Why this report? Europeans are increasingly anxious about their future. Stagnating growth and a lack of innovation threaten the European way of life. As the global landscape shifts, Europe must adapt. Both the US and China have adopted protectionist measures and are aggressively promoting their domestic industries. Meanwhile, Europe has fallen behind. In 1995, European productivity was 95% that of the US; today, it stands at just 80%.

A significant part of Europe’s problem lies in its reliance on banks for corporate borrowing. In Europe, 75% of corporate loans come from banks, compared to just 25% in the US, which boasts deeper and more liquid capital markets. This gives the US a stronger growth engine. Europe lags behind in key sectors like artificial intelligence, electric vehicles, self-driving technology and other cutting-edge fields.

In response, Draghi’s report calls for a bold €800 billion “new industrial strategy for Europe.” This proposal represents a fundamental shift in economic policy and signals the end of the post-Cold War era of European economics. The report’s key recommendations include:

• A complete overhaul of investment funding in the EU.
• Relaxing competition rules to allow market consolidation in industries like telecommunications.
• Greater integration of capital markets and centralized market supervision.
• Joint procurement in defense.
• A new trade agenda for the EU.
• The creation of European Advanced Research Projects Agencies, following US models, to drive world-leading research.
• Raising investment by both the private and public sectors from 22% to 27% of GDP.

This marks a shift in the global economic zeitgeist. Industrial policy, long dismissed by free-market economists as inefficient, has become a central strategy for the US, China and now Europe. Countries like Japan, South Korea, Taiwan, Vietnam and India are also pursuing industrial strategies with some success. It has worked for Europe before, as the success of Airbus demonstrates. Draghi and his team aim to make Europe more competitive while keeping it distinctly European.

There are still some flies in the ointment. Will European nations be able to integrate sensitive sectors like defense, banking and telecommunications? Can the famously divided EU countries overcome their differences and work together? And the most pressing question: Can the EC actually spend the €800 billion that Draghi’s report proposes?

Besides, isn’t this just more of the same old story — a push for greater European integration that will inevitably be resisted? This time, the stakes are different. Europe faces a crisis of competitiveness unlike any before.

The European powers are simply no longer as influential as they used to be. Individual nations can no longer hope to negotiate trade deals on equal footing with powers like China. They must negotiate as a bloc.

The world has changed. France and Britain have lost their colonies. Technology has changed. Volkswagen cannot keep up with Tesla in the electric car space. Europeans are afraid of slipping off the cliff into irrelevance.

Recent developments have convinced Europeans their position is precarious. The Russian invasion of Ukraine, the failure to effectively integrate immigrants and the rise of far-right movements across Europe show that the European project itself is at risk, unless leaders can prove to their populaces that it can work for everyone.

This report, and the broader conversation it represents, could mark a pivotal moment in Europe’s future trajectory.

[ edited this piece.]

The views expressed in this article/video are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

The post FO° Exclusive: Mario Draghi Calls for a New European Industrial Policy appeared first on 51�Թ�.

Furthermore, I believe opposition to CBI risks politicizing monetary policy. I recommend strengthening legal protections for CBI, enhancing the legal framework and prioritizing long-term stability over short-term political gains. Additionally, we should promote international agreements and cooperation among central banks to effectively manage global economic spillovers. These measures are essential for preserving the integrity and effectiveness of central banks in a rapidly changing global economy.

The role of central bank independence

Central bank independence is essential for maintaining a balanced approach to monetary policy, particularly in managing the trade-off between inflation and unemployment.

According to the (or the Fed), the Federal Reserve System is “independent within the government:” It works within the framework established by Congress. By operating independently of the government, central banks can focus on long-term economic objectives rather than succumbing to short-term political pressures. This independence governments from using monetary policy to achieve electoral gains, such as artificially lowering interest rates to stimulate the economy before an election.

Moreover, an independent central bank is better positioned to manage inflation, which is a critical component of economic stability. When inflation is allowed to rise unchecked, it can purchasing power, destabilize financial markets and harm economic growth. By maintaining a focus on price stability, central banks prevent these negative effects and actively an environment conducive to sustainable economic development. This offers a hopeful outlook for economic growth.

