Speaking Freely is an Asia Times Online feature that allows guest writers to have
their say.
Please click hereif you are interested in contributing.
I have been working for some seven years, with a background in global financial
services at the highest level, to assist Iran in developing a coherent
financial system fit for the 21st century.
Throughout this sometimes painful process I have made clear that the Western
"market economy" is fundamentally unsustainable and that its collapse would
occur sooner rather than later. Unfortunately, those decision-makers in Iran
who received my advice took the mistaken - but conventional - view that the
Western "Twin Peaks" financial market model based on
"debt" (credit created as money by credit institutions) and "equity" (in
corporations) was both sustainable and even desirable.
But, as I have been saying throughout, both privately and in articles published
globally, this model never was sustainable. Exponential economic growth
required by the mathematics of compound interest on a money supply based on
money as debt must always run up eventually against the finite nature of
Earth's resources - particularly carbon-based energy.
The problem - 'peak credit'
The dollar-based global financial system is continuing a slow, and
irreversible, collapse from the point - I call it "peak credit" - in August
2007 when the unsustainable US property price "bubble" finally burst.
The problem is not one of liquidity - that is, the absence of money - central
banks can print as much of that as necessary. The problem is a terminal
shortage of capital or equity in the global banking system - a solvency
problem. The US government was previously able to resolve such a problem, as
they did in the 1930s, by deploying unused domestic resources.
The US has brought forward, through its catastrophic waste of resources in
Iraq, its "Suez moment". This is the realization forced on Britain by the US in
1956 that economic realities require an end to empire. The US cannot resolve
the insolvency of the dollar-based global financial system without the
assistance of their international creditors, and this requires a new global
settlement - a Bretton Woods II.
It is ironic that Iran has been protected from being infected by the "Anglo
disease" by the very sanctions which were aimed at damaging it.
What is the alternative?
We must recognize the distinction between "money" and "money's worth" and
ensure that the financial system reflects this.
Over 70% of dollars created are in fact based on the value of land use - and
came into existence as loans secured by a legal claim or "mortgage" over land.
Most of the rest of the dollars are based on the value of carbon-based energy
(notably oil), much of which originated in Iran.
Firstly, in relation to energy, I advocate the replacement of the literally
worthless (because deficit-based) dollar created by the US Federal Reserve Bank
with an asset-based energy dollar or "carbon dollar" value unit based on the
intrinsic energy value of carbon-based fuels.
This currency would be created by unitizing energy as units redeemable against
energy within the "PetroTrust" framework I am presenting in Tehran at the
International Oil Refining Conference on October 11-12. Such units would then
circulate globally, subject to mutual guarantees, within the framework of an
International Clearing Union similar to that proposed by the great economist
John Maynard Keynes at the first Bretton Woods conference in 1944.
Secondly, in relation to the value of land, I propose a new co-ownership
framework for direct investment - unitization - in a new type of real estate
investment trust (REIT). This would replace the conventional financing of land
and buildings through secured "mortgage" lending, which invariably gives rise
to bubbles in land prices.
Such capital partnerships between investor and user of investment are already
emerging in the UK and will be immediately recognized by anyone who is familiar
with the revenue- and production-sharing agreements which have been at the
heart of Iranian and Middle Eastern commerce for literally thousands of years.
The alternative to an unsustainable deficit-based system can only be
asset-based, new forms of equity - beyond the corporation - to replace
unsustainable secured debt. Existing national accounting, based upon a national
debt, is fundamentally flawed but is unquestioned, and until recently,
unquestionable.
I believe that Iran could be the first to evolve a national equity to replace
much of its conventional national debt.
The means to do so is simply to use new alternatives to the legal form Iranians
- like everyone else - regard as a fixed constant - the limited company or
corporation. Once it is realized that alternatives to the corporation are not
only possible but are emerging because they actually work better, then
everything else will fall into place.
I am pointing out that Iran does not need to sell ownership and control of its
natural resources to multinationals when it can simply unitize and sell forward
part of its production to investors, receiving interest-free finance in return.
A new dawn
The resources of Iran in terms of energy, whether carbon-based or the energy of
its immensely talented and young population, are phenomenal. I believe that it
is possible for the Iranian people - with wise leadership, which is not lacking
- to harness these energies and to self-organize within agreed frameworks to
meet the global challenges we face.
It goes without saying that Iran cannot address these challenges alone. But I
believe that the simple, but radical partnership mechanisms now emerging will
not only allow Iran to transcend sterile arguments and competition, but to do
so in a way that integrates its eternal values with an optimal economic model
which will cure the Anglo disease.
Finally, to those in Iran who advocate reform, I have this advice: the last
thing Iran needs is to reform itself to achieve a Western financial market
model, which has demonstrably failed. Indeed, Iran is fortunate that
circumstances have prevented it from going down this road.
Instead, I believe that Iran should examine - from first principles - how a
market economy might operate collaboratively to develop Iran's productive
economy, rather than being operated as a casino for the benefit of financiers
at the expense of the productive economy.
I look forward to working with my Iranian friends to achieve an economy fit for
the 21st century
Chris Cook is a former director of the International Petroleum Exchange.
He is now a strategic market consultant, entrepreneur and commentator.
(Copyright 2008 Chris Cook.)
Speaking Freely is an Asia Times Online feature that allows guest writers to have
their say.
Please click hereif you are interested in contributing.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
