Sam's Exchange: State at War

© Photo : Source: Sam BardenSam Barden
Sam Barden - Sputnik International
There is a war raging inside the U.S. State Department at the moment, between those who back the real (energy) economy and those who back the financial (dollar) economy. In the course of my strategic advisory work at Wimpole International ( I ran headlong into this war.

There is a war raging inside the U.S. State Department at the moment, between those who back the real (energy) economy and those who back the financial (dollar) economy. In the course of my strategic advisory work at Wimpole International ( I ran headlong into this war.

In the 20th century dollar economy, we use currency created by banks as our unit of account, in this case the USD. Investment decisions are made “for profit” on the basis of the least dollar cost per unit of production: this is the Dollar economy which we take for granted.

But the emerging 21st century Energy economy is very different. When an absolute unit of energy is used as the unit of account, or energy standard, we make a very different value judgement based upon the least energy cost per unit of production. In the Energy economy, we naturally gravitate to the most efficient use of energy.

The battle between Dollar economics and Energy economics can also be viewed as Conflict economics versus Consensus economics. Dollar economics is by its very nature adversarial because all currencies compete in price against the national currency issued and controlled by the United States. As the world’s reserve currency, the USD is also the world’s price benchmark, backed up by the overwhelming power of the greatest military might the world has ever seen.

Energy Economics, on the other hand, is about consent, and the fact that a unit of energy is neutral, objective and independent of all nations. When an energy unit is used as the basis for price, then consumers immediately seek energy savings, using new technology, new ways of working, and even new ways of living.

What is not valued is wasted and while energy producing nations like Saudi Arabia waste energy on a cosmic scale, countries like Denmark with minimal energy resources can be the most ingenious in conserving it. But in truth we are all in the same boat. Producers and consumers in fact have a common interest in working together to make the most efficient use of the crucial resource of energy. The problem is that the middlemen who own and control the financial system and markets have a vested interest in volatility: for them price stability is death, and transparency the enemy of profit.

Those in the State Department who favor the financial economy over the real economy are fighting a losing battle. The cracks appearing in the U.S. banking giant JP Morgan Chase appear ominous for the U.S. banking system. While JP Morgan Chase is indeed too big to fail, it is definitely not too big to nationalize.

As the black hole at the dark heart of J P Morgan Chase's balance sheet gets bigger, the Obama Administration may have no choice but to nationalize the bank, and then slowly unwind and sell off its constituent parts.

As if J P Morgan Chase's fragility does not put the global financial economy under enough stress, Europe is imploding day by day, with Greece leading the race to the exit. Greek banks are already having serious liquidity problems, and Spain is not far behind them. With a new French government calling for less austerity not more, those who favor the financial economy over the real economy have lost the battle, and are about to lose the war.

This brings me to the sanctions on Iran which we are told are the last chance to avoid war.

In the coming days the 5 + 1 world powers and Iran will assemble in Baghdad to discuss Iran’s nuclear program. At the heart of these discussions are the physical and financial sanctions on Iran.

The financial sanction regime has led to a war being fought within the State Department. While many believe that the U.S. sanctions on Iran relate only to U.S. companies, meaning that U.S. companies cannot do business with Iran, they go much further.

For the dollar economists at the State Department, which does the banks' bidding and favors the financial economy over the real economy, it is a simple calculation: “You are either with us or against us.” So it is that India, Japan, and South Korea have all recently come under physical sanction pressure to reduce or altogether cease buying Iranian oil and if they do not, then U.S. financial institutions may cease to do business with them.

Unless foreign institutions cease to deal with Iran, the flow of U.S. dollar loans will cease, and U.S. shareholders will pull out their investment collapsing their share price. This is – as any Godfather would say – an offer they cannot refuse.

But the cost of keeping the financial economy alive is now so great, and income and wealth inequality so pervasive, that the real economy has been suffocated. The Arab Spring, and street protests around the world - like Occupy Wall Street - are the manifestations of this reality. Austerity has become unbearable.

So it is with sanctions. The effect of financial sanctions on multinational companies operating in the real world economy have led to part of the State Department becoming an arm of the banking system and effectively declaring war on another part of the State Department which is responsible for keeping the lights on.

This very secret war at the State Department is coming to a conclusion, and there can only be one winner. Because at the end of the day the Fed cannot print oil, and I believe we will see the pragmatic realists in the State Department backing the global transition to an energy standard.

The 20th century State Department is dead! Long live the 21st century State Department!

The views expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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.

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