Executive Intelligence Review

LaRouche Addresses Students
in Monterrey, Mexico

The following is a transcript of a presentation which Lyndon LaRouche delivered on Feb. 24, 2001 to students and members of the LaRouche political movement in Monterrey, Mexico, along with a brief question-and-answer session that followed it.

Go back to 1971, when Nixon in August of that year shut down the Bretton Woods System, that is, a system of fixed exchange rates among major currencies. Since that time, the entirety of the world has suffered from that change in policy, and Ibero-America, Mexico and the nations of South America have suffered particularly under those conditions. The accumulation of the debt of the nations of Central and South America dates from that time, because the currencies were arbitrarily driven down in value through international speculation, chiefly through London markets, and then Mexico and other countries were forced to take on additional debt to compensate the creditors for the devaluation of, in this case, the peso. And this happened throughout the hemisphere.

Then you had 1982. As a result of those policies, I was down in Mexico at a meeting with López Portillo at that time, in the context of the Malvinas War then ongoing. And there was a press conference. During the press conference and meetings I had at that time, I warned that we were facing the probability that, by September of that same year, 1982, that the N.Y. and London gang would pull down the peso in a crisis--that everything was in motion for that. So, I wrote something in collaboration with a number of people in Ibero-America, called Operation Juárez, which is essentially a way of saying, "We should return to the relationship with Mexico, from the United States' side, that President Lincoln adopted when he ordered the French to get out of Mexico."

So, this policy was discussed and elements of it were being implemented by Mexico, and then tremendous pressure came from international authorities. Argentina and Brazil, which had agreed to support Mexico, were terrified and backed down, leaving Mexico alone to defend itself. At that point, with the De la Madrid government coming in, the Mexican government capitulated to demands of the United States, the British, and so forth.

Now, there was a point at which Mexico's internal conditions began to get progressively worse. At that time, prior to 1982, there were many plans, many objectives, especially in infrastructure building, which would have revolutionized Mexico and moved it upward. But all these things were stopped at that point, and there's been no opportunity for Mexico to move in that direction since.

Now, then it got worse in 1989-1990, when globalization occurred, which was really when the Soviet system collapsed and the British monarchy and the United States decided they were going to have a world empire. They called it "globalization"; that is, no nation had any sovereignty anymore, or only diminishing sovereignty, and would give up all protection and these kinds of arrangements. So therefore, the situation became progressively worse.

Now we've come to the point, that, as a result of all the things that were done, under these successive changes in policies since 1971, the whole world is about to go under in the greatest financial crash in all history. As a matter of fact, the crash is now ongoing. New York and Washington are pouring in vast amounts of money; they're printing money in billions of dollars. For example, recently, in order to bail out the NASDAQ index which was collapsing, they put in four and a half billion dollars in one day, repo agreements, to bail out the NASDAQ index.

Well, it can't keep on doing that forever. So, we're at a point where a crisis is building up on that account. This is true throughout the world. The markets in Japan, in Asia generally, in Europe, as well as in the United States, are collapsing, and the collapse is accelerating. It's going to be the worst financial collapse in world history. It's coming on now.

Now, at the same time, in the United States, we had a collapse of another type, internally. That is, because of the extreme deregulation which has been in progress, increasingly, since 1977, since Carter became President of the United States. So, the deregulation of public utilities and related things, has reached the point that there's an inflationary crisis that has developed in energy, with the effect you may have heard about in California and elsewhere, where California is in danger of being shut down. Energy prices for electricity have gone up as much as 400%, or even more in some cases in that state.

So there now is suddenly a reversal of thinking in the United States. Up until recently, it was almost impossible to get any significant support to oppose deregulation of energy and other things. Now, since the crisis hit in California and other parts of the United States, now, for example, we have the AFL-CIO executive committee moving for re-regulation. We have the fight for re-regulation occurring in many states, many localities, many constituencies. So, thus, a crisis has already brought us to the point that certain changes are occurring in the basic behavior of policy-making of significant institutions.

At this point, so far, the Bush administration is on a policy, which is insane from the standpoint of the reality we face. But the crisis will become worse. The crisis will become worse internationally.

