The Vatican's new Lebanon initiative William Brock talks to EIR about interest rates India targeted by Khalistan separatists

EIR's LaRouche-Riemann model beats all other economicfor ecasts EIR

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1. Prospects for Instability in the Arabian Gulf gence input, stemming from Qaddafi's training at A comprehensive review of the danger of instabil­ Sandhurst and his ties to the Senussi (Muslim) ity in Saudi Arabia in the coming period. Includes Brotherhood. Heavy emphasis is placed on con­ analysis of the Saudi military forces, and the in­ trol over Qaddafi exercised by elements of the fluence of left-wing forces, and pro-Khomeini net­ Italian "P-2" Masonic Lodge, which coordinates works in the counry. $250. capital flight, drug-running and terrorism in Italy. Also explored in depth are "Billygate," the role of Armand Hammer, and Qaddafi's ties to fugitive 2. Energy and Economy: Mexico in the Year 2000 A development program for Mexico compiled financier Robert Vesco. 85 pages. $250. jOintly by Mexican and American scientists. Con­ cludes Mexico can grow at 12 percent annually for 6. What is the Tr ilateral Commission? the next decade, creating a $100 billion capital­ The most complete analysis of the background, goods export market for the United States. De­ origins, and goals of this much-talked-about tailed analysis of key economic sectors; ideal for organization. Demonstrates the role of the com­ planning and marketing purposes. $250. mission in the Carter administration's Global 2000 report on mass population reduction; in the P-2 scandal that collapsed the Italian government 3. Who Controls Environmentalism? this year; and in the Federal Reserve's high A history and detailed grid of the environmen­ interest-rate policy. Includes complete member­ talist movement in the United States. Analyzes ship list. $100. sources of funding, political command structure, and future plans. $50. 7. The Global 2000 Report: Blueprint for Extinction A complete scientific and political refutation of 4. Prospects for Instability in Nigeria the Carter Administration's Global 2000 Report. A full analysis of Nigeria's economic develop­ Includes a review of the report's contents, demon­ ment program from a political standpoint. In­ �trating that upwards of 2 billion people will die if cludes review of federal-state regulations, analy­ its recommendations are followed; adetailed pre­ sis of major regional power blocs, and the envi­ sentation of the organizations and individuals ronment for foreign investors. $250. responsible for authorship of the report; analysis of how the report's "population control" policies 5. The Real Story of Libya's Muammar Qaddafi caused the Vietnam war and the destruction of A comprehensive review of the forces that placed Cambodia, EI Salvador, and Africa; analysis of en­ Qaddafi in power and continue to control him to vironmentalist effort to "re-interpret" the BitJle in this day. Includes discussion of British intelli- line with the report. 100 pages. $100.

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Make checks payable to: Executive Intelligence Review, Dept. MC·1, 304 West 58th Street, 5th floor, New York, NY. 10019 (212) 247-8820, �------Founder and Contributing Editor: Lyndon H. LaRouche, Jr. Editor-in-chief: Criton Zoakos Editor: Nora Hamerman Managing Editor: Susan Johnson Features Editor: Christina Nelson Huth Art Director: Martha Zoller Contributing Editors: Uwe Parpart, Nancy �pannaus, Christopher White the Special Services: Piter Ennis From Managing Editor

INTELLIGENCE DIRECTORS: Africa: Douglas DeGroot Agriculture: Susan Brady Asia: Daniel Sneider Counterintelligence: Jeffrey Steinberg Economics: David Goldman European Economics: Laurent he Eurodollar markets are presently at the center of world financial Murawiec attention.T The precarious state of underdeveloped-sector and East Energy: William Engdahl Europe: Vivian Freyre Zoakos bloc debt, most of it Euromarket debt, has shaken even the most Ibero-America: Robyn Quijano, complacent and narrowly preoccupied bankers. Dennis Small Law: Edward Spannaus In this week's Economics section, we present the evidence that Middle East: Robert Dreyfuss certain London and Swiss strategists intend to use a chain of debt Military Strategy: Steven Bardwell Science and Technology: defaults 1) against the borrowers, who will be deprived of the financial Marsha Freeman ' means to sustain their economies, and restored to a condition of Soviet Union and Eastern Europe: primitive degradation from which, in the view of the Anglo-Swiss Rachel Douglas United States: Graham Lowry strategists, they should never have had the arrogance to emerge; and 2) against the United States, allocated the privilege of honoring INTERNATIONAL BUREAUS: Bogota: Carlos Cota Meza whatever portion of the $1.7 trillion offshore dollar-denominated Bonn: George Gregory, Rainer Apel loans these central bankers choose to force into default. Chicago: Paul Greenberg Copenhagen: Vincent Robson "Honoring" those Eurodollar claims, EIR founder Lyndon H. Houston: Harley Schlanger, LaRouche, Jr. has emphasized, would contradict the U.S. Constitu­ Nicholas F. Benton Los Angeles: Theodore Andromidas tion's definition of the national currency. The Euromarkets are an Mexico City: Josefina Menendez outlaw entity, whose offshore dollar deposits and dollar-denominated Milan: Stefania Sacchi, Marco Fanini loans are exempt from reserve requirements, U.S. regulation, and Monterrey: M. Luisa de Castro New Delhi: Paul Zykofsky U.S. taxation. Without reserve requirements, Eurodollar bankers Paris: Katherine Kanter, have piled a vast mUltiplier of chiefly non-productive loans on a Sophie Tanapura Rome: Leonardo Servadio relatively narrow base of deposits. It is true that, since the early 1960s, Stockholm: Clifford Gaddy the U.S. citizenry has allowed this monstrosity to expand, but it is not United Nations: Nancy Coker Washington D.C.: Richard Cohen, true that they are obliged to debase the U.S. dollar by bailing out the Laura Chasen, Susan Kokinda offshore shell-game. Wiesbaden: Philip Golub, Mary Lalevee, Thierry Lalevee, Barbara Spahn The National Democratic Policy Committee, the nation's fastest­

Executive Intelligence Review growing political action committee, is petitioning the President and (ISSN 0273-6314) ispublished weekly(50issues)except forthesecond Congress on the Eurodollar question at the behest of Mr. LaRouche, week of Julyandfirstweek of Januaryby NewSolidarily InternationalPress Service who chairs the NDPC's advisory board. The U.S. government, states 58thSlTeet. New York. N.Y. 304 W. 10019. the petition, must declare "that it recognizes no lawful responsibility Executive Inteiligence Review, InNachrichten Europe: Agentur GmbH. to redeem any form of U.S. dollar except lawful issues of actual Postfach 2308. D. 6200 Wiesbaden Tel: 30-70-35 Executive Directors: Anno Hellenbroich. currency notes presented. Fictitious dollars issued such as Eurodollars Michael Liebig EIR. are funny money and fully the responsibility of the financial institu­ InFrancisco Mexico: Diaz Covarrubias 54 A-3 Colonia San Rafael. Mexico OF. Tel: 592-0424. tions which actually issued the credits. They will not be redeemed by the U.S. government." O.T.O.JIJptlnsubscription Research Corporation. sales: Takeuchi Bldg .• 1- 34-12 Takatanobaba. Shinjuku-Ku. Tokyo 160. readers, whether American citizens or not, are in a position to Tel: (03) 208-7821 EIR Copyright c 1982 New Solidarity ensure that Washington, D.C. gets this message. We ask you to use all International Press Service All rights reserved. Reproduction in whole or your influence and resources to obtain a successful conclusion to this in part without permission strictly prohibited. Second-class postage paid at New York. matter. New York and at additional mailing offices. Subscription by mail for the U.S.: . 3 months-$ I 25.6 montbs-$225. year-S3%. Single issue-S 10 Academic1 library rate: $245 per year ITillContents

Departments Economics

7 Interview 4 Volcker pledges to William Brock , U. S. Special print money ... for Trade Representative. the British There is evidence that, at the 14 Energy Insider latest BI S meeting, the Fed Who shot J. R. 's oil boom? Chairman agreed to put the power of the U.S. Treasury behind the Eurodollar fluff. 33 Interview Raymond Edde, potential candidate for the 11 Currency Rates presidency of Lebanon. 12 SID promotes the 42 Interview 'Global Village' Alberto Oliart, Defense The Society for Minister of Spain. International Development, despite its name, is acting as the Inside Canada heir of the British 49 Colonial Office. Banking system ready to blow. 13 Agriculture Block announces 1983 Middle East Report 50 wheat program. How Sharon intends to cash in. 15 Trade Review 51 Dateline Mexico 16 Business Briefs Overtures from Armand Hammer. In a July 20 EIR feature, "Separatist Terror: Old 64 Editorial Nazis Play the Soviet Card" The Buckley loyalists by Lyndon H. LaRouche, to Khomeini. Jr. , a line was omitted on page 26. The final paragraph on the page should begin: "No longer are "minorities" defined as "oppressed" by want of modern technology, education, modern medicine

and hygiene.... " Volume 9 Number 28 July 27, 1982

Special Report International National

30 Reagan faces a war 54 'Economic depression on two Mideast fronts the key foreign-policy issue' 32 Vatican undercutting An open letter to the U.S. the Jesuit gameplan? Senate by EIR founder Pope John Paul's Mideast Lyndon H. LaRouche on diplomacy is aimed at the steps required to reverse restoring the integrity and Alexander Haig's sabotage. sovereignty of Lebano�. 56 U.S. turning over The latest res.ults the leadofthe to LaRouche-RiemannJapan eco­ nomic model show that the U.S. economy will 34 PO E: London behind either be buried in a financial crash or reduced to the Roberto Calvi case A report from the rubble by Paul Volcker's continuing high inter­ international plasma physics est rate regime. Above, four U.S. Steel blast Documentation: An furnaces, idle since early are demolished interview with Fiorella conference in Goteborg, 1980, with dynamite charges. Operto, head of the Sweden. Japan and India, European Labor Party in not the U. S. and U.S.S.R., Italy, who has filed a legal now have the highest­ LaRouche-Riemann 18 brief in Milan documenting powered programs. model: unsurpassed charges that the Grand economic record Mother Freemasonic Lodge 59 The New York Why the other models of England masterminded. Waterfront Commission: have failed. Banco Ambrosiano's a command center financial dealings, and for organized crime Two paths into excerpts from the brief. 20 A followup to our April 20 depression for the expose of the Thomas American economy 38 PAN party launches Dewey / Roy Cohn/Dulles A financialcrash or a post-election 'movement family group in the GOP. continuation of current of national insurgency' industrial trends. In Mexico. 62 National News Documentation: La Rouche­ Riemann computer 40 Aspen's Ibero­ graphics. American strategy A new report. 25 U.S. industrial collapse: worse than the Behind the Khalistan First Great Depression 44 separatist movement A look at the destruction A threat to India. of sectors essential for recovery. 48 Global 2000 bears down on Yugoslavia 28 Debt burden and industrial collapse: the Another face of separatism. fraud of the consumer­ led recovery 52 International Intelligence ITillEconomics

Volcker pledges to print money... for theBritish by David Goldman, Economics Editor

The Bank fo r International Settlements' Annual Meet­ 'People don't know bow bad it is' ing, held this year at the bank's Basel headquarters July "Pessimists among the world's central bank gover­ 11-12, is usually the most secretive of all financial gath­ nors estimate that more than $200 billion of outstanding erings; the BIS, the "central bank fo r central banks," is international debt is of doubtful or potentially dubious beholden to no government but that of its host, Switzer­ quality. This emerged from a meeting of central bankers land, and weaves its web behind closed doors. For the at the BIS, at which delegates attempted to assess the first time since the institution's 1931 founding, a part of degree to which international lending poses a threat to its proceedings were opened to the press, by the Bank of the international banking system. There are widespread England. Contrary to protocol, the British made known disagreements about the extent of the problem, how­ that the assembled central bankers were contemplating a ever, and not all those present shared the gloomy view global financial collapse. of the pessimists," wrote the London Financial Times Yet, as striking as the Bank of England's report was, July 14, on the strength of Bank of England briefings. an even more secret, more astonishing subject of delib­ "The main trouble spot is Eastern Europe, where total eration was kept from the press: an agreement in princi­ foreign debt is $80 billion. But concern now growing ple to make the United States treat $1 trillion in offshore about Latin America, with total foreign debt of $220 bank deposits as they were official obligations of the billion, has been heightened by a disclosure that Mexico U. S. government ifin the event of a banking crisis, an has had to draw on its credit line with the Federal action which would collapse the U.S. dollar's interna­ Reserve to supplement its meager cash resources." tional value, by as much as 40 percent, according to Bank To this, a Bank of England official added: "Ameri­ of England estimates. EIR correspondents in 10 financial can banks are up to their eyeballs in Latin American capitals worked together to fe rret out a story which a debt, and no trigger is needed to detonate that. Very Federal Reserve officialbo asted "we will never spill": if soon, the U.S. banks will be presented with a lot of non­ a financial panic occurs, the American central bank has serviced accounts. People around the world do not made a commitment to provide liquidity in unlimited know how bad the situation is as well as we know it. At amounts to fo reign central banks who need dollars to that point, just one instance of undermined confidence prop up their own banks, or local branches of foreign in the U.S. banking system combined with the domestic banks. That amounts to a Federal Reserve obligation to crisis in the United States, and off they go. Mexico, directly bailout every troubled bank operating in the Argentina, Brazil-they'll go, in that order. Other coun­ dollar market in the world. We will explain this in more tries may hurt, for example German banks, or Austrian detail-and also why it may not happen-below. First, banks, which are in any event state-owned and must be the Bank of England's extraordinary version of events. bailed out.

4 Economics EIR July 27, 1982 The City ofLondon

"But it is the United States that you ought to watch. the London Eurodollar market, still the biggest center It is not a matter of 'European retaliation' against the of offshore banking, is the Federal Reserve. pipeline sanctions or financial warfare against the East Central banks have never agreed as to which one of bloc on the part of the United States. That just isn't them would be responsible to pick up the pieces of a necessary. The domino effect is automatic. We are failure of a branch of a foreign bank in their country. beyond the stage of fi nancial warfare, you understand. The Bank of Canada insists, for example, that the New For the last few years, the United States led financial York branches of Canadian banks, which do little but warfare against Europe, and Europe lost out. The U.S. borrow dollars from the New York banks and re-Iend has got to realize that its interest rates are untenable, them through their Montreal head offices, are not the and their result is catastrophic. We are probably beyond Bank of Canada's responsibility; since the Canadian the point at which things could have been controlled. bank's New York outlets are chartered under U.S. law, We'll have to write off the whole debt of the East bloc, the Bank of Canada says that the Fed must be respon­ Latin America, and many large U.S. corporations." sible should any problems arise, which is a more than The Bank of England spokesman added, "Our Lon­ hypothetical problem. This agreement to disagree, fol­ don banks are much more solid, in a sounder position lowing the collapse in July 1974 of the West German than banks on the continent." But that is hardly a Herstatt Bank, goes under the official name of the general view. A senior Swiss monetary official explained "Basel Concordat." that the Bank of England "was trying to scare the Federal Reserve Chairman Paul Vokker, who led central banks into taking more sweeping measures to the American delegation to the Basel annual event, set deal with the crisis because it is afraid that the London the United States up fo r disaster in threefold fashion. market may collapse, and the Bank of England will First. the unabating high-interest-rate posture of the have to take responsibility for the entire mess. Under­ Federal Reserve ha� put the world monetary system standably, they are trying to shift responsibility to past the point of bankruptcy, as the Bank of England's somebody else." background discussions correctly argue. Secondly, the Both the British and Swiss statements are true in Federal Reserve represented the ''I'm all right, Jack" their own way, but they leave out the main item on the attitude toward this imminent bankruptcy denounced BIS agenda, an American financial commitment so by the Bank of England. Playing the insensitive heavy, huge that a leak of its contents might subject Federal the Federal Reserve told the gathering that the Fed Reserve officials to suspension from Washington lamp­ believed "no crisis is imminent," as a Volcker aide put posts. The "someone else" that the Old Lady of Thread­ it. In particular, the Federal Reserve chairman de­ needle Street has in mind to pick up responsibility fo r nounced the recent action by European central banks to

EIR July 27, 1982 Economics 5 assemble a $SIO million loan package for Hungary, The limit to such an operation is the ability of the following the U.S. administration's economic warfare fundamentally weak American dollar to bear such obli­ posture towards Eastern Europe. The Europeans believe gations; after an initial period of money creation and not only that the United States has endangered their dollar collapse a banking crisis would ensue in any fundamental interests by conducting economic warfare event, because the dollar would have reached a point of against the Soviets, but that the administration and weakness past which the Federal Reserve could issue no American banks are intent on instigating a German further such swaps. banking crisis to punish the Germans for lending to the East. This was the subject of the title story in this week's The Ambrosiano case issue of Germany's leading newsweekly, Der Sp iegel, However, it is doubtful whether the plan will click and is widely believed by German bankers otherwise. into motion in any event; it depends on the willingness of the European central banks to play the Bank of Pumping out dollars England's game. The present near-bankruptcy of the Third, the Federal Reserve has committed itself to Italian Banco Ambrosiano, whose operations fit in swallowing the entire Eurodollar mess. The potential somewhere between the purposes of the Propaganda-2 consequences fo r the dollar may be expressed in simple Freemasonic Lodge (EIR, Ju� 7, 198 1) and those of balance-sheet terms: the present fo reign liabilities of the the Vatican, is a case in point: central bankers describe United States government are less than $200 billion, its far-reaching global operations as a, "classic case" of including foreign holdings of U.S. government debt central bank division of responsibility. It happens that and Federal Reserve notes. Under the responsibility its Luxembourg subsidiary owes $1 billion on the assumed by the Fed at the Basel meeting, these could interbank market to City of London banks, in particular rise overnight by $1 trillion. As EIR has emphasized, at National Westminster and Midland Bank. The Bank of least five-sixths of the Eurodollar market consists of Italy has unsuccessfully demanded that the Vatican's deposits generated through the potentially infinite financial organization, the Istituto per Opere Religiose banking multiplier of the reserve-free Eurodollar mar­ (lOR) take responsibility fo r Ambrosiano, on the du- ket; that is to say, they represent "bank money," rather . bious grounds that the Vatican lOR had, at one time, than "Federal Reserve money." If the Fed steps in to issued some guarantees fo r Ambrosiano funding oper­ rescue institutions which have lent this bank-created ations, long since lifted. The Bank of Italy also unsuc­ money to bankrupt borrowers, it turns $1 trillion or cessfully attempted to persuade the Italian government more in Eurodollars into Federal Reserve money, or to bail out the bank's foreign liabilities, according to U.S. government obligations-at which point the dollar Italian press accounts. will lose 40 percent of its value or more, according to As of July IS, a six-bank consortium has agreed to Bank of England estimates, i.e, fall from OM 2.S0 to stand by Ambrosiano's domestic Italian operations, and OM I.S0. the Vatican-with an eye toward developments in Latin The mechanism under the secret Basel agreement is America-has agreed to support the operations of the the exchange of "central bank swaps." That is, if banks bank in Argentina and Venezuela. No one is backing in one area suffer a run on their deposits in the up the Luxembourg operation, through which Banco "interbank market," i.e., if other banks pull their money Ambrosiano assumed all of its interbank debt! The out of banks in trouble or suspected of being in trouble, British are beside themselves. "This is a holy raving the entire credit system would implode; at least $800 mess," said a source at a London bank which handles billion of the total $1.7 trillion offshore market consists Ambrosiano's clearing operations. "If the Italian gov­ of such interbank loans. Under such circumstances ernment doesn't change its hard line on bailing out · central banks other than the Fed, which alone has the Ambrosiano, there could be a general crisis of confi­ power to create dollars, would not have the dollars dence." Italian press accounts say that both National available to replace the bank money that would disap­ Westminster and Midland could fail as a result, proba­ pear through the reverse-multiplier of a banking con­ bly a vast exaggeration of the direct impact of an traction. These central banks, short of dollars, would Ambrosiano fa ilure, if not of its ultimate consequences. issue their own IOU's, namely, foreign-currency Treas­ European banking sources describe Ambrosiano's pay­ ury bills to the Fed in return for cash dollars. The effect ments status to its banking creditors as "a morato­ would be identical to the Fed creating dollars by rium." purchasing U.S. Treasury bills on the open market, The result could well be that the Bank of England which is the way in which the Fed (under existing, spoke truthfully about the banking system in general, regretiable arrangements) creates liquidity: dollar hy­ and the Swiss official quoted above about the British in perinflation, and dollar collapse. particular.

6 Economics EIR July 27, 1982 Interview: U.S. Special Trade Representative

Brock: 'We don't know how to bring down interest rates' A comment by U.S.Tr ade Representative William Brock agreement on the issue of trade with the Soviets has had on interest-rate policy during an exclusive June 29 inter­ a negative impact on Western security in recent years. view with Executive Intelligence Review illustrates how We have been asked to lead fo r a long time, but when we the Reagan administration traps itself into carrying out do, it seems people don't like the direction. Well, that's a Carter-era policies that have results opposite to what the matter of disagreement that I hope is temporary." administration wants. Brock told EIR he agrees with the In fact, this issue, along with high interest rates, led contention that continued high interest rates may prove Economic Planning Agency Director Toshio Kamoto to a bigger security threat to the West than the Soviet declare July 8 that Japan "should keep in step with the Union. Yet, he continued, the administration does not European Common Market [which faces analogous know how to bring the rates down. Moreover, as Trade sanctions against their natural-gas pipeline deal] and not Representative, Brock has carried out many trade poli­ fo llow Washington blindly," extremely unusual lan­ cies, often designed by others, made "necessary" by the guage in postwar Japan. high interest rates. This includes, as he told this corre­ In the following excerpts from the June 29 interview spondent in an earlier conversation, pressuring Japan to with Mr. Brock, EIR's Richard Katz raised the issue of raise its interest rates (see EIR, June 29). what these policies and America's economic decline Similarly, Brock worries that high levels of economic meant fo r continued American world leadership. friction, combined with a perception of declining Amer­ ican economic and political power, could divide the Katz: A major issue between the U.S.and Japan is the West. Yet, this concern does not seem to square with question of credit and interest rates. I remember after administration policy on the one issue-aside from high your discussions with the Japanese last year on restrain­ interest rates and bilateral trade friction-that has done ing auto exports here, you repeatedly said that Japan's more to divide Tokyo and Washington than any other in restraint was not going to help our auto industry at all recent memory: the administration's June 19 extension unless U.S. interest rates came down. It has proven to be of anti-Soviet sanctions to Japan's oil and natural gas a fully accurate forecast, and one which EIR also made cooperation project with the Soviet Union in Sakhalin, at that time. Yet now, it seems that you're saying the Siberia. Washington disregarded several personal ap­ opposite . You charged in your National Association of peals from Prime Minister Zenko Suzuki, who pointed Manufacturers speech that the Japanese have a managed out that this was a "natural project" for energy-short credit system which keeps their rates artificially low. Japan. Washington not only forbade American firms When we spoke the next day, you said they should fr om taking part, but is also trying to prevent Japanese eliminate this and allow their interest rates to rise to be firms from using American-licensed equipment in the equal to rates here. This seems to be opposite to what effort. you said last year. What accounts for the difference? Upon hearing of the decision, Tokyo announced it Brock: Not at all. I have suggested that they fu lly open would file a diplomatic protest and would go ahead with their capital markets to the extent that ours are open, the proj ect anyway-the firsttime in postwar history that that we be allowed to borrow, loan, buy, and sell freely Japan has embarked on a major economic cooperation on the Japanese capital markets. If that were to occur, project with the Soviet Union against American wishes. the short-t.erm impact would be that American borrowers Brock told EIR that the administration's decision will would borrow in the yen market, and that would fu rther not be reconsidered, and said he doesn't "think it will be depress the value of the yen, and make our competitive a source of division in the long term... . Our lack of situation even worse. At least, that's the conventional

EIR July 27, 1982 Economics 7 economic argument. force. Though there is a fascination here with free enter­ The reason I argue for freeing the capital market is prise at the current time, the U.S. has done similar things. not to achieve any short-term gain or loss. Rather, I NASA is similar, though perhaps we were less conscious fundamentally believe, the most important aspect of a about what we were doing. I think the Roosevelt pre-war free-flowing commercial relationship is a free-flowing mobilization was similar. Particularly the 19th-century capital system. To the extent that we are fully equal in industri!!lization of our nation was similar. The Japanese Japan as they are here, we will measurably reduce our say-and I agree-why can't the U.S. do similar things, trade problems and barriers, both cultural and govern­ both in cooperation and healthy competition with Japan mental, and we will closely intertwine these two countries and our other allies, fo r the benefit of both? that mean so much to each other. That is worth a short­ On the interest rates, Japanese I have talked to said term price . But I do not see what I have suggested as they view the high interest rates as a greater security either contrary to what I said last year, or being said to threat to the West than the Soviet Union, becaule of gain short-term interest. It might be somewhat damaging what it is doing to the economy, and the industrial base. in the short-term, but the long-term implications are How do you respond to the comment that the interest fundamentally important because they allow a much rates are undermining the West in a way that the Soviet closer interweaving of these two countries economically. Union is not even capable of trying? Brock: I think that's quite possibly so. The problem is Katz: With the Euromarket system in Europe, and the that those who are so quick to point out the hazard of offshore banking system here, there seems to be a "mul­ high interest rates are remarkably tardy in suggesting tinationalization" of credit as well as of manufacturing how to get them down. There doesn't seem to be the concerns. Is that something you see as a goal, or as a same alacrity in providing answers. tendency? This administration has done what is traditionally Brock: I see it as a goal, yes. It is part and parcel of necessary to bring interest rates down. We've brought Japanese industrial policy to control the allocation of down the rate of inflation by 60 to 70 percent in the credit, just as they control the allocation of other re­ period of 18 months-an incredible accomplishment. I sources-government support, governmental emphasis, can't think of another country that has done so well. pricing policy, purchasing. Interest rates haven't fa llen. We've cut our discretionary Japan has a marvelously sophisticated talent to select spending by a third. I don't know of another country in certain industries for emphasis. How they get away the world that's done that. politically with the consequences of ignoring other areas, You can't charge us with a lack of political will. There I don't know. Politically it would not be possible to do is no economic reason fo r interest rates to be at this level · that in this country. But they have been succes in real terms. Maybe there's something happening that sful so far. The problem so far is that-and this is particularly we just don't understand yet. We don't know. We think obvious in the high-tech areas-by selecting certain seg­ they will come down. ments of industries, or even whole industries, for special I don't think any of us would argue that the contin­ treatment, they effectively are skewing the resources of uation of this level of interest rates could do more the entire society-governmental and private-to highly violence to our ability to sustain our economic growth critical industrial areas. These areas then become super­ than almost any other act other than war. competitive in the world industrial system. As a conse­ quence of their desire to take all of their market, they Katz: EIR has pointed out that at least about $75 billion have created negtive responses in other countries, here of the budget deficit can be directly or indirectly attrib­ and in Europe. This is not healthy fo r the trading system. uted to the effects of high interest rates. Moreover, the If they opened up their system, if they let the market same thing happens with corporate budgets. About 60 to dynamic work, and not simply governmental determi­ 70 percent of the new money supply being created in this nation-a true market dynamic-you would have much country is being used by corporations just to pay off past less potential for the kind of trade tension that we now debts, not to invest in new production or new investment. · see in the high-tech area. And therefore, the high interest rates have beco.me a sort of self-feeding spiral. This is why the high rates have Katz: They get away with it politically because it remained. I wouldn't say inflation has come down. I works .... would say corporations can no longer pass along their Brock: Of course it works. costs . So, we're seeing a wave of bankruptcies we have not seen since the Depression. Katz:· They've raised the ,living standard of their popu­ It would seem to me that a political decision has to be lation, and they've raised the skill level of their labor made to change Fed policy-and some of the managed

8 Economics EIR July 27, 1982 credit policies that the Japanese use, which you criticize, Katz: First, simply cut the discount rate, ease the tight might well be done in the United States.T hat would help money. You would bring down interest rates in the. very production and productivity. short-term. Brock: What changes in Fed policy would you suggest But I think also you would need a managed two-tier that would bring rates down? I'm not trying to debate. credit system in which the Federal Reserve, through I'm curious. decisions of the administration and Congress, would be willing to supply credit at very low interest rates, 2 to 4 Katz: I think what you have now is a Fed policy which percent interest rates-i.e., low by current standards but directs-by nature of the high interest rates themselves­ normal by the standards of the 1960s-toward produc­ incentive for credit away from productive investment tivity-enhancing types of investments or normal produc­ into non-productive.... tion: housing, steel, etc. And maintain penalty levels of Brock: I don't disagree at all. How would you change interest rates fo r non-productive types of investments. I that? think there are also things that can be done in terms of

brought against a non-Comecon nation, the issue of political motivation will no doubt increase as Brockon the Japanese if, re­ ported in the July Detroit II News, the Japanese computer espionage case pharmaceutical firm Green Cross is about to' be Se ven d ays i nterview with Mr. Brock, charged with trying to steal before EIR's secrets on the manufac­ blaring newspaper headlines announced that em­ ture ofthe anti -can r drug interferon. 16 ce ployees of the Japanese giant firms Hitachi and Mit­ In his June 29 EIR interview, Mr. Brock flatly subishi had been charged with attempting to steal denied the political entrapment charge. "It would be computer so ftwa re secrets from IBM. In this case the extremely dangerous and unwisely self-serving of per­ FBI used against the Japane e firms the same entrap­ sons in Japan to view this case as be n s i g politically ment tactics it had used to set up Congressmen and motivated. That simply is not the case. . . . The danger Senators in the "A bscam" affair. In. separate inci­ with that kind of response is that certain individuals dents, itac i and Mitsubishi employees were alleg­ -might then make the istake of believing that the H h m edly offered more than $600,000 to buy IBM secrets in business practices are the in the two same countries. meetings with an FBI dummy corporation named l they not if this sort of Obvious y are thing is accepta­ G enmar Associates and a f orm er FBI agent serving ble in Japan." asi a security consultant to IBM. Hitachi had been Brock said the case "may make h more it slig tly induced to hold the meetings by M a Paley , a fo rmer difficult for us to stop pro t oni x tec i st legislation. It will IBM employee, who, as head of Palyn Associates, had increase the tem t ti somebody Congress p a on for in to been Hitachi's paid consultant for eight years. take punitive action." However, Brock a , dded "in the The Japanese press charges that the case was finalanalysis, it won't change anything this year. The a politically motivated entrapment operation; administration Mainichi is committed to stop protectionist leg� labeled the case "Japscam." In private comments is!ation. to We are convinced we have the political will both EIR and the U.S. State Department, Japanese �nd the political strength to achieve that p urpose ." government officials charged that the entrapment was Nonetheless Brock seemed to fuel the tensions by linked to the current economic frictions surrounding implying that " cultural " factors may have had an high-technology trade. By making Japanese firms effect. "Apparently, industrial espionage is not con­ look like thieves in the eyes of the world, the incident sidered with quite the same view in Japan asit is here. would be used to put Tokyo on the defensive in its I'm not sufficiently familiar with the Ja ane e p s mores trade negotiations with Washington. and practices to comment; I will simply say that in this Even an American software firm executive in Cal­ country, it's considered crime .. . and people a go to ifornia's Silicon Valley commented, "Everybody here jail fo r it. . . . The loss of proprietary trade informa­ buys secret information from other companies. They tion is a matter of real concern, particularly in the don't ask how you got it. What people here are national defense area. If we cannot maintain any wondering is why the Japanese fi rms were the ones security in this country, then not only are we at hazard that they decided to catch." but so are the p op e of Japan, because we are e l their Since this is the first case of industrial espionage umbrella, by their choice."

