[THIS PAGE IS INTENTIONALLY BLANK] , . ' Editor-in-chief: Criton Zoakos Associate Editor: Robyn Quijano Managing Editor: Susan Johnson Art Director: Martha Zoller Circulation Manager: Pamela Seawell Contributing Editors: Lyndon H. LaRouche, Jr., Christopher White, From the Editor Uwe Parpart, Nancy Spannaus Special Services: Peter Ennis

INTELLIGENCE DIRECTORS: Africa: Douglas DeGroot Agriculture: Susan B. Cohen, Robert Ruschman Asia: Daniel Sneider Counterintelligence: Jeffrey Steinberg Economics: David Goldman Energy: William Engdahl A t the annual Wehrkunde conference in late February of military Europe: Vivian Zoakos spokesmen from the NATO alliance, West Germany laid down the Latin America: Dennis Small Law: Edward Spannaus law to Alexander Haig: there can be no adequate defense without Middle East: Robert Dreyfuss industrial recovery. This is the view most precisely and prominently Military Strategy: Susan Welsh Science and Technology: associated with EIR Contributing Editor Lyndon H. LaRouche, Jr., Marsha Freeman and with the findings of EIR's LaRouche-Riemann econometric Soviet Sector: Rachel Douglas studies. It was seconded at the Wehrkunde meeting by the chairman United States: Konstantin George of the Senate Armed Forces Committee, John Tower of Texas. But in INTERNATIONAL BUREAUS: Washington, the issue has not yet been faced. Bogota: Carlos Cota Meza Bonn: George Gregory, This week's Economics section examines several aspects of Amer­ Thierry LeMarc ica's investment crisis: the now-proven impossibility of maintaining a Chicago: Paul Greenberg Copenhagen: Vincent Robson "technetronic sunrise" sector without an industrial base; the devasta­ Houston: Timothy Richardson tion of the once-great industrial center of Detroit; and the impossibil­ Los Angeles: Theodore Andromidas ity, under Federal Reserve Chairman Paul Volcker, of continuing Mexico City: Josefina Menendez Milan: Muriel Mirak even the patchwork financing that has kept remaining hard-commod­ Monterrey: M. Luisa Gomez del Campo ity enterprise alive. Here I want to call your attention to the article . New Delhi: Paul Zykofsky demonstrating the fraud of "the Fed's independence." Paris: Katherine Kanter, Sophie Tanapura Our International coverage includes a dossier on one of the prime Rome: Leonardo Servadio movers of deindustrialization, the German Marshall Fund, a creation Stockholm: Clifford Gaddy of the State Department socialists and Friedmanites who for the past United Nations: Nancy Coker Washington D.C.: Laura Chasen, three and a half decades have attempted to subject both the U.S. and Susan Kokinda Europe to their boundless British-style hatred of technological Wiesbaden ( European Economics j: Laurent Murawiec growth. This is the same network that continues to run the U.S. State Executive Intelligence Review Department, where at this moment, the Office of PopUlation Affairs (ISSN 0 273-6314)is published weekly by is targeting hundreds of millions of people in the underdeveloped NewSolidarity InternationalPress Service 304 W.58thStreet.New York. N. Y.lOOI9. sector for deliberate murder through local wars. The policy planners In Europe: Executive Intelligence Review. who wanted to starve the German population to death in 1945 have Nachrichten Agentur GmbH. no hesitation about mapping the butchery of "useless eaters" in the Postfach 1966, D. 6200 Wiesbaden Copyright c 1981 New Solidarity Third World. International Press Service Our Special Report presents their own words. For them, Cambodia­ All rights reserved. Reproduction in whole or in part without permission strictly prohibited. modeled genocide is not a byproduct of foreign policy, but its goal. Second-class postage paid at New York, New York and at additional mailing offices.

POSTMASTER: Send address changes to New Solidarity International Press Service, 304 W.58th St.. N. Y.. N. Y. 10019 Subscription by mail for the U. s.: 3 months-$125. 6 months-$225. I year-$396, Single issue-$10 Academic library rate: $245 per year TIillContents

Departments Economics

5 Editorial 6 The eclipse of the What's wrong in U.S. 'sunrise' industries Washington? Not only can't electronics replace heavy industry-in 43 Report from New Delhi the present economic Student demos shake contraction, it has nothing Pakistani regime. to hook up to.

44 Middle East Report 9 A replay of 1980? Arab left On top of a profit wipeout, challenges Brezhnev. U.S. goods-producers may lose their consumer-based 45 Dateline Mexico short-term credit source. Some warning shots 12 The Federal Reserve is ofterror. not a fourth branch of 59 Eye on Washington government

15 Foreign Exchange 60 Congressional Closeup 'Volcker is the uncertainty factor.' 64 Energy Insider Hopeful change on 16 Domestic Credit oil leasing. Fact and fiction about the budget.

Correction: In last week's 17 Agriculture Special Report, Georgii The free market trap. Arbatov was identified as the director of the Soviet IMEMO, 18 International Credit due to an editorial error. Buying out Arbatov heads the U.S.A.­ Argentina cheap. Canada Institute, a spinoff of IMEMO. 19 World Trade

20 Banking S&Ls put the gloves back on.

21 A postindustrial Detroit Part Two of EIR's urban series.

26 Business Briefs Volume 8 Number 10 March 10, 1981

Special Report International National

36 Brezhnev scores 48 Haig, media launch radicals, offers Salvador operation U.S. leverage Documentation: The arms­ Rachel Douglas's report on runners and guerrilla the opening ofthe 26th controllers the State Party Congress in the Department left out of its U.S.S.R. White Book on EI Salvador.

38 Jean Fran�ois-Poncet 52 'Scribescam' scandal Left to right: George Bush. Alexander Haig. urges U.S.-Soviet explodes Ronald Reagan. and Henry Kissinger. summit meeting The hard evidence that Michael Evans/Sygma A report on his press Thomas Puccio and other conference in Washington. Justice Department 28 The Haig-Kissinger operatives conspired with depopulation policy 39 Europe: Volcker is a the press to set up the Abscam-Brilab victims. The State Department is threat to securiy promoting destabilizations At the Wehrkunde for the explicit purpose of Documentation: A Who's conference, West German killing off masses of people. Who. and U.S. spokesmen said military defense is Documentation: Comments 56 Senator Hatch talks impossible if industry is by Thomas Ferguson ofthe about Brilab approach undercut. DOS Office of Population Part Two of EIR's interview Affairs; excerpts from the 40 The German Marshall with the chairman of the National Security Council Senate Labor Committee. analysis and Global 2000 Fund: reviving the report outlining the policy; Morgenthau Plan 57 Rep. Mottl on the anti­ and an interview with The originators, funding, Volcker fight William Paddock, a and goals of an important specialist in population institution. An interview with the Ohio reduction. Democrat on what 46 International Congress is and isn't doing about the Federal Reserve. Intelligence

62 National News "The environmentalist-terrorist groups are merely infantrydivisions deployed by some of the most powerful political forces

in the United States." -Robert Greenberg Editor, Investigative Leads

Over the last decade, the United States and other industrialized countries have been under all-out attack by the forces of the so-called environmentalist movement. Radicalized youth, "social-acti­ vist" lawyers of the Ralph Nader variety, and "expert studies" have all been combined to convince many that growth and prosperity are things of the past. Now, Executive Intelligence Review is making available a comprehensive study on the environ­ mentalist movement, showing how the movement is controlled from top to bottom by some of the most prestigious power centers in the United States: New York-based foundations and law firms, and federal agencies, under the umbrella of the Council on Foreign Relations. Who Controls Environmentalism? A special report prepared by Investigative Leads, a research aqn of Executive Intelligence Review. Available December 1,1980. $50.

For ongoing domestic and international intelligence, subscribe to the 64-page weekly journal, the EIR. For ongoing intelligence on the environmentalist movement, subscribe to EIR's bi-weekly newsletter, Investigative Leads.

You can't make decisions if you don't have intelligence. EIR ExecutiveIntelligence Review

Enclosed 0 $50 Who Controls Environmentalism. Bill me Enclosed 0 $653 month Introductory EIR subscription. Bill me Name ______. ______Enclosed 0 599 3 month EIR subscription, plus Environmentalism. Bill me Enclosed 0 $396 Full-year EIR subscription. plus free copy EnVironmentalism. Bill me Title ______Company/Org. ______Enclosed [j $50 Full-year subscription, Investigative Leads. Bill me

Address ______Charge my subscription to: :::J Visa C Mastercharge

City ______State _____ Zip Card No. Interbank# ______Expiration Date

Make checks payable to : Executive Intelligence Review, Dept. M. 304 W. 58th Street. 5th Telephone -'-__---"- ______Floor, New York, New York 10019 area code Editorial

What's wrong in Washington?

Almost everybody sniffs the fact that there is still a logical knowhow are mobilized. That is the war the problem in Washington. And it has already become United States should be fighting: the war against clear that part of the stench is emanating from the backwardness and devolution. State Department, where Alexander Haig is ex­ At the heart of this challenge is the question of tending the grievous tradition of Henry Kissinger, energy. The latterday fe udalists who control petro­ Cyrus Vance, and Edmund Muskie. leum supplies have consistently used the oil weapon Is there a reason why foreign policy should not in what the CFR describes as the effort to preserve be conducted on the basis of pursuing international "the liberal order" from "dirigists" in Western economic growth, preempting terrorism, and Europe and Japan. The self-described liberals do transmitting the best of American technology and not seek to impose population reduction because education to the postcolonial world? What is the they believe resources are scarce; they keep re­ purpose of Haig's bluff toward Eastern Europe and sources scarce because nations able to grow and blackmail toward the Western allies? modernize would not tolerate their domination. To invoke the fact that the Council on Foreign The bulk of the budget cuts proposed by the Relations traditionally runs the State Department Reagan administration have little to do with eco­ is to beg the question, unless one identifies the nomics. They are part of the State Department's policies at stake. genocidal policy of crippling the energy, high-tech­ As abundantly documented in their Project nology, and infrastructural buildup required for 1980s reports under Vance's direction, the Council U.S. national strength and world leadership. Paul on Foreign Relations strategists are committed to Volcker's interest-rate policies have nothing to do triggering "limited wars" in the underdeveloped with economics. They, too, are an instrument ofthe regions, fueled by famine and social chaos, and State Department's blueprint for eliminating in­ fueling them in turn. They-most recently, the dustrial progress. State Department's Thomas Ferguson-state in so After World War II, the State Department told many words that war is one of several means to U.S. businessmen they had better not invest in the their goal: exterminating popUlations. In their Third World because of the threat of war and view, the Vietnam War succeeded in degrading and communist takeover. Now it is the State Depart­ polluting the U.S. armed fo rces, and demoralizing ment-through Volcker-that forbids Americans progrowth traditionalists in America, but failed to to invest even at home, and-through Stockman­ slaughter enough Vietnamese. In Central America, tries to dismantle past investment in nuclear the extermination is to be more rapid, the deflection energy, in space technology, in transport, and in of Americans away from a fo reign policy of "city­ labor power. building" more complete. Contributing Editor Lyndon H. LaRouche, Jr. This is what is causing the rot in Washington­ has proposed a specificbud get reallocation: trans­ the murderous foreign policy of depopulation ferring the $220 million appropriated for the State being run by General Haig. Department's Office of Population Affairs, which There is no long- or even medium-term poten­ maps out target populations as the starting point tial for full U.S. economic recovery unless the fo r U.S. foreign policy, to the national nuclear markets and skills of the Third World are opened fusion budget, whose expansion would provide up through industrialization. Conversely, there is both the energy and the resource base for unbridled no hope for the populations of the underdeveloped growth. That would go a long way to solving the sector unless U.S. credit, investment, and techno- problem in Washington.

EIR March 10,1981 Editorial 5 �ITmEconomics

The eclipse of the U.S. 'sunrise' industries

by Leif Johnson

While Treasury Department Undersecretary Dr. Nor­ explains that America must stop "subsidizing" the man Ture told last week's National Governors' Confer­ declining industries in order to allow the new rising ence that the U.S. economy should continue to move industries a chance to establish themselves. away from heavy industry to services, hard economic "We are not saying phase out all industrial produc­ news poured in showing the first signs of severe recession tion, just shrink it a great deal and change the mix. We in the so-called sunrise, or service-oriented, sections of are not calling for the depopulation of all cities in the the economy. Ture's dictum provoked a furious rejoinder Northeast and Midwest. Just let them shrink and don't from Ohio Governor Rhodes-one of the handful of try to artificially prop them up," explained Bell. "The Republican leaders who brought victory home for Ron­ way out is to reduce and modernize your industrial ald Reagan last November. Rhodes heatedly insisted component and go to highly productive, postindustrial that "the first priority is to get people back to work in sectors like electronics." auto, rubber, and steel." The economic evidence shows The "postindustrial society," the "information soci­ that Rhodes is right-that the whole "sunrise-sunset" ety," or "technetronics" put first emphasis on the distinction is a hoax. electronics industry. And the simple and ugly truth is Nonetheless, Norman Ture, OMB Director Stock­ that the electronics industry is in the same Volcker­ man and other key Reagan administration officialshave induced slump that all other branches of American run wild with this, designating as "sunset," or expenda­ industry are in. There are no sunrise industries. ble, those industries which evidently will not survive the In fact, no matter how healthy the electronics indus­ combination of budget cuts and tight credit. Stockman's try, it could not possibly re-absorb the millions of mentor, social democrat and "postindustrialist" Daniel workers unemployed in steel, chemicals, rubber, auto, Bell, reports that Stockman has "maintained a consistent housing, transportation, and other industries being outlook dating from his student days." Stockman's idea fo rced into the Volcker depression. It is not intended to "is to remove all impediment to the postindustrial society absorb these workers. The Volcker money crunch will and let the market forces take care of the rest," says Bell, ultimately put into effect Jimmy Carter's Global 2000 but "in his current environment, Stockman can't openly Report, a blueprint for reducing the population of the talk about such ideas." world by 2 billion and to reduce the population of the When Stockman declares war on highway, space, United States by 125 million. This was proposed in dead R&D, airports, agriculture, and water projects, he seriousness not only by the Carter administration, but

6 Economics EIR March 10, 1981 by the economists of Georgetown University, which has want to finance business expansions." Intel meanwhile a dozen representatives in the new administration. reports that its first quarter this year will probably just break even, jarring the company revenues down 15 to No sunrise tomorrow 20 percent below its fo urth quarter 1980 levels. Let us examine the facts. The $4 billion sales Texas Instruments has put a Electronic News. a leading industry publication, sixth of its worldwide workforce on short hours, while announced in its preview of business fo r 198 1 that Sylvania announced that its recently completed $20 layoffs, price cutting, production cutbacks, mergers, million Florida assembly plant, destined to produce and cash squeezes are running through the industry. 1,200 jobs, will remain idle. "Most executives are preparing for an anemic opening New Hampshire, the state that fully completed its of the New Year-persisting through the first quarter­ transition from the textile industry to electronics and as oppressive costs and high interest rates buffet their was deemed "depression proof," now watches its largest bottom lines and congeal the cash flows of their cus­ electronic employer, Sanders Technical Systems Inc., tomers ...partial shutdowns and shortened work weeks wrestle with bankruptcy, and another large employer, have become part of the 1981 gameplan." Centronics, lose $8 million in its last quarter. While the Even the largest companies, like Honeywell Infor­ electronics companies never made up the amount of mation Systems and the semiconductor giant Intel are employment of the former textile mills, now they are being hard hit. Stephen G. Jerritts, Honeywell Systems laying off workers. president, states flatly that interest rates are the main As Carroll Shanks, then Prudential's president, told threat to the industry's future. "For 1981, I think high an elite business audience as early as 1957, "In place of interest rates and the availability of money from the the cotton industry which originally employed so many banking system is a key determinant in the computer people ...New England now has the kind of industries industry." Jerritts said a "serious slowdown" could that employ fewer people." And now the devastation occur if there is a "cash crunch where the banks don't wrought in the depressed towns in New England is

u.s. electrical machinery Figure 2 Ratio of surplus Figure 3 Sector surplus as Figure1 to laborinputs percentage of total Net capital investment and total capital (biIIiOllS of 1976 dollar$) (Gross profit) economic surplus

2.96 .192 -----...... - - , 6.0 r------...... __ .

1.44 "'-______.... -. IOS ____...... ____ ... 5.0 ______......

1969 1981 1969 1981 1969 1981

Note: The above graphs depict the electrical machinery industry, of which electronics is a major component. Therefore the figures are larger than electronics alone, but fairly represent trends in the electronics industry.

EIR March 10, 1981 Economics 7 games and LCD watches but things like the video disc for home viewing. RCA and Magnavox, the leaders in the field, will mount a full-blast advertising campaign to move this new creation. Analysts at brokerage houses watching these stocks claim that RCA may sell 250,000 and the rest of the industry will match that number. But 500,000 of such sales is only a half billion dollars-large for a company, but small for an economy. If Americans have trouble buying cars, how can they buy video disc players? The consumer electronic industry for the 1969-79 decade approximately doubled its sales; in other words, it grew just slightly faster than inflation. Business communications is expected to experience rapid growth. The "automated office" dream of British electronics booster James Martin and former Rockefel­ ler speech writer George Gilder, author of the highly Data processing in a Japanese brokerage firm-but Japan puffed book Wealth and Poverty, is said to be the new produces machine tools. too. industrial revolution. It is ironic that much of the work in this field is being generated by the current Volcker being purposely spread throughout the Northeast and collapse-not by companies' installing new systems to Midwest, the U.S. industrial heartland. raise office efficiency, but by companies who have Even if the electronics industry maintained healthy merged and find the systems of the former companies rates of growth, it could not absorb the recently unem­ incompatible. For all the boosting of this field, sales of ployed. Total electronic employment, not counting communications equipment have only slightly more than computer software companies that write programs, is doubled in the 1969-70 decade, staying just ahead of one and a quarter million, 44 percent of whom are inflation. women engaged in piecework assembly. ("They are An area that will also grow, especially if the modest better at this than men since their hands are smaller and arms budget increases are implemented, is military they don't get bored so fast," according to a spokesman electronics. Military communications will rise from $3.8 for the Electronic Industry Association.) If employment billion in 1980 to $5.4 billion in 1985; the B- 1 bomber, continued to grow at its recent average rate of 10 if built, is purported to be 50 percent electronic warfare percent per year, it would take seven years for employ­ equipment and missiles. The total increase by 1985 may ment to double to two and a half million. Current be as high as $7 to $8 billion, but even here, the high officially admitted unemployment is eight million. interest rates will hurt. The Hewlett-Packard Instrument Total value of electronic sales for 1979, the last year group vice-chairman told Electronic News, "Defense for which figures are available, was $80 billion. That is programs which could help us, such as the B- 1 bomber, less than 10 percent of the total manufacturing and will take at least a year to get going. Meanwhile, the other goods-producing industries in the nation. What is king-sized question is the cost of money. Now, we tend even more remarkable is not that the industry grew to believe that 23 to 24 percent interest rates are not out from $26 billion in sales in 1969 to that figure for 1979, of the question ....We expect a slow rate of growth to but that adjusted fo r 1969 dollars, the value of electronic continue." Electronics are merely devices included in sales would only be $40 billion. the hardware of war, whether ships, planes, missiles, As indicated in the accompanying charts drawn tanks, or guns. Without a generalized military buildup, from LaRouche-Riemann model analyses, while wages which will not occur, expansion of electronics as such is and surplus creation in the industry have advanced limited. notably, the total contribution of the industry to the In fact what is now occurring in the industry is a total surplus generation of the economy as a whole rose Volcker depression-born shakeout of smaller companies from 5 to 6 percent from 1963 to the present. In the in favor of the top dozen giants. David Stockman's decade 1969 to 1979 it rose more slowly than in the claims of promoting the new sunrise industries, the 1963-69 period. myriad cries of "reindustrialization" and "supply-side economics" are ridiculous. If Stockman and Volcker Growth potentials? are permitted to indulge themselves, there will be no But surely there are large untapped markets fo r industries of any kind. electronics like the c'Jnsumer market. Not electronic There is no such thing as sunrise industries.

8 Economics EIR March 10, 1981 A replay of 1980?

Richard Freeman tells how American business stayed afloat through Volcker's latest crunch, and why it can't withstand more oJ the same.

Leading New York banks have told Federal Reserve neous reserve accounting." In saying this, Volcker Board Chairman Paul Volcker that they stand fully simply mouthed the views of the semi-secret, monetarist behind his assault on the u.s. economy, in the form of Mont Pelerin Society, which is run by the old and cutting money supply and maintaining sky-high loan­ wealthy oligarchical families of Europe. shark interest rates. This backup guarantees that Volcker The day before Volcker testified, the New York will attempt to repeat the destructive economic policy banks, which have led the slash in business loans that gutted the u.s. economy in 1980-regardless of nationally by $4.2 billion since Jan. 1 of this year, sent what the GNP figures say-and will plunge the U.S. into up a clamor for Volcker to become even more restric­ a second phase or "dip" of recession. tive. In delivering this stamp of approval, the New York It is evident on two levels that the U.S. economy is banks were also sending a message to President Reagan. not in good shape. On the firstlev el, the month-to-month "It is pointless to lock the door on an inflationary economic activity of the new year, there is enough dis­ policy," stated Leif Olson, chief economist for the turbing news to discount whatever short-term economic explicitly monetarist Citibank, "and leave the key hang­ statistics are spilled out. The economy has been held ing outside. You have to throw the key away," he together for the last seven to eight weeks by a daisy-chain added. Paul Markowski, chief economist for the New financialar rangement, which will fall apart the moment York investment bank of Sterling, Grace & Company, that Volcker forces personal incomes to fall. On the said, "The go-slow approach always leads to confusion. deeper level, the U.S. economy is in very bad shape, The Federal Reserve has to prove that it means business looting its profits and capital fo rmation. With all the talk and I'd rather see Fed overkill than Fed underkill." about how the u.s. economy "may recover, if only" now dominating the financial press, no one is facing the fact The inflation record that the u.s. economy has had negative re-investment of A review of 1980 shows that from the very start, its surplus for well over five consecutive quarters. Volcker was hell-bent on the policy that he worked on As the LaRouche-Riemann economic model has con­ for several years at the New York Council on Foreign clusively demonstrated, an economy that undercuts its Relations called "controlled disintegration." While in­ future ability fo r growth is digging its own grave. If the toning that his policy intent was to halt inflation, Volcker high interest-rate credit shutoff policy is toler­ Volcker fed inflation by his behavior. ated much longer, the U.S. economy will soon reach a Volcker took over as Fed chairman from G. William point of having destroyed its very capacity fo r economic Miller in August 1 979. It was Volcker who started recovery. pushing interest rates into the stratosphere. For 1978, the average level for federal funds was 7.93 percent. Monetarist assault Following Volcker's installation at the monetary helm In testimony before the Senate Banking Committee at the Fed-just months after Margaret Thatcher was on Feb. 25, Volcker told the assembled congressmen: made prime minister of Great Britain-he managed to "Our intent is not to accommodate the inflationary push up the price for overnight interbank federal-funds forces; rather we mean to exert continuing restraint of money to an average of 11.19 percent for 1979, an money and credit to squeeze out inflationary pressures." increase of 226 basis points. Volcker stated that he will impose "further deceleration In 1980, Volcker moved again, sending the federal in the monetary aggregates," and that this would funds rate up to an average of 13.35 percent for the include such measures as "frequent adjustment of the year. Volcker has imposed such a psychotic regime on discount rate, more forceful adjustment for the course the U.S. economy that when he brings federal funds of nonborrowed reserves and a return to contempora- down to a record-breaking 15 percent, he is applauded

EIR March 10, 1981 Economics 9 for "loosening" up on the credit reins. town Center for Strategic and International Studies, Under Volcker, the average prime rate charged by argue that U.S. steel production "is no longer of banks skyrocketed, as banks had to pass on the higher national security importance to the U.S." Perhaps this cost of federal funds. Volcker pushed the prime rate is Volcker's view as well. charged to the best corporate customers from an aver­ • Production levels of many key industries also fell. age of 9.06 percent in 1978, to 12.67 percent in 1979, Nonelectrical machinery, whose industrial production and up to 15.27 percent. index (1967 = 100) was 167.1 in January 1980, reached All other money-market instruments and loan rates 161. 5 by November 1980 (after some mid-year recov­ were sent shooting up. The average rate on a Moody's ery). The industrial production index of electrical ma­ triple-A corporate bond was 11.94 percent in 1980 and chinery dropped from 18 I.7 at the start of 1980 to 171.9 fo r a Moody's BAA-rated corporate bond, the rate was by November; lumber and wood products had an 13.67 percent. This second rate-at which most medi­ industrial production index in January 1980 of 131.6, um-sized U.S. companies qualify fo r financing-pushed which skidded to 121.4 by October; and so on. issues off the bond market. Only the big companies • Official unemployment went from 6.3 million in could get money. December 1979 to 7.8 million in December 1980, a Many companies went to the commercial paper growth of more than 1.5 million in one year. From market to get short-term cash infusions fo r 60 to 90 December 1979 through December 1980, the number of days, but this wasn't large enough to accommodate all workers unemployed for longer than 27 weeks more comers. Nonfinancial commercial paper started 1980 at than doubled. a volume of about $31 billion and rose to a level as high as $42 billion in late June, befo re falling off to $35.5 The wipeout of profits billion in late December. Volcker's 1980 "Operation Overkill" had the further While commercial paper was making up only a effect of wiping out profits. This is the fund out of relatively small part of the financing slack, the annual which capital spending, or current borrowing for future net increases in bank loans to business fe ll through the capital spending, must be paid. Along with consumer floor. They went from a level of net increase of $49.7 savings, profits represent, in crude fo rm, the surplus billion in 1979 to a level of $28.7 billion in 1980, a drop available for reinvestment in expanding the basis of the of more than two-fifths, before adjusting for inflation! economy. As noted above, this surplus pool has been (Corporate stock offerings did rise in 1980, but not negative for fi ve consecutive quarters in the United enough to offset the drop in loan demand.) States. The collapse in business loans made the rate of In 1980, corporate after-tax profitspegged at $189.9 overall net increase of new bank loans for all purposes billion, were estimated to be 3.5 percent less than their fall from $101.2 billion in 1979 to $34. 1 billion in 1980. level of $196.8 billion in 1979. But at $43.3 billion, the inventory valuation for 1980 was the largest for any Production effects year ever, and so was the depreciation allowance at The calculated effect of Volcker's policy was the $18.1 billion. Adjusting fo r these facts, corporate after­ decimation of the U.S. economy. Net new credit exten­ tax profits were down 7 percent from their 1979 levels. sions to both consumers and business sank-net supply Furthermore, when inflation is taken into account-the of new credit of all kinds to the entire U.S. economy fell GNP deflator was at least 9 percent in 1980-corporate from $400.4 billion in 1978 to $377.6 billion in 1979 and after-tax profits had dropped 16 percent from 1979 $3 10.6 billion in 1980-making a collapse inevitable. levels. Some of the biggest industries of the U.S. economy Oil profits, which represent the huge runup by got hit the worst: Exxon et al. were estimated to be $26 billion in 1980, • Auto sales, after falling 10 percent in 1979, fell about one-eighth of all profits. If oil profits arenetted another 20 percent in 1980. out, non-oil corporate after-tax profits fe ll by 18 to 20 • Housing starts, after falling 14 percent in 1979, fell percent in 1980 as a result of Volcker's policy. another 23 percent in 1980. Housing and auto combined Personal consumption expenditures in 1979, priced did represent almost $250 billion in output and sales. in 1972 constant dollars, were $930.9 billion; priced in • Steel shipments in 1980 were 83.5 million tons, the same 1972 constant dollars, they were $933.0 billion down 16.4 million tons (16.4 percent) from 1979 levels. in 1980, i.e., completely flat.Yet inflation pushed people Automotive steel consumption fell 6.5 million tons in into higher tax brackets and took 1 to 3 percent out of 1 980, while steel consumption of housing fell by 2.0 incomes in 1980. Moreover, personal expenditures rep­ million tons. Some economists, such as Penelope Hart­ resent a wide range of incomes including rental income land-Thunberg, formerly at the economics desk of the and the like, so that some incomes fe ll while some Central Intelligence Agency, and now at the George- gained to keep the 1980 gain over 1979 completely flat.

