'The Most Profound Crisis
May Be a Gift'

by Lyndon H. LaRouche, Jr.

This was Lyndon LaRouche's June 13 address on the global economic crisis to the Commercial Association of São Paulo, with the discussion which followed the presentation. Subheads have been added, and questions translated from Portuguese.

I shall use only one chart, which I think we should probably display at this time. I have some other charts which are available, if the questions may require their presentation. So, show the first chart.

This is a chart which I developed as a pedagogical chart, for use at a Vatican conference on the subject of health care. My challenge was, since I had a varied collection of people at the conference: How do you explain economics to priests? The advantage is, that probably everyone will tend to understand it, if priests do. What this chart represents, is an idealized representation, of what has happened to the U.S. and world economy since approximately 1966. Now, before going into the details of this, let me just qualify what I mean when I refer to 1966.

The United States emerged in 1945, not only as the world's leading power, but in fact, the only power. There were some changes after that time, but that was the situation. The power of the United States is partly rooted in its history, especially in the victory of Abraham Lincoln, which defined the positive characteristics of the modern U.S. economy. We underwent a terrible change for the worse, with the assassination of President McKinley in 1901. As everybody who remembers the history of the Americas knows, Teddy Roosevelt, Woodrow Wilson, and Coolidge were a disaster for the Americas.

So, the great power that the United States represented in 1945, was the fruit of Roosevelt's response to the Depression of 1929-1933. In part, Roosevelt began making fundamental changes, for example, breaking up of the last remains of the British gold-standard system, which was a change which led the way toward the later establishment of a fixed-exchange-rate monetary system, based on assigning a politically determined value for gold—gold not used as a basis for currency, but gold used as a reserve against current account deficits of nations.

FDR and the Postwar Period

Under the system which was created by Franklin Roosevelt, we had the following stages: Apart from drastic monetary and financial reforms, the President's concentration was on basic economic infrastructure. This had two functions. First of all, as had been proposed in Germany—although it was not known much at the time, that a certain Dr. Wilhelm Lautenbach had proposed to a secret meeting of the Friedrich List Gesellschaft, an argument saying that those who resort to what is called today "fiscal conservatism" as national policy, under conditions of bankruptcy, are dangerous idiots. That what the government must do is create credit, not to reduce employment, but to increase it. And the place to put the government credit for stabilizing the economy and expanding it, is the area of state responsibility and competence: basic economic infrastructure. It's the one place that you can quickly absorb a large number of unemployed persons, with a form of work which will be ultimately good for the nation.

The second purpose of Roosevelt's public works program was to prepare the basis for a general industrial and agricultural recovery. For example, the rural electrification program, which became the basis for the explosion of productivity of agriculture into the 1970s.

But in 1936, a new factor came in to shape this policy. The British had initially put Hitler into power in Germany, with the intention that Hitler would mobilize a war against the Soviet Union, and then the French and British would fall on the rear end of that process. The British suddenly discovered that the German general staff had prevailed upon Hitler to hit westward first. So, the British did a couple of things. They fired the pro-Nazi King, Edward VIII, to please the Americans, and they went to Roosevelt and said, "Help!"

So Roosevelt, in 1936, was already committed to the inevitability of a war with Germany, with all that that entailed. So, the way in which the reconstruction of the United States occurred, from 1936 on, was done with the war in mind, to create rapidly a then-nonexistent industrial capability for warfare.

This was done partly in secret; some of the key people in industry were assembled with Roosevelt; they worked out a national development plan; and what you saw from 1940 on, into 1943, was the greatest industrial mobilization in history. There were 16 million of us in military service. We won the war, not because we were the best fighters; the Germans were much more efficient in warfare. Their military training was much better than ours. We won the war with logistics, not by killing—though some terrible battles were fought—but with the overwhelming, superior power of our logistics.

Roosevelt died, and the enemies of Roosevelt began to tear the place apart. The Roosevelt-haters took over control of the government. These are the financier interests, the old backers of Teddy Roosevelt and Woodrow Wilson and Calvin Coolidge. But nonetheless, we won the war. Many of us had fought in the war; we respected the tradition of our victory. So, the monetary system which the world received at the close of the war, contained most of the features, in terms of economic policy, that Roosevelt had prescribed.

