TV2 News interview of Tom Gillesberg on Oct. 13, 2008

This is the English translation of the first segment of TV2 News Oct. 13 interview with Tom Gillesberg (TG), chairman of the Schiller Institute in Denmark. The two interviewers are senior journalists Niels Brink (NB) and Lotte Mejlhede (LM). The live interview occurred at 9:15 p.m. on the only 24-hour national TV news station in Denmark. The interview has been rebroadcast many times

NB: Yes, Tom Gillesberg is now here in the studio. Welcome.

TG: Thank you.

NB: You are chairman of the Danish branch of the Schiller Institute. Welcome.

TG: Thank you.

NB: First, you must explain to me or tell me, what is the Schiller Institute?

TG: Well, it is an international campaign which is fighting for a new just world economic order, which, for more than ten years, has had as one of its main points, that we need a New Bretton Woods financial system.

NB: Yes, and we'll return to this, this Bretton Woods, but, firstly, I would like to tell the audience that you ran for office in 2005 as an independent, precisely with a program for a new financial system. And, unfortunately, it looks as though you were correct in your predictions, that we were getting close to a crash. Are you sorry about that, or are you joyfully rubbing your hands?

TG: I'm glad that we can now begin to do something about this, because the problems have been there for a long time. The reason that we said that that had to happen, is because there has actually been a gigantic financial bubble which has simply grown bigger and bigger. And the bigger it gets, without anyone doing anything about it, the harder it gets to do anything. And that is what we are seeing now. It would have been much easier to solve ten years ago. Now it is a gigantic problem, because there is not a bank in the entire world that hasn't been involved in speculating in all of these exotic instruments -- derivatives and other things. Now it is here.

Even [British Prime Minister] Gordon Brown actually said today that we must discuss a new Bretton Woods conference, a new financial system. Well, it is good that we are now starting to do that, since it has to happen fast.

NB: Maybe we have to talk about Bretton Woods, since, as you say, Gordon Brown came out with it today. We have a chart here that shows something about Bretton Woods; it was created by the 44 nations that were on the side of the Allies, toward the end of World War II. And they held the meeting in the American city Bretton Woods, therefore the name. It was a very large economic agreement. And it was supposed to ensure that the world could recover after the war ended, and there was peace. The main idea was to prevent the repetition of the crisis during the '30s, that led to the problems we know about, and the whole Nazification of Germany, among other things, by ensuring certain regulation of currency rates and international capital movements. And then the International Monetary Fund, IMF, was established, and that meant that nations that had balance-of-payments problems, could get help from IMF if they had trouble with their currency. And, finally, it meant the establishment of the World Bank.

And then, unfortunately, Bretton Wood was dependent on all dollars being able to be exchanged for gold, and then, we saw that the U.S. dropped the gold standard in 1971. And thus, a part of the foundation of Bretton Woods was eliminated.

But what is it that you think is necessary to use from this today, in order ensure the future?

TG: Well, it is just as the American economist and former Democratic Presidential candidate Lyndon LaRouche said, who has been the standardbearer for a New Bretton Woods. What he has clearly presented, is that we must take the best parts of Franklin D. Roosevelt's intentions from the old system. And that means, that we must first acknowledge that the present system is kaput -- finished -- cannot be saved in its present form, and has to be reorganized. And that is what Gordon Brown has really said today. And there are many others who have said that recently. The next point is that we must return to a fixed-exchange-rate system, as we had until 1971. That is simply to say, that you can no longer speculate in floating currency rates -- that this gigantic speculation orgy, which the financial sector is running today, that that is simply dismantled.

NB: But, excuse me, a fixed exchange rate, then there is no expression of what any currency really is worth, so it is a political decision, to say that it is worth so much.

TG: Precisely. And that was how is was after the war. And that produced very stable conditions, where you knew what you could count on, when you were trading internationally. What was then added, and which has to be added, is a credit mechanism. That is, there has to be a way to create credit internationally for great infrastructure projects. In order to make it possible for Africa, South America, and the poor parts of Asia to be developed. Because, if we do that, we will again [have an?] international economic driver.

