Only a Bretton Woods System Will
Solve the Financial Crisis
Schiller Institute Testimony to Danish Parliament
January 17, 2008
The following testimony was presented before the Political-Economic Committee of the Danish Parliament. At least 6 members of the committee were present, including 3 Social Democrats, plus one member each from the Danish Peoples Party, the Unity Party, and the Socialist Peoples Party.
Hello. I am Tom Gillesberg, chairman of the Schiller Institute in Denmark. Thank you for allowing us to appear.
We are here today because the credit crisis the world has experienced during the last six months, is part of a breakdown of the global financial system. Only by putting the entire system into bankruptcy reorganization, and establishing a new Bretton Woods system, can we avoid total chaos. The [Danish] Parliament has to therefore work for the establishment of such a Bretton Woods financial system, and make sure that the Danish authorities take the necessary precautions to protect the population, the physical economy and our bank and financial system.
The International Financial Crisis
When the international credit and financial crisis broke out at the end of July, due to the American sub-prime crisis, pulling the rug out from gigantic financial values, and started to topple banks, like the IKB-Bank in Germany, and the British Northern Rock, most people hoped that the German financial oversight authority BaFin was exagerating, when they called the crisis the worst banking crisis since the 1930s.
Today, it is clear that it is even worse than BaFin feared. We are not dealing with a sub-prime crisis, and some unlucky speculators, but with a breakdown of the entire international financial system. The system has been undermined by many years of financial speculation, which has created fictitious paper values, which now has to be written off by enormous amounts in the billions. Deutche Bank estimates that the 500 billion crowns [100 billion dollars] that the worlds banks, up until now have had to write off due to the sub-prime crisis, will grow to 2 trillion crowns [$400 billion], equivalent to 33 Kattegat bridges. At the same time, other bubbles are now bursting, like the stock market bubble, housing bubble, credit card bubble, and at some point, the gigantic deratives bubble. Enormous paper values are going up into smoke.
That will leave a great part of the worlds financial institutions bankrupt, and it is a crisis which is size and debth, exceeds that of the 1930s, and leads to thoughts of the financial breakdown of the 14th century, that after the bankruptcy of the Bardi and Perruzzi trading houses, led to the dark ages. The attempts of the central banks to postpone the crisis, by lowering the interest rate, and pump in massive amounts of liquidity, will simply lead to hyperinflation, as it was seen in Weimar Germany in 1923 - but this time, on a global scale.
LaRouches Proposal for a New Bretton Woods System
For a long time, Lyndon LaRouche, economist and former Democratic presidental pre-candidate, has been pointing towards the buildup of the present crisis. In the spirit of Roosevelts initiatives in the 1930s, he has warned against the wishes of the financial world, of letting the population pay for the crisis through a Draconian austerity policy, and has instead proposed a New Bretton Woods system, which means a bankruptcy reorganization of the old financial system, and the establishment of a new one with fixed-exchange rates. That will secure functioning banks and long-term credits for physical economic development, which is necessary for the future of global trade and our national welfare.
As the first step in the acute crisis, in August, he suggested "The Homeowners and Bank Protection Act of 2007," which can save the millions of American homeowners who are threatened by foreclosure, and protect the American banks. On the other hand, financial speculation, hedge funds, and the creative financial instruments can go down the drain. LaRouches proposal has been introduced into 8 state legislatures (with an additional 5 on the way), has been passed in 30 American cities, and has already begun to influence the American presidental elections.
After that, LaRouche thinks that the U.S. has to begin a New Deal, and, together with Russia, China, India, and other countries, establish the New Bretton Woods system, and an international collaboration around great infrastructure projects, like the Eurasian Land-Bridge, and a tunnel under the Bering Strait. Already, in 2005, the Italian Chamber of Deputies, decided to require the government to work for the establishment of a new financial system, and last week, signatures of 40 French mayors, including 2 members of Parliament, were published, supporting a New Bretton Woods.
What Do We Do in Denmark?
At home, the Schiller Institute, and the current speaker, have raised this debate. In the election in November 2005, we had the slogan, "When the Bubble Bursts... a New Bretton Woods," and during the recent parliamentary elections, posters saying, "After the Financial Crash - Maglev across the Kattegat." At the same time, we have distributed more than 200,000 campaign newspapers, to make sure that we can all prepare ourselves in time, for the financial floods on the way.
Denmark has to keep the [Danish] Crown, and our unique mortgage system, and, as soon as possible, get rid of the new, dangerous SDO loans(SCB - Special Covered Bonds). The [Danish] financial oversight authority has to map out the problems our banks are exposed to from abroad (including via foreign affiliates) and, throught greatly expanded lending at home. There has to be an intervention, in order to reduce the risks. At the same time, we have to prepare ourselves for the consequences of the Danish housing bubble, and the parallel to the American sub-prime crisis: hundreds of Danish morgage deed carrousels, which will soon collapse, together with the housing bubble.
Ambitious banks have uncritically lent money for construction projects, like those in Oerestaden [a newly built section of Copenhagen], with insecure collateral. Homeowners have been persuaded to use their homes as collateral for investment credits, that have been spent on consumption and geared financial investments, which have been feeding a Danish stock market bubble. The Danish banks and our economy will be hit hard by all of this.
The parliament has to instruct the government to work for the initiation of a New Bretton Woods financial system, and through measures like "The Homeowners and Bank Protection Act of 2007," make sure that Danish citizens and the Danish economy are protected.
The parliament also has to instruct the government to prepare a quick implementation of urgently needed infrastructure projects, that can keep the Danish economy going, and begin a shift in the national economy, away from an economy based on consumer spending, where service jobs are replacing jobs in the productive sector. We have to return to a investment driven economy, where investments in infrastructure, production and scientific and technological progress, creates the basis for increased productivity, and a higher living standard for the whole population.
The infrastructure budget has to be trippled, so we, besidesthe self-evident, acute, investments in highways and railroads, can build the user-paid bridge/tunnel-connections across the Fehmarn Belt, the Kattegat Sea and between HelsingÂ¯r [Denmark] and Helsingborg [Sweden], and a publically-paid Danish maglev network. This maglev network will not only reduce the travel time between Copenhagen and Aarhus to 25 minutes, but will, when fully developed, bring all of Denmark closer together, and be able to take over a large share of passenger and freight transportation. An international network will not only bring us to Stockholm, Oslo and Berlin in under an hour-and-a-quarter, but all the way to Asia and America.