EIR July 27, 1982 Economics 9 tax-law incentives, both to the company that invests in your policy? new-technology, productivity-enhancing investments Brock: I can't make a prediction on that. I've been and to the stockholder. involved in looking at the operations of the Fed since the Brock: We've done that. We've cut the corporate taxes, first day I came into Congress . The first two years I was we've given a much faster write up on depreciable equip­ in the Congress I did a two-year study of the monetary ment; we've given 25 percent tax credit on R&D; we've system. I have very strong views on the subj ect. But at done everything which we can frankly in conscience do, the moment that is not my area of jurisdiction. or politically do with the Congress, on the tax side. I guess no one in this administration feels that this Katz: When I speak to Japanese officials, businessmen, government is wise enough to allocate credit. The hazard etc., what is uppermost in their minds is not even so much to our personal freedom which would occur would be the bilateral trade frictions but the fo llowing fact: There greater than we would be willing to accept. Because are only two superpowers in the world, the United States that's the right of life or death. and the Soviet Union. If the United States-through economic weakness, through military weakness-ceases Katz: What about simply lowering discount rates, end­ to either be or act like a superpower, to manage affairs ing tight credit, lowering the policy of managing bank such as the Middle East, Argentina, then this is the reserves which currently keep interest rates high? Simply uppermost worry in the minds of the people of Japan. having a Fed policy which lowers interest rates such that They are very seriously worried that we face the prospects you are going to encourage, makes it possible .... of another depression. They are concerned about where Brock: Any step which would have the effect oflowering U.S. policy is going, what is the direction? That's why interest rates without restoring inflation would be wel­ they are saying that interest rates are a bigger threat than come. The question comes to that caveat: Will it have an the Soviets. inflationary impact? Because if in fact we falter in our Insofar as the United States seems to show a lack of fightagain st inflation, we will have lost the war. The real leadership, I think there is a tendency in Japan to seek a cause of high interest rates was the rate of inflation. certain amount of accommodation with the Soviet Interest rates are simply a discount value. They put the Union. Not that they are going to join the Soviet bloc or price on money when it is repaid, that's all. And the something, but they will want to avoid being in a con7 market has made a judgment that inflation can return, frontationist situation with the Soviet Union, even if the and until they are convinced that it won't, they are United States is in such a situation. This is also true of discounting for that prospect. I'm not really sure it is as Europe. I think we see this in the reaction to the pipeline much Fed policy as it is basic market psychology, which and Sakhalin situations. is creating the most horrendous rate of interest we have Does it ever occur to you that the level of economic ever seen in this country . friction, the trade friction, between the U.S. and Europe and Japan, combined with what is perceived as a U.S. Katz: So you're saying you don't see what steps can be economic weakness, in fact has an effect opposite to what taken to bring down interest rates? you seek? Rather than uniting the Western camp, it in Brock: I'm not saying precisely that. I'm trying to be fact divides it, leads other nations to seek a modus vivendi very careful about what I'm saying. with the Soviets. Brock: Constantly. I am extremely sensitive to that, and Katz: Treasury Secretary Donald Regan is doing a study I've not been reluctant to talk about it, as a number of on Fed policy, and we have elections coming up. You are my colleagues will attest. a fo rmer Republican Party chairman. I think the Repub­ That is not really the germ of U.S. policy though. The licans are going to get clobbered unless these interest fact is that we-and I'm talking now in the collective rates come down. sense of the free world and primarily the industrial Brock: It will not be a comfortable election for any powers of the free world-for virtually a decade ignored politician this year, because ofthe rate ofunemployment what was happening as a consequence of two events, one, the rate of interest, and the rate of economic stagnation�. internally generated and one, externally generated, on I'm not sure that it's necessarily going to have its total our financial systems. The external generation we -had impact on one party. Congress is yet to measure up to discussed adquately and that was the energy crisis, and the mandate that they were given in 1980. the drain of our productive resources that that entailed. But we did not address, until the advent of Ronald Katz: Do you think this Donald Regan study will pro­ Reagan, the domestic drain, our governments' inability duce some sort of decision, that involves the administra­ to live within their means, for the last couple of decades tion going to the Fed and saying we want you to change in most of the industrial world.

10 Economics EIR July 27, 1982 . What happened was that we had already stretched our financial capability, our capital formation, our capi­ Rates tal pool. We had already stretched those resources too Currency much when the energy crisis hit, and what most govern­ ments did in the past nine years since the crisis began was to buy political stability by increasing debt. Rather than The dollar in deutschemarks face-the problem and deal with it, we tried to buy time, New York late afternoon fixing and to postpone having to do the tough things. IT 2.45 The administration felt, and I think feels today, that I I--"---...--!-I 1"""'\----,-- -r/� ,...r-rH-+"! -.--:J 1 -,-- a contin uation of that pattern could only result in a I i 2.40 ! I . I +--_...... _1/__ '" ! collapse of the free world. We had come to the point i :V� i _+ + ! !: I where we could simply not afford to borrow in excess of � I our capacity to repay. We had to put constraints upon - ---- �--->- 1 the growth of government, and to restore incentive, and - - . l�:i- f-'--- 't:---un-rt-- the prospect of capital formation through savings and 5/26 6/2 6/9 6/16 6/23 6/30 7/1 7/14 investment. Q I We have taken some very difficult steps. It may be doUar in yen that we are not precisely perfect in the definition of those The steps, but at least we have taken them. If we fail in this New York late afternoon fixing regard, it will not be for doing the right thing, it will be ---T-- -- 250 -J-.- �---� --""" because not enough others have been willing to exercise [ - i"o"" the same kind of political courage. There are shifts of a II240 __�-+ 1-- -+----+--4--+++++1 ...-- ._ �i"I ! � I tactical nature that could be made that might make the situation better. We are certainly not perfect, but we are doing in a fundamental sense the things that have to be done to restore our basic opportunity for economic --it '210 growth. �--5/26 6/2 6/9 -�16 --+--+---+++++1- 6/23 6/30 7/1 7/14 If we lose this battle, and if inflation does in fact return, then there is a matter of time, and a very limited amount of time, before our system simply cannot sustain dollar in Swiss francs itself. We will see a depression, and one that will be in The greater magnitude than any we have experienced before, New York late afternoon fixing •w _ 1 2 ! _ 1-. because we have built a larger house of cards. ... I,..... I personally am extremely sensitive to what we do and --;I - ip'-..,.. � 'I'!fiNJ.j. �.2 0 ----+ . its impact on our trading partners and the possibility of . � _ : division. By the same token, if we don't lead the effort to 2.00+ I/.-J ! , I I : 1 I I I: -I +V�i -'--+- - - I: i , : ! ' correct that which we have not adequately dealt with II i • : IW, 9.? T----:------t-� i ' � f _ I : i heretofore, then nobody will. I! I , : I The same applies to our quest for keeping our mar­ 1.90 j l--.�+-i 5/26 6/2 6/9 6/16 6/23 6/30 7/7 7/14 kets open. We've done some very tough things. We are r ii i II � still doing some very tough things. We are fighting the protectionism that is rampant, at least in the Congress, The British pound in dollars but if we collapse in the face of that political diversity, New York late afternoon fixing the world system will collapse. Nobody else can lead the world in the cause of free trade. We have to do what we -- -- __-'-t!1 : I ,---1 1 have to do. And we have to expect our trading partners 1 80- , 1 ii'u--�--'-L-- � �1- . �+f-----'+ 1 : IIl -'--i ! -- to understand that, and to try to share some of that fr i -+-----i--·-+-' +-II+-i - burden. 1 - -- ' __ �- �------: ---+-- ---\-c:: ...t--I-+-! +-+--I Th e fu ll text of the June 29 interview with William �. 1---+!--�� ----4�-���HI+��� Brock is included as an appendix to a new 95-page EIR 5/26 6/2 6/9 6/16 6/23 6/30 7/7 7/14 il +-Hi Sp ecial Report, "Outlookfo r U. S.-Japan Economic Rela­ tions." Contact Sp ecial Services Director Peter Ennis at (212) 247-8820 fo r fu rther information.

EIR July 27, 1982 Economics 11 by Dudley Seers of the Institute of Development Studies Conference Preview (IDS) at Sussex University, England, will lay out the real theme of the conference: to lead the 3 billions in the developing sector backward to Stone Age tribalism in a dog-eat-dog Hobbesian world. Seers, a fo rmer British promotes the Colonial Office employee, was tapped in 1967 to head the SID newly formed IDS, 95 percent funded by the British 'Global Village' government. From that platform he led the effort to get the SID to adopt his colonial policies of "appropriate technologies," labor-intensive employment, and denial by Peter Rush of advanced technologies to developing countries. Seers and his colleagues at IDS, in cluding Richard Jolly, On July 18 an expected 3,000 people from all over the Seers's successor as head of IDS and the designer of the globe will gather in Baltimore to discuss ways to return program fo r this conference, have led the battle to con­ the developing nations to colonial backwardness and vince the nations of the Third World that industrializa­ degradation. Under the auspices of the Society for Inter­ tion has failed in their countries, and that true develop­ national Development (SID), the umbrella 'Third World ment is impossible for them. development" organization run since the late 1970s by By 1976, this doctrine had become hegemonic in open advocates of denying advanced technologies to Robert McNamara's World Bank and in the State De­ underdeveloped countries, the attendees will be bom­ partment's AID (McNamara, AID director Peter Mc­ barded with "share the poverty" policies designed to "re­ Pherson, and former U.S. aid official Edwin Martin are ruralize" large parts of the developing sector. also speaking in Baltimore), as well as in NATO and the Aurelio Peccei, fo under of the fascist Club of Rome OECD-but not in the developing sector itself. At that which ad vocates reducing the world's population by 2 time, Seers laid out the next phase of his attack on the billion people by early in the next century, will preside developing sector: the effort to foster tribalism and social over a panel on "Limits to Growth." breakdown. He called in print for fostering "traditional The SID has undertaken the largest-scale effort in the customs ...pr eserving and developing shrines and mon­ world to make respectable the attack on what the Society uments, supporting traditional crafts, etc."-i.e., main­ terms "conventional development strategy," first taining backward cultures. These customs "appear as launched by members of the former British Colonial barriers against modern consumption styles and technol­ Office in the late 1960s. The title of the meeting, "The ogies," and "a development plan will need to devote ' Emerging Global Village," connotes their "post-ind us­ substantial resources to reinforcing" what he accurately trial," Aquarian goals. describes as "obstacles to development when this was In the midst of the worst economic crisis since the last synonymo us with economic growth." Inflows of capital depression, not a single panel addresses this question, and technology he labeled "rape." Seers concluded this nor is one of the hundreds of panels devoted to thehigh­ 1976 piece by calling for increased arms expenditures in interest-rate question, the single greatest threat to the the underdeveloped nations. Wars for dwindling re­ developing sector today. Instead, an entire day is largely sources are the center of colonial depopulation policy. devoted to "grass-roots people's organizations" as­ Flanking Seers will be Claude Cheysson, the French signed to demand "decentralization" rather than indus­ Foreign Minister, and anti-industrialization "friend of trially-based development. the Third World," and Mahbub ul-Haq, fo rmerly of the Numerous panels deal with energy questions, push­ World Bank who led the campaign in the early 1970s to ing "alternate" and "renewable" sources, primarily solar convince the developing nations they could never reach power, an approach so expensive as to bankrupt any Western consumption levels. He extols the "Chinese developing nation that might attempt to meet its energy model" of autarchic, labor-intensive austerity, and ar­ needs in this way. Other panels deal with "meeting basic gues that foreign aid is harmful for the Third World. needs," fostering "appropriate technologies," and de­ Also speaking at the opening session is Raul Pre­ urbanizing the Third World because cities have ostensi­ bisch, author of austerity policies in Argentina in 1957, bly failed. A fe atured speaker is Willis Harman, of leading advocate of light-industry "development:' in Stanford Research Institute in Palo Alto, California, in a place of heavy industry, and the first headof UNCTAD. panel on "New Issues in Science and Development." But, all three slots reserved in early conference brochures Harman is t·he author of a study clai ming that the "self­ for opening speeches by President Reagan and other image" of Judeo-Christian man as creator of moral and world leaders are still vacant: conference organizers are material progress must be replaced. still scrambling to get at least one leading administration The keynote address at the plenary, to be delivered figure to open the session, so far without success.

12 Economics EIR July 27, 1982 Agriculture by Cynthia Parsons

Block announces 1983 wheat program sider U.S. supplies reliable at this Th e plan gives fa rmers their death certificate, and credit to point. Aides to Sen. Thomas Eagleton starving nations is denied. (D-Mo.), who has played a leading role in legislating price support payments before the harvest, say adamantly that the Secretary has the power to use the direct credit griculture Secretary Block, after in holding the 1983 crop to the same line under "existing authority" ifhe Ameeting July 12 and 13 with Presi­ size as 1982's. chooses to do so, because it has not dent Reagan and the Secretaries of A third point to his program is been deauthorized; they blame him the relevant departments, an­ an increase of $300 million in the fo r not exercising that option. nounced his 1983 wheat program . export guarantee program, CSM­ It is probable that Block tried to . Farmers have been anxiously \02, bringing it to a $2.8 billion get the President to release the $500 awaiting the announcement, pray­ level. This, he believes, will stimu­ million allocated by Congress for ing fo r some words of hope and late exports. This program is al­ the export revolving fund. This is sanity. Instead, they got a death ready a lame duck, because the bor­ the most workable of the schemes certificate. Not only would his pro­ rower only gets a guarantee, not a currently on the table, but funding gram fa il to help farmers in need of loan. And commercial banks are has been frozen since 1981. OMB reasonably priced credit, but the guaranteeing only creditworthy considers such a fund a "bail out," long-term effects would shrink countries, at high interest rates. So yet the plan would actually pay for grain production substantially. a Zaire or Bangladesh is still unable itself. The Block program, of course, to purchase grains. Until 1980, when the Carter ad­ is subject to congressional decision, What will happen to the 30 mil­ ministration killed it, the United but, as I reported last week, Con­ lion tons of unsold U.S. grain? States had a direct credit program, gress has shown few signs of ade­ Block made no mention of sales to CSM-5, and it was the dropping of quate response to the fa rm crisis. the Soviets who are out to buy 12 this program which has stymied in­ Block linked farm loan pro­ million tons or more, with cash, but creased exports of grains. grams to a 20 percent set-aside pro­ not, under current political condi­ It is rumored that the President gram. While he claimed not to be­ tions, from the United States. was considering what is being lieve in a mandatory set-aside, link­ When the Long-Term Agreement called a buy-down interest-rate ' ing acreage reduction to loan eligi­ (LTA) with the U.S.S.R . ends Sept. plan. This would not require new bility boils down to the same thing. 30, U.S. sales for 1983 are pitifully allocations; money would be taken If fa rmers participate in the set­ low (especially for corn and sor­ from the Commodity Credit Cor­ aside program, they will also be ghum). poration's Title I of PL-480. Up to eligible to receive half the amount Hopes for a new LTA look 25 percent of that fund would be of deficiency payments at the time doubtful. Secretary of State nomi­ used to buy a 4 or 5 percent reduc­ of sign-up and the remainder five nee Shultz had helped negotiate the tion in prevailing interest rates. months later. Deficiency payments first LTA, and his nomination sent In Congress, this idea is con­ represent the diffe rence between the positive signals to the farm sector. tained in the House's Hagadorn bill target and market prices paid to the But he told the Senate Foreign Re­ and in the Senate's Cochran bill. fa rmer, as a fo rm of subsidy, when lations Committee July 14 that with In other words, Congress and

prices are low. • martial law still in effect in Poland, the administration are considering A fu rther ringer in the program "this is hardly the time to negotiate stealing money that provides food is that the 20 percent land set-aside a new LTA," and that "it would be aid to starving refugees in Africa must be used for conservation pur­ the wrong signal to lift the sanc­ and Asia. They are proposing to poses, and not for grazing. Block tions against the LTA ." Of course, subsidize high interest rates that calculates that taking this amount if martial law is lifted, a switch may drove the U.S. fa rm sector into the of land out of production will result occur, but the Soviets hardly con- crisis in the first place.

EIR July 27, 1982 Economics 13 EnergyInsider by William Engdahl

Who shot J .R.'s oil boom? good thing because it will weed out Th e bottom has fa llen out of drilling in the Un ited States, the fly-by-night hustlers. He says that during the euphoria of 1980- thanks to Federal Reserve Chairman Paul Vo lcker. 81, "at least 40 percent of wells drilled were useless and without imerit." He correctly claims many companies were formed "simply to promote money from the public." he shock waves set off by the $lO/mcf down to $5-$6/mcf. Deep But there is a deeper reality which Tfailure of the Oklahoma City oil gas, currently unregulated, ab­ nobody, especially the "J. R. Ewing bank, Penn Square, will prove as sorbed 40 percent of total industry types," wants to face. There will be profound in its effect on the col­ costs last year. no recovery in oil before there is a lapsing domestic oil industry as on Under Jimmy Carter, the Trila­ fundamental growth of the real the world of international finance. teral Commission effort to phase economy. As we said as early as June 1981, out the industrial economy of the Not only drilling companies, the boom in domestic oil and gas United States centered around use but the $70 billion oilfield supply, drilling could not remain immune of energy and interest rates. At the service and equipment industry, from the overall economic collapse Department of Energy, RAND's and in crisis. Hughes Tool spokes­ ravaging the economy. James Schlesinger and Trilateralist man Frank Potter has character­ As recently as last December, John Sawhill were content to allow ized the overall situation as the number of active oil drilling rigs an episodic short-term flow of "catastrophic." Last month, one of domestically broke all records, top­ funds into oil investment while they the three largest builders in the ping 4,530. Industry associations secured the more important gain of world, Dreco Energy of Houston, and trade journals extrapolated higher domestic prices. President filed for Chapter II bankruptcy. from the previous 30 months of Reagan accelerated this process in Five of 17 rig manufacturers are uninterrupted increase in activity to February 1981 when he lifted the trying to sell out their companies. project the same into the future. remaining price controls. As the An estimated 25,000 rig hands are Then the crash hit. The price of economy sunk under the strangle­ now unemployed, and thousands OPEC crude took a decided drop hold of Paul Volcker's interest more are about to be laid off by due to North Sea-London manipu­ rates, oil (and real estate) became service companies as order books lations and sagging demand. This "the only game in town," as one shrivel. Expanding capacity to pro­ produced a drop in average domes­ speculator termedlt. duce oil pipe and related goods rep­ tic oil from about $35 per barrel in Well, boys, it:s over. The July 6 resented the only area of steel March 1981 to just over $29 today, Hughes Tool count fo und 2,816 oil growth over the past two years; compared with the OPEC marker or gas drilling rigs active in the companies such as Armco gambled price of $35. In addition to remov­ United States. This represents al­ hundreds of millions on adding new ing about $15 billion from the an­ most a 40 percent drop since De­ capacity. One Chicago-area steel nual cash flow of the domestic oil cember, the sharpest collapse ever. tubing plant saw its production industry, the price drop sent a wave I just completed a survey of in­ drop 90 percent since December, of panic through the industry, a dustry and investment sources, and and no new business is coming in. panic which has deepened with the the most striking thing I found is More solid companies feel insu­ Penn Square affair. Then, with in­ that nobody knows how serious lated at the moment, but they are dustry shutting down across the things are. The Independent Petro­ not immune from the growing country, natural-gas demand be­ leum Association of America, chief Volcker-induced depression" The gan collapsing. In recent weeks, lobbyist fo r some 12,000 indepen­ only upturn will come when the contracts fo r deep gas in the Ana­ dent oil companies, cautiously pre­ independents realize they are in fact darko Basip of Oklahoma-which dicts revival of drilling by the year "dependent" on the same economic is precisely where Penn Square op­ end. One driller from Mississippi, reality as housing, steel, agricul­ erated-have fa llen from a high of W. E. Craft, calls the shakeout a ture, and other industries.

14 Economics EIR July 27, 1982 Trade Review by Mark Sonnenblick

Cost Principals Project/Nature of Deal Comment

CANCELLED DEALS

$2 bn . Taiwan from Taiwan Power Company announced indefinite post­ Taiwan was world's last plus U.K./others ponement of Taiwan's 7th and 8th nuclear electric active nuclear contract plants. This means cancellation of $140 mn. contract to competition, following NEI of U.K. for turbines and cancellation of bidding Mexican cancellations. on nuclear systems and constructions.

UPDATE

$15 bil. U.S.S.R./ West German banks formally signed in Leningrad Europeans breaking Western Eu­ agreement to provide $1.6 bn. credits for building 3,500- with U.S. on both rope mile natural gas pipeline from Siberia to Western counts. Italy's Nuovo Europe. West German govt. will guarantee 85% of Pignone will deliver to credits, lent for 8 years at 7.8% interest. Credits will Soviets the first 2 of 19 finance German pumping equipment and services, $1.1 25,000 MW turbine bn . of which have already been ordered from companies pumps, completed using including Telefunken and AEG, which is near bank­ GE blades. U.K. will ruptcy . Pipe is being financed separately. Reagan ad­ also flout embargo, min . has sought to block pipeline, firstby banning use Prime Minister Thatcher of U.S.-made or -licensed components, then by demand­ announced. Soviets are ing 12.25% minimum interest rate. preparing to make the blades themselves.

NEW DEALS

$1 1 mn. Mexico from Education Secretariat is receiving from Prime Computer Delays of up to 6 months U.S.A. of Natick, Mass., a system to decentralize processing of in teacher salary pay­ teacher payrolls to the 31 state capitals. Package in­ ments have helped Jesuit cludes a Prime 550-II computer and several terminals agents use teachers to for each state, plus a Prime 750 in Mexico City to fuel insurgency around monitor pay process. System will be installed by August. Mexico. Will computers end this security prob­ lem? Guyana/Brazil Letter of intent signed by energy mInIsters includes Takutu field is in Esse­ preferential export of oil from Guyana's Takuta River quibo region disputed fields to Brazil. There is no road across 460 km. of between Venezuela and jungle from Tukutu to Atlantic coast of Guyana, but Guyana, which hopes oil could readily be barged down-river to Brazilian that Brazilian involve­ Amazon region, which already refines and consumes ment will deter any Ven­ imported oil. Takutu oil discovered by Home Oil of ezuelan military action. Canada risk contract drilling. Guyanese told Brazilian officials Home Oil estimates mn. bpd output from the new field, which compares I with 1.4 mn . bpd total current production of Venezuela.

$1 bn . Saudi Arabia 2 Disneyland-type centers will be built near leddah and plus Riyadh. Each will have monorail, 100 stores, 15 cafete­ rias, 30 fast-food shops, racetrack, zoo, yacht club, artificial islands, etc.

$2 1 mn. Saudi Arabia 3 silver recovery refineries will be set up in Riyadh, Each refinery will extract from India Damman and leddah by Saudi entrepreneur Abdulla 75 kg. silver/day from Alial Amoud. Royal Corp. of New Delhi, India, is development solutions supplying equipment, know-how, and management. used in x-ray and photo studios.

EIR July 27, 1982 Economics 15 Business Briefs

World Trade to break fr om IMF control, and the po­ and sell it through exports. tential for break-away by several of the In an article published in the July previously solid monetarist regimes in issue of the magazine of the Eu­ GATT approves Europe. this hemisphere to join the momentum ropean Community, Block rips into the penalties against U. S. toward unity in Ibero-America. Former CAP for having "too much production, Mexican President Luis EcheverrIa which is then exported through the use of the subsidies." The problem, he says, is The General Ag'reement on Trade and called in mid-July for the countries of the that "market conditions are not permit­ Tariffs senior operating board has au­ Third World to negotiate "collectively" thorized the European Common Market with the industrialized countries on "vi­ ted to influence either production or con­ to impose up to $3 billion in trade penal­ tal matters of trade and economics," not sumption," and the CAP has made the ties against the United States. leaving them to bilateral discussions, in EC into a "leading exporter of most ma­ The GATT, an informal branch of an interview with Inter-Press Service. jor food products." "Our concern is that EC continues a the British Colonial Office which is os­ tensibly designed to eliminate unfair policy of all-out production, which it continues to subsidize into export. We trade practices among its 87 members, East- West Policy would like to see the Community restrict ruled that the U.S. Domestic Interna­ production or store its excess production, tional Sales Corporation illegally subsi­ dizes exports . U. S. computer seizure making export subsidies unnecessary," u.s. Block concludes. If carried out by the European Com­ heightens tensions mission , the GATT ruling will intensify the possibility of trade war between the The U.S. Commissioner of Customs United States and its West European seized $400,000worth of American-made allies. GATT ruled on an EC request International Credit minicomputers in West Germany, claim­ made 10 years ago. ing that the computers were "strategical­ ly sensitive" and bound for the Soviet Wharton School wants to Union. The seizure has aggravated ten­ "shock" Mexican economy sions between the United States and West International Monetary Fund Germany, already inflamed by U.S. at­ According to the Mexican columnist tempts to block the German-Soviet ac­ Manuel BuendIa in the July 14 issue of IMF: 'new approach' cord to build the Siberian natural gas a group of economists from pipeline. Excelsior, fo r Ibero-America? the Wharton School met in Philadelphia The minicomputers, produced by early June to demand that the Mexican Digital Equipment Corporation, had economy be given "shock therapy." According to an EFE wire published in been on the market since 1975 and were the Mexican press, the IMF has prepared Wharton's demands are an escalation of described by the head of the company an internal report on the extent of the their long-time project to send Mexico that arranged the sale to a West German economic crisis in Ibero-America and the back to the Dark Ages through Iranian­ company as "about as significant stra­ Caribbean and its potential effect on the style chaos. Wharton School leader, tegically as sending over a Dodge Dart." world economic system. The reported Lawrence Klein, has repeatedly warned IMF study argues that a "new approach" Mexico that it would pay the "Iran price" must be designed by the institution to if it tried to develop its oil wealth and ensure that these countries do not default Agriculture "grow too fast," as it did during the on their loans, which means the old poli­ Lopez Portillo administration. As Buen­ cy of "conditionalities" cannot be ap­ Block calls for an dia notes, Wharton's program for Mexi­ plied. The IMF sticks to its old diagnosis, co is de facto an IMF austerity program. however; the basic economic problem end to the CAP Buendia continues to note that these facing these countries, the report claims, outside pressures on Mexico come at a is that they still "spend like they did in U.S. Agriculture Secretary John Block is moment when the economic crisis this the years of bonanza, and have not tight­ blasting the Common Agricultural Poli­ country is going through have ·created ened their belts enough." An IMF officer cy as too successful in promoting Euro­ ripe conditions for social unrest. There is contacted in Washington July 15 denied pean exports. He is suggesting that it be a "threat of massive violence in the that such a report exists, but added that dismantled on the grounds that it is streets," Buendia says, citing a growing the "basic concepts" described in the planned and controlled centrally by na­ unemployment rate, a huge foreign debt, wire are "accurate." tional governments. The CAP is the sys­ and reports that the rate of growth in the The IMF �orries about default re­ tem whereby the European marketing energy sector will start to decrease soon. flectthe levels of discussion on strategies boards buy produce from their farmers The debt pressure Mexico faces was

16 Economics EIR July 27, 1982 Briejly

•amen mEdment KASTEN-M mandatingOYNIHAN the Presi­ dent to explain to Congress why underlined by release of news July 14 that ing the power to create civilian intern­ Poland should not be declared in Mexico is placing a $100 million bond on ment camps in case of emergencies. default on its debt was approved the Eurobond market at the highest cou­ July 14 when the $5.5 billion emer­ pon rate in the history of the market, gency supplemental appropria­ 181/2 percent. Hans-Georg Hoffman of tions bill passed the c.onference the London branch of one of the leading committee. The U.S. press has underwriters of the bond offering, Mer­ Monetary Policy blacked out the passage of the rill Lynch, said, "I think it is in the cards amendment. The President is ex­ that Mexico will go to the IMF, and that pected to sign the package. should certainly improve their current Argentine dirigism situation." under assault Corporate consulting firms in the client report, • EIR's NEW United States and Europe are telling "Outlook for U.S.-Japan Eco­ The Argentine government's latest eco­ their clients that on the one hand, Mex­ nomic Relations," was the subject. nomic measures, designed to eradicate ico must introduce more drastic austeri­ of a front-page article in the July 1 the speculative parallel economy, are un­ ty, and on the other hand, that this will issue of Japan's daily, der intense attack from monetarist Yomiuri cause tremendous political unrest. Food which features Trade Repre­ forces. subsidies and wage policy are especially sentative William Brock's com­ In less than two weeks since dirigist hot issues. One U.S. corporate officer ment to that the Hitachi-Mit­ measures were announced creating a compared the riot potential to the upris­ subishi EIR"computer espionage" two-tiered credit system in the country� ing in Egypt in 1977 under President case will give a boost to protec­ nearly half the banking system's deposits Anwar Sadat. tionism. The and in pesos have been withdrawn and spent Asahi Shimbun also covered either on real estate and other speculative Nihon Kezai Shimbun the release of the 95-page, $250.00 ventures, or in purchasing black-market report. dollars. In that time period, the official Labor Policy peso has gone from 14,000to the dollar the IMF's to about 35,000today , and is over 48,000 • TURGUT OZAL, top operative in Turkey, resigned Trudeau plans 'fascism pesos/dollar on the black market. Simi­ on July 14 from his post as Deputy larly, many of the monetarist elements in Prime Minister. The Finance Min­ with a friendly face' the country have refused . to cooperate ister, Minister of Public Works, with the government's appeal for a price and Undersecretary of the State Speaking before members of his Liberal freeze, and basic food prices have soared Planning Organization also re­ Party in Kingston in early July, Canadi­ by an average of 40 percent in the space signed in the wake of the collapse an Prime Minister Pierre Trudeau re­ of a week. A government-mandated of Turkey's largest money broker, sponded to the economic disasters beset­ across-the-board wage hike of 30 percent Banker Castelli, which had been ting Canada by calling for "an exercise has already been devoured by this spiral­ lending at rates over 100 percent in national will" in the best tradition of ing inflation rate. under Ozal's monetarist regime, Italian fascist Benito Mussolini. Central Bank head Domingo Cavallo with praise from the IMF and "We can improve conditions in Can­ sent a top aide to the financial center at OECD. ada by sharing, as it were, between those Cordoba this past week to explain the who l1ave jobs and those who don't; be­ fight he has undertaken: ran a $32 million tween those who have security and those "The era of the 'financial cycle' is trade• BRAZIL surplus in June, because of who don't. And that is the operation," he finished, destroyed in one blow. The an accounting sleight-of-hand. said. country can no longer sustain that type With the approval of the IMF, Trudeau plans a massive "work shar­ of purely speculative maneuver which Brazil sells big-ticket items, such ing" policy for the still employed, and a pulled funds out of production .... The as oil platforms, to a Brazilian redeployment of the 1.3 million unem­ large international banks, making use of governmentJrun leasing company ployed into post-industrial technetronic their influence, requested funds from the in the Cayman Islands for cash and industries. According to Manpower central bank at a rate of 80 percent and then leases the product for use off­ Minister Lloyd Axeworthy, people will then re-Ient the funds to ...state entities shore. The platform never leaves have to settle for "part of a job on a at 85 percent. The entire operation was Brazil, but its value appears on the permanent basis." concluded in a comfQrtable officeby tele­ IMF books as an export and as a Under the Emergency Planning or­ phone. Thus, it took only fivemin utes to foreign exchange receipt. der, cabinet ministers will have all obtain a 5 percent profit.... Those who II powers over manpower, finance, produc­ paid the difference were, obviously, the tion, transportation, and energy, includ- Argentine people."