CBI has long been regarded as a cornerstone of sound economic governance, particularly in an increasingly globalized economy. As nations become more integrated through trade, finance and technology, the ability of central banks to operate independently from political influence has become crucial for maintaining economic stability.

One of the key drivers behind the global movement toward CBI is the need to attract and retain foreign investment. In a globalized economy, countries compete for capital and investors seek stability and predictability in monetary policy. Central banks perceived as free from political interference are more likely to inspire confidence among investors. As a result, many countries, particularly emerging markets, adopted or strengthened CBI as part of broader economic reforms aimed at integrating into the global economy.

The experience of countries like and in the 1990s illustrates this. Both nations, seeking to stabilize their economies and attract foreign investment, implemented significant reforms that enhanced the independence of their central banks. These reforms were instrumental in reducing inflation and fostering economic growth, demonstrating the positive impact of CBI in a globalized world.

During the Eurozone debt crisis that began in 2009, the European Central Bank (ECB)’s independence was critical in the collapse of the euro. As several Eurozone countries, including Greece, Ireland and Portugal, faced severe financial difficulties, the ECB resisted political pressure from member states to engage in direct bailout financing. Instead, it implemented unconventional monetary policies, such as the Outright Monetary Transactions (OMT) program. This provided a backstop for sovereign bonds without directly compromising its independence. This approach was pivotal in financial markets and restoring investor confidence, helping to prevent the crisis from spreading further across Europe.

Donald Trump’s opposition to CBI and the risks of weakening it

Former United States President Donald Trump has expressed his that, as president, he should have more influence over monetary policy. He has suggested that his business success gives him better instincts than those at the Fed. He criticized Fed Chairman Jerome Powell for poor timing in policy decisions, asserting that central banking is largely based on “gut feeling.”

During a press conference in August 2024, Trump , “I think that, in my case, I made a lot of money. I was very successful. And I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman.” Trump’s business success, particularly in the real estate sector, where he has built a multi-billion-dollar empire, gives him a unique perspective on economic growth. Trump’s preference for easy money and low interest rates reflects his background in real estate, where tight money can harm developers.

Trump’s desire for more direct control over the Fed is reminiscent of historical instances where political influence over monetary policy led to disastrous outcomes. A notable example is US President Richard Nixon’s over Fed Chairman Arthur Burns in the 1970s, which resulted in policies that contributed to the stagflation of that era — characterized by high inflation and stagnant economic growth. Trump’s approach risks repeating these mistakes by prioritizing short-term economic gains over long-term stability.

Trump Jerome Powell as Fed Chairman but later him when the Fed did not lower rates. Trump also favors a weak dollar, believing it benefits exports; critics, however, argue that this approach harms Americans. Regardless, Trump would need a legal change to gain more control over the Fed. This is unlikely given the political risks and the Senate’s role in confirming any Fed Chair.

Trump criticized the Fed’s timing on monetary decisions. In particular, he noted that its models are outdated, still relying on a flawed tradeoff between inflation and unemployment. He pointed out that the Fed’s policies, such as quantitative easing (QE) and the expanded balance sheet, have given it excessive influence over the economy. Trump believes a debate over the Fed’s mandate and models would be beneficial. Economists, however, warn that focusing on easy money and a weak dollar could lead to more inflation and economic problems in a potential second term.

Trump’s criticism of the Fed, particularly his calls for lower interest rates and more accessible monetary policy, reflects a fundamental misunderstanding of the role of central banks. As a businessman with a background in real estate — a sector that thrives on low interest rates — Trump’s preference for easy money is understandable but misguided when applied to national monetary policy. His critique overlooks the risks associated with such an approach, like the potential for inflation to spiral out of control.

