 Hey, hello, and welcome to Stand Energy Man here on Think Tech Hawaii. And before I get into business, Think Tech is going through its springtime fundraiser. So if you like the shows on Think Tech and you want to contribute to it, go to ThinkTechHawaii.com and drop a nickel in the machine there. We appreciate it. Keep our shows going. We've got some hardworking staff behind the computers and the mixers and stuff that like getting a paycheck. So we'd like to keep them paid. Anyway, today's show is kind of a catch up from last week. We had some issues with some of the slides, internal issues. And so we didn't post the show to YouTube like we usually do. And we think we've resolved that. We're going to run through basically the same subject matter as last week. But I want to add a little bit of emphasis to it. I have a recurring guest, Dan Gohan, who I had to beg actually for almost a year to come on my show and he finally relented. And now I can't get rid of him even if I wanted to, but I don't want to. And the idea is he has a really big and close up view vantage point of global energy and economics and even things behind the scene that like computer software that runs systems like electric grids and insurance companies and things like that is rather unique personality. And what we're trying to do with when I have him on the show is to give people a kind of an advanced picture of where things are going that may not even be visible on the business news networks or whatever on TV. And so I think he's a really important guest and we have some important information that we like to put out for people to think about. We're not trying to drive a particular outcome or a particular opinion or vantage point. We're just trying to say here's the reality of the world and a lot of times people that get confronted by things like economic policy and stuff don't understand where those policies come from. But and does and he'll cite the source and he'll say here's where here's where it exists. Here's where it comes from. Things like the petrodollar we talked about late last year, you know, and it gives you a better perspective on what's going on behind the scenes when you have things like the Ukraine invasion and such and you have inflation and things like that happening in our country. So the the basically sub subtitle of this story today is Pitbull Diplomacy and I put that on there as an attention getter to to what's going on with the invasion of Ukraine. You know, in the world, there's different ways to solve international disputes or international disagreements. The worst one being war and invasion. I mean, even as a retired general, I can tell you that most generals don't think war is such a great thing. It's expensive. It's wasteful. It's brutal. It's ugly. And we don't want it. It's you know, military guys aren't warmongers. They know what the real cost is and it's usually in their friends and their own families that they have to worry about it. And that's a perspective that down and I come from on this. But the reality is that whether it's economic warfare or or military warfare or political warfare, it all gets pretty ugly. And some people are better at it. They're more like Dalmatians and and and maybe iris setters. But some people are like put pitbulls and we're watching a pitbull in Ukraine right now and it causes some problems. So we're going to talk a little bit about that. But the bottom line is and we can start throwing the slides up right now. Actually, next slide. Government policies do matter and you have a role as a citizen in determining in this country anyway, determining who runs your government and what policies they put out. And it all starts with your personal habits, what you like, what you don't like, what you're willing to accept and not accept. And then that's also a requirement for citizens to be informed. I think one of the most critical deficits we have in our society today is we don't have people that really spent time studying history in school or paying attention to it. I certainly when I went to elementary and intermediate school, I was not into history at all. And it wasn't until after I got into college that I really got and gained an appreciation for history. And when I got in the military, I gained a serious understanding of the importance of history. So if you don't study history, you're definitely doomed to repeat it. That's an old quote. I'm sure it's claimed by several people. But trade policies matter and debt matters and energy really, really matters in today's world. People don't understand how important the energy that we use today, the fossil fuel that we use today is needed and the fact that you can't just shut it off and say, we need to go green. There's huge implications on how you make that transition. And that's where I think Dan gives us a lot of great insight because there's other implications to shutting off the oil spigot and natural gas spigot and saying, we're just going to go with windmills and solar panels. So Dan, welcome back to the show. Good to have you on. And I'm going to turn it over to you and let you kind of get off and run it. Sure. Thank you, Stan. So I can go to the next