So, at this time, we have to be, in a sense, very realistic and realize how severe the crisis is. But also realize that, in history, in general, it is often the case that nations and their cultures adopt self-destructive policies that sometimes take a generation or two, or sometimes longer, for the bad effects of those policies to bring those nations toward collapse, sometimes even worse than collapse. So, at that time, after a generation or two of bad policy, suddenly the point is reached that that policy has to be changed. Otherwise, the nation won't survive. Now, sometimes nations don't survive. But sometimes they change their policies. But they only do so, usually, under the threat of a crisis. So we have now come to a crisis. So the bad side is the crisis that's happening. The good side is, hopefully, people will respond to the crisis, the sense of crisis, to be willing to consider changing the policies, which are the cause of the crisis.

Thus, we look at it two ways. Realistically, don't underestimate the crisis. It's one that can wipe whole nations off the political map. It's that bad. On the other hand, the system isn't going to work for anyone, and therefore, even great powers like the United States are going to be forced to the wall on changing their policies in a more positive direction.

But, having stated that, as I have many times, and in many different ways--I'm an expert in this area, unfortunately--there are things we can do, if people are willing to change the policies. These measures will require cooperation among nations. It can't be done by one nation alone. There has to be cooperation. The whole world is bankrupt. They have over four hundred trillion dollars in estimated financial derivatives alone, in a world economy whose estimated gross domestic product, of all nations combined, is around $42 trillion. It's a hopeless situation. There's no way that a crashing financial system can be smoothed out, without wiping out and canceling large masses of debt, especially the derivatives debt. No possibility of survival of civilization, unless we cancel that debt. It's that simple.

So, we're going to have to make changes, and they are going to have to be made on a multinational basis, in the sense of cooperation among nation-states. The sovereign nation-state will suddenly become much more important, because when international financial authority is worthless, the only authority that remains is the authority of the sovereign nation-state, as an institution. Nation-states can cancel currencies, nation-states can create currencies, nation-states can create credit when there is no credit, and begin to move things upward, as was done during the last depression, or was done in Europe at the end of World War II and you had no currencies because they had been wiped out by the conditions of war, and so forth. So we're going to require nation-state cooperation.

Here's what we have in the line-up. At present, you have Western continental Europe, discounting the United Kingdom. The economy of Western Europe has depended for a long time on its relationship to Germany, within Europe. Germany has been the chief export driver on which, by chain reaction connections, the entire economy of Western Europe depended. Now Germany is in a losing position, as all the other economies in continental Europe are. They're all losing. They're on the loss side, not the profit side. And they're using up resources, and they can't go on forever. Industries are collapsing, folding up, and there's going to be a lot more of it. So, therefore, Europe requires an economic revival from within. To obtain that economic revival, the logic of the thing to do is to export to countries that need the exports. These countries are largely centered in Asia, in South and East Asia, where the greater part of the world population is.

The relationship with Asia also has to involve Russia. Russia is the keystone, is the link to East and South Asia. So therefore, you have already tendencies in Germany and elsewhere, within the European Union, to reach 25-year agreements on things like oil-for-technology agreements with Russia, Germany and other countries. Twenty-five year agreements! That's good. So, on the basis of extending credit to customers and some agreement for managing that relationship over a 25-year period, you can get a long-term export boom, a long-term recovery, in economies.

If the United States were to join with continental Eurasia, in such a reorganization, a rebirth of economic growth, then obviously, under those conditions, this would mean that even those parts of the world, like sub-Saharan Africa, which are now hopeless--there's nothing, the situation of the people in that part of the world is hopeless. The situation in Central and South America is rapidly deteriorating, the sovereignty of nations is disappearing, is vanishing from the map. Brazil is on the verge of being broken up, with a coup being orchestrated from the outside, from London, as the Teddy Goldsmith sideshow there in Pôrto Alegre illustrates. So, it's a terrible situation, but if we get that kind of cooperation, if the United States cooperates with Eurasia in that kind of rebuilding program, that would mean that a revival from the United States of a policy of the Roosevelt "Good Neighbor" policy or the Kennedy "Alliance for Progress" policy, would be in the cards.

This would mean, in that case, large-scale infrastructure development throughout Central and South America. Let me just explain something about that. Some of you may know it, some may not, so let me just make this clear. When the United States was being rebuilt, during and following the Depression, one of the facilities that Franklin Roosevelt used, was a facility called the Reconstruction Finance Corporation. The Reconstruction Finance Corporation and things like the Tennessee Valley Authority, typified the measures, which Roosevelt took to rebuild the US economy. Now, in that process, the way you got growth--in other words, in order to get 2 and a half dollars' worth of growth in the economy, you had to invest one dollar up front in long-term infrastructure--maintenance, re-building and expansion. That's the way it worked. For every dollar the United States put into large-scale infrastructure, this made possible a dollar and a half, approximately, of growth in the private sector--agriculture, industry, and so forth.

