDP Quantitative Easing: Fed and ECB

($ Trillions)

$800

$600

$400

$200

1998

2004

2010

Debt

GDP

Derivatives

Total Debt & Loans vs. U.S. GDP

($ Trillions)

$60

$40

$20

Debt

GDP

($ Trillions)

6.0

4.0

2.0

0.0

2008

2010

2012

2014

2016

Fed

ECB

2016

1965

1975

1985

1995

2005 2014

The explosion of derivatives in the

1990s signaled the beginning of a

self-doomed feeding frenzy based

not on investments and growth of the

real economy, but purely speculative

bets on its “performance.” Derivatives

are essentially legalized gambling.

They have hijacked the ﬂow of

investments away from the real

economy, and into short-term proﬁt.

When the derivatives bubble burst in

2007, the Fed and ECB stepped in to

bail the speculators out. After seven

years of Quantitative Easing (QE), when

the Fed could no longer continue its

frenetic 2013 pace of $1 trillion in a

single year, the ECB stepped in and

has continued to pump trillions of

dollars of QE into the bankrupt

trans-Atlantic banking system.

Another indicator of the vulnerability of

the U.S. economy is the widening gap

between debt and Gross Domestic

Product (GDP) growth. For more than

forty years, U.S. debt growth followed

economic growth. But beginning in the

1990s, the growth of debt began to far

outstrip growth in the economy. Today,

every $1 increase in GDP is associated

with a $4 increase in debt.

Total Factor Productivity (TFP)

Annual U.S. Infrastructure Investment

as % of GDP

80%

60%

Percentage of Eligible Youth

Entering Labor Force

40%

20%

1930

1950

1970

1990

1955

1970

1985

2000

2015

1980s

1990s

Bush

Obama

es —

Total Factor Productivity (TFP)

measures the rate of growth of an

economy due to technological

advance, rather than the simple

application of more labor and/or

capital. The highest rate of growth of

TFP in U.S. history, was its 3.3% annual

rate of growth in the 1930s, under

Franklin Roosevelt's New Deal & Four

Corners infrastructure programs.

In 1965, as the so-called “golden age of

productivity” was nearing an end, U.S.

annual investment in infrastructure was

above 3% of GDP. By the mid-1980s it

had fallen below 2%, and since 2005

has fallen further to 1.4%, an extremely

low proportion compared to China’s

nearly 9% over the past 20 years, and

investment rates of 5-6% in other major

Asian economies.

In the 1980s-90s, between 60-70%

of newly eligible youth were

entering the workforce. After

sixteen years of Bush and Obama,

however, 70-75% of eligible youth

are

staying out

of the labor force, a

shocking statistic which reﬂects

the plight of the young generation,

which is experiencing rising

hopelessness and despair.

from

The Triple Curve depicts a typical collapse function. When monetary and

ﬁnancial policies are systematically decoupled from physical investments, the

economy enters a breakdown process, as the physical economy collapses

due to lack of investment and due to looting (such as asset-stripping, for

example), and the monetary and ﬁnancial systems become hyper-inﬂationary

(generating increasingly fake assets to support the system). Shadows of this

process can be seen in the above economic statistics.

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V. without larouche’s

‘four laws,’ financial

crash means chaos

“Lyndon LaRouche’s ‘Four New Laws To Save the USA Now’ …

remains today the immediate and indispensable policy necessary

to launch sustained economic recovery from a decade’s worsening

effects of an international financial crash and following economic

collapse.”

‘FOUR LAWS’

For the New Paradigm

Lyndon LaRouche’s “Four New Laws To Save

the USA Now,” was authored and published in 2014.

It was intended to propose economic and scientif-

ic steps which must be taken by the United States.

However, it remains today the immediate and indis-

pensable policy necessary to launch sustained eco-

nomic recovery from a decade’s worsening effects of

an international financial crash and following eco-

nomic collapse.

In “The Principles of Long-Range Forecasting” in

1998, LaRouche had written:

The potential increase of the potential relative

population density of a society is bounded by the

number of valid … discovered principles known,

and thus available to be expressed, in the form of

applicable new technologies of individual and so-

cial practice.

However, the realization of the benefits of

discovery and proliferation of scientific and tech-

nological progress, is conditional upon the way in

which social relations define the communication

of [these] validated products of cognition…

LaRouche’s “Four Laws” specify principles of

credit—in this case,

discovered; of technological

productivity; and of nuclear science and human space

exploration which nations must master and imple-

ment to avoid another general financial breakdown

and establish a new paradigm of economic progress

and cooperation. He described them as follows:

The economy of the United States of America, and

also that of the trans-Atlantic political-economic

regions of the planet, are now under the immedi-

ate, mortal danger of a general, physical-economic

chain-reaction breakdown crisis of that region of

this planet as a whole….

The only location for the immediately nec-

essary action which could prevent such a geno-

cide throughout the trans-Atlantic sector of the

planet, requires the U.S. Government’s deci-

sion

to institute four specific, cardinal measures

which must be fully consistent with the specific

intent of the original U.S. Federal Constitution,

as had been specified by U.S. Treasury Secretary

Alexander Hamilton while he remained in office:

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‘FOUR LAWS’

Table 1

China Real (Inflation-Adjusted) GDP Growth

Year:

Growth

1999

600

1985

105

2001

700

1987

170

2003

850

1989

200

2005

1020

1991

220

2007

1320

1993

250

2009

1630

1995

420

2011

2000

1997

500

2013

2280

* based on 1980 = 100; source: IMF

The immediate re-enactment of the Glass-Stea-

gall law instituted by U.S. President Franklin D.

Roosevelt, without modification as to principle

of action.

A return to a system of top-down, and thor-

oughly defined, national banking.

The purpose of the use of a Federal Credit sys-

tem, is to generate high-productivity trends in

improvements of employment, with the accom-

panying intention to increase the physical-eco-

nomic productivity, and the standard of living

of the persons and households…

Adopt a fusion-driver “crash program” ... [for

scientific breakthroughs in fusion science and

space exploration].

In this section we elaborate these actions as nec-

essary for making the New Silk Road into the World

Land-Bridge.

1. ‘GLASS-STEAGALL’

BANK SEPARATION

The well-known University of Chicago economist

Luigi Zingales has said that one characteristic distin-

guishes Glass-Steagall bank separation from all other

actual and conceptual regimes for organizing and reg-

ulating banks and the financial sector.

Glass-Steagall

has public support and full credibility, because it has

been tested over a long period and it works

, Zingales

points out. It not only works in preventing individual

bank problems from spreading “contagion” into gen-

eral bank panics. It also works in creating deep and

reliable capital markets for business, industry, and

households, based on the special and separate roles

of commercial banks and investment firms.

We present one example of this point which na-

tions all over the world should pay attention to.

During the period 1994-97, the United States

Federal Reserve and Securities and Exchange Com-

mission essentially eliminated the effect of the

Glass-Steagall Act in the American financial system.

They set aside some of its most important regulations

and allowed commercial banks to invest more and

more of their deposit bases and profits into securi-

ties and derivatives markets, and into credit support

of securities firms of all kinds. Finally in 1999 the

U.S. Congress repealed Glass-Steagall entirely and

allowed commercial banks to acquire, merge with,

and/or create, all manner of securities broker-deal-

ers and insurance underwriting firms.

At just that same point, 1993-95, China’s gov-

ernment acted through the People’s Bank of China

to create a number of large commercial banks for

the first time, and put those large public commercial

banks under a regime of bank separation, not permit-

ting them to engage in securities broker-dealing or to

acquire securities firms or “shadow banks.”

It subsequently severely limited these commer-

cial banks’ ability to create or deal in financial deriv-

atives, so that although these banks are now among

the world’s largest financial companies by assets,

they are extremely small actors in the notional $550

trillion world derivatives markets.

Thus, China put its large commercial banks un-

der a Glass-Steagall regime.

Which regime has

worked

to create a large and

dynamic capital (credit) market for business in-

vestment, infrastructure building, overall econom-

ic growth? The Chinese economic path since those

mid-1990s actions is shown in GDP growth in

Table

Even leaving aside the lack of the cavernous plunge

in 2008-10 seen in so many economies around the

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

lending and business capital markets

under “post-Glass-Steagall” banking.

In the U.S.-based banks, deposits

increased by $3.5 trillion to $11 trillion,

$4 trillion in newly printed “quantita-

tive easing” capital was provided, along

with nearly $10 trillion more in tempo-

3.0%

rary liquidity assistance. Yet loans and

leases from the banks rose only from

+1.48%

avg.

$7.3 trillion in 2008 to $8.3 trillion at

the end of 2015, according to Federal

Reserve data. Some 35% of assets of the

largest U.S. commercial banks are now

2000-2009

2010-2019

reported to be securities—leaving aside

derivatives exposure.

The same effect, during the period from the 1990s

to today, shows (Table

when comparing U.S. and

Chinese total factor productivity, or labor productiv-

ity which results directly from technological progress

(these figures are those of the OECD; other estimates

differ slightly in amount but not direction).

Figure 1

US GDP Growth Year on Year

1930-1939

1940-1949

1950-1959

1960-1969

1970-1979

1980-1989

1990-1990

world, China’s growth, if anything, inflected upward

in the mid-1990s from an already fast pace, and sus-

tained it.

The U.S. economic path since casting aside

Glass-Steagall regulation is shown by GDP growth in

Figure 1.

Again, even considering only the years in

which there was positive economic growth, its im-

pulse since the 1990s has been lower than any decade

in 80 years, and steadily falling from the 1990s to the

2000s to the 2010s. The only thing growing rapid-

ly during the past 25 years has been the Wall Street

banks, which have become true megabanks for the

first time and control two-thirds of the banking sys-

tem’s assets among just six banks.

And in terms of the annual rates of GDP growth

themselves, China’s have been approximately three

times as high, even as its economic product has be-

come comparable to that of the United States.

(European governments which during 1945-55

had imitated the United States’s original Glass-Stea-

gall Act, had all repealed their Glass-Steagall laws by

the late 1980s’ “Big Bang” complete deregulation of

City of London banking.

Figure 2

adds the UK and

Eurozone to the United States, and shows the effect

is the same.)

As already shown in the previous section of this

Special Report, since 2008 even an estimated $14

trillion in newly printed capital pumped into the

trans-Atlantic banks by the “quantitative easing”

programs of the Federal Reserve, European Central

Bank, and Bank of Japan have not been able to revive

An International Necessity

The issuance of large masses of credits among

countries for large-scale and modern new infrastruc-

ture platforms requires, first, “Glass-Steagall” bank

separation and regulation by the nations involved.

