Page 2 of 2 INTERVIEW Energy key to our civilization
By Lars Schall
KK: No. I mean, it is all about money, it is all about access to certain economic or corporate interests. I have never been in the top corporate world but I remember very well that having served in diplomacy the ways governments used to be careful not to share too much knowledge in many fields in order to preserve their economic interests. And that was only a few years ago that one would not share too much simply in order to have a certain information edge, momentum of speed, in order to conquer a
market or to obtain a contract. So, honestly, I cannot buy that argument.
LS: Does this NSA & Co. revelation also cast a light between the tension between a republic and an empire?
KK: Yes, it is. I think we are just right now at the brink once again of moving out very quickly of some sort of republican age that we could experience since the 1950s, 60s, 70s; maybe those were the top years with the kind of fight for transparency, fight for civil rights and over the last 20 years we have seen how authoritarian structures are on the rise and whether it was in the name of preserving the security of the citizens, so fighting terrorism, we have to renounce on certain well-obtained civil rights of 18th, 19th century. We have given up those and we are ready to give up other important norms, rights, concepts that are in my eyes the basis, but really the basis, of a civil society.
LS: Coming back to the East and coming back to the issue of money: China is getting increasingly out of US dollars, US treasury bills by buying, amongst other things, big amounts of gold. How do you view Beijing's ambition to promote the globalization of the yuan as a competitor of the US dollar and the euro?
KK: Well, I think it was the Governor of the Central Bank of China who wrote in spring 2009, if I recall it correctly, a very interesting essay in which he criticized the role of a reserve currency and he criticized indirectly the fiscal and monetary policy of a certain country. He never mentioned the United States but everybody who had read that article knew that it was about the US dollar, the United States. However, the main criticism was: do we need one single country running a single reserve currency? And from that article I would say that was a kind of balloon that was launched in a sense the yuan should have a certain weight in a currency basket for the foreseeable future. And what the Chinese had been pursuing for quite some years now is to create something like drawing rights as we have in the IMF instead of those highly politicized currencies. I am not a currency expert but I think there are many voices and they come not only from the Chinese Central Bank; they come from the British liberal economists to get out of this US dominated reserve currency business and move into a currency basket that reflects political and economical realities of this world today.
LS: And you think that buying gold is a good way to do this?
KK: Well, it's a very delicate debate these days given what has happened over the past three, four months. There are much better voices than mine to explain that or to get more insight on why it has happened, to what extent we have seen here a very strong manipulation of a market. Personally, I have always seen gold not as a commodity but as THE reserve currency, the one global reserve currency for those times when trust and confidence in paper money are in full decline. And trust these days after now six years of a permanent crisis, trust is bought at a very high price; it is bought via quantitative easing, it is simply bought but I think that in the ultimate moment paper money will again be linked to some sort of metal standard and the most probable option could be gold.
LS: Now combining gold, geopolitics and energy, I would like to ask you, related to the German gold reserves: wouldn't it be good to have all of Germany's gold on German soil to strike deals in the future with energy and natural resource exporters of whom I think that they will be interested to trade rather in gold than in fiat money?
KK: I think that having gold - whether you are now an individual or whether you are a country - it is all about physical control of the gold, of whatever reserve in which you want to store your wealth. And this is a very old, if not to say archaic, behavior, knowledge, in the human being. Physical control over something. It is not sufficient to have the title, the concession; because property is just a title. We know it from many examples in history that at certain moments you need physical control over something. So, I think gold reserves belong to the country which have the title and to be physically there.
