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#CryptoCrash Leads to Trillion Dollar Market Wipe out

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Crypto currencies are facing a reckoning and are a major part of the sell-off across higher risk assets.  Data in the week showed high US inflation – worrying investors about the economic impact that will result from the tightening of central bank policies.

Bitcoin and other crypto currencies have lost almost a trillion dollars worth of market value in a short period of a month.  

Stablecoin which is pegged to the US dollar initiated the sell off as it lost its peg to the US currency resulting in a dominos affect on its support coin of luna which has lost over 99% of its value.  This in turn weighed heavily on bitcoin and other crypto currencies and continues to threaten the market.  

Crypto currencies have been known to be very volatile but the current mark upheaval is something unique and extraordinary in terms of the magnitude of losses.  It is also no secret that many of the crypto investors are the younger crowd who are looking to build a small fortune.  According to one survey, 71 percent of crypto investors are under 45 years old.

Older adults do not seem to either understand or trust crypto to the extent of their younger counterparts.  

Warren buffet offers his perception on bitcoin and is disinclined to purchase it as during his shareholders meeting, her remarked, “Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything.  It’s got a magic to it and people have attached magic to lots of things.”

One thing is certain that a trillion dollar market valuation in the crypto sector has been wiped clean which means a whole lot of investors, especially the younger millennial crowd are in the red.  In bitcoin alone, according to new data, 40% of investors are underwater.   

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Nomaan Mubashir
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I am an astute student of learning with a Bachelors of Business and a Bachelors of Honors Science. With a passion for travel and meeting new people, I have been fortunate to travel four continents and fifteen countries. I love sports and writing on matters pertaining to human rights and justice.

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Economics

Companies in the EU Buying Natural Gas from Russia Does Not Breach Sanctions

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The European Union stated that companies buying gas do not breach sanctions, amidst a slew of sanctions against Moscow following the country’s invasion into Ukraine. After overlooking their guidelines, the EU pitched a revision to member states, stating individual companies should issue a “clear statement that they intend to fulfill their obligations under existing contracts and consider their contractual obligations regarding the payment already fulfilled by paying in euros or dollars, in line with the existing contracts.” The EU also stated sanctions “do not prevent economic operators from opening a bank account in a designated bank for payments due under contracts for the supply of natural gas in a gaseous state, in the currency specified in those contracts.” 

This idea proposed by the EU would allow the purchase of natural gas from Russia, fulfilling Putin’s demands. It would also allow companies to open accounts at Gazprombank, a privately owned Russian banking company. However, it does not address Moscow’s requirement of opening a second account in rubles. 

In response to this change, gas prices witnessed losses this Monday. Companies in Europe are indicating compliance with Russian requests, preparing to open a second account with the banking company with rubles and euros. However, they will wait for the guidelines to be solidified before moving forward. 

The EU has already pledged to leave behind Russian fossil fuels in a billion dollar deal, but shows some uncertainty when it comes to natural gas. The controversy behind the EU’s statements is the unethicality of funding a military campaign through Ukraine, a country which the EU would like to join their bloc.  

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

Bank of England: Food Costs After Ukraine will be ‘Apocalyptic’ for the Poor 

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Bank of England

The governor of the Bank of England has blamed the Ukraine conflict for the greatest inflation in three decades, warning that “apocalyptic” food prices generated by Russia’s invasion might have terrible consequences for the world’s poor.

Andrew Bailey, defending the UK’s central bank ahead of the announcement of the steepest annual hike in four decades on Wednesday, told MPs that although he was disappointed with the amount of price increases, 80 percent of the inflation goal overshoot was driven by circumstances outside the bank’s control.

Mr. Bailey said that the bank could not have predicted the Ukraine conflict, which he warned would have ramifications for the UK and the developing world.

Countries such as Egypt and Tunisia depend significantly on Ukraine’s wheat and cooking oil exports, and the governor expressed worry about food supply after speaking with Kyiv’s finance minister during last month’s IMF conference in Washington. “He said he was optimistic about crop planting, but at the moment there was no way of shipping the food out, and it’s getting worse,” Mr Bailey added.

As worry about Britain’s high cost of living grows, Tony Danker, president of the Confederation of British Industry (CBI), has asked Britain’s chancellor of the exchequer, Rishi Sunak, to help people who are struggling to feed themselves because food and energy prices are going up.

Official numbers going out on Wednesday are anticipated to show annual inflation rising beyond 9%, with the Bank of England anticipating it to rise past 10% when the energy price ceiling is hiked again in October. The Bank’s nine-member monetary policy committee has hiked interest rates four times in the previous four sessions after increasing its prediction for this year’s peak inflation from 5% to 10%. 

“I don’t feel at all happy and it’s a bad situation to be in,” the governor said after MPs pressed him to explain why the Bank waited until December to intervene.