Without such legislation being urgently reinstated

throughout the trans-Atlantic nations, the major

banks of the United States and Europe are facing an-

other crash. Warnings of a debt crash with any signif-

icant rise in interest rates have been issued during

Figure 2

Economic Growth UK - EU - US

% Real GDP

-2

-4

-6

Eurozone

Source: IMF

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‘FOUR LAWS’

A Glass-Steagall Act’s regulations basically have

four components. First, the requirement that com-

mercial banks, investment banks or broker-dealers/

funds or similar entities, and insurance companies

(able to underwrite insurance as well as sell it) be en-

tirely separate from one another, and not share di-

rectors, ownership, or management. Nor can a com-

mercial bank’s deposit base be used in loans to create,

expand, or support investment banks or securities

broker-dealers.

Second, the definition of a significant range of se-

curities and derivatives activities as “not sufficiently

closely incident to banking as to be proper to it,” and

therefore not permitted to commercial banks.

Third, the provision of Federal deposit insurance

exclusively to support commercial banks and their

depositors.

Fourth, the prohibition of transferring any but

the highest-rated securities, within a holding compa-

ny, onto the books of a Federally insured commercial

banking unit, or otherwise causing low-quality secu-

rities to be backstopped by government funds intend-

ed to safeguard customer deposits.

More important, was the greater conception en-

compassing Glass-Steagall known to then-U.S. Presi-

dent Franklin Roosevelt, that the physical productiv-

ity of the nation, in food production, transportation,

and technology levels, per person and per square land

area, was the absolute primary concern, and had to

Table 2

Annual Total Factor Productivity Growth, 1985-2015

Years

1985-1995

1996-2004

2005-2015

United

States

1.85%

1.75%

0.7%

China

2.3%

3.9%

3.3%

2017 by the Bank for International Settlements, the

IMF, and by national agencies such as the Bundes-

bank, as well as private forecasters led by

EIR

Found-

ing Editor Lyndon LaRouche.

Most dangerously, the huge new bubbles of cor-

porate and household debt are aggressively being se-

curitized and re-securitized with derivatives by large

banks, which shift increasingly illiquid debt onto

other investors by this means—a means prohibited

to commercial banks under Glass-Steagall regulation.

Furthermore, productivity “driver” projects on a

national or global scale have always been done by na-

tional credit. If such credit is issued directly to banks

(private or national) which are plugged into securi-

ties markets and offshore profit centers, or have large

parts of their asset books in high-risk securities and

derivatives activities, the credit will likely be wasted.

If nationally chartered

commercial banks

have

been protected, regulated, and kept out of securities

market speculation, those banks will participate in

the infrastructure driver projects by vigorous private

lending.

What Does Glass-Steagall Bank

Regulation Mean?

As the introduction to the original 1933 Ameri-

can legislation stated, the intention was “to provide

for the safer and more effective use of the assets of

banks, to regulate interbank control, and to prevent

undue diversions of funds into speculative opera-

tions, and for other purposes.” Investment banks

were forced to completely separate their activities

from commercial banks, and because only commer-

cial banks were federally insured, the speculative

holdings made by (non-banks) were not, and their

fictitious “assets” could now be written off.

The U.S. Supreme Court in 1971 (Camp

vs. Investment

Company Institute)

ruled that the Congress’s intent

to protect commercial banks from the temptation to

throw deposits into high-risk, high-yield securities was a

legitimate national interest, and that the Glass-Steagall

Act was the United States’s primary banking regulation.

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

remain free from financial manipulations by specula-

tive financial entities.

Roosevelt took an emergency approach to halt

the compound economic crisis then, and paired

Glass-Steagall with numerous other measures to stop

farm foreclosure, restore employment, and return

security to the banking system. In later years, Roos-

evelt was an original voice in the movement for glob-

al economic progress now sweeping the planet, as

seen in his role in the creation of the Bretton Woods

financial system for secure long-term economic de-

velopment for every nation; his push for the inde-

pendence of former British, French, Dutch, Belgian,

and Portuguese colonies; and efforts to enforce these

countries’ rights to self-development, in productive

growth and by scientific and cultural contributions.

He wanted an alliance of the strongest countries on

the planet, which would secure the ability for weaker

countries to develop.

For more than 60 years after its passage, under

Glass-Steagall organization of the commercial banking

system, no U.S. bank failure triggered failures or bail-

outs of other banks. But within a decade of the removal

of Glass-Steagall regulation, Federal Reserve Chairman

Ben Bernanke had to testify (to the Financial Crisis In-

vestigation Commission) that as of September 2008 all

but one of the 12 largest banks operating in the United

States were insolvent at the same time—a condition

never seen before, even in 1931-33. And the same con-

dition obtained across banking systems in Europe; the

largest, most complex, most interconnected “universal

banks” were nearly all bankrupt.

08 was Citibank—the very “destroyer of Glass-Stea-

gall” through its 1998 merger with Travelers Insur-

ance. Citigroup survived only through a massive series

of government bailouts of its capital assets totaling

more than $400 billion, not including short-term li-

quidity loans from the U.S. Federal Reserve. At the

other extreme were the investment firm failures Bear

Stearns and Lehman Brothers, frequently described

as “independent” of any commercial banks and there-

fore not subject to Glass-Steagall regulation. Both, in

fact, leveraged their capital up to 40:1 with various

forms of debt borrowed from JP Morgan Chase and

other commercial banks, which would not have been

permitted were Glass-Steagall in effect. Bear Stearns

was bailed out when it collapsed by the Federal Re-

serve, making an absorption by JP Morgan Chase pos-

sible; Lehman was not bailed out, and so became one

major trigger for the global crash.

The two real alternatives were: Glass-Steagall

bank separation; or, huge and indiscriminate taxpayer

bailouts of the largest financial institutions.

All of the various “alternatives to Glass-Stea-

gall,” in which regulators attempt various schemes of

“ring-fencing” divisions of banks, have the same fa-

tal disability, and will not produce sound commercial

banking. The much-invoked “bank bail-in” schemes

are the most disastrously unworkable; they have trig-

gered increasingly dangerous plunges in the value of

whole ranges of bank securities each time they have

been tried, from the “Cyprus template” to the most

Without Glass-Steagall, Recurring

Bank Panics

The disingenuous claims that Glass-Steagall en-

forcement would not have avoided the global finan-

cial crash of 2007-08, can be dismissed. The financial

institutions whose failure set off the collapse were

not—as so often claimed—those overleveraged insti-

tutions which lacked a connection to a large commer-

cial bank. Rather, they were those overleveraged in-

stitutions which were not bailed out by governments.

In the United States, for example, the financial in-

stitution widely known to be most bankrupt in 2007-

President Bill Clinton repeals Glass-Steagall by signing the

Gramm-Leach-Bliley Act in 1999. A number of those still

in Congress who voted for Gramm-Leach-Bliley call it the

single worst legislative mistake they have ever made.

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‘FOUR LAWS’

recent Monte dei Paschi and other Italian bank hybrid

bailouts/bail-ins. Worse, they have impoverished in-

vestors in bank securities, who are very numerous in

some nations’ banking systems, and led to wealthier

investors and funds gambling on the high returns of

bank securities which

are made to be bailed in and

become worthless when the bank has a crisis.

In all the “alternatives,” the large bank holding

companies (or whatever agencies try to resolve them

into when insolvent) remain responsible for capital-

ization of all their operating subsidiaries. This capi-

talization either is taken from the commercial bank

division, in violation of the ring-fencing scheme;

from a large public taxpayer bail-out in a crisis; or,

in the “bail-in” scheme, from both. “Bail-in” simply

attempts to expropriate creditors’ assets and depos-

itors’ money, and besides being chaotic and actually

potentially triggering runs on banks, it represents

deadly economic austerity.

In the United States, bills to reinstate the

Glass-Steagall Act now have bipartisan support in

both Houses of the U.S. Congress: Senate bill S-881

with nine sponsors and House of Representatives

bill HR-790 with 59 sponsors, one of two such bills

in the House. Both major political parties put rein-

statement of Glass-Steagall in their platforms during

the 2016 Presidential election.

In Italy, nine bills to enact Glass-Steagall bank

regulation have been introduced in both the Sen-

ate and the House of Delegates, and have broad

support across all but the current governing party.

Glass-Steagall bills have come close to passage in the

British Houses of Lords and Commons, and actual-

x xxx

ly passed in the lower Houses of both the Swiss and

xxxx

Danish Parliaments.

At the first sign that an oncoming new finan-

cial crash is upon these nations, these moves to re-

store Glass-Steagall bank separation will rapidly gain

strength. But will that be too late? As the prominent

American bank regulator Thomas Hoenig (vice-chair

of the Federal Deposit Insurance Corporation) has

frequently warned the U.S. Congress and others, the

time to break up the now-immense “universal banks”

before

they crash again; when these banks are in cri-

sis, it will be much more difficult to do so.

The cycle of recurring bank panics must be bro-

ken now. It is clear that reinstating the Glass-Stea-

gall Act in the United States, its originator, will lead

quickly to the passage of similar legislation in many

European countries.

Reinstating Glass-Steagall

Lyndon LaRouche and his political move-

ment have been organizing for the restoration of

Glass-Steagall bank separation since 2008, and

there have been moves to put bank separation back

in force in numerous countries since then. Against

intense opposition from Wall Street and the biggest

London-centered banks, legislation to restore the

Glass-Steagall Act is being sought across the trans-At-

lantic countries.

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

2. FINANCING THE

WORLD LAND-BRIDGE:

‘HAMILTONIAN’

NATIONAL CREDIT

AND NATIONAL BANKS

A well-regulated—Glass-Steagall regulated—sys-

tem of nationally-chartered commercial banks does

not in itself create economic growth, although a

deregulated speculative casino of a banking system

can destroy it in cycles of debt-bubble expansion fol-

lowed by collapse.

What is necessary to create sustained growth is

credit

issued and directed to support and raise the

productivity of the nation and its workforce. Above

all, this means credit to make possible building new

economic infrastructure at high levels of technology—

such as high-speed and highly connected transporta-

tion systems, high-energy power sources, multi-mod-

al ports, etc.—and credit to enable entrepreneurs to

exploit creative changes in production. What is at

stake is the answer to the constant complaint of elect-

ed officials all over the world when necessary “great

projects” are discussed: “How will this be paid for?”

The most powerful answer for this question, thus

far today, is being given by China’s Belt and Road Ini-

tiative, where such “great projects” in scores of na-

tions are being funded by partnerships with China’s

large state-owned commercial banks issuing large

volumes of new credit.

But the greatest leap in modern history, in un-

derstanding and directing national credit to foster

productivity and individual creativity, was made 225

years ago by the first United States Treasury Secre-

tary Alexander Hamilton, and a few of his closest col-

laborators such as the revolutionary financier Robert

Morris.

Hamilton’s method of generating productive

national credit was realized in national Banks of

the United States in the early 19th Century, in Pres-

ident Abraham Lincoln’s creation of a new curren-

cy and national banking system for the last third

of that Century, and in President Franklin Roos-

evelt’s extraordinary use of $50 billion in credit

($600 billion today) issued by the Reconstruction

Finance Corporation (RFC) to recover from the

Great Depression and win World War II.