Personally I am not convinced by the argument that because gold is traded in London and in New York it should be there so that it can be sold physically and bought physically. We are not anymore in such a trader's world. On the contrary, we are going back to times where it would be very important to have physical control over something. And this is also the momentum of all commodity policy; it is always about having physical access to something. And that's what counts and now when we look into the future - some observers have been claiming for years that sooner or later oil might be traded again in gold, this is an idea that has been around in the oil market for at least, I would say, ten, 15 years, - yes, it could happen again. I do not know how and where and when but the knowledge about inflation is still very well remembered in a number of oil producing countries. In 1973, when we had the oil price shock and the oil price rose by four times within a few weeks, actually the oil producing countries did not profit so much from a rise then because that was accompanied by an enormous inflation of 14, 15 per cent in the 1970s. And there is a slogan from the 70s that I would say is still valid to a certain extent for OPEC countries today. Namely, the best way to protect oil or whatever commodity you produce against inflation is to keep it under the surface.
LS: One indication of the decreasing confidence in the US dollar is the discussion of the 30 year-plus debasement of the dollar in OPEC circles. They are not really satisfied with it. Do you think we are entering a final phase of the petrodollar?
KK: That is a question I have been asking OPEC people over the past seven years. (laughs) And they never wanted to answer it. Maybe the answer to that, not wishing to answer is, many of those countries have stocked a lot of their wealth in US dollar assets. That might be the answer to it. And for a certain period of time we saw people wishing to diversify into euro, we have seen what has happened to the euro; so the dollar is back also for the reason that the euro is so weak or simply not existing anymore most probably. But I think that the enormous inflation that is happening with the quantity of easing and now again with these very strange announcements and withdrawing of announcements over the past two, three weeks - I mean can one still take serious what is happening there? I personally have a problem with that, so I think that the strength is also based a lot on manipulated perception.
LS: With regards to the tensions between the US, Israel and Iran, Russia, China, how would you solve the problem?
KK: That was the most interesting outcome of my journey to Iran a few months ago. I was there in December last year, half a year ago. I spoke to some consultants and they told me their biggest clients right now are US companies who wish to have feasibility studies how to re-conquer the Iranian market. They are all eager to get into that market, they need it. There is a strange hate-love relationship between Iran and the United States. Publicly they hate each other but on an interior level there is a lot of admiration for each other, especially from the Iranian side. And you have millions with a dual citizenship, US/Iranian citizenship. And there are lots of signs and I am now not so much surprised by the outcome of the Iranian elections. They are pragmatic enough to know that something has to change. And this something has to change will definitely be some sort of honorable exit strategy of the stalemate in the nuclear negotiations. So something will happen in there and the Iranians would love to work together again with the United States and they would prefer to have US investments in civil nuclear energy projects than to have Russians or Chinese doing it. And I think the Iranian, Indian, Tajikistan, Afghanistan area, which is culturally fairly close intertwined by language, by ethnic ascent, could serve as some sort of counterweight to too much Chinese dominance for instance.
LS: Would it also be useful if the US would become clean related to its, let's say, bad influence in Iranian history?
KK: Yes, but I think there really is a very strange love-hate relationship between the two of them. And the ... I cannot imagine anybody in public opinion in the United States being really clear cut and honest about the dreadful role they have played at various instances; inter alia by kicking out an elected government, Mossadegh, in 1953. But what counts for them right now, I think, is have access to a good market. That's what they are eager for.
LS: Okay. In your book you also compare patterns of the rise and the decline of cultures and civilizations? What is the common theme?
KK: I think that the crux of today's civilization, in particular in our part of the world but not only there, is energy as we have just talked in detail about. Pipelines, geopolitics and all that. So when we have less energy at our disposal or we have to pay more for that, there might be revolts as we have seen in Bulgaria. A government stumbled and there is a strong public protest continuing in a country like Bulgaria because inter alia for electricity bills. So it is not only about having access to energy but it is also about having access to affordable energy and this is something that will become more and more essential in our part of the world. And if we look back to earlier stages of human history, we used to spend a lot of time of the day to find the food and the energy to warm it up. And I think we are right now back on that way. We will spend in the immediate future more time, more money, more labor for food and for energy.
Note:
1. Treppenwitz der Geschichte - irony / paradox of history.
This is an unedited part of an interview first published on the Lars Schall website. For the full interview see here.
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