Trump’s advocacy for easy money is particularly concerning in the context of inflation. While low interest rates can stimulate economic growth in the short term, they also increase the risk of inflation if not carefully managed. The Fed’s primary mandate is to balance the goals of maximum employment and price stability. However, political interference that prioritizes growth at any cost could lead to the of this careful balance, resulting in higher inflation and economic instability.

Additionally, weakening CBI could undermine the Fed’s ability to respond effectively to economic crises. The 2008 financial crisis demonstrated the importance of a strong and independent central bank in stabilizing the economy. The Fed’s swift actions, including quantitative easing and emergency lending facilities, were crucial in preventing a deeper recession. Political influence that hampers the Fed’s ability to act decisively in future crises could have severe consequences for the US and global economies.

Weakening CBI can also exacerbate economic inequality, which is a growing concern in many advanced economies. When political figures influence monetary policy to achieve specific economic outcomes, like lower interest rates to spur growth before an election, the benefits often accrue disproportionately to certain sectors, like those reliant on cheap credit. Meanwhile, the costs — such as higher inflation — can disproportionately impact lower-income households. Inflation erodes the purchasing power of fixed incomes and savings, which can wealth disparities and strain the social fabric.

The Biden administration’s commitment to CBI

The global shift towards CBI is not just a change in monetary policy but a significant evolution that carries the weight of history. It is a response to the devastating inflationary episodes of the 1970s and 1980s, a movement that was a deliberate rethinking of the central banks’ role. This shift is rooted in the understanding that politically driven monetary decisions could lead to destabilizing and unsustainable economic conditions.

In the US, the passing of the Federal Reserve Reform (1977) marked a pivotal moment in this global shift. By enshrining the Fed’s dual mandate — promoting full employment and maintaining price stability — Congress also took crucial steps to protect the central bank from political interference. Incumbent President Joe Biden’s administration, building on Trump-era policies, has pursued significant investments in key industries through initiatives like the CHIPS and Science (2022) and the Inflation Reduction (2022). Some of these major industries include green energy and semiconductor manufacturing.

These initiatives demonstrate a strategic alignment of fiscal and industrial policy, aiming to strengthen domestic supply chains and promote technological leadership. While advocates argue that they enhance economic resilience and innovation, they also raise questions about the potential erosion of CBI. Central banks, traditionally insulated from political pressures, might face increasing demands to coordinate with government-led industrial policies. This would challenge the delicate balance between fiscal and monetary objectives.

Though a more collaborative approach between fiscal and monetary policy could generate short-term economic benefits, it also risks the central bank’s ability to act independently to stabilize inflation and manage long-term economic health. This legislative move was significant because it showcased the importance of allowing the Fed to operate independently. It recognized that short-term political pressures could undermine the economy’s long-term stability.

The US experience set a powerful example that soon influenced global economic policy. In 1997, both the Bank of England (BoE) and the Bank of Japan (BoJ) were granted formal . This signaled a major shift away from the historical norms of political control over monetary policy. Establishing the European Central Bank (ECB) in 1998 exemplified this trend. The ECB’s creation marked a new era in European monetary policy: It replaced national central banks that had been subject to varying degrees of political influence, thereby promoting a standardized and politically neutral approach to monetary governance across the Eurozone.

Empirical evidence robustly supports the benefits of this move towards CBI. It has become increasingly prevalent among advanced economies, connecting with a significant reduction in inflation rates and more firmly anchored long-term inflation expectations. These outcomes tie directly to the enhanced credibility and predictability that independent central banks bring to monetary policy. They allow them to focus on long-term economic health rather than short-term political considerations.

The global commitment to CBI has only strengthened over time. A comprehensive of 370 central bank reforms from 1923 to 2023 reveals a resurgence in support for CBI since 2016. This underscores its continued relevance as a fundamental pillar of economic stability. The renewed commitment is particularly noteworthy given the complex and evolving challenges facing global economies today, reaffirming CBI as a critical tool in maintaining macroeconomic stability.