Now, in the case of Ibero-America--Central and South America--you've got the same problem, as in Mexico. Without very large-scale infrastructure development in transportation, power and water management, the ability to raise Mexico's level of internal income, real product income, matching the requirements of the population, becomes impossible. Now, suppose that we, the United States, in partnership with Mexico and other countries, say: all right, we will cooperate in the equivalent of one dollar of infrastructure building in Mexico and other countries--water management, transportation, power. And then we expect that you will also require to develop the credit resources to utilize the stimulus given to the economy by the infrastructure building, to build up the private sector. And we would expect a dollar to a dollar and a half of growth in the private sector, for every dollar spent in infrastructure.

And that kind of program, looking at the entirety of the hemisphere, looking from the U.S. border south to Cape Horn, on that basis, we could have a growth in Central and South America which would actually astonish the world. The population is very thin, overall. The natural resources are tremendous, but undeveloped, underutilized. Under those conditions, you could have the kind of relative conditions of growth that you saw in Argentina at the end of WWI. Remember, Argentina was probably fourth in standard of living in the world, at that time! It had major industry, high technology, agriculture which was developed at that point. And you could have, throughout much of South America, very rapidly, within a generation, a development to that kind of level of prosperity in the populations as a whole.

So, therefore, if we use our imagination, science and hard work, we can build a future. We just have to come to our senses, put a bankrupt system through bankruptcy reorganization, launch a new system as we've done before, get into cooperation among nations, between the United States and the continent of Eurasia, assistance to Africa, and a general program for development of Central and South America. Under those conditions, we have a great opportunity. It will take twenty-five years or so to build that. It won't come easily at first. There's going to be a lot of hard work. But it's worth it, and the opportunity is there.

So, we look at this thing in two ways. On the one side, you have a catastrophe beyond belief. But sometimes it takes a catastrophe beyond belief to shock the world into ending the mistakes it's making, and to simply go ahead and use the lessons of history and move forward. And that's the optimistic side.

Question: Under conditions of continuing hegemony of world capitalism, especially with it moving in the direction of neoliberalism, if we pose the issue of reconstructing the economies of the developing sector, and of the United States, how would one go about setting interest rates, how would one go about setting exchange rates, especially under conditions in which the dollar is heading toward a devaluation and a fairly significant bashing?

Lyndon LaRouche: Right. Well, first of all, there's a myth about capitalism. We have the British myth, and the British myth was never really industrial capitalism, in the real sense. The British monarchy has always been a predator government. It's based on the Venetian model of Old Venice, when Venice was an imperial maritime power. That's the way the British monarchy functions.

Now, in the case of the United States, you had periods in which we have operated in imitation of the British economy, to a large degree. This was true during the period from the election of Andrew Jackson until Lincoln's election. And we were pretty much a degenerate, pro-slavery, decadent British-style capitalism economy, to a large degree. During the latter part of the 19th century, after Lincoln's victory in the Civil War, the US emerged as the most powerful nation-state economy in the world. The most advanced in technology. Then, with Teddy Roosevelt, and Wilson, and Coolidge, we degenerated again. Then, under F.D. Roosevelt, we grew back. And we continued to prosper in the main, until about 1965, when we began to go downhill. And from 1971, we really went downhill.

So, in looking at the historical precedents, you have to make a distinction between what is called the American System of Political Economy, of Alexander Hamilton or Henry Carey or Henry Clay or Friedrich List, which is the United States model, which is also the basis for the Lincoln model and for the Roosevelt model, and was the basis on which Kennedy was moving toward, if he had not been shot. What we're talking about, therefore, is returning to a recovery model, very much like the FDR Presidency, in which the federal government takes a directing role.

Now the key thing to making government policy for a recovery like this, goes back to the 15th century Renaissance in Europe, out of which the nation-state came. Remember that for the first time in the 15th century, the idea of government was changed. Prior to the 15th century, every society that we know of, was based on the minority of the population keeping the majority in the condition of either wild animals or herded human cattle. That was the system. In the 15th century, a policy was introduced called the General Welfare, or Common Good policy, sometimes called the Commonwealth policy. This was first introduced to a nation-state under Louis XI in France, and later Henry XII in England. So that's where the model comes from. In this case, you're always talking about a pro-statist economy. You aren't talking about a so-called liberal economy. You could never have a recovery in a liberal economy, except by eating other people, eating other nations.