slide, please. OK. So what that is, it's a slide that shows the amount of natural gas production per day and consumption per day. So for example, in the case of Europe, Europe consumes 31 billion cubic meters of gas per day. Asia-specific consumes 20 billion cubic meters of gas per day. The production coming out of Africa is 7 billion cubic meters of gas per day. United North America is 8 billion cubic meters of gas per day. The Middle East produces 12 billion cubic meters of gas per day, and Russia produces 24 billion cubic meters of gas per day. In addition to that, Russia also exports about 4.5 million barrels of oil sent into Europe on a daily basis. So as far as world capacity, the world does not have the capacity to replace the Russian gas moving into Europe. For example, the United States, if we were to replace it, we would have to increase our natural gas system infrastructure by three times. That's not just the compressors and pumping stations down in Louisiana that fill the ships. That's all we'd have to have enough pipelines here in the United States. Obviously, the compressor facilities down in Louisiana. But we'd also have to increase the ship fleet by three times. All that equipment does not exist. And nobody has the ability to replace Russia's gas. In addition to that, a shortage of 4.5 million barrels of oil today, the reason why you're seeing a lot of the energy prices is because the world production of oil and the world consumption of oil closely matches roughly right on 100 billion barrels every day of oils producing consumed. If you remove 4.5 million barrels of that, nobody has enough excess capacity to replace that crude oil. Right now, what they're forecasting is Russia currently is shutting in about 3 million barrels a day of oil production. And by the month of May, well, first of all, once this oil shut in, what happens with wells is it's sort of like tar. If it's not flowing, it sort of builds up in there. It'll take them at least three years to clear up those wells, put them back into production. So we won't see that oil for three years. The United States may be able to produce another million barrels of oil a day. Maybe the Middle East another million barrels of oil a day. The point being is there's no way to replace Russian oil. In fact, the OPEC ministers just got together and told the EU yesterday that if you did a full sanction on Russia, that nobody has the ability to replace something like 7 million barrels of oil every day. So that's just the truth there. Next slide, please. OK. Russia, two years ago, de-dolarized their economy. What that means is they have no treasure bills in reserves. Whenever they were saying that they froze Russia's currency reserves, those reserves were actually dollar reserves of Russian corporations. The Russian government itself has no dollars in reserves. They have more gold in reserves than anything. Well, you see there, they've got yon, they've got Euro, they've got gold, and a number of other currencies. And that gives value to the ruble. And we're going to talk about the whole issue when it comes to central banking and using gold as reserve to back your currency. And to pay for commodities like oil, natural gas, wheat, fertilizer, everything. One of the things that happened is when we took Russia out of the Swiss system, the ruble went from roughly 80 rubles to a dollar. It jumped up to another 180 rubles to a dollar. Meaning it was a crash of the economy. Russia turned around and pegged the ruble to gold. Understand Russia has the second and third largest gold mine in the world. Within hours, the ruble went from 180 rubles all the way back down to 80 rubles a dollar. And it's been stable since then. So since then, since last Friday, Russia has unpagged the ruble from gold, right, they're letting free-floating. But understand the Russian central bank still has access to the world's second and third largest gold mines, just to feed it right into the central bank. And I'll explain later why that's important. If I can get you to go to the next slide, please. Okay. So what's going on here? So this was a headline news about two weeks ago. The truth is, if you go back and look at the Chinese SIP system or more specifically the Asian Development Bank, it's the development bank that the Saudi Arabia, that China uses for the Belt and Road Initiative, you can go back and look at the records. It'll tell you that Saudi Arabia has been a member of the SIPS financial system since 2018. So this point here, it may be news to the Western media but the truth is the Saudis have had future contracts in the Shanghai Futures Oil Exchange since 2018 ever since they joined the SIPS financial system. So Saudi Arabia can trade their oil for Yuan with no problem. Yeah, well, they're selling futures on the exchange on the Shanghai, like I said, if you've got the Asian Development Bank, the records are out there for you to everybody see, you pull it down and we'll say Saudi Arabia has been a member since 2018. And there's records in there of all the different of the futures contracts that Saudi Arabia's been selling on the exchange since 2018. So the Saudis are already doing it today. So that's not news. Everybody