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{Financial Times} Notes the Financial Crash Looming

June 8th, 2017

Executive Intelligence Review

May 31, 2017 (EIRNS) -- The London {Financial Times} on May 30 followed its Frankfurt-based competitor {Handelsblatt} of three weeks earlier, in publishing articles by bank researchers noting that a 2008-like debt crash may be near, triggered by an unrepayable U.S. corporate bubble. The article, by author Dombisa Moyo and financial editor Gillian Tett, is headlined "Global debt woes are building to a tidal wave." But it places most of the weight of danger on debt bubbles in the United States.

"U.S. companies have added $7.8tn [trillion] of debt since 2010 and their ability to cover interest payments is at its weakest since 2008," the authors note -- not getting into principal repayments. Both corporate and consumer debt have reached levels beyond those of 2008 not only in the United States, but also in the UK.

The authors say, "The threat of a looming crisis is not solely down to the absolute volume of debts. At least three things make the situation especially precarious. First, debt -- particularly dollar denominated -- is becoming more expensive....
Second, the ability to repay debt is under strain in countries whose revenues stem disproportionately from commodities." And finally, growth in the United States and Europe is very slow, and "any recession will cause a nasty shock to the system."

Bank Separation Discussed in Sweden

May 31, 2017 (EIRNS)--The Swedish Nordea Bank is considering transfer of its headquarters and registration from Sweden to either Helsinki or Copenhagen. Nordea is protesting an increase of its payments for the bank resolution fund, which is to cover banks' restructuring in a crisis. The Swedish government wants the banks to increase their payments to this fund to safeguard the financial system, but Nordea Bank is seeking easier conditions elsewhere.

In a lengthy May 29 article in the web-based financial newspaper {Realtid.se}, {EIR}'s Ulf Sandmark and entrepreneur and author Mats Lonnerblad discuss bank separation. Sandmark took up the gigantic derivatives business of Nordea. The headline of the article accuses the Nordea Bank of "transferring gigantic financial risks to the Swedish people." Compared to the risks put on Swedish society by Nordea's derivatives trade, the government obligations put on Nordea are minuscule, he says.

The article brings to the Swedish public for the first time the Italian arguments against the dangers of derivatives, and the danger inherent in the fact that assigning their value is left to the banks themselves, especially for level-3 derivatives. This has been highlighted by Member of European Parliament Marco Zanni, as well as the media in Italy.

The article concludes with bank separation -- Glass-Steagall
-- as the preferred way to safeguard banks and governments against the imminent banking crisis. Under Glass-Steagall, investment banking, unlike commercial banking, is not insured by the government. By reducing the risks in the banks that way, the resolution fund is unnecessary and Nordea could stay in Sweden.

Trump Administration Infrastructure Initiative "Fact Sheet" Released, Along with a $200 billion Federal Outlay Proposal, But Private Funding Will Fail

May 26, 2017 (EIRNS)--The White House on May 23 released a document, "Fact
Sheet--2018 Budget: Infrastructure Initiative," the same day as the Trump Administration's budget proposal was released, containing a $200 billion outlay for infrastructure.
Administration spokesmen have previously stated that they will issue a full infrastructure proposal later this year.

The six-page fact sheet begins with a short, "Importance of Infrastructure" introduction, re-stating that, "The President has consistently emphasized that the Nation's infrastructure needs to be rebuilt... [The] underperformance is evident from our congested highways, which costs the country $160 billion annually in lost productivity, to our deteriorating water systems, which experience 240,000 water main breaks annually."

On the money side, the Fact Sheet explains that the $200 billion Fed funds, should be leveraged in ways to activate private funding of infrastructure, "such that the end result is at least $1 trillion in total infrastructure spending." We "will structure that [Federal $200 bil] to incentivize additional non-Federal funding."

(Such an approach that leans on "private" investment is doomed to failure, as Helga Zepp-LaRouche explains in her article "An only bystander?" published in English and Chinese in the latst edition of ChinaInvestment.com.) http://www.chinainvestment.com.cn/type_bigslide/6598.html

The "Key Principles" section presents four points: 1) Federal funds use must be targetted for the most "transformative" projects; 2) "Self-help" is to be encouraged, the way some "states, localities and tribes" have shown; 3) certain government assets will be divested, that can be better run by private entitites; 4) the government will use "public-private partnerships" when possible.

