Chris Cook: proposal for a new financial system after the meltdown

Chris Cook wrote this before a trip to Iran, so it is addressed to Iranian policy makers, but the points made have a general validity for the international financial system.

Chris Cook:

As I have been saying throughout, both privately and in articles published globally, this (western financial) 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.”

More information in the slide presentation at

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