Following allegations over the weekend that anonymous cabinet officials questioned the bank’s independence, Mr. Bailey said, “This is the biggest test of the monetary policy framework in 25 years. There is no question about that.”

The governor restated his demand for salary restraint in February this year, encouraging Britain’s highest-paid to set an example for lower-paid workers.

“It is unbelievable that the Bank of England has repeated its calls for workers to take a wage hit – while saying virtually nothing about soaring profits at the likes of BP and Shell.” said Paul Nowak, Deputy General Secretary of the Trades Union Congress. “The last thing working people need right now – in the middle of the worst living standards crisis in generations – is to have their wages held down.”

When asked about potential threats to the cost of living, Mr. Bailey said there may be lengthy supply-chain bottlenecks due to disruptions in China or increased energy costs if Russia decides to shut off gas supplies. However, he did say that the bank could not have been expected to predict current developments.

His comments came after the country’s energy regulator, Ofgem, said it planned to change its price ceiling four times a year instead of twice a year.

The RAC, Britain’s largest motoring organisation, said that the average price of diesel at petrol stations had reached a new high of just over £1.80 per litre, and experts warned that prices could go up even more if the European Union’s plans to stop importing oil from Russia are put into action.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

Atif Mian: The Global Economy Faces an ‘Unsustainable Debt Trap’

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World Economic Forum via Flickr.com

Atif Mian is a globally renowned Pakistani economist working at Princeton University, perhaps most renowned for his authorship of the 2014 book House of Debt. In the book, Mian (alongside Amir Sufi) diagnosed the mounting debt belonging to homeowners as being central to the economic collapse which characterising the 2007-8 global financial crisis.

On Wednesday, Mian gave a lecture at the Bayes Business School (of City University, London), where he discussed his theoretical and empirical findings surrounding the relationship between inequality, debt and interest rates. According to Mian, inequality has been growing substantially since the 80s, with the economy structured as such that it benefits the top 1% (or even top 0.1%) to a greater degree than the rest of society. This, however, leads to a greater number of savings being placed into banks. Why is this the case?

In his lecture, Mian claimed that ‘there’s something about human nature that makes rich people save significantly more than the rest of the population’. Since the rich already have access to the goods they need to live the ‘good life’, Mian suggests that this will mean that the rich will be more likely to buy assets, possibly to exert their influence in society to a greater degree, or more importantly to save their money in banks.

At first glance, one may not see any significant problem with a greater amount of savings. More savings mean greater liquidity in the economy, allowing people to borrow at cheaper rates. Indeed, Mian accepts this, but with one significant caveat: more of this liquidity ‘floating around’ in the banking system will mean greater debt and lower interest rates in the long run. Mian directly associates the rise of the credit card and cheap credit movement with the growth of inequality and boost in bank liquidity. Over time this, however is unsustainable. The debt may well translate into greater levels of spending but the growth will once again benefit the rich disproportionately which will again feed into a greater propensity for them to save. What results is a system which keeps pushing interest rates lower and lower. Mian claims that there has to be a ‘natural limit’ to this, most likely being 0%. But after a period of low rates, it becomes difficult for central banks to raise interest rates again.

Citing Mark Carney’s reluctance to raise rates, Mian suggests that the high debt burden in society as a result of the cheap credit will mean that higher interest rates become unfeasible, and risk slowing down or reversing the economic gains made. What results is an unsustainable debt trap. Interest rates get pushed to an unsustainably low bare minimum yet central banks have no flexibility to raise them again. 

So what was Mian’s diagnosis for this economic mismanagement and malaise that threatened the system? Firstly, Mian emphasised the need for greater progressive taxation, and in particular, wealth taxes. Wealth taxes are taxes which apply on assets such as land. Other solutions also included more competitive markets (in particular with a focus on trying to eliminate monopolistic tendencies in the economy). Why would these solutions be effective?

Mian’s central claim was that inequality was the root of the debt crisis. Tempering inequality would mean that growth is redistributed more equally within society which would overcome the disproportionate tendency to save among the richest who current benefit from high inequality. This would naturally reduce the free flowing credit in the banking system and ease the downward pressure off interest rates.

After his lecture, I asked Mian what short term policies governments could pursue to help tackle the ongoing inflation crisis resulting from factors such as the war in Ukraine. He suggested that although central banks would ‘do what they have to do’ there is no real distinction between short and long term factors. On the other hand, he added that the fundamentals of his theory remained the same, warning against ‘kicking the can (of the faulty economic system) down the road’. Implementing robust economic policies to ease inequality and thus to ease the debt trap would then allow central bankers to have a greater deal of flexibility with how they set interest rates to deal with the crisis.