EIR July 27, 1982 Economics 17 TIillSpecialReport

. LaRouche-Riemann model: unsurpassed economic record

by David Goldman, Economics Editor

If economics is a science and not a branch of astrology, there must be some relationship between the predictive power of an economic theory and the policy recommendations that ensue from it. The public has come, with justification, to regard economists as a notch below astrologers, after years of hearing recovery predictions while the economy continued to collapse around them. There has, however, been one economic theory and an associ­ ated computer-based econometric model which has successfully forecast not only the important turns of the economy, but the quantity of those turns, since 1979: the LaRouche-Riemann economic model, with which readers of EIR are fa miliar. In preface to the release of our most recent projections for the next year's economic behavior, we have the resulting obligation to insist on the sound­ ness of the policy recommendations which have accompanied our previous, accurate, forecasts. Our analysis has proved correct not because Lyndon H. LaRouche, Jr., the model's designer, possesses a better crystal ball than the Wharton School, but because the model examines rather than suppresses the features of economic activity that tell whether man will continue to exist in the physical universe or not. Contending models treat indifferently expansion of white-collar and blue-collar employment, video games and machine tools, gambling casinos and steel mills, urban renewal and infrastructure building. Their bottom-line is constant-dollar final sales or Gross National Product, whether or not such sales reflect activity which makes more likely continued existe!1ce of the underlying, physical economy. It is no surprise that their predictio[ls have been nonsense in a period in which the principal economic development has been an upheaval in the productive base of the economy. Equally incompetent have been the principal policy recommendations of the authors of such predictions, including the suggestion that tight money will cure inflation. Tight money has merely destroyed productive capacity and lowered productivity, while leaving virtually untouched the actual

18 Special Report EIR July 27, 1982 Nobel Pri::e winner Lawrence Klein. whose fo recasts of economic performance fo r the past fo ur years have been as accurate as lhose o/'lhe other U. S. econometricians: dead wrong. u.s. sources of innation in the economy, principal among Nor should the policy recommendations be taken at which is the higher rate of interest-which now compris­ face value. As we have repeated in this publication, the es 10 percent of Gross National Product. Equally absurd underlying prejudice of all such econometrics favors zero was the notion that tax cuts would revive the economy, economic growth, and treats all technological improve­ under monetary conditions that prohibit capital invest­ ment as an unwanted disturbance of "equilibrium." The ment and, in many cases, even operation of the existing administration has bought, in deceptive packaging, a product ive capacity. frankly Malthusian economic theory, and should not be To the extent that the administration and the Con­ surprised that it has obtained Malthusian results. gress continue to act according to advice which has fa iled Therefore, we restate once again what steps must be without exception duri ng the past several years, no better taken to revive the economy: results can be anticipated. Both in our quarterly forecasts I) Federal Reserve Chairman Paul Volcker must be and in our frequent development studies of the United shown the nearest door, and the Federal Reserve must States and fo reign economies., we have demonstrated immediately discount credits to goods-producing indus­ that the criteria of economic growth are improvements tries at low interest rates, preferably on a participation in the physical economy, especially those that lower the basis with private banks. This policy will suffice until the base of social cost of production, e.g. energy, transpor­ Federal Reserve can be replaced with a better institution tation, and water. Shifts in investment in favor of over­ modeled on the old Bank of the United States. head functions, e.g. administration and associated elec­ 2) The United States must remonetize its gold re­ tronic equipment, do not represent an economic "sun­ serves and employ them, at $500 per ounce, as backing rise," but a fu ndamental deterioration. for an international bond issue at interest rates of ap­ It must be added, in all fa irness, that the Wharton, proximately 2 percent, to recapture the base of the Eu­ Data Resources. and Chase Econometrics forecasts are rodollar market, and assemble a fu nd fo r low-interest not meant to be accurate: they are meant to intersect with credits fo r trade and development. This action approxi­ and shape the prejudices of the policymaker, as execu­ mates what Third World leaders have proposed under tives of the relevant forecasting fi rms say frequently in the name, "New World Economic Order." private discussion. Data Resources notoriously carves 3) The administration must immediately undertake a out the "middle of the road" fo recast, i.e. seeks to be crash program of nuclear plant-building and improve­ wrong with the greatest justification, while Chase Econ­ men ts in water and transportation in fr astructure, which ometrics deploys itself either to the optimistic or pessi­ will pay fo r themselves several times over in enhanced mistic f1anks of the "consensus" analysis. productivi ty.

EIR July 27, 1982 Special Report 19 ECONOMETRIC FORECAST

Two paths into depression for theAmer ican economy by David Goldman

On Dec. 29, 1981, EIR published the results of our analyzing the effect of such policy changes in the real quarterly economic survey for the fourth-quarter period, world, as opposed to the Mad Hatter's GNP tables. employing the LaRouche-Riemann economic model. Our use of the term "depression" rather than "reces­ Presuming unaltered monetary policy in Washington, sion" is not a matter of linguistic'emphasis. No one in we projected a year-to-year decline in the output of the United States is blind to the fact that a fundamental goods-producing American industry (manufacturing, deterioration has swamped the American economy dur­ agriculture, mining, construction, and transportation) of ing the past decade, raising obstacles to economic growth 7.8 percent. At present annual rates the economy is in the form of inadequate industrial plant, transportation performing at a level 7 percent below the previous year's, facilities, urban services, educational facilities, and above with declines ranging from almost 50 percent in steel to all, skilled labor and moral qualifications of the labor 1 7 percent in auto, and with no significant gains regis­ force generally. Whether or not an apparent "recovery" tered in any sectors. lifts the economy out of the depth it apparently reached The present fo recast, a survey of the second quarter in June-and small positive results are conceiveable as a of 1982, is not substantially different from our December quirk during the July-September period-the deteriora­ survey in terms of its base-line projection. No other tion of the economy continues. computer-based service can come close to making such a claim. We project-on the assumption that the policy of The collapse of capital spending the Federal Reserve remains unaltered through the peri­ For the first time in the course of the present od under consideration-a 7 percent decline of economic depression, which began with the double impact of activity in the 1981-82 comparison. That is to say that higher oil prices in June 1979 and Fed Chairman there will be no economic recovery, but little spectacular Volcker's monetarist turn in October of the same year, downward motion in the rest of the year-with one great capital spending has collapsed in absolute terms. Apart proviso: that the financial system does not break down. from the virtual abandonment of the obsolete American I n the latter case, which now appears next to unavoida­ steel industry, which the major steel companies expect ble, economic activity will turn down again sharply by never to recover, the 15 percent reduction of the level of year end, and the annual rate of economic activity will be oil drilling since this time last year, the reduction of substantially lower-perhaps 13 percent lower-;-thanthe machine-tool orders to one-third their level of two years 1981 average. ago, and the mass cancellation of aircraft orders, have The fo recasting effort EIR has maintained since 1978 generated a 20 percent per annum rate of contraction in employing the LaRouche-Riemann model does not, as capital goods output. Even the formerly startling we have emphasized, claim to enjoy the powers of a growth in the electronics sector has turned into stagna­ crystal ball. Once the parameters of financial, fiscal, and tion, while basic capital goods are in a situation com­ regulatory policy are known, the model, which accurate­ parable to the worst of the last Great Depression. ly depicts the functioning of the economy's physical This fact has toppled the standard "recovery" fore­ aspect, will proj ect the result with great accuracy. How­ casts, which simply assumed that since consumer 'spend­ ever, as the economy nears a political and financial ing for durable goods had fallen so far below the rate of breaking point, it is impossible to "predict" the future. replacement of such goods, consumer spending had to The high degree of accuracy that EIR's forecasting team pick up, if modestly, and generate an economic recov­ achieved since 1978 has depended on two conditions. The ery. Such a recovery has already taken place, led by firstis an accurate profileof the future course of econom­ auto and other big consumer items-but only relative ic policy. The second is an economic model capable of to the worst of the December 1981 period. Calculating

20 Special Report EIR July 27, 1982 the impact of the estimated $45 billion in combined tax How the LaRouche model works cuts and transfer payments entering the income stream Despite a bewildering complexity of Rube Goldberg this summer, conventional forecasts have made a seem­ devices that link everything from consumer quirks to ingly convincing case fo r a modest recovery-and there­ sunspots, conventional econometric models have failed, by demonstrated that they understand nothing of because they do not ask the simple and essential ques­ whence we have come and whither we are going. tions which will yield useful answers: GNP analysis and convent ional econometrics can­ At what technological level does productive labor not answer the most elementary of all questions about fu nctionI) (measured by value-added per unit of labor)? economic performance, namely what is it about our 2) What is the capital requirement in terms of present economic activity that will generate growth or machines and raw materials per unit of value added? decay in the fu ture? To reiterate our characterization of 3) How many overhead employees are maintained the economic problem in our Dec. 29 forecast: per unit of productive labor? "Since 1974, the United States has undergone fun­ 4) How much capital equipment (office equipment, damental deterioration in productive capability, char­ buildings, military goods, etc.) does the overhead con­ acterized by: sume? 1) A collapse in relative productivity that has made 5) How much capital investment is available after unfavorabletrade balances a structural condition; depreciation costs are met? 2) A diversion of 40 to 50 percent of investment 6) How much value-added does each industrial or resources into investment in expensive energy-produc­ other goods-producing sector contribute to the econom­ ing or energy-saving areas, with consequences much ic stream? greater than the intitial cost of higher energy prices; 7) How much is returned to each sector, after 3) Virtually no growth in productivity during the deductions for social overhead costs, in the form of new past three years (while Japan, for example, has averaged investment? more than 8 percent productivity growth per annum); The LaRouche-Riemann model, in its present gen­ and eration, converts these questions into time-rate-of­ 4) Adverse shifts in employment favoring white­ change equations, which the computer so lves simulta­ collar and ser vice employment over goods-producing neously, generating a future economic profile on the employment. " basis of investment decisions affecting these equations. To concentrate on the second point: at least half of In its next generation, now under preparation, the all capital investment in the United States (gross, not model will evaluate the effect of population and labor net) has been directed toward energy-saving rather than force, as well as energy-flow characteristics, on the raising productivity; the remaining capital investment is "long wave" ofeconomic performance. not sufficient to even maintain the existing stockof plant To the extent that the analyst can accurately estimate and equipment. That the fu ndamental productivity level the impact on these equations of economic policy of the economy should continue to fall is therefore not decisions, the model will, as it has, generate quite surprising; as EIR demonstrated in a computer-based accurate results. In principle this is not difficult; we analysis released April 6, 1982, the overall productivity know that higher interest rates will divert corporate and level of the economy correlates precisely with the rate of household income flow away from productive expenses, improvement of national infrastructure. and depress economic activity, for example; this diver­ Supposedly, the attrition of older industries would sion is readily estimated. Military spending is a trifle make way for the accession of "sunrise" industries, e.g., more complex; it changes the investment mix, increases high-technology electronics or aerospace. This favorite overhead costs of the economy, but tends to raise "structural" analysis of American economists, repeated investment in the more productive sectors. Depending ad nauseum in the glossy business weeklies through the on the associated technology it may have a variety of past several years, has turned out to be an even crueler different effects. The present Reagan program, how­ hoax than the "business cycle" bone-casting process. In ever, has few technology benefits, and raises productiv­ our first analyses of the "sunrise-sunset" business in ity only to the extent that military spending favors 1980, we employed the LaRouche-Riemann model to sectors that are already more productive, i.e., it gener­ analyze how much of the "new industry" phenomenon ates a one-shot rise in productivity. The present fo recast represented more capacity to reproduce the economy's combines inputs reflecting the interest-rate problem, the physical existence, and how much reflected garden­ military budget, and the present budget's tax cut whose variety additions to corporate and government over­ effect is much smaller than GNP forecasters are pro­ head costs. We concluded that the "structural shift" grammed to believe. was hot air, because it favored industries that represent Viewed together, the LaRouche-Riemann model's overhead rather than future growth capacity. measures constitute an accurate portrayal of the econo-

EIR July 27, 1982 Special Report 21 69000+ I I I • I I I I I I + I • I I I I I I I 49000 1 +------_... +---_ .. _--+ ...... ---- +------+------+------+------+_ .. ---_... "M "� U.S. ECOSO:tY FIGURE 2 TOTAL TANG IBLE COSSV�PTIOS BY PRODUCTIVE WORKFORCE

The wage bill in terms of tangible goods, i.e. the bill of consumption of the goods-producing labor force, will continue to decline under the present monetary regime during 1982 and 1983.

• 0200+ I I 1 ------I * • I I I I I + I I I I I • I I I - . 1000 1 +_ ...... -+_ ...... - _ .. - .. +- _ .. - - - - ... + ... -_...... -+_ ...... -+- - - - _ .. - -+- - - - -_ .. ... +_ ...... _- 1971 1982 u. S. ECONOMY FIGURE 3 NET REPRODUCTIVE RATIO -- s· f(C+V) The ratio (S' IC+ V) is the model's fu ndamental measure of economic performance: it expresses the net surplus or deficit of tangible production relative to the production costs, in labor and capital, over the previous production period. Since 1979, with a brief interruption, this ratio has been negative for the American economy, with the major decline registered during late 1981. The model shows that the level of -0.7, or negative 7 percent per annum growth, will continue at approximately the same level through 1982 and 1983.

31000+ I I I • I I I I I I + 560000+ I , I , I .. ------... - .. - -*-...... ---- .. - ...... - ...... - - .. - - .. - , I , I ! I I t -. • , -11000 1 I ! + ..---- ... --+-_ ..---- ...... _---- +---_ ... _ .. -+...... _ ....-+- - ... .. _---+-.. - .. ... __.. + ...... _--.. + ! 1971 1982 ! U. S. ECONOIIY FIGURE 4 ! TOTAL NEW CAPITAL INVESTIIENT

Figure 4 shows that, in contrast to the earlier period of steep decline

, over 1980, the principal new fe ature of the continuing depression is 420000 ! the collapse of the capital goods sector. The model's measure graphed +------+ ------+------+------+------+------+------+- ... .. --.. - 1978 1982 above shows capital investment net of replacement co's�s to the U. S. ECOSOMY existing capital stock, calculated according to the Commerce Depart­ FIGURE I TOTAL TANGIBLE PROFIT ment's extremely conservative estimate of depreciation requirements; Under the present monetary regime, the rate of decline of the U.S. the actual depreciation requirements are much worse. Even by this economy already registered during the second half of 1981 and the measure, however, U.S. industry is presently investing at a negative fi rst half of will continue through 1982 and 1983. The graph $18 billion annual rate, against a positive $38 billion annual rate (both 1982 shows tangible profit, or value added adjusted for inflation, in the in constant 1972 dollars) before the first Volcker recession in 1980. economy's productive sectors, falling at a percent annual rate. That is an extraordinary rate of net disinvestment. 7

22 Special Report EIR July 27, 1982 my's condition in the medium term, noting the absence of changes in population characteristics which we are currently adding to the model.

The forecast Figure shows the economy's total value-added in 1 tangible terms, or economic profit: goods produced in excess of their capital-plus-labor production costs. Over the -1 979-83 period this will fall by one-fourth, assuming an unchanged policy profile in Washington, fr om about $56 billion to about $42 billio n (constant 1972 dollars). Figure 2 shows us that the decline in profit is the direct result of a similar degree of attrition of the productive labor force (measured by the output of tangible consumption goods consumed by the produc­ tive labor force). The labor-force graph has the same curve as the value-added, or tangible-profit, graph, which is to say that the productivity of labor remains unchanged. Figure 3 shows the economy's growth rate, S//C+ V. That is to say, the portion of the tangible profit available for reinvestment in additional capital and labor after overhead costs are deducted is divided by the capital and labor costs required to produce that volume of profit. In the model, as in the real world, expenditures for overhead are strictly one-way: they represent consumption but no production. The deter­ minant portion of the economy's output is the reinves­ tible portion of the tangible profit, or the net profit;the determinant ratio S/ /C+ V is the rate of production of net profit. Calculating the effects of the present policy mix, the model projects a negtive 7 percent growth rate fo r 1981-82 (in a year-to-year average; the graph does not necessarily reflect quarterly fl uctuations), and a slightly lower rate of decline for 1983. :;;iii z Figure 4 shows the portion of the net profit (or negative net profit) devoted to new capital investment; as is clear, the bulk of the decline in net profitis taking place in the capital goods portion of the economy. In 620000+ I I consequence of the energy-related investment boom, I I capital investment remained positive overall in the ! earlier phases of the depression, as the graph shows. However, since this investment merely substituted capi­ tal and labor for energy, without improving the produc­ tivity of labor, it could not be sustained. The collapse of investment, which translates into an expected 20 percent ! reduction in capital spending over the year, reflects the 500000 ! +------+------+------+------+------+------+------+------rollback of oil drilling, the abandonment of steel, and 1978 1982 u. S. £CONOHY so forth. FIGURE 5 TOTAL RAW �TERIALS ""'0 E�'ERGY

Figure 5 shows the consumption of raw materials As the most capllal-intenslve sectors of the economy close down and energy in the production process; what is interesting under the impact of the capital spending reduction shown in Figure 4, is the steepening of the curve of decline during the consumption of raw materials and energy declines more sharply than in the past. Figure which shows a 12 percent reduction in raw second phase (1982-83) of the depression, as more materials consumption5, over the 1982- 1983 period, reflects the halving capital-intensive sectors are brought down. of steel output and sharp reductions in other primary producing sectors. Figure 6 shows the halving of value-added in the steel industry over the 1979-83 course of the depression,

EIR July 27, 1982 Special Report 23 one of the major factors accounting for the declines

16001» registered in the fo regoing two graphs. Of course, the 1 1 average annual values displayed do not reflect the 1 1 precipitous collapse of the industry during the last 12 ! 1 1 months. 1 * 1 In all, the model generates close to 1,000 such + 1 graphs (including rate-of-change measures of the same 1 1 variables). The above figures are directly computer- "­ 1 1 generated and computer-drawn. The measures shown 1 1 1 summarize the most elementary characteristics of eco­ 8000 t * +------.....:. .. _-----+ ...... _--- + ------..._ +------+------+ ------...-+- ---...... nomic performance; the fu ll profile is published quart­ 1978 1982 U.S. ECONo.'IY IRON A.'IIl STEEL SECTOR erly as a subscription service. FIGURE 6 TASG IBLE PROFIT

Figure shows the steep decline of what was fo rmerly the economy's The financial crash projection largest 6single sector, iron and steel. By the end of 1983 the sector is expected to be only half as large as before the VoIcker monetary All the above profile assumes is that the present policy began, with most of the decline occurring during 1981; that is grinding pressure of interest rates will continue, but to say that the steel sector is not expected to rise this year above the that the fi nancial system will not break down, i.e., that present 47 percent capacity utilization rate and is expected to fa ll slightly again during 1983. banks will continue to lend to industrial corporations at the same 25 percent per annum growth rate they have

.0201» for the past year. Since, as we discuss in the next section, 1 1 ------the present rate of lending represents simple refinancing 1 1 of interest payments that corporations cannot pay with­ 1 1 1 out new loans, the first scenario should be viewed as I 1 contaminated by extremely optimistic assumptions. If + 1 the present rate of lending slows-in this alternate 1 1 projection we have arbitrarily, assumed that it would 1 1 1 halve-corporations would have to liquidate capital and ! 1 labor to pay debt, and reduce production expenditures -.1500 1 +------+ ------+ ------+------+------+... ------....._----- +-.. ----- accordingly. We have treated the assumed requirement 1978 1982 U.S. ECONOlIY ALTER.'lATE PROJECTION for payment of interest at the expense of production as FIGURE 7 NET REPRODUCTIVE RATIO - - 5', (C+V) a de facto rise in overhead costs for purposes of Under conditions of sharply curtailed credit extension, i.e. a financial "crash," in which banks are fo rced to pull in loans to corporate modeling. customers, the economy will fa ll more dramatically than under present Figure 7 shows that the impact of a fi nancial con­ circumstances, in which corporations are still able to refinance their traction, under assumption of a halved rate of credit debt but have difficulty obtaining credits to expand production. The assumption in the alternate projection is somewhat arbitrary, i.e. a extension, would be a 13 percent negative growth rate halving of the present rate of credit extension; it is meant to indicate by year end, i.e., the rate of economic activity in only generally how the economy would behave under conditions of December 1982 would be 13 percent below the .I 982 financial collapse. In this case the key growth ratio fa lls to -13 percent per annum, against 7 percent in the fi rst forecast . average. Note that the net reproduction rate remains sharply negative, but not nearly at the 1982 level, for

560001» 1983. 1 1 Figure shows the measure of total tangible profit 1 8 1 for the U.S. economy under the second set of assump­ 1 1 ! tions, fa lling to $39 billion rather than $42 billion in the 1 1 fi rst projection. + 1 These are grim results indeed, and the extent to 1 1 which the abandonment of capital stock in steel and 1 1 1 other industries will inhibit future recovery-let alone 1 1 the rapid attrition of industrial labor-remains to be 3900001 + .. -_ ...... -+_ ...... - + _ ...... -+- ...... --+_ ...... -+- ...... -+- ...... - +_ ...... determined. A program of capital-stock reQuilding, 1918 1982 U.S. ECONO'IY ALTERSATE PROJECTION FIGURE 8 TOTAL TA.'GIBLE· PROFIT starting with electrical-utility and other basic infras.truc­ ture requirements, could, starting from the 1981 eco­ Figure 8 shows the same measure of total economic profit, or value added, shown under diffe rent assumptions in Figure Assuming a nomic profile, still yield an economic recovery in the I. dramatic contraction of credit, the level of tangible profit will fa ll to middle and late 980s, as we demonstrated in the I $39 billion (1972 dollars) rather than $42 billion as under the previous aforementioned April 6 survey. Whether the economy scenario. could do as well after the current shock remains to be determined.

24 Special Report EIR July 27, 1982 SECTORAL OUTLOOK

u.s. industrial collapse: worse thaDthe Fi rst Great Depression by LeifJohnson

The following data on the trend in production of machine Thus by 1981, the industry was already booking net tools, steel, construction materials, autos, housing, new orders (new orders minus cancellations) at only transportation equipment, capital spending, and current half the pace of the year prior to the introduction of total public works spending do more than confirm the Volcker's usury policy. And 1982 net new orders are predictions made by the LaRouche-Riemann economic running at only slightly more than half the rate of 1981. model. They confirm theconclusion described in the EIR Ifpresent trends continue, the industry's order back­ issues of March 18, May 6, and Sept. 3, 1980, and log will be exhausted by the spring of 1983; even before subsequently republished as an EIR Special Report enti­ that time, many individual companies will have come to tled "Can the American Economy Recover?" a standstill. What was then identified .by LaRouche-Riemann In May 1981 the machine-tool order backlog stood analysts as the basic direction of the U.S. economy is at $4.156 billion, a low but not dangerous figure. One now, two years later, a matter of empirical fact. The year later the order backlog was only $2.015 billion. imposition of usurious interest rates by Federal Reserve This has already cut shipments, which were at $4 10 Chairman Paul Adolph Volcker was described by EIR in million in May 1981 but only $296 million this May. 1980 as fo rcing the U.S. economy through a "phase There is simply no sector of manufacturing that change" in which the economy was unable to reproduce promises to provide substantial order increases fo r its plant and equipment and labor fo rce to sustain growth machine tools. Auto, the largest single )uchaser, which in real manufacturing and agricultural output. Current took as much as 65 percent of the machine-tool indus­ output statistics for some basic industries are certainly as try's output in 1979, has all but eliminated its procure­ bad as in the depth of the First Great Depression, the ment, as the largest company, GM, has indicated that it years 1931-35. We predicted, however, that the Second will diversify its much-reduced production worldwide. Great Depression would be substantially worse. Indus­ Machine tools for the oilfield machinery and equip­ tries and labor skills that survived long years of very low ment industry will be greatly cut back because of the 40 production in the 1930s (when interest rates fell to 1 and percent drop in new well-drilling activity since last 2 percent) cannot survive 14-16 percent and higher rates. October.

Machine tools Steel The basis for productivity gains in manufacturing, The capacity utilization of the steel industry is of course, is the invention of new manufacturing pro­ presently lower than the average level during the worst cesses and the installation of the metal-working tools to five years of the First Great Depression, 193 1-35. For allow that production. Thus, the machine-tool industry the week ending July 10, the industry is producing at is essential to the nation's productivity. That industry 40.2 percent of capacity, 4 percent below the average has now suffered losses from which it may not recover. capacity utilization of 1931-35 and 12 percent below the In May 1982, orders for both cutting and forming average utilization for the 10 years of the First Depres­ machine tools, in current dollars, totaled just under sion. Industry employment is currently lower than at $100 million. This compares with the $229 million worth the depth of the last Depression, although production of orders for the same month a year earlier. Yet 1981 remains much higher since productivity has greatly was no banner year for the industry. Net new orders improved over the past 50 years. were only $2.9 billion, down 37 percent fr om 1980, Since steel is the indispensable bulding block of the which in turn was down 16 percent from the peak year nation's industries, the following declines in shipments 1979, when orders were at $5.6 billion. to end-users indicate much of the condition of the U,S.

EIR July 27, 1982 Special Report 25 Th is year's orders fo r machine tools are halfthose of /98/, which were down percent fr om 1980. Above, precision-cut gears are checked 37 at thefactory. economy at large. Steel shipments to auto for the first back to their level of the year 1894 fr om the high point five months of 1982, compared with the first five months of about 250,000 miles reached before World War I. of 1981, is down 35 percent. Steel shipments to construc­ Using the 1980 Rail Deregulation Act (Staggers Act), tion are - 32 percent; to steel service centers (distribu­ railroads are expected to shed another 10,000mi les this tors), -28 percent; to the oil and gas industry, -22 year, the largest rate of abandonment in history. The percent; to equipment, machinery and industrial tools, target areas are agricultural regions an d the industrial - 31 percent; appliances, - 31 percent; to forgers, -36 Northeast, with Conrail abandoning 2,600mil es. percent; to containers, -17 percent; to shipbuilding, Freight-car loadings (the standard measurement of -63 percent; and to rail, -48 percent. Only the military railroad activity) for the first sjx months of 1982 are sector, which uses less steel than the nation's yearly trailing the same year-earlier period by a shade less than supply of tin cans, showed a gain (17 percent). 10 percent, provoking railroads both to cut trackage As we have described (see EIR , July 20), the Ameri­ and service and to reduce repairs and capital investment. can steel industry, a cartel formed by the London The most serious downturn is in capital investment. financiers who backed the Morgan and Mellon banking Capital investment for the first quarter of 1982 was houses at the turn of the century, has de facto joined the down 55 percent fr om the comparable period the pre­ European Community's Commissioner, Count Etienne vious year. For Conrail, the nation's largest road, the Davignon, in a plan to establish a world steel cartel that capital-investment and operating costs of repair had would reduce global steel production by 50 percent or begun to be substantially reduced at the onset of the more. American steel production could be held perma­ Volcker Depression. From a total capital investment of nently as low as current production levels. $836 million in 1979, the railroad dropped the outlay to $375 million in 1981. In 1981 only 199 miles of new rail Railroads were laid on a system of over 16,000 miles; the railroad With total main track route mileage of 176,466 at wishes to abandon 16 percent, or 2,600 miles, of that the end of 1981, American railroads have been shrunk track.