10 Economics EIR March 10, 1981 It can be concluded that for many wage-earners, in­ comes fell by 3 to 5 percent in 1980. Savings accounts, which had been partly restored at the beginning of 1980, were raided by the end of 1980 and into 1981, as the savings rate attests: October 1980, it was 5.5 percent; November, 5.1 percent; December, 5.2 percent; January 1981, 4.6 percent. Volcker's crunch on corporate profits, personal in­ comes, and savings cannot be sustained indefinitely. Such looting destroys the underlying infrastructure of industrial, agricultural, and household capital forma­ A series of tion in the most profound sense. A negative surplus EIR Seminars economy is an economy that is going straight into hell's worst nightmare.

More monetarism? Europe's Challenge to The fact that Volcker decimated the 1980 real U.S. economy and is accelerating his credit shutoff policy in Paul Volcker 1981 leads to the question: what is holding up the U.S. In Chicago: economy? Speaker: David Goldman, The answer is a little-noticed but powerfully operat­ Economics Editor ing financial daisy-chain arrangement. The daisy chain Wednesday , March 11 7:30 p.m. works as follows: high rates of speculative profitsin the Contact: Paul Greenber (312) 782-2667 secondary New York real-estate market, the $200 billion g per year in illegal narcotics revenues trade, and so forth, In Washington, D.C.: have generated a certain level of profit to hire especially Thursday. April 2 2:00p.m. white-collar workers. While blue-collar jobs dropped by Contact: Laura Chasen (202) 223-8300 600,000 since April 1980, white-collar jobs have grown by 1.3 million. This had led to sufficient personal income growth for individuals to invest in such instru­ ments as money-market funds. In the last four weeks, Mexico: America's money-market funds grew in size by $10 billion. These $100 funds are being invested in short-term commercial Billion Neighbor paper. Thus, while short-term bank commerce and In Houston: industry loans have dropped, according to the Bankers Sunday. March 22 2:00p.m. Trust newsletter, by $4.2 billion since Jan. 1, commercial Speaker: Dennis Small. paper for non-financialcorporations has skyrocketed in Latin America Editor the same time-frame by more than $7 billion, thus Contact: Donna Benton (713) 972-1714 offsetting the drop in commerce and industry loans. This keeps corporations solvent on a short-term basis. Inflation was still continuing at a 10 to 12 percent rate for November through January. Auto sales for the u.s. Policy mid-IO days of February fell 23 percent from last year's bombed-out levels. The basics of the economy haven't Toward Latin America improved. In Washington, D.C. If Volcker then moves to tighten further, he will Thursday and Friday. only succeed in cutting off the one remaining source of March 26-27 2:00 p.m. liquidity: the growth in some categories of personal Contact: Laura Chasen (202) 223-8300 income that feed the commercial paper market. This is exactly what Volcker proposed to do at the Feb. 25 Senate hearings on the economy; this is what the leading New York banks are asking him to do. If he does it, then the commercial paper market activity will dissipate. The seven- to eight-week lull in the U.S. economy's collapse will be over.

EIR March 10, 1981 Economics 11 The Federal Reserve is not a fo urth branch of government by Edward Spannaus

In his economic address to the Congress Feb. 18, Presi­ ed as a general grant of power to Congress to "regu­ dent Reagan once again cited the "independence" of the late" and encourage all gainful economic activity­ Federal Reserve as his justification fo r noninterference trade, agriculture, and manufacture. There was no with Paul Volcker's wrecking of the U.S.ec onomy. intent to restrict the economic powers of Congress to The President has, in fact, the constitutional obliga­ something called "interstate commerce"; Congress had tion to fire Volcker and to prevent the Fed from destroy­ the responsibility to regulate all economic activity ing the economy. Likewise, the Congress, which created among the states (not "between" the states) to ensure the Fed pursuant to its designated powers under the the economic well-being of the nation. Constitution, can amend the Federal Reserve Act to bring the Fed into line, or it can abolish it altogether if it so chooses. In the plan of government created by the Constitutional Convention, The powers of Congress there is no room for "independent" The authority fo r the creation of the Federal Reserve System is Article I, Section 8 of the Constitution which bodies that exercise major defines the power of Congress.Th ese include the fo l1ow­ substantive powers over the ing powers: nation's economy but operate out­ To lay and collect taxes, duties, imposts, and side the three designated excises, to pay the debts and provide fo r the common defense and general welfare of the branches of government. Both United States; Congress and the President have To borrow money on the credit of the United the duty to exert their authority States: To regulate commerce with foreign nations, over the Federal Reserve. and among the several states, and with the Indian tribes; The Fed's current wrecking operations are clearly To coin money, regulate the value thereof, and not within the ambit of congressional or constitutional of fo reign coin; authority. Even the language of the Federal Reserve To promote the progress of science and the Act does not justify destroying the economy. For ex­ useful arts.... ample, the Fed's ability to discount paper is to be done To make al1 laws which shall be necessary and "with a view of accommodating commerce and busi­ proper fo r carrying into execution the foregoing ness," and elsewhere congressional intent is explicitly powers.... established to prevent "injurious" expansion or contrac­ This defines a very specific direction of Congress's tion of credit. power of economic legislation: that Congress is to pass Having once created the Federal Reserve System, laws fo r the advancement of the economy and the Congress is not obliged to sit on its hands and watch "general welfare." Contrary to current narrow interpre­ the Fed go on its merry "independent" way sabotaging tations, the Commerce Clause, fo r example. was intend- the u.s. economy and the welfare of its citizens. The

12 Economics EIR March 10, 1981 the Constitution. The definitive interpretation of the Appointments Clause was set fo rth in an 1878 Supreme Court ruling by Justice Samuel Miller: The Constitution fo r purposes of appointment very clearly divides aH its officers into two classes. The primary class reqires a nomination by the President and confirmation by the Senate .... That all persons who can be said to hold an office under the government about to be established under the Constitution were intended to be includ­ ed within one or the other of these modes of appointment there can be little doubt. This Con­ stitution is the supreme law of the land, and no act of Congress is of any validity which does not rest on authority conferred by this instrument. I The Second National Bank of the United States. In 1832. Congress exerted its power to recharter the bank. and (in this AJI major government officials outside of the legis­ case unfortunately) Andrew Jackson vetoed it. lature and the judiciary are therefore the subjects of executive power. This view was upheld as recently as 1 976 in the Supreme Court's ruling in Buckley v. Valeo. Fed is not a fo urth branch of government; like every which said that the Federal Election Commission as other part of the government it must fit within the then constituted was a violation of the Constitution's tripartite plan of our government or else it should not separation of powers doctrine. (S ome of the FEC Com­ exist at all. missioners were appointed by Congress and some by the President.) It is Congress's duty to legislate, and it is The President's power the President's duty to ensure "that the laws be faithful­ Nor is President Reagan obligated to observe some ly executed." mythical "independence" of the Federal Reserve. Con­ stitutionalJy, the Fed cannot be independent of the executive branch. The seven governors of the Federal Reserve Board, including Chairman Paul Volcker, are Promoting the Fed appointed by the President with the advice and consent of the Senate. As such, they falJ into the category of independence hoax "officers of the United States" and are subject to Senators William Proxmire and Jake Garn have removal by the executive. introduced Senate Concurrent Resolution 8 to try The Appointments Clause, Article II, Section 2, to rally Congressional support for Volcker's high Clause 2 of the U.S. Constitution states: interest-rate policies. The argument used by sup­ [The President] shaH have power, by and with the porters of this resolution is that Congress has dele­ advice and consent of the Senate, to make treaties, gated its powers over the economy to the Fed. provided two-thirds of the senators present shall According to a staff member of Proxmire's Senate concur; and he shaH nominate and, by and with Banking Committee: "We are not saying the Fed is the advice and consent of the Senate, shall appoint an independent institution. It is independent of the ambassadors, other public ministers and consuls, executive, but not of the Congress. Resolution 8 is judges of the Supreme Court, and all other officers the Congress exercising its power to advise the Fed of the United States. whose appointments are not on policy." herein otherwise provided for, and which shall be As the accompanying article shows, Congress established by law. But the Congress may by law can only make laws; it does not administer them. vest the appointment of such inferior officers, as Furthermore, the method of appointment of the they think proper, in the President alone, in the Governors of the Federal Reserve suffices to dem­ courts of law, or in the heads of departments operate independently of the executive-unless [emphasis added]. operate independently of the executived-unless the Fed is "independent" of the Constitution itself. Two methods of appointment for primary and infe­ rior government officials, and no more, are created by

EIR March 10, 1981 Economics 13 The President's power to appoint is also the power to remove. The most exhaustive treatment of this ques­ tion was in a 1926 Supreme Court decision in the case Myers v. U.S., written by then Chief Justice Taft. This 'No one has really case involved a postmaster in Portland, Oregon. Taft reviewed the entire history of the Appointments Clause challenged the basis' from the debates in the Constitutional Convention onward, and concluded that Congress could not, even The following is an interview with the Federal Reserve's by statute, take away the President's power to remove Mr. Mattingly of the Fed Legal Division. EIR's reporter an officer whom he was authorized to appoint in the was Legal Editor Edward Spannaus. first place. Our conclusion on the merits ...is that Article II EIR: I am very intrigued with the question of the so­ grants to the President the executive power of the called independence of the Fed. For example, the gover­ government, i.e., the general administrative con­ nors are appointed by the President with the advice and trol of those executing the laws, including the consent of the Senate. Is there any provision for their power of appointment and removal of executive removal? Say by the President? officers-a conclusion confirmed by his obligation Mattingly: There isn't any provision for it. I suppose to take care that the laws be faithfully executed. 2 one could bring an impeachment action. Officers of the Fed do not serve at the pleasure of the In later cases, the Supreme Court has held that President, like many other government officials. I don't Congress can circumscribe the President's ability to think they can be removed this way. remove officers of so-called independent regulatory agencies. This is unquestionably an extremely murky EIR: Where does this notion of the "independence of constitutional area, but in the situation of the Federal the Fed" come from anyway? Reserve it is not even necessary to be concerned with it, Mattingly: Well, I think it derives from history as much for the Federal Reserve Act places no prohibition on as anything else. It's always been accepted. For example, the President's ability to remove officers whom he has the Fed can hire its own attorneys, its employees are not the authority to appoint. Governors of the Federal subject to civil service, it does not use any government Reserve are appointed for terms of 14 years; nothing is funds, its stock is privately owned by member banks .... said about any special procedure or prohibitions on their removal. EIR: What if I were to say to you that since its officers The separation of powers and the appointive power are appointed by the President under the Appointments of the executive were questions that were thoroughly Clause, that, therefore, it is an executive branch agency? debated and well thought-out in the Constitutional Its powers seem to be similar to those of the Treasury. Convention. The framers of the Constitution had just Mattingly: I'd say that's an interesting legal position. been through the experience of fighting a war and trying to establish a peace under the Articles of Confed­ EIR: How would you compare or distinguish the Fed eration in which there was only one branch of govern­ from a regulatory agency? ment. The central government had no judicial power, Mattingly: It's different from the regulatory agencies. and executive and legislative power were both combined Everybody accepts the fact that the Federal Open Mar­ in the Continental Congress. The result was a miserably kets Committee is not open to direction by the President. weak government, incapable of effectively waging war There is no provision that gives anyone supervision over or keeping the peace, much less providing for the the Fed's operations with respect to monetary policy. economic growth and well-being of the new nation. Some senators have taken the position that it is a In the plan of government created by the Constitu­ legislative agency. There was once an attorney general's tional Convention, there is no room for "independent" opinion that said it was an independent agency of the bodies that exercise major substantive powers outside federal government. He didn't say it was either executive the three designated branches of government. Under or legislative. their oaths of office to protect the Constitution, both Congress and the President have the obligation and EIR: Where do you findany support in the Constitution duty to exert their authority over the Federal Reserve for this to back up the idea of an independent agency? before it totally destroys the U.S. economy. Mattingly: I don't know. It is generally thought that

1. United States v. Germaine, 99 U.S. 50lj, 509-510 (1878). there are only three branches of government, not four, 2. Meyers v. u.s., 272 U.S. 52, 163-164 (1926). with the Fed being the fourth.

14 Economics EIR March 10, 1981 Foreign Exchange by David Goldman

'Volcker is the uncertainty factor' Switzerland for monetarist meas­ Th e expected rebound of the deutschemark indicates the ures , reaction to the Stockman German commitment to defend the EMS. Problems remain. budget and the endorsement of the Fed's monetary stance by the ad­ ministration produced immense disappointment in Europe, as EIR has emphasized. More than the short-term problems for the OM, the West Germans fear a "blow­ Following last week's decision by West German newspaper said. It back" effect against the American the West German Bundesbank to added, "It is unlikely that the re­ dollar once it becomes evident that restrict the Lombard facility-the strictive efforts of the Federal Re­ Stockman's program will be disas­ normal means of providing liquidi­ serve will be crowned with success." trous fo r the U.S. economy. ty to the banking system-West The reason fo r the high degree The West Germans' problem is German interest rates have shot up. of uncertainty and reluctance to that a recession-related decline of At this writing the three-month take positions is that the Europeans the dollar will not make matters Euro-DM rate is at 16 percent, or can already fo resee the Volcker pol­ easier for them , even ifit eliminates higher than the U.S. federal funds icy backfiring. The Feb. 25 an­ the present problem of capital rate, a striking reversal of what was nouncement of a January fall in flight. In an interview this week at the start of the year an 8-point durable goods orders of 2.2 per­ with Der Spiegel magazine, Chan­ spread between the two rates. cent, the first hard sign of economic cellor Schmidt acknowleged that This rapid interest-rate move­ downturn since last August, pro­ the rising problem of unemploy­ ment indicates the limitations ofthe duced some dollar selling immedi­ ment in West Germany was due, in Bundesbank's strategy to deal with ately, according to wire service re­ part, to external economic factors what the West Germans are hoping ports. As the U.S. economy contin­ beyond his control, and promised will be a short-term problem of ues to turn down through the first to "request and even demand" of capital flight due to the U.S. credit quarter-this is EIR's standing Germany's allies (i.e., the United squeeze. forecast-the dollar will continue States) cooperation in interest-rate The fact that the Euro-DM to come under pressure. matters. He showed optimism over rates have moved rapidly ahead of Based on forecasts circulated by winning agreement to his plan from short-term domestic OM rates indi­ the New York Federal Reserve and Reagan "by early summer." cates German commercial banks some members of the Bundesbank's This, of course, depends on the have stopped exporting funds to the directorate at a conference in Ham­ ability of the White House to recog­ Eurocurrency market, precisely burg last October, some market nize that David Stockman, for all what the Bundesbank wanted. participants tried to drive the OM his pretensions of avoiding an But it also shows that the poten­ down to about 2.25 to the dollar "economic Dunkirk," has leftthem tial implications fo r the German earlier this month, losing them a lot adrift. The first West German emis­ capital market of the Bundesbank's ofmonex. That the dollar could fall sary, Bundesbank President Karl­ currency defense measures are not back immediately to 2.10, a 12 per­ Otto Poehl, arrived in the U.S. this sustainable for more than perhaps cent decline in less than three days' week to lobby for a global reduc­ another quarter. trading, shows how weak the dol­ tion in interest rates. On March II, At the moment, the mark is in a lar's underlying position was. Schmidt's man in the West German trading range between OM 2.08 West German bankers empha­ Finance Ministry, Horst Schulman, and OM 2.12. The leading West size that the new strength of the will make the same case at the German business daily Handels­ dollar is not related to interest-rate Working Party III meeting in Paris hiatt noted that traders are reluc­ movements, but in newfound confi­ of the Organization fo r Economic tant to take positions. "The U.S. dence in American economic man­ Cooperation and Development, be­ Federal Reserve is the principal un­ agement. Except for the predictable fore Schmidt's projected April visit certainty factor in the market," the enthusiasm in Brussels and in to Washington.

EIR March 10, 1981 Economics 15 Domestic Credit by Richard Freeman

Fact and fiction about the budget Stockman says this cut will save Itemizing what Volcker's policy has added to the deficit, and $699 million for the federal govern­ what Stockman will deduct fr om output. ment in the fiscal year 1981 and $13.3 billion more through fiscal year 1985. While his figures on sav­ ings are dubious, the cost to utili­ ties, already being hit by Volcker's high interest rates, will be fa r great­ I want to re-emphasize two partic­ to be paid on the public debt; $5 er, and will quite rapidly lead to ularly disturbing features of the billion at minimum in higher unem­ curtailment of service. budget approach presented by Of­ ployment compensation payments; Two other cuts demonstrate the fice of Management and Budget and $3 to $20 billion in lost tax same principle: Director David Stockman for fiscal revenues, for a total on this account • Cutting by an unspecified years 1981 and 1982. First, his ap­ of$30 to $47 billion. amount outlays fo r inland water­ proach completely ignores the way Let us next look at what OMB ways and harbor dredging. Sup­ Fed Chairman Paul Volcker's cred­ Director Stockman proposes to cut. porting Stockman's proposal, a it contraction has wrecked federal Slashes in funding for synthetic Feb. 15 Wa shington Post lead edito­ and state revenues while adding to fuels, solar energy, the Public rial argues: "And should the costs recession-induced fiscal outlays. Broadcasting System (PBS), and a of harbor dredging fa ll on the gen­ Second, while some of the proposed few other programs, are to be hear­ eral public or the shippers? That is budget cuts are unobjectionable or tily welcomed. This would save sev­ another half-billion dollars [in po­ positively useful, most of them rep­ eral billions of dollars. tential cuts] a year." resent a direct attack on the indus­ But beyond this, many of the The American waterway sys­ try-building legacy of Alexander proposed cuts are an attack on tem, which reduces overhead costs Hamilton. Hamilton's explicit policy of inter­ offood commodities, would be sac­ Budget deficits per se are not a nal improvements. At the heart of rificed for a saving that is, in dollar major cause of inflation. They add Hamilton's program is the idea that terms, a fraction of what the pro­ at most I to 3 percent to the V.S. government participation in fi ­ gram adds to the general com­ inflation rate, currently in the nancing internal improvements in merce. range of 13 to 14 percent. Those the economy, that in turn facilitate • Cutting, also by an unspeci­ who piously invoke the need to cut the transport, increase the speed of fied amount, the V.S. highway budgets and tighten money supply shipment, and augment production funds as well as the "unneeded" to fight inflation are either incom­ of goods, is a tremendous gain to subsidy of essential rail lines. petent or less than candid. the nation's wealth. These improve­ Conjoined to these cuts in Ham­ One of the elements contribut­ ments more than pay for themselves iltonian necessities, Stockman has ing more to the V.S. inflation rates in the form of increased tax reve­ proposed slashing the NASA pro­ than budget deficitsis Paul Volck­ nues and other tangible gains. gram down from a level of $6.7 er's loan-shark interest rates. They Stockman has proposed: billion in 1981 to a level of $5.5 make any economic recovery im­ • Eliminating the access of the billion in fiscal year 1985-a reduc­ possible no matter how well target­ Rural Electrification Administra­ tion in half, after the adj ustment for ed budget cuts may be; and, be­ tion (REA) to the Federal Financ­ inflation. Stockman is also seeking cause they intentionally drain funds ing Bank (FFB). The Federal Fi­ a sharp 30 percent cut in the fund­ from the productive sector of the nancing Bank, an off-budget item, ing of Eximbank. Together NASA economy to feed the wasteful spec­ issues bonds on behalf ofthe Rural and Eximbank keep high technolo­ ulative section, high interest rates Electrification Administration at gy disseminated throughout the perpetuate double-digit inflation. low interest rates. The REA pro­ economy. With the reductions he Volcker has added the fo llow­ vides for the electrification of the proposes, such industries as the air­ ing costs to the fiscal year 1981 nation's farm areas, aiding utilities, lines will suffer further record drops budget: $22 billion in extra interest industry, and consumers. in profitability .

16 Economics EIR March 10, 1981 Agriculture by Susan B. Cohen

The free market trap stressed in a November interview Why fa rm program cuts are not only unjustified, but will with EIR, the farm export potential can only be met over the long term jeopardize American productivity. if products aren't "dumped" on the world market. S. 480 extends current law, with the additional key provision that the loan rate for the most basic One of the most vicious myths for American producers, who now commodities will be at 75 percent of associated with the "free market" spend nearly $100 billion every year parity. Since the loan rate acts as a ideology is the myth that govern­ to produce crops and Ii ves1.ock. floor to the market, this measure ment spending causes inflation. Put "You will hear from some that simply assures producers of a bare­ that together with the widely circu­ such an approach is inflationary; bones cost of production return. lated lie that the fe deral fa rm pro­ that it will increase federal spending The administration's farm bill grams are "subsidies," some kind at a time when the budget must be will be presented by March 10. As of taxpayer "ripoff," and you have balanced. We will hear from the David Stockman assured the Sen­ set the stage for the type of budget­ nay-sayers who say it is time for ate Budget Committee, every farm cutting orgy that can irreparably Congress and the country to ignore program is under review for addi­ damage the most productive sector agriculture producers and the tional cutbacks. So fa r, the dairy of the American economy. prices they receive," Melcher said. program has been singled out. This is OMB chief David Stock­ "Well, to that I say nuts," Otherwise, the announced 25 per­ man's unconcealed aim. Stockman Melcher continued. "These same cent reduction in direct lending by has emphasized repeatedly-most people have been trying to sell this the Farmers Home Administration recently before the Senate Budget bill of goods for many years, and, as and cuts in fe deral assistance to the Committee-that all of the farm a result, U.S. agriculture programs Rural Electric Cooperatives give price support programs "should be have tended to be compromises that clear indication of the willingness eliminated. " were too little and too late and em­ to rip great holes in the fabric of A refreshing counterpoint to phasized a cheap fo od policy. programs that have kept rural the fiscal madness which threatens "And it is because of these fool­ America on the economic map. to engulf the nation was provided ish policies that have come out of Secretary Block has announced by Sen. John Melcher CD-Mont.) in Washington that American agri­ that he will recommend elimination remarks to the Senate on Feb. 16 as culture producers always seem to be of the target price program-a he introduced his S. 480, the first of hanging by their fingernails." small aspect of the price support what will be several comprehensive Melcher noted that the past 10 apparatus, and the only program farm bills to be considered. years of market volatility have that is actually a transfer payment "We Americans have sacrificed thrown into question America's and not a repaid-with-interest loan. our steel industry, our electronics ability to meet the rising world de­ Block also stated that in spite of industry-we have sacrificed them mand for food. "Once again," he eliminating target payments, he all on the altar of the free market," said, "farmers and ranchers face an does not think there will be much, if Melcher stated. "Mr. PresideDt, uncertain future. We know that the any, increase in price-support loan those markets are not free. And demand for American food will in­ rates. they have not been fo r many years," crease, but there is some doubt N or are the sacrifices demanded he added, in presenting a four-year whether American production will of American agriculture confined farm bill to assure market stability grow to meet that demand," he to the farm bill or the USDA bud­ and cost of production returns to said. "I think that is because of the get. The imposition of user fees on farm producers. highly inflated costs of borrowed inland transport and the prohibi­ Melcher insisted that it was ur­ money, the ever-increasing costs tion of new water resource develop­ gent to restore price stability and fo r farm and ranch operation, plus ment projects, are potentially dead­ bring down the cost of borrowing bad weather." As the senator had ly fo r producers.

EIR March 10, 1981 Economics 17 InternationalCredit by Renee Sigerson

Buying out Argentina cheap tions, additionally, have undergone If the combined depression andfinancial shakeout continues, forced mergers. much of industry won 't survive there. Even before the expected big devaluation, Bank of America (the American institution with the clos­ est ties to Italian finance) jumped in, with an extraordinary offer to buy out the big Banco Internacion­ al. Although Bank of America Argentine investors, now moving not help Argentine price levels. Ap­ spokesmen say that negotiations foreign exchange out of Argentina parently, the government's maneu­ are still underway, an Argentine at the rate of$I.5 billion per month, ver represented a controlled shake­ official told EIR that the California are waiting for another "maxi-de­ out by prior agreement with fo reign institution came in with a bid three valuation" in the range of 30 to 40 and some important local investors. times larger than that ofthe second­ percent before reclaiming local­ The net result of the exercise will highest bidder, persuading the Ar­ currency assets. In the process, the be to give foreign and internation­ gentines to conclude the sale imme­ Argentine economy is set for a ally based local investors a much diately. In another development, shakeup in which that country­ bigger chunk of the Argentine the French government-owned once the most industrialized in Lat­ economy at an extremely reasona­ Credit Lyonnais paid $48 million in America-could devolve into a ble price. fo r the Banco Tornquist, with $257 resources exploitation economy. The initial effect of the devalua­ million in deposits. According to sources at the tion and capital exodus has been a While the capital fight contin­ Milan-based Banco Ambrosiano, spectacular series of major bank­ ues, more bankruptcies are expect­ one of Italy's oldest banks, Italian ruptcies, including the default of ed. The devaluation policy has family interests long based in Ar­ the country's biggest holding com­ turned out to be a one-way bet for gentina have moved money out in pany, Sasetru. Sasetru defaulted on international operators who want anticipation of a devaluation that a $10 million payment to the Banco to pick up local assets cheaply. But will enable them to buy back liqui­ de Italia y Rio de la Plata-part of the process will throw the already dated assets at a substantial dis­ the Italian fi nancial nexus in Ar­ depressed Argentine economy even count. Banking sources guess that gentina-and the bank decided to further toward deindustrialization. such a devaluation must take place bring the big company under. The last fo ur years of "anti-infla­ in less than three months, due to De Hoz deputy Martin Braun tion medicine" administered by the rapid rate of exhaustion of Lasala told the press last week, monetarist de Hoz has resulted in, the country's fo reign-exchange re­ "Competition was central to reduc­ for example, the reduction of Ar­ serves, despite substantial national­ ing the rate of inflation. Those gentine automakers from eight to ist opposition. companies who didn't believe we fo ur. The wave of capital flight began would go through with the policy, Argentine output is dropping Feb. 2, when outgoing Economics or failed to fo resee its implications, sharply. Commented Manuel Sac­ Minister Jose Alfredo Martinez de are now the ones doing the com­ erdote, senior vice-president of Hoz devalued the peso to 2,600 to plaining. " Banco de Boston: "The fact that the dollar, or by 10 percent. De The Economics Ministry'S cav­ manufacturing output fell by 6 per­ Hoz's unexpected "maxi-devalua­ alier attitude towards the difficul­ cent compared with the second tion" ruptured a speculative cycle ties of the fi nancial sector is inter­ quarter of 1979 came as a shock. fed by more than 100 percent infla­ esting, after the liquidation of 32 This was a direct result of the gov­ tion, and monthly "mini-devalua­ fi nancial institutions during the ernment stabilization program and tions" of2 to 3 percent. past several months. These include the opening of the economy [to for­ Although the "maxi-devalua­ the Banco Hispano Corfin ($204 eign investors]. Increased competi­ tion" was presented as an "anti­ million in deposits) and the Banco tion in Argentine markets and high inflation" measure by the govern­ del Norte y Delta ($ 139 million in real interest rates are the main rea­ ment, the collapse in peso value will deposits). Many smaller institu- sons for the slump."

18 Economics EIR March 10, 1981 Wo rldTrade by David Ramonet

Cost Principals Project/Nature of Deal Financing Comment

NEW DEALS

$2.5 bn. U.S.S.R. from The U.S.S.R. will obtain from Holland A system has ABN expects Holland equipment for a pipeline to carry gas been worked out to finalize the from the northern Poluostrov peninsu­ where Algemene deal in several la to Western Europe. Bank Nederland weeks. Usually, will lead a syndi­ Netherlands cate; 85% will be does not pro­ guaranteed by the vide export Netherlands credits at below Credit Insurance market rates. Co.

