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Economics

The storming of Wall Street

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We’ve all heard about the storming of the Bastille, now it is the turn of Wall Street. American finance has once again given us one of those little stories with the exciting drama for which it is known.

In recent months, large US hedge funds have tried to make money by betting against a video game brand “GameStop”, listed on the New York Stock Exchange. They engaged in what is called “short selling”. The principle is quite simple: you go to a bank, or a hedge fund, and borrow shares for a fixed period of time, in this case the shares of GameStop. Then you sell the shares right away, with the assumption that their price will fall. An hour, a day or a week later, when you return them to the person who lent them to you, you buy them on the market. If the price has fallen in the meantime, you earn the difference between the price at which you sold them and the lower price at which you buy them back to return them. In other words, the magic of finance is that money can be made in the equities markets without actually owning any shares of stock.

This aggressive strategy of hedge funds was clearly motivated by the lure of profit. Indeed, since March 2020 GameStop was struggling, as customers showed more interest towards online games, due to the pandemic restrictions. As a result, its share was worth $2.57. Coordinating through the forum Reddit, the WallStreetBets group, largely composed of small stockholders, made the price of the share soar extremely quickly with an average daily high of nearly $350 on January 27th and peaking at nearly $500. Like David vs. Goliath, small stockholders successfully thwarted the hedge funds offensive while inflicting large losses to some of them.

For several years already, the “short sellers” have had bad press. Commonly, they are depicted as vultures who bet and live on the collapse of their victims. As soon as they sense a weakness, they attack; for instance, the Greek public debt at the time of the eurozone crisis in 2009-2010. We also remember the speculator George Soros, in September 1992, thrusting the British pound out of the European monetary system, in turn humiliating the Bank of England. The general public had then discovered that the hedge funds were potentially stronger than central banks and governments.

Thirty years later, the wheel has turned. For Main Street, this story confirms how much the financial world can be subject to slippages and questionable practices. But is it reasonable to turn the enemy’s weapons against him? To fight evil with evil? We should not be naïve as today’s technological developments potentially allow everyone to be a speculator and like the others, to look for moves to win money in a zero-sum game. Moreover, these new players are doing the same as the others. They are playing an absurd financial game in which the prices have nothing to do with what is happening in the real economy.


In the long run, it would be wiser to change the rules of the game, and more simply and responsibly, ban the sale of what is not owned in the first place.

Also, more than a decade after the global financial crisis in 2008, capitalism’s adulators should not think that the financial system is thriving. The GameStop raid is also an attempt to underline its shortcomings and to redistribute trapped wealth from the hands of a limited few hedge funds into the pockets of the average citizen.

We need a system that encourages capital to flow around the economy without stagnating in the hands of the richest 1%. An idle wealth tax would work because it would turn capital from being an asset that can be hoarded into a “hot potato”. Therefore it becomes tax-favourable to spend or invest it, and thus creates opportunities for others to stand on their own two feet.

A justice-based financial system must provide equitable sharing in the business risk between all contracting parties. The idea is not about punishing the rich. A tax on idle wealth would serve both the rich and the poor. If we incentivize the wealthy to purchase goods, services and make investments, capital would flow in all directions. Instead, they are piling on millions already accumulated in banks accounts and tax havens. This is the only way to reduce the current level of inequality and bring about reconciliation and cooperation between capital and labour.

The alternative is to have an inflation of economic and financial frustrations – and more and more financial storms like GameStop’s.

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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Ahmed Danyal Arif is a French economist by education and currently working in London. He has a Masters degree in Economics and Politics. After working for the French tax administration system, he published two books in French: Islam & Capitalism: For an Economic Justice (2016), and Economic History of the Islamic World: From Pre-Islamic Arabia to the Umayyad Dynasty (2019). He currently serves as the Editor for the Economics Section in The Review of Religions.

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Economics

World Food Programme suspends food assistance to 1.7 million in South Sudan

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Conflict combined with poor weather in South Sudan has led to 7.74 million people facing a hunger crisis.