The results were extremely successful in every

case, in terms of sustained national economic growth

and breakthroughs to new “platforms” of infrastruc-

ture, technology, and productivity.

The Philadelphia headquarters of the Second Bank of the United States, 1816-36, one of the extremely successful American

national credit banks based on Alexander Hamilton’s methods, from Hamilton’s First Bank of the United States in 1791 to

Franklin Roosevelt’s Reconstruction Finance Corporation. Today the building is a museum, and the United States has no

such national credit source. Hamilton’s credit concepts are successfully reflected in China’s rise.

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‘FOUR LAWS’

Today both China and Japan use strategies of

national credit creation which are similar to those

of Hamilton and of Franklin D. Roosevelt, although

with their own characteristics. The United States,

however, has abandoned Hamiltonian methods of

credit since Roosevelt’s death. It has not had a na-

tional credit and lending institution since the RFC

ended operations in 1957; it has not had a national

“infrastructure mission” since the Apollo Project to

travel to the Moon. It clearly lacks any means or pol-

icy, to fund President Donald Trump’s often-repeat-

ed promise of $1 trillion in new rail, road, port, and

airport infrastructure—even though both China and

Japan clearly want to support this by investments

in new infrastructure in the United States. America

actually needs not $1 trillion, but $5 trillion or more

in new infrastructure investments. Its Congress is

postponing even the obviously urgent reconstruction

funds for the states and territories devastated by hur-

ricanes in 2017.

So the United States must create a Hamiltonian

national credit bank in order to participate in the Belt

and Road Initiative and the new infrastructure devel-

opment banks set up by the BRICS nations, simply in

order to meet America’s own needs for long-overdue

new infrastructure. It is also urgent that the nations

of the Middle East and North Africa use Hamilton’s

method to create a regional infrastructure develop-

ment bank so that the “New Silk Road” of infrastruc-

ture development can fully expand throughout that

region.

A drawing of work building the Erie Canal, perhaps the

most important single infrastructure project in American

history, during the period of functioning of the Second

Bank of the United States.

not merely “accidentally” take up Hamilton’s meth-

ods of credit.

Hamilton’s view was not only that such well-run

private commercial banks were a blessing to the na-

tion, but that the national government needed a na-

tional bank to coordinate its important national pur-

poses with an expanding number of private banks.

The most important of those national purposes,

Hamilton said, was fostering individual invention

and creativity of the population, which he under-

stood was the basis of national wealth. In his reports

to Congress on public credit, a national bank, and

manufacturing, he wrote:

Public Credit … is among the principal engines of

useful enterprise and internal improvement…. As

a substitute for capital, it is little less useful than

gold or silver [then considered the only “capital”–

ed.], in agriculture, in commerce, in the manufac-

turing and mechanic arts.

Public utility is more truly the object of public

banks, than private profit. And it is the business of

Government, to constitute them on such principles,

that while the latter will result, in a sufficient de-

gree, … the former be not made subservient to it.

To cherish and stimulate the activity of the

human mind, by multiplying the objects of enter-

prise, is not among the least considerable of the

expedients, by which the wealth of a nation may

be promoted.

Hamilton’s and LaRouche’s Credit

System

Alexander Hamilton not only founded America’s

first national bank in 1791; he had earlier co-founded

two of its first four private commercial banks. These

were banks of a new kind, commercial banks whose

only

business was to, as Hamilton said, “concentrate

the savings of the country and place them at the dis-

posal of those best able to use them productively,”

through lending. Hamilton’s partner in the Bank of

New York was an ancestor of President Franklin Roo-

sevelt, who during his own university days studied his

ancestor’s work; so FDR as governor and President did

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

Hamilton amazed his President and military

commander George Washington, by: first, successful-

ly exchanging distressed, non-performing debt of the

Continental Congress and the individual states for

new, long-term debt of the new United States fund-

ed by specific revenues; second, quickly raising the

value of that newly funded debt up to par by 1790;

third, successfully exchanging that debt in turn, for

stock in a Bank of the United States capitalized at

$10 million; and fourth, issuing a new national cur-

rency from that Bank, which effectively allowed the

nation’s debt to be used as sound money.

With each new adoption of Hamiltonian nation-

al banking in American history, the investments in

new infrastructure and new industries became more

expansive. Hamilton’s first national bank invested in

development of water power for industry, ironmak-

ing, canals, etc. The Second Bank helped launch the

first American railroad building, more important ca-

nals and ports, steam power, coal mining. President

Abraham Lincoln’s “Greenback” system created new

continent-wide railroads—for war and for transcon-

tinental travel and freight—as well as an expanded

and revolutionized coal industry, a steel industry, a

merchant marine, a national education system for

scientific agriculture, the beginnings of electrifica-

tion, and so on.

EIR

historian Anton Chaitkin has shown

that

each surge in industrial growth and technological

revolution in American history has been linked di-

rectly to the application of Hamilton’s principles—

often called “the American System of economy”—by

American governments. Senator and Secretary of

State James G. Blaine’s great economic history of the

19th-Century United States demonstrated exactly

the same conclusion.

Lincoln, after a 20-year period in which bank-

ing and currency had fallen into chaos and the na-

tion was splitting apart, successfully organized a new

national system of commercial banks which—along

with individual citizens—purchased newly issued

national debt fully funded by new tax revenue. Those

chartered banks held the government debt as their

reserve capital, placed it at the Treasury, and circu-

1 “Leibniz, Gauss Shaped America’s Science Successes,”

EIR,

February 9, 1996.

lated a new Treasury currency (“Greenbacks”) based

on it, again effectively making government debt cir-

culate as sound money. The new Greenback currency

funded the expansive investments Lincoln launched

into creation of infrastructure and industry, which

propelled the United States to the world’s leading in-

dustrial power by World War I. The fact that those

banks were prohibited by Lincoln Administration

regulations from securities broker-dealer activities—

the “Glass-Steagall principle”—was essential.

In the process, Lincoln’s Administration demon-

strated how large a volume of new, funded debt can

be issued to and raised from a nation’s own citizens,

commercial banks, and other institutions, for pur-

poses of creating national credit for important proj-

ects, even when a nation is cut off from international

borrowing as the United States was in 1861. Many

nations today can take heed of this principle. It was

shown in 2016 by Egypt’s successful and very rapid

borrowing of approximately $8 billion from its own

citizens exclusively, for the major project of building

a second channel for the Suez Canal.

President Franklin Roosevelt, through the Re-

construction Finance Corporation, expanded the na-

tion’s electric power generation by 50% in a decade,

dramatically increased its agricultural productivity,

lifted millions out of poverty in the Southeast of the

country, and in mobilizing for World War II created

entirely new industries such as aluminum produc-

tion, multiplied the national production of machine

tools by hundreds of times, and more.

EIR

Founding Editor Lyndon LaRouche revived

the “American System of economy” which was based

on Alexander Hamilton’s life’s work, and has carried

it forward to a greater understanding of the impact of

technological advance upon successful and sustain-

able economic growth.

In 1976 LaRouche’s proposal for an International

Development Bank (IDB) was adopted by the nations

of the Non-Aligned Movement in conference at Co-

lombo, Sri Lanka. In 1982, after meeting and collabo-

ration with then-President of Mexico José Lopez Por-

tillo, LaRouche in his book Operation Juárez spelled

out how individual nations could cooperate with the

IDB.

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‘FOUR LAWS’

•

Loan of government-created credit (curren-

cy notes) must be directed to those forms

of investment which promote technological

progress in realizing the fullest potentials

for applying otherwise idled capital goods,

otherwise idled goods-producing capacities,

and otherwise idled productive labor, to pro-

duce goods or to develop the basic economic

infrastructure needed for maintenance and

development of production and physical dis-

tribution of goods….

In each republic, there must be a state-owned

national bank, which rejects in its lawfully

permitted functions, those private banking

features of central banking associated with

the Bank of England and the misguided prac-

tices of the U.S.A.’s Federal Reserve System….

No lending institution shall exist within the

nation except as they are subject to standards

of practice and auditing by the Treasury of

the government and auditors of the national

bank. No foreign financial institution shall

be permitted to do business within the re-

public unless its international operations

meet lawful requirements for standards of

reserves and proper banking practices under

the laws of the republic.

The Treasury and national bank, as a part-

nership, have continual authority to admin-

ister capital controls and exchange controls,

and to assist this function by means of licens-

ing of individual import licenses and export

licenses, and to regulate negotiations of loans

taken from foreign sources….

•

FDR’s recovery plan depended heavily on infrastructure

construction, financed by such agencies as the TVA and the

Reconstruction Finance Corporation. Here, construction

work at the TVA’s Douglas Dam in Tennessee, June 1942.

•

In the 1980s LaRouche inspired Ronald Reagan’s

adoption of the Strategic Defense Initiative to devel-

op “new physical principles” to shoot down nuclear

missiles; LaRouche then organized strongly, though

ultimately unsuccessfully, for Reagan to adopt a

Hamiltonian national credit strategy so as to spread

these new laser and beam technologies into both the

industrialized and the developing world economies.

Had Reagan adopted Hamiltonian credit policies

as LaRouche urged, not only could we have achieved

actually effective anti-nuclear missile defenses, but

also global economic progress would have contribut-

ed to putting the threat of world war permanently on

the shelf.

But LaRouche forecast that the Soviet system

would collapse within five years of its refusal to co-

operate on new strategic missile defense technologies

with Reagan’s United States—this did in fact occur.

LaRouche then, in numerous meetings and events in

Russia during the 1990s, recommended that Russia

adopt “the Chinese system” of national credit and new

infrastructure building, though this did not occur.

For more than fourty years LaRouche and

his wife, Schiller Institute Founder Helga Zepp-

LaRouche, have held conferences and met with

heads of state and other leaders all over the world

to promote those national programs and “great proj-

ects” of infrastructure most important for raising the

productivity of nations’ economies.

Today the LaRouches’ concept of nations cooper-

ating to issue joint national credits for high-technol-

ogy “great projects” of new infrastructure across the

world, has finally been launched by China’s Belt and

Road Initiative, stretching to more than 60 nations.

Lyndon LaRouche’s movement proposes the

United States Congress now urgently create a Ham-

iltonian Third Bank of the United States, as sketched

Figure 3.

This will bring the United States into co-

operation with the Belt and Road, or “New Silk Road,”

and bring that New Silk Road into the United States

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

Figure 3

A Third National Bank—How to Turn U.S. Debt into Credit for the Real Economy

to build the new economic infrastructure, from high-

speed rail corridors to flood-prevention sea-gates,

which it so badly needs.

Here once again, as in Alexander Hamilton’s suc-

cessful Bank plan and its successors, holders of U.S.

Treasury debt voluntarily subscribe that debt to be-

come shareholders in a Bank of the United States.