26 Special Report EIR July 27, 1982 Conrail further boasts that it has successfully cut mechanical maintenance of equipment from $90.67 per carload in 1980 (in constant dollars) to $80.06 per carload in 1981 while reducing car inspection and repair from $55.30 to $44.29 per carload. Such savings are generated by reducing inspection and repair and laying off employees. American railroads overall intended abandonment of lO,OOO miles of track this year (Conrail will tear up 3,900 miles including double track, yard track, and sidings). That is five times the rate of abandonment at the First Depression peak in 1933. Once gone, aban­ doned track can only be restored at great cost, in order to once again service industries temporarily shut during the Depression. Coupled with abandonment is failure to purchase new freight cars and motive power. Conrail bought 4,875 cars in 1978 for a fleet consisting of 114,000, implying a 20-year replacement program-a minimum replacement cycle-then dropped its purchases to 120 cars in 1981, explaining that it had tried to cancel the order but failed. That same year, 1981, the line retired 7,950 cars. Purchases of locomotives is expected to drop to extraordinarily low levels in 1982. Last month, the world's largest producer ofrailway engines, the Electro­ motive Division of GM, permanently shut its plant, leaving only one American producer of engines, Gen­ The steel industry is presently producing at percent of eral Electric. capacity.U. S. Above, Bethlehem steel's Sparrow Poi40.2nt. Maryland plant. Construction materials If we continue to look at the nation's ability to The nation's lumber industry has suffered an even rebound if the Volcker usury is lifted, we necessarily larger decline than the cement sector. From its peak of consider the availability of construction materials. Con­ shipments in 1978 of 38.1 billion board fe et (bbft) the crete, bricks, and lumber products are br-coming a shipments are currently running at an annualized rate tremendous problem. Those industries, victim to Volck­ of 24.2 bbft, a drop of 36 percent. The staggering rate er's intent not to allow homebuilding in the 1980s and of bankruptcies among the many smaller sawmills indi­ to the collapse of industrial building, rail construction, cates that, although the capital expenditure fo r sawmill and public works, now face an astonishingly quick end construction is far less than fo r cement production, the to their last important source of sales: the officebuil ding industry would take as long as three years to recover to boom. (See EIR , June 29, July 7, and July 20.) 1978 levels. The most capital-intensive industry within building By far the most dramatic collapse has occurred products is cement. among brick producers, who are about 50 percent From a 1979 production of 84.9 million short tons dependent on the homebuilding market. Based on early delivered-not including the 12 million tons of im­ 1982 figures, theind ustry may produce between 2.7 and ports-domestic shipments are expected, on the basis of 3.0 billion bricks for the year. Contrast that with 8.6 the first four months figures for 1982, to fall to 58.3 billion bricks produced in 1978, the year before Vo\ck­ million tons. er's appointment. This decline nearly matches the drop This means many plants will close; and if Volcker from the 7.6 billion bricks produced in 1929 to the remains, vital interstate highway repairs, state and local average 1.9 billion for the five worst years of the First

public works, and required rebuilding of basic industries Depression. The difference, however, is that today brick such as steel-not to mention such proj ects as the North producers, mostly serving local markets, are being American Water and Power Alliance and nuclear power bankrupted or voluntarily going out of business because generating plants-cannot be built even with heavy of high interest rates they cannot carry the burden of ; importation of cement or clinkers. usury while producing at 30 to 50 percent of capacity.

EIR July 27, 1982 Special Report 27 CORPORATE FINANCE Debt burden and investInent collapse: thefraud of the conswner-led recovery by David Goldman

During the first quarter of 1982, U.S. business credit Since the total volume of interest payments in Gross expanded at an $80 billion annual rate (commercial National Product is a net $300 billion, or 10 percent of paper and bank loans outstanding). This is the highest GNP, the circulation of interest costs is of far greater annual rate ever recorded, and exceeded only once on a importance for economic activity than the $30 billion quarterly basis, during the third quarter of 1981. Includ­ tax cut coming on line July I, and the net result for the ing bond-market issuances, corporate credit rose at a economy has been negative. That has, in fact, been the $126 billion annual rate. If trade credits were included, case for the economic results reported to date. May the rate would be considerably higher; the TRW Com­ 1982 industrial production declined by 0.2 percent (ac­ pany credit analysis reports indicate that the volume of cording to the Federal Reserve Index, an early but overdue receivables-involuntary trade credits-is at its unreliable indicator). A modest improvement in con­ highest recorded rate. However, data on trade credits, sumer durables was overbalanced by a rapid decline of available from the Federal Trade Commission survey, capital-goods output. That has characterized the econ­ will not be available for some weeks yet. What may be omy all year. concluded, and will be documented in the analysis below, It may well be the case that we have already been is that the tendency for debt service to siphon funds away through the consumer recovery's peak, and face a new from productive activity has intensified during the first series of declines; but even if consumer spending man­ two quarters of this year. ages to stabilize the Federal Reserve's industrial pro­ duction index during, say, the July-September period, it The corporate drain is evident that the breakdown of the capital-goods An ironical twist in the credit picture for the first sector will leave the economy in a sharply . negative half of 1982 is the so-called consumer recovery, which direction by the fourth quarter. Year on year, EIR's translates into a modest improvement in the auto indus­ estimate of a 7 percent production decline over 1981-82 try (from 30 petcent below the 198 1 average to "only" still holds. 1 7 percent below the 1981 average as of the beginning Through the year, capital-goods output· (incl�ding of June). raw material such as steel) has fallen at a 20 percent The transfer of funds from corporate balance sheets annual rate, while consumer durables have risen at more to consumer incomes is mirrored in the picture of than a 9 percent annual rate; the overall rate of produc­ corporate dividends. Although corporate profits in the tion decline has been 6 percent since last December. In first quarter of 1982 were a full 30 percent below the May, business equipment fell 1.6 percent and consumer previous year's levels, corporate dividends dropped only durables rose 2.3 percent (although consumer non-du­ marginally. Corporations maintained dividends by rais­ rabies continued to fall), and the overall index fell 0.2 ing the proportion of retained earnings paid out as percent. The relatively small drop in the index has dividends from the historical levels of 40 to 45 percent aroused the predictable cry of "recovery." But the fact to a full 60 percent. that the bulk of the consumer-durables rise was due to Debt service has risen from only 1 percent of GNP a one month 10 percent increase in auto sales, linked to in 1945 to 10 percent of GNP in 1981; a considerable non-recurring (and immensely costly) auto reba�es, does portion of that debt service is paid to individual inves­ not augur well fo r the third quarter. tors, who benefit in the short run from high interest What is evident from the available data on the rates. The growth of money-market funds to over $200 financial position of non-financial corporations, how­ billion in assets, heavily invested iq unsecured, high­ ever, is that the rapid decline of capital investment has interest commercial paper, has played a major role, in only begun. Under prevailing circumstances capital in­ the context of the "financial deregulation process" of vestment stands to decline by over $35 billion, or about the past two years. 15 percent, from 1981 levels. That assumes no destabil-

28 Special Report EIR July 27, 1982 iza,tion of the lending markets, no inroads against the investment bank analysts. The rate of capital-goods current investment tax incentives, no financial panic­ production has already dropped; but the order cancel­ all of which are in fact to be expected within the next lations that became apparent in the Commerce Depart­ year. Therefore, while it is theoretically possible that the ment estimate that factory orders fell by 2.3 percent in rising curve of consumer spending could temporarily April, and the National Association of Purchasing cross the fa lling curve of capital spending for two or Manager's reports that capital-goods orders were the three months during the third quarter, showing a tem­ lowest since 1955, indicate much worse to come. porary .rise in the industrial production index, no recov­ Judging from the first-quarter balance-sheet num­ ery whatsoever is in the works. bers, non-financial corporations will have to fill a $35 The collapse of the capital-goods sector represents to $40 billion hole in their balance sheets by other not so much a continuation of the falling phase of a means than access to the credit markets. Certainly with business cycle, but a change in America's industrial the Treasury in the market for $90 billion in the next six base, in which major industries will face reduction to months and long-term interest rates on the rise again, roughly half their former output levels. Let us examine the drying up of the corporate bond markets can be the financial mechanism through which this is brought taken fo r granted. This hole will have to be filled abouL somehow, and the only area untouched by corporate managers in the first quarter was capital expenditure. Cash flows and investment According to the Federal Reserve's numbers for The 'lease-back' loophole sources and uses of funds during the first quarter, If Sen. Robert Dole's (R-Kan.) Senate Finance American corporations' internal cash generation (in Committee responds to the budget crisis by eliminating, annualized values) fell from $208 billion in the last as seems likely, tax-related leasing arrangements which year's fo urth quarter to only $169 billion in the first cost the Treasury upwards of $12 billion a year, matters quarter. Sixteen billion dollars of the decline was due to could become much worse. Currently corporations may a rise in tax payments (lagged versus accruals one lease capital equipment from a profitable corporation quarter), but most was due to a fall in profitsfr om $166 that buys capital equipment for them, and as nominal billion to $127 billion. owner, takes the value of the tax credit in return for a In all, their cash needs rose by some $60 billion, as partial cash payment of the tax credit's value. This capital spending rose to $254 from $247 billion (all reintroduction of tax-farming, outrageous as it is, none­ annual rates). Corporations met these needs by increas­ theless enables troubled industries like the airlines and ing their rate of borrowing from all sources by $34 auto companies to maintain certain capital purchases. billion (from $92 billion to $126 billion), and by liqui­ Now United Airlines has officially threatened to cancel dating $35 billion worth of inventories. all its $1.8 billion of orders for new Boeing 767 jets The rapid runoff of inventories, which reached a should the lease-back provision be canceled. All in all, record 0.9 percent in May, has been viewed as a factor Morgan Guaranty Trust estimated this year, some $50 promoting recovery; more importantly, it has been a to $60 billion of capital investment, or about a quarter means by which corporations raised needed cash flow of the total, will involve some form of lease-back tax during the first quarter. It is no coincidence that the big arrangements . A significant portion would be endan­ bankruptcy wave started in April after the inventory gered by a move against this prominent "loophole." cycle had run its course. As bad as all this may sound, it is really a numbers To achieve the same sales rates, corporations would game, useful to the extent that it demonstrates that the have to sharply increase expenditures and therefore current trend cannot possibly make both ends meet, but their rate of borrowing. Although the rate of corporate wholly inadequate for picturing the next several months. borrowing has remained high, there is no indication of The three great crises in the financial system, the U.S. such a burst; Chase Manhattan recently publicly char­ federal budget, the American corporate problem, and acterized the present 23 percent annual rate of rise of the developing sector debt situation, will not sit and bank lending and commercial paper writing as "distress wait. borrowing." No such direction as may now be discerned from the Capital-investment plans are relatively slow to re­ corporate liquidity figures ever follows itself out to spond (reaction time of more than one quarter) to a logical conclusions. 'A political crisis intervenes en collapse in corporate income, and the collapse of first­ route, and decides matters, appearing as an "exogenous quarter profits will only begin to show up fully in the variable." The basic truth of the present situation is that third and fo urth quarters of this year-and perhaps as long as the VoIcker monetary policy remains in force, through the beginning of 1983, according to some America will continue to descend into depression.

EIR July 27, 1982 Special Report 29 Reagan faces a war on two Mideast fronts

by Robert Dreyfuss, Middle East Editor

President Reagan and Secretary of State George P. a "New Yalta" in the Middle East. The destabilization Shultz are facing the eruption of a two-front war in the of the kingdom of Saudi Arabia-America's chief ally in Middle East, whose outbreak is the product of former the area-is tqe prime objective of this operation. Secretary of State Alexander Haig's outright collabora­ Given this; no competent observer doubts the link tion with America's enemies in the region. The Israeli between Sharon's genocide in Lebanon and the mon­ invasion of Lebanon and the Iranian move into Iraq strous Iran human-wave attacks against Iraq, especially might appear to be two distinct conflicts, but they are in in light of General Sharon's public boast about sending fact a single war spanning the entire region. In this Israeli arms to Khomeini's hordes. New conflicts are conflict, the Begin-Sharon government in Israel, Ayatol­ being spawned in the Yemens, the Horn of Africa, and lah Khomeini in Iran, and the radical Arab rejection the eastern Mediterranean to complicate the problem. fr ont based in Damascus-with tentative support from the Kremlin and the full support of the British intelli­ The Vatican solution gence service-have launched an all-out move to destroy Although the Israeli ceasefire imposed within min­ U.S. influence in the Middle East. utes of Haig's ouster on June 25 has held as of dead­ To the extent that President Reagan can establish line-except for periodic atrocities by Israel's artill<::ry­ cooperation with Pope John Paul II's Vatican, with the the Reagan administration is still embroiled in a com­ moderate Arab forces in Egypt, Saudi Arabia, Iraq, and plex diplomatic effort to resolve the crisis. Beyond the the Palestine Liberation Organization, and with Israeli crisis-management immediately linked to the �iege of opponents of the fascist Begin-Sharon clique, then it is Beirut, it is apparent that the administration's goal is to possible to secure the American national interest in the create the basis for a stable and prosperous rebuilt region. If this is done, the Soviet Union will have little Lebanon and, more broadly, to open a dialogue with choice but to cooperate. the PLO's moderate wing. But with each step by the Reagan administration in In this effort, the most vital ally of the United States that direction, the forces deployed by Sharon, the Mus­ is the Vatican. Pope John Paul II has mobilized the lim Brotherhood secret society, and the Rejection Front Church to prevent the disintegration of the Lebanese have escalated their anti-American campaign. state into "ministates" run by puppet-like warlords, That campaign is sponsored by London and by the and, in coordination with President Reagan and Le­ Western European oligarchy, who have two objectives: banese leader Raymond Edde, has proposed to stop the first, to eliminate the United States as a major force in fighting, and restore order to Lebanon. the Middle East and replace America as the chief finan­ In a July statement, EIR founding editor Lyndon cial power and arms salesman in the area; and second, to H. LaRoucheII urged the superpowers to immediately make a deal with Moscow's heir apparent Yuri Andro­ support the Vatican fo rmula fo r Lebanon. "The Vatican pov and the H. A. R. "Kim" Phil by faction to establish is correct in identifying the current Ariel Sharon-Jed

30 International EIR July 27, 1982 invasion of Lebanon as part of a years-long plan to do Jordan, the chief supply line to Iraq and the gateway to away with the sovereign state of Lebanon and set up a the Gulf. Repeatedly in the recent past Sharon has small Christian state allied with Israel, led by the pledged to overthrow King Hussein's monarchy and, Falangist leader Bashir, Gemayel. Israel would then according to intelligence sources, he has reached a annex what is now southern Lebanon," said LaRouche. tactical accord with Syria's President Hafez Assad to­ "I am certain that my trusted acquaintance Ray­ ward that end. Now, by moving against Jordan, Sharon mond Edde will be capable of undertaking the respon­ would also squeeze Iraq in a pincer. Syria, long allied to sibilities that are implied," LaRouche added, urging Ir n, is already supporting its lunatic Teheran friends. that Rome's efforts be supported "before the genocide , In its first response to the July 14 Iranian attack on being carried out by Israel under its Nazi Defense Iraq, the Reagan administration renewed its pledges of Minister Sharon becomes the trigger for World War neutrality in public, while privately letting it be known III. " that it leans toward Iraq's position. Clement Zablocki, The Reagan administration is moving toward open­ chairman of the House Foreign Affairs Committee, ing relations with the PLO in the Beirut negotiations. urged July 15 that American arms be shipped to Iraq Shultz, in confirmation hearings on July 13, placed via the Gulf states. Zablocki's proposal may be a trial great emphasis on a solution for the Palestinians and balloon for the administration. An associate of Secre­ their "legitimate rights." His statements sharply con­ tary of State George Shultz told EIR that Shultz intends trasted with Haig's babbling about "strategic consen­ to eliminate from the Department of State those remain­ sus. " ing among of "the Kissinger-Haig geopoliticians who According to Arab sources, the foreign ministers of supported Iran over Iraq." Saudi Arabia and Syria will present a letter from PLO Iraq dealt Iran a serious setback in its invasion, Chairman Vasser Arafat to Reagan in a scheduled July according to battle reports from the Gulf, killing thou­ 20 meeting, endorsing the eight-point peace plan of sands of Iranian soldiers-most of whom are drawn King Fahd of Saudi Arabia, which implicitly recognizes from the ranks of the Revolutionary Guard and units of Israel's right to exist. In the delegation-it is rumored­ Iraqi Shiite exiles-and repelling the invaders. Provided Khaled Hassan of the PLO will be present as an adviser. that Iraq can overcome the command weaknesses that Issam Sartawi of the moderate Palestinian wing led to the disastrous setbacks in the war earlier this indicated the PLO position in July speech in Paris year, Iraqi fo rces have the capability of blocking Iran's a 14 by saying that "formally and officially," on behalf of intended advance. But Iran's goals include the establish­ the PLO and the Palestine National Council, he offered ment of an "Islamic Republic of Basra" in southern to exchange reciprocal recognition of Israel. He also Iraq, and the toppling of Saddam Hussein's nationalist, asked Washington to talk directly with the PLO. In pro-development regime. Cairo, top PLO diplomats Ahmed Dajani and Said Kamal offered to establish a government-in-exile based in Egypt, provided that it would win U.S. recognition. WhereSo fa ther, the Soviets Soviet Unionstand has played both sides of the Many other PLO officials made similar remarks, includ­ Middle East crisis. While making appeals to Arab ing endorsements of Shultz's remarks, and the PLO moderates by condemning "U.S.-Israeli collusion," the official spokesman Mahmoud Labadi, speaking of ef­ Soviets have also mobilized the radical and communist forts to resist the Israeli siege of Beirut, said bluntly, forces in the Arab world for an Alamo-like last stand "The Israeli people are now our best ally." against U.S. efforts to strike a deal with the PLO. For instance, the U.S.S.R.'s top specialists in desta­ Sharon's Iranian flank bilization-Boris Ponomarev of the Communist Party's But no sooner was General Sharon's blitzkrieg International Department and Yuri Andropov, ex-KGB halted by American ultimatum than Israel assisted the chief-met with Khaled Bagdash of the Syrian Com­ Iranian regime in opening its long-awaited offensive in munist Party on July 16, following a meeting of eight the war with Iraq. Arab communist parties held early in JUly. With them, Khomeini's human-wave assaults into the Arab George Habash's radical Palestinians began to prepare Gulf-backed by Israeli arms and intelligence and the for a break with the moderate PLO Arafat wing, support of Moscow's Arab radical allies-were aimed presumably with the support of the radical Arab front at upsetting the alliance between Iraq, the Gulf states, of Syria and Libya with Khomeini's Iran . and Egypt in support of the PLO. An Israeli official, alarmed about progress toward a The message to Saudi Arabia from Sharon is simple: U.S.-PLO dialogue, expressed satisfaction that Mos­ unless you desist from efforts to effect an American­ cow's Arab allies would prevent the threat to Israel PLO rapprochement, Israel and Iran will destroy you. represented by American moves to talk to the Palestin­ The first target in the attack on Saudi Arabia may be ians.

EIR July 27, 1982 International 31 It is not clear how precisely plans have been developed The Lebanon War for a coalition that could put Edde fo rward as the ecumenically minded nationalist alternative to the cur­ rent Maronite leadership of the Gemayels. According to Lebanese sources, the key Lebanese Sunni Muslim ne­ Va tican undercutting gotiator in Beirut, Saeb Salam, is a close friend of Edde 's. The Jesuits, the British, and Mitterrand the Jesuitgarne plan? The Jesuit counterpolicy against reconstituting the Lebanese nation is manifest in France-a chief conduit by ThierryLaleve e since the 19th century fo r both good and evil influences on Lebanon. The Socialist government in Paris, having The Roman Catholic Church is deeply involved in the fully backed Defense Minister Ariel Sharon's evil inva­ Lebanon crisis and deeply divided over it. On the one sion of Lebanon, is now angling for a role in drawing side, Pope John Paul II has begun to intervene in an Arab nations into enforcing the final evacuation of the effort to preserve Lebanon's integrity as a sovereign Palestinians, and in the re-drawing of the Middle East nation and to prevent further slaughter. On the other map. side, the Jesuit Order and the Order of Malta are working President Fran�ois Mitterrand is acting at the behest at many levels on behalf of the fragmentation of that of 1) Great Britain directly, and 2) the "lobbies" nation into an array of backward, cult-ridden, perpetu­ associated with the worst elements of the vanished ally warring fiefdoms. French Empire and Vichy France, many of whose pro­ The Pope has called on political leaders everywhere Nazis transformed themselves, like Mitterrand himself, to do their utmost to halt the extermination being com­ into Socialists. Those "lobbies" have restored the 1916 mitted in Lebanon by Israeli troops and their Lebanese­ Sykes-Picot policy of chopping up the Middle East based allies. After having offered to go to Lebanon to among themselves and Great Britain, at the expense of directly mediate a peace agreement, on July 9 the Pope the region's modernization potential and of U.S. influ­ sent a message to President Yitzhak Navon of Israel ences. Supervising this strategy are the old French stating that the Vatican has received numerous letters, imperial families who head the "lobbies," advised by from Jews as well as .others, requesting John Paul to the Jesuit Order. "make every effort to prevent further loss oflife, destruc­ Mitterrand's policy controllers are mulling over tion, and suffering." "World opinion is looking upon various drafts of plans for Lebanon's future. In Paris, a this tragedy with horror and indignation," the Pope gathering of Lebanese bankers recently discussed the concluded. idea that the expUlsion of the Palestinians from Lebanon As sources close to the Vatican have confirmed,these might lead to a Palestinian state in Jordan, as advocated public statements betoken a deeper level of Vatican-led by Sharon adviser General Baum; they see this as an diplomacy. One such indication came fr om an article opening to invite King Hussein of Jordan to realize his published in the Italian Communist Party daily L' Un itti grandfather's dream of annexing the entirety of south­ on Vatican discussions with Syrian and Lebanese repre­ ern Syria up to Damascus, a region which is predomi­ sentatives. The Syrian Ambassador to the Holy See was nantly inhabited by Sunni Muslims, leaving the Syrian received by the Pope on June 29, while the exiled Le­ Alawites to establish their own little state in and around banese Maronite Christian leader Raymond Edde was the Port of Latakia. present at one of the Pope's numerous masses for Leba­ As we have reported (see EIR , June 22 and July 7), non. The Vatican, continues L'Unitti, views the Paris­ these ideas reflect the geopolitical approach voiced by based Edde as a potential President of Lebanon who the Paris-based Jesuit Father Riquet and his superiors: could oust Falange chief Beshir Gemayel (a fascist pseu� a systematic process of "cantonizing" the Middle East. do-Christian) and preserve Lebanon's integrity. This Riquet is a spokesman fo r groupings such as the Comite option is a subject of discussion between the Vatican and d' Aide aux Chretiens Libanais founded in 1976 by the Reagan administration, reports L' Unitti, by way of Pierre de Lassus Saint Genies, a former colonial gover­ the Vatican's representative in the United States, Mon­ nor of Lebanon. Says Pierre's heir Xavier: "We have a signor Laghi.· good understanding with the British." Edde-who claims to EIR that he is not aware of any (He recalled, as if to underscore the point, that Vatican efforts to renew his role within Lebanon-rep­ although his father had led Vichy'S troops against the resents the nationalist, Gaullist tradition in 'that country. British in the Levant in the early 1940s, the British had

32 International EIR July 27, 1982 been "fair enough" not to accede to the anti-Nazi Free French of de Gaulle; instead, the British commander, Interview General Wavell, sent them all back to Vichy with weapons.) The de Lassus family, which doesn't like to be nam�d publicly but is open to discussing its strategic viewpoint, wants to revive La France traditionelle of the imperial and Vichy eras; it controls the Falangist Ge­ Raymond Edde on the mayels, through noble Lebanese fa milies such as the Sursoks, whose last heiress, Yvonne (Lady Cochrane crisis in Lebanon through her marriage to a Scottish aristocrat), is still active: this summer she donated one of her palaces in the Christian Beirut quarter of Achrafiyya as a hospital Raymond Edde was born in Alexandria, Egypt, in 1913, for the Falangists. the son of Emile Edde and Lody Sursok. He is a Maronite Another branch of the Jesuits' Franco-Lebanese Christian. After his fa ther's death, he was elected Amid. or networks is the Comite Catholique, which openly and party chairman, of the National Bloc, and over the years bitterly opposes the Vatican. The Comite works through became the symbol of Lebanese opposition to the Syrians. the Freemasonic Grande Loge Nationale de France, After two assassination attempts against him in 1976 in which traditionally regards Britain as "the Brother Beirut, Mr. Edde chose to continue his figh t outside Leba­ Empire" and has b�en named as a correspondent lodge non and exiled himselfinParis. Although he diplomatically to the fascist Propa�anda-2 Lodge of Italy. The Comite denies knowledge of Vatican effo rts on his behalfin the is also associated with various associations more public­ interview excerpted below, other sources have confirmed ly concerned with Lebanon, such as the Comite de that the Vatican sees him as a preferred candidate fo r the Soutien aux Forces de la Resistance Libanaise, led by Lebanese presidency. Theinterview was conducted on July Marie-Madeleine Fourcade, a veteran of the British 13 in Paris by EIR Paris Bureau Chief Sophie Tanapura. intelligence-controlled wing of the World War II French· Resistance. It is among these groups that Beshir Ge­ EIR: What do you think of American policy in the mayel's Falange representative in France, Commandant Mideast after the departure of Mr. Haig? Malek, red:ives moral, political, and financial support. Edde: The impression one gets is that Haig was a clear ally of Israel. We all hope that his replacement, George The Order of Malta Shultz, will be more fair concerning events in Lebanon. Yet these groups in turn are only lower-level exten­ Since the Israeli invasion, several U.N. resolutions-SOl, sions of the oligarchic forces who invented European 508, 509-continue to be unheeded by Israel. The epito­ fascism and succeeded for so long in keeping the Middle me of it all was the American veto against the French East in bestial backwardness: the ancient Order of resolution .... Malta, which originated in the effort to use the Crusades Now let's take the case of Syria, and I am on very bad to crush the Arab scientificand technological centers of terms with Hafez Assad simply because he had ordered world culture. me shot at twice. I must admit that I am getting pretty The Maltese Order, in recent history overseen by the used to it because I am now at my ninth assassination ostensibly Catholic Hapsburg dynasty and the Jesuits, attempt. ... had its role in the Lebanese slaughter underscored when Now, if the aim of the Israelis were to decapitate the the Begin government, which has rejected the offers of Palestinian resistance, they could have launched an En­ other organizations to provide help for the wounded tebbe-style operation against the leadership. They could and homes in the LeQanese cities of Sidon and Tyre, have kidnapped these gentlemen, one after the other, ordered Israel's invading armed forces to welcome instead of totally destroying Beirut. In reality, Israel Prince Lobkowicz, the order's current Grand Master, wants to occupy part of Lebanon. And I accuse Israel of together with the Order's ambulances, while Israeli having a long-standing agreement. with Hafez Assad so authorities were denouncing the Vatican as pro-Arab. that each could take a part of Lebanon .... By sending The Order of Malta should provide "international the MIG 21s and 23s, Assad wanted to show that he brigades" in Lebanon, the Jesuit Father Riquet pro­ represented the only fo rce opposing the Israelis. This all posed a year ago. Now it is said privately in these circles occurred over Lebanese territory and nothing happened that the Order will have to play a "spiritually guiding to Syria. I truly believe that ! here is a secret agreement role" in the planned multinational force there. between the two countries. The MIGs could have at-

EIR July 27, 1982 International 33 tacked the tanks as they were filing into Lebanon from ITALY three different points, but not one MIG did it. Assad only wanted to make a minimal show in order to be paid by the Arabs ....

