Planck Foundation



So we obviously have a problem regarding the future energy supply and thereby regarding the future energy price. High energy prices equals less prosperity. But there's also problem regarding the capital supply, due a debt burden financial system, where consuming on credit replace good old fashion saving as economical concept. We have two huge problems. Energy and Credit are the oxygen and blood of each economy. Will we survive? Better said as: How can we fix these two foundations on which our economic building is build on? First of all: we need a new energy model. The old (on fuel brought in from somewhere else based) energy model is not valid for the coming years. It will completely drain all wealth out of any economy that depends on it. Of course any energy conservation will equal prosperity increase. The 21st century prosperity model is contrary to the 20th century economic model where energy use was equal to prosperity increase. Low energy use equals high prosperity economics in the 21st century economic model. But fixing a little one pillar doesn't save the building. So we need a total new energy model. Secondly: We need to fix our financial model. Why fixing it? We certainly don't want a new finance model by default of the old one, as this will lead us to total lose of all savings and pensions. Sure, we want to grow to a less leverage based financial model, but without a collapse of the old one. Collapse of the global financial system, leads to chaos. Chaos (besides that it delivers a lot of suffering) will deliver not very nice versions of autocratic leadership. Than we just will repeat the 20th century with all it troubles. Building wealth is a gradual process. The way back will not go the gradual way. Growing is easy, declining is hard, structural decline in a on growth based financial system lead to collapse of the banking sector. The reason for this regularity is the fact that by absence of growth the money for the interest payments on all existing loans not is created and with mathematically certainty defaults are appearing (of course by the bad loans first). See the Global Future Analysis for the explanation of the mathematical certainty of this. We must replace our energy system and we must repair our financial system. The said thing is that we not only spoiled the main (best/cheapest) part of our energy/resources the last 30 years. We also wreaked our financial system due a economic system that encourage to consume more than we earn as income. Now we need to change from a fuel based energy system to a capital based energy system we're stocked with a financial system that is forgiven of weak assets. When we need the financial system to change our energy system, it's out of order till further notice. So we have two problems and no solution? No. The beauty of all is that both processes are possible and even can be made complementary to each other and enforce each other. How? By the 'kWh as ROI' model. This model delivers the financial industry a hedge against declining currency values. Simple said: if the dollar declines, oil advances. Currencies and commodities are each other counter parties in value development/direction. That the value of currencies will decline is undoubted as long as governments don't see the structural developments that are taking place and think this is just an other recession. Buy this misconception they think that everything still is the same and just needs for the moment some stimulus. They answering the wrong question i.e. giving medicine for an other cure. First the stimulus packages has the bank bailouts forced the governments to go significant deeper into debt. After that the stimulus packages have done the same over again. This in a time of economic decline and by that less fiscal income. Combine this with large quantitative easing operations by the central banks (even for bad debt like the Maiden Lane I to V vehicles) and you understand that both the banking system, the governmental debt load and the currency values are under heavy pressure. Banks will face loan defaults as long as the economy will not grow again and the economies of the Western World will not grow ever again. They have passed PeakEconomy. This due to sharp rising energy/resources prices, combined with a moving geo-economic sun towards the East and South. Any economic revival in the Western World will directly lead to a new energy/resource price spike due to PeakX. Banks just need to adjust to this new situation without collapsing. The have the adjust to new (decline instead of growth based market conditions. This has nothing to do with any ideology, it's just plain economics. The high leverage type of banking is gone. The global type of banking is gone. Capital will stay closer to home and will take less risks. We need to take care of our energy system and our financial system. We need to transit them both to a more sustainable model. Sustainable prosperity is the goal of everybody. There is no political colour in it. It's just want people all want, regarding their background, location and preferences. How we prevent collapse of the energy system, the financial system and currencies? Just by massive fuel-less energy investments. Several very simple measures/models will help is by realizing this. The first one that needs to be activate yesterday (and not the day after tomorrow sometimes) is called 'kWh as ROI'. In this model lenders gets paid back in value gaining kWh instead of in value declining currencies. This make Energy as ROI based energy investments very attractive for banks, pension funds and central banks. The kWh output hedges their assets noted in value declining currencies. If banks, pension funds and central banks get this, they move massive into energy investments, as that insures them of higher future asset values. Energy investments will 'vacuum clean' all capital out of the market if this model gets used massively. Therefore quantitative easing by central banks certainly will be needed, but if this QE is just only in 'Energy as ROI' models, it don't watering down the value of the central bank issued currency or weakens it. No, it will re-power the currency, empowering it again, deflating it value, stopping the inflation. Giving it more instead of less future value. Governments could join this 'Energy as ROI' process, as they count on inflation regarding more easier payment of their national debts. As we have faced PeakCapital/PeakCredit, national governments will face severe difficulties to fund both their budget overdraws/deficits (as in: the repayment of their debts). Energy investments will take over the capital feed that now goes into state debt bonds. State debt bonds will become very unattractive and states will need to balance their budgets completely as their access to the capital markets will be lowered by as PeakCapital is behind us and as pension funds will have more appetite for energy generating and energy transport investments. This decline of state bonds will be the gloom/gain of Energy as Currency. Smart states will combine currencies to the Energy as ROI concept and by this will be able to attract capital while other states will not be able to do so. Energy is Currency is a very valid statement.

Author: Gijs Graafland

Back to index page of Energy Economics | Energy Politics

Download the full Energy Economics report in PDF

Planck Foundation