Global stock markets went plunging downwards this week, on news reports of the spread beyond China of the Corona Virus. Investors were reacting to warnings of the effects of the disruption of supply lines and the shut down of manufacturing plants, and the retreat in consumer spending. Forecasts are circulating which project that the disease could wipe out net corporate profits for the year. Some reports are projecting a drop in GDP, such as one prepared by Goldman Sachs, which predicts global GDP growth will barely top 2% in 2020, forecasting that U.S. growth will fall below 2%.
The overall effect of this reporting has been to produce a panic, which delivered a very hard hit to the booming U.S. stock market, which, by day's end on February 27, had experienced a fall of over 12% of valuation, with the Dow Jones dropping more than 3,000 points. President Trump held a news conference, hoping to stem the panic, surrounded by top administration health officials, to show that the U.S. is prepared to deal with a possible pandemic, and stating that the economy is sound. Yet coverage of his comments in the mainstream press was full of analysis by purported experts proclaiming that the Corona Virus will lead to a recession, if not a full economic collapse.
FAKE NEWS COVER-UP
This is a classic example of "Fake News." The Corona Virus, even if it is declared to be a "pandemic" which spreads worldwide, would not be the cause of a global financial/economic catastrophe, but a trigger for a full-blown meltdown, which would eventually occur even if there were no Corona Virus, due to the global hegemony of neo-liberal economic policies. In fact, the LaRouche Movement has been warning for years that the causality is, in reality, the reverse of what is being reported: that it is neo-liberal economic policies, including austerity in public health spending, and outsourcing of such vital capabilities as food and pharmaceutical production resulting from so-called free trade policies, which has produced the system in which any disruption of supply lines—such as plant closing, quarantines, etc.—could lead to dangerous shortages.
Therefore, in addition to emergency actions to reverse these vulnerabilities, it is essential that the whole paradigm of neo-liberalism and its globalization dogma, which rejects security defended by policies of investment into the physical economy by sovereign nations, must be immediately replaced. Toward this end, a urgent appeal has been issued by Schiller Institute President, Helga Zepp LaRouche for emergency action, centered around international agreement to adopt the sovereign economic policies defined by Lyndon LaRouche's Four Laws.
The appeal opens by stating, "As the spread of the coronavirus is threatening to become a pandemic, the impact on physical economic production is already challenging both the supply chains for the industrial production system — in which the sovereignty of national economies has been replaced by international cartels creating extreme dependencies on those supply chains — as well as the very existence of small- and medium-sized industrialists. There are clear warnings, that such disruptions may cause another 'Lehman Brothers Moment' in the global financial system.
Zepp LaRouche continued: "The coronavirus crisis could soon become the trigger for the systemic collapse of this system, which is already hopelessly bankrupt — with $2 quadrillion in total financial aggregates — as the massive issuance of so-called repo credits by the Fed since September 17 of last year; the continued policy of quantitative easing; and zero and even negative interest rates by the ECB, the Bank of England, the Bank of Japan, etc. make clear. Within this system, the only choices left are: an uncontrollable chain-reaction collapse, which could be triggered by any one of many causes, such as the debt crises of emerging market countries, or the collapse of the U.S. corporate bond bubble or of major U.S. or European banks; or a hyperinflationary blowout. What happened in Germany in 1923 could be repeated in all countries that are part of this monetary system. The consequences of such a collapse would be chaos, the loss of millions of lives, and possibly war."
REAL ECONOMY VERSUS A BUBBLE
The narrative that an otherwise sound economy is threatened by a potential pandemic is a fraud perpetrated by those who are the creators, and beneficiaries, of the present bubble economy. These are the same financial establishment figures who pumped up the so-called mortgage-backed securities bubble of 2008, insisting right up until the late September take-down of Lehman Brothers that there was no bubble. These same fraudsters were responsible for the multi-trillion dollar bailout—estimates are that more than $23 trillion in bailout funds were provided to save the bankrupt banking and financial system—which was followed by swindles such as Quantitative Easing and zero percent or negative interest rates.