EIR: The Italian press has reported that the Vatican has a proposal to preserve the national integrity of Lebanon. Do you know more about this? POE: London behind Edde: No, I don't know anything about it. Roberto Calvi case EIR: They also referred to you as the presidential can­ didate of the Vatican. by Umberto Pascali Edde: As early as March £982, journalists came here to ask me if I were a candidate. I just want to make one point clear. One does not present one's candidacy. It is On July 7 a brief was filed with a court in Milan, Italy the parliament that elects you. By the way, the Lebanese that threatens to blow wide open the control of interna­ constitution is modeled on the French constitution of the tional terrorism, drug running, and other criminal oper­ Third Republic. Therefore, I can be elected President ations by the British royal family-as EIR has contended even while J am here. for years. Fiorella Operto, Secretary-General of Italy's So, as early as March 1982, I issued a declaration European Labor Party (POE), filed the legal brief docu­ stating the three preconditions under which I would menting the probable role of the British Freemasonry, accept candidacy in the next presidential elections: led by royal family members, in the recent shocking a withdrawal of I raeli forces from the entire south of death of Roberto Calvi, head of the Banco Ambrosiano I) s Lebanon and application of the 1949 Lebanese-Israeli and member of the Italian lodge "Propaganda-2," Cal­ armistice convention; 2) withdrawal of Syrian forces vi's body was found hanging from Blackfriars Bridge in from the entire territory of Lebanon; 3) replacement of , London on June 18. the Syrian army by a multinational force. I would like to Since the middle 1970s, the POE-collaborators of emphasize that it should be multinational and not inter­ EIR founder Lyndon LaRouche-has established itself national. It should be Arab or European or Euro-Arab, as a special kind of authority on terrorism in Italy. In a with no Syrian fo rces of any kind in it . . .. series of dossiers and legal briefs, the party of Fiorella Lebanon has turned into a fo otball field worked over Operto exposed and demanded the dismantling of the by both sides. The absurdity is that people applaud command center of terrorism. The POE's method of whichever side is winning or losing, and no one speaks of "striking at the head of the beast" contributed to the Lebanon any more. The chief of state of Lebanon, who success of Italian authorities in tracking down the P-2 was elected under conditions everyone knows, did not lodge as the source of repeated massacres and attempted open his mouth to protest against the Israeli invasion. coups, and in such anti-terror operations as the Jan. 24 The Foreign Affairs Minister did not protest either. No rescue of Gen. James Lee Dozier. one protested because they were afraid of being Since Calvi's death, the British Royal Family, gov­

killed .... ernment, and press have attempted to cover up what is The Russians are very good chess-players. They are now emerging in the major Italian press: evidence- that letting things run their course .... Calvi was murdered to prevent him from revealing the central role of the Grand Mother Lodge of London (led EIR: It was the Italian Communist paper L'UnitiJ that by the Queen's cousin, the Duke of Kent) and the City of covered you as the candidate of the Vatican .... London in running political and financialoperati ons to Edde: That, is nice. Doesn't the Vatican have its own control and destroy national governments. press? Why did they address UnitiJ? Why don't they print The Milan daily II Giorno reported July 11 that it in their own press? Was the Communist coverage British Prime Minister Margaret Thatcher met with ital­ favorable? After all, I am an original candidate. I don't ian Interior Minister Virginio Rognoni while in Rome swallow everything. Even President Reagan [made cam­ the week of July 5 to discuss the Calvi case, and that paign promises]; I impose conditions. I don't want to Rognoni had told Thatcher he wanted London to stop become President just for the pleasure of it; my father attempting to thwart the Italian investigation of the case. was one. I know how it starts and how it ends in Lebanon. Carriere della Sera, a Milan paper, stated July 13 that I will accept it only when I know that I will have the "certain interests" want to shift the blame in the Calvi means to save the unity of the country and the country's case from the role of the Grand Masonic Lodge and the sovereignty. City of London onto Italian institutions. Italian author-'

34 International EIR July 27, 1982 EIR: Your brief requests an urgent investigation of the United Grand Lodge of the Duke of Kent in connection with the violent death in London of Roberto Calvi. What is your aim? Operto: I presented the brief because, although the Ital­ ian authorities have done a splendid job against the Mafia, terrorism, and drug trafficking, the command center that is conducting the destabilization against Italy and other nations, has yet to be exposed and dismantled. With the Calvi case, this problem of not hitting at the center of the operations became even more apparent. As we have documented in the brief, what emerged is Fiorella Operto (righ t) that this center must be in London. But if you look at the British press, or you ask some of the British authorities ities have been requesting the aid of British authorities in involved in the investigation, or follow the coverage of investigating the London role fo r the past month. This the larger portion of the international media linked to shift of responsibility was intended, the paper stated, to London, you see that the word London is scarcely men­ use the Calvi affair to weaken the Italian government, tioned, and of course the name of the United Grand just as the fi rst explosion of the Propaganda-2 scandal Lodge does not even appear. On July 7, Prime Minister brought down the F orlani government in May 1981. Thatcher was sent to Italy to discuss how to deal with In response to the building exposure of the case, this scandal. One of my cojlaborators, Leonardo Serva­ Milan Judge Dell'Osso has issued warrants fo r suspects dio [EIR's Rome Bureau Chief], asked Mrs. Thatcher at in the death of Calvi's secretary, originally ruled a sui­ her press conference if that were why she was here. The cide, who "fell''' out a window at the same time Calvi British journalists could not control themselves when the died in London. Duke of Kent was mentioned. For them, the British In London, the Duke of Kent's Grand Mother Lodge Royal Family is untouchable, no matter what crimes it is not indiffe rent to the efforts to bring the investigation may be involved in. home there. Sources report that at the last meeting of the Thatcher lied when she said she was not going to Lodge, several prominent members did not attend, and discuss Calvi. Even the July II London Observer was the Duke ran a "blitz investigation" of his lodge which forced to admit that Thatcher had lied in substance in concluded that Calvi and the P-2 had no connections to answering Servadio, who used the contents of our brief. London. Yet Italian magistrates have in hand confes­ The Observer recognized that "the highest political levels sions by Calvi which confirm thatco nnection. are pressuring fo r a verdict of suicide and to close the Fiorella Operto has stressed to journalists that an Calvi file," and in fact that Scotland Yard is following attempt may be underway to interfere with the actions of instructions closely. One month after the body of Calvi the court, as has been done when the POE has presented was found, they still refuse to give any serious investiga­ previously suppressed, but irrefutable testimony to the tive material to the Italian authorities. Many magistrates courts in the past. In 1977, she filed a brief on Prof. and police officers here are saying openly that London is , Francesco Alberoni, the suspected creator ofthe terrorist covering for unnameable conspiracies. Red Brigades, which detailed the responsibility ofleaders of the Italian Socialist Party in that operation. The EIR: What do you think London's plan is? presiding magistrate in the case, Emilio Alessandrini, Operto : You can track directly to London the command who was also investigating money flows at the Ambrosi­ chain of the Mafia and the most important operations ano Bank, was subsequently killed by terrorists. carried out, politically and financially, against the nation The day afterOperto filed the POE Calvi brief, the of Italy. At this point, it is very well known, for example, Milan court, known for its determined investigations what Winston Churchill did to ensure that Mussolini into P-2, had its chief attorney suspended. The General came to power in Italy. It is also known that the "antifas­ Attorney retired at the same time, and the magistrates cist" Churchill remained in contact with Mussolini until were unable to take their places in the court. the last moments of the Duce's life. M ussolini was killed in the way he was in order to cover for the disappearance Th e fo llowing is an interview conducted with POE Secre­ of explosive documents incriminating Churchill and tary-General Fiorella Operto by EIR Wiesbaden corre­ others in London, which Mussolini was carrying with spondent Umberto Pascali. aft er she submitted a legal brief him. The story of the Mussolini bag looks, in a certain concerning the death of banker Roberto Calvi to the Milan sense, like the one of the Calvi bag. The "super-efficient" court July Scotland Yard have not yet been able to find whatCalvi 7.

EIR July 27, 1982 International 35 was carrying with him, and now they are saying that no Many have said that the manner in which Calvi was bag existed. killed was a Masonic warning, a warning against those who are abandoning the "protection" of the Grand EIR: You are accusing the Duke of Kent of direct Mother Lodge, a bloody warning to attempt to save a involvement in the case. monstrous financial system of usury that is now threat­ Operto: Yes, we believe that it is finally time to investi­ ening the very existence of civilization. gate this gentleman. British Masonry, besides the kooky, macabre elements (which seem very attractive to the Documentation British oligarchy), is a political instrument. It is a gigan­ tic network reaching into almost every country, and it is used to force certain policies on those countries. The Duke of Kent was, and very likely still is, the protector of 'Urgent to investigate Licio Gelli and the real controller of P-2, the organiza­ tion that tried for more than 10 years to subvert the the Grand Mother Lodge' Italian republic. Was Edward of Kent ever investigated? Excerpts fr om and paraphrases of sections of the brieffiled No. Why not? It is time this impunity is dropped. The by the Partito Operaio Europeo (POE) in Milan on July 7 Grand Lodge of Kent, .and you should note that it is fo llow. Such a brief, termed an esposto, is a legal document known as the Grand Mother, controls the City of Lon­ which, under Italian law, can be presented to the courts by don, which means very large portions of the international any citizen who may in this manner fu rther justice. It does financial system. Italian police know that the City is the not constitute fo rmal charges, but can lead to opening international center for laundering dirty money . ... investigations as to whether any crime has been committed.

EIR: Why do you think these oligarchic centers in Lon­ "Fiorella Operto, as General-Secretary of the POE, don are trying to hard to dismantle Italy? brings to the attention of the Milan attorney some facts Operto: This is, from their standpoint, a "geopolitical" related to the inquiry on the escape and violent death of question, centering on the historical importance of the banker Roberto Calvi, in order to show the role that Mediterranean. But the primary reason is the presence of British Masonry and, in particular, the leaders of the the Vatican in Italy. United Grand Lodge, alias Grand Mother Lodge of The British oligarchy considers the Vatican the insti­ London, had in the violent death of the banker and in the tution it must destroy. It is their most important enemy, destabilization of the institutions of the Italian because of the pro-development policy of the Catholic republic .... Church. "The investigations into the Italian Masonic Lodge If you read the British press, you see that in the Calvi Propaganda-2 can and must be analyzed in the context case, they refrained from asking whom Calvi met with in of these new fa cts, through which it may be possible to London. They concentrated on the Vatican. The way in hypothesize that the leaders of the P-2 were operating which the question ofthe Ambrosiano bank was handled against the institutions of the republic, at an internation­ was: how can we provoke a financial bankruptcy of the al level through evident links with foreign Masonic Vatican? This has nothing to do with the head of the lOR organizations, [and] above all that P-2 is a direct outlet [Institute of Religious Works, the Vatican bank], Msgr. of the London Lodge.... Paul Marcinkus, and his several financial operations, but "I) Although many newspapers, magazines, and me­ it has a great deal to do with the financial reorganization dia have explicitly reported the thesis that banker Rob­ that John Paul II is determined to carry out inside the erto Calvi had been killed following orders of the Grand Vatican. The British want to prevent this reorganization. Mother Lodge of London, until now no investigations And this has even more to do with the determination of have been initiated in this direction. the Pope to establish the concrete basis of a new world "Banker Roberto Calvi confessed last year to Milan economic order: not the one sponsored by [Club of Rome Judge Guido Viola that he was a member of the London fo under] Aurelio Peccei, and the various cannibals at Masonic lodge. 'I am a member of the Grand Mother Sussex University, but a plan to restart the real economy Lodge,' Calvi declared, 'because Gelli [the Venerable in the developed and developing sector. This is the Master of P-2] and [Umberto] Ortolani [who P-2 associ­ supreme threat to the British oligarchy. This is why the ates boast "owns Uruguay" through his BAFISUD bank campaign on the "Vatican financial scandal" was accom­ there] convinced me to become one. On the other side, if panied by an even more vicious threat against the Pope I had disobeyed the orders of the Lodge, 1 couldn't have personally and politically. We have to ask if this is a conducted business in the City of London.' Although campaign that precedes an even more serious threat to Calvi was a member of the Lodge, he was also terrorized the Pope's life. by it. When some members of the Parliamentary Com-

36 International EIR July 27, 1982 mittee of Investigation on P-2 asked him explicitly to specialized in drug traffic in Rome. He was part of the reveal the name of the lodge of which he was a member, so-called Clan of Marseilles, which included several Calvi answered, 'I cannot say anything because it is criminals from the French city and involved in the forbidden to me. I have received death threats for years. "French Connection" drug traffic. This gang was re­ I don't want to end up dead.' sponsible fo r several kidnappings in the Italian capital "From these declarations one can assume that Calvi and has been identified as "Kidnapping, Inc." The real was aware of: a) the willingness and capability of the head of the gang was a high-level leader of P-2 and London Lodge to kill him; b) the fact that he could be personal friend of Gelli, Giantonio Minghelli, who used personally threatened by death by such a Lodge; c) the to take care of the financial aspects of the operation: the fact that such a Lodge had strong control over the recycling of money from the kidnappings . The brief also banking and other activities of the most important Brit­ establishes factual links between the gang and the Mafia ish financial center .... families Gambiono, Spatola, and Zerillo. "3) From what appears to us, until now there has The brief also repeated the story that appeared in an been no deep investigation of the contacts between the ' Italian paper and was confirmed by other sources in leaders of P-2, Licio Gelli and Umberto Ortolani, and Rome, about the secret Masonic Lodge, the "Black­ the leadership of the London Lodge. According to what friars" of Edinburgh. The Lodge is known by insiders as has been reported by many media and books, the career the "British P-2." It is likely Calvi may have decided to of Gelli was pushed by the Grand Master of the Scottish leave for South America 'a nd for this would have asked Rite [and head of the London Lodge] the Duke of Kent, the aid of the Blackfriars, realizing too late that they cousin of the Queen of England. Gelli and Kent would wanted to kill him. According to some sources, the . Blackfriars are the executors of the death sentences hand­ beI linked by personal friendship. . .. "High-level leaders of Italian Masonry, during the P- ed down by what one source called "the secret council of 2 scandal, revealed that the then-Grand Master of Italian the Queen." This would continue the practice of the Masonry, Lino Salvini, justified the rapid rise of Gelli republic of Venice, where the Council of Ten decided ... and even drastic changes in the 'Masonic rules' in secretly to condemn to death persons considered "dan­ order to promote Gelli among the other Masonic leaders, gerous." The sentences were executed by killers with with the fact that support for the head of P-2 was the only black hoods and could be arranged as open assassina­ way to get the recognition of the Grand Lodge of Lon­ tion, suicides, or accidents. The brief continues: don. Several witnesses interrogated by the Parliamentary "On the basis of such material and other material the Committee on P-2 declared that Gelli told them several POE will supply, it can be hypothesized that the fo llow­ times that 'behind P-2 is the financialpower ofthe British ing crimes were committed by the leaders of the Grand crown and the Dutch crown.' Mother Lodge: 1) Political conspiracy through associa­ "4) Many newspapers connected the escape and vio­ tion, Article 305 of the Penal Code; 2) attempts against lent death of Calvi to the existence in the City of London the constitutional bodies, Article 289; 3) political and of an illegal international center specializing in launder­ military espionage, Article 257; 4) substitution of money ing dirty money. and valuables fr om robberies and kidnappings, Article "Italian police, in the context of the investigations of 648; and 5) criminal association further aggravated. Calvi's death, asked the British police to confirm the "In addition, on the basis of Article 7 of the Penal existence of such a center, which would be the direct Code [that Italian and fo reign citizens must be pursued, continuation of the so-called instant banks of Mafiaboss even if the above-mentioned crimes are committed Pierluigi Torri .... Such banks were also linked to the abroad] Italian justice has a full right to operate .... head of U.S. organized crime, Meyer Lansky. Torri's "The POE requests the opening of a legal proceeding money was then used, as police have discovered, to on the deeds of the United Grand Lodge of London .... finance terrorism all over Europe. Torri's banks were The POE believes that the Grand Mother Lodge, frequented regularly by the brother of terrorist Pierluigi through secret organizations like P-2 and the financial Concutelli, the head of Ordine Nuovo who killed Rome control of certain important banks such as the Ambrosi­ Judge Vittorio Occorsio in an ambush in 1976, the same ano, did operate against the republic's institutions. Such day on which Occorsio had obtained conclusive evidence a lodge appears to be the center of the recycling of funds on the huge flow of money passing through the hands of from the drug trafficin our country and to have financed Licio Gelli." terrorism. It is clear that investigations into such a nexus The brief goes into detail about a group of Mafiosi of 'unnameable' interests, reaching to the British Royal and criminals, for example Danilo Abbruciati, a known Family, presents difficulties. But, given that the Grand Rome-based gangster, who tried two months ago to kill Lodge of London appears to be the top center of finan­ the Vice-President of the Ambrosiano, Roberto Rosone. cial, political, and terrorist destabilizations of Italy, we Abbruciati was an accomplice of Torri in London and demand you proceed with the utmost urgency."

EIR July 27, 1982 International 37 Mexico PAN party launches post-election 'movement of national i�surgency' by Timothy Rush

The affiliate of the fa scist international in Mexico , the formulation the day before: the PAN leaders "are National Action Party (PAN), has declared itself in a attempting to disorient public opinion, proclaiming state of insurrection against the republican constitutional victories when it is perfectly clear that they did not win. order of the nation, following national elections July 4. It is a Nazi-fascist attitude, in the service of anti­ Alleging fraudulent voting, PAN presidential candi­ national oligarchic interests." date Pablo Emilio Madero declared July 13 that his party The key to the current PAN rampage is a semi-secret was not recognizing the victory of PRI party candidate planning session held in Guadalajara in mid-January Miguel de la Madrid for president, despite an over­ 1982, called "Atalaya II." (See EIR, Feb. 16, 1982.) The whelming 75 percent of the vote for the PRI, against IS meeting brought together a top echelon of European percent for the PAN. The same day Madero and the oligarchs connected to Pan-European Union (Haps­ president of the Party, Jesus Gonzalez Schmall, mobi­ burg) circles, with Mexican business associates. Prince lized the party for a "movement of civic insurgence," Nicholas Lobkowizc, an intimate of the Hapsburgs and contesting local races in at least eight states throughout Franz-Joseph Strauss, directed the European input; the the nation, as well as several dozen races for federal Mexican side was run by Agustin Legoretta of the deputy and senator. Swiss-controlled Banamex banking conglomerate. Violence erupted in the northwest agricultural state It was at this meeting that the final details were of Sonora. One thousand PAN militants swept into worked out to fo rce through a maxi-devaluation of the Caborca, a large town near the U.S.-Mexico border, on Mexican peso, subsequently accomplished on Feb. 17. July 12, and occupied the municipal buildings. Two days At the same meeting, the orders went out to consolidate later a group of PA Nistas burned the local office of the a fascist "middle-class movement" in response to the Federal Elections Commission to the ground, vandalized deliberately triggered economic collapse. the- downtown commercial district, and stoned the local The PAN was the ideal vehicle. It had begun the police station. Sonora state security police report stashes year before to experiment with "civic insurgency" on of molotov cocktails and other weapons in PAN party the local level, following the model of the "pots-and­ offices across the state. Violence and threats of vi�lence pans" movement of fascist-leaning Chilean middle class also characterized PAN actions in the states of Baja elements in the 1971-73 period. The most successful California, Chihuahua, Coahuila, Nuevo Leon, Puebla, Mexican test mobilization was in Coahuila state, where Yucatan, Veracruz, Hidalgo, and Tlaxcala. an escalating series of protests culminated in the com­ The left-terrorist PRT party, which gained a 2 percent plete shut-down for a day of the commercial district of (450,000 votes) toehold in the elections, has officially Coahuila's transportation hub, Torreon. joined the PAN protests in Monterrey and Sonora. A After the Atalaya meeting, ' PA N presidential candi­ number of other small opposition parties are doing the date Pablo Emilio Madero declared officially that the same-though not the largest leftparty, the PSUM. party's ideology was "neither capitalist nor socialist, but solidarist." That was a clear reference to the Euro­ What is the PAN? pean oligarchical control over the party, solidarism The conventional description of the PAN is as a being the Jesuit-shaped "third way" ideology forged at "right-wing Catholic party." Its roots and its current the end of the 19th century in Europe. deployment are much more insidious. The Mexican The Economist of London gloated July 10 that the Labor Party (PLM), the third largest electoral force in operation had worked. The PAN vote in the July 4 Sonora after the PRI party and the PA N, demanded elections is the reflection of "a middle class that mat­ July 14 that the PAN be outlawed as an explicitly fascist ters," it proclaimed. The magazine hastened to sketch party, run by foreign powers, now in revolt against the the next phase: "Mexico's capacity for violence is not to constituted constitutional order. PRI Undersecretary of be doubted. Its revolution of 1911 left one person in 15 Information Hector Murillo Cruz used the same sort of dead or wounded. Its present homicide rate is second tt)

38 International EIR July 27, 1982 none in the world. Will the lid blow?" • PAN-affiliated oligarchic business circles are at The principal point of reference for the current PAN the center of the flight-capital operations which felled operation is the bloody insurrection of the 1920s and the Mexican peso in February, and after it, the rest of 1930s known as the Cristero Revolt. Cristero bands, the Mexican economy. made up largely of backward peasants manipulated by The British-born correspondent for the New York Jesuit priests and funded through V.S. and European Times in Mexico, Alan Riding, underscored in his conduits, declared war on Mexico's efforts to build a election report July 11, that "some fresh political re­ modern industrial republic. The rebellion eventually sponse" from the middle classes-which he notes turned requir d a full campaign by the Mexican army before it out in record numbers to back the PAN candidate­ was suppre essed. '�will be forthcoming." "Certainly, a populist approach In the late 1930s, fascist organizers linked to Fran­ by the incoming de la Madrid administration would co's Spanish Falange networks, then spreading aggravate middle-class nervousness and prompt a new throughout Ibero-America, pulled together the rem­ flight of capital outof the country. The Mexican middle nants of the Cristero movement as one of the core class has shown that when it can't make itself heard elements when the PAN was fo unded as the Falangist politically, it can at least make itself heard in the party of Mexico . economy," Riding threatened. Oilman William Buckley Sr., who had lost the • There are extensive PAN ties to the environmen­ absolute oil rights he coveted in Mexico as a result of talist movement, especially the terrorist-linked "left" the Mexican Revolution, was one of the principal PSD party. Family business interests of PAN presiden­ financiers of the Cristero rebellion. Today, Buckley's tial standard-bearer Madero are managed by the PSD's nominally Catholic offspring form a crucial V.S. trian­ business consulting firmSi ntemex. Madero himself, two gulation point for the "PAN-European" connection. weeks before the elections, delivered a slashing attack One of the most important points on the European side on Mexico's nuclear program as "the worst alternative" is the European Center fo r Documentation and Infor­ the country could choose fo r energy diversification. mation in Madrid, a Hapsburg deployment center which is a regular stopping point for the current gener­ ation of Buckleys and such PAN figures as industrialist TheBut Sonora the PA caseN did not emerge as the unquestioned, Andres Marcelo Sada of Monterrey. "second fo rce" in the country after these elections just on the basis of "middle-class mobilization." Substantial help came from factions of the PRI party itself, factions TerrorIn 19ism,76, indrug-running, reply to charges and from flight the Mexican capital Labor committed to the same vision of a re-feudalized Malthu­ Party, top PAN ideologue Jose Angel Conchello admit­ sian order. ted that in fact the party's economic thinking was Nazi. District PRI bosses working for the PRI mayor of He stated publicly that his thinking followed from that Mexico City, Carlos Hank Gonzalez, systematically of Hitler's finance minister, Hjalmar Schacht, and that took down all election posters for the PRI, the PLM, he was proud of it. and other parties-except the PAN's, which were left The PLM declaration July 14, calling for outlawing intact. the PAN, highlighted th� following additional PAN The place most graphically demonstrating the ob­ connections: scene alliance ofPRI factions with the PAN was Sonora, • The party is deeply complicit with drug-running where the PAN has had a substantial base for years. and terrorist bands along the V.S.-Mexico border, one Their goal was to undermine PRI governor Samuel of its centers of strength. A PAN candidate for mayor Ocana, a national leader of the PRI pro-growth faction, in the border town of Nogales was disbarred from the who has championed nuclear development, large irri­ elections three weeks before the voting when it was gation works, and high-technology industrial develop­ discovered that he had a police record for running arms ment. Banking and landowning interests nominally across the border and collaborating with the terrorist identified with the PRI, such as the Valenzuela and 23rd of September League. Pavlovich families, poured millions ofpesos into putting In the same area the PAN works with the Mafia the PAN on top in the state. The most flagrantexample: networks of Johnny Alessio, attempting to bring back Alicia Arellano de Pavlovich, PRI mayor of the state legalized gambling as a cover for drug and other capital, Hermosillo . It is widely acknowledged that organized-crime activity. Arellano not only voted personally for the PAN but • Close PAN collaboration with the so-called "Blue gave orders to her local PRI machine to do likewise, Army of Fatima" operations puts the PAN in the orbit The strategy worked. On voting day, PAN "cam­ of those who ran the two unsuccessful assassination paign workers" physically took charge of many polling attempts against the Pope in the past 14 months. booths, threatening and turning away PRI voters.

EIR July 27, 1982 International 39 Aspen's Ibero-American strategy Elsa Ennis describes the institute's latest blueprtntjor ending national sovereigntyand modernization on the continent.

The Aspen Institute last month released a lOO-page ized, Aspen complai ns; therefore the continent's future report titled "Governance in the Western Hemisphere." will be "marked by population pressures, fa mine, ethnic The document, now circulating among Latin American and religious conflicts, territorial disputes and irredentist governments and ambassadors to the Organization of causes," the 21 members of the task force which wrote American States (OAS) in Washington, is one of the the study conclude. most elaborate blueprints ever produced for the destruc­ The report summarizes two years of deliberations tion of the role that nation-states have played in the under the chairmanship of Viron Vaky, Assistant Secre­ continent's industrial development. Latin America, As­ tary of State fo r Inter-American Affairs during the Car­ pen says, is to be given the "Iran treatment." ter administration. It was the September 1975 Aspen Institute "Iran: "The clue to building a New International Order that Past, Present and Future" conference in Persepolis, Iran works is to make sure we know why the several national which approved the plan to oust the Shah and use orders are falling down on the job of governance," says Muslim Brotherhood cultist Ayatollah Khomeini to re­ Aspen leader Harlan Cleveland in a paper setting policy­ verse the industrialization of that developing nation. guidelines fo r the study. "The evidence is now over­ Even more than Iran or any other sector of the Third whelming that every national government is beyond its World, Latin America is too modernized and industrial- depth ...tra ditional institutions of national government

Harvard University. Gonzalo Facio. Former Foreign Minister of Costa Rica. Leader of the Socialist International. Who's who Aspen's John Gallagher. Former Vice-President of Sears on a orpor ion reputed to have played key Roebuck, c at a committee role in touching off the 1968 student destabilization of steering Mexico. The steering committeeof the Aspen Institute's "Gov­ Augustin S. Hart. Vice Chairman Emeritus of in the Western e h r " workshop in­ Quaker Oats Company. ernance H misp e e cludes: Felipe Herrera. President of the core "one-world­ Viron Vaky, Chairman. Former Assistant Secre­ ist" United Nations think tank, UNITAR. Brandt tary of State for Inter-American Affairs. Georgetown Commission member. Former President of the Inter­ University. Member of the Council on Foreign Rela­ American Development Bank. tions. Peter T. Jones. General Counsel, Levi Strauss and Nicolas Ardito Barletta. Vice-President of the Company. Chairman of the Inter-American Founda­ World Bank fo r Latin America and the Caribbean. tion, a funder of environmentalist and terrorist groups' Rodrigo Botero Montoya. Former Minister of Fi­ in Latin America. nance of C o . member of Brandt Com­ Jova. President of Meridian House ol mbia Key the Joseph John mission in Latin America. International, a key outpost of British intelligence for � Antonio Casas. Director of Petr6leos de Venezue­ Latin America operations. Former U.S. ambassador la. to Mexico , Honduras, and the OAS. Knight of Malta. Jorge Dominguez. Center fo r International Affairs, Neville Linton. Christian Action for Development

40 International EIR July 27, 1982 are badly designed for the kind of problems they now ing for similar future provocations. face." National governments are too concerned with These disputes, the report says, should not be left to uplifting their population's standards of living, with national governments but to a "poll of distinguished modernization and industrial development, Cleveland statesmen," that is, policy-makers whom Aspen would thinks. Therefore they have to be destroyed to give room draw from diffe rent countries. to a fe udal, zero-growth "New International Order" 01 • Set up supranational institutions to control the p

in the Caribbean. IBM World Trade Americas/Far East Corporation, William Moody. Director of International Pro­ the National Bank of Washington, and Marshall B. grams for the Rockefeller Brothers Fund. Coyne. Gert Rosenthal. Fo rmer Minister of Planning of The po licy guideli nes fo r the Aspen workshop Guatemala. Head the Mexico Office of the U.N. were fo rmulated by Harlan l n of C evela d, former U.S. Econ om ic Commission fo r L i America. am a do NATO. member c ­ at n b ssa r to A of the U.S. Asso i Richard Rubottom. Former Assistant Secretary of ation for the Club of Rome, the Aspen Institute, and State forI nt r e r an Affairs. Southern Methodist the Atlantic Council, NATO's main ideological arm e -Am ic U iversit . in the United States, Cleveland teaches at the Hubert n y Javier Silva Ruete. Former Finance Minister of Humphrey Institute of Public Affairs. Peru. In a paper "The Governing of International Com­ L. Ronald Scheman. Assistant Secretary for Man­ munity," published by the Aspen Institute in March agement in the OAS. President of the Pan-American 1981, he wrote: "National government agencies in the Foundation. still are not to main organized handle problems that Stephen P. Strickland. Vice-President of the acros disciplines, specialties Aspen 'cut s' and bureaucracies, Proj ect director of the work hop to heighten decision making . There is place for Institute. s . ... a Sidney Weintraub. Former Deputy Assistant Sec­ extranational institutions-with a wider reach and retary o f State for Economic Affairs. Trade-war ex­ than stronger powers aU. N. style of governments, yet pert based at the University of Texas. world government from no earthly not a which there is The w h was financed by the appeal. A pluralistic worldor der will be made up orks op Rockefeller ... Fund, the Dallas, and Brothers Owens Foundation of the of regional fu nctional commun ities of the con­ Qu k r Oats C p ny , Sears Roebuck, Levi Strauss, rne a e om a ce d ....