Private commercial banks, which hold considerable

excess reserves in the form of Treasury securities,

would become a major part of the shareholders. In

this respect the Bank’s structure would resemble that

of the Federal Reserve Bank but with

entirely opposed

intention

—that of a commercial lending institution

to major national, regional, and local infrastructure

projects and new branches of industry, as opposed to

a rarified investment bank whose only “clients,” by

policy, are the biggest money-center banks of Wall

Street and the City of London.

But the new Bank would also expand interna-

tional cooperation—and the Belt and Road Initia-

tive—because China and Japan have U.S. Treasury

securities holdings in excess of $1 trillion each, and

both wish to invest in new infrastructure develop-

ment in North America.

Proposed legislation circulated to Members of

the U.S. Congress by LaRouche’s associates reads:

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‘FOUR LAWS’

“Section II. Responsibilities

and Authorizations

“(a)

By this legislation, the Congress

authorizes the creation of a public corpo-

ration to be called the Bank of the Unit-

ed States, which is authorized to: provide

credit for major national projects of in-

frastructure, including surface transpor-

tation and ports, national intercity high-

speed rail transport, water management

and supply, drought prevention, flood pre-

Dr. Daisuke Kotegawa, 2017

vention and storm protection, electrical

energy production and distribution, and

Japan’s capital budget for infrastructure projects comes in significant

space exploration; make loans to agencies

part from a Fiscal Investment and Loan Program very similar to the

American Reconstruction Finance Corporation of the period 1933-57.

of the United States authorized for such

projects; enter joint ventures with agencies of other

cific region…. Meeting robust infrastructure demand

nations mutually to provide credit for major interna-

in Asia through cooperation between Japan and Chi-

tional projects of new infrastructure; provide credit

na will contribute greatly to the prosperity of Asian

to state and municipal capital projects by purchase

people, in addition to the economic development of

of municipal bonds as issued; discount bank loans to

the two countries.”

businesses participating in such projects; and coop-

In Japan, the predominant credit institution

erate with the United States Export-Import Bank to

funding new economic infrastructure is the Fiscal In-

provide trade credits to businesses engaged in inter-

vestment and Loan Program (FILP)—an institution

national infrastructure projects.”

very similar in operation to the Reconstruction Fi-

nance Corporation of President Franklin Roosevelt’s

administrations.

Japan’s ‘Second Budget’

The FILP loaned infrastructure credits, accord-

Clearly such U.S. legislation to create a Bank of

ing to its own 2017 report, of more than 20 trillion

the United States would effectively create a “sec-

yen (approximately $200 billion) in 2016, which was

ond national budget” or “capital budget” consisting

a typical year. The FILP is funded by investments

of credit for building of new infrastructure and in-

from the Postal Savings system (i.e., by citizens),

troducing new technologies to industry. The Recon-

from commercial banks, from pension funds, and

struction Finance Corporation (RFC) of President

from some privatized former government monopo-

Franklin Roosevelt was the last such credit system

lies such as NTT. Its bonds pay slightly more than

the United States had.

Japanese government bonds.

Japan, which invests in new infrastructure proj-

Crucially, the FILP has been called “a second

ects through a program similar to Roosevelt’s RFC,

budget for Japan”; in other words, a national capital

has now publicly indicated it will join in coopera-

budget. Its credit is also designated as “fiscal loans.”

tion with China on the Belt and Road Initiative. At

The FILP makes loans to those government agencies

a reception of the December 4-5, 2017 Sino-Japanese

which carry out infrastructure projects, whether

Entrepreneurs and Former High-level Officials Dia-

they receive additional tax revenue, or not. The gov-

logue in Tokyo, Japanese Prime Minister Shinzo Abe

ernment agencies in turn lend to contracting compa-

said: “I believe Japan will be able to cooperate well

nies on the projects, to local infrastructure utilities,

with China, which has been putting forward its ‘One

and so forth. The FILP may also make international

Belt, One Road initiative’ in a free and open Indo-Pa-

infrastructure loans.

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

A Southwest Asia/Africa

Development Bank

It is also urgent, in order that rapid reconstruc-

tion can proceed with the end of 25 years of war

devastating the Mideast and that the new China-led

infrastructure building in Africa can be maximized,

that the economically stronger nations in this region

should form a Southwest Asia Regional Development

Bank. The purpose: To create credit to cooperate in

new infrastructure projects with the new interna-

tional development banks led by the Asian Infra-

structure Investment Bank (AIIB), the New Devel-

opment Bank, China’s public commercial banks, and

Japan’s infrastructure credit facilities. Roughly $200

billion can be taken as a baseline level for the Bank’s

equity and borrowed capital combined.

The nations forming the regional development

bank should provide a basic share of its equity cap-

ital, at least 20% of the total stock, in the form of

new full-faith-and-credit bonds issued by their Trea-

suries, and back those bonds by dedicated future tax

revenues which are to make the payments on the

bonds to the Bank. The Bank will have other revenues

directly and indirectly related to the infrastructure

projects it invests in and the economic expansion

around these projects; but the “sinking fund” for the

Bank’s stock dividend payments should be identified

in advance and be independent of this future expan-

sion, to ensure the soundness of the Bank’s liabilities.

The founding nations will offer stock in the Bank

directly to their citizens and to their private banks in

order to subscribe the other 80% of the equity cap-

ital. This will include banks or citizens who already

hold bonds issued by their governments, subscribing

those bonds to the Bank in exchange for its stock—

which will increase the future payments of the gov-

ernments to the Bank.

The regional development bank should be autho-

rized to issue bonds to the public as well, including

internationally, in order to reach its targeted capital-

ization with the help of borrowed capital. But the goal

should be to meet the original capitalization entirely

by stock subscriptions of the governments, citizens,

and private banks of the countries forming the Bank.

The Bank’s stock must be a long-term investment.

The regional development bank will issue loans

exclusively to agencies assigned to carry out import-

ant infrastructure developments, whether those be

local government agencies or agencies created for

the purpose of the project. It will conduct discount-

ing activities with private banks only as those banks

make loans to contractors and service providers on

the projects, and only as necessary for those loans to

flow. It will also buy and/or syndicate infrastructure

bonds issued by regional governments and local gov-

ernments for approved projects.

Cooperation with International

Development Banks

The recent important emergence of new inter-

national development banks for non-austerity-con-

ditioned, infrastructure-specific lending—the BRICS

New Development Bank and the Asian Infrastructure

Investment Bank (AIIB) initiated by China—open up

potentials for credit agreements not seen since the

Bretton Woods Conference. The critical great proj-

ects or “infrastructure platforms” proposed here re-

quire cooperation among several nations, including

credit cooperation among the major economic pow-

ers providing the bulk of capital goods and industrial

products for these projects—but

not

supranational

direction.

Extending the New Silk Road to West Asia and

Africa will require more credit for major projects

than can be created by a new development bank for

the region. It requires international project lending

as well. This is clearly true for the great reconstruc-

tion efforts needed in areas which have been subject

to wars.

It is also shown by the long-term, low-interest in-

ternational credits recently extended for the nuclear

power complex at El-Dabaa in Egypt, for example,

or the new Kenya Standard Gauge Railway. A South-

west Asia/Africa Regional Infrastructure Bank will

provide proportional matching funds for such major

projects or assist national development banks in do-

ing so; and it will facilitate the conversion of inter-

national project loan funds into national currencies

(also essential to prevent capital flight and/or specu-

lation).

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‘FOUR LAWS’

A Southwest Asia/Africa Regional Infrastruc-

ture Bank will be able to develop credit agreements

for major projects in cooperation, for example, with

the Export-Import Bank of China at low, govern-

ment-to-government interest rates, if that country’s

companies are involved in providing capital goods

and logistics; and could develop similar agreements

with the AIIB, New Development Bank, or the Silk

Road Fund. Such credit partnerships will minimize

the need of the Regional Infrastructure Bank to bor-

row capital by issuing bonds on international capital

markets at higher rates.

If the United States and Japan were now to join

both the AIIB and the Belt and Road Initiative, an

international combination of powerful development

banks would be capable of acting like an Internation-

al Development Bank with capital in the trillions.

A Southwest Asia Regional Infrastructure Bank

will be able to act as an arm of this combination of

international development banks, and the mediator

between them and national banks of the nations of

Southwest Asia and Africa.

particularly in the United States, their special cor-

porations have usually failed, sometimes going into

bankruptcy and forced public bailout more than once.

A June 17, 2017

New York Times

article, entitled

“World Offers Cautionary Tale for Trump’s Infra-

structure Plan,” discussed a broad academic study

of such partnerships, compared to public funding

of infrastructure. The paper reported that countries

which had placed emphasis on PPPs had bad results

to show for it. “In India, politically connected firms

have captured contracts on the strength of relation-

ships with officialdom, yielding defective engineer-

ing at bloated prices. When Britain handed control to

private companies to upgrade London’s subway sys-

tem more than a decade ago, the result was substan-

dard, budget-busting work, prompting the govern-

ment to step back in. Canada has suffered a string of

excessive costs on public projects funneled through

the private sector, like a landmark bridge in Vancou-

ver and hospitals in Ontario.”

Public funding, the

Times

reported, had been far

more successful. “By contrast, China has engineered

one of the most effective economic transformations

in modern history in part through relentless invest-

ment in infrastructure, traditionally financed and

overseen by an unabashedly powerful state.” The au-

thors report that China has invested an average of

8.6% of its GDP into new infrastructure projects for

25 years, 1992-2016. This has worked, with rapid and

efficient development of projects and high produc-

tivity; and large amounts of private investment in in-

dustrial development—both from within and outside

China—has followed.

Credit for serious new infrastructure develop-

ment, from new rail and road corridors to nuclear

power complexes or major water management and

water supply projects, must be at interest rates in

the 2-4% range, and must be for terms approximat-

ing the prime operating life of the project. Because

new economic infrastructure platforms are not low-

risk investments, private capital cannot create such

credit even if it has no intention to loot the public or

speculate on real estate and commodity values. Pub-

lic infrastructure banks, able to look to long-term in-

creases in general productivity and economic growth

for the return, can do so.

Public-Private Partnerships

Cannot Substitute

It is only when the funding of new infrastruc-

ture by public credit fails, as it has for decades in

the United States and Europe, that “public-private

partnerships for infrastructure” become a subject of

constant proposals in the financial media and from

governments. Such partnerships with private inves-

tors have worked only when they are used to feed

and complement larger-scale public infrastructure

developments with more local developments, as with

connecting major high-speed rail lines into second-

ary cities and light rail systems. In those cases the

public investors are typically municipalities and the

private investors typically larger locally-active com-

panies which want to develop and modernize the in-

frastructure around them; such public-private part-

nerships have become common in China’s burgeon-

ing urban areas.

“PPPs” have not often attempted to build sub-

stantial new economic infrastructure; when they have

taken over infrastructure previously publicly built,

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

3. CREDIT FOR

INCREASED

PRODUCTIVITY

The purpose of the use of a Federal credit system,

is to generate high-productivity trends in improve-

ments of employment, with the accompanying inten-

tion to increase the physical-economic productivity

and standard of living of persons and households.