Now, there is a myth which is popularly spread at universities, which is not true, that John Maynard Keynes designed the postwar monetary system. That is flatly not true. There is no Keynesianism whatsoever in Roosevelt's design for the postwar IMF. And I'd say, as an aside on that, the attempt to use Keynes or neo-Keynes as the basis for organizing a general financial recovery now would be the greatest failure of all.

Industry Has Been Destroyed Since 1966

The methods of the American System of political-economy, the methods used by Roosevelt, as by Lincoln before him, as described by Treasury Secretary Alexander Hamilton, these are the methods by which every success of the United States has occurred.

Now, because of the war, because of the experience of the recovery under Roosevelt, the world benefitted, to a large degree, from Roosevelt's reforms. We had a monetary system which worked. It worked for the Americas; it worked for Western Europe under the Monnet plan. Once the war in Korea started, it worked for Japan, too.

In 1961, President Eisenhower retired. Now, Eisenhower was a man who believed in the American military tradition, the tradition of strategic defense, known to us by figures such as Gen. Douglas MacArthur and Eisenhower, especially. Eisenhower would not tolerate certain changes which the Wall Street crowd was trying to introduce. He denounced these, on leaving office, as the "military-industrial complex." That is misleading; it's honest, but misleading, for what it didn't say.

The policy which grew up in the military and other institutions around the British monarchy and around our Wall Street, was to use the lessons of the Nazi Waffen-SS, to create a professional army, the way the British used naval power before, in past centuries, but adding air power as a new dimension of the same function as naval power, to create an English-speaking world empire over the course of a generation or two. The changes in the U.S. military tended to push in that direction. Once Eisenhower was out of office—a man with the power of the President, who understood the implication of this military policy—once he was out, it turned loose. We had the Bay of Pigs, we had the assassination of Mattei in Italy, we had the 1962 Missile Crisis, the first attempted assassination of Charles de Gaulle, we had the ouster of Macmillan in England, and we had a process which led into the 1964 entry into a full-scale Indochina War.

The key thing was the assassination of President Kennedy. So, from 1966 on, this policy has been running rampant. We began to take down our industrial growth potential. [The start of the floating-exchange-rate system in] 1971 was a global catastrophe, as you know here: the new monetary system. Worse than the Nixon Administration was the Carter Administration. But remember, we never had a Nixon Administration, we had a Kissinger Administration. We never had a Carter Administration, we had a Brzezinski Administration. Both of whom represent the same policy: the utopian policy which Eisenhower denounced as the "military industrial complex."

The next crucial change was the fall of the Soviet Union. At that point, the Anglo-American circles of this persuasion decided that they could create, in short order, a worldwide English-speaking Roman Empire, without nation-states. Now during this period, after 1971, there was a radical change in the attitude of the United States towards the states of the Americas, in particular, as in Africa, Sub-Saharan Africa. Kissinger made this argument clear in 1974; he said, in effect, and this is not just him, others have said it:

"The fundamental interests of the United States are as follows. In the Southern Hemisphere, there are vast natural resources. If we allow the populations of Africa and South and Central America to increase, then these people will develop technologically, and they will use the natural resources in their territory. And when we come to steal them later, they won't be there anymore."

The Economic Policy of Empire

This is National Security Study Memorandum 200. This is the same policy as the outgoing Carter Administration described as Global Futures and Global 2000. This is the policy of the Club of Rome. This is the policy of the World Wildlife Fund. This is the policy. The policy is not concern for nature. These people, as I know them, there's nothing natural about them. They are unnaturally inhuman.

So, with this kind of policy, you've come to a point by which a great empire destroys itself. It is through the productive powers of labor, and increasing those productive powers, that we maintain economies. If you destroy the productive powers of a nation, you can not live.

Now we have reached the point, right now, at which a President, who's not the most intelligent one we ever had, is now advised to launch world war against an enemy, who in large part is imaginary, but to kill anybody he might suspect of sympathy for this imaginary enemy. Against the advice of all the generals, he wants to have a war in Iraq.

What we have is this: We have an Anglo-American, English-speaking interest, which includes certain forces in Australia, which is now determined to establish a world, English-speaking, Roman-style empire, ignoring the fact that Rome started its empire at the height of its power. These fools are trying to establish an empire at the nadir of their power.