Despite the country facing food insecurity, the World Food Programme (WFP) has suspended food assistance to 1.7 million people in South Sudan. They require $426 million to be able to feed 6 million people in South Sudan throughout 2022. At the start of 2022, the WFP projected that it would be able to assist 6.2 million people in the country but has failed at achieving this target. This suspension of funding comes at one of the worst times for South Sudan, a newly independent country which not only has been facing internal conflicts for many years but also faced three years of flooding, a localised drought and like the rest of the world, the impact of the COVID-19 pandemic and soaring global food prices. Therefore, not only is food not available in the country, but it also comes at a much higher price making the country food insecure. This cut also comes at a time where South Sudan is facing lean season, which is the season between planting crops and harvesting them. During this season, food is already scarce.

The suspension of aid by the WFP is due to a funding shortage of $426 million. It is important to note that the primary source of WFP’s funding comes from governments around the world. This funding is entirely voluntary, meaning that the countries have the freedom to cut anytime they wish.

The Norwegian Refugee Council (NRC), a human rights group recently ruled that the world’s 10 most neglected crises are all in Africa with South Sudan being the 4th most neglected crisis. The Secretary General of the NRC, Jan Egeland said “The war in Ukraine has demonstrated the immense gap between what is possible when the international community rallies behind a crisis, and the daily reality for millions of people suffering in silence within these crises on the African continent that the world has chosen to ignore,”

The hunger crisis the people of South Sudan face is not new, rather food insecurity has been a challenge for years now. In 2017, South Sudan faced a famine and now another famine is predicted by the WFP this year if funding is not organised. Furthermore, South Sudan has recently been facing unrest which has only intensified the issue, leading to brutal violence upon civilians, including targeted attacks, gender-based violence, kidnappings and murders. This has led to nearly 2.3 million people fleeing to neighbouring countries whilst 1.87 million people remain internally displaced. Displacement continues to exacerbate the hunger crisis in South Sudan as many rely on food from their own land, something which is not possible during displacement. Internal conflict has thus meant that people have had to rely heavily on food assistance.

There have been many attempts for a peace agreement in the country, but so far, all these attempts have failed.

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

Is Rwanda a dumping ground for the UK?

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The UK is planning to send its illegal immigrants to Rwanda. In return, the country is paying the Government £120 million in the form of an economic development program. This controversial decision was made to deter any future illegal immigrants from entering the country via dangerous routes.

The East African country suffered genocide and civil war in 1994 and has been trying to recover since. The effort made by the country, however, was halted due to the pandemic.

Only recently, authorities in Rwanda prosecuted opposition members, commentators, and journalists for voicing their opinion. Anyone who doesn’t agree with the government is thrown in jail and threatened, and people have even mysteriously disappeared.

Rwanda is also one of the smallest countries in the world and the rate of population growth is already more than the country can handle. With 10,000 square miles and a population density of more than 1,000 per square mile, starvation and malnutrition is prevalent because the country struggles to feed its growing population. Accusations abound that the government has burned farmers’ fields that could not produce an adequate amount of crops. The country is obsessed with modernising whilst ignoring its internal issues.

Poverty is a huge concern. Its true extent is unknown as the government has been accused of misinterpreting the actual data. Similarly, the education level of children is low with a high drop-out rate.

It’s plain to see that Rwanda is struggling with its own domestic problems, and now the UK is turning the country into a dumping ground for illegal immigrants which will surely set the economy back. The plan has been accused of being unethical and cruel.

The UN Special Rapporteur on Trafficking in Persons, Siobhán Mullally talked about the dangers of increased human trafficking when large numbers of people are transferred from one country to another and how easy it is for traffickers to pick vulnerable victims in this situation when they have no control over where they are going. “People seeking international protection, fleeing conflict, and persecution, have the right to seek and enjoy asylum – a fundamental tenet of international human rights and refugee law,” she said. Even Prince Charles, heir to the British throne criticised the decision made by the government calling it “appalling”.