“Productivity” is given in everyday government

statistics as the national product—or the product

of an economic sector—divided by the total hours

worked by employed persons in that national econ-

omy or sector. This definition of productivity does

not show the advances or regressions in the power of

an economy to provide for the general welfare of its

people, because it does not account for whether the

calculated “product” is useful in any way, nor wheth-

er it is being produced more or less efficiently than in

a previous period of the same economy. Worse, this

measure is shown to be nearly useless by the fact that

in periods of sudden mass unemployment—such as

the year 2009 in the United States and some Euro-

pean economies—this “productivity” rises sharply;

amidst economic collapse, the few still employed are

producing more “product” per capita than before.

Lyndon LaRouche’s economic method takes pro-

ductivity to be reflected in the degree of free ener-

gy which an economy can produce, over and above

maintaining the living standard of the employed

population, producing and maintaining modern cap-

ital goods including infrastructure against attrition,

and providing for those employed in non-goods-pro-

ducing occupations or not employed. The measures

of such free energy, and of the “energy of the system”

which it exceeds, are market baskets of consumer

goods and services of all kinds, and “market baskets”

of existing and/or new-technology capital goods and

infrastructure.

Over the longer run, such productivity is fun-

damentally reflected in what LaRouche years ago

named “potential relative population density.”

Greater productivity increases the highest

potential

level of population density per square kilometer of

an economy, at the same or higher living standards

and cultural levels,

relative

to the degree of improve-

ments that economy has made to land, infrastruc-

ture, and production technologies.

To quote a further specification of this by

LaRouche more than 30 years ago:

Taking the society (economy) as a whole, this

net increase [in productivity and free energy—

ed.] is the outcome of some increase in average

level of technology of the economy as a whole.

This may be accomplished either by introducing

new, more advanced technologies, or by replacing

obsolete capital stocks with competitively modern

capital stocks, or by increasing the average level of

productivity of the entire labor force through pro-

ductive employment of significant portions of the

unemployed, or some combination of these mea-

sures. All things being equal, in the longer run, it

must be based on introduction of more advanced

technologies.

Most crucially, this is a function of the introduc-

tive of new economic infrastructure built with higher

levels of technology, on the scale of regions, nations,

or even the connectivity relations among continents

and seas. LaRouche’s notes on this in 2010:

Man as a creator in the likeness of the great

Creator, is expressed by humanity’s creation of

the “artificial environments” we sometimes call

“infrastructure,” on which both the progress, and

even the merely continued existence of civilized

society depends.

The level of achievable productivity depends

upon raising the “platform” through revolutions

in infrastructure, on which successful general ad-

vances in potential relative population densities

depend. Without those advances in basic econom-

ic infrastructure, merely particular technological

progress, locally applied, will fail in its attempted

performance of the truly vital mission of physical

economic program.…

The constant herald and measure of rising pro-

ductivity, as LaRouche emphasizes, is rising

energy

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‘FOUR LAWS’

growth of “total factor productivi-

ty” in the U.S. economy, which is the

Total Factor Productivity (Annual Growth by Decade)

estimated economic growth caused

by technological advance, over and

above all other growth factors.

The highest annual rate of growth

of productivity in America’s histo-

ry, occurred in the periods in which

the greatest investments were in new

infrastructure which required new

technologies—rail and road, and lat-

er space transportation technologies,

electric power technologies, water

1870-80 1880-90 1890-1900 1900-10 1910-20 1920-30 1930-40 1940-50 1950-60 1960-70 1970-80 1980-90 1990-2000 2000-10

Source: NBER, Congressional Research Paper, “Total Factor Productivity Growth in Historical Perspective,” 2013

management and flood control tech-

nologies, and communications. These

flux-density

of technologies used to produce power

periods are the decades after the American Civil War

and for industrial processes; that is, the capacity to

in the 19th Century, and the decades of the 1930s to

concentrate a growing amount of energy in a rela-

1960s in the 20th Century.

tively small apparatus through which it flows in or-

The U.S. Commerce Department’s National Bu-

der to perform work. The potential energy-density of

reau of Economic Research wrote in a 2005 report,

fuels themselves contributes to this—see the chart in

“Sources of Total Factor Productivity Growth in the

the following section of rising energy density of fuels

Golden Age”: “This was due to the very strong growth

over human history, to the peaks of nuclear fission

in electric power generation and distribution, trans-

and fusion fuels—as does the efficiency in convert-

portation, communications, civil and structural

ing energy to power or work, because this tends to

engineering for bridges, tunnels, dams, highways,

make the apparatus or “power plant” smaller for the

railroads, and transmission systems; and private re-

same power output. The radical advances of energy

search and development.”

flux-density in industrial work, can be seen in the

Roosevelt’s New Deal built roads, rails, airports,

dramatic difference in tolerances and smoothness of

and bridges across the country; it increased nation-

a metal cut made by a laser, as opposed to one made

al power generation by 50% by building large-scale,

by a diamond saw. The energy flux of the laser is

high-efficiency, and high-power-rating (online per-

both much greater, and applied on a far, far smaller

formance) hydroelectric installations; and it estab-

cross-section.

lished national laboratories for research in frontier

areas such as atomic fission and aerodynamics. Pri-

vate companies’ engineering capabilities were chal-

An Example of Technological

lenged to perform this extraordinary building and

Productivity

responded with research and development and tech-

A physical-economic example of this definition

nological breakthroughs.

New, more advanced infrastructure was the

of productivity—one which sprawls across the 20th

driver of productivity. Technological productivity

Century as China’s example has dominated the 21st

growth was also fairly good in the 1920s, the graph

to date—is the “golden age of American productivi-

shows—new technologies like the internal combus-

ty” centered in President Franklin Roosevelt’s terms

tion engine, radio, and telephone were spreading—

in office, clearly resulting from his administrations’

but not comparable to the decades which followed.

extraordinary building of new economic infrastruc-

In the 21st Century thus far, it has been China’s

ture.

Figure 4

shows this upsurge as measured by

technological productivity growing at rates near or

sustained, extremely high rates (2-3%) of annual

Figure 4

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

even above 3% annually, according to studies by the

same U.S. agency and by the OECD; and for the same

reason, very high investments in building new infra-

structure, transportation connectivity above all, and

in frontier energy technologies and space exploration.

will be “paid back” with a large amount of interest by

the greater overall productivity of a future generation.

Essentially, growing future productivity is the security

for the issuance of

credit

The large public commercial banks of China, in

contrast to the “big three” Trilateral central banks, are

world-leading examples of the issuance of credit. They

have created nearly as much new currency—“mon-

ey”—in the form of loans, as have the “big three” cen-

tral banks in the form of securities prices and bank

reserves, over the past decade.

Their lending has fostered extraordinary new

platforms of transportation, navigation, water man-

agement, power production, agricultural production,

and scientific research in the Chinese economy; and

they have now extended and committed roughly

$300 billion since 2014 in additional credit for infra-

structure projects outside China through the Belt and

Road Initiative. The result has been an extraordinary

8-10% of GDP invested in economic infrastructure

for 20 years, and the near-complete eradication of

rural poverty which once entrapped 6-700 million

Chinese. Moreover, accounting studies like those of

PricewaterhouseCoopers have estimated that these

banks’ credit has created in excess of $10 trillion in

new physical capital assets dominated by intercity

and urban infrastructure, in China and increasingly

in the Belt and Road countries.

The lack of such new infrastructure and industri-

al assets associated with the extraordinary growth of

corporate and household debt bubbles in the trans-At-

lantic countries since 2010, is why we assess a general

financial crash coming on in those economies. This is

not the case for the large amounts of new credit creat-

ed by China’s public banks and international develop-

ment banks and funds.

Productive Credit and Money

The issuance of national credit, as explained in

the prior section, is targeted, or intended for those

improvements in infrastructure platforms, agro-in-

dustrial technology, and also household and individ-

ual productivity as through education—otherwise it

cannot be called

credit

The “big three” central banks of the United States

(Federal Reserve), Europe (European Central Bank),

and Japan (Bank of Japan) have shown dramatically,

over the past decade, the difference between cred-

it, and simple creation of new money. These central

banks have created, by rough estimates, $13-14 tril-

lion equivalent in money since late 2008 (by “quan-

titative easing” programs), and have additionally is-

sued temporary liquidity loans to banks in the many

trillions of dollars equivalent.

But none of that money—new currency and

electronic entries—has been created for an econom-

ic purpose, nor for a trade purpose. It has all been

created for a strictly financial purpose: Providing the

largest banks in the Trilateral countries enough cap-

ital and liquid reserves to survive massive losses and

bad debts, and to resume and expand investments in

whatever markets or securities those banks saw fit.

Claims that the creation of this vast quantity of mon-

ey in this way, would cause banks to restore and then

dramatically increase their lending—thus claiming a

general “economic purpose”—have proven to be un-

true in Europe, the United States, and Japan. Most of

the money which has not simply become excess bank

reserves—the majority of it—has gone instead to in-

vestors in the form of dividends, and stockholders in

the huge rises in market prices, and to large corpo-

rations which in turn used it to buy their own stock.

Credit

is also issued in the form of currency and

electronic entries. Credit issued by governments is a

debt those governments assume, but when issued for

purposes of a more productive nation, it is a debt which

The Principles of New

Infrastructure

Energy-flux density and power:

When higher

levels of power per capita and per square kilometer

can be created at the same relative physical costs to

society, the cost for existing applications is lowered,

new processes with higher total power requirements

become economical, and new physical reactions, as-

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Another innovation is the deployment of float-

ing nuclear power stations for special uses. Decades

ago, Westinghouse Corp. was at work on this concept,

at its facilities in Jacksonville, Florida, for quick de-

ployment off the coasts of developing regions in need

of abundant reliable power. However, this initiative

was thwarted during the years of casino economics.

Now Russia and China have active construction pro-

grams for floating nuclear plants.

Russia’s first one will be installed at the Arctic

Circle town of Pevek, in Chukotka in Summer 2019.

In April 2018, the

Akademik Lomonosov

left the ship-

yards in St. Petersburg, Russia, under tow to Mur-

mansk, where two on-board reactors will be fueled

before it proceeds to its final mooring in the Far East.

China expects to launch its first floating nu-

clear plant in 2019-2020. These kinds of small

barge-mounted units in the range of 50-75 MW will

offer ready power not only for Arctic towns, but also

for a range of needs including port operations and

construction, restoring power after natural disasters,

and quickly introducing flexible electric power sup-

plies in regions which lack electrification.

The full picture of nuclear needs and capacities is

Figure 5

A High-Temperature Gas-Cooled Reactor

Japan Atomic Energy Agency

sociated with new domains of physical chemistry, be-

come possible. In the past, this process was demon-

strated when the new principles of electromagnetism

replaced the simple motion of steam engines; or in

production, when previously enormously expensive

materials, such as aluminum, became easy to mass

produce.