The remainder of the document lists indicative proposals in the realm of financial, mechanistic responses to the crisis which, if implemented, will also fail. Many examples are given. E.g. "corporatizing" (privatizing) functions such as the national air traffic control; selling off government assets, for example, the real estate, un-used by the Veterans Administration hospital system; selling off electric transmission assets of the Power Marketing Administration, etc.

UK's Labour Closing Election Gap, Pushing National Infrastructure Bank

May 31, 2017 (EIRNS)--The British snap election called by PM Theresa May will be held June 9. While the Tories are still leading in the polls, the gap is closing -- and polls are not to be trusted in any case. In that light, Jeremy COrbyn and his shadow Chancellor, John McDonnell, are campaigning on an infrastructure platform which includes a call for a National Infratructure Bank of £500 billion. The Bank would include government and private funding, but be privately run with government support.

McDonnell said last year, when the plan was first announced, that £350bn would come from government and the rest from private investment in the Bank. He proposed a network of regional banks, inspired by Germany's government-owned development bank, Kreditanstalt fur Wiederaufbau, which he said could rescue Britain's communities from decay and rebuild Britain's industries after years of neglect, as reported in {The Guardian} on July 18, 2016. He said the plan would create 100,000 new jobs.

The program focuses on rebuilding the UK's rail, energy, and its rail system through re-nationalization and investment.

"By mitigating the risks and giving a firm, government-backed commitment to funding, it will draw in the private financing that has otherwise been wary of financing infrastructure in the UK," he said.

Otherwise, the Labour program calls for rolling back the cuts in general welfare implemented under previous governments, in health, pensions, and more. In energy, it calls for phasing out coal and funding renewables, but also outlaws fracking and is pro-nuclear. Sources in the UK indicate that the ban on fracking could win over many who would otherwise vote Green.

China's Belt and Road Investments Are Extraordinary

May 31, 2017 (EIRNS) -- China's issuance of credit to build up other [particularly Asian and African] economies through new infrastructure platforms, continues to amaze U.S. and European econonometric groups trying to map it -- like PricewaterhouseCoopers, London School of Economics, Boston Consulting Group, and lately Wharton Business School. In a Wharton School newsletter published May 30, under the envious title "U.S. Needs an Asia Play To Prevent China Dominance," the magnitude of this credit issuance is measured in one way.

The authors write that funds already invested in, or firmly committed to, the growing number of Belt and Road projects outside China, by China's credit institutions, have come to total $312 billion as of the end of March 2017. This is in a period of less than three years since President Xi's announced One Belt, One Road initiative took shape; and only involves investments outside China's own economy. Moreover, international lenders, including those initiated by China -- World Bank, AIIB, Silk Road Fund, New Development Bank ("BRICS Bank") -- have together accounted for merely $8 billion of this.

It has all been national credit issued by China's major institutions of that purpose: Exim Bank, China Development Bank, China state banks. And that -- though Wharton doesn't discuss this as such -- on top of many trillions of dollars-equivalent in national credit issued to grow China's economy since the financial crash, and to drive growth in other parts of the world and in years prior to the Belt and Road Initiative.

China is virtually the only nation in the world following this national credit policy over the period of trans-Atlantic collapse; the only nation doing so on such a scale; and of course, this is supposed to violate the monetarist rules of economy set out by those institutions "studying it."
Thus the constant cries that the "China debt bubble" {must} collapse, and/or will collapse the entire world economy.

Yet China is, in fact, deleveraging debt and writing off non-performing debt at the same time, particularly with {negative} amounts of liquidity going into its shadow banking sectors during 2016 and 2017 so far. Having started with the Glass-Steagall principle of separated-lending banks having almost no exposure to securitization and derivatives markets, it is able to combine extraordinary credit issuance, extraordinary leaps in productivity in its infrastructure and major industrial sectors, very rapid employment growth, and bad debt write-off. The country has also lifted another 55 million rural poor out of poverty from 2012-2016.


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