Within the Biden administration, the historical context of CBI serves as a crucial guide. The administration’s steadfast support for CBI is not just a matter of policy preference, but a deep-rooted commitment to economic stability. In analyzing the Biden administration’s commitment to CBI, it is essential to recognize the delicate balance between fiscal policy and monetary authority. CBI is often celebrated for its role in safeguarding economies from politically motivated monetary policy that could destabilize inflation control. The separation between monetary and fiscal policy has been vital in maintaining long-term economic stability. The Fed’s autonomy is seen as critical to ensuring that monetary decisions remain focused on inflation and employment targets rather than short-term political gains.

The Biden administration wielded considerable influence over the economy using extensive fiscal policy measures. The American Rescue Plan (2021), the CHIPS and Science Act and the Inflation Reduction Act, as well as strategic executive actions such as the of oil from the Strategic Petroleum Reserves and student-loan debt , reflect a pragmatic approach. They leveraged fiscal tools to influence economic outcomes in ways that monetary policy alone could not have achieved in such a short time.

While CBI remains a pillar of long-term economic stability, the administration likely recognized that, given the nature of the COVID-19 pandemic, fiscal measures were indispensable. The unique conditions meant fighting inflation and stabilizing the economy required a broader, more immediate response — one where fiscal and executive action played a leading role, complementing rather than conflicting with the Fed’s independence. This dynamic, while preserving the long-term ideal of CBI, also underscores the reality that fiscal policy and executive power can shape economic outcomes in ways that transcend central bank interventions alone. Therefore, reversing the hard-earned progress towards CBI risks rekindling the inflationary pressures that once wreaked havoc on global economies.

Index of Central Bank Independence (CBI) in Advanced Economies, 1970-2022. Via .

Enhancing coordination and the role of globalization

While CBI is crucial, improving coordination between monetary and fiscal policy is merited, as Trump’s critique suggests. Fiscal policy, controlled by Congress and the executive branch, also significantly influences aggregate demand and inflation. Better communication and coordination between these two arms of economic policy could to more coherent and effective economic management.

One proposal to achieve this without compromising the Fed’s independence is to include the National Economic Council director and the Congressional Budget Office director as ex officio nonvoting members of the Federal Open Market Committee. This would allow for better between monetary and fiscal policies while the Fed’s autonomy in decision-making.

However, private conversations about economic stability are being held. The June 2024 between the BoJ, the Ministry of Finance and the Financial Services Agency highlights a critical moment in Japan’s economic policy. (Worth noting is the fact that the Minister of Finance, the Minister of State for Economic and Fiscal Policy and their designated delegates cannot . When attending Monetary Policy Meetings, they can express opinions, submit proposals and request the Policy Board to postpone a vote until the next meeting.) The yen’s depreciation against the US dollar has raised concerns about its potential impacts on inflation and overall economic stability in 2024. The discussion about the BoJ’s independence becomes particularly pertinent in this context. Though the BoJ traditionally operates with a degree of autonomy to implement monetary policy based on economic conditions, the yen’s current weakness and its repercussions are stirring discussions of whether more direct government intervention is needed.

The independence of the BoJ is rooted in its mandate to focus on price stability and economic growth without undue political influence. This separation is intended to ensure that monetary policy decisions implement policy with the aim of maintaining price stability with long-term objectives, not short-term political pressures. However, there is a growing sentiment within the government to take more assertive actions. This is evidenced by recent statements from key figures such as Minister of Digital Affairs Taro Kohno, who has hiking interest rates in response to the yen’s weakness. Such proposals indicate that some policymakers view the BoJ’s current policy stance as insufficient to address the immediate challenges posed by the depreciating currency.

The involvement of other members of the ruling Liberal Democratic Party (LDP) further complicates the issue. Its discussions about potential interventions, including those that could impact the BoJ’s policy decisions, reflect a broader concern about the yen’s trajectory. While the BoJ has a clear mandate and operational framework, the mounting pressure from the government to align monetary policy with broader economic goals raises serious questions about the feasibility of maintaining its independence. If the government were to exert more influence, it could potentially undermine the BoJ’s ability to focus on long-term economic stability. This would pose significant risks to the economy.