$702 mn. Libya from Germany West Germany's Krupp steel and engi­ and Austria neering group leads the consortium that will build an electro-steel plant in Misurata, Libya. A similar contract was won by a consortium led by Korf Engineering of DUsseldorf and by Voest Alpine of Austria.

$178.5 mn. Iraq from U.K. Piling Design Consultants from Eng­ land received a consultory contract for a fishing port complex to be located near Basra, planned by the ministry of agriculture and agrarian reform.

$302 mn. Colombia/Italy An Italo-Colombian consortium head­ ed by FIAT's Impregilo, won a contract to build a 680 Mw hydroelectric power complex at Betania, Colombia, on the Magdalena River. Impregilo will han­ dle the civil engineering part; electrical engineering, by Gruppo Industriale Elettromeccaniche, from Italy; Colom­ bia will be represented by the Estrucco and Pin ski concerns.

$146mn. Greece from U.K. U.K. companies will build Greece's Lloyds Bank In­ maj or Greenfield petrochemical com­ ternational has plex. Wheeler, Ltd. will manage the loaned Greek Pe­ project and construct the whole com­ trochemicals, SA plex; Sim-Chem Ltd. is to build a low­ $124 mn. for the intensity polyethylene plant; John operation. The fi­ Brown of London will build a high­ nancing deal sup­ density polyethylene plant. ports the three contracts, backed by the Export Guarantee Department.

$145.6 mn. U.S.A. from Japan Japan's Nippon Kokan K.K. will con­ struct two semisubmersible offshore mobile drilling rings for Penrod Drill­ ing Co. of Dallas, Texas. The first rig will be delivered in January 1983, and the second in April.

EIR March 10, 1981 Economics 19 Banking by Kathy Burdman

S &Ls put the gloves back on now telling many small S&L offi­ Th e U. S. League of Savings Associations has called offits cers that their banks may have to be attack on the Vo/cker Fedfor interesting reasons. shut in 1981. It's no secret that some of the larger S&Ls, like the $8 billion Great Western Savings & Loan in Los Angeles, have recently grown William O'Connell, executive di­ Volcker," the head of one state or­ by absorbing the smaller and weak­ rector of the U.S. League of Sav­ ganization told EIR this week. er S&Ls in their area. Some ofthese ings Associations, was one of the "Everyone here thinks we should giant S&Ls would also like to pur­ first American business leaders to put out a contract on him." chase weaker S&L across state open the attack against Federal Re­ "Personally, I think his time is lines, a policy that the V olcker Fed serve Chairman Paul Volcker's up," said another source. "And if has backed. high interest-rate credit squeeze. the League were to call fo r Capitol Hill sources also say As early as last Sept. 22, in a Volcker's resignation, the entire that some of the U.S. League's hard-hitting speech to the Califor­ national membership would ap­ Washington representatives have nia S&Ls, O'Connell denounced plaud the effort." made a deal with Volcker's sup­ the Fed's interest-rate policy, say­ Indeed, my discussions with the porters in Congress to call off the ing "inflation psychology is just as U.S. League members and EIR attack on the hated Fed chairman. deep as it was a year ago, if not subscribers at thrift institutions "Of course the U.S. League and deeper." Mr. O'Connell went fur­ around the country indicate over­ the [National Association of] ther, to the core issue. He ques­ whelming popular sentiment both Homebuilders have to answer to tioned the constitutionality of the for Volcker's ouster and for an im­ their contituencies who are scream­ so-called independence of the Fed­ mediate lowering of interest rates. ing for Volcker's head," said my eral Reserve, and stated that the The fact is, as the League pub­ source, who supports an even tight­ "fourth branch" of government licly admits, Volcker's policy is de­ er policy at the Fed credit spigot, needed to be put under congres­ stroying the League's 5,000 mem­ this week. "What are [the associa­ sional and presidential supervision. bers. A League press release this tions] supposed to do, endorse him? "I think it is a legitimate ques­ week said that as a result of high They have no choice. tion to ask whether the Federal Re­ interest rates, member banks had "Privately, however," the Hill serve does not have too much pow­ closed only $4.4 billion in mortgage aide continued, "the Washington er," Mr. O'Connell stated. "It not loans in January, down a full 33 people acknowledge that the Fed is only has responsibility for mone­ percent from $6.5 billion in mort­ doing its best. Their officers will tary policy but effective life-and­ gages made in December. Most come in and say, 'This is the posi­ death power over all financial insti­ League member institutions expect tion of the group,' but then agree tutions. This is an extraordinary, mortgage rates to stay at an all-time with us. 'I am a businessman who unwarranted, and dangerous grant high over 13 to 14 percent through­ understands the independence of of power to a few nonelected public out this year, and many said rates the Fed,' they say. They're talking officialswho are not accountable to might be forced over 14 percent. out of both sides of their faces." the electorate." Cui bono? Someone on the As a result, the aide laughed, But now, top League sources League executive board apparently "none of this complaining about say, the League has called off its is happy with the results of Volcker will have any effect." attack on Volcker because of a V olcker's policy, one of which is If an effective campaign against "disagreement on the executive that dozens of smaller S&Ls are in Volcker is to be waged, U.S. board" over whether to "rock the danger of going under. The Federal League members would do best to boat" and demand Paul Volcker's Sa vings & Loan Insurance Corpo­ ensure that their own house is in ouster. ration, which saved over 35 S&Ls order, and the executive board and Why? "I can't imagine anyone across the country from bankrupt­ Washington office are faithfully in the U.S. League supporting cy through bailouts during 1980, is representing members' interests.

20 Economics EIR March 10, 1981 A postindustrialDe troit

Following EIR's Boston expose, Part Two of an urban series: Stephen Parsons on the planned shrinkage of a strategic economic center.

Max Fisher and several of his fellow board members at Detroit; Arthur Seder, Jr., chairman and president of Detroit Renaissance and New Detroit were named to American Natural Resources Company; and two labor two blue-ribbon commissions recently established by representatives, Raymond Majerus, secretary-treasurer Michigan Gov. William Milliken and Detroit Mayor of the United Autoworkers, and Jack Wood, president Coleman Young to plan the basis fo r the economic of the Greater Detroit Building Trades Council. "diversification", of Detroit and the state of Michigan. It is a matter of record that the policies of former Big Their appointments coincided with the contracting of MAC chairman Felix Rohatyn have resulted in an accel­ Lazard Freres and Felix Rohatyn as Detroit's financial erating deterioration of New York City, simultaneously consultants; and a spate of legislative initiatives that has generating unprecedented real-estate speculation, while been proposed that would radically alter Michigan's industry has, at best, stagnated. And that has come economic climate. mostly during a relative economic upswing. Fisher and his associates are trumpeting the econom­ In Detroit, the same incompetent policies will have a ic wonders of high-technology growth industries-elec­ much worse effect. As Mayor Young aptly remarked tronics, semiconductors, and robotics-in a "diversi­ during his state of the city address on Feb. 5: "Mr. fied," postindustrial Michigan. Through a combination Rohatyn has already described our situation as one of their fi nancial muscle and the state's depressed and where we will have to choose between 'extreme pain and ever-worsening economy, they have initiated a series of agony.' Detroit's choice comes down to this: give up new institutions and institutional "restructurings" to some of what we have now, or have nothing left to give pave the way toward their actual goals. up later." The Budget Stabilization Committee has al­ In mid-January, Governor Milliken created a 12- ready drawn up a laundry list of cuts in personnel and member panel to explore avenues for "high-growth, new services, wages and benefits, and new taxes in order to technology industry in Michigan." Besides Max Fisher, ram Rohatyn's prescriptions down the city's throat. a Republican Party king-maker and chairman of Detroit Renaissance and United Brands, he appointed such lu­ Boom or bust? minaries as former Treasury Secretary W. Michael Blu­ Mayor Young might as well have generalized his menthal, now chairman of Burroughs Corporation; Wil­ words for the entire state. Amid what many see as the liam Agee, chairman of Bendix Corporation and a De­ terminal collapse of the U.S. auto industry, Michigan's troit Renaissance director; Donald Mandich, president economy is reeling into a depression rivaling that of the of Detroit Bank & Trust Company; and Paul Mc­ 1930s. The state's unemployment level of 13.7 percent is Cracken, fo rmer chairman of President Nixon's Council the highest in the nation, as is its inflation rate. Over of Economic Advisers. 55,000 autoworkers have been laid off in the past two A few weeks later, Mayor Young announced the years, with 170,000 manufacturing jobs vanishing alto­ hiring of Lazard Freres and the formation of a "Budget gether. By June, something like 150 smaller auto-related Stabilization Committee" charged with recommending companies will close their doors, sending thousands measures to eliminate Detroit's gaping $130 million more workers to the unemployment lines. deficit. Chaired by retired Ford Motor economist Fred "People are flooding out of this state," says Jan Secrest, this committee includes a number of Detroit Gordos, a researcher at the University of Michigan's Renaissance/New Detroit board members, such as Rod­ Institute for Industrial and Labor Relations. "No one key Craighead, chairman of Detroit Bank & Trust; Dean has any figures, but they're just rolling out of here. Richardson, chairman of Manufacturers National Bank; People in Flint are ripping their kids out of the school Robert M. Surdam, chairman of the National Bank of system in Febuary and moving south. That is really

EIR March 10, 1981 Economics 21 extraordinary, we haven't seen that before." Georgetown University and slated for the fo reign ser­ "Right now, you could basically float Flint away vice, Kelly is pushing through measures that will facili­ and you'd do us a big favor," comments Mark Morante tate rampant financial speculation while destroying at the Michigan Department of Commerce. what is left of the state's industrial base, as well as the Max Fisher's high-tech boom is touted as the new banking and homebuilding sectors. hope for providing this huge pool of unemployed labor Kelly is currently assembling a legislative packet with jobs. But Gordos summed up the feelings of the that over a two-year transition period will permit unlim­ many businessmen and experts we interviewed: "You ited statewide branch banking, as opposed to the cur­ just can't retrain many people in these high-tech pro­ rent 25-mile limit on branch locations from home grams, it didn't work before when we had plenty of offices. This will essentially enable the largest banks in money in the sixties. Given the quality of our education­ the state-those primarily centered in Detroit and al system and the amount of remedial work that has to whose chairmen sit on the blue-ribbon commission in be done per individual to get them into a position where Detroit-to break out of what he terms "stagnant even if there are sufficient jobs of higher skill level than growth patterns" in urban areas and replace "a number they have had, the chances are that these industries of smaller, inefficient community bankers." cannot under any circumstances absorb them all." As EIR has discussed during the past year, this kind Furthermore, the high-tech industries themselves of move dovetails with the Federal Reserve's attempt to have already started cutting back. In Michigan, for rationalize the U.S. banking system into a top-down example, Burroughs Corporation, one of the nation's credit control mechanism administered by a handful of largest electronics firms, has just announced its plans to the largest institutions. Given the already sad state of shut down four plants in the Detroit area, throwing Michigan's economy, such rationalization plans will 1,800 onto the unemployment dole, with a ripple effect merely feed the industrial contraction, with bank capital spreading through related businesses. increasingly going toward areas of higher and quicker So with high-tech industry itself undergoing eco­ profitability, like real estate and corporate paper. nomic contraction-unable to absorb Michigan's un­ To facilitate this and other legislative proposals that employed and unable to attract a significant number of would encounter stiff constituency opposition, Kelly is out-of-state workers into Michigan where services are in the process of restructuring the state legislature being severely curtailed, especially in its major cities­ machinery that deals with economic development. He Fisher and company's real goals begin to emerge: has already catalyzed the fo rmation of a Joint Economic lowering wages and salaries to generate an accelerating Policy Committee, a grouping of the key legislative speculative bubble. leaders of the various economic committees in both the Robert McCabe, president of Detroit Renaissance, state Senate and House. Within weeks, the Joint Com­ said just that. "There's a lot of people who believe that mittee structure is to be officially fo rmalized and will in order to have jobs, we may have to face unpleasant become the primary vehicle for enacting any kind of things like reducing wage rates. And certainly the UAW economy or business-oriented legislation. has been involved in that." McCabe and Gordos both Kelly has arranged for the committee to be run de agree that unless workers are willing to accept a wage fa cto "by a private sector group of business and indus­ rate that will come down from its current average of try leaders assisted by our institutions of higher educa­ $11 an hour to around $5, they will have no choice but tion to work more on the applied technology industries to emigrate. And this is the exact prescription of both that are coming along ... and get down to the nitty­ the Global 2000 and Agenda fo r the '80s reports of the gritty of diversification in Michigan." This "advisory Carter administration. task fo rce," is headed by Dr. Thomas Bonner, president At the same time, McCabe is anxious to ensure that of Wayne State University, and includes Detroit Renais­ whatever high-tech industry or real-estate development sance board member and Ford chairman Philip Cald­ does come into the state gets large tax breaks and well, Irving Bluestone of the UAW, and William Mar­ grants. "We'll use whatever tools make the damn thing shall of the AFL-CIO. Kelly cites Bluestone as "very competitive. We'll use tax abatements, UDAG grants, flexible in putting together programs that are going to enterprise zones, anything to get firmsin here." benefit business." A good barometer of the kinds of legislation that The legislative angle Kelly has in mind is a "neighborhood development The legislative side of these efforts is being led by corporations" bill and companion legislation that was State Sen . John F. Kelly, chairman of the Senate made law in December. Under the rationale that these Committee on Corporations and Economic Develop­ neighborhood entities might provide the basis for low­ ment. A 31-year-old freshman legislator trained at to moderate-income housing in cities like Detroit, and

22 Economics EIR March 10, 1981 The "Detroit Renaissance, " viewedfrom the Philip A. Hart Plaza.

thus facilitate the location of new business there, the taxes ofthe rehabilitated properties. legislation could in fact open up an orgy of speculation But rather than providing actual low-cost housing in inner city real estate, while destroying prevailing fo r a city's residents, the scheme is a potential boondog­ wage rates and the state's building trades unions. gle fo r major banks and mortgage-financial institutions. The new law designates "neighborhood develop­ First, the refurbished houses, once resold, would redeem ment corporations" to function in tandem with "local the otherwise worthless paper these institutions are development corporations," or LDCs. These qualify for holding. Second, these same institutions would make a federal Small Business Administration (SBA) loans to handsome and guaranteed profit on the bonds sold. be extended to local small businesses. Kelly's idea is to And third, there is the potential for turning neighbor­ ultimately have thousands of minimum wage ghetto hoods where real-estate values are going through the youth either fo rm or attach themselves to construction fl oor into areas of speculation, driving property values companies that will rehabilitate inner city housing. The sky high. materials, labor, and training monies are to come However, as many businessmen point out, there is through SBA loans, CETA funds, and a provision no guarantee that the whole thing can fly. "You have to permitting the LDCs to float bonds-guaranteed by come back to basics," said a spokesman fo r the Detroit "captive assessments," that is, liens on future property Economic Growth Corporation. "We're all interested,

EIR March 10, 1981 Economics 23 we're looking, it might be great. But the question is two years, but with the monetary deregulation act and whether land values can come up high enough to the International Banking Act of 1978, we're moving finance the risk. And that depends on whether we can rapidly toward across-state-lines banking and more in­ get industry back here, whether the high-tech ventures ternational banking in this country. What this will mean can overcome the high wage levels, the cuts in city for us here in Michigan is that we have several large services, and the untrained labor force." banks who are in stagnant growth patterns because Bob McCabe at Detroit Renaissance has his doubts. they're limited to the urban areas. And as we go through "Fraser, [UAW president] Doug Fraser, is the guy" the decline of the automobile, they're fi nding their whole who pulled off the Chrysler settlement where workers profitability eroding. We have a number of smaller, took substantial wage cuts. But Chrysler is one thing, inefficientcomm unity bankers who are just not provid­ said McCabe. "Look, we're in areas that we're all ing consumers with the services they need. completely unprepared for. This could very well be a At the same time, if we see the repeal of those bottleneck in our plans." amendments that limit fo reign banking and interstate A top researcher at the University of Michigan's La­ operations, which I think is reality, then what we'll have bor Relations Institute perhaps summed up McCabe's is a total intrusion into the capital markets here in "bottleneck" best: "The American dream is not dead, Michigan from out-of-state banks. So I'd like to see a it's taking a vacation. Even with all the adversity, two-year rationalization internally to allow the holding people still believe in the American dream." companies to consolidate in the nine regions, and via mergers or whatever, rationalize things. People who want to hold out can wait two years and see if they get a better offer from the interstates. The smaller guys will be taken care of in terms of their own needs. 'Rationalize banking, Internally, we'll rationalize and strengthen the hold­ ings of our larger financial institutions to withstand the initial waves when the floodgates open ...and I want to cut union wages' see them extend themselves in terms of involvement in local capital markets. As fo r IBFs, Michigan's tax law is EIR's Stephen Parsons interviewed Michigan State Sen. very conducive right now. In New York, you have an 18 John F. Kelly, who is chairman of the Senate Committee percent aggregate tax, here it's 2.83 percent. For an IBF on Corporations and Economic Development. bank, after the federal deduct, it comes out to less than 1 percent. EIR : I understand you are drafting legislation for an international banking facility, or IBF, in Detroit. Are EIR : What about the prevailing wage rate, do you think you also thinking in terms ofnon-IBF fo reign banking? things will go in the Chrysler direction in terms of Kelly: Yes, I am. I want to bring them into Michigan. I workers taking wage and benefits cuts? want to make Michigan-at least Detroit-a major fi­ Kelly: I can't see the unions changing immediately. Un­ nancial center much like New York in attracting fo reign fortunately, most unions still take the Meany position of banks. I've got a whole financial institutions agenda over more, more, more. I'm a Democrat and come from a the next two years. labor district in Detroit, and I've been at odds with most We're now a limited branching state. I'm putting of them fo r the two years I've been in office because I together a package that's going to change that over a think that's an asinine policy .... What I am sure of two-year transition. First of all, we have regionalization, doing is to at least change the capital markets so that the that is, a 25-mile limit now on branches from home state outside Detroit doesn't look so bad to business .... office. So I'm going to put in a bill that provides a two­ I think over the long term it will lead to a reduction in the year period in which holding companies and parent union wage-scale, but you got to give them something banks within the nine economic regions of the state can like management participation to offset that, too. rationalize the banking structure with each region. And Look, I've got a project I just had funded here for then within two years, open up the whole state to state­ neighborhood rehabilitation in Detroit fo r minority wide branching and interstate banking and international youth. Minority programs have never worked in Detroit banking. because basically you can't do this competition with the wages, right? So I put through a couple of bills that are EIR : I would imagine the smaller banks would object going to provide a bonding mechanism for the housing strongly. units in Detroit-the Neighborhoods Development Cor­ Kelly: Yeah, that's what we've been fighting about for porations bill.

24 Economics EIR March 10, 1981 We're going to train minority youths and CETA people in building trades programs and then we're going Currency Rates to use them to rehab the homes in Detroit. Now, CETA will provide funds for six months, and here's how we're going to make up the diffe rence. The Small Business Administration [SBA] has a thing called "Local Devel­ opment Corporations" or what they call LDCs, which are community organizations that provide loans for The dollar in deutschemarks New York late afternoon fi xing small businesses. And you can get half a million bucks in - direct SBA loans under these LDCs, fo r each LDC! It's a 2.15 J '-� wonderful program, no one has utilized it in the state ! � What I said is okay, you got 5,000 homes in the 2.10 1/"-'00 neighborhood and 200 that need to be rehabilitated. 2.05 I That will keep a labor force of, say 10 people working for 2.00 1 � L/ a year and a half. Take these 10 youths, send them to - , some training program like Chrysler Learning or OM 1.95V I 1 I I I Pre-Employment or some other CETA training facility, 1/7 1/14 1 /21 1/28 2/4 2/11 2/18 2/25 to learn your basic skills. Then pair existing home im­ provement companies with these unemployed youths. The dollar in yen These companies then ha ve these youths subsidized for New York late afternoon fixing the next six months, they get new equipment, and they get loans from the LDCs. In exchange, instead of the 230 neighborhood group having any liens on the company, 220 the youths become employee stock owners. You're rationalizing the whole home improvement 210 industry, you're increasing the competition in the area, ...--- .... 200 � 1"-0.... ---'�,- you're giving them subsidized employees for the first six months, you're giving them access to half a million bucks 190 I in new equipment and revamping of their own business 1/7 1/14 1 /21 1/28 2/4 2/ 11 2/18 2/25 structure at subsidized rates from SBA, and you're put­ ting people in partnership with existing firms-and you The dollar in Swiss francs don't have to end up with a unionization problem! New York late afternoon fi xing You're getting around the high cost of construction I I wages! 1.95 0� �, - � And in terms of the rehabilitation monies, there's 1.90 "captured assessments." Say there's a vacant home in - 7 Detroit that would be valued at $5,000. That may pro­ 1.85 V duce, in academic terms, $50 a year in property taxes. If 1.80 1 we rehab that home and sell that home for $26,000, it's going to be producing every year $300 in property taxes. 1.75 Well, the bonds that we're floating are floated on the 1/7 1/14 1/21 1/28 2/4 2/ 11 2/18 2/25 captured assessment; that is, you take the increase in the taxation that will be gained and you float a bond on that The British pound in dollars new valuation, that is, on the difference between $50 and New York late afternoon fi xing $300-guaranteed by the tax revenues on the property - 2.40 1-..... for 10 years. -- 2.35 \� -- EIR: Are you sure you'll be able to get away without � paying prevailing wages, though? 2.30 � Kelly: Well, there's only one exemption right now in the 2.25 \.� � state of Michigan from the prevailing wage statute, �"" and that's the Neighborhood Development Corpora­ �'--- 1/7 1/14 1/21 1/28 2/ 2/ 11 2/25 tions .... It took me two years to get it through, but it 4 2/18 was really fu n doing it. That's my baby.

EIR March 10, 1981 Economics 25 Business Briefs

In ternational Credit on long-term, 7.5 percent interest rate that "current U.S. interest rates are a credits backed by the West German handicap for European countries. It is Japan to extend equivalent of the U.S. Eximbank. unreasonable for them to be maintained But since the January negotiations, for any length of time." Monory said he cheap export loans long-term loan financing terms in Ger­ would make the French position "clear" many have jumped from 9 percent to 13 to the U.S. government when he travels percent. The word from this week's meet­ to Washington to meet Fed chief Volck­ The Japanese government will begin dur­ ing of the 20-member consortium that er, Treasury Secretary Donald Regan, ing March to match the low interest loans will provide $4.7 billion for this deal is and others next week. being extended by European govern­ that several of the smaller bank partici­ Sources close to Monory told Reuters ments on export of plant and equipment. pants are nervous. They wonder if Bonn that high U.S. rates "are causing great The terms, as in a recent loan to construct can subsidize the spread below commer­ concern" in Paris, where French rates a copper-smelting plant in the Philip­ cial rates. have risen sharply as a result. pines, can be as low as 6 percent on a 20- But Deutsche Bank, which chairs the year loan. By generally adhering to the consortium, says the situation is fully high interest rates mandated by the Or­ under control and financing could even ganization of Economic Cooperation be increased if conditions improve. and Development (OECD), Japan lost Foreign Exchange an estimated $1 billion in plant orders to European competitors during 1980. The Chancellor Schmidt Carter administration in its closing days had urged even higher export interest Public Policy defends EMS rates and the new administration has yet to adopt a stance. Germans, French West German Chancellor Schmidt this The low interest policy will be imple­ week defended the European Monetary mented through the "mixed loans" sys­ demand lower rates System as a bulwark fo r stabilizing Eu­ tem, in which Export-Import Bank loans ropean currencies against the interest­ and commercial bank loans are com­ Chancellor Helmut Schmidt of West rate warfare of Federal Reserve Chair­ bined with yen-denominated, long-term Germany roundly denounced the crush­ man Paul Volcker, and pledged that Ger­ officialdevel opment assistance. Since the ing high interest rates maintained by many and France would defend their latter has terms of 3 to 4 percent interest U.S. Federal Reserve Chairman Paul currencies. rates and 25-year repayment periods, this Volcker in a major interview this week Schmidt was asked whether Volcker lowers the rate for the overall package with the leading French financial daily was using the dollar as a "political weap­ considerably. Les Echos. on" to break up the EMS, since high No volume of loans fo r this program "I consider that the present interest dollar interest rates are causing capital has yet been announced, according to rates, in America and in some other flight out of Europe and major falls in Japanese government sources. It should countries, are destructive and, in the long European currencies. "The unforesee­ also be noted that similar plant-export run, absolutely unacceptable if Europe able character of American monetary pol­ promotion schemes announced in recent does not wish to give up its aim of full icy," he responded, "was one of the rea­ months have yet to be implemented . employment," Chancellor Schmidt em­ sons that the French franc and German Therefore, it is not yet clear how signifi­ phasized. mark detached themselves from the dol­ cant this development will be. Schmidt also told the latest issue of lar, which led to the creation of the Eu­ the leading West German weekly Der ropean Monetary System." Spiegel that "the high interest policy in The EMS, Schmidt said, "has proven America and in England" has fo rced a its value, even in the present World Trade restrictive policy upon Germany which is circumstances," to support European rapidly leading to a dangerous recession. currency rates. "I believe it will continue Soaring rates shake "The growing unemployment is no Ger­ to be a factor of stability in the world man phenomenon, but a West European monetary structure in the future. France pipeline deal and North American one." and the other European members will Schmidt repeated his government's benefitfr om it, as well as Germany. The largest East-West trade agreement call for an international conference to "In the long run, I'm counting on a ever concluded, the West German-Soviet lower interest rates. "One must desire all solid mark," he stated, "and I think that natural gas pipeline deal, is feeling the countries to act together," he said. well-informed speculators are doing the shock waves of Paul Volcker's interest­ French Finance Minister Rene Mon­ same." rate warfare against Europe. As El R re­ ory, in a nationally broadcast interview French Finance Minister Rene Mon­ ported last month, the deal was premised on French television, also said this week ory also told French TV this week that

26 Economics EIR March 10, 1981 Briefly

• KURT RIECHEBACHER. ex­ "several European currencies would policy means "a rocky road ahead" for ecutive manager of West Ger­ have been in severe difficulty, if Europe the U.S. economy, including increased many's giant Dresdner Bank, said had not, in an act of faith two years ago, "inflation and unemployment." this week that the Fed's high inter­ created the European Monetary "If inflation continues unabated or est rates are "strangling Europe." System." Bundesbank chief Karl-Otto rises, real activity is likely to be German borrowers as a result must Poehl meanwhile denied the mark would squeezed." Mr. Volcker's remarks were pay 12 to 13 percent interest rates, leave the EMS to the New York Council made against a backdrop of Fed predic­ when inflation is at 6 percent, on Foreign Relations. tions of zero GNP growth for 1981 and which is "eroding profits and re­ continued inflationat 1980 rates. straining the German economy," Although Volcker calls Reagan's fis­ he said. cal program "broadly compatible" with his goals, he made clear the areas of • WEST GERMAN interest rates U.S. Economy agreement are those of budget cuts. "The fl uctuated "in total chaos" over risk is going to be in the direction of not the week, the financial daily Han­ doing enough on the spending cuts." Durable goods orders delsblatt reported, as the central Other Federal Reserve Board members bank curtailed credit in line with in sharp drop have argued fo r deeper spending cuts, the U.S. Day-to-day money rose and Volcker characterized the current from 9 percent last week to as high The Commerce Department reported levels as both necessary in the "full mag­ as 16 to 18 percent, before settling Feb. 24 that durable goods orders nitude" proposed and as "only a prog­ to the 13 percent level. dropped 2.2 percent in January, the first ress payment" on larger future cuts. decline in fo ur months and a recognized • HENRY KAUFMAN, the Sal­ marker of worse to fo llow for the econo­ omon Brothers investment firm my in the near term. The January figures economist who speaks for the pol­ reflected sharp production declines in the icies of the Volcker Fed, predicted steel, auto, and shipbuilding sectors, ac­ Banking that while the prime rate might fa ll cording to the department. to a 17 to 18 percent level this Bearing out these indications, the big Citibank's Wriston quarter, it would rise again above three auto companies reported this week ogles California 21 percent thereafter. that car sales were 24 percent below last year's level during the middle 10 days of • ROBERT MCNAMARA, for­ February this year, despite unprecedent­ Citibank Chairman Walter Wriston mer head of the World Bank, will ed rebate programs, and other sales gim­ made another trip to California this week join the editorial board of the micks. At the same time John Deere and to personally lobby for a Citibank bill Washington Post. Its publisher, Co., the world's leading maker of farm that would allow the New York giant to Katharine Graham, is a member equipment, reported a 40 percent decline gobble up California banks. of the Brandt Commission, the in earnings in the first fi scal quarter end­ Assembly Bill 1926, drafted for the World Bank's "human face" ex­ ing Jan. 31 this year. Deere attributed the Sacramento state legislature by Citibank tension. drop to a 28 percent decline in industrial lobbyist Fred Pownall, would permit the equipment sales. Citibank holding company, Citicorp, to representatives challenged operate two full-service banking subsidi­ • EIR the "growth causes inflation" for­ aries in California. Citibank hopes to use mula promoted by the Wharton this as license to buy out California banks School of Economics at Wharton's as subsidiaries. annual meeting in San Diego this Domestic Credit The precedent would also be used in week. The response from business­ other states as a wedge for Citibank's men and economists was enthu­ Vo lcker pledges drive for fu ll nationwide banking. siastic. Wriston met in Sacramento this week 'continuing squeeze' with Gov. Jerry Brown and leading state legislators. He also threw a dinner for • MOTOR VEHICLE output in West Germany fe ll to a several­ In testimony before the Senate Banking about 100 California bankers and busi­ years low of 304,000 units during Committee, Fed chief Paul Volcker stat­ nessmen, hoping to drum up some sup­ January, compared with a level of ed this week that the Fed intends "to port fo r the legislation. 381 ,000 for January 1980, the Ger­ exert continuing restraint on growth in In an interview with the Los Angeles man Motor Vehicle Association money and credit to squeeze out infla­ Times, Wriston derided the nation's pro­ announced this week. tionary pressures." Volcker said fl atly tective banking regulations as "basically that he is undeterred by the fact that his humorous."