thinks it's new, but if you just do your homework, you'll find it and it's the Asian Development Bank there in Saudi Arabia. If I can get to go to the next one, please. Okay. So why would Saudi Arabia consider this? Okay, so if you take a good look at that chart there, original and my original chart was from the IMF but this is a chart that we went ahead and we reformatted so it's a little bit easier to read. If you really look over at the top, you'll see the lowest cost per unit. This is the breakeven cost-producing crude oil. In the case I ran, it's roughly about $15 per barrel. They're one of the lowest cost producers oil in the world. And you see rushes there, they're about $20, $25 per barrel. But if you go down a look at Saudi Arabia, Saudi Arabia's breakeven is between $80 and $84 per barrel. What that means is between 2014 and 2020, what oil here in the United States was averaging about $50, $55 per barrel. Saudi Arabia was losing $30 in every barrel. Now, how will they were found financing it? And it took me a little digging to do it. Goes back to that Asian Development Bank there in China. And there's records in there and basically the Asian Development Bank, they've been loaning money to Saudi Arabia. So Saudi Arabia has been deeply in debt to the Chinese and that's why they're reacting a lot of the ways that they are. So whenever you give them a call, you say, I need for you to produce production. They won't call you back. That's because they're deeply in debt to the Chinese and they're already part of that whole financial system that's opening up there in Asia. Next place. So this is a depiction for the Belt Road Initiative. Those black marks you see there, those are as a combination of freeways and rail systems that the Chinese have been building over the last 10 years. You also see maritime routes there that's over the oceans. And there's also a pipeline system that goes through southern Iran, it links up there at the Pakistan border, there at Ghadar city. Okay. Notice that part of China's maritime route that none of those routes go into the Persian Gulf. The reason why is because when they built that pipeline, they're in, when they built the, this is a Gorham, Jaskirk pipeline, they're in southern Iran. Like I said, it meets up there at Ghadar city, they're in southern Pakistan. There's a mega oil refinery there. The Chinese and the Russian, the Chinese and the Saudis have went into building that new oil refinery. It's a 50-50 partnership between Saudi Arabia and China. And the reason why there's no maritime route there is because what they're planning on is not shipping any oil through the Persian Gulf. They're gonna be pipelining all the oil out of the Middle East, probably up to that new refinery there at Ghadar city and be shipping a refined product through either pipelines, gas pipelines, pipelines, trains, trucks. You know, how are they gonna ship it? And I would say with the maritime routes on that chart, they also, every place they touch land is a place where China has helped to build a port. They've got a port there. Basically, pretty much has full leverage over that country for what can go in and out of that port. So every place you see where that touches in a country other than China, China has a say in what goes on there. Yeah, the coloring in that map, you see every colored country, that's where China has hooks, financial hooks into some country. It's a type of diplomacy that China's practiced for probably well over a thousand years. China doesn't like to military engage with other countries. They'd rather control you through financial and business means. And that's just how they... That's a really important point, Dan. I'm glad you brought that out. Yeah. As far as the, there's an economic union with amongst all those countries. It's called the Eurasian Economic Union. It's a pre-trade zone. The members of it are Russia, Kazakhstan, Belarus, Serbia, Armenia, Kyrgyzstan, China and Vietnam. And they're probably adding India, Saudi Arabia, Iran and most of the Middle East will be added to it. And there's also talks of Thailand. We'll see how it all plays out. But this is a union that they've been forming for quite a while. If I can get you to go to the next one, please. Okay. SIP's banking system. The banking system that the Chinese put together, it was started in 2017. The first oil futures contract to trade on Shanghai exchange was March 26th, 2018. It was with Iran. So China has been buying oil from Iran since 2018. And of course they've been buying oil from Saudi Arabia since then. As far as member countries, Saudi Arabia is a member, Iraq's a member, Turkey's a member, Iran's a member, Pakistan, India, most of the countries you see. And you can see that there's quite a long list there of all the different banks around the world that are part of that system. And the number of banks in Asia and the Russian area, it's in the hundreds. Even here in North America, we're in the, with North America 28, South America 17 and the Pacific Island nations, like Cook Islands, French Polynesia, wherever, that's even got 22 banks in the system. And so basically what this does is when the US imposes sanctions on countries