As the G20 met in Cannes, France, last week there was much hope for a magical solution to the Greek debt crisis. Of course, before the summit got underway, Greece announced a referendum on whether it wanted the debt relief being offered, which meant that there was no hope for a solution at the G20 meeting. That meant no solution to Europe, or the rest of the western financial world’s debt crisis. Nevertheless, the leaders of the G20 continue to surf the wave of chaos that is dollar politics and the global debt crisis, looking to solve the world’s debt problems by issuing more debt, linked to austerity measures.
There was another meeting last week. It was in Tehran, Iran. The meeting was held by the IIES (Institute for International Energy Studies). In fact it was their 15th Annual conference, and I, along with my college, Chris Cook, were key note speakers. We were in good company. Also speaking was the OPEC (Organization of Petroleum Exporting Countries) Secretary General, the GECF (Gas Exporting Countries Forum) Secretary General, and the IEF (International Energy Forum) Secretary General. The ECO (Economic Co-operation Organization) was also represented and we also heard from the Iranian Oil Minister and the Vice President of Iran.
The point is that as the G20 countries’ main focus was on how they could save their economies from default, by issuing even more debt. The conference in Iran spoke of innovation in technology and how the energy producing and consuming nations can work together to achieve energy efficiency, stability and security. Chris Cook and I presented a simple yet radical new market framework, along with a global product set, called 21st Century Resilient Markets, and 21st Century Energy Funding and Finance. It is estimated that the global market in gas alone through to 2035 will need trillions of dollars in new investments alone.
As the G20 meeting has highlighted, dollar economics (debt driven) are subject to dollar politics. Dollar politics is defined by bank intervention, where we have become totally reliant on Wall Street and the City of London for money supply since they seem to supply it. As we saw in 2008, it was the banks who received bailouts, not the people.
Dollar politics is practiced through dollar diplomacy, which is what the G20 is all about. Through the IMF or the World Bank more debt is offered to pay existing debt, via the banks of course, in exchange for governments agreeing to austerity measures on their countries, which are normally things like slashing public sector spending, pensions and social security. Each country is also asked to increase taxes in order to pay for the new debt which is used to pay for the old debt. This is where the Greeks have said enough is enough. They do not want more debt. They are instead prepared to default, something which the European Union seems unprepared for. The credit crisis has invalidated dollar diplomacy. It is simply no longer working.
What we need is a debt equity swap. Our current economic system is distorted because it is overlaid by bank money which is intrinsically worthless.
The time is right for a move to reality-based economics, by way of swapping debt based money for intrinsic-based value. The simple solution is to price our currencies not against something with no intrinsic value such as debt, but price it against something with intrinsic value such as energy, or more specifically energy units.
An energy unit is an undated credit, redeemable in payment for the underlying. This is different to a USD (actually a Federal Reserve Note) because an energy unit is asset-based, whereas a USD is debt-based. If we start with an energy unit in gas, and say that each energy unit in gas is redeemable for 5 mmbtu (one million British thermal units) each worth $5, then all of the sudden we have an asset-based currency valued in energy. To put this in perspective, one btu would heat about three cups of tea or 500 milliliters of water.
Dollar politics and dollar economics will evolve to energy economics. Energy economics is neutral, and relies on innovation of production, efficiency of distribution and a mechanism for clearing and account. This will drive us to naturally value energy savings, unlike the current carbon tax, which has no intrinsic value and taxes valueless CO2 emissions. Energy economics is not an alternative to dollar economics but is a complimentary or additional economic approach.
Energy diplomacy will be instrumental in this evolution. The IEF (International Energy Forum) has 87 member countries which account for 90% of oil and Gas supply and demand, just one home for the practice of Energy diplomacy. As long as we keep riding the wave of chaos with the G20, we know what the result is likely to be.
Chaos!
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Current markets are anything but global or integrated. What if we had a paradigm shift in the way we think and transact when doing business with each other? Balanced global trade can only occur if we have transparent, accessible and efficient markets. We are on the cusp of achieving this, although most people cannot see it. Sam’s Exchange aims to give its readers a clearer view and a platform for discussion. Markets, trade and economics are in fact nothing more than the result of our thoughts and actions expressed in numbers, not the reverse.
Sam Barden is founding Partner of SBI Markets DMCC, a Dubai-registered commodities trading and advisory company. Barden has worked in the global financial markets for more than 17 years in Europe, Russia and the Middle East. He has advised and executed strategic transactions for both the government and private sector, in particular in energy and commodity markets, advising various energy producing nations on their strategic market developments and interaction. He holds a degree in economics and finance from Victoria University, Melbourne, Australia.