EIR March 10, 1981 Economics 27 TIillSpecialReport

The Haig-Kissinger depopulation policy

by Lonnie Wolfe

Investigations by EIR have uncovered a planning apparatus operating outside the control of the White House whose sole purpose is to reduce the world's population by 2 billion people through war, famine, disease, and any other means necessary. This apparatus, which includes various levels of the government, is determining U.S. foreign policy. In every political hotspot-EI Salvador, the so-called arc of crisis in the Persian Gulf, Latin America, Southeast Asia, and in Africa-the goal of U.S. foreign policy is popUlation reduction. The targeting agency for the operation is the National Security Council's Ad Hoc Group on Population Policy. Its policy-planning group is in the U.S. State Department's Office of Population Affairs, established in 1975 by Henry Kissinger. This group drafted the Carter administration's Global 2000 document, which calls for global population reduction, and the same apparatus is conducting the civil war in EI Salvador as a conscious depopulation project. "There is a single theme behind all our work-we must reduce popUlation levels," said Thomas Ferguson, the Latin American case officer fo r the State Department's Office of Population Affairs (OPA). "Either they [govern­ ments] do it our way, through nice clean methods or they will get the kind of mess that we have in EI Salvador, or in Iran, or in Beirut. Population is a political problem. Once population is out of control it requires authoritarian government, even fascism, to reduce it. "The professionals," said Ferguson, "aren't interested in lowering pop­ ulation for humanitarian reasons. That sounds nice. We look at resources and environmental constraints. We look at our strategic needs, and we say that this country must lower its popUlation-or else we will have trouble. So steps are taken. EI Salvador is an example where our failure to lower population by simple means has created the basis for a national security crisis. The government of EI Salvador failed to use our programs to lower their population. Now they get a civil war because of it. ... There will be dislocation and fo od shortages. They still have too many people there."

28 Special Report EIR March 10, 1981 Vietnamese civilians left on the beach at Da Nang during the war.

Civil wars are somewhat drawn-out ways to reduce pop­ from Third World leaders that said that the best contra­ ulation, the OPA official added. "The quickest way to ceptive was economic reform and development. So we reduce population is through famine, like in Africa or pushed development programs, and we helped create a through disease, like the Black Death," all of which population time bomb. might occur in El Salvador. "We are letting people breed like flies without Ferguson's OPA monitors populations in the Third allowing for natural causes to keep population down. World and maps strategies to reduce them. Its budget for We raised the birth survival rates, extended life-spans FY 1980 was $190 million; for FY 1981, it will be $220 by lowering death rates, and did nothing about lowering million. The Global 2000 report calls for doubling that birth rates. That policy is finished. We are saying with figure. Global 2000 and in real policy that you must lower population rates. Population reduction and control is The sphere of Kissinger now our primary policy objective-then you can have In 1975, OPA was brought under a reorganized some development." State Department Bureau of Oceans, International En­ Accordingly, the Bureau of Oceans, International vironmental, and Scientific Affairs-a body created by Environmental, and Scientific Affairs has consistently Henry Kissinger. The agency was assigned to carry out blocked industrialization policies in the Third World, the directives of the NSC Ad Hoc Group. According to denying developing nations access to nuclear energy an NSC spokesman, Kissinger initiated both groups technology.-the policies that would enable countries after discussion with leaders of the Club of Rome to sustain a growing population. during the 1974 population conferences in Bucharest According to State Department sources, and Fer­ and Rome. The Club of Rome, controlled by Europe's guson himself, Alexander Haig is a "firm believer" in black nobility, is the primary promotion agency for the population control. genocidal reduction of world population levels. "We will go into a country," said Ferguson, "and The Ad Hoc Group was given "high priority" by say, 'here is your goddamn development plan. Throw it the Carter administration, through the intervention of out the window. Start looking at the size of your National Security Adviser Zbigniew Brzezinski and population and figureout what must be done to reduce Secretaries of State Cyrus Vance and Edmund Muskie. it. According to OPA expert Ferguson, Kissinger initiated "If you don't like that, if you don't want to choose to a full about-face on U.S. development policy toward the do it through planning, then you'll have an El Salvador Third World. "For a long time," Ferguson stated, or an Iran, or worse, a Cambodia.' " "people here were timid." They listened to arguments According to an NSC spokesman, the United States

EIR March 10, 1981 Special Report 29 now shares the view of fo rmer World Bank President potential fo r instability in such places as Turkey, the Robert McNamara that the "population crisis" is a Philippines, Central America, Iran, and Pakistan." greater threat to U.S. national security interests than Through extraordinary efforts, the Ad Hoc Group "nuclear annihilation." and OPA estimate that they may be able to keep I "Every hot spot in the world corresponds to a billion people from being born through contraceptive population crisis point," said Ferguson, who would programs. rename Brzezinski's arc of crisis doctrine the "arc of But as the Ad Hoc Group's report states, the best population crisis." This is corroborated by statements efforts of the Shah of Iran to institute "clean programs" in the NSC Ad Hoc Group's April 1980 report. of birth control failed to make a significant dent in the There is "an increased potential fo r social unrest, country's birth rate. The promise of jobs, through an economic and political instability, mass migration and ambitious industrialization program, encouraged mi­ possible international conflicts over control of land and gration toward "overcrowded cities" like Teheran. resources," says the NSC report. It then cites "demo­ N ow under Ayatollah Khomeini, the "clean pro­ graphic pressures" as key to understanding "examples grams" have been dismantled. The government may of recent warfare in India, Pakistan, Bangladesh, El make progress because it has a program "to induce up Salvador, Honduras, and Ethiopia, and the growing to half of Teheran's 6 million residents to relocate, as

[control] program ex ists on paper, it has no t been pursued with a strong commitment and contracep- . . . . tives remain unavailable." · The population program "really did not work," OPA's Ferguson said this week. "The infrastructure was not there to support it. Th ere were justtoo many godda mn people. Ifyou want to control a country,you have to keep the population down. Too many people breed socialunrest and communism." "Something had to be done," the OPA official said. The birth rate, he reported. is 3.3 percent-one of the highest in the world . Its population, he com­ plained, will double in 21years. "The civil war can help things, but it would have Ferguson: kill to be greatlyexpanded ." more childbearers Vietnam lesson In making sure that the population falls in El In the past year, 13,000 people in EI Salvador have Salvador, Ferguson said, the OPA has learned a lot

been killed in the civil war that has gripped the coun� fr om its experiences in Vietnam. "We studied the try. To the U.S. State Department and its Office of thing. That area was also overpopulated and a prob­ Population Affairs,that is not enough. To accomplish lem. We thought that the war would lower· popula­ what the State Department deems adequate "popula­ tion and we were wrong." tion control," the civil war would "have to be greatly According to Ferguson, the popUlation in Viet­ expanded. " according to Thomas Ferguson, the Latin nam increased during the war-despite U.S, use of American case officer for the OPA. defoliation and a combat strategy that encouraged El Salvador was targeted for "population civilian casualties. control"-and war-in an April 1980 popUlation re­ To reduce population "quickly," said Ferguson, port published by the National Security Council. "you have to pull all the mates into the fighting and "El Salvador is an example of a serious country kill significant numbers of fe rtile, child.bearing age with serious population and political problems," the females." report states. "Rapid population growth-the birth He criticized the current civil war in El Salvador: rate has remained unchanged in recent years-aggra­ "You are killing a small number of males and not

vate its population density, which is already the high­ enough fe rtile females to do the job on the popula..

est on mainland Latin America. While a popUlation tion . . . . If the war went on 30 to 40 years like this,

30 Special Report EIR March 10, 1981 well as possible measures to keep rural migrants from moving to the cities."

Behind the back of the President Ferguson and others involved with the OPA and NSC group maintain that the United States will con­ tinue a fo reign policy based on a genocidal reduction of The NSC report the world's population. "We have a network in place of cothinkers in the government," said the OPA case officer. "We keep going, no matter who is in the White In April 1980, the National Security Council's Ad Hoc House." But Ferguson reports that the "White House" Group on Population Policy issued an overview analysis on does not really understand what they are saying and u. s. population policy. Th e document lays out the basis that the President "thinks that population policy means fo r all u.s. fo reign policy fr om the "Global 2000" perspec- how do we speed up population increase. As long as no tive. Th e State Department Office of Population Affa irs one says differently," said Ferguson, "we will continue helped draft the report. Excerptsfollow. to do our jobs." On a planet which is already subject to growing scarcities, political uncertainty, and strains on biological and environmental systems, numbers ofthese dimensions then you might accomplish something. Unfortu­ have portentous implications .... nately. we don't have too many instances like that to Already during the 1970s, much of the economic study," gains of the Third World were canceled out by the steady 'Need famine, disease' rise of popUlation .... Food production is not keeping pace with the popu­ However, said Ferguson, "The population might lation growth in most parts of the world ....Mor eover, weaken itself, especially if the war drags on, [and] rising food demand must now compete with increasingly you could have disease and starvation, like what higher priced energy imports. Norman Borlaug, pioneer happened in Bangladesh and Biafra. Then you can of the "Green Revolution," has cautioned that innova­ create a tendency fo r population to fall very rapidly. tions in agricultural technology can only buy limited This could happen in El Salvador. When that starts time with which to control population growth .... happening, you have total political chaos fora while, The International Labor Organization [ILO] esti­ so you must have a political program to deal with it. mates that in the next two decades, approximately 700 "I can't estimate how many people might die that million people more will enter the labor pool of develop­ way. It could be a great deal, depending on what ing countries-this is more than the total current labor happens." force of the industrially advanced countries. The amount The preconditions for the holocaust Ferguson of investment required to put these people to work is hopes fo r now exist in EI Salvador. astronomical. ... The New York Times reports that the country's A recent Worldwatch Institute study estimated that small and medium-size villages are already depopulat­ the number of rural people who are effectively landless ed by 50 percent. would approach 1 billion over the next two decades and EI Salvador survives on exports of sugar, cotton, ' predicted that "conflict rooted in inequality of land and coffee. This year's coffee crop has been cut more ownership is apt to become more acute in country after than half, sugar is down by over 20 percent, and country." Already the estimated proportion of rural coffe e by 7 percent. These facts spell mass starvation families who are landless or nearly so is over 80 percent in the near term for the war-weakened peasantry. in such countries as El Salvador, and between 70 and 80 As the war intensifies, the population is being percent in Brazil, Ecuador, Peru, Bangladesh, and the herded into "strategic hamlets" like those run in Philippines. Vietnam by U.S. military advisers. As rural population growth increases the fractionali­ The Jesuit-run guerrilla movement is also de­ zation of the landholdings, as croplands are depleted due stroying all internalinfrast ructure in the countryside, to over-intensive farming, and asjob opportunities in the burning bridges and power stations. Fully one-third countryside diminish, the Third World is experiencing a of the country suffe rs week-long electricity blackouts. virtual urban explosion. The U.N. estimates that, in only As the war intensifies,th e mass murder of the EI 2? years, some 40 Less Developed Countries [LDCs] Salvadorean people is becoming a reality. cities may contain over 5 million inhabitants ....Provi­ sion of jobs, housing, social services to numbers of this

EIR March 10, 1981 Special Report 31 The Global 2000 approach

by Lydia Schulman

The Global 2000 report, issued in spring 1980, was the culmination of a three-year study directed by the U.S. State Department and the White House Council on Environmental Quality. As the first study of global ecological trends by the U.S. government, the report does not make policy recommendations per se but claims to objectively project the impact of current (1977) trends in popUlation growth and GNP on the global resource Cyrus Vance's State Department wrote Global 2000. base and environment. The authors of the report state that it was intended to provide the basis for long-term planning by the U.S. magnitude, over such a short period of time, will present government and to create a permanent institutional ca­ difficulties hitherto unimagined by town planners and pability-"skilled personnel, data, and analytical governments. The potential susceptibility of urban un­ models"-for spinning off future studies and analyses. employed youth to extremism and violence will grow. They state further that the report was intended as a Some recent studies suggest that the contemporary guide in U.S. foreign policy: "We are ...working with phenomena of worldwide inflation are being influenced other nations bilaterally, building concern for popUla­ by rising demand associated with vast increases in popu­ tion growth, natural resources, and environment into lation. Commodities become more costly as supplies our fo reign aid programs and cooperating with our dwindle or fail to keep pace with rising demand or as immediate neighbors on common problems ranging they become more expensive to obtain. Population from the cleanup of air and water pollution to preserva­ growth has also been linked to pressure on energy and tion of soils and development of new crops"-a state­ raw materials supplies. A recent Worldwatch study con­ ment strongly suggesting that fo reign aid henceforth be cludes that "everywhere one turns limits are being en­ tied to population control and related measures. countered and the effects are being compounded .... It seems clear that the world is entering a new period of The premises scarcity." Problems of water pollution, soil erosion, and As in all global models of this type, what counts are deforestation are becoming major international issues as its underlying assumptions. The gross incompetence of a consequence of over-intensive farming, grazing, en­ this report and its doomsday predictions stem from the croachment of cities and uncontrolled industrialization. total denial of the transforming effects of science and All of these factors add up to an increased potential technology: "[The projections] depict conditions that are for social unrest, economic and political instability, mass likely to develop if there are not changes in public migration, and possible international conflict over scarce policies, institutions, or rates of technological advance. resources. It is admittedly difficult to be analytically and if there are no wars or other major disruptions precise in pinpointing exact causes fo r the breakdown in [emphasis added]." One of the most telling points of the domestic or international order. Nevertheless it is hard report's fl awed methodology is the assumption on nucle­ to avoid inferring some connection between the instabil­ ar fusion: "The projections assume no revolutionary ities and frustrations caused by absolute and relative advances-such as immediate wide-scale availability of poverty, reinforced by the demographic pressures dis­ nuclear fusion for energy production." cussed above. The examples of warfare in recent memory Given the premise of no change in the rate of tech­ involving India. Pakistan, Bangladesh, El Salvador, nological advance, the report predicts that the projected Honduras, and Ethiopia, and the growing potential for growth of the world's population from 4 billion in 1975 instability in such places as Turkey, the Philippines, to 6.35 billion in A.D. 2000 will lead to severe regional Central America. Iran, and Pakistan. surely justify the water shortages, extensive deforestation, irreparable de­ question being raised. terioration of agricultural soils, and other horrors. The

32 Special Report EIR March 10, 1981 conclusion a policy-maker is supposed to draw is that these consequences must be forestalled by stopping pop­ INTERVIEW ulation growth short, by whatever means. As authority on demographics, Global 2000 cites a 1969 U.S. Academy of Sciences report, Resources and Man, which concluded that a world population of 10 billion "is close to (if not above) the maximum that an William Paddock intensively managed world might hope to support with some degree of comfort and individual choice." The Global 2000 report warns that if currently pro­ on extermination jected fertility and mortality rates were to continue un­ changed into the 21st century, the world's population The following is excerpted from an interview with Wil­ would reach 10 billion by 2030 and nearly 30 billion-the liam Paddock made available to EIR . Paddock is out­ number the NAS cites as the Earth's "maximum carrying spoken proponent of global population reduction, and a capacity"-before the end of the century. self-professed supporter of the Global 2000 doctrine. Among the report's other doomsday projections are: Paddock is best known for his plan to reduce the • On population: "New data" on the decline in fertil­ popUlation of Mexico to less than 35 million from its ity rates in areas such as Indonesia and Brazil, due to present 65 million level. He is the founding member of unanticipated poverty and malnutrition, suggests that the Environmental Fund whose goal is to "stimulate world fertility rates will drop by more than 20 percent thinking about the unthinkable"-the forced reduction over 1975-2000, from an average of 4.3 children per of the world's population. The Environmental Fund and fertile woman to 3.3. In addition, "shifts in public policy Paddock both directly played a role in the shaping of the ... will provide significantly increased access to family Global 2000 document. planning services" in less developed countries. Paddock had significant input into State Department "The majority of people in large LDC cities are likely policy planning during the Kissinger and Carter tenures. to live in 'uncontrolled settlements'-slums and shanty­ His plan for Mexico was endorsed by National Security towns where sanitation and other public services are Adviser Zbigniew Brzezinski. At the time of the inter­ minimal at best." view, Paddock was preparing to make a presentation at • On food: "Assuming no deterioration in climate or the Georgetown Center for International and Strategic weather, food production is projected to be 90 percent Studies, where Kissinger currently operates, on the ef­ higher in 2000 than in 1970 .... In the LDCs, however, fects of population on "revolution in Central America." rising food output will barely keep ahead of population The meeting was to be attended by key policy planners growth." Per capita consumption in the sub-Saharan from the Haig State Department. African LDCs is slated to decline. • On forests: Both fo rest cover and stocks of woods Q: What are your views on the Global 2000 document? in the LDCs will decline by 40 percent by 2000 due to the A: It's a wonderful thing, and I'm absolutely amazed at reliance on wood for energy. the publicity it's received. Gerald Barney [director of the • On water:' Due to rapidly increasing demands for Global 2000 Project] had done it single-handedly. It's water, in particular to its "highly consumptive use" in excellent, and it's got far more publicity than most irrigation, regional water shortages and the deterioration studies commissioned by the White House that wind up of quality are likely to become worse by 2000. Many on the shelves and are never read. And it's an idea whose LDCs will also suffer the destabilization ofwater supplies time has come. Now we need a U.S. 2000, and a Florida as a result of deforestation. 2000, and a New York 2000, one for every state, to start • On energy: "No early relief from the world's energy planning and adapting to this situation that's coming. problems." In the LDCs, the demand fo r wood fuel will far outstrip supply, expanding deforestation. Q: Looking at EI Salvador from the standpoint of what • On agriculture: Greater soil erosion, loss of nu­ was said in Global 2000, it seems to be a model country trients, and compaction of soil, increasing salination of for disaster; landlocked, limited infrastructure, etc. irrigated land, crop damage due to increasing air and A: That's an advantage, you know, but go ahead. water pollution is projected. An epilogue, "Entering the Twenty-First Century," Q: Well, it has limited infrastructure, and a population warns that without a halt in population growth trends, growth that's almost out of control, that would double "The world will be more vulnerable both to natural in 20 years. What do you do in a situation like that, in a disaster and to disruptions from human causes," includ­ situation like El Salvador? ing wars over increasingly scarce fresh-water supplies. A: There's nothing you can do. Nothing.

EIR March 10, 1981 Special Report 33 Left : William Paddock. Righi: Camhodia under POI POI.

Q: What is going to happen then? get their agriculture more efficiently used. And it just A: Total chaos, anarchy of one kind or another. Contin­ exploded. I t exploded faster than any other place because uing military government, maybe rightist or leftist, but a they had more food. They had better land. And now military government. You can't expect stability where they've grown well past the capacity of that land to take you have such turmoil and stress generated by so many care of them. people. Why do you have military governments in Latin Q : So in EI Salvador, are we eventually going to see a America? They've always had one fo rm or another of it. rollback of the population? I was in Honduras in 1957 when they had their 75th A: It will happen somehow. revolution! They've had a lot of practice. Why is it? Well, it's simply because, as far as I'm concerned, the land is pee-poor. They got a poor piece of real estate. It's Q: You mean famine, disease? A: nobody's fault, it's just the way God passed out the One of the fo ur horsemen. And now the fi fth one, resources ....Every single country in the world is over­ which is the bomb. populated, but some are more so than others. Now why is that? Because EI Salvador happens to have some of the Q: Can it be done without the pain and suffering? finest land in all Latin America. And you can take a A: I don't think so at all. I don't think so for a couple of world population map, where you have one dot fo r every reasons. First of all, speaking of the population growth hundred thousand people, and except fo r some cities like rate, to level off or drop, the problem is that the people New York, London, and Tokyo, where it'll be black, of who are going to cause the stress, in the next 20 years, are course, wherever you have high concentrations of those already here, they're born, they're walking around. Half dots, you have pretty good soil. And that's true in Latin the population is under the age of 15. It would be well if America. You have it in Java, in EI Salvador, in Haiti. no one had any more kids, between now and the year Why? Because they've got good land. Some good land. 2000, but the big problem's already there. The other Unfortunately, some modern technology, in the fo rm of reason is, we don't know how to motivate people to want medical missionaries or medical doctors of one kind or to have fewer children. We just don't know how to do another, got there befo re there was any other technology it. ... that reached there, and the popUlation explosion took Malthus, in his dismal theorem, said that the only place befo re they could develop any other resources, and check on population growth is starvation and misery.

34 Special Report EIR March 10, 1981 And no matter how favorable the environment or how States can do, I think we just have to live with the advanced the technology, population will grow until it is situation. We have to adopt policies that can permit us to miserable and starved. That's what he said, all right? live with it. There's an economist at the University of Colorado, a very famous economist, Kenneth Boulding, who has Q: That's really what Global 2000 says. I understand what he calls his "utterly miserable" theorem. And his you're going to deliver a paper on the effects of the utterly miserable theorem is that if the only check on the revolution. growth of population is starvation and misery, then any A: It's on the influence of population on the destabili­ technological improvement will have the ultimate effect zaton in Central America ....It's for a seminar that the of increasing the sum of human misery, because it per­ Georgetown Center for Strategic and International mits a larger proportion to live in precisely the same state Studies is holding on EI Salvador. I don't really know the of misery and starvation as before the change. purpose of the meeting. I thought it was to help the And this, of course, is what we're trying to do with United States form a strategy to cope with it, to what our foreign aid program, in sending food, in improving they should do with EI Salvador. the agriculture of the area, we're making it possible to sustain more people. Q: What about Cambodia? Is that an example of Mal­ thusianism? Q: Doesn't Global 2000 say that we should re-examine A: I don't know enough about Cambodia, but if that that? took place in Salvador today, because I know Salvador, A: Yes. I think it does say that. I'd say yes, that is one of the scenarios you can end up with. Q: There are some who say that the best contraceptive is development. Q: You could have millions of people dying. A: That's bilge. In theory it probably is, but show me A: Well, you're going to have millions of people dying, the country where it works. It's a grasping for excuses to certainly, from lack of food in the Third World, and get money for aid, when they come up with something certainly in the next 20 years, no shadow of a doubt like that. ... If a country, such as EI Salvador, is going about it. Famine is absolutely totally inevitable, there's to improve the lot of its people, it's going to have to bite no way to stop it. We've had good crop years the last the bullet itself. There's nothing we can do to come up three or four, so people feel pretty comfortable, though with a birth control program, agricultural program, we're going into 1981 with the lowest reserves the world industrialization program. And by saying that we can, has seen since the last 10 to 15 years. You've had the we put off the need for Salvador to try to do something population of the world growing at an average rate of 1 about the problem itself. ... percent faster than food production has grown since 1975.

Q: Is the U.S. overpopulated? Q: And that's going to produce the effect you're talking A: Yes. about? A : Well, one of these days, as long as the weather is Q: What's your thinking on it? good, we can squeak by. But the trend is always more A: I think if we had 100 million people, it would be really and more on the brink. If the monsoon is two or three fa bulous. weeks late in India this year, it will be a very bad thing. We'll know that by July 10 or so. And our Middle West Q: How would we get to that level given where we are is very deficient in subsoil moisture right now, a dry year now? Is that possible without a war? last year; the U.S. may very well be quite unable to ship A: Well, there's a man putting together an organization the wheat, soybeans, and corn the world is counting on. called One Hundred Million Americans, and he's trying And if this should happen two years in a row, there's to show how it can be done. I don't think it can be done. absolutely nothing that can be done about it. But that's We haven't bit the bullet ourselves. Look at the number the trend. If it doesn't happen in two years it will happen of illegal aliens that we permit coming in here. in three or four. Absolutely positively fact. ... If you can blame anybody it's the medical profession. Q: What about EI Salvador? What would be the ideal population there? Q: Because they've kept so many people alive? A: Well, when I went there in 1950, there was 1.7 million A: Absolutely. They've given the world death control people. It's 4 million now. It was pretty bad off in 1950, without birth control. ... Two-thirds of the world is but it had more charm, I'd have lived there then. Most living on very marginal subsistence and that's 3 billion people are barefoot. I think that as far as what the United people.

EIR March 10, 1981 Special Report 35 Brezhnev scores radicals, offers U.S. leverage

by Rachel Douglas

Opening the 26th Soviet Communist Party Congress in was "very interested" in Brezhnev's speech. It was after Moscow Feb. 23, Soviet leader Leonid Brezhnev deflated a lengthy meeting with France's visiting foreign minister, both the Soviet bloc's own international destabilization Jean Fran�ois-Poncet, that Haig pronounced the view specialists, like Fidel Castro, and the eager anticipation that elements ofthe Soviet leader's remarks are "new and of Alexander Haig that he would soon be facing down remarkable. " Moscow eyeball-to-eyeball. French President Valery Giscard d'Estaing revealed If Brezhnev and his close associates continue to dom­ to the Washington Post this week that he has been in inate the congress on the policy and personnel levels, the frequent contact with Brezhnev, including on the sticky outcome will be as momentous as the defeat of Jimmy question of international talks on Afghanistan, where Carter in the United States. Brezhnev's keynote address the Soviets intervened over a year ago. The Post report affirmed Moscow's belief that Carter's exit created vital added that Giscard is preparing several initiatives geared opportunities for strategic stabilization. to open up East-West dialogue afterthe Reagan admin­ To the surprise of Soviet watchers, Brezhnev ad­ istration's first few months in office. dressed to the West and especially to President Ronald If Brezhnev startled Alexander Haig with his East­ Reagan, with whom he offered to meet, a packet of West proposals, Haig fo und company in the person of proposals for talks on the international crisis and on Cuba's Fidel Castro. specific issues. The Brezhnev agenda, including an ex­ Brezhnev's swat at the socialist bloc's destabilization plicit offer to discuss Afghanistan in conjunction with faction came as he admitted there need not be "uniform­ Persian Gulf security guarantees, contains several ity" among communist parties. "Differences of opinion concessions to West European initiatives. between communists can be overcome," said Brezhnev, Europeans, especially in France, saw the Brezhnev "unless, of course, they are fundamental differences be­ speech as leverage to get the Reagan administration tween revolutionaries and reformists or between creative moving on international issues of substance. Europe has Marxism and dogmatic sectarianism and ultraleftadven­ been impatient with the uneven emphasis on EI Salvador turism. In such a case there can be no compromise­ emanating from the Haig State Department. today just as in Lenin's lifetime." President Reagan appeared at a White House press That this remark was aimed at Castro and other briefing early the same morning to give his personal radicals-abetted by a Soviet support network of KGB preliminary response to Brezhnev's summit offer. "I was security and other operatives and sanctioned at the high­ most interested," said the President, adding that he est Kremlin levels by Central Committee Secretaries intended to discuss the Soviet proposals with the Western Mikhail Suslov and Boris Ponomarev-Brezhnev proved allies. Even Haig, in a brief statement that night, said he by his remarks on Third World policy.