and starts squeezing them, that normally means because US dollars reserve currency that we can put pressure on countries to do things economically, kind of leveraging our strength in our dollar against their country. But this SIP system takes them out of our ability to really leverage them in, at least on the banking side. So we, it takes a tool out of our tool chest to try and get them to come into alignment of whatever policies the US wants to press. How that system works is it assumes that the US dollar is the center of the system. And one of the things I know I showed Stan is there's a place called the Bureau of International Settlements, the BIS, that's a central bank of central banks that's in Switzerland, here in Basel, Switzerland. And one of the things I have the computers do is I download this, basically it's a spreadsheet from them. And it's basically the values of other currencies relative to the dollar. So for example, it might be $1 equals 120 yen as an example, or maybe $1 equals 80 roubles or something like that. So that system assumes that the dollar is in the middle. So if you're going to convert one currency to another currency, you convert your currency to dollars and the dollars to the other currency. But the system assumes that the dollar is in the middle and it is one. There is an alternative way of doing the same thing and involves using gold. And in that system, it's not based on $1, it's based off a bunch of amounts of gold. And we'll step into that to hear, I'll show you how this other new system is evolving and why it's evolving that way. Next slide, please. OK, the BRIC countries, that's Brazil, Russia, India, and China. The reason why this new system is evolving that way is because the United States, primarily, our export product is pretty much the dollar. We don't really export anything. These countries are looking at export a lot of goods around the world, either raw goods or finished goods. And there's been an amount of consternation about the dollar and the fact that we issue out dollars. We give them dollars for their goods. And over time, there's been questions asked to our economic liability, asked to with our debt. Now, part of this has to do with how this system works. Dollars in our system is actually loaned into existence. So the dollar is actually a debt instrument. Our treasuries are a debt instrument. And other instruments are based off of our debt. And so to get our economy to expand, we have to increase, expand the credit. And therefore, that expands the number of dollars into existence. But these countries have been asking for quite a while, what value does it provide to us other than an intermediate form of exchange? And that's resulting in sort of a collision of two worlds of what value it is. And I guess we'll go to the last page, OK? OK, applications, world trade, and currency exchange rates of the dollar's status. OK, so what is this all based on? Well, there at the Bureau of International Settlements, there's a document called the Basehold Framework. And it's about a 1,600-page rule book on banks and what banks have to use for what's called reserves. So for a bank note, like the Federal Reserve note, like the dollar that we use, that's a bank note. For it to have value, the bank itself has to have reserves to show that it has value. So for example, when I showed you that pie chart where the ruble, the 20% of the ruble was backed by gold, that's what we're talking about. OK, well, in that document on page 192, it states the following. However, in national discretion, gold bullion held in own vaults and an allocated basis to the extent backed by bullion liabilities can be treated as cash and therefore risk-weighted at 0%. In addition, cash items in the process of collection or otherwise are to be risk-weighted at 20%. So what that means is that be at currencies are risk-weighted at 20%. What that means is, if let's say I have a bank and I have 100 million euros in my bank, I can only regard 80 million of them as my reserves because there's a risk of holding that currency. But if I have gold bullion in my vault to my bank, that has zero risk of holding that as reserve. So the reason why there's a collision of minds here is because those Asian societies are very old societies and they value gold. And one of the things they did last couple of years putting in a base of three is they had that paragraph put into the banking rules. And so all those banks are amassing gold for the central banks and that's backing their currencies. Unfortunately, here in the United States, our central bank does have some gold but our bonds and our currency is not redeemable in gold versus China's currency, Russia's currency, all those other currencies are redeemable of gold. So for example, when Russia was taken out of the SWIFT system and the ruble crashed 180 rubles to a dollar, they pegged at the gold. They quickly recovered back to 80 rubles a dollar. And the reason why is because there's still a good part of the world that considers gold a reserve currency. And as a point, it's actually in the Bureau of International Settlements basal framework as far as the legal document that governs banks internationally. And