It is seen in the potential—given enough reli-

able electric power—of computer controlled ma-

chining, electron-beam welding, laser cutting, and

electric-discharge machining. Conversely, when the

technological level of an economy stagnates, the re-

sources defined by that level of technology become

“finite” and are gradually depleted by continued use.

Then the development of higher levels of power per

capita allows the creation of new resources.

This next level requires a long-delayed nuclear

power revolution. This involves vastly expanding the

installation of nuclear power plants, and, in partic-

ular, a crash effort for mass production of cheaper

and safer fourth-generation nuclear fission reactors

(including the medium-term development of the

thorium cycle).

There are productive innovations on the imme-

diate horizon. The introduction of high-temperature

gas-cooled reactors (see

Figure 5),

developed in con-

cept four decades ago, will not only be inherently

safe but will make possible energy-efficient and inex-

pensive desalination of salt and brackish water, the

production of hydrogen for fuel, generation of easily

available process heat, and reliable electric power.

Rosatom

The

Akademik Lomonosov

is shown departing the Baltic

Shipyard in St. Petersburg in April 2018, under tow to

Murmansk, where the two nuclear reactors on board will

receive nuclear fuel, and then be towed to Pevek, Chukotka

for installation in Summer 2019. The barge’s two nuclear

reactors can produce up to 70 MW of electricity, enough to

serve 100,000 people.

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

TVA

Construction of the Norris Dam, part of the Tennessee Valley Authority system. The dam was completed in 1936.

presented in Volume 1 of The New Silk Road Becomes

The World Land-Bridge, in Section II, “Expand Nu-

clear Power for the World’s Survival.” As the sub-title

to that 2014 report states, “Much of the world lives

in virtual darkness, lacking the electricity essential

for modern life; but world leaders are not prioritizing

the solution to the problem.”

In the four years since that was written, the gov-

ernments of China and Russia, in collaboration with

India, South Korea, and others, have made a priori-

ty of pushing ahead with commitments for nuclear

power plant construction. China, for example, has 28

reactor projects in the works within its own borders,

and additional projects abroad. Russia is collaborat-

ing on nuclear power plants in Egypt and elsewhere.

However, the United States and Western Europe

continue to go backward on nuclear fission capacity.

The consequences of this go beyond the harmful im-

pacts confined within their own national boundaries.

What is required internationally, is many times

over the current 450 nuclear power plants in opera-

tion worldwide, which account for only 11% of total

electricity used. Humanity needs not only more elec-

tricity, but the productivity only possible from fully

“going nuclear” with fission energy, in order to create

the worldwide conditions of industrial might, and

human ingenuity to lift off into a totally new domain

of a fusion energy era. This is discussed in Law Four

below, “A Crash Program for Fusion Power, Plasma

Technology and Space.”

Water:

Increasingly since the breakthrough rep-

resented by the Tennessee Valley Authority, water

management projects for flood control and irrigation

have also been power projects, providing electricity

with very high energy-conversion efficiency and reli-

ability. As construction technologies have advanced,

the potential geographical scope for surface water

management has expanded. A prime example is the

Three Gorges Dam project on the upper Yangtze Riv-

er, completed in 2012.

Among the most important such infrastructure

undertakings now pending in the world is in Africa:

the long-planned Transaqua Project, to recharge the

disappearing Lake Chad, by diverting a small per-

centage of the massive freshwater resources of the

Congo Basin, to transform productivity and popula-

tion potentials throughout the Sahel and central Af-

rica (see Section III of this Special Report).

EIR

and

the Schiller Institute have promoted the launching of

this combined water management/irrigation/trans-

portation/power infrastructure project for many

years, and it is now coming closer to realization as a

result of the Belt and Road Initiative.

Another potential project of the same scope and

importance is the North American Water and Power

Alliance (NAWAPA) plan, designed and engineered

already by the 1960s, and discussed in the North

America section of this report. Above all, the agri-

cultural productivity of the entire western, dry, and

partially desertifying portion of the North American

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‘FOUR LAWS’

continent would boom with NAWAPA, by conveying

southward, 5-10% of the abundant fresh water run-

off of the Alaska/Yukon hydrological district of the

northwest (much of which currently flows unused

into the ocean with little productive economic or

biospheric application).

However, the inherent constraint associated

with such river diversion projects come from dry

spells and natural variations in weather patterns,

which can reduce water availability and, therefore,

hydroelectricity output and supply for irrigation.

Two advanced technologies relieve any such con-

straints entirely. They constitute direct intervention

into higher levels of the Earth’s water cycle itself, not

simply reconfiguring surface run-off—desalination

(providing freshwater directly from the oceans), and

weather modification with atmospheric ionization

technologies (tapping the freshwater resources of the

sky). The “Dimensions of the Water Cycle” graphic

shown here illustrates this point (Figure

6).

Because the process of desalting sea water (or

brackish inland water) is energy intensive, nucle-

ar-powered systems are in order. Several nations

have good designs, and there are many successful

operating nuclear desalination plants, with long re-

cords. The challenge is to scale-up the programs to

not only relieve the growing number of water-short

regions, but to provide abundant water for increased

economic activity to spur productivity and progress.

As of 2018, only an estimated 350 million people

worldwide were served by desalinated water, and

most of that was produced by limited, expensive

non-nuclear power sources.

The power to increase rainfall with weather mod-

ification will be greatly enhanced with new kinds of

technologies using electrically-induced ionization of

the atmosphere to accelerate water vapor condensa-

tion and increase precipitation (or reverse the pro-

cess where precipitation is not desired).

The principle involved mimics the way galac-

tic cosmic radiation controls key aspects of climate

change through influences on cloud formation. The

techniques have been tested and successfully demon-

strated in Mexico, Russia, Australia, Israel, the Unit-

ed Arab Emirates, Oman, and in other locations.

Thus, through infrastructure, mankind creates

“natural” water resources. A full report on these

technologies, and the status of world water sup-

plies, is given in “The New Silk Road Becomes the

World Land-Bridge, Volume I” in the chapter enti-

tled “Solve the World Water Crisis,” and its appendix,

“Initiatives for Nuclear Desalination.”

Figure 6

Dimensions of the Water Cycle

- - -

+ +

- -

Weather Modiﬁcation & Rainfall Enhancement

Atmospheric Ionization

75%

of total

urban water use

is in coastal city areas

Northwest

1,500 km3

per year

river runo

proposes to transfer

Modern

Desalination

requires only

70 watts per person

to provide this water

Freshwater Production with

150 km³

Southwest

river runo

113 km³

Interbasin Water Diversion

Desalination

River Transfer

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

Completed Rail Line (as of January 2018)

Planned Rail Line

The U.S. and China have similar land areas, yet China has more than 100 times as much high-speed rail (16,000 miles),

with a network of 30,000 miles planned by 2020. In the graphic, blue lines depict currently existing high-speed rail, and

red lines depict potential future routes. While in China these future routes are already on the books and slated to be built,

in the U.S. they remain only proposals.

In water management, it is equally important

to develop advanced

storm and coastal flood protec-

tion

technologies, which have been thus far limited

to relatively few countries and selected urban areas.

The United States’s recent history with powerful

hurricanes provides a dramatic example. Not only

economic productivity, but thousands of lives and

hundreds of billions of dollars of wealth have been

needlessly thrown away in the devastation of cities

which could have been protected. The city and met-

ropolitan area of New Orleans has been protected

by large modern sea-gates, new levees, and a power-

ful pumping system—only after Hurricane Katrina

killed nearly 3,000 people and destroyed whole areas

of the city in 2005. Not only America’s East Coast cit-

ies, but those all across the Gulf of Mexico, in Mexico

and Central America as well, need the protection of

modern sea-gates and dykes, as well as many more

dam/reservoir systems to stop the flooding of those

cities by tropical storm rains.

These projects are postponed in the United

States, due to costs in the billions—only because of

the lack of a national credit institution for infrastruc-

ture—and then reconsidered only after hundreds of

billions in wealth, and priceless human lives, once

again have been lost.

The lesson is true worldwide.

Transportation:

A modern high-speed and mag-

netic levitation rail system does more than increase

speed and convenience of transportation. It chang-

es the entire physical-economic space-time char-

acteristics of the economic system. More extensive

areas become accessible in less time, ensuring more

diverse population centers and encouraging healthy

growth of population; manufacturing capabilities are

increased (especially in the building and operation of

the high-speed/maglev lines!); agricultural regions

can be economically accessible to the individual or

productive process; the social interchange of ideas

and cultures is encouraged.

Transcontinental rail corridors are still to be

built for South America, Africa, and Australia. The

great Eurasian landmass is finally being spanned now

by multiple rail corridors for freight which moves

much more quickly than by sea, much more cheaply

than by air.

As these corridors become standardized and

electrified, making high speeds possible, Eurasian

passenger lines will develop. In Africa, the new high-

speed Kenya Standard-Gauge Railway is one of many

rail projects developing and leading toward a Djibou-

ti-Dakar Transcontinental. All this is the developing

fruit of the great Belt and Road Initiative initiated

by China, the “New Silk Road” toward which the

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‘FOUR LAWS’

war-ravaged Mideast nations are looking for recon-

struction as well.

On the cross-continental scale, the 55-mile

crossing of the Bering Strait by high-speed rail and

road—opening the shortest route from Beijing and

Northern China to America’s Midwest—must be in

the near future. This will integrate the North Amer-

ican continent into the modern rail systems now

being built across Eurasia. It will be associated with

the crossing of the North American continent from

North to South by rail for the first time, and ground

transportation finally through Central America’s

Darien Gap to South America.

Just further in the future, advanced systems of

vacuum tube transport could provide supersonic ac-

cess between select regions.

4. A CRASH PROGRAM

FOR FUSION POWER,

PLASMA TECHNOLOGY,

AND SPACE

Currently, the world population is 7.6 billion

people. Had the great progress and momentum in

nuclear fusion research during the decades following

World War II been allowed to continue, the world

population today would be in the range of 20-25 bil-

lion people, living longer, healthier, and more pro-

ductive lives than those relatively few in the most

technologically advanced nations today.

In 1954, then-head of the United States Atomic

Energy Commission Lewis Strauss said of ongoing

efforts to achieve fusion power:

Our children will enjoy in their homes electrical

energy too cheap to meter. It is not too much to

expect that our children will know of great period-

ic regional famines in the world only as matters of

history. Will travel effortlessly over the seas and un-

der them, and through the air with a minimum of

danger and at great speeds; and will experience a

life span far longer than ours, as disease yields and

man comes to understand what causes him to age.

Such is the natural optimism which accompa-

nies—then and now—the potentialities of a fusion

platform.