36 International EIR March 10, 1981 ' At January s summit meeting.

Brezhnev spoke prominently of India, the major de­ Hailing the accomplishments of his own talks with veloping-sector power where state-to-state economic de­ Giscard and West German Chancellor Helmut Schmidt velopment-based agreements have taken precedence in in the five years since the last Soviet party congress, recent months in Soviet policy over the left radical whims Brezhnev called for new Europe-wide "confidence­ of local communist party leaders. building measures." He said lhat the entire European It was in India last December that Brezhnev first section of the Soviet Union could be included in such presented the Persian Gulf security guarantees initiative new measures, again a modification of the Soviet atti­ he has now renewed. The Brezhnev plan calls for the tude in evident reaction to French proposals: Giscard United States, U.S.S.R., Western Europe, Japan, and has suggested an "Atlantic to the Urals" approach to China to pledge protection of national sovereignty and European arms limitation. safe sea transit in a demilitarized Persian Gulf. In the Brezhnev proposed an international conference on keynote speech, he pushed the point, saying "it is absurd the Middle East, a summit of United Nations Security to think that the oil interests of the West can be 'defend­ Council members on steps to reduce the danger of ed' by turning that region into a powderkeg." nuclear war, and consultations among the Soviet Union, Brezhnev then agreed to a unique form of linkage the United States, China, and Japan to initiate "confi­ between his Persian Gulf proposals and "the internation­ dence-building measures in the Far East." al aspects of the Afghan problem," which he said could A Pravda article by Soviet Defense Minister Dmitrii be discussed together. Ustinov, published on the eve of the party congress, This unusual formulation was widely seen in Europe confirmed the personal dominance of Brezhnev in the as a connection to Giscard's call for an international Soviet elite. The election of a new party central commit­ conference on Afghanistan. The French president indi­ tee, at the close of the congress, will reveal more of the cated to the Washington Post that he had received a letter Kremlin lineup, as several dozen Brezhnev proteges and from Brezhnev on Feb. 4 which did not formally reject other party officials are added to this crucial decision­ the French proposal. Washington sources said recently making body. that Francois-Poncet, in his conversation with Haig, had Ustinov's article in Pravda called the international put fo rward ideas on Afghanistan. war danger serious-as did Brezhnev-and portrayed Appealing for the Soviet-American summit, Brezh­ Brezhnev as the Soviet leader most suited to handle nev said that "in many ways the international situation such an international crisis. Referring in glowing terms depends on the policy of the U.S.S.R. and the U.S.A." to Brezhnev's World War II career, Ustinov wrote that However, he added a number of proposals geared for Brezhnev's personal example showed the unity of the Europe and other strategic areas. army and the party.

EIR March 10, 1981 International 37 interests, and traditions-although my country insists on developing its own independent policy-that there is a great deal of similarity in our analyses and our objectives. It is my clear feeling that at the end of those discussions, there is a good start for the relations between my govern­ ment and new American administration. We welcome the in-depth examination being under­ taken by the new administration on many issues, but this means that it is too early to say on many issues whether we have the same views ....

Q: Do you feel the strong rhetoric coming from this administration in regard to the Soviets will have a healthy effect-the desired effect-on Soviet behavior to moder­ ate and improve Soviet international behavior? A: It seems to me that what I have heard both in private discussion and in public statements is, on the whole, weIl balanced. It seems to me that there exists on the part of this administration a readiness and openness toward dialogue with the Soviet Union, and this is, of course, Jean Fran�ois-Poncet also France's view-we have conducted such a dialogue. So it would be misinterpreting to say they are moving in urges U.S.-Soviet the direction you are indicating. summit meeting Q: How do you reconcile the welcome of the Brezhnev offer and the French position against a "Yalta"? A: There has been no official French statement of a French Foreign Minister Jean Fran�ois-Poncet, after a position. I said that, from a first impression, I see a meeting with President Reagan in Washington Feb. 25, general disposition toward dialogue from the Brezhnev praised the President's "openness toward dialogue with speech. France has bilateral relations with the Soviet the Soviet Union," and urged that Reagan take up the Union and we fully intend to develop these bilateral offer by Soviet President Brezhnev fo r a summit meeting. relations at various levels and we welcome this. What we During his three days of top-level meetings in Wash­ would not welcome, of course, would be a situation in ington the French fo reign minister sought to win Rea­ which problems concerning us or Europe were decided ' gan over to the French governmentview that East-West in the absence of our country .... relations ought to be characterized by both "firmness We should not take Brezhnev's declarations lightly. and dialogue"-rather than the confrontationism of Sec­ He said many things about the French proposal for retary of State Alexander Haig. Fran�ois-Poncet's pres­ disarmament in a European conference, but what he said ence in the United States on the day that Brezhnev made about it is not completely clear. The same for what he his summit offer undoubtedly fo rced Haig's moderate said about the French proposals on Afghanistan. reaction to Brezhnev. It would have been "a terrible public relations mistake" vis-a-vis Europe if Haig had Q: Do you agree with the American analysis of events in rejected the proposal out of hand, commented the Chris­ El Salvador? tian Science Monitor Feb. 25. A: This is not the question. We received the visit in Paris The fo llowing are excerpts from EIR's transcript of of Mr. Eagleburger as a U.S. envoy. He came and his Feb. 25 press conference in Washington. showed us evidence that there are arms shipments from the outside to El Salvador. What we see from that and Fran\;ois-Poncet: I have no real opening statement, know via other sources does, in fact, seem to confirm but let me just say that my discussions with Haig were in that such outside arms are getting in. This amounts to an depth, very open on a whole range of international issues, outside interference. We have seen such things in many and very fr iendly. So was my conversation this morning areas. We did not get a request to support U.S. policy, with President Reagan. I was impressed by his friendli­ but in general, we always condemn that kind of outside ness, openness, and consideration he gives to the Euro­ interference. What I said this morning is that we are pean view. My general conclusion is that although Eu­ convinced that the situation in Central America requires rope and the United States have their own perspective, economic and social reform.

38 International EIR March 10, 1981 We hrkunde Conference NATO into areas like Southwest Asia would be taken as a major provocation by the Soviet Union, sharply height­ ening the danger of war and undermining those in the Soviet Union who back cooperation with the West. In a speech okayed before delivery by Secretary of Europe: Vo lcker is a State Alexander Haig, Carlucci attempted to bully the West Germans to accept the expansion of NATO. Car­ threat to security lucci, a former deputy chief of the CIA, announced that "the United States cannot be expected to improve and by Susan Welsh strengthen United States fo rces in Europe unless other allies increase their own contributions to the combined defense effort. Nor can the United States, unaided, bear West German government officials emphatically stated the burden of promoting Western interest beyond Eu­ recently that the primary security threat to the Atlantic rope." Carlucci demanded an "expanded concept of Alliance is u.s. Federal Reserve Chairman Paul Volcker. European security": "in key areas of the world beyond At a Munich meeting Feb. 22, top-ranking represen­ Europe, we will begin to build a more durable framework tatives of the Reagan administration listened in stunned of relationships designed to enhance the security of those silence as a West German government spokesman in­ regions." formed them that the prime danger to world security is Carlucci did concede that NATO's treaty forbids it to the speculative outflow of funds from the European operate outside Europe and the North Atlantic. But then economies due to Volcker's high interest rates. he called for individual member countries to deploy their Speaking at an international conference in Munich forces to Southwest Asia, particularly the Persian Gulf sponsored by the Wehrkunde defense discussion group, region while British Undersecretary of State for Defense West German chancellery defense spokesman Lothar Geoffrey Pattie sounded a similar theme. Ruehl declared that if the current interest-rate warfare West German Defense Minister Hans Apel flatly persists, "the Americans would have to face up to the rejected the proposal to expand NATO: "The alliance is fact that the deutschemark and the Swiss franc would a NATO-alliance and has no global commitments." He suffer a collapse in which the currency flight would turn emphasized that the Bonn government stands by its into a capital flight. The West European economies commitment to work for arms control and detente at the would then lack the resources necessary for a recovery." same time as it strengthens NATO defense. Under these circumstances, any talk of financing a larger In the discussion following Apel's speech, Reagan arms effort becomes meaningless, he said. adviser Helmut Sonnenfeldt bluntly denounced the de­ Ruehl's speech came toward the end of the two-day fense minister: "You cannot win at the negotiating table conference, which had seen heated attempts by various what you have not won on the battlefield," he said. of the 150 participants to set President Reagan and "There are threats to NATO beyond NATO limits. In Western Europe at each other's throats. The meeting this field there is a profound assymetry vis-a.-vis the preceded British Prime Minister Margaret Thatcher's Soviet Union .... We must achieve a better balance in Feb. 25 arrival in the United States, where she will try to the area from the Arab countries to India." reaffi rm the Anglo-American "special relationship" Following the "hard-liners" came speeches by West against West Germany and France. German leftist parliamentarians, whose only purpose Frank Carlucci, U.S. deputy secretary of defense, was to convince Reagan that a "tough" line is needed to delivered a bristling speech demanding that Western whip Europe into shape. Europe increase its defense expenditures sharply and Social Democratic parliamentarian Horst Ehmke, a deploy its armed fo rces into areas like Southwest Asia, leading light in the Socialist International, stressed the outside the NATO area. importance of Europe's new peace movement. He at­ West German Defense Minister Hans Apel sharply tacked U.S. support for the El Salvadorju nta and warned rejected such demands. As Herr Ruehl stated the case, of the danger of a "new Vietnam." there can be no effective coordination of Western foreign Karsten Voigt, another top Social Democratic leftist, and defense policy unless the economic crisis is brought demanded that the conference discuss the report of Willy under control and Paul Volcker is prevented from carry­ Brandt's North-South commission as "an appropriate ing out his wrecking operations against the industry of contribution to Western strategy." The Brandt Commis­ Europe. sion report calls for deindustrialization of the advanced Furthermore, West German Chancellor Helmut sector and labor-intensive "development" of the Third Schmidt and French President Valery Giscard d'Estaing World. Brandt has gone on public television to declare are convinced that the official or unofficial expansion of his support for the El Salvador guerrillas.

EIR March 10, 1981 International 39 The German Marshall Fund: reviving the Morgenthau Plan by Susan Welsh

Th is article was researched by a team of' investigators. The G M F is one of several institutions assigned by headed by Luba George in New York. that included Rainer Anglo-American blueblood families to phase in a world Apel and Angelika Bevreuther in West Germani'. and was whose economy is under the regime these families call written by Susan Welsh. "controlled disintegration." The GMF maintains close ties to the Club of Rome, the London Royal Institute of "If someone were to propose a revised 'Morgenthau International Affairs, the Academy for Contemporary Plan' for the Ruhr, I would not be against it," said Problems, the Aspen Institute, the Deutsches Institut flir Friedheim Fahrtmann, the Social Democratic labor min­ U rbanistik, the Institut Fran�ais des Relations Intern­ ister for the state of North Rhine-Westphalia, in a recent tionales, the Council on Foreign Relations, and other West German radio interview. Fahrtmann was referring leading "futurology" think tanks. to the 1942 plan for the dismantling of German industry Since its fo unding in 1972, the German Marshall devised by Great Britain, and sponsored by U.S. Treas­ Fund has financed over 400 research and social engineer­ ury Secretary Henry Morgenthau, Jr. ing projects in the following areas: social tensions, service Fahrtmann does not have far to look, since indeed economies, deurbanization, decentralization, citizens' someone is proposing such a program: the German initiatives, alternative modes of production, and prob­ Marshall Fund, an American fo undation based in Wash­ lems of minorities and immigrant workers. Hundreds of ington, D.C., was set up in 1972 with German taxpayers' thousands of dollars annually are funneled into environ­ money to draw up detailed operational blueprints for the mentalist and radical counterculture groups, as well as deindustrialization and deurbanization of both the into geopolitical projects aimed at sabotaging the Paris­ United States and West Germany. Bonn axis fo r industrial development that has existed in

G M F directors and honorary committee members with Willy Brandt. Front row from left : C. Douglas Dillon. Brandt. John J. MCC/OF. C. Bok. John Conant. David R ockefe ller.

40 International EIR March 10, 1981 its current, somewhat fragile, fo rm since the 1978 estab­ tution and Twentieth Century Fund personnel-who lishment of the European Monetary System. largely designed the program-it pursued a very pecul­ iar form of "industrial recovery." For continental Eu­ The original plan rope, including Germany, the goal was to build "self­ Behind the distinguished-sounding but kooky Ger­ sufficiency" from U.S. dollar imports, to impose fiscal man Marshall Fund are the patrician circles who tried and wage austerity , to finance investments from "sav­ to smash post-World War II "German nationalism" by ings" rather than international credit, and to promote means of the Morgenthau Plan. At a meeting of U.S. selective cheap-export sectors, all in the name of "bal­ officialsin September 1944, Morgenthau demanded the ance-of-payments equilibrium." annihilation of the Ruhr, Germany's industrial heart­ Of $14 billion in funding over the four years of the land: plan, West Germany received $1.4 billion, plus various funding through the Occupation authorities-but this The only thing you can sell me or I will have any total of $4.5 billion was exceeded by outflows from part of is the complete shutdown of the Ruhr .... reparations, occupation cost-defrayment, forced coal Just strip it. ... I don't care what happens to the exports, and financing of old debt. The Marshall Plan's population .... I would take every mine, every provision of emergency relief was accompanied by mill and factory, and wreck it. ... Steel, coal, enforcement of a subsistence-wage, low-productivity everything. Just close it down. regime, and a refusal to capitalize mining that crippled The plan had the full backing of British Prime Europe's steel production. The 1936 levels of industrial Minister Winston Churchill and was sold to President output were not reached until the Korean War; the goal Roosevelt, becoming part of the resolution of the 1944 of the Marshall Plan was again balance-of-payments Quebec Conference: "The program for eliminating the equilibrium, and domestic balanced budgets, not eco­ war-making industries in the Ruhr and in the Saar is nomic recovery. And the plan's brutal 1948 currency looking forward to converting Germany into a country reform, as United Nations economists observed, slashed primarily agricultural and pastoral in its character." savings and industrial credit flows in western Germany The Morgenthau Plan was never implemented in its while fa voring short-term speculators and nonessential most systematic form (due in part to the opposition of business sectors. (The only real material beneficiary of Secretary of State Henry Stimson, Gen. Dwight Eisen­ the Marshall Plan was Britain, which received the hower, and West Germany's postwar leader, Konrad largest amount of aid and was allowed to use it to build Adenauer). But the Allied occupation of Germany was up its oil refiningand sales and to retire national debt.) carried out by means of the "four D's": "demilitariza­ tion, denazification, deindustrialization, and democra­ The fund's origins tization." What this meant in practice was: I) the The German Marshall Fund was created through dismantling of industry, especially in the Ruhr, which the efforts of then-Chancellor Willy Brandt and Social was occupied by the British; and 2) a psychological Democratic party officials Egon Bahr and Horst warfare operation carried out under the direction of Ehmke. Guido Goldman , director of the Center for Britain's Tavistock Institute psychiatrists and their col­ European Studies at Harvard University (and today a leagues from the U.S. Strategic Bombing Survey. The fund trustee), played a key role. The fund was needed, purpose of the Tavistock campaign was to inculcate in he said, because "the most pressing problems of the the German population a sense of "collective guilt" for advanced industrial nations-education, environmental the crimes of the Nazi regime, and to link this guilt to protection, transportation, urban planning, social ser­ the very sense of German nationhood and particularly vices-cannot be solved merely by expansion of eco­ economic development. "The German industrialists nomic resources. Their solution depends also on the bankrolled Hitler" was the line circulated by the British imagination and insight with which governments and their American liberal sympathizers. The latter, choose alternative possibilities." unlike the former, often did not know that London's The fund was inaugurated June 5, 1972, the 25th support for Nazi Finance Minister Hj almar Schacht anniversary of the announcement of the Marshall Plan. was the crucial element in Hitler's rise to power. Brandt declared the "deep gratitude of the German The Marshall Plan, which sent $16 billion in U.S. people for the generous assistance" of the United States. aid to Western Europe from 1948 to 1952, was intended "As a symbol of this deep and lasting gratitude," he by the best elements in the Truman administration to be said, "the government of the Federal Republic hereby the opposite of the Morgenthau Plan concept, and to declares its intent of contributing 150 million deutsche­ substitute European economic recovery effo rts for Brit­ marks [$70 million] in the next 15 years for the estab­ ain's much-disliked NATO blueprints. But as adminis­ lishment and maintenance of the German Marshall tered by the State Department Policy Planning Staff, Fund in the United States-a memorial to the Marshall the Council on Foreign Relations and Brookings Insti- Plan." Since then some OM 10 million per year has

EIR March 10, 1981 International 41 been appropriated to the fo undation, with no control based cities like the Ruhr steel center of Dortmund and by West Germany over how the money is spent. promote small, non-energy-intensive industries there. The fu nd's honorary trustees in­ Said a spokesman for the Academy fo r Contemporary clude the top administrators of the Problems, which participated in the study, "The Ruhr is postwar occupation of Germany: far too oriented toward heavy industry .... The future • W. Averell Harriman, who of all of West Germany is in postindustrial forms of oversaw the Marshall Plan in 1948- production, not industrial ones .... A city like Dort­ 50 through the Economic Coopera­ mund has to shrink, not only in size, but in its ideas tion Administration, following his about the future. Decentralization is the motto for the role in curbing U.S. exports as Sec­ future. retary of Commerce in 1946-48 and his wartime efforts Peter Hall told a reporter that "industrial growth in to undercut any U.S.-Soviet entente at the expense of Germany is finished, and the country will undergo a Great Britain. Harriman, who married into the Chur­ planned collapse .... The labor movement is the main chill family, helped to run the Anglo-American interpe­ roadblock to the postindustrial era. They will make netration involving "KGB mole" networks in the 1920s alliances to prevent the scrapping of heavy industry. and 1930s, and in 1954 fo unded the supranational Their power to hold back progress must be broken." Bilderberg Society, together with Prince Bernhard of • Environmentalism and the counterculture. Financ­ the Netherlands (the head of the archenvironmentalist ing of research on citizens' participation and protest in World Wildlife Fund) and Joseph Retinger (a Jesuit nuclear power plant-siting decisions in the United "one-worldist" associate of Count Coudenhove-Kaler­ States, Germany, and France. A $34,650 grant for gi, fo under of the Pan-European Union) . "environmental internships in Europe" to allow U.S. • Robert A. Lovett, who also shaped the Marshall environmentalist organizations to study at the Institute Plan from his number-two position in the State Depart­ fo r European Environmental Policy in Bonn. A ment after the war. A descendant of the Boston blue­ $100,000 grant to the Conservation Foundation in the blood Abercrombie family, Lovett is married to Adele U.S. and $60,000 to he I nternational Institute for Envi­ Brown of the Brown Brothers Harriman investment ronment and Society in West Berlin to study "the banking family. impact of environmental protection regulations on the • John J. McCloy, U.S. Military location of industrial facilities and sitings." Governor and High Commissioner Willy Brandt, in a speech to the GMF-financed for Germany in 1949-52. McCloy's "Eurosocialism and America" conference in Washing­ support for the policy of disman­ ton Dec. 5-7 gave his imprimatur to the quest for tling German industry is illustrated "alternative lifestyles." Since "the period of ongoing in Adenauer's memoirs, which also economic growths seems to be over fo r the foreseeable record his harping on the theme of future in the Western industrialized nations," he pro­ German "collective guilt" and the posed that "the quest for alternative life-styles, for alleged inundation of federal and state offices with the individual and fo r groups, should not simply be re­ unrepentant Nazis. He imperiously demanded that Ad­ jected. " enauer "examine the influence of the Bismarckian atti­ • The Brandt Commission versus the EMS. $100,000 tude ... the authoritarian principle" that "had made "seed money" in 1977 fo r Willy Brandt's Independent the German people somehow susceptible to such excess­ Commission on International Development Issues. The es." (Adenauer tartly informed him that the fo under of so-called Brandt Commission has as its aim the foster­ the Gestapo, Herr Diels, had been wined and dined as ing of North-South "cooperation" based on deindus­ the guest of the Allied governments for many months at trialization of the North and labor-intensive "appropri­ Nuremberg, where he was living a life of splendor.) ate technologies" for the South. The architects of the new Morgenthau Plan are The G M F, together with the London Royal Institute funding a wide range of "alternative lifestyle" and de­ of International Affairs (Chatham House) sponsored a urbanization projects, including the fo llowing: "small private seminar" Oct. 12, 1978 to discuss the • Deurbanization and deindustrialization: $600,000 fo rmation of the European Monetary System (EMS) by during 1978-79 for the "Trinational Exchange" pro­ Chancellor Schmidt and French President Giscard. The gram, to investigate how "dying cities" can be made Chatham House newsletter withheld any specific infor­ "livable." The answer proposed is the "free-enterprise mation on this gathering of "specialists," citing "the zone" concept developed by Sir Peter Hall of the School sensitivity of the negotiations at that point." Although of Planning Studies at the University of Reading in Great Britain refused to enter the EMS, some Chatham England, a participant in the GMF study. The univer­ House spokesmen have criticized this policy, arguing sity maintains close ties to London's Tavistock Institute. that to remain outside deprives Britain of crucial levers The study proposes to transform heavy-industry- of control over the continental powers.

42 International EIR March 10, 1981 From New Delhi by Paul Zykofsky

Student demos shake Pakistani regime tend to strengthen the hands of Unrest in the Punjab is fo rcing the government to seek those in Pakistan who argue that a deal must be reached on Afghani­ diplomatic solutions. stan if that regime is to survive. The Afghan issue, and the prevalent feeling among Pakistanis that the regime has been playing with fire for no good reason, as well as bur­ The Pakistani military junta of junta. There, the fo rmation of an dening the country with over 1 mil­ General Zia UI-Haq was clearly alliance, the Movement to Restore lion Afghan refugees, is crucial to shaken by the wave of student dem­ Democracy, was announced, de­ current events. In a recent interview onstrations and sometimes violent manding an end to the martial law with the BBe, Benazir Bhutto made clashes with police which swept regime, an end to censorship and a point of criticizing the provoca­ across the country during the third repression of open political activity, tive policies of the regime and call­ week of February . For the first time and calli ng for immediate free na­ ing for a political solution, includ­ in more than three years, since Zia tional elections. ing establishing cordial relations took power in a July 1977 coup The students who were out in with the Babruk Karmal regime in against the government of Prime the streets were openly supporting Afghanistan. Minister Z. A. Bhutto, large num­ this movement and its goals. Their Privately, Indian officials do bers of people took to the streets in actions were sparked by junta not conceal their view of the Zia a public display of the widespread moves to crack down on political regime as an unstable dictatorship hatred of the regime that everyone activity on the campuses after the whose instability could lead to wid­ knows lies just below the surface. sweeping victory of the PPP-linked ening conflict in the region. While The junta called a panicked Pakistan Student Federation in stu­ no steps can or would be taken to emergency meeting of the cabinet dent elections in the NWFP and the encourage its downfall, it is certain attended by all four provincial gov­ Punjab. The victory was over previ­ that few tears would be shed here ernors and the army corps com­ ously entrenched student groups over its demise, particularly in fa­ manders on Feb. 21. Orders were affiliated with the fanatic Muslim vor of a civilian government. issued to close most of the colleges Brotherhood-tied Jamaati Islami. More arrests have now fol­ and universities in two provinces, Observers in New Delhi have lowed, and Zia is reported to have the key province of the Punjab and not missed the importance of these declared that "the government re­ the Northwest Frontier Province happenings in their neighbor's mains determined to prevent law­ (NWFP), where the most severe land. While news of these events lessness." Things may be calm for clashes were reported. goes largely unreported in the the moment because of outright More revealing was the house West, it has been front-page news repression but close observers here arrest and ban on travel imposed by for days in India. are convinced there is more turmoil police on Bhutto's widow, Begum The first thoughts, including to come. The fact that the demon­ Nusrat Bhutto and his daughter among government circles, concern strations, which struck every major Benazir, who now lead the Pakistan the impact of this on the Zia re­ city in the country, included the Peoples Party, fo unded by Bhutto, gime's tightrope diplomacy , over Punjab, the home of the majority of and the core of opposition to the the Afghanistan situation. On the the country and the stronghold of regime. principle of one step forward, two the army, is highly significant. As Only a couple of weeks ago the steps back, the regime has been ex­ any Pakistan-watcher can tell you, Bhutto home in Karachi was the ploring diplomatic openings for as the Punjab goes, so goes the scene of a meeting of the leaders of talks with Moscow and Kabul, with country. And no one fo rgets that nine political parties, almost all the one eye cocked on Washington to student protest has been the leading parties in the country except for the see if a better deal is available from edge of popular unrest that has in rightist Islamic fundamentalist Ja­ that corner. the past brought down two pre­ maati Islami, which supports the The signs of shakiness at home vious military regimes.