that's what it says, a gold-bladed is a zero risk asset. So now how does it risk the United States as a reserve currency? Well, I just stated to you that any fiat currency has a 20% risk. So a lot of those central banks, rather than putting dollars on their balance sheets to back their fiat currencies, they're switching out dollars for gold-bladed is what they're doing because it has zero risk. And right now that's setting up a situation and here's what the debate is amongst the traders. I don't know how this will play out but let me explain this to you and there's basically three different points here. One is, and they're giving here an example, let's say for example, China. China has something like 3.4 trillion dollars worth of treasuries and reserves. So China sells US treasuries to buy Russian commodity since the Russians have some dollar-based debts that they might do that, right? They might be exchanged with the Russians in some other ways, but we'll see how there that plays out. The problem is that if the Chinese starts selling off our treasuries, what that does that causes the price of the treasuries to go down, the interest rates to go up. But that will also flood our system with that many more dollars in circulation here in the United States. So it'll cause our inflation to go up and the interest rates and that'll have a pretty hard impact. It'll slow the economy down and have some pretty hard impacts on the way Americans are. But the other point is, the third point is what it means is because we basically force more of the Russian commodity trade onto the Chinese trade system, they're the SIP system, they're in the futures market and the different commodities market, the one will over time become a commodity backed currency, backed by hard goods, hard things and not based on debt. So it's a collision of two worlds in the central banking world. Now, last week, whenever Fred Chairman Jerome Powell was up speaking in front of Congress, when he said that we're moving into a world where you could have multiple reserve currencies, that is what he was talking about. Just because of the situation. And quickly, Dan, could you just talk a little bit about our national debt and the relation of debt to GDP and how that fits into this process? We got about a minute left. Yeah. Well, it's very simple. When we have high amounts of debt, that debt weighs on the value of our currency. So the dollar is worth less because of our debt. In order for the dollar to rise in value, we need to do a bunch of things to make it. Number one is not hold as much national debt as we have to increase the value of it. The other is to gather some wealth, do like what these other countries are and that is put some either less risk-weighted assets, behind the Federal Reserve or add gold to the Federal Reserve or something to reduce the amount of risk to increase the value of the dollar. So reducing the debt will help increase the value of the dollar. Yeah. So where the US used to have a leadership role in a lot of policy things worldwide, a lot of things that the US has always done to support nation building or to support famine in countries and things like that, we're kind of losing that potential because we are putting ourselves financially behind the eight ball by having so much debt. And that debt starts with the individuals buying more than they can afford buying bigger houses that they can afford to buy, a betting that they'll increase in value and all that stuff. But we basically put our whole countries stability at risk. And as far as we can see down and I look at this and we talk about all the time, this quote unquote transitory inflation isn't transitory. It's going to be here for a while and it could potentially get very, very ugly. So down just the last 30 seconds, what was the consumer price index announcement yesterday? The CPI today came at 8.5%. Has it ever been that high before in your lifetime? Not since the 80s, last time we had this and Paul Volcker jacked interest rates to 20% to kill it. But the other thing what Dan are talking about is the reason why you're seeing high inflation. It's not a monetary problem, it's because the dollar and its value relative to those goods and it's showing up in the commodities market. So as far as more and more of our currency to buy the same commodity. Right. So that leads us to the end of this. Today's stand the energy man, a little bit complicated, a little bit big picture but what we're trying to do is get you that big picture and help people understand that we're part of a bigger world than just the US or just Hawaii. And we need to understand what we do, the decisions we make, the state policies we make, the national policies we make and what that does to our own personal lives. So thanks for joining Dan and I today on stand the energy man and we'll see you next Tuesday at three PM on Think Tech Hawaii Aloha. Thanks Dan. Thank you so much for watching Think Tech Hawaii. If you like what we do, please like us and click the subscribe button on YouTube and the follow button on Vimeo. You can also follow us on Facebook, Instagram, Twitter and LinkedIn and donate to us at thinktechhawaii.com. Mahalo.