Humanity has now reached a point where shifting

to a platform of fusion power and plasma technology is

no longer an optional step. Thermonuclear fusion will

completely transform the conversion of energy into

power and useful work, and thereby transform human

economies and the productive capacities of individual

human beings.

A human race that wants to explore the solar sys-

tem and the galaxy will need fusion power to do so—a

trip to Mars powered by fusion propulsion will take

just a few weeks. Nations that want such high-quality

power and heat, that we will produce the materials

and pure isotopes we need from scrap and waste, and

cut and shape anything easily, can only achieve that

with plasma technologies. A world that wants unlim-

ited energy indefinitely, wants fusion energy. And a

human race that wants to eliminate pollution from

the production and use of power and heat energy,

needs fusion power to do it.

The revolutionary discoveries of the early 20th

Century revealed an immense potential, altogether be-

yond chemical reactions: the fundamental equivalence

of matter and energy, as expressed in the domains of

fission, fusion, and matter-antimatter reactions. Each

in this series of reactions operates at successively high-

er energy densities, and the entire set is orders of mag-

nitude beyond the entire successive set of chemical

reactions in the creation of power for work.

Control of these reactions enables the increase in

what Lyndon LaRouche has termed the energy-flux

density of the economies, as measured in the rate

of energy use and efficiency of energy conversion

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

In each of these transitions, the previous fuel de-

clined in use as a power source, allowing non-com-

bustive uses—wood for construction and petroleum

for plastics and other petrochemicals—while the

array of resources expanded. In today’s electromag-

netic, and partially nuclear economies, rare earth

minerals have become resources, the excellent fu-

sion fuel of helium-3 on the Moon is being eyed by

the Chinese space program, and the future, truly fu-

sion-based economy will be able to process mineral

deposits far below the quality of ores exploited suc-

cessfully today.

Given these power transitions, it is no surprise

that per-capita electricity consumption and per-capi-

ta wealth are so closely correlated, as seen in

Figure 7.

The potential of a fusion-powered economy

would approach 40,000 W of power per capita within

a generation. Such potential drives home how unac-

ceptable the current world average of only 2,400 W

per capita (similar to the United States at its found-

ing) truly is.

Table 3

The Energy Density of Fuels

Fuel Source

Wood

Petroleum (Diesel)

Coal (Bituminous)

and O

Uranium-235 (Fission)

Deuterium-Tritium (Fusion)

Matter-Antimatter

* combustion

Energy Density (J/g)

1.8 x 10

2.7 x 104

4.6 x 10

1.2 x 105

(only H

mass considered)

3.7 x 109

3.2 x 10

9.0 x 10

to power of applied technologies, such as the energy

concentrated in the beam of a laser used for metal

cutting, compared to a power saw. Energy-flux den-

sity can be measured as the energy use per person

and per unit area of the economy as a whole. This in-

creasing power is associated with qualitative changes

through the entire society—new technologies, new

resources, higher levels of living standard, and essen-

tially new economies (see

Table 3).

For example, at the founding of the United States,

the wood fire- and water wheel-based economy of the

time provided an estimated 2,400-3,000 Watts (W)

per capita. Thus, each member of that economy rep-

resented a potential application of energy up to 30

times greater than a fire-less society. By the 1920s,

the increasingly coal-powered United States had

a per-capita power use of 5,000 W, meaning every

individual in the economy expressed nearly twice

the power of members of a wood-waterpower-based

economy. This supported the powered machinery,

transportation, and early electricity generation that

transformed life alongside the development of mod-

ern chemistry.

By 1970, the per-capita power rate in the United

States, which now made extensive use of petroleum,

natural gas, hydroelectric, and limited applications

of nuclear power, had reached 10,000 W per capita,

another doubling over the level 50 years prior. Thirty

years later, per-capita power had reached 11,000 W;

since 2005, however, this measure of individual hu-

man productive power has fallen slightly.

A Multi-Nation Crash Program

The United States and China have the task of

leading the world into an entirely new level of capa-

bilities of the human race, on Earth and in space: fu-

sion power and plasma technologies. Other nations,

such as the Republic of Korea and the Federal Repub-

lic of Germany, have very advanced experimental fu-

sion power devices; and many nations will contribute

Figure 7

Electricity Consumption vs. GDP, Per Capita

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‘FOUR LAWS’

critical designs and breakthroughs for sustained gen-

eration of controlled fusion power.

But to make these breakthroughs and create a

successful reproduction of the fusion process which

drives the stars, requires a true crash program which

joins the urgent work of large numbers of scientists,

engineers, and machinists for a common objective.

Some 135,000 such highly talented people made the

breakthrough to nuclear fission in the United States’s

1944-45 “Manhattan Project,” for example. And Proj-

ect Apollo, the American mission to the Moon, em-

ployed 400,000 skilled people and 20,000 industrial

companies for several years.

But in no country thus far, has the number of

scientists and engineers working on fusion power

exceeded a few thousand at the very most. America

invested the equivalent of more than $25 billion cur-

rent dollars in the Manhattan Project in two years;

its fusion research funding has never exceeded $450

million/year and recently is far below that. Scientists

knew quite well back in 1979, when the U.S. Congress

passed legislation promoting fusion research, that

such merely investigative levels of funding and man-

power could and would never conquer fusion power

(Figure

8).

China, on the other hand, is leading the

world in resources invested in fusion experiments. It

is the only major nation whose fusion power program

funding level is growing rapidly; it is getting experi-

mental results accordingly, and aiming at operating

a first, relatively lower power demonstration fusion

reactor in less than 15 years.

But opening the fusion technology era of man-

kind will take more than funded research. It will take

very large concentrations of electrical power, applied

to create the demonstration “platform” from which

fusion will vault us up to a much higher “platform” of

unlimited, easily controlled and directed power for

every kind of human work and adventure.

For example, the ultra-short laser pulse used in

laser-fusion experimental work at Lawrence Liver-

more Laboratory, is given 500 million megawatts of

power for a small fraction of a second, compressing a

tiny capsule of deuterium fuel which could produce

even greater amounts of power. In “tokamak” and

other magnetic fusion experimental reactors, the

heating of light gases into plasmas and the operation

of strong magnetic fields which compress the plasma

to cause fusion, require application of large amounts

of electrical power. Aggressively conducting dozens

of such experiments simultaneously—the charac-

teristic of a scientific crash program—will need very

large capacities for completely reliable, high-voltage

electrical power.

As an example, the United States increased na-

tional electric energy generation and use by 150% in a

single decade 1935-45—using particularly a great surge

in hydroelectric power capacity—making possible a

tremendous 1944-50 concentration of manpower, ex-

perimentation, and demonstration of new technolo-

gies including atomic power, but also aluminum pro-

duction, pure chemical and medical isotope produc-

tion, new levels of computing power, and electronics

manufacturing (see

Table 4).

Today, American power generation has not ris-

en since 2005; but what was done then, can be done

again at a higher level. China, for its part, now has the

world’s highest level of power generation at 5,500 bil-

lion kWh/year. Given its population, its power gen-

eration per capita is still well below the level of the

United States, but its power generation per square

kilometer is significantly above it.

All the countries involved should rapidly in-

crease their nuclear electric power production, as the

driver for other sources, and the driver for the break-

through of a crash scientific program to demonstrate

and then achieve fusion power. Once the break-

through to continuous, controlled fusion reactions is

Figure 8

Fusion Funding Regimes

Annual Budget

($2012, billions)

“Maximum Effective Effort” (1990)

Possible paths to a fusion reactor from

1976 by the U.S. Energy Research and

Development Administration fusion

development plan, and expected date

of completion.

“Moderate” (2005)

“1978 Level of Effort” (aka “Fusion Never”)

1970

1980

1990

Actual Funding

2000

2010

credit: Graphic design by Geoffrey M. Olynyk, incorporating 1976 projetions from U.S. ERDA,

“Fusion power by magnetic confinement: Program Plan,” Stephen O. Dean

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

•

The potential of achieving fusion

power breakthroughs within 15 years.

Table 4

Power Production Leading to Mastery of Nuclear Fission,

United States, 1930-1950

Electric Power Generation (kWh)

Year

Per km

Per Capita

Per Productive

Worker

Fusion: Mastery of the

Cosmos

There are many challenges to be over-

1930

30,000

650

6,000

come as we tame the fire of fusion. A fusion

1935

33,000

700

7,300

reaction is the uniting of two light nuclei

(e.g., hydrogen) into one, which results in a

1940

47,000

1,100

8,000

tremendous release of energy in the form

1945

73,000

1,600

10,500

of electromagnetic radiation and high-en-

1950

94,000

2,050

13,100

ergy particles. We can capture that energy

to produce electricity, heat for industrial

made, this large “investment” in electrical power will

processes, and many other advanced applications,

be “paid back” many times over for the indefinite fu-

such as rocket propulsion.

ture. But it will also have great benefits in itself.

In the most basic terms, for two nuclei to get

What will this mean?

close enough to fuse, they must overcome the Cou-

lomb barrier, created by the tendency of two simi-

•

Power for high-speed freight and passenger

larly-charged particles (in this case, the positively

rail systems; a great deal of electrical capac-

charged nuclei) to repel one another. This requires

ity, generation and distribution, which must

a tremendous input of energy. A successful, ener-

be of a high energy density and complete on-

gy-producing fusion reaction—one which yields more

line reliability, is demanded by a system like

energy than was required to bring it about—requires

China’s now nearly 20,000 km of high-speed

that the fuel is confined at a high enough density and

rail.

temperature, and for a sufficient time, such that the

•

Power for higher quality industrial machines,

energy being given off heats the fuel without further

tools, and processes, featuring the use of la-

external input. In the process of trying to make this

sers and the production of very high purity

happen, plasma instabilities and other surprising be-

chemical isotopes.

haviors of the fusion fuel have disobeyed our math-

•

Power to lift, pump, and move water over

ematical formulas, and challenged our assumptions

distances to where it is needed.

about the characteristics of matter and energy.

•

Power to desalinate salt and brackish water

Today, stunning new breakthroughs are being

efficiently at very high temperatures, reliev-

made by the impressive fusion efforts which have

ing drought and desertification conditions.

been developed around the world (Figure

9).

If a

•

Power for industrial expansion, especially in

vigorous crash program of international cooperation

high-value-added industries.

were initiated within a new win-win paradigm, we

•

The ability to develop nuclear propulsion

could finally bring to fruition what the old paradigm

for spacecraft, of much higher specific mo-

had placed “always 50 years away.”

ment—and therefore, speed—than chemical

propulsion.

Leadership in the EAST

•

The potential to develop plasma technolo-

China, which began its fusion program in the

gies—such as plasma steelmaking, plasma

1970s, has developed one of the world’s only toka-

metal-cutting, and “fusion torch” materials

maks (a type of fusion machine) using advanced su-

purification—even before fusion power itself

perconducting magnets, the Experimental Advanced

is demonstrated.