EIR July 27, 1982 International 41 Agreement on Trade and Tariffs (GATT), the main Interview: Spain's Defense Minister vehicle for imposition of British "free trade." The idea is to floodthe continent with industrial goods produced in the advanced sector and fo rce them to return to an emphasis on raw-materials production. 'We must command • Halt transfers of advanced technologies to the con­ tinent. Under the excuse of controlling the proliferation our territory' of nuclear weapons, Aspen's policy-makers propose a series of complicated mechanisms and "safeguards" which would make nuclear-energy development in these nations virtually impossible. Under this guise, Cuba, Argentina, and Chile are ordered to join the Tlalteloclo Treaty on non-proliferation while Brazil, a signer, is told to comply with it. • Stall industrial development through so-called inter­ Spain's precipitous decision last year to enter the North national anti-pollution rules. On the model of Aspen's Atlantic Treaty Organization (NATO)-a decision en­ deployment of the environmentalist movement to stop tered into after intense international pressure mainly nuclear energy development in the United States, the from Britain and the United States, on the one hand, and workshop now proposes that inter-American agencies internal pressure to appease the coup plotters that still in the OAS undertake legal battles against industrial threaten the future of the country, on the other-has now "pollution" in Latin America. Environmental problems led to predictable complications. Some of the most im­ on the U.S.-Mexico border are presented as an example portant of these are discussed in the interview below with of where this apparatus would intervene. Spanish Defense Minister Alberto Oliart. The anglophilic Aspen strategists welcome the col­ One of the most acute and potentially disastrous lapse of U.S. influence in the continent after the Malvi­ complications revolves around the issue of the NATO nas war. They recognize that Ibero-American govern­ command under which Spain would be integrated. Will ments and economic leaders are looking fo r new work­ Spain have a unified command or, as currently looks able institutions to defend the continent from outside more likely, will the NATO powers continue to insist on aggression and to further industrial development. Now a humiliating division ofthe country between the English Aspen hopes to direct this reorganization process. command fo r the nation's Atlantic side, and a Neapoli­ Aspen's plots against Latin America had the unre­ tan command for the Mediterranean half? This issue has stricted logistical support of the head of the OAS, led to a temporary halt in the country's negotiations with Alejandro Orfiia, as Viron Vaky notes in his introduc­ the NATO allies. tion to the study. It is through ideological control of The question of Gibraltar is thus placed on center Orfi la that Aspen hopes to take control of the OAS, the stage. As NATO chief Joseph Luns explained in an most important representative body for the continent. interview to the Spanish daily Ya on June 20, it is the With the United States discredited, Aspen proposes current control of Gibraltar by the British which makes to have the British protectorate of Canada playing a appropriate the integration of Atlantic Spain into the greater role in inter-American affairs. Contrary to U.S. British NATO command at Norfolk. Particularly after obsessions with Soviet expansion in the continent, the the Malvinas affair, the mere proposal that Spanish report notes, Canada has wisely won sympathies in the generals be forced to operate on Spanish territory (Gi­ continent by befriending both "left" countries like Cuba braltar) under British command is a provocation of such and "rightist" ones like Haiti. a high order that it guarantees disorder and possibly Using Canada as a channel of British influence in worse among the Spanish officercorps . the continent, however, would require some structural There is no doubt, therefore, of the correctness of changes in the OAS. Since it is not a sovereign nation Defense Minister Oliart's statement that Spain must have but a dependency of the British crown, Canada has sole and undivided control over the command, of her never been admitted to the OAS, where it only holds the territory, in which he emphatically includes Gibraltar. status of "observer." Aspen calls on the OAS to admit What is involved is a fu ndamental question of national all countries in the hemisphere as members. The insti­ sovereignty, and one of high emotional content at that, tute also hopes to deploy the English-speaking countries which no Spanish government would dare disregard with of the Caribbean, some of which are not currently impunity. The internal pressure, fr om the military point members of the OAS, against the Ibero-American na­ of view, is compounded by the expected landslide victory tions which have traditionally dominated the OAS. of the Spanish Socialists in the early legislative elections

42 International EIR July 27, 1982 scheduled for this fall. The most reactionary, not to say EIR: What do you think of the proposal that Gibraltar Falangist, elements in the military are already speaking could be a NATO base jointly governed by Spain and of the necessity of going so far as to promote another Great Britain? coup d'etat to stop what (correctly, as it happens), they Oliart: We have clearly put forward the fact that it'is a view as a disaster for the country. priority, a vital strategic interest for our nation. I mean The most pro-development forces in Spain, however, that zone defined by the points of the Balearic Islands, correctly view such a Falangist military coup as an the Straits of Gibraltar, the Canaries. We have clearly equivalent catastrophe. In this situation, the NATO-sov­ expressed the concept that in this zone, the Spanish ereignty issue further fans the flames. command is not subject to debate. Defense Minister Oliart is also quite explicit on his lack of support for the Luns thesis promoting NATO EIR: A debate is presently raging in NATO about the out-of-area deployments. Here too the Spanish govern­ future of armaments: Whether one should opt for con­ ment is on a decidedly different track from the currently ventional forces, or else develop, as the Soviets are now prevailing NATO posture, which Luns reiterated in his doing, new strategic arms based on space-age warfare­ cited interview and which was made official during the laser beam weapons and so on. What do you think, June NATO summit in Brussels at British insistence. taking into account the very distinct implications of the two alternatives in terms of world ecoI).omic growth, This interview was conducted on June 24 in Madrid about this debate? by EIR 's European Editor, Vivian Zoakos, and EIR Oliart : In my country's situation, at our industrial, eco­ Paris Bureau Chief Katherine Kanter. nomic, and technological level, I believe we can develop an army by land, by sea, by air, which in conventional EIR: After the Malvinas crisis, does Spain plan to inte­ terms will be on a par with the others in the Atlantic grate itself militarily into NATO, or to play a more alliance. The other arms systems you refer to do not enter limited role like that of France? the immediate horizon. I do not mean to say that we are Oliart: We plan integration into the military organiza­ not paying careful attention to this advance, nor that we tion of NATO in a way which of course must be worked are not gaining the means to handle these technologies out with the actual components of the alliance; but we do in the event we should possess them. However, the not intend to remain in a position like that of France. present modernization project we have fo r the armed forces materiel still does not include these levels of high EIR: [NATO Secretary-General] Joseph Luns in an in­ technology, for budget, economic, and technical reasons. terview with the Madrid daily newspaper Ya on June 20 speaks of the possibility of interventions into the Third EIR: But on what side do you stand in the debate? World by NATO members as something perfectly natu­ Oliart : It is hard to answer this, but I would say that ral in the future. What do you think? each country must do the utmost to attain the highest Oliart: I have not read this interview with Luns. I imag­ possible defense level. The Atlantic alliance is a defensive ine that, given the special nature of the NATO alliance, alliance, faced with what appeared to be a decisive Soviet and the independence maintained by the countries within menace against Europe in 1945. This potential threat still the alliance, to determine their own fo reign and military exists in spite of all the diplomatic, political, and cultural policy, that Secretary-General Luns has probably simply relations between us. I do think therefore that anything justifiedthe fact that some countries within the alliance those countries in the alliance which can develop the have intervened, obviously, in the past and at certain absolutely highest technologies can do to defend the free points, in various Third World areas like Africa. world, should be done, because this helps to maintain the I insist that this corresponds to the sovereign decision character of a true shield, which the Atlantic alliance is of each of the member countries of NATO to act in supposed to be. These countries should develop the type matters of fo reign policy or military policy as they think of technology you referred to. opportune, without prejudice to the ultimate aim of the alliance, which is the defense of territory vital in interest EIR: What do you think about the European Rapid to all the alliance members, which includes Spain today. Deployment Force? As members of the Atlantic alliance, we have committed Oliart : This already exists. Each country in the alliance ourselves to the sphere geographically within the terms has contributed to it. This fo rce is necessary, and Spain is of the treaty, not to any other. This does not affect our disposed to contribute units, and to discuss the size of the decision to continue our fo reign policy just as we consid­ units. This Rapid Deployment Force of the Atlantic er it should be carried forward, as a sovereign and alliance of course is not the same as the North American independent nation. Rapid Deployment Force.

EIR July 27, 1982 International 43 Could you elaborate a little more on the question EIR: INDIA of out-of-area deployments? Oliart: I cannot imagine under what conditions my country could have an interest in intervening militarily in countries which you have called Third World countries, and which are not included in the geographically delim­ Behind the Khalistan ited area of the North Atlantic treaty. For a great many years now, my country has not had an expapsionist policy outside its own territory. Spain is concerned al1d separatist naovenaent involved in defending and developing its own national territory and population. I do not see reasons why at this by Thierry LaIevee and Vma Zykovsky point we should find motivations to intervene in other countries. In September 1981, a small band ofterrorists hijacked an Indian Airlines aircraft from India to Pakistan, making EIR: In your opInIOn must the NATO mandate for international headlines as representatives of the obscure Spain be under Spanish control or could you accept "Khalistan" separatist movement. Although no one in integration of other commands? India knew much about this group, the Khalistanis, as Oliart: More detailed discussion will be required on this they call themselves, had taken care to inform the New topic. But, as you know, Spain is a country between York Times of their goals a few weeks prior to the southern Europe and northern Africa. The Straits of hijacking. Gibraltar are not an abyss separating us from Africa, but The Times reported that the group demanded Indian rather a means of communication. recognition of the "nationhood" of the Sikh community Furthermore, we are a nation between the Mediter­ and acceptance of their plan to carve a new Khalistani ranean and the Atlantic. This poses so many problems nation out of a big part of north India. There are that if you take the NATO commands as they presently approximately 16 million Indian Sikhs, a separate reli­ stand, you could come up with Naples,just as you could gious community which comprises about 2 to 3 percent come up with Norfolk. Perhaps the fi rst priority from of the nation's population. The Sikhs share many cus­ which we move is a Spanish command, as now already toms and beliefs with Hinduism and have never expressed exists. This isjustified precisely by the fact of our complex a desire to separate from the country. Nevertheless, the situation, and by the enormous importance, in my eyes, Khalistanis, a fundamentalist extreme sect within Sikh­ which my country has strategically for NATO as a ism, told the New York Times that they will use terrorism, nation, and as a reserve territory, a last bastion. It is not sabotage, and communal rioting to force India to surren­ ipconceivable that there must be a single command fo r der to their demands for a "Sikh homeland." In April this territory which is so special. this year, the National Council for Khalistan and the Dal Khalsa party, both groupings of Khalistani separatists, EIR: You mean a single Spanish mandate? systematically provoked Hindu-Sikh riots in the holy city Oliart: Yes, naturally. Dependent or integrated of of Amritsar. The riots were triggered with an old British course, as is the English, as is any other mandate, on the colonial trick: the Khalistanis placed severed cow -heads alliance as a whole. This is what we plan to discuss with in a Hindu temple, where the cow is considered a sacred ' our allies. We wish to see whether this is possible or not. animal . We think that they too must work through the question The Indian government reacted swiftly, banning the in depth, i.e., whether, given our complex situation, we Khalistanis and clearly expressing what everyone in In­ must fit into the pre-conceived schemes of NATO, which dia thought and saw: First, the Khalistanis have no has been around for 35 years. This alliance was constitut­ support fo r their movement, even in the areas they claim ed by agreement between the countries which composed ' for a homeland; and second, by choosing Pakistani it at the time of its creation. But a new piece is entering dictator Gen. Ziaul Haq as a "friend" and sparking the alliance, which has its own peculiarities, unlike those conflict between Hindus and Sikhs-two communities of any other European country. that have coexisted peacefully for a long time-the Khal­ istan movement was doing a third party's dirty work. But will this be a sine qua non condition? EIR: " Oliart: I would not go so far as to say that it is a sine qua Made in Britain non condition, but it is a priority which we want examined There are three levels to any investigation of the very thoroughly indeed. Khalistan movement: who is behind it? why? and how is

44 International EIR July 27, 1982 known to insiders as the Coupland Plan, which was drawn up in 1942 by a special emissary of the Crown to India, Sir Reginald Coupland. The idea then and the scheme now are basically the same: to break India up into pieces and ensure that the Indian subcontinent, encompassing what is now India, Pakistan, and Bang­ ladesh never becomes a force for peace and development in Asia. Quite the contrary, South Asia's role as a pawn in Anglo-American strategy is merely to weaken the Soviet Union. demonstration Sikh militants in New Delhi. To understand the ideological underpinnings of the A 1978 by Khalistan movement, one has to examine the Coupland it organized so effectively that even with virtually no plan. base in India, it is still operating internationally? The historic British view of India, which has unfor­ Indian government investigations have located the tunately been adopted by the United States lock, stock primary bases of operations fo r the Khalistanis in and barrel, is that separatist movements under various London, the United States, and Canada. In these three guises will dismem ber the Indian subcontinent. The first places, the group's main activities are concentrated on such shock was delivered in 1947 with the partition that pulling in overseas Indians to fu nd the homeland created India and Pakistan. Now the view is that scheme. As was the case with Muslim ru ndamentalist periodic mini-partitions, with the Indo-Pakistan conflict operations, it is known that funds and materiel from as a trigger, will finish off the job. British intelligence Great Brita in and North America, including guns, are estimates that by 1984, six or seven pieces of India and entering India through Sikh religious channels and Pakistan will come into being, with absolutely no being hoarded in temples which are off-limits to the prospects for development. police. Coupland wrote in his 1942 report: "India is a By February of this year, no doubts remained for geographic unit; it is not div i ded by such physical the Indian government that Washington and London barriers as se parate nations in Europe. Its unification were giving shelter to the Khalistan movement. After under British rule has not only made all Indians feel the Indian government revoked the passport of the themselves Indians; it has saved India from the fate movement's London-based leader-in-exile, Jagjit Singh which political and economic nationalism brought on Chauhan, on the grounds that the Khalistan movement Europe." This "fate" was the successful industrializa­ was secessionist and terrorist, the Washington-based tion of France, Italy, and Germany, which kept Britain Heritage Foundation, working through the office of off the continent. Instead, India remained the looting U.S. Senator Jesse Helms and U.S. Undersecretary of ground fo r the British oligarchy and became "the jewel State fo r Security Affairs James Buckley, allowed Chau­ of the Empire" precisely because it was converted into han to enter the U.S. anyway and continue organizing a Malthusian hell-hole. fo r the movement. (See box on page 46 for more on Coupland developed his point further: "The Parti­ Chauhan.) tion threatens to throw India back to the condition it During this and other visits, Chauhan was wined was in after the breakup of the Moghul Empire, to and dined around Washington. He reported himself to make another Balkans . This would negate the develop­ this news service that a special cell has been set up at ment of democracy in India. Partition would also Georgetown University's Center for Strategic and Inter­ prevent a free India from taking its due place in the national Studies (CSIS) to sell the idea of a separate world as a great Asiatic power; for it would probably Khalistan to U.S. policymakers. It is Chauhan's plan mean disruption into several states ranking from Egypt "to organize the movement like the Zionist lobby in the to Siam. United States. We have them as our model." "The British government cannot impose, but it could, at need, propose a settlement. The drawbacks to The Coupland plan Partition are the converse of the case of Union and The Khalistan movement and Chauhan are but apply to all Indians, not to Muslims only. It would rob players in the latest stage of an operation, worked out India of the supreme, the one unquestioned boon which by the British Foreign Office as early as the fi rst decade British rule has given her. It would convert the whole of the century, to balkanize India using tensions be­ subcontinent into a complex of rival quasi-national sov­ tween India and Pakistan as a trigger. The plot is ereignties, walled off from one another. hy political and

EIR July 27, 1982 International 45 economic fr ontiers. India in fa ct would be balkanized and plans for redividing the subcontinent as a result of the instead of being a peacefu l and stable element in the new India-Pakistan war. (This war was provoked by Henry international structure, it might well become like the Kissinger's backing fo r a Pakistani military dictatorship Balkans in the past, a breeding ground fo r world war. " that was set on committing �nocide against its own As things stand today, the top three Coupland plan people in East Pakistan. India intervened in support of "case studies" have been implemented. First was the the Bangladesh liberation movement after close to 5 bissection of the eastern state of Bengal between India million refugees flooded into India's eastern states and Pakistan in 1947, and subsequently between India seeking refuge from the carnage. At that time, Kissinger and the new nation of Bangladesh in 1971. Each time vowed that India would be bled to death by the refugees Bengal has been cut up, it has been at the cost of millions and the crisis in the Bay of Bengal became a flashpoint of lives. Second is the case of the northeastern state of for superpower crisis. Anglo-American geopolitical Assam, which for the last three years has been in turmoil, strategists sent the Seventh Fleet into the area to back held hostage by a "sons of the soil" movement with up the Pakistani genocide campaign.) separatist overtones. Finally, the latest and possibly most At that time, Chauhan took out a half-page adver­ explosive made-in-London scheme to come alive is the tisement in the New York Times calling for the creation Khalistan movement in the northwest state of Punjab, of Khalistan. To this day, Chauhan traces his relation­ India's bountiful agricultural state. When Khalistani ship to that period of chaos, indicating that Henry leader-in-exile, Jagjit Singh Chauhan admitted to this Kissinger promised financial support to his movement news service that the Coupland plan was "good" and and to est ablishment of Khalistan Airlines, which is reflected the aims of his movement, he gave awayhis role now situated in the same building as the notorious in the bigger plot. Coupland's primary analysis was that drug-smuggling Pakistan International Airlines. India was a "communal" nation divided on Hindu-Mus­ lim-Sikh lines. He visited the Punjab shortly after the 1940 Lahore conference that called for a separate Muslim state (what became Pakistan) and indicated that the Sikhs would fight "tooth and nail" against the creation of a Muslim nation that divided what this community considered its homeland. This bloodbath occurred as per Chauhan: prediction in 1947, and the seeds of revenge have been Jagjit Singh kept alive in the Sikh communities living in London and profile Africa ever since. of a British agent Coupland's second manipulation tactic was pitting EIR had theopportunity totalk recently in Europewith the notion of a strong federal system against state de­ Jagjit Singh Chauhan, the self-appointed "leader" Dr. mands. He pushed fo r greater local control, charging of the Khalistan movement. Chauhan operates out of that in post-Independence India "the crux of the consti­ London, but spends most of his time traveling in tutional problem is not in the provinces but at the center Europe and North America propagandizing and rais­ ... whether India remains united or partitioned," and ing fundson behalf of the Khalistan separatist move­ recommended as much decentralization as possible and Although he is very murky about his doings, ment. a constitution similar to that of Switzerland. Today's particularly during the past decade, what he does Khalistanis echo Coupland's calls for decentralization, admit to is revealing. but the Indian government has held firm on implement­ The pict ure that emerges is not of a "leader" of a ing a republican constitution which determines the allo­ mass political movement of Indians of the Sikh reli­ cation of resources from the center for the good of the gious minority, but of an agent of a network of entire nation. . intelligence operations which eventually traces back The Khalistan movement was created first in Lon- to the British Secret Intelligence Service, the mother don, and subsequently spread in the United States and of all separatist movements in India since the days of Canada. In 1966, the then-finance minister of the state the British Raj. of Punjab, the little-known Dr. Jagjit Singh Chauhan Chauhan talked to EIR just after returning to suddenly resigned from of fice and moved to London. London from Vienna. There are no Sikhs in VierlOa­ Chauhan told his close lieutenants that he would create he was meeting there with the Socialist International. the Khalistan movement, and it must be done in Britain He described the previous secretary-general of the first. The target was the wealthy Sikh entrepreneurial Socialist International for ten years as an "old friend" community in the Commonwealth. Little is known of and said th at the Khalistan movement "should be his activities in the first years except that in 1971, Chauhan was active in Anglo-American contingency

46 International EIR July 27, 1982 The next phase of the operation was launched in Dhillon has met with Zia several times, seeking the 1977, when Mrs. Gandhi's government was ousted and Pakistani dictator's permission for the Khalistanis to set an unstable coalition named the Janata Party took up bases along border areas with India. It is reliably office in India. This coincided with the coup d'etat by reported that the Pakistan Embassy in London finances General Ziaul Haq in Pakistan and the Kissinger-or­ Chauhan and a pro-Khalistan newspaper printed there. dered hanging of the legitimate Prime Minister, Zulfi­ Immediate expansion plans for the movement in­ kar Ali Bhutto. This period of instability on the subcon­ volve a June visit by Chauhan to West Germany where tinent was used by London and Washington to send he plans to meet political figures and think tanks Sikhs into the Punjab to set up terrorist and sabotage associated with the opposition to Chancellor Helmut capabilities run out of the temples which are off limits Schmidt. It is reported that, to test the waters, some to police. Sikhs are being sent to West Germany across the East German border (where Indians can go without visa Sikh activities in the U.S.A. problems). Then, in shady maneuvers to get political In the United States, the prominent Sikh, Ganga asylum, legal fees of up to $15,000 are being paid to Singh Dhillon launched a propaganda drive for U.S. lawyers close to Christian Social Union politician Franz Congressional support of the movement. Dhillon is Josef Strauss. Chauhan himself speaks hopefully that a married to the daughter of a wealthy East Africa-based cell, similar to the CSIS Washington project, can be millionaire of Indian origin. Dhillon is of particular created at Heidelberg University's South Asian Studies importance in Khalistan activities because he is the Center. A final scheme on the books to legitimize the contact man with Pakistani Gen. Ziaul Haq whom he Khalistan movement is an effort to get status under refers to as "my brother." During the last two years some guise at the United Nations.

brought into the main orbit of the international so­ Baluchis and Pat hans inside Pakistan. cialist Among Chauhan's friends in Chauhan says that a United States of South Asia movement." i the socialist international he told EIR, s George Fer­ is necessary because centralized government is not nandes. Fernandes is the Indian socialist whose under­ "natural," primarily because the people are not i ground terror st activities against the Gandhi govern­ "evolv d enough," The "natural ecology" of the e ment in the early 1970swher e illegally financed by the people can be preserved with the establishment of the socialist international the orders of Willy Brandt , te , applying the oligarchic ca t n model on new sys m n o of who was backing destabilization of the Indian gov­ Switzerland, he says. Chauhan, not surprisingly, is a " ernment that time. Chauhan also claimed to have also advocate of "appropriate technologies, that at an recently met Socialist International-linked AFL·CIO is, the preservation of labor intensive agricultural head Lane Kirkland in the United States. and n tri l production on the excuse that devel­ i dus a Chauhan also told EIR of his links to another asset o me api l. intensive tec nology doesn't the p nt of c ta h fit of British intelligence-the Zionist movement. He "natural ecology." According to Chauhan, "the un­ revealed that while the St e recently he natural conglomeration of cultures" in India today in United at s met with the President of the American Jewish Con­ "has to be rectified," in other words, the centra gress. a visit Canada, he met with Zionist India government must destroyed. l On to be groups there. Chauhan's assertion that the United States of South Asia would into a new "Third Bloc" echoes of separatism rd Force concfitept now guiding British designs The geopolitics the Thi Chauhan's "friends" in London have also given against the �wo superpowers. The bloc could include him some geopolitical "ideas," about which he freely Asia, France, Germany rita , an South China, and B in talks. Chauhan proclaims that his goal is to redraw idea, has discussed with his Chauhan says, he fr iends the map of the South Asian subcontinent, shifting S c al t International. in the o i is the national boundaries of India, Pakistan, Nepal, y t to London k w Chauhan's lo a l y o and Bangladesh into loose confederation known as no In a rece hisappar ently n s a bounds. nt issue of Khalistan News, the Asia," r a in supported the British war Argen­ "United States of South c e t g Khalis­ Chauhan against tan in the process. He backs separatist movements tina in the South Atian . One question about his inside India, like the northeast hill tribe terrorist activities rem i ns perplexitiEng: when does u , in a Cha han agitation of the Nagas and Mizos and backed to the outposts British intelligence (armed his many travels of and similar separatist movements of the the globe, have time to talk to Sikhs? by China) across

EIR July 27, 1982 International 47 Yugoslav Macedonians, fo rm another entity. Bosnian The Balkans Muslims (who Mestrovic says are afterall Slavs) would also be unified in a Muslim micro-state. Mestrovic re­ cently traveled to Bulgaria as official guest of that gov­ ernment, which is disposed to promote friction over the Global bears Macedonian question. The Bulgarian side of the opera­ 2000 tion is being overseen by an Oxford-trained British na­ down on Yu goslavia tional, Marcia McDermott, who for the past 10 years in Sofiahas written offical histories on Bulgaria's right to Macedonia, and who is reportedly responsible for train­ by Irene Beaudry ing Bulgaria's diplomatic corps. Mestrovic's Ustashi networks have organized pro­ The old British-Venetian policy of arousing ethnic pas­ tests in the Unit.ed States and in Western Europe together sions among small squabbling entities is well under way with such Albanian terrorist groups as the Red Flag, in its place of origin: Yugoslavia. The British-inspired which has been named by the Yugoslavian government Albanian separatist movement that erupted over a year as responsible for fo menting last year's riots in Kosovo . ago in the Serbian province of Kosovo is still active, and still provides the capability for splintering Yugoslavia An IMF policy and, in the process, drawing Bulgaria and Greece into a At the League of Communists Party Congress June Balkans conflict. 26-29, the first since the death of Marshal Tito, it The plans envisaged fo r Yugoslavia do not differ became evident that ethnic squabblings were not merely from the Global 2000 plans for war-torn Lebanon. The limited to the issue of Kosovo. Global 2000 program put together under the Carter The congress's official theme was an economic sta­ administration stipulates devastating population reduc­ bilization program to deal with Yugoslavia's 40 percent tion accompanied by zero technological growth. The inflation rate, growing unemployment, and $20 billion idea is to dismember a country into Swiss-model cantons, debt. The plan-put together under the supervision of each containing a specific group devoted to maintaining the International Monetary Fund-calls for stringent its own "ethnic purity." austerity and increased exports. The specifics of this plan as it applies to Yugoslavia But one of its provisions exacerbated ethnic rivalries. were discussed in March 1981 at the John Carroll Uni­ A new law which mandates pooling fo reign currency in versity in Cleveland, Ohio during a conference entitled the domestic market was opposed by Slovenia, the most "Global 2000 and the South Slavs" organized by the prosperous republic, and by Croatia. Both contended American Croatian Society, better known as the Nation­ that local exporters would be denied their profits and al Croatian Council (NCC). that other poorer and less efficient republics and prov­ The NCC is part of an international umbrella organ­ inces would use up their foreign exchange. ization regrouping Croation separatists, the World War Though the congress deliberately avoided deaiing II fascist U stashi, and the latter's terrorist arm, the Otpor with the turbulent nationalities issue, a program all too (Resistance). Following that Global 2000 conference, congruent with Global 2000 was outlined for Kosovo . which coincided with the outbreak of Albanian separatist Laying the blame fo r the riots in Kosovo on the riots in Kosovo, the NCC began working together with allegedly over-ambitious plans of industrial develop­ emigre Albanian networks that had operated in Albania ment in that most backward region of all of Yugoslavia, during World War II under the control of British intelli­ the authorities have resolved to curb industrial growth gence officers Fitzroy Maclean, Lord Bethell, and British in favor of the creation of small craft enterprises and triple agent Harold "Kim" Philby. The NCC also made agriculture. Before the party congress the Kosovo contact earlier this year with the Ayatollah Khomeini's League of Communists also pledged that "special atten­ regime in Iran for the purpose of instigating separatism tion will be paid to the pursuance of an active popula­ among the predominantly Muslim population of Bosnia­ tion policy in this province. In Kosovo the popUlation Herzegovina, aiming at the creation of a fundamentalist registers an incomparably higher increase than in o!her Muslim state in that republic. parts of the country or the world. We will also pay The U.S. head of the NCC, Matthew Mestrovic, has attention to the need fo r family planning," stated the unabashedly made clear the plan for fragmenting Yugo­ Kosovo authorities. slavia into "ethnically pure" regions, with Yugoslavian The congress was fo llowed July 5 by a two-day visit Albanians unified with Albania (for, says Mestrovic, the to Belgrade by U.K. Foreign Secretary Francis Pym, Albanians are not Slavs) while Bulgarian, Greek, and the fi rst officialBritish visit in over six years.

48 International EIR July 27, 1982 Inside Canada by Pierre Beaudry

Banking system ready to blow broken across the world (see Ener­ Dome Petroleum and the CIRC are not the only entities in gy Insider, page 14). No longer can oil companies expect to command trouble. And a col/apse would sp ill over on banks. U. S. the prices they used to, let alone the $40 or more per barrel that Dome would have to earn in order to meet interest payments on its staggering debt and still have a positive cash flow. The Canadian government y the fa ll Canada may have its when, according to the July 10 Fi­ guaranteed a $100 million loan to Bmost spectacular bank fa ilure since nancial Times of London, panicky Dome recently (which was repaid), the 1930s: The Imperial Bank of traders in the Euromarkets dumped but Dome needs billions of dollars Commerce (CIBC) will probably significant amounts of "North to straighten out its financial situa­ fail. As of the end of 1981, the CIBC American bank certificates of de­ tion. had assets of $66 billion posit and bonds." The Canadian The July 14 Montreal Gazette (Canadian), or about $53 billion bank targeted for dumping was reports that Canadian Energy Min­ American, making it one of the CIBC. The dumping operation fol­ ister Marc Lelonde has privately largest banks in the world. lowed not only rumors of CIBC said that the Trudeau administra­ It is likely that the gentlemep troubles, but the failure July 5 of tion will not bail out Dome under who run Canada's Privy Council­ Oklahoma's fo urth largest bank, any circumstances. A source close the real power in Canada, which the $500 million Penn Square Bank. to the Canadian government re­ controls Prime Minister Trudeau The Federal Reserve had to in­ ported on July 13, however, that on behalf of Queen Elizabeth H­ terject liquidity into the American Dome will probably get a few bil­ are hoping for a CIBC fa ilure, be­ banking system-thus temporarily lion from Ottawa in exchange for cause a Canadian banking crisis lowering U.S. interest rates-be­ certain assets which the govern­ would bring to the brink of collapse fore the markets were quieted. ment will sell off. the American banking system. The problems of CIBC stem But Dome may still not have As a financial analyst who has most immediately from its overex­ enough money to get by. And, as studied the Canadian banking sys­ posure to Dome Petroleum. Dome, most people know, Dome's stated tem fo r two decades reported July one of the high-rollers in the Cana­ $10 billion assets (Canadian) are 14, "The American banks have lent dian oil expansion boom of 1979- inflatedby 40 to 50 percent. their largest amount on the inter­ 81, will not be able to meet its inter­ There are tens of other Canadi­ bank market to Canadian banks, est and principal payments when an oil companies, large and small, probably tens of billions of dollars. they come due this September, ac­ with similar debt problems. And If Canadian banks go, the Bank of cording to a New York bank source the Canadian economy is in terrible Canada will not step in to save July 13. shape overall. According to the them. That means that the Cana­ Dome has accumulated $8 bil­ weekly Financial Times of Canada. dian banks will not be able to pay lion in Canadian debt, which has the profits of the top 70 Canadian back some of their loans to the been heaped onto the leading Ca­ companies listed on the Toronto American banks. The American nadian banks: CIBC is owed $1.7 Stock Exchange fell by 59 percent banks will have only one solution, billion; Bank of Montreal $1 bil­ in the first quarter of this year.com­ to run to the Federal Reserve and lion; Toronto Dominion $1.8 bil­ pared with the first quarter of 1981. ask for a bailout." lion; Royal Bank of Canada $315 Profits in the first quarter of 1981 The strain this would place on million, and Bank of Nova Scotia were down by 25 percent from the the Fed would be enormous, and $150 million. American banks have comparable period the year before. dumping of American bank stocks lent Dome Petroleum over $1 bil­ Therefore, whether or not would begin. lion, with Citibank of New York Dome goes under this September, it A small foretaste of what could accounting fo r at least 10 percent. is likely that CIBC won't be around occur was delivered on July 9, But the oil and gas market has by the end of 1982.