EIR March 10, 1981 International 43 MiddleEast Report by Robert Dreyfuss

Arab left challenges Brezhnev formed a regional security pact Qaddafi and the People 's Democratic Republic of Yemen are committed to preventing terrorism. out to head offSovie t and Saudi diplomacy. French sources report that the rulers of the PDR Y have begun to put pressure on the pro-Saudi lead­ ership of North Yemen to fo rm an alliance opposing the "American military threat" to the region. While Soviet President Leonid maneuver is the just-begun Ameri­ The Beirut daily As Salir, a Li­ Brezhnev condemned "ultra-leftist can military maneuvers with the byan mouthpiece, reported this adventurism" in his address to the Sultanate of Oman. Located on the week that tensions have erupted be­ Soviet Communist Party Congress southern border of Saudi Arabia, tween Saudi Arabia and North this week, the leaders ofthe extreme Oman controls the strategic Straits Yemen over the renewed efforts by Arab left opened a campaign to of Hormuz at the mouth of the the PDRY to forge unity with its spark anarchist uprisings within the Gulf. northern neighbor. Persian Gulf. Over the past month Secretary of State Alexander A faction fight reportedly has Brezhnev has repeatedly stressed Haig's vocal delermination to in­ erupted within the secretive North the need for the big powers to fo rm tensify American military presence Yemenese leadership over the issue. a compact to finally stabilize the in the area has contributed to the As Safi r reports that earlier this Gulf. growing anti-American radicalism month border skirmishes broke out This divergence reflects the in this volatile region. between Saudi Arabia and North longstanding split within the Before Mohammed embarked Yemen. Kremlin between hardline Marxist­ for Libya, he warned that he would The PDRY-backed National Leninists associated with British restart the now defunct Dhofar re­ Democratic Front, which until re­ triple agent General Kim Philby of bellion in Eastern Oman. In their cently had waged guerrilla war in the KGB, and the pro-detente communique, Qaddafi and Mo­ North Yemen, is now conducting centrists allied to Brezhnev. Philby, hammed pledged to cooperate in talks in Senaa on reunification of a British national, inherited his challenging not only American the Yemens. Saudi Arabia, an ar­ connections with the Arab left presence in the area, but French dent opposer of Communist influ­ through his father, the Fabian ori­ military presence in Africa as well. ence on the Arabian peninsula, has entalist Harry St.-John Philby. It is They voiced their opposition to the consistently used its wealth and in­ precisely this interface of British regimes of Somalia and Egypt for fluence to prevent such a merger. intelligence with the KG B that is military cooperation with the A reunified Yemen would be triggering extremism in the Gulf to United States. dominated by the Marxist-Leninist undermine the Soviet president's While Qaddafi and Mohammed leadership of the PDRY, which bid for rapprochement and fo r sta­ were devising schemes to destabil­ would intensify instability through­ bility. ize the Gulf, a Gulf Freedom Front, out the region. Historically Aden, The key players in this danger­ a coalition of liberation move­ the capital of the PD R Y, has been a ous KG B-British ploy are the ultra­ ments, was formed in Beirut. In­ stronghold of British Special Intel­ radical regimes of the People's cluded in the front is the PD R Y­ ligence operations. Democratic Republic of Yemen based Popular Front for the Liber­ Since the Islamic revolution in and Libya. PDRY president Ali ation of Oman, an ally ofthe terror­ Iran, there have been clandestine Nasser Mohammed last week con­ ist wing of the Palestinian move­ ties established to create a terrorist fe rred with Libya's Muammar ment. capability throughout the Gulf. Qaddafiin order to coordinate the The PFLO over the last month Earlier this month, the National creation of regionwide liberation has begun a powerful propaganda Democratic Front sent a delegation movements aimed at destabilizing campaign against not only Oman to Iran, and French press sources the Arab oil producers of the Per­ but the Arab oil-producing states, report that Iran shortly thereafter sian Gulf. The catalyst behind this including Saudi Arabia, which just sent a delegation to Aden .

44 International EIR March 10, 1981 DatelineMexico by Josefina Menendez

Some warning shots of terror as his frontmen, and will stop at Is the mayor of Mexico City, Hank Gonzalez, sending a nothing to see that one ofthem gets political message fo r 1982? the nod. But observers here are giving special importance to Hank's slip­ page in control of his home state two weeks ago as a likely trigger to the "message." As my readers will remember, I umns as a creation of the Jesuits The state of Mexico, which reported a month ago that the pow­ and a gaggle of left sects grouped Hank governed from 1969 to 1 975, erful mayor of Mexico City, Carlos around the Mexican Communist is one of the richest in the country. Hank Gonzalez, has a very particu­ Party, suddenly began a series of For almost 35 years it has been a lar strategy to arrive at the presi­ "flying rallies" on the premises of political bastion of Hank Gonza­ dency. the major embassies, under the ri­ 'Iez's mentor, Gustavo Baz, and Carlos Hank is barred by the diculous pretext of "letting teachers then of Hank himself. constitution from becoming presi­ in other countries" know of the The question of whether Hank dent-his father was foreign-born Mexican teachers' plight. had the strength to impose yet an­ -so his next best strategy is to Simultaneously, a PCM-coordi­ other of his close group as the gov­ force an "Italian style" figurehead nated group from Oaxaca showed ernor fo r the 1981-1987 term was president into office when Jose Lo­ up to occupy the Indian and Guate­ seen as an important indication of pez Portillo's term ends next year; malan embassies. After a few tense his power to determine the presi­ change the constitution; and run hours, they were dislodged by the dential sweepstakes. himselfin 1988. police. And as of the first week of Feb­ As I told you, some well-placed To top it off, an attempt to seize ruary, when it became known that a officials here see one of Hank's ma­ the armory of a centrally located person not directly to Hank's lik­ jor weapons being terrorism. A bank security office was identified ing, Alfredo del Mazo, had received sudden spurt of terrorism last week as possibly the work of a revived the nod from the ruling PRI party, lends new weight to this analysis. offshoot of Mexico's most famous political analysts began putting out First, three "students" (whose terrorist outfit of the early I 970s, the word that some response from ages varied between 35 and 45 years the 23rd of September League. Hank could be expected. old) wielding machine guns took I n the fo ur years of Lopez Por­ Security officials here are pri­ over the office of the president of tillo's term, terrorism has been vately keeping their eyes on one National University. Originally largely quiescent; but it plagued the additional element of the picture, fo rgetting to specify any demands, country from 1968 to 1976. It is one Mr. Henry Kissinger. Henry, the trio later asked fo r more money taken fo r granted here that last who knows even more about how to for the high schools run by the uni­ week's sudden outbreak is some­ manipulate terrorism than Carlos versity. After holding the presi­ one's me,ssage. Hank, was in Oaxaca at the time the dent's personal secretary hostage A high government official in­ Oaxaca terrorists headed off to for 16 hours, the terrorists moved to sisted to me this week that Hank their violent rendezvous at the the home of one of Mexico's most Gonzalez's control over the PCM­ Mexico City embassies. He was also notorious terrorist controllers, pivoted left-Jesuit apparatus is in Oaxaca the last time the group Fausto Trejo. After additional ne­ much more extensive than general­ erupted along a terrorist profile. gotiations, the three were allowed ly realized. "It's true that he knows And now Henry is completing his to fly out of the country to an un­ nothing of economics or science, traditional one-month winter vaca­ specified European country in ex­ but he's a first-rate psychologist tion in Acapulco in the company of change for releasing the hostage. and knows very well how to manip­ precisely the "j et set" offshoots of The dissident movement in the ulate people," he commented. European nobility who dot the dos­ national teachers union (SNTE), The official warned that Hank is siers of European antiterror secu­ which I have exposed in other col- putting his bets on three candidates rity investigations.

EIR March 10, 1981 International 45 International Intelligence

day. To date, Iraq is exporting an esti­ tion on ground and sea" globally. The Zamyatin denies Moscow mated 800,000 bpd. report states: "Western security can no arms Salvadoreans Oil company sources estimate that longer be limited to events and threats Iraq and Iran together could be export­ occurring in the NATO region alone." ing as much as 4 million bpd of oil by the The report, which proposes to sub­ Leonid Zamyatin, head of the Soviet fourth quarter, as compared to the 5 sume economic, technological, and se­ Communist Party's Central Committee million bpd they jointly exported before curity policy under the banner of NATO, Information Department, stated Feb. 25 the outbreak of the war. is a rehash of three years of the U.S. that "The Soviet Union does not provide Sources expect Saudi Arabia to make CFR's policy recommendations, most El Salvador with arms. It never has. It a 2-million-bpd cut in its record exports completely developed in a June never will." to offset the renewed oil flow. It is ex­ 1980 Foreign Affa irs article by Robert Zamyatin continued, "The President pected that OPEC will be exporting only Legvalt, the CFR's project director un­ [Reagan] is absolutely incorrect. When 25 million bpd by the end of the year, a der Cyrus Vance for the council's Project the State Department invents White Pa­ full 8 million less than 18 months ago. on the 1980s proposals regarding the pers that repeat lies many times, the This precipitous decline is due to the U.S.S.R. The Legvalt studies have never lies do not become the truth." Zamyatin plummet in world consumption of oil. been fo rmally published. said that the Salvadorean junta is "deci­ The report is viewed by some analysts mating the population" with the help of as an effort to sour Reagan's relations American weapons and military advisers, with Schmidt and Giscard, who reject a and that the rebels are led not by com­ NATO expansion, and by others as a munists but by social democrats waging blueprint for Western Europe after the "a struggle for national salvation." Peking tries to remedy CFR has dislodged the two leaders from Zamyatin further reported that Mr. exchange shortage power. Reagan's response to Leonid Brezhnev's The proposals include strategic nu­ request for a summit meeting "did not The severe fo reign exchange crunch af­ clear balance with the U.S.S.R.; deploy­ go unnoticed" in Moscow, but he criti­ flicting the People's Republic of China ment of Pershing missiles in Europe; pos­ cized the idea of preconditions for the has apparently driven the Peking regime sible resumption of arms-control talks; meeting. "This is not a correct ap­ to adopt extreme measures to quell the availability of European fo rces for de­ proach .... This sounds very much like problem. ployment in the Persian Gulf and Indian hegemonism, like the Chinese," he said, The Chinese govenment is reportedly Ocean; revitalization of the Camp David adding that Moscow is ready to talk demanding that Chinese students in Ja­ process; and encouragement for the Af­ "without preconditions of any kind." pan who are recipients of scholarship ghan liberation movement. funds from the Japanese government hand over two-thirds of their monthly grants to the Chinese embassy. The Chinese have also issued orders Iraq renews that all exchange deposited in foriegn countries or in Hong Kong and Macao Brokdorf, Frankfu rt oil exports must be transferred home immediately. get government boost Iraq and Syria put their differences aside this week to reach an agreement allowing Authorities in the West German state of for the renewed shipment Iraqi oil ex­ Schleswig-Holstein have banned an anti­ ports through Syria to the Mediterra­ CFR proposes 'directoire ' nuclear demonstration that was sched­ nean. Iraq resumed oil exports in Decem­ uled to take place in the town of Brokdorf ber, following a three-month shutdown fo r global NA TO role on Feb. 28, at the nuclear power plant of oil flows due to its war with Iran. construction site there. Police had gath­ Shipments of crude through Syria The West German, French, British, and ered extensive information attesting that were blocked due to terrorist sabotage of American branches of the Council on the demonstration would be violent. the pipeline. Syria, a longstanding adver­ Foreign Relations, all originally fo unded Meeting in Bonn Feb. 25, the fe deral sary of Iraq, has take a pro-Iran stance in as spinoffs of the Royal Institute of Inter­ cabinet backed the Schleswig-Holstein the Gulfwar. national Affairs in London, this week government and urged observance of the Reports from Damascus this week jointly released new study advocating "a prohibition. Radical groups say they will indicate that the initial flow of Iraqi new alliance relationship" based on a go ahead with the demonstration. crude through the Syrian pipeline will be "directoire" including the U.S., France, In a related move, the governor of the 800,000 barrels per day (bpd) and will West Germany, and Japan, and focused state of Hessen, Holger Borner, an­ gradually increase to 200,000 barrels a on "active European military participa- nounced Feb. 25 in the state parliament

46 International EIR March 10, 1981 Briefly

• PRINCE FAHD told a Swedish press conference Feb. 22 that Sau­ di Arabia is "free to contact any country in order to buy weapons and advanced equipment. . .. If that the much-disputed third runway fo r aldo Feb. 20 that Jesuits in EI Salvador circumstances require it, we will the Frankfurt international airport will and Guatemala have come under threat buy weapons from the Soviets." be built, despite environmentalist protest. of terrorist action. The alleged threats, He proposed that the American The government's duty is to secure the he said, "have their origin in fa lse and people "demand bipartisanship material existence of its citizens, he said. slanderous stories invented by individu­ and honesty from their govern­ All three parliamentary parties backed als or interested groups who assert that ment." The conference was not Borner and demanded that construction the Society of Jesus is the cause of the covered in the U.S. press. work begin as soon as possible. armed insurgency in some of these na­ tions." Father Nunez added that "al­ • SPANISH sources told EIR though some Jesuits had to leave the after the failed Spanish coup that region because of the danger, the order Alexander Haig's ties into Spain's will stay in the thick of day-to-day de­ military and the Spanish Church ployments because our task is to be with Mexican development are germane to the fall of Adolfo the population in its most difficult mo­ Suarez this month. Suarez had re­ conference in Mexico City ments and accompany it through all sisted the Carter administration's risks." "The only barriers to Mexico's becoming pressure to join NATO. The State an industrialized country in the next 20 Department wants nuclear weap­ years are political. The technological, ons installations in Spain and use economic, and scientific feasibility have of bases without prior approval been proven," stated Dr. Steven Bard­ Heritage: special channel from Spain for the U.S. Rapid De­ well, the opening speaker at a conference ployment Force. cosponsored by the U.S.-based Fusion fo r Thatcher Energy Foundation and the Mexican As­ • ROBERT MCNAMARA, out­ sociation fo r Fusion Energy (AMEF). Sources in Washington report that the going president of the World The subject of the conference was the Heritage Foundation, a Fabian-con­ Bank, suddenly canceled a visit to two fo undations' just-completed devel­ trolled think tank, is going to be used as India due to "illness." The reason opment program for Mexico. The 150 a special channel into the Reagan admin­ was Prime Minister Gandhi's re­ participants included representatives of istration by British Prime Minister Mar­ fusal to see him after the Bank eight Mexican government ministries, a garet Thatcher who was visiting the U.S. revoked a $250 million loan for a number of private-sector firms, banks, this week. fertilizer proj ect. educational institutions, and research According to the sources, Thatcher groups. Presentations by Dr. Bardwell, intends to "upgrade her relationship" • THE ICFTU, the "free world" Dr. Uwe Parpart, Cecelia Soto de Estev­ with Heritage, which has several opera­ trade union grouping run mostly ez, Patricio Estevez, Dr. Luis Abreu, and tives planted inside the administration. by the Socialist International, will Jorge Bazua drew on ElR's LaRouche­ The fo undation, which has a direct link meet in New Delhi on March 18- Riemann econometric model, which has to the Thatcher-run British Center for 20. Word is they will push Brandt demonstrated the feasibility of the rapid Policy Studies, will soon be the base of Commission proposals. industrialization of Mexico. operations of the prime minister's per­ sonal political secretary Richard Rider. • SAID GAILANI, one of the Sources at the fo undation, whose many self-appointed leaders of the connections to the British Fabian Society Afghan rebels, is being given the have been a subject of recent controversy, red-carpet treatment in Washing­ Jesuit responds said that the entire operation should be ton, visiting leaders on Capitol handled very quietly and informally, Hill, seeing Assistant Secretary of to political charges without much publicity, since any overt State Veliotas, and speaking be­ connections would cause embarrassment fo re groups like the American Le­ The provincial superior of the Jesuit or­ fo r both the Thatcher government and gion. Gailani is more often seen in ' der in Mexico, Enrique Nunez, S.J., was Heritage. London than on the Afghan fron­ obliged to issue a lengthy public inter­ It might make the Reagan people tier. His sponsors in Washington view last week in an attempt to clear the "very suspicious," the source reported, are a group based in the American order's name from charges of coordinat­ and that "would defeat the whole pur­ Security Council led by fo rmer De­ ing right-versus-Ieft bloodshed in Cen­ pose of what the prime minister wants." fense Intelligence chief Danny tral America. The charges have been dis­ The topic will come up in informal Graham. Gailani's controller is seminated by the Executive Intelligence discussions this week between represen­ London's Lord Bethel, active in Review internationally. tatives of the foundation and Mrs. Polish events. Nunez told the Mexican daily EI Her- Thatcher's entourage.

EIR March 10, 1981 International 47 ITmNational

Haig, media launch Salvador operation

by Kathleen Murphy

Soviet President Leonid Brezhnev's unexpected proposal nevertheless increased the pressure by telling Congress fo r an early summit between himself and President Ron­ that a substantial increase in U.S. military aid to the EI ald Reagan has thrown a monkey wrench into the Salvador junta was required, while intimating through schemes for a superpower confrontation which U.S. the media that some kind of U.S. military intervention Secretary of State Alexander Haig and his Socialist might be in the offing. International cronies have been desperately trying to get On the same day that Brezhnev issued his summit off the ground. offer, Haig made a major publicity ploy by having the Brezhnev's proposal, put forth in his speech to the State Department release the "evidence" on Soviet in­ Soviet Party Congress in Moscow, is the fruit of a volvement in the guerrilla war. coordinated, behind-the-scenes move by the Brezhnev President Reagan's response to the Brezhnev offer faction in the U.S.S.R. together with the governments of underscores the potential fo r the two leaders to sit down French President Valery Giscard d'Estaing and West and begin to work through some of the key problems German Chancellor Helmut Schmidt to help Reagan out that face them. Reagan told reporters Feb. 24 that he was of the crisis-management track that Haig has been steer­ "most interested" in the Soviet offer and that "it is now ing him onto. something that we will consider, among ourselves, and The summit offer comes after weeks of wild-eyed most particularly with our allies ....I am not sure what efforts by Haig-with crucial backup by the leading is in Brezhnev's heart," Reagan added, "but let me just Eastern Establishment press outlets-to poison relations say that I findhis invitation interesting." between the U.S. and its Western European allies, and Significantly, Reagan also stressed that he has "no the Soviets. intention" of getting the U.S. into a Vietnam imbroglio Shortly after being sworn in as secretary of state, in EI Salvador, suggesting that the President is by no Haig embarked on a campaign to turn the guerrilla war means as enthusiastic as his secretary of state for a new in EI Salvador into a "test case" of U.S.-Soviet relations. Cuban missile-style crisis. Lying that the Soviets are the number-one backers of international terrorism and the key supplier of arms to Haig's sabotage the left-wing insurgents in EI Salvador, Haig has been It is clear from the response by Haig and the Eastern steadily pushing fo r a major blowup on the issue. Two Establishment media to the Brezhnev proposal that they weeks ago, he deployed three separate groups of State want to delay a summit between the two heads of state Department officials to Europe and Latin America in an for as long as possible. On Feb. 23 Haig said the effort to pressure U.S. allies into going along with his summit proposal was "very interesting" and "innova­ charges. While the missions met with little success, Haig tive." Within 24 hours he was openly urging that the

48 National EIR March 10, 1981 summit be delayed. In an interview with French televi­ dent Lopez Portillo last January, much to Haig's con­ son on Feb. 24, Haig tried vigorously to throw cold sternation. water on the Brezhnev proposal, without exposing himself as a saboteur. While commenting, "We do Vance's game anticipate and would strongly encourage a dialogue The Times's playup of Haig's TV interview and its between ourselves and the Soviet Union, which I hope cited editorial are part of a deliberate game it is playing will be rapidly forthcoming," Haig bluntly continued, to foster the KGB confrontationist faction in Moscow. "We are not in a hurry fo r summitry." Summitry, he Cyrus Vance, a member of the Times board of added, "should result in achievements" and "must be directors before joining the Carter administration as its carefully prepared" in advance. "The number of differ­ "dovish" secretary of state, is playing a key behind-the­ ences between the parties to summitry should be on the scenes role in this same operation. According to a verge of some kind of negotiated consummation. Con­ source close to both Vance and the New York Times, sequently, I think, clearly we have a lot of preliminary the former secretary of state conveyed a message to the work to do in the areas of East-West differences before Moscow leadership two weeks ago that they would find summitry itself would be in order." "no real friends in the Reagan administration" and that According to a Feb. 25 article by Baltimore Sun the anti-Soviet sabre-rattling policies of Secretary of correspondent Henry Trewhitt-an admirer of Haig State Haig reflect "President Reagan's thinking." with high-level sources at the State Department­ Vance's message was reportedly couriered to Moscow "American diplomats" in Washington "see little pros­ via Georgii Arbatov, head of the KGB-linked U.S.­ pect of early progress in American relations, and even Canada Institute. Like Vance, Arbatov is a member of less for a meeting soon between Presidents Reagan and the Socialist International-linked Palme Commission on Leonid Brezhnev." Trewhitt cited Haig's French televi­ International Disarmament, and received Vance's mes­ sion interview as evidence that he personally shares this sage while attending a recent commission meeting in "practical view" and reported that Washington sources Vienna. believe that Haig's initial response to Brezhnev was Vance's role underscores the total cynicism-and merely propaganda cover, motivated partly by the coordination-of the Haig-Socialist International oper­ presence in Washington of French Foreign Minister ation. It was Vance who elevated Haig to a position of Jean Fran�ois-Poncet. stature in the early 1960s. Vance, then secretary of the Haig's attempts to sabotage the summit are being army, hired Haig as his special assistant, and when bolstered by the press, particularly the "dovish" New Vance was later named to the number-two post at the York Times. One of the few newspapers to report Haig's Defense Department under Robert Strange McNamara, comments to French TV, it simultaneously downplayed he brought Haig with him. Haig functioned both as Reagan's own open reaction to Brezhnev. In a lead special assistant to Vance and to McNamara. According editorial Feb. 24 which dovetailed perfectly with Haig's to John Lehman, Reagan's newly appointed navy sec­ remarks, the Times urged Reagan to issue "a counter­ retary, who knows both men intimately, the fact that proposal" to invite Brezhnev to Washington "along Vance's soft-line posture in the Carter administration about Labor Day"-six months from now. The Times apparently put him at odds with then-NATO Supreme said that one important benefit of such a counterpro­ Commander Haig's tough anticommunist stance was posal would be to "resume the Nixon pattern of annual meaningless. "Haig and Vance consulted constantly. summit conferences, so that these gatherings will appear That's not surprising-even though their policies might reasonably routine rather than overblown efforts to seem to diverge, they actually see eye-to-eye on every­ settle every issue." thing of importance." The Times editorial gives away the game that Haig It is clear from a review of the major U.S. media and his Socialist International allies are playing. Essen­ over the past week that the plan is to paint Reagan as tially, it involves delaying a face-to-face meeting be­ an unreconstructed hawk with no interest in working tween Reagan and Brezhnev until the international out a viable modus vivendi with the Soviets. Aside from climate can be so overheated by provoked crises that a the coverage of the Brezhnev proposal and the admin­ summit, if it did eventually occur, could only produce a istration response, the media have been hyping the EI deadlock. If the Brezhnev-Reagan meeting were to take Salvador crisis, focusing particularly on the potential place before this confrontation atmosphere could be set, for substantially increased U.S. involvement. the fear is that Reagan, despite his traditional anti­ These stories had reached such a peak that a Defense communism, may find important points of agreement Department official was prompted to tell the Washing­ with Brezhnev, particularly on the question of economic ton Post that "there is more action in the newspapers development, an outlook which both men share. This than in the Pentagon." Exemplary was a blaring head­ happened at the Reagan's meeting with Mexican Pres i- line in Rupert Murdoch's Feb. 24 New York Post,

EIR March 10, 1981 National 49 "More U.S. Advisers May Be Sent to EI Salvador." The ican intelligence and policy-making capabilities in the story reported that the U.S. was "actively considering way Jimmy Carter had specialized in. Recipients of the sending additional military advisers to EI Salvador" White Book did not endorse its conclusions. and that this "added to the sense of impending crisis Mexican President Jose Lopez Portillo, speaking at a that has been developing during the past few days over state dinner shortly afterthe visit of Haig emissary Gen. EI Salvador-which has taken on overtones of both the Vernon Walters, stated, "We are determined to demon­ Vietnam and Cuban missile crises." strate that it is possible to set up a rational order in the The media are pointedly omitting any mention region," and called fo r a negotiated settlement to the whatsoever of the admitted role of the Second Interna­ fighting, impelling Haig's press conduits to paint him as tional and the Jesuit order in the insurgency, in favor of a Castro ally. Haig's provocative charges of Cuban involvement. The sharpness of Lopez Portillo's rejection of the use That the press will stop at nothing to box Reagan of "arrogant military power" and his challenge to the into a corner became clear during an appearance by top State Department definition of the Caribbean as a zone White House aide Edwin Meese on ABC-TV's "Issues of battle between the superpowers was, according to and Answers" Feb. 22. After repeatedly refusing to be Brazilian press accounts, provoked by Walters's message drawn into a discussion of administration options on that the U.S. wants a "military," if "temporary," re­ the EI Salvador crisis, Meese was finally badgered into sponse to the conflict. saying that the administration had not ruled out any In Bonn and Paris, both fo reign ministers called for options, including a naval blockade of Cuba. The next economic assistance to Central America instead of mili­ day, the major press blared scare stories claiming that tary aid. West German Foreign Minister Hans-Dietrich the administration was actively considering a naval Genscher announced Feb. 25 that his government is blockade. prepared to mediate a settlement, in statements parallel­ ing the Mexican calls. The Christian Science Monitor. reflecting Haig's reaction, remarked that the West Ger­ man proposal was hardly what Haig envoy Lawrence Eagleburger had urged the Germans to do.

Documentation Haig's omissions The network within East bloc countries and the Soviet Union itself, a network the Haig document traces out, exists and the White Book indeed provides useful leads for tracking those Eastern European and Cuban What Haig left out elements involved in support operations for liberationist armies and terrorist groups throughout the Third of his White Book World. But the document lies not so much by what it says, but by what it omits. Extensive evidence was suppressed on the roles of by Gretchen Small the Socialist International, of the Jesuit order, and other Theology of Liberation networks, and of elements of Around the world, emissaries of Alexander Haig deliv­ the European "black" nobility, in arming, financing, ered the State Department's "White Book," titled Com­ and even leading the Salvador guerrillas-even though munist Influence in EI Salvador. "Political direction, or­ many of these operations are carried out openly from ganization, and arming of the insurgency is provided by the United States itself! Cuba, with the aid of the Soviet Union, Vietnam, and Haig's document amounts to an effort to protect the other communist countries," an introduction to the vol­ actual international alliance that generated the Central ume asserts. American crisis. Using this document as proof of his charge that EI Many of the data concerning these Western net­ Salvador is a "textbook case" of an international com­ works' collaboration with the Cuban and Soviet opera­ munist conspiracy, Haig made Central America the cur­ tives are in the public domain. They are certainly well rent centerpiece of American foreign policy. Relations known by every competent intelligence agency in na­ with the United States, allies were told, stand or fall on tions allied with America. Answers to the question the basis of their response to Haig's campaign on EI "whom did Haig protect?" are a useful vantage point Salvador. fo r grasping Haig's grandstand play on EI Salvador this The document is a deliberate lie, and its publication week . and dissemination has damaged the credibility of Amer- • No mention is made of the prominent role of the

50 National EIR March 10, 1981 Socialist International in financing and arming the Outlined by Colonel Marti and others during those guerrillas. On American television in December, the hearings was the connection between arms-running to the sodden head of that organization, Willy Brandt, public­ Sandinistas in 1979, and current trafficking in El Salva­ ly declared that the Socialist International was funneling dor. Caches of weapons procured throughout the West­ finances to arm the guerrillas. ern world, not only from Cuba, during the Nicaraguan Guillermo Ungo, the head of the Democratic Revo­ civil war, are now being resold to the El Salvador lutionary Front (FDR), which leads the Salvadorean insurgents. left opposition, is a member of the Socialist Internation­ The Costa Rican case bears further investigation in al, and FDR representatives have met with Socialist developing the map of overlapping right and left, International leaders in Europe and Latin America to Eastern and Western networks behind the arms-run­ arrange aid. Yet the only State Department allusion to ning. Particularly interesting is the fact that the Carazo these well-known facts is the statement in the document government was installed with financing from leading that "less than 700 non-Marxist guerrillas" are involved "right-wing" networks in Latin America, including the in the fighting . Chilean intelligence service DINA, and self-proclaimed • No mention is made of the Jesuit role in supplying Guatemalan fascist Sandoval Alarcon. arms, leadership, and funding to the left, despite the Collaborating with Carazo's government in the known history of the Society of Jesus in helping to arms-running to Nicaragua was the "right-wing" leader create nearly every "left" group in El Salvador, and of Costa Rica's Social Democratic Party, Jose "Pepe" occupying leading positions in them. Top Social Dem­ Figueres. Figueres, who publicly acknowledged his role ocrats in the FDR came out of a Jesuit think tank in in aiding the Sandinistas (including sending his son to San Salvador located at the Universidad de Centro fight), opens a particularly revealing network for inves­ America, including Guillermo Ungo himself. tigation: the so-called democratic leftset up and run by Haig's own Jesuit training and connections are not American figures like Adolf Berle, Arthur Schlesinger, a trivial aspect of his career, as EIR has documented Jr., and Cord Meyer. Meyer, CIA station chief in over the past two years. But it would be unfair to call Western Europe following World War II and a close this aspect of the White Book a personal coverup, since associate of Italian black nobility networks, used his the State Department as a whole has never fingered the period in Costa Rica at the beginning of the 1960s to Jesuit role in creating synthetic revolutions. Nor have personally oversee the creation of various institutions in most European spokesmen dared to do so, in contrast Costa Rica which then trained every leading social to the mounting Italian public dossier on Socialist democratic figure in Latin America today. International sponsorship of insurgency and terrorism. • Eden Pastora, the head of Nicaragua's Popular Yet internationally, senior members of the Society Militias and an open advocate of aiding the Salvadorean of Jesus have been quite open in their support for the guerrillas, is another relevant product of these overlap­ radical left. Father Simon Smith, S.J., the order's chief ping networks. A Costa Rican trained by the Jesuits, a of missions fo r the Third World, told a reporter in member of the Socialist International, linked with Pepe December that the Jesuits "are coordinating closely Figueres, Pastora brags of his cooperation with the with the Socialist International forces in El Salvador." KGB! Father Zweifelhofer, the Jesuits' head of Third • "Panamanian" Hugo Spadafora provides another World policy coordination, reported in another recent angle for immediate investigation into arms trafficking. interview from his base in Munich, West Germany that Spadafora, carrying the name of the Italian noble family it is the Jesuits who are granting the Cubans any associated most publicly with the international assassi­ influence they have in Central America (see EIR. Jan. nation bureau called Permindex, was a member of the 13, 198 1). Italian Socialist Party (PSI) during his days at the • The Christian Democratic government of Costa University of Bologna, and has a long history an as Rica is explicitly cleared by the State Department of any international mercenary for "national liberation" move­ complicity in the arms traffic that is acknowledged to ments. run through that country. Yet Costa Rica's own con­ Hugo Spadafora announced in the pages of the New gress has held hearings to investigate the role of promi­ York Times last December that he was forming an nent government figures in protecting this traffic. At "international" brigade to fight not only in El Salvador those July 1980 hearings, the former head of criminal but "anywhere in the continent where the armed strug­ investigations of the Costa Rican Interior Ministry, gle is the only avenue left fo r peoples." A social Col. Guillermo Marti, testified that Interior Minister democrat, Spadafora argues that "authentic unity of all Juan Jose Echeverria Brealey was involved in arms revolutionaries, of Marxists, of Catholics, of Social traffic, and that Echeverria's chief of staff, Willy Azo­ Democrats, or progressive Christian Democrats" is feifa, had personally flownto Cuba to pick up arms. required.