CBI is closely linked to controlling inflation, which is a primary concern in advanced and emerging economies. Independent central banks are better equipped to resist the political pressure to pursue expansionary monetary policies that could increase inflation. This is particularly important in a globalized economy, where trade and financial linkages can transmit inflationary pressures across borders.

Empirical evidence supports the notion that CBI is associated with lower inflation. Countries with more independent central banks tended to experience lower and more stable inflation rates. For example, the relationship between CBI and inflation control became especially evident during the inflationary period of the 1970s and 1980s, when many central banks were subject to political interference, leading to high and persistent . This finding has been corroborated by subsequent research, which has shown that CBI contributes to the anchoring of inflation expectations, thereby enhancing the effectiveness of monetary policy.

The relationship between CBI and inflation control became particularly evident during the inflationary period of the 1970s and 1980s. Many central banks were subject to political interference during this time, leading to high and persistent inflation. Several countries, including the US and Germany, responded by granting greater to their central banks, resulting in a significant decrease in inflation.

Central banks navigate an increasingly complex global environment, balancing domestic objectives with the need to manage the global spillovers of their actions. The independence of central banks is critical to ensure economic stability and long-term growth.

In a globalized economy, the actions of a central bank have implications that reach far beyond national borders. The US dollar’s status as the world’s reserve currency means that the Fed’s policies global financial markets, international trade and the economic stability of other nations. The importance of a non-politicized Fed in maintaining international confidence in the US dollar cannot be overstated. It helps capital flight, currency volatility and a potential shift away from the dollar as the dominant global currency.

Globalization has fundamentally altered monetary policy dynamics, particularly in the context of central bank independence. As economies intertwine, the actions of one central bank can have profound effects on others, amplifying the importance of independent decision-making. The growing complexity of global financial systems necessitates that central banks adapt rapidly to new challenges, such as capital flow volatility and cross-border financial risks. 

One critical aspect of globalization is the transmission of economic shocks across borders. Central banks must be vigilant in mitigating these shocks while maintaining domestic economic stability. For instance, the 2008 financial crisis demonstrated how quickly financial turmoil can spread globally, underscoring the for independent central banks to act swiftly and decisively. The also showcased the of international cooperation among central banks; while this is necessary, it must be balanced with preserving domestic policy autonomy.

Looking forward, central banks must navigate the delicate balance between maintaining independence and participating in global monetary coordination. The potential for conflicts between domestic objectives and international pressures will likely increase, requiring central banks to adopt more sophisticated and transparent communication strategies. Ensuring that these institutions remain insulated from political pressures while engaging in necessary international cooperation will be crucial for economic stability in an increasingly interconnected world.

The Global Financial Crisis and central bank coordination

One historic economic event is especially imperative to study. The Global Financial Crisis (GFC) of 2008–2009 marked one of the most significant economic downturns in recent memory, with worldwide impact. The crisis began in the US but quickly spread to other economies, highlighting the interconnectedness of global markets.

The US is one of the largest economies in the world, and its trade relations influence other nations’ economies substantially. For instance, during the GFC, the collapse of US demand had a , causing major slowdowns in export-driven economies like those of China, Germany and Japan. This exemplifies how shocks in the US “export” financial stress across the world, while the reverse influence is often less pronounced. The rapid transmission of financial shocks underscored the need for coordinated action among central banks worldwide to stabilize the global economy.

During the GFC, central banks took the following actions:

1. The Fed played a pivotal role by implementing a series of unconventional monetary policies, including lowering to near-zero levels and introducing . These measures involved buying assets to restore liquidity to financial markets and support economic recovery.
2. Faced with a severe sovereign debt crisis in several Eurozone countries, the ECB lowered and provided long-term refinancing operations to banks. The ECB later introduced the , which was crucial in stabilizing bond markets and preventing the collapse of the euro.
3. The BoE reduced interest rates and launched its own to support the UK economy. Its actions were coordinated with those of other major central banks to ensure a unified response to the crisis.
4. The BoJ expanded its asset purchase and maintained a low-interest rate to support the Japanese economy, which was also affected by the global downturn.