Now, look at the chart. As a result of this, what we have is a degradation in the physical productivity of labor per capita and per square kilometer. We're now in a rate of precipitous collapse.

What we also did, was, we are pumping the system: We increased the amount of financial aggregate in the system. We did this largely by driving up monetary aggregates into the system. In the year 2000, a very interesting development occurred: 1923, Germany!

Germany had been financing its war reparations debt by printing money. This had been inflationary, but it occurred under world depressed conditions, so that there was not a precipitous growth of inflation in Germany, up until June-July of 1923. In June-July, you had an explosion. The explosion was caused by one thing, because the chart was very similar to this one you're looking at here. What happened, as happened to the United States during the year 2000, was that the amount of monetary aggregate required to be generated to roll over existing financial obligations, was greater than the financial obligations rolled over. Whenever that happens in an economic system, you have a hyperinflationary skyrocketing in motion.

Put the System Into Bankruptcy

Now, in such a case, there is only one solution. Governments must act to put the system into bankruptcy reorganization. If you do not do it, you have the worst possible result.

Now, let's look at Brazil from that standpoint. Brazil, like every other nation on this planet, including Japan, is the victim of an Anglo-American dictate to try to perpetuate that bankrupt system. If we continue, this will blow up, and this could probably happen in the next two to three months. What is happening in Argentina is a warning: It could happen in Japan, explosively. Because Japan has been used to generate a great amount of the monetary aggregate on which the U.S. economy, the U.S. dollar, depends.

If Japan and the yen market collapses, and some idiots in the United States are trying to force it to collapse, the dollar will go next. Because the ability of the dollar to carry itself is dependent, marginally, upon a very large contribution of Japan from the overnight, zero-interest policy.

Now, briefly, just to wind this up.

What does this mean? This means we must think in several terms: First, we require a global, monetary financial reform. The best model we have is the 1945-1964 system, not as a perfect model, but as a political model. Under those, we must have, therefore, financial reorganization in various countries. We require an emergency monetary conference among leading countries, using the implicit emergency powers of government, to immediately negotiate a general reform and bankruptcy reorganization.

We must also, then, take certain steps in each country, and in treaty agreements to get the world economy moving upward. That means we have to have a protectionist system, because what many people don't understand, is the importance of capital cycles. Capital cycles generally go 25 years for long-range infrastructure development; 3-7 years for an agricultural program, even for an individual farmer; and for an industrial firm, a product-line may be 7-15 years.

Therefore, we must generate a tremendous amount of capital investment. How do we do that? We must create the credit system, but we must have a secure credit system. You can not have international trade or loans at above 1-2% simple interest. Therefore we must have a fixed exchange rate. We probably should use a gold-reserve exchange rate.

Then, we have to make certain changes in each country. Brazil is obvious. Brazil has absolutely tremendous potential. We have two areas. We have the domestic economic areas: we have infrastructure, which is primary. The energy requirements are overwhelming. Control and development of one's own energy resources. You need a science-driver-led program of economic development and recovery, which Brazil already has in some areas, as in the health-science area, which is crucial, for example, for Africa. You must then have an educational system which can be built to produce the cadres for this expansion.

You must also have an emphasis on entrepreneurship. No accountant, working as an accountant, can cause an economy to grow. Growth comes from physical principles; it comes from the ingenuity of the entrepreneur. We see this in Italy, we see this elsewhere: The failure of the major corporations reveals what we always knew. A successful economy is always based on the entrepreneurial basis—they are the innovators.

The United States Must Change

And so, you must move in those kinds of directions, both in terms of each nation, in terms of cooperation across borders, and obviously, while other countries outside the Americas are extremely important, you must in some way induce a change in U.S. policy toward the Americas to pre-1982, pre-1971, and probably pre-1965 standards.

The United States has the political power. If we are in partnership with the nations of the Americas, if we can agree to make a program like this work—and we have the opportunity given to us, in the worst, most terrible form: When people become fat and lazy, a crisis may intervene that causes them to become human again.

If leadership is present, if the ideas are present, if an effort is made to recruit the population to support the policy, we can succeed. Therefore, as in history in the past, as in the United States of 1929-1933, the most profound crisis may be the greatest gift, to stop rotting and come to our senses, take leadership, and lead the people to new successes.