EIR July 27, 1982 International 49 MiddleEast Report by Robert Dreyfuss

How Sharon intends to cash in According to a very influential Th e Israeli proconsul and the Falangist warlord are lo oking to Lebanese political leader, since the 1976 civil war the Gemayel clan has a drug and banking bonanza. consolidated unprecedented con­ trol in Lebanon over hot-money transactions and the illegal drug and contraband flow through Jounieh. The Gemayel-controlled n the eyes of Israeli Defense Min­ linked Shiite Muslims of southern Falangists are reported to charge a Iister Ariel Sharon, the invasion of Lebanon. The Shiites are a conduit tithe for all exports fr om Jounieh. Lebanon which began June 6 is in­ for heroin, hashish, and opium ex­ Moreover, they now control the ca­ tended to accomplish far more than port from Pakistan and Iran, as well sinos, once government-owned, to drive the Palestine Liberation as Syrian-controlled drugs from the which are a fulcrum of loan-shark­ Organization out of Lebanon. Bekaa. Through Sharon, Israel is ing and other fo rms of organized Sharon's bid for a prolonged Israeli said to have taken a large cut of the crime. occupation of Lebanon is calculat­ handsome profits from drug ex­ . Last year, during investigations ed to reshape Lebanese politics, and ports: the unspoken financial bene­ conducted by the Italian govern­ above all to install Lebanon's most fit of Israel's occupation elf Leba­ ment on the connection between powerful feudal warlord, 34-year­ non. So close are Sharon's relations illegal drug and gun trafficking and old Bashir Gemayel, as President. with elements of Lebanon's Shiites Italian terrorism, Lebanon was Sharon and Gemayel are known that he has worked out a scheme to named as the prime transshipment to have met secretly months before make them the overlords of a and production site. In fact, both Israel's invasion to plan how to dis­ southern Lebanese canton whose Lebanon and Syria are transship­ member Lebanon's central govern­ capital would be the port city of ment points fo r a massive increase ment into tribal cantons over which Tyre. in drug exports fr om the so-called Gemayel would hold sway. The last Sharon is not acting out of mere Golden Crescent-Pakistan, Iran, obstacle would be removed to mak­ greed, but in association with a and Afghanistan. V .S .dr ug experts ing Lebanon into a lawless state in powerful mafia of IsraCflis associ­ estimate that up to 70 percent of all which Sharon's mafiaass ociates in­ ated with mobster Meyer Lansky heroin imports to the V.S. now side and outside of Israel and Ge­ and V.S.-based Meshulam Riklis, either originate in the Golden Cres- . mayel would divvy up the revenue the chief of the Rapid-American cent or are shipped through it. from the illegal drug and contra­ import-export empire. It is this One key point for such ship­ band smuggled through Lebanon, mafia and its assets within Israeli ments is the Persian Gulf emirate of and control the highly lucrative intelligence who have drawn up Dubai. In recent months the an­ banking system ofLeban on. elaborate schemes to make the Le­ cient gold-smuggling center in Du­ Since 1978, when Israel made its banese Swiss-style banking system bai, which dried up after the Iranian firstinv asion of southern Lebanon an adjunct of Israel, in order to revolution, has suddenly come back and installed its mercenary, Fa­ fa cilitate the massive dirty-money to life. Far East Economic Review langist Col. Saad Haddad, opium transactions associated with the reported April 16 that the gold bul­ and hashish cultivation ' in the multibillion-dollar smuggling busi­ lion stamped "Almighty God" is southern Lebanon no-man's-land ness in Lebanon. used to facilitate the purchase of has flourished. Similarly, in the Since Israel's invasion of south raw opium from Pakistan. The re­ Syrian-occupied Bekaa Valley, re­ Lebanon, the two major ports vival of the Dubai gold market co­ cord crops of opium and hashish south of Beirut, Sidon and Tyre, incided with a warming in Iran-Du"'­ are fo und, along with new heroin have been taken over by Israel, bai and Iran-Pakistan economic re­ refineries. leaving only the so-called free port lations earlier this year, about the According to an Israeli source, of Jounieh, north of Beirut, fu nc­ same time that Sa ad Haddad made Sharon has also cultivated close ties tioning. Jounieh is controlled by his first offer to aid I ran in its war with . the Syrian and Khomeini- the Falange. with Iraq.

50 International EIR July 27. 1982 DatelineMexico by Josefina Menendez

- Overtures from Armand Hammer vestment laws. Occiden tal has its eyes particularly on breaking open Following the model of his inroads into Peru, the oil magnate is the Pemex monopoly on primary trying to take advantage of Mexico's economic troubles. petrochemicals production, and oil and gas exploration. Publicly, Mr. Hammer is in an accommodating mood. He is even organizing a "North-South meet­ rmand Hammer, the legendary rules," in order to lull the national­ ing for businessmen" in Guadala­ Aowner of Occidental Petroleum, is ists in the Mexican bureaucracy, jara with the President of the Mexi­ once again making a big play as while encouraging the assault on can-American Chamber of Com­ "friend of Mexico." Late in June, those rules from other quarters. merce, Ernesto Rubio del Cueto. . Hammer arrived here for a series of Many foreign businessmen, lured But this "North-South" cru­ meetings with high-level business by the idea of sudden investment sade is something for Third World and government officialsincludin g riches, have fallen for this leaders to avoid. Mexican officials President Lopez Portillo. In state­ scenario-unmindful that Mexico's are especially wary of Hammer's ments for the press, the internation­ nationalist laws actually guarantee plans to create an elite high school al power broker presented himself investments in the country by and college in an isolated 1870s as a defender of Mexico's industrial strengthening domestic stability, castle in Montezuma, New Mexico, development and a romoter of and keep a coherent development near the Mexican border. The idea better relations betweenp this coun­ fo cus in place. There are in fact few for this special operations center, try and the United States. complaints from companies who the Los Angeles Times reported last Hammer's courting, however, have gone along with Mexico's month, emerged from a meeting met with prudent suspicion by gov­ 1974 laws. between Hammer, the late Lord ernment officials. Fresh in their Hammer's recent public state­ Mountbatten, and Prince Charles minds is Hammer's approach to Pe­ ments have been all in fa vor of the of Britain back in 1979. As usual, ruvian government officials in the basic 51 percent Mexico/49 percent Hammer put up the money. mid- 1 970s. As other oil companies fo reign joint-investment frame­ One angle which keeps Mexi­ simply packed up in order to force work. He points to Occidental's cans on guard is the role Ham mer's Peru to roll back nationalist invest­ Hooker Chemical affiliate in Mexi­ networks played in the creation of ment laws, Hammer went in with a co as an example of successful the Social Democratic Party (PSD), splashy "support" operation. In "Mexicanization" on this model. this country's most active terrorist­ one famous incident, he wrote out Nonetheless, Mexican officials linked "greenie" group. Sintemex, the equivalent of a personal check remember that in April 1981, at a the "consulting fi rm" branch of the to give Peru the immediate funds to business convention in Puerto Val­ POD, was fo unded by Charles H. stave off bankruptcy . larta, chairman Merfzer of Hooker Lee, President of Hooker Mexicana The cost emerged several years Mexicana, the chemical company from 1971 to 1981. later. Such juicy under-the-table partially owned by Occidental Pe­ Sintemex's Adip Sabag is tied to advantages had been secured for troleum, attacked Mexico's nation­ Arab terrorist circles around the Occidential that the government oil alist investment laws. Merfzer set Abu-mrad Bank of Mexico City. company, Petroperu, became insol­ the tone for several multinationals' Do these connections lead, in turn, vent. It was at that point that the executives to demand that Mexico to Libya's dictator Muammar Qad­ investment laws were rolled back. become more open to multinational dafi,clos e friend of Armand Ham­ The outcome: Occidental made the ventures . mer? An investigation here could highest return on any investment in AndinJune 1981,an Occidental probably shed some light on the its history. Petroleum official told EIR that the funding which, according to secu­ Hammer's modus operandi in decline in international oil prices rity authorities here, Qaddafi is cur­ Mexico is similar. The game is to could lead Mexico "to change its rently pumping into Mexican radi­ seem to "play within the Mexican mind" and drop its nationalist in- cal groups.

EIR July 27, 1982 International 51 International Intelligence

Poland. Relaxation of Polish martial law , blown up, leaving the city without elec­ Gandhi visit could in turn, could become the occasion for tricity for nearly 24 hours. General Gus­ tavo Alvarez, the head of Honduras' improve U. S.-India ties lifting American and NATO sanctions against East-West trade. Armed Forces, charged that a FMLN On June 18, when a Vatican emissary commando which had entered Honduras Indian Prime Minister Indira Gandhi was in Warsaw fo r negotiations, the So­ two weeks before was responsible for the will arrive in the United States July 27 for viet news agency TASS released two terrorist incident. a week-long state visit, the first visit by warnings about the visit. TASS criticized an Indian Prime Minister in about 10 the possible exploitation of John Paul's years. The Indian leader will hold talks trip for "anti-socialist" agitation and ac­ in Washington with President Reagan on cused President Reagan of urging the July 29-30 and will be giving, a foreign­ Pope to have this as his goal. During policy address in New York before the Tension flares between Glemp's stay in Rome, TASS recycled an Foreign Policy Association on August 2. even harsher commentary by Czechoslo­ Ethiopia and Somalia She will also address the National Press vakia's Bratislava Pravda, which at­ Club in Washington and will be meeting Disturbances erupted this month in two tacked the Pope's own intentions. with members of the Indian community northern Somalia towns near the Ethio­ in New York and Washington, followed pian border, heating up the conflict be­ by a brief visit to Los Angeles. tween the two countries. Because of So­ According to well-informed sources viet backing for Ethiopia and U.S. sup­ in New Delhi, the Indian Prime Minister Regionwide' war port for Somalia, the conflict in the Afri­ sees her talks with the President as the can end of what Zbigniew Brzezinski main objective of her visit, and hopes to in Central America ? termed "the arc of crisis" could take on open the way to improvement of Indo­ major proportions. The attacks were re­ U.S. relations, which have been plagued Joint counter-insurgency campaigns by portedly led by Ethiopian-supported So­ by problems. Mrs. Gandhi is expected to the militaries of Honduras and EI Salva­ mali forces opposed to the government focus her discussion on concerns over the dor within each other's borders, and the of Somali President Siad Barre. deteriorating international situation­ extension of terrorism by EI Salvador's Barre has charged Ethiopia with re­ the danger of war in particular-rather guerrillas into Honduras in the past sponsibility for the disturbances, posing than on bilateral issues between the two month, have fused the once parallel civil the problem as a Soviet threat, and ask­ countries. Mrs. Gandhi will visit the So­ wars into a regional danger-point. ing the United States for assistance. The viet Union in September; there are hopes Reorganized following their setback Ethiopians have dismissed the Somali in India that these visits can contribute to in the Salvadoran elections at the end of charges as fa lse alarms intended to divert improvement in U.S.-Soviet relations. March, the Salvadoran guerrillas of the attention from internal difficulties. Ra­ Sources close to the White House Faribundo Marti Liberation Front dio Moscow itself has warned that the stressed to EIR their strong desire for (FMLN) took to the offensive in June. growing tensions could lead to U.S. in­ improvement in U.s.-India ties, and their The Salvadoran army then launched new tervention and a resulting international recognition of the importance of India's counter-insurgency campaigns in the conflict. role in world affairs. east of the country, this time pulling Honduran army troops into deployments inside EI Salvador's borders. In a "hammer and anvil" effort, Sal­ Lord Ca rrington to vadoran troops-the "hammer"-drove Church diplomacy over guerrillas and the population, men, reappear at Wh itehall? women and children, fleeing towards the Poland continues border where sorpe 2,000 Honduran sol­ The "investigation" conducted by Brit­ diers were positioned, inside EI Salvador, ain's Privy Council committee into the Archbishop Jozef Glemp, Primate of the as the "anvil," to prevent any refugees events leading up to Argentina's invasion Catholic Church in Poland, said after fr om crossing into Honduras. of the Malvinas Islands has begun_ the early July talks at the Vatican, that no FMLN spokesmen, in interviews process of clearing former Foreign Sec­ one, including the Soviet Union, could provided to them by the Washington Post retary Lord Carrington. This is widely "veto" the planned second visit of Pope and Mexico's Excelsior, responded that believed to signal Carrington's return to John Paul II to his native Poland. The they would retaliate with "military" op­ an officialposition in the government. Pope's trip, originally meant for an Aug. erations inside Honduras itself. Carrington resigned shortly afterthe 26 religious festival, has been linked to On July 4, two electrical towers near invasion, but is known to have retained the alleviation of martial law strictures in Honduras' capital, Tegucigalpa, were an important degree of control over Brit-

52 International EIR July 27, 1982 Briefly EL MERCURIO editorialized •on July 12 that the proposals being discussed by Peru and Venezuela for Latin American unity in the ' ish foreign policy, The Privy investiga­ impose a 'new order' on the ruins of wake of the Malvinas conflict pres­ tion found that Carrington had request­ Lebanon, to shed our blood and the ent Chile with "new options" for ed-two weeks before the invasion-that blood of others for the Falangists. This is ending its isolation. The Chilean the government send two or three hunter­ not what we joined the army for, , . , " daily was expressing a viewpoint killer submarines into the South Atlantic A third group of 122 Israeli reservists not often heard within that coun­ to deter the Argentinians, EIR's conten­ has accused Begin and Sharon of perpe­ try, a bastion of British economics, tion all along has been that Carrington trating "war crimes" in Lebanon against but which has become increasingly expected the attack. the Lebanese and Palestinian people. Ye­ attractive as the Chilean economy e The Foreign Minister's request was huda Meltzer, an army res rvist and disintegrates. rebuffed by Prime Minister Thatcher and spokesman for the group, said, "Nobody attacked the settlements in the north for 'A WA LL OF SILENCE' is Defense Secretary Nott, who argued that • existing forces in the area were sufficient a year, which is probably what scared what Colombian investigative to secure the islands, this government the most." journalist Jose Suarez says he ran This "vindication" of Carrington has into when he traveled to Medellin, the 'earmarks of preparation for some the home base of the recently col­ fo rm of government reorganization, lapsed Grupo Colombia banking probably aimed at Nott in particular. conglomerate. "There is wide speculation," the El Espectador re­ Egypt-Iraq axis could porter notes, "that a good part of the millions attracted by the Gru­ counter barbarism po Colombia came from individu­ als dedicated to unsavory busi­ Is raeli soldiers: 'End Well-placed sources in London and Paris nesses." Suarez was referring to confirm that a new relationship is evolv­ the role of drug money. the war in Lebanon ' ing between Egypt and Iraq which could have great strategic significance for the URI AVNERI met with Yasser Hundreds of Israeli officersand soldiers, Middle East and the developing sector. Araf• at in Beirut early in July. The claiming to represent thousands of their Early in July, Egyptian President Israeli peace movement leader and fellow fighters in Lebanon, are returning Hosni Mubarak announced his accept­ fo rmer Knesset member, who to Israel from the battlefront to denounce ance (the same day it was received) of faces possible treason charges in the war. A prime target of the soldiers' Iraqi President Saddam Hussein's invi­ protests is Defense Minister Ariel Shar­ tation for Egypt to attend the Ba hdad Israel for the meeting, told EIR g that it was "plausible" that Israel on, who is being attacked fo r having Non-Aligned summit in September. This repeatedly "lied" as to the scope and real is being played in both European and was in collusion with Iranian plans aims ofthe operation into Lebanon. Mideast media as "the end of Egyptian to invade Iraq. "There is automat­ ic collaboration between the extre­ The anti-war protests are the first in isolation in the Arab world," an isolation mists in Israel, the Soviet Union Israeli history to be organized during ' which began with the Camp David ac­ and [the radical faction of] the wartime. On July 3, 100,000Isr aelis dem­ cords in 1978. PLO," said Avneri. "Israel wants onstrated in Tel Aviv against the war. One Arab source said ofthe emerging to do everything possible to weak­ Early in July, a group of 35 reserve axis: "Both countries want to counter­ en the moderates in the PLO." officers, all veterans ofthe Entebbe com­ balance Syrian influence, and Iraq has a mando raid in 1976, sent a letter to Prime further goal to minimize Saudi influence JACQUES CHEMINADE, the Minister Begin calling the war a "catas­ to the advantage of Cairo. Baghdad .. , general• secretary of the European trophe for our world image and for the would like to see an Egyptian comeback Labor Party (POE) of France, re­ chances of peace in the Mideast.. .. This is on the diplomatic and political scene. leased a statement July 12 de­ the firstwar in the history of Israel which The two countries will now formulate nouncing the Wharton School of is not a defensive war, but a dangerous common policies on issues facing the Economics and London's Tavis­ gamble for political objectives." Arab world. There are a lot of Egyptians tock Institute as behind French A second letter from 86 reservists just living in Iraq, and this makes the rela­ Socialist government plans to dis­ returned from Lebanon asked that they tionship all the more solid." mantle the capital city of Paris into not be sent back and called for all Israeli Iraq and Egypt are the two most pro­ 20 separate municipalities. This is soldiers in Lebanon to be sent home. In development regimes in the region. A their letter, addressed to Sharon as well working alliance between them would a plan to "weaken the nation-state as to Begin, the soldiers said: "We have promote the effective form of defense by going after its capital," said had enough of killing and being killed against the destruction promised by both Cheminade. without knowing why. You are trying to Iran's Khomeini and Israel's Sharon.

EIR July 27, 1982 International 53 'Economic depression the key foreign-policy issue' by Lyndon H. LaRouche, Jr.

Below is the slightly abridged text of a July 14 communi­ However, the nomination of a cabinet officer is not cationfrom EIRfounder Lyndon H. LaRouche, Jr. , to the merely an occasion fo r exercise of the powers of consent. u. s. Senate Committee on Foreign Relations. Subtitles It is also the occasion fo r exercise of the Senate's powers have been added. of advice .... It would be difficultto imagine any point in our history during which our fo reign relations have Re: Confirmation of George Shultz to Become Secretary been in a more perilous condition. We must explore, in of State of These United States present hearings on this appointment, what areas of urgent change in fo reign policy are required to rescue Members of the Senate: our nation from what presently appears to be a mon­ It is my most carefully considered judgment that the strous foreign-policy catastrophe. President should have a Secretary of State whose person­ To this point, I identify summarily foreign-policy ality, qualifications, and outlook are subsumed by an matters in which I have well-established expert qualifi­ overriding loyalty to the President himself. cations. There are three interconnected matters to which Ours is a constitutional republic, and not a parlia­ I ask you to turn your attention. These are the interde­ mentary system. The powers and policies of cabinet pendency between East-West and North-South strategic officers,includin g the Secretary of State, must reflectthe crises, the ongoing collapse of the world monetary order, fact of our system of government, that the powers of and the impact of gross disinformation of intelligence cabinet and lesser-rank Executive functions are powers received fr om non- U.S. agencies upon the shaping of our delegated by the President, but are never alienated from foreign policy as well as our adjustments of fo reign the President in the course of delegating them. policies in practice. Therefore, if the name of a cabinet officer is placed in nomination fo r the advice and consent of the Senate, if The economic dimension there be no disabling flawof competence or character in The Senate is more or less aware that I publish a the person so nominated, it ought to be the wish of the series of quarterly analytical forecasts on trends and Senate to accept the 'President's nomination, if we can turning-points in the U.S. economy, and that since these also be assured that the nominee will function as an agent quarterly reports were first published, beginning the last of the President's undiluted constitutional powers .... quarter of 1979, my own forecasts have been the only Although I strongly disagree with numerous among competent forecasts published by any known public or the policies with which the nominee has been associated private fo recasting agency. I stress this fact to empha­ in past service to our government, I know of no flaw in size that the United States is presently in a new econom­ him on which account I would recommend that the ic depression, and to indicate that contrary assessments Senate prevent the President's will in this matter from of our economic situation originate entirely with econ­ being effected. omist circles which have proven themselves incapable of

54 National EIR July 27, 1982 cO'mpetently forecasting trends in our economy over the shutting down credits to the Comecon nations will period from October 1979 to the present date. cause an economic catastrophe hitting billiard-ball fash­ I can also report, on the basis of regular discussions ion into the heart of the Soviet economy itself. with international financial institutions and other rele­ Meanwhile, our ever-loving allies, Britain and vant policy circles of numerous nations, that it is the France, have resurrected the 1916 Sykes-Picot Treaty prevailing judgment of Switzerland, London, and other agreement, under which Britain and France then pro­ centers that the immediate period of monetary crisis has posed to carve up the remains of the Ottoman Empire two outstanding fe atures. First, to the extent that between them. Aided by elements in Israel enjoying analogies can be drawn in such matters, we are presently Orde Wingate's [a British military officer and Old in a situation of impending general monetary collapse Testament fundamentalist cultist who trained both comparable to 1931. Second, that the magnitude of the Moshe Dayan and Ariel Sharon-ed.] pedigree, such as threatened monetary collapse dwarfs anything civiliza­ Defense Minister Ariel Sharon, and with aid of certain tion has experienced since the general collapse of Lom­ expedient measures of mutual understanding between bard banking during the 14th century. Moscow and London, the intent is to throw the United Every problem confronting us domestically or in States out of the Middle East. A similar Anglo-French foreign" relations now is either directly a result of this policy is operational for Africa, and the French govern­ slide toward the deepest depression in modern history, ment plans to take over our former influence in parts of or ...is shaped to a very large degree by economic and our hemisphere below the Rio Grande. monetary pressures. The administration of our foreign policy under the For example, to pinpoint a very immediate, very recently retired Secretary of State has not been precisely concrete and potentially devastating problem, there is, what one would describe as an empyreal height of in some misguided but influential circles, a delusion to service to our national interests. Clearly, the relevant the effect that we can collapse the "Soviet Empire" by features of our fo reign policy and related practices must aid of forcing a default on the external indebtedness of be drastically changed, and immediately. Poland, Hungary, and Romania. In fact, although that The North-South crisis is key to the complex of our action might temporarily slow down certain features of foreign-policy problems as a whole. The problem is the Comecon economy, it would have no damaging exemplified by the condition of approximately a quarter effect on the military sub-sector of the Soviet economy, trillion dollars of external debt of. Ibero-American na­ which is approximately one-third of the combined agri­ tions. Presently, under present world-market trends, cultural and industrial economy of the Soviet Union as perhaps only Mexico and, perhaps, Venezuela among a whole, and would otherwise simply force the entire those nations has the bare possibility of meeting the Comecon into greater Soviet economic domination as debt-service obligations coming due during the 12 well as emphasis on resuming the kinds of relatively months ahead. Moreover, the refinancing arrangements autarkical, dirigistic methods echoing the Stalin period. employed to cover over virtual debt defaults over the What such a forced default would accomplish is a chain­ recent five years are no longer functional. International reaction collapse of the entire Western international lending institutions are presently committed to "de" monetary system as we now know it. coupling" from Ibero-America, Africa, and most of The p oblem is much worse than even that implies Asia. Virtually our entire, highly exposed commercial directly ....; Some among the London and Swiss gentle­ banking system is threatened with chain-reaction col­ men concerned have worked out the following cute little lapse as a result of these combined circumstances. operation against the U.S. dollar. First, they lure the United States into taking actions to damage the econ­ Recovery measures omies of the Federal Republic and Japan. This forces If we could revitalize the world-market in capital­ Germany and Japan to join with London and Switzer­ goods traffic and reschedule Ibero-American debt over­ land against the U.S. dollar, simply as a matter of self­ hangs in a proper fashion, the looming disaster could defense. These combined fo rces then, according to the be prevented. There is no technical reason such meas­ London and Swiss scenario, let the trillion-dollar Euro­ ures could not be effected. The difficulty is entirely a dollar market collapse upon the U.S. dollar, putting the matter of perception of the solution and the will to force United States under financial receivership directed by through implementation of the solution in time. the Basel Bank fo r International Settlements. Again, I must refer your attention to the implica­ " To assist this sort of scenario, central European and tions of the successful performance of my quarterly other sources have been passing into Washington spe­ economic forecasts. Those experts who arg�e that mo­ cially doctored intelligence on the Soviet economy, false netarist policies must not be eradicated immediately, information to encourage Washington to believe that and who oppose restoring a gold-reserve basis fo r the

EIR July 27, 1982 National 55 U.S. Treasury's issues of currency notes, have abun­ PLASMA PHYSICS dantly demonstrated, through the miserable perform­ ance of their own varieties of economic forecasting, that they have simply not understood the bare fundamentals of our present economic and monetary situation. This is a matter of foreign policy as much as of domestic policy . If the United States summons its will turning over to restore the power of a gold-reserve-based U.S. Treas­ u.s. ury currency note, the world can be quickly induced to the lead to Japan submit to our will in this matter .... Unless the shock of thi� new monetary crisis and by Steven Bardwell, Military Editor economic depression can rouse leading institutions of this nation to clear away the fog of monetarist ideolo­ gies we are already as good as finished as a world The most prestigious international plasma physics and power. fusion science meeting, held in Goteborg, Sweden June If we summon our idled agricultural, industrial, and 9-15, reflected in a striking way the world economic skilled-labor potentials to produce an outflow of capital crisis: the fusion efforts of all countries have dramatically goods for medium- to long-term high technology devel­ slowed down in the past 18 months, with the single opment of the productive powers of labor in nations exception of the Japanese, who now boast of the largest, below the Tropic of Cancer, we will find a joyful most aggressive, and most engineering-oriented pro­ reception for our policies among those and other na­ gram in the world. tions, as well as a joyful eruption from our farmers, The Soviet program, for a long time the most scien­ industrialists, and growing masses of unemployed .... tifically sophisticated and creative program, has been totally eclipsed by a military reorientation of Soviet Relations with the U.S.S.R. scientific manpower; and the American program, long As to the Soviet Union, in the context of our resur­ the leader in engineering and technical development of rection of the "American Century" strategic policy, the fusion devices, has slowed its research tremendously, matter becomes elementary. We say to Moscow: "We with no new machines having been designed or come on are summoning fr om our idled farms, factories, mines, line in the past two years. and labor a power which may stun your powers of imagination. We are creating among our friends in this Japan and India: the new fu sion superpowers? world a new world economic order, which we call the Contrasting with the downturn in the Soviet and 'American Century.' It is a world ordered according to American programs are the world's two newest fusion the conceptions of those who designed our Constitution, programs, those of Japan and India. a world dominated by nations committed to the benefits Four years ago, Japan had essentially no fusion of technological progress fo r each and all, arranged research program. At that point, however, an informal through an ordering of our system of credit and com­ directorate of politicians, scientists, and industrialists merce to foster this result. Where does the Soviet Union proposed a long-range fusion program, which they stand· with respect to our efforts to lift the hungered claimed would play the same role for the 1990s and nations of the southern portion of our globe out of that early 2000s that crucial industries had played in the past heritage of colonialist looting and degradation whose (textiles in the 1950s, steel in the 1960s, auto in the remedy has already been postponed too long?" 1970s, automation in the 1980s). Fusion, as the lead These arms negotiations are necessary, but in and of industry of the 1990s, should become Japan's "energy themselves they are almost useless exercises. If the chaos export" by the year 2000, these leaders proposed. the monetary crises are beginning to unleash is not The result of this group's work was a very rapid stopped, we shall go to war whether we presently intend acceleration of the Japanese effort; today it is the largest so or not. And, sooner or later, whatever remains of the fusion program in the world. The biggest laser in the thermonuclear arsenals of the world will be launched, world devoted to fusion research is in Japao;- the because no government will know how to stop itself Japanese are currently constructing a machine as large from unloosing them. If we bring the world to order, as as the Princeton tokamak fusion test reactor (TFTR) on the "American Century" implies, then, and only then, the same time scale; they are undertaking experiments does the lessening of the impulse toward war impel in all areas of magnetic confi nement (they have both a ' nations to spend less on those weapons fo r which they stellerator and bumpy torus laboratory, unlike the have no prospective need. Soviet Union or the United States).