Central banks recognized that unilateral actions would be insufficient to address the global nature of the crisis. Therefore, they engaged in unprecedented levels of cooperation, particularly through these mechanisms:

1. Currency Swap Agreements: Central banks, including the Fed, ECB, BoE and BoJ, established currency swap lines to ensure that banks in other countries had access to US dollars, which were in high demand. This move crucially prevented a liquidity crisis and stabilized global markets.
2. Coordinated Interest Rate Cuts: In October 2008, several major central banks, including the Fed, ECB, BoE and BoJ, conducted a coordinated interest rate cut to reduce borrowing costs globally and stimulate economic activity.
3. G20 Summits: The G20, which includes both advanced and emerging economies, played a critical role in facilitating international coordination. The 2009 G20 in London prompted commitments to provide fiscal stimulus, increase resources for the International Monetary Fund and enhance financial regulation to prevent future crises.
4. Bank for International Settlements (BIS): The BIS serves as a platform for central banks to exchange information, coordinate policy responses and discuss strategies for maintaining financial stability. Its role in fostering international cooperation was vital in ensuring a coherent global response to the crisis.

The coordinated efforts of central banks were instrumental in mitigating the worst effects of the GFC. The rapid implementation of monetary easing measures, coupled with international cooperation, helped stabilize financial markets, restore confidence and set the stage for a gradual economic recovery. The crisis demonstrated that in a globalized economy, the actions of one central bank can have significant spillover effects on others, making international cooperation essential.

The experience of the GFC showcases the importance of sustained international cooperation among central banks. As global markets become more interconnected, the potential for spillover effects increases, making coordinated policy responses critical for maintaining global economic stability.

Moving forward, central banks should continue to strengthen their cooperation through global forums like the G20 and BIS, ensuring that their policies are harmonized to prevent adverse cross-border impacts. Additionally, they should work together to develop frameworks for managing future crises. In an interconnected world, the stability of one economy often depends on the stability of others.

What is the solution?

The independence of central banks like the Fed is vital for ensuring sound monetary policy, economic stability and global financial confidence. While Trump’s critique of the Fed highlights legitimate concerns about the need for better coordination between monetary and fiscal policy, his desire for more direct control over monetary policy risks undermining the very foundation of economic stability. A politicized central bank, driven by short-term political goals, would likely lead to higher inflation, economic instability and global volatility.

In an increasingly globalized economy, the role of central bank independence extends beyond national borders. The interconnectedness of global markets means that the actions of central banks can have profound spillover effects on other economies. Central banks must navigate complex global dynamics, where their decisions influence global capital flows, currency stability and international trade.

The solution lies not in reducing central bank independence but in enhancing the mechanisms for policy coordination while preserving the autonomy of institutions critical to the economy’s long-term health. By maintaining a strong, independent Fed, the US can continue navigating the complexities of a globalized economy while safeguarding its economic future. Central bank independence can secure a stable and prosperous economic environment domestically and globally by focusing on policies like the Fed’s : maximum employment and price stability.

[ edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

The post Central Bank Independence Is Unbelievably Valuable for the World Economy appeared first on 51�Թ�.

��’v�� about how this works in the academic world, describing college and graduate school education as a classic pyramid scheme. Those who got in early got the big payoff — job security, a book-lined office, summers off, and a “sabbatical” every seven years (a concept rooted in the Jewish understanding of the sabbath as a holy time of rest). Those who came late to the party, however, have ended up in seemingly endless post-doctoral programs, if they’re lucky, and if not, as members of the part-time teaching corps.

Too broke to retire

For the most part, I’m sympathetic to Barton’s argument. There are too many people who are at the top of various professional institutions — including our government (where an 81-year-old, under immense pressure, just not to try for a second term as president, while a is still stubbornly running for that same office).