There have also been accusations that the UK is not playing its part in its handling of its refugee problem. Chief Executive of Refugee Action, Tim Naor Hilton said that the government was “offshoring its responsibilities onto Europe’s former colonies instead of doing our fair share to help some of the most vulnerable people on the planet”.

Meanwhile, UK-based non-profits run by Congolese nationals in the Diaspora sent a letter to British Prime Minister Boris Johnson, in which they expressed their fear that the money sent by the UK government could be used to propagate the war in the eastern Democratic Republic of Congo instead of improving Rwanda.

According to Phil Clark, Professor of International Politics at SOAS University of London, the government of Rwanda could use this deal as leverage. So whenever the government is accused of human rights violations they can threaten to pull out of the deal. Already once, the country has “threatened to pull its peacekeepers out of Darfur when foreign donors were threatening to pull foreign aid out of Rwanda.”

Whilst the focus is on Rwanda violating human rights, the country is known however, for looking after its refugees well enough. The problem is that the UK is using the country to shed itself of its own responsibility while Rwanda is not equipped to deal with a large number of refugees.

The irony of the situation cannot be lost to global observers as, “Only a couple of hundred years ago, the situation was reversed. Ships full of Africans were being forcefully deported from their homeland to Britain, Europe, and the Americas. Now, the descendants of slave traders are paying the descendants of their would-be slaves to take a burden off their hands.”

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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Society

UN: Total Societal Collapse is Looming

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Destruction

The UN Global Assessment Report on Disaster Risk Reduction assesses systematic risks for the future. Apart from other risks from natural disasters, economic shocks and climate change, the risk of “global collapse” of civilisation has increased even more, it said.

Why is this collapse getting so close now? It is directly linked with the interference of human activities with natural systems, or “planetary boundaries”. The planetary boundary is a concept that involved nine processes that regulate the stability and resilience of the Earth system. If these boundaries are stretched, it will reduce the “safe operating space” for human habitation .

There have been many goals to reduce the impact of climate change and built resilience. Such as the Sendai Framework for Disaster Risk Reduction 2015-2030; and the Sustainable Development Goals and the 2030 Agenda for Sustainable Development.

Most of these goals have to be reached by 2030, and we are dangerously behind the schedule. The result is a world where people cannot survive. 

Too Late to Change?

According to a 2015 report, the world has already gone past the safe operating zone of four boundaries. These are climate change, land system change, biochemical flows, and novel entities. According to Professor Will Steffen of the Stockholm Resilience Centre, two more boundaries are close to reaching their limits. These are ocean acidification, and freshwater use. 

The UN report states “the human material and ecological footprint is accelerating the rate of change. A potential impact when systemic risks become cascading disasters is that systems are at risk of collapse.”

The war in Ukraine and the pandemic due to Covid-19 are just the beginning. If we don’t make immediate changes, the consequences could be much worse. Global risks like climate change are already having a huge impact on the world. Global Catastrophic Risk (GCR) events are more likely to happen now than ever. These are defined as a “larger than hemispheric area and produce death tolls of many millions and/or economic losses greater than several trillion USD,”  

Is this irreversible now? The UN report believes that change is still possible. We just need “to transform systems now. To build resilience by addressing climate change and to reduce the vulnerability, exposure, and inequality that drive disasters,” it says

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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Russia-Ukraine

Russia Denies Wrongdoing in Worldwide Grain Shortage

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  • Russia insists the excursion into Ukraine is not responsible for delays or blockades of grain production and delivery.
  • With scattered reports of abandoned farms, damaged equipment and dead livestock, there is a severe scarcity of grain being produced and exported from Ukraine.
  • Russia has instead blamed sanctions imposed by Western powers against its government for the shortage in availability.
  • Impeded grain production in Eastern Europe is also compounded by rising fertilizer costs, key components of which are produced in Russia and Belarus.

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

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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