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
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"
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
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
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
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.
(This article was published in The Asia Times on 9th
Copyright 2008 Chris Cook.)
See also Petro
Trust Paper I.O.R. 2008, and
the Petro Trust - power point presentation