LM: Can I ask you one thing in connection with this? Isn't it that what we are dealing with is to kill capitalism in its present form? Because then you would have much, much stronger control?

TG: Yes. It is a return to the sort of capitalism that Franklin D. Roosevelt represented, which is not the sort of wild financial capitalism, where people make money with money, but where the financial system becomes a subdivision of the physical economy. That means, that the priority is that you have industry, that you have farming, that trade functions, but all that is speculation, purely for the sake of the speculators, is gotten rid of. And right now, I think there is widely spread recognition throughout the world, that you need regulation. The big fight is how strongly you have to intervene.

NB: Yes, because you are talking about regulating some financial markets. But, then, on top of that, you add an ideological element, when you say, besides that, we have to develop all the countries that are moving forward, and all those that are underdeveloped, and give them.... And, in that case, then the amount of money we are talking about here, won't be enough.

TG: But that is exactly what Roosevelt did. Roosevelt's program was not simply technical, financial. It was a development program for the whole world. And it was the idea that in that way, with economic development for all nations, we would create lasting peace. And that is, actually, what we have to return to today. LaRouche, who, as I said, is the standard bearer for this, has said that the U.S. must approach Russia, China and India, and get them to be part of a deal.

NB: Yes, because in the old days, they were not at the table. They were not capitalist economies, like they are today.

TG: Right. And there are some people today, who are trying. to say, "But they are our enemies. We need a confrontation with Russia. Recently, we had the crisis around South Ossetia, etc. The same with China. Instead of saying that they should be our enemies, the U.S. should simply state, "We four big countries will sit down together, together with Europe, together with Japan, together with others, of course, and then we create a new system, which has peace and development on its agenda, for a long time to come.

LM: That sounds like a tremendous change, and the question is, if it is realistic, because, if you don't have the market forces under any control, and thereby also, people invest simply to make a profit, what then will be the driving force?.

TG: But right now, the problem is that those market forces can never create the credit. Right now, everybody is in a credit crunch. There is no money to be gotten from the private market forces, and therefore, it is up to the nations to create credit. As an example, here in Denmark, we could choose to say, we have a national bank. Let's use it as a national bank. Because, when there is no money for industrial projects, investment in farming, to build big bridge projects, for instance, because there is not credit in the markets, then the state can intervene. The parliament can legislate that we give the national bank authorization to create credit. A couple of hundred billions, for the sort of earmarked investments in production.

NB: Isn't that what you call "state capitalism"?.

TG: It is what was called the "American System." It was what Roosevelt represented. The man that started all this was Alexander Hamilton, the first Treasury Secretary in the U.S., who created the first National Bank of the U.S.

NB: That is all fine and good in developed economies. If we are talking about an economy which wants to develop further, from a reasonable level, then, you have to take a risk. That is the characteristic of all investing. Do you think that is wrong?

TG: You have to develop your economy, and that is not something you only do at a specific time -- it's a long-term process. And we have had a number of years, where everybody said that the American consumption had to be the driving force in the world economy. That can no longer continue. Therefore, the driving force has to be a development of the poor areas of the world, that truly have a gigantic need of development. All they need is credit. If we create a system, where credit is there, we will see a world economy which is going full steam ahead, like never before.

LM: Let's jump to today, 2008. A huge amount of aid packages have just been adopted. Are these aid packages part of the right way towards the form of controlled capitalism you are talking about?

TG: No. These aid packages are a poor attempt to temporarily sustain the markets, temporarily create a certain amount of trust. The problem is that what is not talked about, is the derivatives floating around out there.

LM: What are you talking about?

TG: It is the so-called derived financial instruments. It started with options and futures. Today, it's asset backed securities, credit swaps, etc. But the size of these speculative instruments are now ten times greater than the world's gross national product. That is the reason that, from one day to the next, banks simply go bankrupt. It's gigantic. And if you attempt to save it -- save this mountain of derivatives, then there is not enough money in the whole world. The nations will simply go bankrupt, one after another, therefore, you have to recognize that we have to cut this out. Derivatives will be placed in a corner, and can be gone through at a later point when we have plenty of time, but now, we have to save the physical economy of the world. Make sure the banks function, that we have industry, we have farming, we have economic development.