However, I think Barton misses an important point when he claims that “older workers are postponing retirement … because they simply don’t want to quit.” That may be true for high earners in white-collar jobs, but many other people continue working because they simply can’t afford to stop. Research in Forbes magazine a few years ago showed that more than one-fifth of workers over age 55 were then among the working poor. The figure rose to 26% for women of that age, and 30% for women 65 and older. In other words, if you’re still working in your old age, the older you are, the more likely it is that you’re poor.

Older workers also tend to be over-represented in certain low-paying employment arenas like housecleaning and home and personal health care. As Teresa Ghilarducci in that Forbes article:

Nearly one-third of home health and personal care workers are 55 or older. Another large category of workers employing a disproportionate share of older workers is maids and housekeeping cleaners, 29% of whom are 55 or older and 54% of whom are working poor. And older workers make up 34% of another hard job: janitorial services, about half of whom are working poor. (For a benchmark, 23% of all workers are 55 and up.)

We used to worry about “.” Maybe now we should be more concerned about old people taking care of old people.

Why are so many older workers struggling with poverty? It doesn’t take a doctorate in sociology to figure this one out. People who can afford to retire have that option for a couple of reasons. Either they’ve worked in high-salary, non-physical jobs that come with benefits like 401(k) accounts and gold-plated health insurance, or they’ve been lucky enough to be represented by unions that fight for their members’ retirement benefits.

However, according to the , a non-profit organization working to expand financial security for retirees, just under half of those working in the non-governmental sector have no employment-based retirement plan at all. They have only Social Security to depend on, which the average retiree a measly $17,634 per year — not much more than you’d earn working full-time at the current federal minimum wage, which has been stuck at $7.25 an hour since 2009. Worse yet, if you’ve worked at such low-paying jobs your entire life, you face multiple obstacles to a comfortable old age: pay too meager to allow you to save for retirement; lower Social Security benefits, because they’re based on your lifetime earnings; and, most likely, a body battered by decades of hard work.

Many millions of Americans in such situations work well past the retirement age, not because they “simply don’t want to quit,” but because they just can’t afford to do so.

On the road again

It’s autumn in an even-numbered year, which means I’m in Reno, Nevada, working on an electoral campaign, alongside canvassers from UNITE-HERE, the hospitality industry union. This is my fourth stint in Washoe County, this time as the training coordinator for folks from , the volunteer wing of this year’s political campaign. It’s no exaggeration to say that, in 2022, UNITE-HERE and Seed the Vote saved the Senate for the Democrats, re-electing Catherine Cortez Masto by fewer than 8,000 votes — all of them here in Washoe County.

This is a presidential election year, so we’re door-knocking for Kamala Harris, along with Jacky Rosen, who’s running for reelection to Nevada’s other Senate seat.

When I agreed to return to Reno, it was with a heavy heart. In my household, we’d taken to calling the effort to reelect Joe Biden “the death march.” The prospect of a contest between two elderly white men, the oldest for president, both of whom would be well over 80 by the time they finished a four-year term, was deeply depressing. While defeating Donald Trump was — and remains — an existential fight, a Biden–Trump contest was going to be hard for me to face.

Despite his age, Joe Biden has been an effective president in the domestic arena. (His refusal to take any meaningful action to restrain the Israeli military in Gaza is another story.) He made good use of Democratic strength in Congress to pass important legislation like the Inflation Reduction Act. That kitchen-sink law achieved many things, including potentially reducing this country’s greenhouse gas emissions by 40% by 2030, allowing Medicare to negotiate drug prices directly with pharmaceutical companies while putting a $2,000 annual cap on Medicare recipients’ outlays for drugs, and lowering the price of “Obamacare” premiums for many people.

Still, Biden’s advanced age made him a “, no good, very bad” candidate for president. Admittedly, a win for 59-year-old Kamala Harris in Nevada won’t be a walk in the park either, but neither will it be the death march I’d envisioned.

Old and in the way?

Government, especially at the federal level, is clearly an arena where (to invert the pyramid metaphor) too many old people are clogging up the bottom of the funnel. Some of them, like House Speaker emerita Nancy Pelosi, remain in full possession of their considerable faculties. (She’s also had the grace to pass the torch of Democratic leadership in the House to the very able, and much younger, Hakeem Jeffries, representing the 8th District of New York.)