56 National EIR July 27, 1982 · There is no question that the Japanese program mathematical physics has already given them a firm lacks the depth in manpower of the present U.S. and fo undation fo r this research (in many ways a better Soviet programs; it takes considerably longer than- five theoretical fo undation than that of the Japanese); and years to train a significant number of plasma physicists. the collaboration of a group of the best experimental But, what they lack at the moment in theoretical plasma physicists ensures that the Indian program will capabilities they have more than made for in experi­ start with the expertise that only long experience can up mental and engineering finesse. provide. The Indian delegation at the Goteborg meeting The Japanese laser fusion program is exemplary. was one of the largest, exceeded only by the U.S. and Under the direction of Professor C. Yamanaka at the Japanese representation. Osaka University Institute of Laser Engineering" the Japanese have produced three generations of glass Slowdown in the U.S. program lasers in five years. The current laser, the Gekko 12 (of The American nuclear fusion program labored in which two arms are complete), is not only the largest the shadow of the larger Soviet program until the existing glass laser in the world, it is larger than any middle 1970s, when the American program's funding ever constructed (the United States dismantled its large caught up with the Soviet investment, and superior U.S. Shiva- laser last December in a cost-cutting move). engineering and industrial capabilities paid off in the Rather than having been hand-built in the laboratory rapid construction of a generation of spectacularly (as is the usual procedure), the Gekko 12 was contracted successful machines. This generation includes all the out to Hitachi; this strategy of fo rcing industry to large machines now operating in the United States: the develop technologies and manpower in the most ad­ Alcator series, which holds the world's record for vanced areas is something the Japanese hope to see pay densiliY of fuel confinement and stability of plasma; the off in 10 years as fusion becomes commercialized. The Princeton Large Torus (PLT), which holds the world's Gekko 12 laser overcomes many of the engineering record for temperature of plasma achieved in a magnetic limitations of past laboratory lasers: it is highly auto­ confinement machine; and the Impurities Control x­ mated, requiring, according to Yamanaka, only a single periment (lSX) at Oak Ridge National Laborator�y, operator to align the lasers, position the target, and which has made major advances in scientific under­ prepare the diagnostics. It can be fired once an hour, standing of the atomic and radiative processes in a generating three or fo ur times as much data as any tokamak plasma. previous large laser. However, funding for the U.S. fusion program has The results that Yamanaka's group presented at the declined steadily since the late 1970s, and stands today Goteborg meeting were as interesting as the machine at approximately 75 percent of its 1978 value (in real itself. In the six months since the fi rst two arms of the dollars). The combination of Jimmy Carter's opposition laser were put into operation, the Osaka team has to advanced energy research and David Stockman's generated precise confirmation of past results on wave­ austerity policies has deprived the U.S. program of any length dependence, compression properties, and ther­ new machines for experimentation in the last two mal transport. More interesting, they have investigated years; has indefinitely deferred the construction of the a new target design, the "Osaka Cannonball," which major non-tokamak machine (the mirror fusion test

has achieved records for compression and absorption facility, originally scheduled to be completed in 1984 • efficiencies. The research plan fo r this machine in the and now functioning with a continuing delay in con­ next six months includes research on these exotic targets struction funds); and has completely destroyed the as well as the so-called direct targets (in which the laser major engineering research proj ects (the most important directly interacts with the fuel mixture) and radiation being the Hanford Fusion Materials Irradiation Test). targets (a classified target design in which the laser Even more serious, the U.S. laser fusion program has energy is first converted to X-rays before it interacts been cut by 40 percent fo r 1983 alone, with the official with the fuel). policy being that a "civilian laser fusion program" is The only other growing fusion program in the world unnecessary. today is in India. One and a half years, ago a group of The result of this downturn in American-sponsored Indian plasma physicists, working in both India and the fusion research in all areas was obvious at the Goteborg United States, drew up a proposal for an Indian plasma meeting, where the U.S. group presented almost no new physics research program. This proposal, which was experimental results in the fusion field. Researchers are strongly lobbied for in India by the U.s .-based Fusion in a holding pattern, waiting for construction to be Energy Foundatio n, received funding this year. It is completed on the current generation of larger machines, now the basis for a rapidly growing experimental and especially the tokamak fusion test reactor CTFTR) at theoretical effort. The Indians' traditional strength in Princeton, the Mirror Fusion Test Facility (MFTF),

EIR July 27, 1982 National '57 and the Nova laser at Livermore Laboratory. ed a revolution in astrophysics over the next 10 years, as The groups of fusion researchers at Princeton and astrophysicists found out that most interesting phenom­ Brookhaven National Laboratories were responsible for ena could only be explained on the basis of plasma a major new theoretical proposal for fusion develop­ physics, rather than gravitational effe cts or radiation ment. Although they did not deliver a paper on the effects. Alfven said: "The theory of the big bang itself subject at the Goteborg meeting, the subject was widely will not withstand the onslaught of plasma physics." discussed by conference participants inform ally. This group proposed the use of magnetically polarized fusion Redirection of the Soviet fusion program fuel (fuel with the magnetic moments, or spins, of the For a long time the Soviet Union has realized the fuel nuclei aligned). strategic significance of its fusion research program, They pointed out that polarized fuel so relaxes the which has always been conducted in close collaboration requirements for ignition of fusion that current toka­ with military research and with an eye to its spin-offs in maks have already reached breakeven conditions for other areas of the economy. polarized fuel. Estimates by these researchers are that In the early stages of the Soviet program, this conventional fuels (deuterium and tritium) could be symbiotic relationship between the military and civilian ignited in machines like the PLT, and that larger fu sion programs tremendously benefited the civilian reactors could be used for the more difficult, but much program. Financial and manpower resources that were more benign in engineering terms, cycles using del:lter­ essentially military in nature were devoted to research ium and helium-three. in pulsed MHD, beam generation, materials develop­ This development, still a theoretical insight and ment, and laser technologies in the civilian energy requiring experimental tests of its viability in a plasma research programs. However, in approximately 1977, a environment, portends a profound reorientation of pias­ major shift of these resources back into classified mili­ ma engineering. The nuclear properties of the fuel are tary research areas took place. The result for the civilian now opening up the possibilities of a new family of fusion program has been disastrous. "nuclear-spin technologies." The priority given to military research by the Soviets The only other new results reported by the American for the past five years is fe lt most intensely in the researchers were in the exciting new field of astrophysi­ unavailability of essential advanced technological capa­ cal laboratory plasma physics. This fieldhas come into bilities. It is not, as some observers would like to believe, its own only with the results from the Voyager probes that the Soviets are unable to manufacture the com­ to Saturn and Jupiter: puters, the automated control systems, or the sophisti­ I } The reconnection of magnetic field lines. This cated diagnostics required for fusion research. process is the dominant physical mechanism responsible Rather, their relatively sparse industrial elaboration for the generation of intense particle beams, intense means that these technologies are available only on a electric fields, and fo r shock-wave formation in both small scale, and this limited capability is devoted to solar and stellar and solar system plasmas. For the fi rst military applications rather than fusion research. As time, scientists at the Goteborg meeting reported de­ one Soviet physicist pointed out in a private conversa­ tailed experimental results on the dynamics of a recon­ tion, "With the new generation of big machines now necting field, both in laboratory simulations, and in being constructed, the Soviet Union is at a real disad­ measurements f[Om satellite probes. Especially spectac­ vantage because industry cannot supply technologically ular were the precise measurements of the phenomena advanced components to both the military ..and the made at the University of California by Rainer Stenzel fusion program." At this point, it is the fu sion program and Robert Gekelman, results which shed much light that takes second place. on the same processes as measured on spatial scales The results presented by the Soviet groups at the millions of times greater in the magnetosphere of Jupi­ conference were confined largely to reports from their ter. broad small laboratory program and theoretical results 2} Generation of plasma radiation. The richness of from their prestigious mathematical physics institutes. wave phenomena in plasmas continues to astound phis­ However, the lack of an aggressive engineering-directed ma physicists, and the appearance of the same waves in program has had a major affect on the vit�lity and interstellar plasmas, with densities less than one-bil­ dynamism of these "scientific" programs. The tes.earch lionth those of laboratory plasmas, was a striking reported at the Goteborg meeting by the Soviet groups fe ature of the experimental results reported at the which had been the world's leaders in theoretical plasma meeting. physics was, for this reason, quite disappointing. The In an introductory lecture on the importance of the results were not new, and to this observer, they lacked new data in astrophysical plasmas, Hannes Alfven, the the spark of originality which has in the past character­ Nobel Laureate plasma physicist from Sweden, predict- ized the Soviet contribution.

58 National EIR July 27, 1982 The New York Waterfront Commission: a command center for organized crime

by J. F. Cooper

When Sen. Harrison Williams put up a courageous fight the prosecution of Salvatore "Lucky" Luciano on pros­ against his frameup by the FBI's Abscam earlier this titution charges in 1936. Although Luciano was worse year, it allowed Americans to take a close look at a than anything that these charges might imply, Dewey's particularly ugly aspect of what the postwar United case was a thoroughly synthetic frameup complete with States has become. The fact that in the Abscam sting hired floozies who were packed off to Europe after operation, the tail-professional con-man Mel Wein­ testifying against him. The two major results of the case berg-could wag the dog of the FBI was only possible were to make the political reputation of Thomas Dewey, because fo r at least {he last 40 years the main "organizer" and leave Luciano's good friend Meyer Lansky in of organized crime in the United States has been a section control of the Eastern syndicate. of the U.S. government itself. The FBI, the Williams Dewey and Lansky are connected through a lawyer hearings showed, had no effective control over Wein­ named George Z. Medalie. Dewey was the protege of berg. The reason is that the Bureau does not merely use Medalie, who also had worked for Lansky'S mentor in such criminal garbage, it makes alliances with it. Each crime Arnold Rothstein. The nascent alliance they partner in this "special relationship" has his own dirty represented-between an East Coast anglophile power end; the only common denominator is the history of how elite and organized crime-was put on a firmer footing British intelligence and American anglophile networks during World War II. shaped U.S. law enforcement. When Operation Underworld was launched, Dewey An early chapter in this story is the Office of Naval fished Luciano out of the Dannemora, New York ' Intelligence's Operation U nderworld, the ostensible pur­ penitentiary for the project. A special unit of the Office pose of which was to employ the Sicilian Mafia fo r of Naval Intelligence (ONI) called B-3, was created to protection against sabotage during World War II and in run the project. ONI recruited Dewey's "crimebuster" the invasion of Italy (see EIR, April 20, 1982). One of the staff into the B-3 unit. Meyer Lansky, along with his fruits of this collaboration was the New York-New Jersey lawyer Moses Polaskoff, served as the interface between Waterfront Commission. the B-3 unit and the Eastern syndicate, handling all The Waterfront Commission came to the public's liaison between the government and the imprisoned attention most recently on May 22 in a New York Post Luciano as well. This placed Lansky in an unprecedent­ editorial which urged the New York State Legislature to ed position vis-a-vis the government and the mob. watch a re-run of the 30-year-old filmOn the Wa terfront, that they might recall the "pervasive corruption and Modern times gangsterism that long dominated the New York-New In the changing character of organized crime in the Jersey waterfront under the joint auspices of the mob­ post World War II period, "business genius" Meyer ridden International Longshoremen's Association and Lansky played a major role. While not precisely an shipping interests," and not succumb to the latest annual equal-opportunity employer, the syndicate became effort of the "unholy ILA-industry combine" to shut much more professional in matters of investment and down the Waterfront Commission. The pro-British, Ru­ finance, and joined Uncle Sam in a number of limited pert Murdoch-owned Post went on to recommend that partnerships. Improved money-laundering techniques the ILA and the New York Shipping Association bring enabled the mob to systematically integrate its opera­ their proposals to the Commission itself, and lauded the tions with legitimate businesses as well as trade unions. latter for "curbing" organized crime on the waterfront. Lansky extended his legitimate gambling enterprises Were the truth about the Commission known, the beyond Cuba in the Caribbean into the development of public would join the ILAjindustry campaign to shut it the Bahamas as a gambling capital. The flagship effort down. in the Bahamas was the creation of Paradise Island, The history of this operation-along with much else owned by Resorts International. The parent company that EIR will detail in future articles-begins with the to Resorts was the Mary Carter Paint Company-in first big success of "crimebuster" Thomas E. Dewey in which Thomas E. Dewey was a major stockholder.

EIR July 27, 1982 National 59 Lansky in particular directed the Eastern syndicates the Commission's targets have been primarily low-level into gambling and narcotics; those families are today union officials. identified with the so-called Sicilian Connection respon­ The Commission appears to be more interested in sible for bringing into the United States the bulk of the union-busting than crime-busting. The agency's efforts heroin affecting the Eastern seaboard and the Midwest. increased noticeably when it was officially incorporated The waterfront and the airports became crucial trans­ into the Justice Department's Organized Crime Strike shipment points along the international heroin trail. Force. The Commission is credited with having lent invaluable assistance to the FBI's Unirac ("union-rack­ On the waterfront eteering") investigation which later branched out into Dewey, meanwhile, had not remained inactive on Brilab. The Commission is said to have provided intel­ the "law enforcement" side of the partnership. In the ligence on criminal activities along the entire Atlantic late 1940s a major campaign had been led by Father seaboard and in the Gulf ports! John M. Corridan, SJ., to expose the horrors of New York waterfront operations. The media lent their voices. Grab for metropolitan airports This paved the way for the establishment of the New In 1970, the Waterfront Commission attempted to York State Crime Commission by then-Gov. Thomas extend its jurisdiction to include the metropolitan air­ Dewey. The Crime Commission was to investigate ports in the bi-state area. The move was made based on allegations of degrading work conditions, union cor­ the Commission's assertion that it could do for the ruption, and the impact of millions of dollars in pilfer­ airports what it claimed to have done fo r the docks: ing on the New York-New Jersey economies. eliminate organized crime. The Commission's grab for The Crime Commission's investigation concluded in the airports was accompanied by a press campaign 1953. As expected, it recommended the creation of an concerning mob-domination of predominantly Teams­ agency to license and regulate dock labor and to ter unions at the airports. Although the legislation continue investigation into union corruption and organ­ enabling the takeover was passed in both states, the ized crime activities in the bi-state ports. According to Airport Compact remains stalled in the U.S. Congress, the Waterfront Commission's fi rst annual report, Dew­ where it is considered an issue "too hot to handle." ey's Crime Commission also concluded that a contin­ In a strange twist of events, the man credited with uation of waterfront crime threatened a "catastrophe" putting the Airport Compact on hold was assistant to to the port's economic supremacy, which would be a the executive director of the Waterfront Commission, "crippling" blow to the New York-New Jersey metro­ James J. Davitt. Davitt testifiedju st one day before the politan area and in fact the entire Eastern seaboard. The close of the congressional heari ngs because, he said, Waterfront Commission of New York and New Jersey "many pressures both subtle and blatant would have was signed into law by President Eisenhower on Aug. been exerted" on him. 12, 1953. Davitt's testimony was a shock to all. He had been The Commission was given the power of life and one of the four-man team from the Commission which death over every man and agency that worked on the wrote the enabling legislation. Davitt claimed that he waterfront, fo r in order to work or operate a company had "lost faith" with the Waterfront Commission; he on the docks it was necessary to hold a license fr om the charged that of 100 major theft cases, "not one had Commission. The Commission was armed with the been solved." He accused then-Commissioner Joseph power to hold licensing hearings, grant witness immu­ Kaitz of conflict of interest for practicing law while at nity, conduct criminal investigtions, compile intelli­ the same time being a law enforcement agent. Davitt gence files, and exercise police powers in both states. testified that the Commission had "nai'vely" helped a The staff of the Waterfront Commission was drawn Mafioso obtain a Certificate of Good Conduct from the extensively from the Crime Commission itself, which in New York State Parole Board, thus enabling the con­ turn had absorbed not only the ONI's B-3 unit but also victed criminal to hold union office. the remnants of Dewey's special "racket-busting" Ironically, Davitt's charges led then-Rep. Edward squads in the District Attorney's office, as well as their Koch (D-N.Y.) to tell his congressional colleages that it files and informant networks. was "clear that unless and until the present e,xecutive director William Sirignano and Commissioner Joseph Crimefighters Kaitz are removed, we cannot expect the New York­ Despite its high-powered crew of crime-fighters, the New Jersey Waterfront Commission to do an adequate Commission's record has been dismal. With the contin­ job. " uing collaboration of New York and New Jersey law Since becoming Mayor of New York City, however, enforcement agencies, district attorneys, federal agen­ Koch has had precious little to say on the subject, and, cies such as the FBI, Customs, and the Coast Guard, not surprisingly, has done eve!1 less.

60 National EIR July 27, 1982 • Whitman n , prior joining the Com­ A K app who to rogue's gallerY,of mission as a specIal consultant, was a deputy assistant D.A. in New York City and then joined the law firm Dewey operatives of Donovan, Leisure, Newton and Lombard. Knapp The roster of officials and associates of the New York­ was also a member of the D.A.'s staff from 1942-50 . New Jersey Waterfront Commission tells much about and as such undoubtedly had dealings with the aNI's the "special relationship" between federal agencies, B-3 group. Following his stint with the Commission, the Commission, and organized crime: , he was a member of the state commission revising penal and criminal codes and then became the chair­ • "Mr. Waterfront" J e h More than any man of the Knapp Commission to Investigate Alle­ os p Kaitz. other member of the Waterfront Commission, Joseph gation� of Police Corruption in New York City. The Kaitz represented the Dewey-aNI-mob alliance tran­ Knapp Commission "reformed" the New York Police sition from wartime into a new civilian vehicle. Department, primarily by crippling its ability to en­ Known as "Mr. Waterfront," Kaitz served for five gage in traditional law enforcement. consecutive terms as the New York • Whitney North Seymour, partner in the law fi rm commissioner of the(\ agency962- 19. 78) of Simpson, Thatcher, and Bartlett, Seymour served He began his career in as an investigator as a special consultant to the New York State Attor­ under New York City Special1936 Racke ts Prosecutor ney General during the waterfront controversy in the Thomas E. Dewey, helping to put Lucky Luciano 1 950s and provided advice to the Commission in its behind bars. Kaitz then worked with Dewey in the early years. He is a board member of the cold-war­ District Attorney's office until 1942 when he, like so promoting Freedom House, the oligarchic cult-soci­ many others in the Dewey staff, joined the aNI. Un­ ety the Order of St. John of Jerusalem, and was til his discharge in 1946, Kaitz was in the B-3 unit appointed U.S. Attorney for New York during the fu nctioning as the case officer and liaison to Meyer Nixon administration. From the post he effectively Lansky lieutenant Joe Adonis. He later served as a blocked investigations into the Lansky-Dewey-Re­ confidential investigator in occupied Germany. sorts International gambling operations in the Baha­ After the war, Kaitz was appointed Deputy Com­ mas. missioner of the New York State Liquor Authority • Myles Ambrose, executive director of the Com­ and then served as assistant director of the state's civil mission in the early 1950s, Ambrose later became the defensecom mission. Once Dewey was able to estab­ head of the Office of Drug Abuse Law Enforcement, lish the Crime Commission, Kaitz was brought on as which is credited with more botched narcotics cases its chief investigator, and quickly reassembled the key than any other agency. He had also served as U.S. operatives fr om the old B-3 unit into the Crime Com­ Commissioner of Customs and is rumored to have mission, and thence into the Waterfront Commission. been a political angel to the careers of Abscam prose­ Accompanying Kaitz were: cutor Thomas Puccio and John Fallon. The latter was • Paul Al eri, an early B-3 operative who special­ forced to resign from the DEA's regional office after fi ized in "black-bag" jobs and handled the delicate on­ being implicated in a number of heroin shipments line coordination between government agents and smuggled through Kennedy International Airport. waterfront mobsters; • Nicholas Scoppetta, presently the New York • William Sirignano, who served under both Dew­ representative to the Commission, formerly the assis­ ey and Frank Hogan in the District Attorney's office; tant New York City D.A., Scoppetta made his repu­ • homa Jones, who left the Federal Bureau of tation when as associate counsel to the Knapp Com­ T s Investigation-along with several others-to join Al­ mission, he successfully "turned" Detective Robert fieriand Kaitz at the Commission. Leuci to set up his fellow police officers and then In addition to the Dewey-Dulles "spooks" net­ testify against them.As a reward Scoppetta was made ,work, were the political hatchetmen for whom the special assistant U.S. Attorney, then Commissioner of Commission was a stepping stone or safehouse be­ Investigations for the City of New York under two tween deployments. These included: mayors and the Deputy Mayor of New York City • Justin Finger, assistant counsel to the Water­ Criminal Justice. He is currently a professor at the front Commission in its early years, now head of the New York University School of Law and Executive Anti-Defamation Civil Rights Division. Director ofthe Institute of Judicial Administration. League's

EIR July 27, 1982 National 61 NationalNews

because of the implications of attacks on trayed in the large Africa exhibit-j ust the constitutional government of the primitive tribes. The bestial Aztec civili­ United States. zation is glorified as a cultural high Behind the latest Wallop is also a supporter of Federal point, instead of the destruction of for­ Reserve Chairman Paul Volcker's high­ merly high-level Mexican civilization." airline disaster interest-rates policy, which is destroying Klenetsky also noted the bias of cur­ The world's m st successful economic American agriculture. rent exhibits showing man as a "pollu­ forecaster, Democ� ratic Party figure Lyn­ Redland will make support for the ter" rather than an improver of nature. don H. LaRouche, Jr., describes the July continent-wide water development pro­ He is running in the Sept. 23 Democratic 9 Pan-American commercial airliner gram North American Water and Power primary against Sen. Daniel Patrick tragedy as "the latest in a pattern of Alliance a major campaign plank, due to Moynihan, a protege of the Harriman increased fatalities which began just after the fact that British-connected financial family, which inspired many of the mu­ the inauguration of Jimmy Carter." interests are attempting to "lock up" seum's pro-Nazi activities during the Larouche isn't joking about what he control of the West's resources. past 50 years. calls the "Trilateral Factor" in the wors­ ening plight of the air-traffic industry. "It is the problem airline pilots and many other categories of professionals have been attempting to pound into the heads 'Restore science to Mazzoli bares bill's of Congress for years. It is what is some­ times called the 'factors of increased Natural History Museum' eugenic intent risk,' " he said. Mel Klenetsky, Democratic candidate in Congressman Romano Mazzoli (D­ The two principal factors ofincreased New York for the U.S. Senate, has an­ N.Y.), cosponsor of the Simpson-Maz­ risk added by the Carter administration nounced that he is initiating a "commis­ lOli immigration-restriction bill, told the itself, Larouche emphasizes, have been sion to restore science" to the American European Parliament in Strasbourg June "Carter's lunatic obsession in pushing Museum of Natural History in New 23 that his bill, while drastically cutting through air-traffic deregulation" and York City. Klenetsky, who is backed by Mexican immigration, would facilitate Carter's support for the policies of Fed­ the N tional Democratic Policy Com­ access to the United States by Western eral Reserve Chairman Paul A. Volcker. mittee,� made the announcement July 15 Europeans. The London Times reported "These factors hit an air-trafficind ustry after heled a fact-finding team, including that Mazzoli claimed his bill would drop already savagely weakened by the after­ specialists in anthropology, through the all visa req uirements for entry into the effects of the 1973 petroleum crisis. It is museum to investigate charges of racial­ United States by citizens of any Western also significant that environmentalists' ism in the exhibits. European nation but Portugal. pressures and budgetary pressures al­ Before World War II, Klenetsky said, Conceived by the Citizens Commis­ most killed off urgently needed improve­ the museum had functioned as a center sion for Immigration Reform headed by ments in airports and the air trafficcon­ for the dissemination of race-science Pamela Harriman, wife of Averell Har­ trol system." tracts directed against admitting Jews riman; Father Theodore Hesburgh of and Eastern and Southern Europeans Notre Dame University; fo rmer World into the United States. It was also a Bank president Robert McNamara; and headquarters for outright pro-Nazi AFL-CIO head Lane Kirkland, the propaganda through the Eugenics Con- . Simpson-Mazzoli bill would require all LaRouche supporter to gress meetings held there in 1921 and American employees to carry work 1932. cards. That policy was pioneered in Nazi oppose Wallop "What we found today convinced us Germany. Richard Redland, Jr., a cattle and sheep that such racism has persisted," Klenet­ By explicitly trying to restrict only rancher and a supporter of founder sky said. "To give just a couple of exam­ non-European immigrants, Mazzoli has Lyndon Larouche, announcedEIR his candi­ ples: All the exhibits on the evolution of demonstrated that his bill is identical in dacy July 13 for the Republican nomina­ man portray primitive man with Negro intent to the racialist immigration bills tion fo r U.S. Senate from Wyoming, features while modern man-homo sap­ sponsored by the Harriman family in the against incumbent Malcolm Wallop, iens-is shown with 'Nordic' features. In 1920s. Those bills, which excluded non­ sixth cousin to the Queen of England. fact, what Neanderthal Man looked like "Nordics" from entering the United Redland is challenging Wallop to a cannot be determined from skulls and States, prevented over 3 million Jews debate. Redland stated that he will make fossils. But the museum shows him as from entering the United States of Amer­ Wallop's role on the Senate Ethics Com­ negroid, perpetuating the idea that black ica after those Jews fled Nazi Germany mittee, which fo rced the resignation of equals primitive. and Nazi-occupied parts of Europe. Abscam victim Sen. Harrison Williams "None of the great city-building and On June 28, the San Francisco Board of New Jersey, a major campaign issue, world-trading cultures of Africa are por- of Supervisors went on record as oppos-

62 National EIR July 27, 1982 • Briefly

ing {11e Simpson-Mazzoli bill, by a 7 to 2 expert on "presidential assassination CLEMENT ZABLOCKI, Chair­ • vote. The Board cited the bill ' s potential syndromes" and a leading figure in Col­ man of the House Foreign Affairs adverse impact on family reunification, orado psychiatric networks. Committee, has called for U.S. labor, and due-process rights. The Board arms sales to Iraq, by way of the of Supervisors of Alameda County re­ Gulfstates, to stop Iran. This is the cently took similar action against the bill. first breach in so-called U.S. neu­ trality toward the war. Congress misses the MICHAEL LIEBIG, one of boat on Volcker issue EIR• 's senior European corres­ Senate introduction of an "Interest Rate pondents, and EIR Washington Re!jluctionAct" on July 13, coupled with Bureau Chief Richard Cohen gave Psychiatrists penetrate House Banking Committee hearings on a briefing in Washington July 15 renewal of the Credit Control Act during on "Why the U.S. is Not Respon­ thereorg Secranizatieton Service of the U.S. Secret Ser­ the same week, exposed the weaknesses sible for Eurodollars." In attend­ Avi c� is currently being carried out'by a of the congressional fight against high ance were representatives of the Controller of the Currency's Of­ com mittee of ps chiatrists, the Task interest rates. As administration and Fed Force on Behavioraly Sciences and the witnesses admitted at the House hearing, fice, the ICA, the GAO, private Secret Service, which has direct connec­ purely domestic approaches to high in­ financial consultants, and diplo­ tions to the fa scist Propaganda-2 Free­ terest rates ignore the overriding impact mats from 10 countries. The masonic Lodge of Italy (see page 35). of the inflation-generating, currently un­ United States, they reported is The task fo rce has established access controlled Eurodollar market. only responsible for dollar-de­ to Secret Service fi les on the basis of its The Interest Rate Reduction Act nominated credits issued under "external committee," formed to advise (S.2726), introduced by Sen. James Sas­ U.S. regulatory control. the Secret Service on how to evaluate its ser (D-Tenn.), would establish a "dual­ intelligence and train its agents accord­ prime-rate" policy to be put into effect ALFRED BLOOMINGDALE ing to "behavioral" and "management" by Federal Reserve member banks. has• received a memorandum specifications. Members of the task force Commercial banks would be encouraged warning him of the risks of retain­ had access to the fi les before the attempt­ to voluntarily offer a "small-business ing mob lawyer Roy Cohn as one ed assassination of the resident by John prime rate," that is, a lower rate on loans P of his attorneys in his "palimony" Hinck ley, Jr. last May. to small businesses, farmers, and home case, according to reliable sources. Dr. Marvin B. Wolfgang of the Uni­ buyers who do not have access to nation­ One of Cohn's specialties is urging versity of Pennsylvania's Department of al financial markets as larger corpora­ his divorce clients to give him full Law and Sociology, a specialist on ter­ tions do. Sasser cites a 1974 effort by the "dossiers" on their spouses' finan­ rorism, and a participant in the task Federal Reserve Board under Arthur cial and other connections, infor­ force, has urged the Secret Service to Burns as his model. The legislation mation Cohn has been known to upgrade its monitoring of so-called ide­ would also mandate a major loosening of subsequently reveal to the media. ological, European-style terrorists, a credit by the Fed by changing its target necessary step. but also to limit monitor­ for money growth from the current range CLAIBORNE PELL (R-R.I.), ing of what are in fact domestic "Man­ of 2.5 percent to 5.5 percent to a range of the• only Club of Rome member in churian Candidates" like Hinckley. In­ 9 percent to 10 percent for 1982. the Senate, asked Secretary of vestigations of the network of psychia­ Sasser's legislation would likely have State nominee George Shultz dur­ trists at the Evergreen Associates in Ev­ the opposite effect than intended. When ing confirmation hearings July 14 ergreen, Colorado, where Hinckley re­ Burns tried this same tactic in 1974, whether it wouldn't be an excellent ceived extensive behavior-modification banks simply stopped lending to the idea to bring teams of psychiatrists treatments, are thus being diverted by the smaller, "less desirable customers" rath­ on all negotiating meetings with task fo rce. er than giving them lower interest rates. the Soviets. Senator Pell, when at­ Wolfgang is a long-term associate of Larger customers continued to have ac­ tending a meeting of the United Dr. Franco Ferracuti o f Rome, a mem­ cess to loans or turned to unregulated Nations Institute for Training and ber of Propaganda-2 and at one point a markets such as the Eurodollar market. Research (UNITAR) in 1980 in consultant to the Italian government on This same point was made by Federal New York City, told an EIR re­ terrorist groups including the Red Bri­ Reserve Board Vice-Chairman Preston porter that he was "too spaced out gades and "lone assassins." It is possible Martin and Treasury spokesman Manual to talk." He proceeded to walk that Ferracuti may now have access to Johnson in the House Banking Commit­ into a wall. Secret Service files as well. tee hearings, in which they argued Wolfgang and Ferracuti are also col­ against the reinstitution of credit con­ laborators of Dr. John M acDon ald, an trols.

EIR July 27, 1982 National 63 Editorial

The Buckley loyalists to Kbomeini

State Department Councillor and recent Assistant intelligence project carried out with the active prod­ Secretary of State fo r Security Assistance James Buck­ ding of Israeli intelligence and significantbut second­ ley is a problem. He was one of those Haig appointees ary participation of the Soviet KGB. It is well known who first got clearance from the Israeli Embassy in that most KGB assets in the Middle East for most of Washington before his name was placed on the nomi­ the post-World War II era have been British intelli­ nation lists. The purpose of initial appointment was to gence assets "on loan" to the KGB. The "loan" is continue the same disastrous foreign-policy projects symbolized by the notorious H. A. R. "Kim" Philby, which made the Carter administration look like the the British intelligence "triple agent" who now serves Roman Empire under the reign ofCaligula's horse. with the rank of �eneral in the KGB. Look, fo r instance, at the current Iranian offen­ This old story brings us back to the ironies of the sive against Iraq and the tremors registered in every present crisis: James Buckley, Fred Ikle, Bill Casey, pro-U .S. government throughout the Gulf. Kho­ the British Tory government, the Israeli government, meini's current offensive would not have been possi­ and the Andropov-KGB circles in Moscow all agree ble were it not for a bunch of traitors in Washington that the United States must not and cannot oppose who, for lack of a more derogatory term, shall be Khomeini's assault against Iraq. Also, Buckley, Ikle, referred to as "Buckleyites." These Buckleyites are Casey, the British and Israeli governments, and the guilt of at least two major crimes with respect to the Andropov-KGB circles are all agreed in their hysteri­ current Khomeiniac assault against U.S. interests in cal howls that the United States must not send any the Gulf area. First, they have been responsible for forces to rescue the tormented nation of Lebanon permitting the almost continuous shipment of weap­ from its present misery. ons from the United States into the hands of the This marvelous agreement among so many seem­ Khomeini regime for the last two years. Second, they ingly diverse rascals is not surprising. If you wish, are telling the President that the United States should dear reader, to locate the secret of this harmony, you keep away from supporting Iraq against Iran. must dig deep to discover what hides behind the The ranks of the Buckleyites include the Swiss­ murder by hanging of a prominent Italian banker, born and -trained Mr. Fred Ikle at the Defense De­ Roberto Calvi, under the Blackfriars Bridge in the partment, Michael Deaver in the White House, and City of London in mid-J une. That death was the result William Casey ofthe CIA. Persons in the administra­ of a ritual murder ordered and carried out by a tion who subscribe to the Heritage Foundation's Freemasonic lodge with which Alexander Haig has brand of "conservatism," or who receive counsel from been associated at least since the time of his tenure as Haig's erstwhile English teacher, William Safireof the Commander-in-Chief of NATO. That lodge,. the New York Times. generally fall under the category of Grand Lodge of London, whose head is the Duke of "Buckleyite. " . Kent, spawned an operation in Italy called the Prop a­ To make a long story short, we refer the reader to ganda-2 Lodge, for specialized warfare against the earlier documentation supplied by EIR on what is Pope's influence within the Vatican. involved in this insane support for the Khomeini card Haig, Buckley, Casey, and others share the com­ within the U.S. government. When Haig was Com­ mon distinction (together with Brzezinski) of belong­ mander-in-Chief of NATO, in arrangement with ing to a very distinct Catholic opposition to the Pope; Zbigniew Brzezinski he sent Gen. Robert Huyser to they are members of the Jesuit-inspired "AmeJ:ican Teheran for the purpose of ordering the Shah's Gen­ heresy" cult which, in alliance with the Anglican eral Staff not to employ military means against the Church, headed by the Queen of England, has been Khomeini revolt. Within days of Huyser's departure fashioning policies for the use of religious fa naticism from Teheran, Khomeini had been installed in power. in the service of reshaping the political map of the The installation of Khomeini was a major British world. Hence their loyalty to Khomeini.

64 National EIR July 27, 1982 EIR

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