NB: Tom Gillesberg, thank you for coming.

NB: Tom Gillesberg was actually with us just before. We have asked you to stay.

LM: We couldn't get enough.

NB: We've asked you to stay, in order to get more suggestions about what we should do about this crisis, and what the possibilities are. And what possibilities you see, so we will return to you in a moment.... (News & weather segment.)

NB: Welcome again, Tom Gillesberg, and the Danish branch of the Schiller Institute. Before the news break, we were talking about your allegation that for many years, the financial system, as we have known it, did not function. Now it has collapsed. Just to recapitulate: what do you think is the most important reason, if you would point to one thing, that it has gone so badly as it has?

TG: It is that it has become a huge speculation orgy. They kept on making new bubbles. First there was the IT bubble, and it burst. Then the housing bubble. And on top of all these bubbles, they have made these new creative (they call them) financial instruments -- derivatives, which in principle allows you to make money out of thin air.

NB: A derivative. Maybe someone says: If I buy a widget from you in 14 days, I think it'll be worth so or so much. Will someone lend me money to do that? It's artificial.

TG: Yes, and that it has come into the system to such an extent, because they simply said: You can lend money to anyone. If you are unsure of the deal, you can buy a derivative, an insurance policy.

LM: How do you define a derivative?

TG: It is a derived financial instrument. That means that you don't buy and sell something directly. You speculate on whether something goes up or down, in some way. And you can have them in 1st, 2nd, 3rd, 4th, 5th derivations -- farther and farther away from the object, and the amounts get larger and larger and larger.

The other thing we have seen today, is that all these derivatives are traded back and forth all over the world, and nobody knows who's got what. And that means you can have a bank with a very good reputation, but if they have a bunch of derivatives you don't know about, they could crash tomorrow. And that means you cannot trust anyone. That is the crisis we have today.

NB: So what you are telling us, is that we have to return to a system where we build the economy based on real values, is that correct?

TG: Yes.

NB: Try to explain it to me.

TG: It's about the fact that economy is about how we reproduce our society. We need industry, we need agriculture, we need infrastructure, and we need schools and hospitals. All these things have to function, and in order for that to happen as best as possible, we need some money to circulate to be instrumental in bringing that about. What has happened over the past many years, is that money has started to have its own system. You can earn money with money. Money creates money. And at one time or another, when enough money has been created out of money, you have the choice of either taking away a lot of these financial derivatives, and other stuff, or else a very small economy suddenly will have to pay some enormous sums, and then the economy collapses.

NB: But there are some who would argue... Karl Marx would probably be the first to agree with you on this. Now we have to say, "Isn't it the nature of capitalism, that if you are willing to run a risk with your money, then go ahead. Maybe you win, maybe you lose, that's life.

TG: That's the problem today, because then you have to say, "Well then, all these banks will just have to collapse." But if they do that, then we no longer have any economy. Then nothing in society would function. So therefore they say, "We've got to save the banks." That's fair enough. The problem is, though, if they're going to save everything, all these derivatives, then the aid packages you will have to pay out, will be so gigantic, that money will start to lose its value. That's what we see in the U.S. So we have a $700 million aid package, but it's like a snowball in Hell. Then you will need a package that is twice as big, or five times as big. And when the government takes the responsibility for all these fictional amounts from the financial world, you get to a point where the confidence in the government itself, and in the dollar, is gone.

LM: And that's what they're doing now, with the aid packages. And I can hear from you that this is not the way to go, with these packages. What should we be doing right now in order to permanently solve this crisis?

TG: People have to simply get together and make a new financial system. Put the current one under bankruptcy reorganization, which means the same as when you have a suspension of payments; you ensure that things can continue, you decide what is to be written off, what needs to be thrown out. Derivatives -- out with them! Which of the loans we maintain, which we throw out.

LM: What would it mean for you and me, and people that own things today?