EIR March 10, 1981 National 51 'Scribescam' scandal explodes

Scott Thompson reports on the revelations that the Justice Department and its journalistic allies have been rigging indictments.

In the closing moments of Abscam appeal hearings legations linking President Ronald Reagan and key ad­ before Brooklyn U.S. District Court Judge George Pratt, visers to "organized crime figures." startling evidence emerged that the main Abscam prose­ cutor, Thomas Puccio, had held discussions to sell book The Blumenthal report and movie rights to the story over nine months before On Jan. 14, in a surprise inaugural eve move, any defendants were indicted. outgoing Attorney General Benjamin Civiletti disci­ After first denying under oath that this was the case, plined seven Justice Department employees for their Puccio took the stand a second time to make his explosive role in "leaks" relating to the undercover operations admission that he held several discussions about a book Abscam, Brilab, and Pendorf. In announcing this "dis­ with Jack Newfield, the senior editor ofthe Village Voice. ciplinary action," Civiletti noted that 35 investigators These began in late summer of 1979 when Newfield and had worked for six months on this special internal Puccio, both political allies of the Kennedy family, inquiry under Connecticut U.S. Attorney Richard Blu­ shared a summer home in Martha's Vineyard. menthal. Puccio's secret negotiations with Newfieldrep resent An examination of the publicly available facts shows grounds for his immediate dismissal from the Justice that the l20-page Blumenthal report was a glaring Department. Taken within the context of the many un­ coverup, especially in its conclusion that "offenders did constitutional and irregular tactics the Justice Depart­ not act in an organized fashion, intend to obstruct ment used against Abscam "targets," it represents justice, or derive any personal financial gain from their grounds for immediate dismissal of all their convictions. actions. " Far from being an isolated incident, however, secret What was the actual nature of the Abscam leaks? collaboration of the sort between Puccio and Newfield EI R investigators discovered that a full three weeks has become the modus operandi of the Justice Depart­ before the Abscam story "officially broke," Th e New ment. Trial-by-press "leaks" and "exposes" are now York Time's Leslk Maitland, Bob Greene of Long Island standard devices to destroy the reputations of respected Nnvsday and a board member of Investigative citizens and fo rce their indictment when sufficient evi­ Reporters and Editors, reporters for the Washington dence is lacking. Among other recent cases of such Post. and an NBC-TV camera crew had been briefed on grossly illegal conduct are: when and how to break the story. • Full collaboration between the Justice Depart­ Even before Sen. Harrison Williams (D-N.J.) could ment, their asset author Ovid Demaris, and New York read that he had been the victim of a Justice Department Times Books to publish the allegations of federal witness "sting" in his morning paper, an NBC camera crew was Jimmy "the Weasel" Fratianno in a book titled The Last camped out on his lawn waiting for an interview. Such Mafioso. trial-by-press "leaks," appearing a full three months • Leaked transcripts and other documents to Long before a single Abscam victim was indicted, are largely Island Newsday reporter Bob Greene-including even responsible fo r all but one of the re-election bid losses the names of congressmen merely consideed for entrap­ of those congressmen entrapped by the Justice Depart­ ment in Abscam-for a book and possible movie on ment. Abscam informant Mel Weinberg. The Blumenthal report not only covered up the chief • Advance leaks to NBC-TV on Abscam and repeat­ "conspirators" behind these orchestrated leaks, but ed leaks on other Justice Department targets, including also, as a result of Blumenthal's conclusions, Civiletti the loan of federal witnesses (Jimmy Fratianno and merely issued letters of censure against those who were Ralph "Little Ralphie" Picardo) to make scurrilous al- named. The sole exception was Quentin G. Ertel,

52 National EIR March 10, 1 981 spokesman fo r the New York office of the FBI, who October 2, 1979 asking you to investigate Justice De­ was suspended without pay for 30 days and placed on partment leaks to Newfield. My lawyer had hand-deliv­ probation. ered a copy of that letter to the u. s. Attorney's Office Ertel had informed Th e New York Times that How­ in New York just 24 hours earlier. I would call that a ard Criden, an Abscam defendant, was cooperating pretty fa st leak, wouldn 't you Mr. Attorney General? fully with the Justice Department in an apparent at­ [emphasis added]." tempt to destroy the possibility of a unified defense. It is now known that the probable source of the Two of the principal leakers not named in the leaks to Newfield was Thomas Puccio, the head of the Blumenthal report were former FBI Assistant Director Organized Crime Strike Force handling Abscam for Neil Welch and, of course, Thomas Puccio. Welch, who New York's Eastern District. worked on a daily basis with Puccio to set up the Abscam "sting," resigned shortly after the Feb. 2 story Stage-managing a case broke and is now Kentucky's secretary of justice. When Puccio retook the stand in the Pratt hearings The fact that Puccio, the main Abscam prosecutor, to correct his apparent flirtation with perjury, he not was leaking was known to Attorney General Civiletti a only admitted discussing a book on Abscam "fairly full six months before the dramatic revelations during frequently" with Newfield, but showed more than a the Pratt hearings. little familiarity with the financial arrangements and On Oct. 8, 1980 former Rep. John Murphy (D-N.Y.) how he might benefit. filedpapers against NBC, its president Fred Silverman, Puccio admitted that he had "one or two discus­ NBC News President William Small, and NBC report­ sions" as well with Newfield and his agent Esther ers Jessica Savitch and Brian Ross. In a press statement Newberg. After categorically denying that "any figures on the same day, Murphy charged NBC with lying in terms of dollars" were mentioned, Puccio finally about the nature of his involvement in Abscam. blurted out that he had "glanced at" a contract in which In response to this suit, NBC agreed to cary a full Newfield's "unnamed collaborator" was to get a retraction of any misstatements, and futher revealed $40,000 advance. that its reporter Brian Ross had merely repeated as Newfield himself revealed to reporters fo r the Daily "fact" information leaked by the Justice Department. News two days after Puccio's Feb. 16 testimony: "I'm Commenting on this, Rep. Murphy stated: not sure I'm even going to do the book. I want to wait "Let there be no mistake as to what was afoot in and see if [Senator] Williams is convicted. Otherwise it February of this year-the Brian Ross episode was no may not be worth doing." accident. Federal investigators and prosecutors were In short, Puccio's receipt of a $40,000 book advance, deliberately leaking falsities and misinformation in an as well as untold royalties from book sales and movie almost hysterical race to destroy public fi gures about to rights, hinged on his ability to convict Senator Williams become enmeshed in Abscam. and other Abscam defendants. "Not content with selectively leaking edited tapes, Testimony equally as explosive as Puccio's presented contrived innuendo, and the like, the government by two New Jersey prosecutors, Ed Plaza and Bob Weir, 'sources' lied to their preselected crew of reporters .... at the Pratt hearings reveals that there were no lengths "Leaking seemingly incriminating evidence selec­ to which Puccio and the Civiletti Justice Department tively was reprehensible. would not go to obtain those convictions. Plaza stated "Leaking lies was despicable." that his first major doubts about the handling of Murphy reported his fi ndings from NBC to Attor­ Abscam arose when he stumbled upon a transcript in ney General Benjamin Civiletti in a letter dated Oct. 31, Puccio's Brooklyn office in July 1979 of a conversation 1980. In that letter he stated: between Abscam informant Mel Weinberg, Senator "In October 1979 I met with Michael E. Shaheen, Williams, and another Abscam target, Camden, N.J. Jr., of the Justice Department's Office of Professional Mayor Angelo Errichetti. Responsibility to discuss the constant stream of lies The conversation was a "rehearsal" at which Wein­ about me by a few Justice Department employees. He berg coached Williams because of the "Arab way of said he was appalled at the evidence I gave him and doing business" he must "come on strong" with repre­ indicated that it was one of the 'worst' cases of law­ sentatives of the phony Abscam "sheikh," even though enforcement leaks he had ever seen; he promised a the financing Senator Williams wanted for retooling a thorough investigation, nothing ensued .... titanium mine was perfectly legitimate. "Incidentally, while Mr. Shaheen was present, my It was such efforts to "stage manage" evidence, lawyer received a callfrom Mr. Jack Ne'rl-jield. afavorite among other outrageous acts, that led Philadelphia U.S. 'Ieakee' of some u. s. Attorneys in New York. Newfield District Judge John Fullam to reverse the two earlier actually had the contents of the letter from me to you of Abscam convictions on Nov. 26, 1980. Commenting on

EIR March 10, 1981 National 53 the Williams case in his decision, the Judge stated: as: Teamsters international vice-president Jackie Press­ "Mr. Weinberg engaged in an extensive coaching er, who was named a labor adviser by the new adminis­ session. In effect, the Senator was told that, whereas tation; former San Francisco Mayor Joe Alioto, who both he and the representatives knew that the proposed already successfully sued Look magazine for running venture was entirely legitimate, that it would not be similar Fratianno slanders; and entertainer Frank Sina­ expected to use his official position to advance the tra, a friend of both Attorney General William French interests of the enterprise, it would be helpful if the Smith and President Reagan. Senator were to impress the sheikh with the importance In an interview with EIR, New York Times Books of his position in the Senate, and his knowledge of other editor Hugh Howard, who oversaw the Fratianno book, important persons in the government. ... admitted that the Civiletti Justice Department had "Even more disturbing is the fact that, in a pre­ provided Demaris with documents and access to Fra­ prosecution memorandum dated December 12, 1979, tianno. "The FBI made available to [Demaris] selected and submitted to his superior . . . Thomas Puccio, Esq. documents and because of his close relationship with ... no mention is made of Weinberg's coaching of the FBI people a great many other documents that Senator Williams; only the tape of the actual meeting maybe should and maybe shouldn't have been given. I with the sheikh is referred." don't know. But he had just remarkable material to According to Plaza's testimony at the Pratt hearings, work with." Puccio not only concealed evidence of "coaching" to The question is raised whether the FBI also provided his superiors, but also to the grand jury which indicted documents on Presser, Alioto, and Sinatra, who have Williams. When Plaza discovered that the case against never been convicted of any crime whatsoever. Williams had been "stage managed," he and Weir Fratianno was also "loaned" by the Justice Depart­ confronted Puccio in a heated July 9, 1979 meeting. ment to NBC-TV to do a major slander on its Sixty Days later the Newark FBI officereceived a blister­ Minutes against the President and Attorney General ing telex message from Washington stating that they William French Smith. William Safire, a notorious were to be excluded from access to all further tapes and "calumnist" at the New York Times also went with transcripts dealing with Abscam unless specifically au­ unsubstantiated statements of Fratianno to attack thorized by Puccio. A special meeting was nonetheless Smith. Among Safire's close associates is McCarthyite called on Aug. 9 to discuss the Williams "coaching attorney Roy Marcus Cohn, a friend and business session" at which Plaza demanded that Weinberg stop partner of Joe "Bananas" Bonanno, with whom Fra­ putting "words in people's mouths." tianno has been linked as a partner in organized crime. Weinberg, whose continued immunity on an earlier Another federal witness used by NBC-TV to attack extortion conviction depended upon making fo ur cases, Secretary of Labor Raymond Donovan is convicted became visibly enraged and shouted at Plaza, "If I can't murderer Ralph "Little Ralphie" Picardo. A day after do that, we won't make no cases." After this confron­ Senate confirmation hearings fo und nothing to substan­ tation, orders came from Puccio's office that Plaza was tiate Picardo's charges against Donovan, NBC had to have no further access to Weinberg. Picardo repeat those allegations on nationwide TV. It is Weinberg's advice to "come on strong," which believed that the connection between NBC and Picardo created the appearance of guilt to grand jury members was arranged by Walter Sheridan, former head of the and, no doubt, created a videotape transcript ideal for Justice Department's "get Hoffa squad" who is now use in a book or movie under consideration by Puccio, chief investigator fo r Sen. Ted Kennedy (D-Mass.) on is solid proof of entrapment as Judge Fullam concluded. the Senate Labor and Human Resources Committee. Any crimes committed during Abscam were the crea­ An even more blatant case of Justice Department tions of the Justice Department collaboration involves Newsday reporter Bob Greene who is finishing a book on Abscam informant Mel Scribescam overview Weinberg. According to sources close to Jack Ander­ The massive pattern of leaks and collaboration son, the original manuscript is replete with confidential between Puccio and Newfield in Abscam is merely the transcripts and documentary material. tip of the "Scibescam" scandal. An equally glaring case Greene is a board member of Investigative Report­ is that of a joint effort by the Justice Department and ers and Editors, which with the Fund for Investigative its journalistic asset Ovid Demaris in the recently pub­ Journalism and the Center fo r Investigative Reporting, lished book The Last Mafioso. maintains a stable of Justice Department-linked jour­ In this book, Jimmy "the Weasel" Fratianno, an nalists. It is to these "press prostitutes" and a complicit admitted II-time murderer now on the payroll of the media network that the Justice Department turns when­ Federal Witness Protection Program, smears as organ­ ever it plans a major attack upon civil liberties and ized-crime-linked such respected constituency leaders constitutional government as in Abscam.

54 National EIR March 10, 1981 Who's who in Scribescam

The official chain of command for operations like up the government's outrageous entrapment of the Abscam, Brilab and Pendorf, starts from former At­ defendants in Abscam. torney General Benjamin Civiletti, to his assistant Jack Newfield : Senior editor of the notorious Vil­ heading the Criminal Division Philip Heymann, to lage Voice, which ran a character assass ination of David Margolis, head of the Organized Crime Strike Abscam defendant Rep. John Murphy during the Force. It includes the following: "covert" phase of Abscam. Newfield, "a close, per­ Benjamin Civiletti: Kennedy family protege who sonal friend" of Puccio, part of the Kennedy political went straight from law school to become an assistant apparatus, shared a summer home with Puccio on to Baltimore U.S. Attorney Joe Tydings in 1961. Martha's Vineyard during the Abscam investigation. Tydings ran JFK's 1960 Maryland presidential cam­ Newfield has a $40,000 advance-fee contract to write paign and worked on RFK's so-called war on organ­ a book on Abscam prosecutions. The contract in­ ized crime. From his later position at the Baltimore cludes another $40,000 fo r Puccio as coauthor. law firm of Venable, Baejer and Howard, Civiletti Bob Greene: Senior editor of Long Island Newsday, helped run the "dump Agnew first" aspect of Water­ which along with the New York Times's Leslie Mait­ gate. In payment for running Jimmy Carter's 1976 land leaked the Abscam investigation on Feb. 3, 1980, Maryland campaign, Civiletti was named assistant to prior to indictments, thus severely prejudicing the Attorney General GriffinBell. cases. Greene is now writing a book with Abscam During Civiletti's tenure in the DOJ, violent crime operative Mel Weinberg. Greene is chairman of the prosecutions dropped dramatically while "white col­ executive board of Investigative Reporters and Edi­ lar crime" prosecutions, previously nonexistent as a tors (IRE). IRE and Greene recently were fo und guilty category, took up the majority of Justice's resources. of maliciously inflicting psychological pain on Ne­ Some 20 members of the Weatherunderground, Re­ vada businessman Kemper Marley in their "investi­ publicof New Africa, and other terrorists (including gative" reporting on the Tom Bolles case. one who threatened to kill a President) have been Ovid Demaris: Justice Department literary asset released from prison or pardoned. who has just published a book with Jimmy "the With his Watergate background, Civiletti ran Weasel" Fratianno, put out by New York Times Koreagate, the perjury proceedings against former Books for use in the Reagangate operation. CIA director Richard Helms, and the coverup involv­ The "investigative journalist" circuit is used by the ing kickback scandals of Representative Eilberg, Rep­ Justice Department as street thugs to commit charac­ resentative Flood, and the Vesco affair, which threat­ ter assassinations against DOJ targets based on ened to sink the Carter administration. "leaks" from the Justice Department. The fraudulent Philip Heymann: Civiletti's assistant directing the exposes run are then "objectively reported" on by the Criminal Division. Heymann was directly implicated New York Times or NBC-TV. This yellow journalism in the coverup of Robert Vesco's attempt to buy his is run through Jack Anderson's Fund for Investigative way out of immigration problems with the Carter Journalism, whose Woodward and Bernstein peddled administration in 1979. the Watergate hoax; the Investigative Reporters and Irvin B. Nathan : Heymann's immediate sl,lbordi­ Editors, who ran the coverup of the drug trafficin the nate. Nathan ran the operation to cover the dirty Southwest under the pretense of investigating the tracks in Abscam, including the character assassina­ Bolles murder (the story was syndicated in Long tion of Plaza and Weir in his Jan. 6, 1981 memo. Island Newsday); and the West Coast's Center for David Margolis: Director of the Organized Crime Investigative Reporting whose material is published Strike Force (OCSF) who coordinated the fieldoper­ by Mother Jones and Pacific News Service. ations in BrHab, Abscam and Pendorf. Each of these operations has involved slandering Thomas Puccio: Director of the Brooklyn OCSF union leaders, public officials, and businessmen in and coordinator of Abscam at the field level as well as order to create a trial-by-press climate for the Justice chief prosecutor in the five primary Abscam cases. Department. This is exactly the scenario being re­ Puccio was directly involved in t he attempt to cover enacted in the current Reagangate operations.

EIR March 10, 1981 National 55 Interview

Senator Hatch talks about Brilab approach

Th e/ollowing is Pa rt Two o/ Barbara Dre}fuss 's exclusive the union, you have it in the businesses as well. interview with Sen. Orrin Hatch. the Utah Republican who chairs the Senate Labor Committee. Part One appeared in EIR: Hearings on Abscam in Judge Pratt's courtroom last week's issue o/ EIR. in Brooklyn, N.Y. have drawn into question the entire legality of the FBI activities, the Organized Crime Strike EIR: The New York Times has taken the liberty of Force and the way the Federal Witness Protection Pro­ putting some words into your mouth and several weeks gram operates. ago said that one of your main focuses will be on Sen. Hatch: I don't like the Abscam-type investigations. investigating corruption in the labor unions, mentioning I personally feel that law-enforcement officials should the International Longshoremen's Association and the never entice people to break the law. Teamsters. We understand that you will be interested in On the other hand, if there is corruption, I think we pursuing things other than continuing what we see as the should find it and root it out; that's part of our responsi­ Carter administration, the Carter Justice Department's bility, and I think union leaders would want to assist us witch-hunt against labor. in rooting out corruption. Sen. Hatch: I do not want a witch-hunt, but what I do want, and I think it's unfair fo r any reporter to misquote EIR: Will you look into the methods used by the Carter me because I have said that I think we ought to look into Justice Department in making their allegations against business-union corruption which rips off our blue-collar the unions? workers in America who are paying dues or into retire­ Sen. Hatch: I think, by necessity, that would be part of ment programs. I fr ankly think any union leader worth the hearings, as there would be people complaining his salt would want to get in and help us get rid of any about the methods. I'm not certain it's our committee's corruption that exists. I think any business leader would responsibility. But I don't want to have false methods want to do the same. I think we are on the verge of doing used to prove crime. We can do things in a legitimate that. constitutional way in this country, and to the extent we What I am not interested in is having a great name, can do that, we ought to do that. publicity, a set of hearings that maligns or hurts peoples' I'll tell you one thing I am interested in, and I think reputations. There's no question that we know there's the unions and I agree on, among others, and that is total some things wrong with business-union relations, that examination of sexual discrimination in the workplace. are illegal and some of them are criminal. Now, unlike Why shouldn't a woman who performs equal work get some past investigations, I want to approach it in as equal pay for that? Why should they get only 59 cents reasonable and decent a manner as we can. Try and clear compared to a male dollar? it up and get rid of thecri minal elements. And what about other forms of sexual discrimina­ But let's face it, there are four major unions that have tion-should they continue to exist? The answer is no. been accused, that have been charged with being influ­ And we're going to get to the bottom of it. That's already enced by the criminal element. You know as well as I one thing we've started hearings on. they are the ILA, Teamsters, Hotel and Restaurant, and There's another thing the unions and I are close on, Laborers unions. Now, whether it's true or not I don't closely identifiedwith: I applaud the AFL-CIO's inter­ know. But if itis true, we ought to root out crime. I think national labor relations program. I think they have done that's part of our committee's responsibility. But I don't some tremendous service to this country and I have put think we should rootit out unless it exists. It takes two to at least three speeches into the Congressional Record on tango. Generally, where you have a criminal influence in precisely that subject.

56 National EIR March 10, 1981 I have indicated to Lane Kirkland that I'll be sup­ Interview porting him at the ILO [International Labor Organiza­ tion], and I'll probably be supporting him at the Madrid conference [Conference on European Security and Co­ operation], where I will be a member of the commission. So there are two very good areas where we can help. I've also tried to get them to help me come up with ideas that will work in the youth employment area. They don't like our youth wage differential, so I suggested that they look at our Job Opportunities Bonus Bill, which may fit their needs and at the same time provide jobs for Rep. Mottl on the young people. The youth differential does make clear that the mini­ anti-Volcker fight mum wage is not a sacred concept, by allowing employ­ ers to pay 75 percent of minimum wages during the first The fo llowing is an interview by Anita Gallagher of the six-month training period. We think that would stimu­ National Democratic Policy Committee with Rep. Ronald late business, and particularly the small-business sector, Mottl, a Parma, Ohio Democrat. Mottl is a member of the in providing more jobs. The unions don't like it because House Energy and Commerce Committee, and the Ve ter­ they consider it an attack on their sacred minimum wage ans Affa irs Committee. He is cochairman and fo under of concept-I don't mean sacred sarcastically. the Congressional Suburban Caucus. On Feb. 18. Rep. So what I've done is come up with the Job Opportun­ Mottl introduced House Concurrent Resolution 44. ities Bonus Bill, which would give job opportunity bo­ nuses of essentially the welfare money we'd give to that Q: What is your House Concurrent Resolution 44? unemployed person anyway, to any business that em­ Rep. Mottl: Basically, it calls upon the Federal Reserve ploys that person on a 3-, 6-, 9-, 12-month basis, on a to re-examine its policies and to immediately lower inter­ check-release basis aftertra ining, a fo rmal training peri­ est rates to under 10 percent. In the resolution, it is od where they pay the minimum wage or better. We implied that the interest rates have devastated two major think it has potential. We're not quite sure what the industries in the United States that affect so many of the economic downside is, so we'e still in the process of American people. First is the housing and construction putting it together. That may be an alternative the unions industry, which is, in effect, at a virtual standstill, and the may like, and another way we can work together. second is the automobile industry ....We hope that the It would put perpetually unemployed to work and Reagan administration will immediately change its poli­ instead of giving them welfare, we would pay the small cy, and I have urged Reagan on several occasions to ask businessman so he could employ them, put them to work, Volcker to resign and put his own man in .... and gradually we would wean them off welfare after two or three years, so they'd be productive citizens who work Q: President Carter at one point attributed his election every day and have the self-esteem that comes from defeat to the policies pursued by V olcker and the Federal working. Reserve. In that light, how do you evaluate President Reagan's economic message of Feb. 18? EIR: Are there other areas your committee will get into? Rep. Mottl: I agreed with three-quarters of President Sen. Hatch: Well, as you know, we will be very involved Reagan's policies. The one-quarter that I didn't agree in health, education, handicapped matters, alcohol and with was that the Federal Reserve was sacrosanct; that drug abuse, employment and poverty-every one of it's an independent agency, and that you can't do any­ those subcommittees has meaning. We have a new family thing about it. That's the type of attitude that we have and human resources committee which I think is going had in the past that has hurt our country. I think what we to be very important. have to have is the President and a Congress that will say A lot of those aren't related directly to the labor to the Federal Reserve, if they are not doing their job for movement ...for example, on the health subcommittee, the country, "Listen, let's change your policies, or which I have brought into the full committee, I want to change the personnel running the Federal Reserve. Or have a home health-care bill which will allow the aged to let's scrap the Federal Reserve altogether, and start a stay in their homes, where they feel comfortable and new system." more secure, rather than fo rcing them to be institution­ alized under Medicare. We think it would save taxpayers' Q: At the governors' conference Feb. 23, Governor money, and at the same time be more humane than we Rhodes of Ohio questioned Norman Ture from the presently are. administration extensively about the fact that their tax

EIR March 10, 1981 National 57 policies do not give enough of an incentive for heavy created it. So if we are dissatisfied, either we can agitate industry like auto and steel. Could you comment? for different leadership, or secondly, we can abolish that Rep. Mottl: Basically, I thin k that the tax policy by the system, and come up with a substitute which we think administration and Congress has a role in creating an will be in the best interest of the country. atmosphere that is conducive fo r capital fo rmation. Ac­ celerated depreciation, which the administration is ad­ Q: Are you familiar with Rep. Byron Dorgan's bill, vocating, I think is good, and it will help the automobile H.R. 1640 that provides a mechanism for Congress to industry and the steel industry. But there could be other remove the chairman of the Federal Reserve upon a tax incentives, where you get a credit on buying an three-fifthsvote by the House and Senate? American car versus a fo reign car. So I think Governor Rep. Mottl: I think I would like to become a cosponsor Rhodes is partially right, but there can be more. of that. I will become a cosponsor.