The huge volumes of fresh credit created by central banks in these scams flowed almost exclusively to the same speculators who created the pre-2008 bubble. This created a "wealth effect", most visible when looking at stock valuations. Following the 2008 Crash, the Dow Jones average, which is fraudulently considered a leading indicator of U.S. economic health, fell from 14,164 at its peak, to 6,594 by March 2009. Instead of following the advice of Lyndon LaRouche, to write down or write off the bad debt from the mortgage bubble, a never-ending flow of funds from central banks was used to allow continued trading of those assets, many of which were of indeterminate value, or no value at all!
By January 2017, when President Trump took office, the Dow had reached 19,732, which President Obama said demonstrated that his economic policies worked—despite the lingering high unemployment, and the replacement of high-wage manufacturing jobs with low wage jobs in the service and consumer sector. Unspoken—for obvious reasons—was the fact that the bailout funds enabled the speculators to create a new bubble, at the expense of the real economy of physical goods production. It is only through productivity gains in the real economy, fueled by scientific progress mediated through the introduction of new technologies, that real wealth is created, rather than profits reaped by speculators.
While President Trump initiated programs designed to bring back manufacturing, especially through breaking with the "free trade" and regulatory policies of his predecessors, he was hampered by neo-liberals in both parties in the Congress. Instead of proceeding with Glass Steagall banking separation, which is the first of LaRouche's Four Laws and a necessary step to limit speculation and prevent bailouts—and which Trump campaigned for in 2016—he became captive to the demands for "helicopter money" coming from City of London and Wall Street speculators, and their chorus of allies among institutional figures, such as Fed chairs Bernanke and Yellin, media blabbers and academics.
This led to a wild appreciation of stock values. The Dow went from just below 20,000 when he became President, to a peak of nearly 30,000 on February 19, before the "Corona Virus effect" hit. But also appreciating has been debt, of all sorts, much of which will never be covered. Corporate debt has hit an all-time high of nearly $14 trillion, with much of the new bond offerings being rated at near or below junk bond levels. Many corporations are now classified as "zombies", meaning they do not make enough profits in a year to cover interest payments on their debt. The zombie corporations are dependent on either high-interest loans, or so-called overnight repo loans, to stay in business.
Household debt has also hit a new record, as total credit card debt is now over $1 trillion, and delinquency and charge-off rates are up. Forty-three percent of households borrow or use credit cards to purchase necessities, which is not a healthy sign for a society so dependent on consumer spending (68% of U.S. GDP is from consumer spending, according to the latest statistics). Student debt is also over $1 trillion, and the auto industry has benefited from securitization of auto loans, modeled on the disastrously failed model of pre-2008 mortgage-backed securities.
As the percent of GDP from manufacturing, utilities, mining, and farming has dropped, the U.S. has become increasingly dependent on "financial innovation", such as securitization, to make money. Thus, while stock values appreciated, the real productive economy has been shrinking, as had been forecast by Lyndon LaRouche in his Triple Curve function. The modest gains made in the first two years of the Trump administration stalled, as a return to American System methods has been blocked by neoliberals in both parties, and their sponsors, who are dependent on the speculative bubble. These are the same networks now espousing the radical anti-growth, Green Agenda.
To divert attention from the disastrous effects of their policies, they have been putting forward a series of fake explanations as to why a "recession" may occur, while covering up the scandal of "repo" loans and the real, dangerous consequences of zero or negative rates. Among the scapegoats identified are a government shutdown, due to a failure to agree on a budget; a war between the U.S. and Iran, closing down the Persian Gulf; increased tensions between the U.S. and Russia; a new trade war with China; and even a "Green Swan" predicted by the BIS, that global climate change could cause a crash.
Don't be fooled by these swindlers and their influential policy shapers, for whom the Corona Virus has became the latest cover story, to divert attention from the immoral and criminal disregard for the well-being of the majority of the human race. The Corona Virus must be taken seriously, and addressed by competent and fully-funded measures, to be taken up jointly by leading nations in an emergency summit, as advocated by LaRouchePAC. But to succeed ultimately, to protect mankind from future threats, it is past overdue to end the economic, political, social and cultural paradigm of the neoliberals, and replace it with measures, beginning with LaRouche's Four Laws, which will dramatically increase the investment into the real, physical economy.