TG: For me, who does not have large investments, it doesn't mean very much. For people with a lot of securities, if they are in a bank, it won't mean anything. But if they are derivatives, if they are very speculative investments, then they may find out, overnight, that what they thought was worth a great deal of money, has simply gone up in smoke. The important thing is, as we see it, that the physical economy still functions. That is what puts food on the table. That's what ensures our future.

LM: But may I ask you about one thing? You say it doesn't mean anything for people who have real wealth. Just before, you were talking about the housing bubble. There are probably a lot of people out there who will say: "Okay, if you make a new financial system, as you say, what will this mean for all the homeowners? What will it mean, if suddenly they no longer have any free value? They purchased their home for one price, and maybe they have earned some artificial money on it for a few years. Has it returned to the value they bought it for, or what?

TG: Well, that doesn't have anything to do with a new system. That is happening automatically at this moment. All these things will be written down all by themselves. What happens when people sit down and make a new Bretton Woods financial system, a new international financial system, is that a few leading nations... and if it is really going to work, the U.S. has to be there, and if it is going to be international this time, then Russia, China and India will have to be sitting at the table, and also many others. Then you make some international playing rules. We can fix the housing bubble in Denmark. We can ensure that the mortgage system functions. We can do many things internally. But as soon as we want to go out and trade with the rest of the world, then we need a financial system that works. Including confidence between banks, including confidence between nations.

NB: Now you say Bretton Woods, which was created by the Allies toward the end of World War II, as an attempt to ensure that some of the symptoms of sickness that economies had before the war, that people wanted to make sure wouldn't happen again, or that there would be another war. But the reason that they were able to create Bretton Woods, with currency control, with fixed rates of exchange, etc., was because they were the victors coming out of World War II, they were the Allies, they were the ones controlling the economy. Now we have a situation where China has a one-party system, Russia has its own way of handling its foreign affairs, and India, not to speak of South America. How do you get all these people ... this will be political, and not mechanical. When does it go from being mechanics, as I think you may be talking about, and when will it become political?

TG: That has been discussed for a long time now. Lyndon LaRouche, who has been the prime mover in this in the U.S. for many years, he has been all around the world. Right now Russia has come out, both Putin and Medvedev, and said, "We are ready to sit down with the U.S. and find a common solution to the financial problems the world has." China is deeply integrated into the American economy. It cannot survive unless a solution is found to this. So they are also ready to sit down and negotiate. The same with India. We are right now in the middle of a crisis, which is potentially so dangerous, that everyone knows that we have to do extraordinary things.

NB: That there is a chance.

TG: That there is a chance to make a great reform that will function.

LM: Many people will say that everything you have been talking about is completely unrealistic, but do you think, the way things look right now, that we are close to such a change?

TG: Yes, it's coming. A change will come. When Gordon Brown from the U.K. comes out and says that we need a new Bretton Woods conference, we need to make a new financial system. Great Britain has been -- if any -- the ones who have been against this throughout all the years. So that when even Great Britain comes out and says we have to have this conference, it's going to happen. The big question is, what will be the content? What will be the character of the new system? Will people be willing to cut away so much of the derivatives and fictive financial instruments, that the system which is to be built will function, or is there so much pressure from the financial world, which says, "Now it was functioning so well, and we are earning so much money from this." If people have no backbone, and don't cut to the bone, they'll make a system that will collapse again very soon.

LM: You mean a new financial crisis.

TG: Yes.

NB: So what you're saying is that we have a big crisis. Luckily, it's so big that we cannot ignore it. This is what can cause international leaders to sit down together.

TG: And the big question now is, what about the U.S.? It's very ironic, because we're in the middle of a financial crisis, and we really ought to make a new system before Christmas...

NB: And there's an election campaign.

TG: And there's an election campaign. We have a president who is an idiot, who doesn't know what's going on in the world, who is leaving office now. But neither McCain nor Obama are known for being on top of anything about economy. Still, we know that the U.S. has to take leadership in all of this, in order for it to function.

NB: Thank you very much for your view. From the Schiller Institute. We will see how much of this will happen, will be fulfilled. Thank you.