Mian once again placed particular emphasis on wealth taxes on assets such as land. When elaborating its importance Mian claimed that land is an inelastic asset: ‘God created it and that’s all we have got’. This means that assets such as land are at the root of inequality which explains why they should be particularly targeted with a wealth tax. Furthermore, when elaborating on the political feasibility of these proposals, Mian claimed that there was a bubbling discontentment among the general public against the unequal way the economy is currently structured, and referenced the rise of American politicians such as Bernie Sanders and Elizabeth Warren who proposed introducing progressive policies (including wealth taxes) to tackle inequality.

Mian contended that such policies were ‘not a bipartisan issue’, and should not be framed as such because then it becomes ‘my morality against yours’. Instead commonly accepted frames such as the necessity for everyone to have ‘equality of opportunity’ should become guiding points for policy change. On this point, Mian added: ‘do you know who else supported wealth tax (on land)? (the Conservative Prime Minister) Winston Churchill. Do you know who else? Milton Friedman (a libertarian economist)’. The real possibility of co-operation and the need for change rising up through the political system and translating into economic reform meant that the fascinating lecture ended on a slightly more optimistic note.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Jibran Raja
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Jibran Raja is a second year Philosophy, Politics, and Economics student at Kings College London. He is on Twitter @2015Jmr

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Daily Brief

Namibia: Sovereign wealth Fund for Oil

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  • Shell and TotalEnergies have discovered oil off the coast of Namibia resulting in president of Namibia, Hage Geingob, to launch the Welwitschia fund, a sovereign wealth fund.
  • The fund is expected to help Namibia’s economy as it will collect revenue and tax money from the two companies. 
  • President Geingob stated, “We are looking forward to the prospects and opportunities that will emanate from the recent discoveries of oil and the green hydrogen energy, which have the potential to further boost the fund’s capital”. 
  • Namibia soil is also known to be rich with diamond, gold and uranium. It now aims to become a supplier of green hydrogen in the near future.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

Warren Buffet Skeptical of Bitcoin as Vice Chairman Blasts it as ‘Stupid and Evil’

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Fortune Live Media via Flickr.com

For the first time since 2019, an in-person gathering was held by Berkshire Hathaway’s annual shareholder meeting in Omaha, Nebraska on Saturday, April 30th.

Warren Buffett, 91, and his Vice Chairman Charlie Munger, 98, shared their concerns over the state of the economy and the stock market, in particular the fastest-growing cryptocurrency ‘Bitcoin’, saying it’s not a productive asset and it doesn’t produce anything tangible.

“Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything,” Buffett said. “It’s got a magic to it and people have attached magic to lots of things.”

Buffett’s explanation on the Bitcoin craze, and other insights on financial investments attracted his followers’ attention for the duration of 5-plus hours. His skepticism towards this cryptocurrency and its lack of long-term function was extensively spoken about:

“If you said … for a 1% interest in all the farmland in the United States, pay our group $25 billion, I’ll write you a check this afternoon,” Buffett said. ”[For] $25 billion I now own 1% of the farmland. [If] you offer me 1% of all the apartment houses in the country and you want another $25 billion, I’ll write you a check, it’s very simple. Now if you told me you own all of the bitcoin in the world and you offered it to me for $25 I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything. The apartments are going to produce rent and the farms are going to produce food.”

Given Munger and Buffett’s legendary investing track-records and no-nonsense approach towards the worst inflation in decades — Warren Buffet’s sound advice to his investors was simply to ‘invest in your own skills’: “If you’re the one they pick out to do any particular activity — sing or play baseball or be their lawyer, whatever it may be — whatever abilities you have can’t be taken away from you. They can’t actually be inflated away from you.”

Munger’s disdain for Bitcoin is obvious through his hostile comments over the years as he certainly didn’t hold back on his blunt, yet brutally honest opinion of this ongoing Bitcoin frenzy.

“In my life, I try and avoid things that are stupid and evil and make me look bad in comparison to somebody else – and bitcoin does all three,” said Munger. “In the first place, it’s stupid because it’s still likely to go to zero. It’s evil because it undermines the Federal Reserve System … and third, it makes us look foolish compared to the Communist leader in China. He was smart enough to ban bitcoin in China.”

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Daily Brief

Due to an Increase in Fuel Prices, Nigerian Airlines Shut Down Flights

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  • Nigerian airlines intend to suspend all domestic flights starting Monday due to a four-fold increase in jet fuel prices, from about $0.45 to $1.70 per liter.
  • The sudden increase in price is due to Russia’s invasion of Ukraine in February, which caused many countries to impose sanctions on Russia, the world’s major exporter of oil and gas. 
  • “No airline in the world can absorb this kind of sudden shock from such an astronomical rise over a short period,” said the Airline Operator of Nigeria. 
  • They claim that the increased cost of flights will be unaffordable to Nigerians who are “already experiencing a lot of difficulties.”
  • The aviation ministry responded by urging airlines to reconsider. Social media users made fun of the airline’s suggestions for its consumers to find other means of travel. 

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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