So, in a self-recovery, in an equitable organization among nation-states for economic recovery, the nation-state is key. It means protectionism, regulation, as we had before. And it means essentially that about 30-40% of the total national economy will either be in the government sector, such as railroad systems, power systems, and so forth, or will be in an area as private utilities, but which are government regulated. That's the key thing.

Also, we require--as we should have learned from past experience--a system of relatively fixed exchange rates among currencies. Very simply, you cannot develop industry and protect infrastructure, if international borrowing rates on long-term investment fluctuate much above 1-2% per year, simple interest. When our currencies fluctuate in price, then as you saw under the post-1971 system, what happens is that lenders compensate for fluctuations in currency by devaluing them. And they charge much higher interest rates to compensate for the effect of devaluation. So therefore, you need a fixed exchange rate system.

You need a statist economy-that is, a large private sector, probably 60% of the economy, 40% or more public sector, largely government operations or government-regulated public utilities--and in that way the economy will work. The key is to have fairly low interest rates on credit. To be able to issue credit for up to 25 years, at 1-2% simple interest, in terms of the overall rate. If you can do that, then you can rebuild an economy. If you have an educational system, if you have a good transportation system, if you have adequate power, sanitation and so forth, the economy will grow, if the good will among the people is to make it grow.

So, I think we obviously have to deal with bringing to an end the kind of liberal capitalism we associate with the Mont Pelerin Society or the American Enterprise Institute or the British monarchy generally--the Adam Smith model. We've got to go to the American System model, whose names are usually Hamilton, Carey and List, which is the same thing as Lincoln's policy or Franklin Roosevelt's recovery policy.

Question: What can we do about the problem of the foreign debt in a country like Mexico? What alternatives does the government face? The debt is completely unpayable. How can it be reduced? You can't possibly have the kind of infrastructure projects you're talking about under conditions of this kind of debt. What can be done?

LaRouche: We're going to have to have international agreements to wipe most of this debt out. Reorganize it or wipe it out. Take all of the top level of it, wipe it out. We're going to have to do that inside the United States, too. We're going to have to wipe out, in one way or another, most of the debt.

The procedure to use is the following. During the 1930s, in the process of organizing the recovery of the United States from the 1929-1933 Depression, there was a change in bankruptcy law. This is called a Chapter Eleven bankruptcy. Now, in such a bankruptcy, you have three parties in the bankruptcy, apart from the courts. One, of course, is the creditors. The other is the debtors. But then there is the third party, which is the most important, and that is the public interest. It was called in history "the principle of equity."

For example, in California, if you have a Chapter Eleven bankruptcy in California of a public utility, as can happen because of the deregulation, in that case the court would take the creditors, the debtor company, but also the citizens. Because the citizens have a right to their energy. The economy requires the industries to function, which must have their energy. So therefore, the court has to make a decision, as in bankruptcy reorganization, to produce a functioning, recoverable economy, whether it's a private industry or whether it's an entire nation.

So, you want to apply this Chapter Eleven concept, as it's called in the United States, to these kinds of situations. First of all, let's take financial derivatives, skimming off the top. They're all cancelled, because derivatives are only gambling debts. They do not represent an investment into the account of the country involved. They're gambling debts. Two guys decide to gamble, one owes the other. Who knows? Who cares? Wipe them both off the books. Outlaw gambling.

Then you have the way in which debts were accumulated in Ibero-America, through the floating exchange-rate system. The fact that the floating exchange-rate system was a terrible mistake--which the present crisis proves--means that there were a lot of inequities in that. Therefore, we have to make a decision. Do we want to pay the dead, or do we want to feed the living? And, if you want to keep a nation alive, which is the future--the fundamental interest that a government must defend, is the future of the nation--then agreements reached among nations must be: we are going to guarantee the future of our nations as partners.

And therefore, you make an agreement on reorganizing the debt, in several ways: you may in some cases suspend all interest payments--freeze the debt and suspend all interest payments. Reorganize it. You may cancel some of it, as you do in any bankruptcy reorganization. But the basic objective is to keep the economy functioning and growing. And that becomes the overriding rule.

When governments realize that their own survival depends upon such agreements, then they will accept such agreements. Obviously, up to that point, they will not. But we're getting to the point where the conditions under which governments have to face reality, and accept the fact that such agreements have to be made, then they'll make it.

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