Q: What support have you fo und in Congress for your Q: Are you familiar with Senator Sasser's S.R. 17, which resolution? calls for a study of a two-tiered credit system to provide Rep. Mottl: Well, we had introduced it last term, and we lower rates for industries like auto and housing? didn't have many cosponsors. I think we had less than Rep. Mottl: I would like to study it more, but it sounds ten. Surprisingly, Charlie Yanik [D-Ohio], who is chair­ pretty good. man of the subcommittee, and myself found that in those areas that are deeply affected by the automobile industry, Q: Henry Reuss has also been talking about bringing either manufacturing or sales, there were more represen­ down interest rates targeting credit away from "sunset" tatives to support our legislation. But other areas that industries like steel and auto, and into "sunrise" indus­ were not as deeply affe cted were less likely to. tries like light manufacturing and technetronics. Could Many people selfishly say that [they] get a cheaper you distinguish your resolution from this? car that's better made if it's fo reign, it's more gas effi­ Rep. Mottl: I couldn't without studying this whole con­ cient. But I think that if those people would think about cept comprehensively. I don't really know this distinction what it costs them in higher taxation to support unem­ between sunset and sunrise. But hopefully, Henry Reuss, ployment-for every percent increase in unemployment he's got so much wisdom, I am really looking fo r some in the United States, there is about $3 billion that will be leadership out of him and out of Fred St. Germain [0- spent for unemployment; that costs them indirectly, R.I.] Either we abolish the system or we improve upon it. which they don't see in the purchase of their car. Wej ust can't tolerate the way it's going now. I think history has shown that once you lose a sub­ stantial portion of the market, you don't regain it. What Q: Do you plan to introduce legislation to take your Japan and the other countries have gained is not going resolution a step further'? to be that easy fo r us to recapture. Rep. Mottl: I will do that if something does not happen in the very near future. Interest rates seem to be coming Q: Do you foresee Republican support fo r your bill? down a little bit, but I want to see a significant drop. And Rep. Mottl: Reagan's secretary of transportation, I want to see something done by the Reagan administra­ [Drew] Lewis said that he was fo r import relief, so tion. Otherwise, we are going to have to have legislative hopefully he will help us in that area. With regard to proposals. interest rates, I don't see a lot of support from the RepUblicans, so hopefully we will get it from the Demo­ Q: How will you work on this with your committee crats. assignment'? Rep. Mottl: I don't sit on the Banking Committee. I Q: Are you circulating a "Dear Colleague" letter, and think that what we are really going to have to do is get a what sponsors do you have'? consensus in the Democratic Caucus and force Reagan Rep. Mottl: Yes, our sponsors include Congressmen to act. We have only been here for a short time, and once Gore (D-Tenn.) Murphy (D-Pa.), Weaver (D-Ore.), Stan we start going on this, something may form in the next Parris (R-Va.), Whitehurst (R-Ya.), Bailey (D-Pa.), few weeks. Ouyer (R-Ohio), and Gus Yatron (D-Pa.). We don't have many. Q: Do you think House Majority Leader Wright intends to pull moderate Democrats together around this? Q: Do you think the Fed is totally independent, as Rep. Mottl: I hope so. He feels strongly on this issue. He Reagan implied in his speech, or do you think Congress and I are practically the only people in Congress who has a role to play in bringing it into line'? speak out on this issue. I hope that he will get some of us Rep. Mottl: Yes, we have a role to play, because we moderates together, and let's go.

58 National EIR March 10, 1981 Eye on Wa shington by Richard Cohen

'The dragon of chronic needs of investment for productivi­ emergency action to deal with the ty increases, re-industrialization­ high interest rates' high interest rates." the problem is enormous, but we Henry Reuss, the liberal chair­ In the days fo llowing Ronald Rea­ are way behind ....If you came in man of the Joint Economic Com­ gan's economic message, biparti­ with half for industry and only half mittee, will hold hearings this san opposition to Paul Volcker's for individuals, you might argue month aimed at legislation for a high interest rate attack on the differently, but right now major in­ "two-tiered" credit system. Sources United States has surfaced in Con­ dustries, auto and their suppliers, indicate that Reuss wants to main­ gress. I gathered a sampling of are operating at a loss ....in terest tain credit penalties on basic indus­ statements by congressmen and rates are killing them, you don't try, but ease up the situation for senators-nearly all of which have have refundability ... [We need "sunrise" sectors. been blacked out of the media. credit] to rebuild our steel and auto House Majority Leader Jim plants, and I don't see how we can Push continues for Wright of Texas said on the House be sure that money will go in enterprise zones floor Feb. 19: "Until we stabilize there ...." energy prices-and begin a dra­ Senator Nancy Kassebaum, a Jack Kemp has just hired Joe matic downward movement of in­ Republican, said: "We all want to Rodgers to head up the Buffalo terest rates-we will not scratch the see taxes cut, and we want to raise congressman's pet project. Rodg­ surface of the basic causes of infla­ productivity, too. Businessmen ers is a former aide to and close tion, no matter how successful we from my home state have told me friend of David Stockman. Kemp's may be on the budget." down to a man that they would new project is exporting "free en­ Deputy House Whip Bill Alex­ rather not see a tax cut but would terprise zones" to Third World ander of Arkansas on Feb. 19 de­ rather see interest rates come countries. nounced the "Federal Reserve's down." Norman Ture, the former chief cruelly high interest rates ....what The other Nebraska senator, economist at the Heritage Founda­ is needed is strong presidential sup­ Democrat James Exon, asked Re­ tion, calls himself a supply-side port for lowering the cost of credit gan a series of questions about pro­ economist. U.S. governors at their to productive sectors of the econo­ jections for the prime rate over conference this week learned that my and continuation of an aggres­ coming years. Dissatisfied with Mr. for Ture this appears to mean side­ sive export policy ....How can we Regan's waffling answer, Exon re­ lining supplies of industrial goods. ever expect to stop inflation if we sponded: "Certainly, Mr. Regan, He told the governors' conference allow the dragon of chronic high the prime rate has a large impact on that Reagan's proposed accelerated interest rates to swallow up the eco­ the budget and the federal debt. depreciation tax reform will be nomic gains we achieve by cutting You are telling me that you have no weighted against "older plants" lo­ budgets and taxes?" estimate on what the prime rate will cated in the steel, auto, and rubber Representative Byron Dorgan, be? Then I don't see how you can sectors. Governor Rhodes of Ohio Democrat of North Dakota, who come up with a balanced budget." was particularly appalled. Ture is earlier introduced the "Paul Volck­ Senator Mark Andrews, Re­ now assistant secretary of the er Retirement Act of 1981," said publican of North Dakota, told the Treasury for tax policy. Feb. 19 that the Reagan program Treasury Secretary, "What bothers Commerce Secretary Malcolm is "j ust a rough-draft chapter in me is the accuracy of your figures. Baldridge has decided that since the the inflation-fighting handbook." There is no point in treating us like U.S. Export-Import Bank is slated Dorgan demanded "chapters on mushrooms and putting manure on to lose a third of its funds, we energy and interest rates as well." us and keeping us in the dark. should-he told the governors' On Feb. 20, Treasury Secretary When are you going to give us the conference-throw the remainder Donald Regan testified in defense figures ...so we can actually eval­ into what he called "small and me­ of the Reagan program before the uate your proposals?" dium-sized business." This shift in Senate Budget Committee. Sen. Senator David Boren of Okla­ Exim loans and the proposed elim­ Donald Riegle, Democrat of Mich­ homa, a Democrat, told the Senate ination of the Economic Develop­ igan, told Regan: "You are finding Feb. 20 that he was "disappointed ment Agency are geared toward yourself in a minority. The business that the President did not announce promoting free zones, we hear.

EIR March 10, 1981 National 59 congressional Closeup by Barbara Dreyfuss and Susan Kokinda

the same standards to the Clinch the independence of the Fed is. At S enate Dems threaten River breeder reactor. the same time I believe that your nuclear programs EIR's sources have reported policies must be coordinated with While congressional Democrats as that Senator Ford is planning to the executive branch. a whole have vowed to make sup­ introduce legislation calling for the Senator John Heinz (R-Pa.) port of synthetic-fuels production repeal of the Price-Anderson Act, suggested that the Fed chairman a major issue of contention with which allows the government to should come before Congress reg­ the Reagan administration, Senate underwrite the amount of liability ularly to discuss whether he was Democrats on Feb. 23 specifically insurance required for a nuclear meeting the targets he had laid warned Energy Secretary James power plant. Repeal would wipe out. If the Fed chairman failed in Edwards that his nuclear programs out the nuclear industry. his efforts, perhaps he should then would get no support unless he resign, suggested the senator. "I supports synfuels projects as well. don't think that would work," Montana Democrat John Mel­ Volcker responded. "I think that cher threatened, "Jimmy Carter Volcker tells Congress the option that you have is to have didn't know enough to consult he will tighten money supply hearings like this one and satisfy Congress before releasing his en­ Federal Reserve Chairman Paul yourselves about our behavior or ergy program, and I think you Volcker told a Senate Banking remain dissatisfied." should note his experience. You Committee hearing Feb. 25 that he might have a very difficult time intends to tighten U.S. money sup­ getting what you want in that nu­ ply even further. "In 1980 the clear basket unless you deal with money supply was brought under our needs." closer control despite the high in­ Tower : Germans say Melcher was responding to Ed­ terest rates. Our 1981 targets are a lower interest rates wards' outline of Energy Depart­ lower supply of money and credit Asked if West German defense ment budget cuts, incl uding a $1 consistent with the capacity of the officials were clamoring for the billion cut in the synfuels program, economy to grow. Our policy will United States to lower interest a $400 million cut in the fossil fuels be restrictive ....We will continue rates as a matter of economic and program, a $400 million cut in to restrain money supply and cred­ military security, Sen. John Tower solar, and $600 million in conser­ it and we hope to see further decel­ (R-Texas) said, "Yes, you bet the vation programs. eration in the monetary aggregates West Germans would like us to Edwards also announced his in the years ahead." lower our interest rates ... the intention to upgrade nuclear pro­ The Senate Banking Commit­ Bundesbank has been saying this grams such as the Clinch River tee Chairman Jake Garn (R-Utah) fo r weeks." breeder reactor, and the Barnwell, supported Volcker. "{ have been Tower has just returned from a S.c. nuclear reprocessing plant, generally supportive of the Fed. 10-nation European and Middle and to speed up the nuclear licen­ While I disagree with some of the East tour and numerous meetings sing process and resolve the ques­ technical decisions relating to the with heads of state, and foreign tion of nuclear waste. aggregates, I will reiterate what I and defense ministers. In prepared In response, normally growth­ have said many times before, that remarks at a Washington press oriented Democrats are falling into it would make no difference who is conference Feb. 26, Tower said, a synfuels-versus-nuclear posture. the chairman of the Federal Re­ that he had fo und "major com­ Melcher was backed up by Sen. serve Board .... Budget cuts and plaints about U.S. security assist­ Wendell Ford (D-Ky.), who told tax cuts are an absolute comple­ ance," including the complaint of Edwards that if he was going to ment to your policies. I want to "the tremendous debt servicing apply a "free enterprise" test to stress the necessity for a restrictive burden associated with the high synthetic-fuels producton, letting monetary policy and restrictive fi s­ interest rates of U.S. credits." private industry take over govern­ cal policy .... I also want to indi­ Without criticizing the adequa­ ment programs, he should apply cate again how important I think cy of Reagan administration's eco-

60 National EIR March 10, 1981 nomic plans to bring down the "The U.S. has arrived at a po­ chairman Parren Mitchell (D-Md.) interest rates, Tower noted that it sition where too often only the told the representatives. is "important to remember that the projection of American military The main problem is the lack U.S. and its allies and friends have power can meet security challenges of capital fo r investment and high not only military, but also diplo­ that might otherwise be handled interest rates. "Every small busi­ matic and economic initiatives by properly equipped indigenous ness group feels that capital for­ available to them to enhance the fo rces," Tower said. mation is their chief problem," de­ security" of the Middle East and clared Walter Stults of the Nation­ other regions. al Association of Small Business He also reported that "correct­ Investment Companies. ing American defense industrial­ Bruce Hahn from the National base deficiencies" were discussed Volcker Retirement Tooling Machining Association with our allies. Act stalled told the committee that his indus­ "While the U.S. has awakened The Paul Volcker Retirement Act, try faces a shortage of skilled la­ to the need for a substantially H.R. 1640, introduced by Rep. By­ bor. He recommended a tax-credit increased defense effort," Tower ron Dorgan (D-N.D.), is being approach to solve the labor short­ said, "our allies in Europe, on the stalled by members of the House age pro blem. whole, do not view the West's se­ Banking Committee. Dorgan's The committee plans hearings curity situation as sufficiently crit­ bill, which would allow Congress in late March on the problems ical to warrant a more determined to remove the Fed chairman by a caused by high interest rates. defense effort on their part at the vote of 60 percent, has been re­ present time. ... There remains ferred to the subcommittee on Do­ significant opposition in Europe to mestic Monetary Policy, headed by some important NATO initiatives, ouse establishes Select Rep. Walter Fauntroy (D-D.C.), H especially regarding the moderni­ Committee on Narcotics chairman of the Congressional zation of long-range theater nucle­ By a vote of 276 to 101 the House Black Caucus. ar forces." reconstituted the Select Committee Fauntroy has stated that he This was due more to the do­ does not intend to hold hearings on Narcotics Feb. 25. The commit­ mestic political opposition West tee had been heavily contested as on the bill at all. According to European leaders fa ce, Tower ex­ too costly, especially since the No­ committee sources, Representative plained, rather than to leaders like vember defeat of Rep. Lester Wolff Fauntroy agrees with VoIcker's West German Chancellor Schmidt, (D-N.Y.), who had first initiated policies. whom Tower defended at a meet­ the committee and fought for its ing of the Wehrkunde he attended continued existence. Rep. Leo Zef­ while in West Germany. fe retti (D-N.Y.) is expected to be Among other comments, Tow­ the new committee chairman. er said that his visits "convinced" Tom Railsback (R-I1I.), who him "that current public assess­ S mall Business group will be the ranking Republican on ments of the ability to defend the hears problems of trade the committee, told EIR that the Persian Gulf against Soviet ag­ The House Small Business Com­ committee will focus on such gression are too pessimistic"; mittee heard reports first hand things as tracking down the top­ warned that the "Western world from 100 small-business trade as­ level drug pushers by tracing the must be prepared to counter effec­ sociations Feb. 23 on the problems flow of drug money; reviewing tively Colonel Qaddafi's attempts now confronting small business. methods of curtailing drug pro­ to build a Saharan empire"; and "I want from you ideas fo r legisla­ duction, including the use of para­ strongly urged that "the role of tion, a feeling of the problems you quat to destroy marijuana; the security assistance in our defense are encountering ... and your re­ abuse of licit drugs; and the prob­ strategies must again be empha­ action to the new administration's lems caused by funding cuts for sized. " pror::ed tax changes," committee drug-enforcement agencies.

EIR March 10, 1981 National 61 National News

that he is unaware of Pewitt's testimony. • Meanwhile, Representative Bouquard is sending a letter to Edwards protesting DO E subordinates Pewitt's testimony, as are prominent fu­ FBI attempts coup sion spokesmen and the Fusion Energy waffle on fusion Foundation. Bouquard's subcommittee in drug war In testimony before the Energy Research will begin hearing public witnesses on the FBI Director William H. Webster, in a and Production subcommittee of the fusion program next week. letter to President Reagan and press in­ House Science and Technology Commit­ terviews, is saying that all federal drug tee Feb. 25, Dr. Doug Pewitt, acting enforcement should come under FBI director of the DOE's Office of Energy control, an area never handled by FBI. Research, which oversees the nuclear fu­ Webster has been citing the FBI's "newly sion program, stated that the new admin­ developed expertise" in undercover work istration planned to "eliminate high fu­ in its Abscam investigations and its dis­ ture-year costs for certain projects that IADL agents may at "various reductions" in the FBI are not essential and to eliminate ineffec­ budget. Webster's proposal fo r the FBI tive efforts." pushing terrorism to be given control of all investigations, Pewitt was referring to the magnetic A series of interviews by EI R's Investiga­ training of undercover operatives, confi­ fusion program, as outlined in the Mc­ tive Leads specialists has traced plans for dential informants, and cash fl ows for Cormack bill passed last year. In his spring riots in the U.S. to a November buy-bust arrests, is seen by insiders as a testimony, Pewitt said, "Each of the proj­ 1980 conference of the International bid to sidetrack a strong commitment to ects to be canceled had been well planned Association of Democratic Lawyers a national war against drugs. and justified scientifically, and would (IADL), held in Malta every five years. He cites "vast amounts of drugs com­ have produced useful technical input for That conference mapped out legal strat­ ing in from outside the country, over­ the ;usion engineering device." egy for the FALN and related Puerto whelming the resources of Customs and But, Pewitt stated, "Pursuing a vig­ Rican terrorist groups operating in the Drug Enforcement Administration orous program in times of fiscalau sterity North America. [DEAl." In effect, Webster proposes to inevitably involves some difficult With the strong support of the Soviet, continue the deadly budget cuts against choices." The administration "has no in­ East German, Libyan and other spokes­ the DEA that had weakened its opera­ tention of embarking on the schedule or men, the IADL unanimously passed a tions under the Carter administration. program in the fusion act." resolution introduced by Chicago FALN This move coincides with an inside Representative Marilyn Bouquard attorney Michael Deutsch, demanding operation by DEA director Peter Bensin­ (D-Tenn.), the chairman of the subcom­ that the U.S. government treat incarcer­ ger, who is currently using techniques mittee, was incredulous. "I am disap­ ated FALN terrorists as prisoners of war. characteristic of the FBI and its "in-place pointed in the DOE request," she stated. The IADL also demanded that the asset," the Anti-Defamation League of "Is there any doubt in your mind of the FALN be treated as a legitimate libera­ B'nai B'rith, to conduct a purge of some technical readiness of the program for tion movement outside American juris­ of the nation's best DEA officials, in­ the engineering state?" Pewitt replied, diction and subject only to international cluding officials of the DEA's New York "No, but it is a question of timing and law. Northeast Region, on charges of poor the need for additional baseload power­ Deutsch has sought to have his "cost efficiency." These men, threatened generating capacity in the future." FALN clients tried by an international with transfer or demotion by Bensinger, Since DOE Secretary James Ed­ tribunal rather than the Illinois courts. have been involved in developing major wards, in a House Appropriations sub­ Other conference delegates who also cases against top heroin traffickers in this committee hearing, had testified that the helped fo rmulate Deutsch's strategy in­ country and Italy. administration holds the view opposite clude Ramsey Clark and Lennox Hines. Bensinger has a history of close col­ to Pewitt, EIR asked Edwards at a bud­ Hines, IADL's representative at the laboration with Sen. Charles Percy (R­ get briefing Feb. 26 to comment on Pew­ U.N., is an official consultant to the Jus­ Ill.), a leading supporter of marijuana itt's testimony. tice Department's Community Relations decriminalization and the leading oppo­ Edwards replied: "We believe strong­ Service. The IADL, fo rmed in 1946 by nent of DEA-supported paraquat pro­ ly that fusion is one of those long-term, fo rmer French Comintern lawyers, is gram fo r eradication of Mexican mari­ high-payoff technologies that we should openly East bloc dominated and is juana cultivation. Bensinger is also a continue to push fo rward. This is a 20- staffed primarily by operatives from the close friend of the dubious fo rmer attor­ year to 30-year project, and one of the legal division of the U.S.A.-Canada In­ ney general, Edward Levi. things I wonder about is if it can be done stitute, Georgii Arbatov's Soviet think Antidrug fo rces consider auspicious ...in less time." tank, which is part of his KGB intelli­ the recent House vote to create a perma­ Edwards's comment tends to indicate gence faction. nent Special Oversight Committee on

62 National EIR March 10, 1981 Briefly

• SOCIALIST Carl Gershman has been appointed special assis­ tant to U.N. ambassador Jeane Kirkpatrick. Gershman is the for­ Drug Abuse and Control, replacing the mer leader of the Young People's Select Committee on Narcotics at its Socialist League and is currently 1980 chartered expiration. Sources re­ directClr of the Soc ial Democrats port that the Reagan administration will U.S.A, the U.S. branch of the So­ exempt law-enforcement from current Economists testify before cialist International, which sup­ across-the-board budget cuts. Members ports the overthrow of the Salva­ of the new House committee reported Senate subcommittee dorean junta. hearings will be held on banking reform Four U.S. economists testifying before to look into drug-related dirty-money the Senate subcommittee on Internation­ • CLINCH RIVER, the contro­ laundering, illegal drug-crop cultivation, al Economic Policy of the Foreign Rela­ versial nuclear breeder reactor and sanctions against drug-exporting tions Committee Feb. 23 stated that there may soon receive approval for nations like Iran. was little danger of a debt default from completion from President Rea­ the less-developed countries in the short gan, announced Senate Majority term, despite high interest rates and other Leader Howard Baker on Feb. 2. economic dislocations. The hearings The Carter administration had were held to review the debt situation of tried to kill the fuel-efficient ener­ the LDCs. gy project. LaRouche winds up There is another danger, however, the economists said. President Reagan's • CASPAR Weinberger will be tour in Houston proposed budget includes a 10 percent the featured speaker at the Tri­ Lyndon LaRouche, former candidate for cut in fo reign aid monies, and freezes lateral Commission meeting in the Democratic presidential nomination them fo r five years. An economist from Washington, March 28-30. Wein­ and an EIR contributing editor, complet­ the Bank of America pointed out that the berger is a fo rmer member of the ed a several-weeks national tour Feb. 23, International Monetary Fund has a role commission, whose other mem­ speaking to 300 Democratic, business of "surveillance and adjustments." An­ bers include fo rmer President Car­ and labor leaders in Houston, Texas. other economist told the subcommittee ter, Zbigniew Brzezinski, and Wal­ LaRouche detailed what they must do to bluntly that the United States must sup­ ter Mondale. get the Reagan administration back on port "multilateral institutions" like the track to fu lfillits mandate for economic IMF and World Bank because the only • GEORGETOWN'S Center for growth. alternative, he said, is "bilateral agree­ Strategic and International Stud­ "We have only a short time," La­ ments." ies held a meeting of 30 specialists Rouche told the audience, "to save the Bilateral agreements, the Bank of this week to discuss "the demo­ Reagan administration from the eco­ America economist said, are insufficient gaphic and national security impli­ nomic wrecking policies of Carter ad­ to discipline the LDCs to make the nec­ cations of the Salvador revolu­ minstation holdover Paul A. Volcker at essary adjustments. "The discipline of tion." Addressing the group will the Federal Reserve Board and the con­ the multinational institutions is essential be William Paddock (see Special frontationist fo reign policy of Secretary for commercial lenders. These adjust­ Report) and Cord Meyer (see page of State Alexander Haig." To judo the ments determine who is creditworthy." 50). Haig-Volcker hold on the President, Arguing that IMF adjustments protect LaRouche said, "We've got to make the U.S. bank loans, the economists noted • FEMA, the Federal Emergency April summit of Mexican President Lo­ that U.S. banks hold 40 percent of the Management Agency, established pez Portillo and Ronald Reagan work. private loans to non-OPEC countries in by the Carter administration as a We've got to establish oil-for-technology Senator Mathias (D-Md.) asked the super crisis-management coordi­ deals. That's the key." witnesses: "Do you support the doubling nating agency, will be brought un­ LaRouche then called for a confer­ of the World Bank's capital?" Replied der the White House wing. Rich­ ence in Washington, D.C. in late March one witness, "If we don't participate, we ard Williamson, a White House to hammer out the specifics for such a lose our leverage. To put it crudely, we aide put the word out at the Gov­ deal. Further, LaRouche, chairman of have to pay for that." ernors Conference in Washington the advisory board of the National Dem­ Proposals were also made to get D.C. in late February that White ocratic Policy Committee which spon­ OPEC to make more loans to the indebt­ House counselor Ed Meese will sored his tour, told his audience that the ed less-developed countries, perhaps by personally take control of FEMA. key to whether Reagan fulfills his elec­ fo rming an "energy affiliate" to the Louis Guiffrida, a California law­ tion mandate for economic growth "de­ World Bank. Another proposal called enforcement and terrorism expert pends on what American citizens do" to for an International Monetary Fund and a friend of Meese, will be for­ break the administration from Carter window for compensatory financing for mally named to head the agency . policy holdovers. high interest rates.

EIR March 10, 1981 National 63 Energy Insider by William Engdahl

Hopeful change on oil leasing Interior Secretary other than fa vor­ Th e Cahfornia decision does not go fa r enough , however, ably. But he did express concern despite indignation among the environmen talists. that the scale of policy change in our offshore leasing policy toward more sales and far larger lease blocks (which would enable major The recent decision by u.s. Inte­ mitment to the President's (and the exploration projects of the scale of rior Secretary James Watt to re­ electorate's) mandate fo r growth. those in the North Sea to be under­ verse an action of his predecessor Watt was the target of ecofreaks taken) is not yet evident. Attacking on leasing of acreage off the Cali­ from David Brower's Friends ofthe those who cry that we are running fo rnia coast has predictably drawn Earth to Gaylord Nelson's Wilder­ out of oil and gas, Hedberg states outbursts of protest from various ness Society, who opposed Watt's bluntly that we have the possibility environmentalists. In a letter to the nomination because of his opposi­ of "tremendous amounts of oil and governors of California and Ore­ tion to Carter's zero-growth poli­ gas. The important thing-the only gon, Secretary Watt announced cies on federal land use. way to determine this-is to explore that he was reinstating four of five I want to draw attention to the for it." tracts of offshore shelf lands cut fact that this is a tentative and tiny I n an article in the Feb. 16 Oil & from consideration by "a decision beginning to the enormous re­ Gas Journal. Hedberg points out late last year by the previous secre­ source development task we face in that offshore, the U.S. government tary to drop fo ur basins." He told undoing the devastation of envi­ to date has leased no more than 3 the governors: "The President has ronmentalism run amok. percent (28,000 square miles) of the instructed me to take necessary A recent estimate by the Ameri­ almost 1,800,000 square miles of steps to increase domestic produc­ can Petroleum Institute is that the reasonably prospective offshore pe­ tion of oil and gas, and I firmly federal government still holds title troleum territory out to the base of intend to take those steps," adding to about one-third of all the land in the continental slope. This acreage that his fi nal determination will en­ the United States. This land, by the is as much as the land that has sure proper environmental protec­ best geophysical estimates, con­ yielded almost all U.S. production tion. tains at least 37 percent of our un­ and reserves to date. Watt's decision is significant discovered oil and natural gas liq­ Before they lost majority con­ because it is the new administra­ uids and 43 percent of our undis­ trol of the Senate Energy Commit­ tion's first scheduled Outer Conti­ covered natural gas. The unfortun­ tee to Sen. James McClure's party, nental Shelf (OCS) oil and gas lease ate decision by the past Senate to "Scoop" Jackson, and New sale, OCS Sale No. 53. Watt has declare some 104 million acres in Jersey's double-dribble solar advo­ told the two governors to reinstate remote Alaska as "wilderness" to cate "Dollar Bill" Bradley, issued a the four tracts, or almost double the be forever untouched by man un­ committee report pompously titled possible area under consideration. derscores the absurdity of recent "The Geopolitics of Oil." Their The new area being considered for restrictive lands policies that could thesis, after wasting time and tax­ possible lease sale in May could add to our energy resources. payer dollars on worthless consult­ now contain 1.3 million acres in 242 I recently to spoke to Dr. Hollis ants, is that the U.S. can do little to tracts. Andrus, in an eleventh-hour D. Hedberg, professor emeritus of improve domestic supplies . "slash-and-burn" move, cut this geology at Princeton University Senator McClure took excep­ down to 606,000 acres on the pre­ and a respected conSUlting geolo­ tion to the Jackson-Bradley view. text of possible environmental im­ gist who served on the Reagan En­ "At the federal level," McClure pact and lack of sufficient oil and ergy Policy Task Force chaired by stated, "the commitment necessary gas. The lands range from 3 miles to petroleum geologist Michel Hal­ to maximize all fo rms of domestic some 27 miles offshore. bouty of Houston. Hedberg cau­ energy production has not yet been A word of support is due Secre­ tioned that it is still too early to made." Let us hope he is soon prov­ tary Watt for showing early com- comment on the policies of the new en wrong.

64 National EIR March 10, 1981