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‘FOUR LAWS’

Figure 9

FUSION REACTIONS

tritium

17.6

MeV

D-T

reaction

neutron

helium-3

D-D

reaction

deuterium +

deuterium

3.3

MeV

Deuterium fuel is abundant

on Earth, in seawater.

Requires the lowest energy

input of any fuel regime.

tritium

4.0

MeV

hydrogen

He-3-

He-3

reaction

helium-3 +

helium-3

helium

12.9

MeV

Helium-3 fuel is abundant

on the Moon.

Products are all charged

particles and can be used

for rocket thrust, etc.

hydrogen

D-

He-3

reaction

deuterium +

helium-3

hydrogen

helium

18.4

MeV

Helium-3 fuel is abundant

on the Moon.

Highest energy yield per

reaction.

Superconducting Tokamak (EAST) housed at the In-

stitute of Plasma Physics in Hefei. China is the only

nation today which is increasing its domestic fusion

budget, and it has the intention of graduating 1,000

fusion scientists by 2020 (there are currently more

than 350 Master’s and Ph.D. students studying fu-

sion in Chinese universities).

In February 2016, it was announced that with

recent upgrades, scientists were able to maintain a

plasma in the EAST tokamak at 50 million degrees

(over twice the temperature of the Sun’s core) for 102

seconds, setting a new record for plasma creation.

The goal is to sustain a plasma for 1,000 seconds,

at twice the temperature. Professor Luo Guangnan,

deputy director of the EAST project, said, “It is a

milestone event, a confidence boost for humanity to

harness energy from fusion.” In November 2016, an-

other record was set, maintaining a plasma of 50 mil-

lion degrees for 60 seconds in a “high confinement

mode,” nearly double the previous record.

These advances were not accomplished alone.

Scientists in the United States, at General Atomics in

San Diego, collaborated with their Chinese colleagues

on the experiment, and have even begun operating

the tokamak remotely for a “third shift,” during the

nighttime in China. The cooperation is viewed as

very valuable on both sides. “We have made a very

good start of international collaboration in fusion re-

search between China and the U.S., and we are very

proud to be a pioneer in this field,” said Dr. Xianzu

Gong, of China’s Institute of Plasma Physics.

The recent achievements have bolstered con-

fidence to move forward with the next step toward

fusion energy, the Chinese Fusion Engineering Test

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V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

Reactor (CFETR), for which approval is expected in

China’s next Five Year Plan. This facility will be ded-

icated to solving the remaining engineering challeng-

es, such as the need for new materials, before mov-

ing ahead with a demonstration power plant. The

CFETR could come online as early as 2025.

Promising work is emerging in other parts of

Asia. In December 2016, a record of 70 seconds of

plasma high-density mode operation was achieved in

Korea’s KSTAR tokamak, breaking its prior record of

55 seconds, set in 2015. KSTAR is one of only three

advanced superconducting tokamaks in the world

(another is Japan’s JT-60 SA), and began operation

in 2008. Major upgrades over the next few years are

intended to allow work that would lead to a demon-

stration power reactor, KDEMO.

due to budget cuts, the Alcator C-Mod tokamak at

the Massachusetts Institute of Technology set a new

world record, achieving a plasma pressure (one of the

key parameters in an energy-producing fusion reac-

tion) of 2 atmospheres, surpassing its own previous

record. The Alcator device, a high-magnetic-field

compact tokamak, is of a unique design, and could

be readily restarted with restoration of funding.

Dale Meade, formerly of Princeton Plasma Physics

Laboratory, said of the work, “This is a remarkable

achievement that highlights the highly successful Al-

cator C-Mod program…. The record plasma pressure

validates the high-magnetic-field approach as an at-

tractive path to practical fusion energy.”

However, breakthroughs continue. In March

2018, scientists at MIT announced new develop-

ments in advanced high-temperature supeconduct-

ing magnets—four times as strong as those currently

in use—with which they (via Commonwealth Fusion

Systems) intend to develop a prototype compact fu-

sion reactor within 10 years.Similarly, a division of

Lockheed Martin secured a patent in February 2018

for a non-tokamak compact reator, small enough to be

mounted on a truck, which would produce 100 MW of

electricity. They aim to have a prototype in 2019.

Achievements in the West

Deindustrialization and geopolitics have held

back scientific progress for decades in the West, but

glimmers of real optimism appear in the fusion labo-

ratories of Europe and the United States.

At the Max Planck Institute for Plasma Physics

in Greifswald, Germany, the Wendelstein 7-X, the

largest stellarator in the world, went online in 2014.

The stellarator is a design for a fusion machine based

on a different concept than the more common toka-

mak, and may avoid many of the plasma instabilities

which challenge the basic tokamak designs.

In February 2016, the Wendelstein 7-X began its

experimental operation, and in December released

a report that the very complicated geometry of its

stellarator is accurate to within 1 part in 100,000. In

March 2018, new upgrades of five additional “trim”

coils, designed to improve the machine’s operation,

were declared successful. The 2016 analysis of the

Wendelstein 7-X stellarator’s geometry and the 2018

uprades were completed with collaboration from the

U.S. and other fusion programs, all of which show

great excitement at what can be learned from this

unique approach.

In the United States, fusion work has made ex-

perimental breakthroughs in national laboratories

and universities despite virtually no funding. On

September 30, 2016, the last day of its operation

Fusion Is a Space Platform

Fission and fusion power will allow us to live and

work in other places in the Solar System, and to trans-

form them in a way that is impossible with chemical

power alone (see “Applications of Fusion Plasmas and

Technology” at the end of this section).

The process will begin on the Moon, which is a

rich depot for fusion fuel. For billions of years, the

Sun via the solar wind has been depositing helium-3,

an isotope of helium, onto the surface of the Moon,

where it is held within the upper layers of the lunar

soil. Helium-3 is very rare on Earth, but estimates

are that there are 1 million tons of helium-3 on the

Moon, enough to power civilization on Earth at cur-

rent levels of consumption for millions of years.

Helium-3 is an ideal fuel for controlled fusion.

Fusion of deuterium and helium-3 releases more en-

ergy than any other regime (see Figure 9), and un-

like other fuel combinations, the products of the re-

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‘FOUR LAWS’

action are almost entirely charged particles—which

can be controlled with a magnetic field. This means

that they can be used to produce electricity directly

and efficiently, and also can provide thrust in fusion

rockets. With nuclear power we can maintain work

and industry through the 2-week lunar nights. Nu-

clear rockets can power flight to distant bodies like

Mars in weeks, as opposed to 8 months with chem-

ical fuels.

With fusion power, we will upshift the human

species to one which can extend its existence and

activity throughout the inner solar system, and per-

haps beyond. Immediately, we have the potential for

international cooperation in exploration and devel-

opment of the Moon and cislunar space. Such a pro-

gram would involve new discoveries in high-energy

physics, biology in the space environment, and fis-

sion and fusion power.

China has taken leadership on lunar missions in

the past decade, inviting cooperation from other na-

tions, and will soon place a lander and rover on the far

side of the Moon. Mankind has never landed on the

lunar far side in any way. Its unique geology promises

to tell us more about the history of the development

of our Solar System than anything we can access on

Earth. Setting up a very low frequency radio astron-

omy observatory there will give us a glimpse into fea-

tures of the Solar System, Milky Way galaxy, and far

distant galaxies which are simply impossible to see

from Earth or Earth orbit.

The spinoff technologies generated by expand-

ing human dominion first to cislunar space, then to

the orbit of Mars, and then to the entire Solar Sys-

tem, have the ability to lift every nation out of pov-

erty, feed every child, cure diseases, and render the

tools and causes of war obsolete. The commitment of

space-faring nations to space exploration will be the

embodiment of the new paradigm. Human beings are

a space-faring species, with a mission to discover and

understand who we are as mankind in the universe.

The great German-American space pioneer

Krafft Ehricke, designer of upper-stage rockets for

America’s space program during its great growth,

understood that the industrial development of the

Moon and beyond is an extraterrestrial imperative

(see

Figure 10).

Ehricke wrote in 1970:

Space opens new horizons beyond Earth and of-

fers new beginnings in ways we can manage this

precious planet. It offers noble aspirations, oppor-

tunities for creative action, for bringing the human

family closer together and contributing to a better

future for all.

Figure 10

The Development of Cislunar Space

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APPLICATIONS OF FUSION PLASMAS & TECHNOLOGY

TRANSMUTATION

V. WITHOUT LAROUCHE’S ‘FOUR LAWS,’ FINANCIAL CRASH MEANS CHAOS

With the high-energy products of fusion

reactions, we can transmute elements, manufac-

turing

speci c isotopes to serve speci c purposes.

Short-lived medical isotopes can be manufac-

tured on-site. Isotopically-pure materials such as

steels for construction, or diamonds and silicon

for industrial purposes, can be

stronger or better conductors than

isotopically-mixed materials.

for more, visit:

industry

FUSION ROCKETS

Plasma from a

fusion reactor

source is expelled

by a magnetic

nozzle to produce

thrust. A fusion-pow-

ered rocket has a

speci c impulse nearly 300

times that of chemical rockets.

Fusion rockets would make trips

to Mars and beyond possible in

weeks, rather than months.

lpac.co/forging fusion

lpac.co/fusion-torch

lpac.co/world-mine

plasma source

unda

str

FUSION

PLASMA

Plasmas inside fusion reactors reach

temperatures of millions of degrees, hot enough

to vaporize any material, breaking it down into its

constituent elements. In the 1960s, Eastman and

Gough developed a design for the fusion torch, in

which any feedstock, from material from land lls to

scrap metal to dirt, could be turned into plasma, and the

constituent elements separated and harvested. We could

then mine land lls for our commonly used resources, or

easily harvest resources from low-grade ore.

feedstock

to separation

process

zle

FUSION TORCH

CHEMICAL

PROCESSING

PETAWATT LASER

The petawatt (quadrillion watt) laser, originally

developed for laser inertial fusion, is many orders of

magnitude more powerful than conventional lasers. This

leads to qualitative increases in our power over nature. When

used for industrial purposes, it can vaporize the target material

while transferring little to no heat to the surrounding

material—a non-linear leap in precision for cutting and machining.

from fusion reactor

The industrial processing sector consumes

over 30% of energy in the U.S. Controlled fusion

reactors can provide 1) high temperature thermal

energy, 2) electrical energy, 3) neutron and gamma

high energy radiation, all of which can be used for

chemical processing on a mass scale. Temperatures up

to 3,000°C, plentiful electricity for electrolysis, and

gamma and UV radiation can revolutionize or make

economical mass production of heavy chemicals,

aluminum, ozone, methanol, ultraviolet radiation for

sanitation, water, etc.

vacuum region

fusion

plasma

Steel cut with a conventional laser (left) and

petawatt laser (right).

tubes for chemical

process stream

where absorption

of neutron or other

radiation from the

plasma occurs.

378 | THE NEW SILK ROAD BECOMES