Others, like former California Senator Dianne Feinstein, held on, to paraphrase , long after they were gone. And had my own great heroine Ruth Bader Ginsberg had the grace to retire while Barack Obama was still president, we wouldn’t today be living under a Supreme Court with a six-to-three right-wing majority.

What about the situation closer to home? Have I also wedged myself into the bottom of the funnel, preventing the free flow of younger, more vigorous people? Or, to put the question differently, when is it my turn to retire?

I haven’t lived out the past three stints in Reno alone. My partner and I have always done them together, spending several months here working 18 hours a day, seven days a week. That’s what a campaign is, and it takes a lot out of you. I’m now 72 years old, while my is five years older. She was prepared to come to Reno again when we thought the contest would be Trump versus Biden. Once we knew that Harris would replace him, however, my partner felt enormous relief. Harris’s chances of beating Trump are — thank God — significantly better than Biden’s were. “I would have done it when it was the death march,” she told me, “but now I can be retired.”

Until Harris stepped up, neither of us could imagine avoiding the battle to keep Trump and his vice presidential pick out of office. We couldn’t face a Trump victory knowing we’d done nothing to prevent it. But now my 77-year-old partner feels differently. She’s at peace with retirement in a way that, I must admit, I still find hard to imagine for myself.

I haven’t taught a college class since the spring semester of 2021. For the last few years, ��’v�� been telling people, “I’m sort of retired.” The truth is that while you’re part of the vast army of the contingent, part-time faculty who teach the majority of college courses, it’s hard to know when you’re retired. There’s no retirement party and no “emerita” status for part-timers. Your name simply disappears from the year’s teaching roster, while your employment status remains in a strange kind of limbo.

Admittedly, ��’v�� already passed a few landmarks on the road to retirement. At 65, I went on Medicare (!), though I held out until I reached 70 before maximizing my Social Security benefits. But I find it very hard to admit to anyone (even possibly myself) that I’m actually retired, at least when it comes to working for pay.

For almost two decades I could explain who I am this way: “I teach ethics at the University of San Francisco.” But now I have to tell people, “I’m not teaching anymore,” before rushing to add, “but I’m still working with my union.” And it’s true. I’m part of a “kitchen cabinet” that offers advice to the younger people leading my part-time faculty union. I also serve on our contract negotiations team and have a small gig with my statewide union, the California Federation of Teachers. But this year I chose not to run for the policy board (our local’s decision-making body) because I think those positions should go to people who are still actually teaching.

Those small pieces of work are almost enough to banish the shame I’d feel acknowledging that I’m already in some sense retired. I suspect my aversion to admitting that I don’t work for pay anymore has two sources: a family that prized professional work as a key to life satisfaction and — despite my well-developed critique of capitalism — a continuing infection with the productivity virus, the belief that a person’s value can only be measured in hours of “productive” labor.

Under capitalism, a person who has no work — compensated or otherwise — can easily end up marginalized and excluded from meaningful participation in society. The political philosopher Iris Marion Young marginalization one of the most ominous forms of oppression in a liberal society. “Marginals,” she wrote, “are people the system of labor cannot or will not use,” a dangerous condition under which a “whole category of people is expelled from useful participation in social life and thus potentially subjected to severe material deprivation and even extermination.”

Even when people’s material needs are met, as is the case for the luckiest retirees in this country, they can suffer profound loneliness and an unsettling disconnection from the social structures in which meaningful human activity takes place. I suspect it’s the fear of this kind of disconnection that keeps me from acknowledging that I might one day actually retire.

Jubilation and passing the torch

The other fear that keeps me working with my union, joining political campaigns, and writing articles like this one is the fear of the larger threats we humans face. We live in an age of catastrophes, present or potential. These include the possible annihilation of democratic systems in this country, the potential annihilation of whole peoples (, for example, or ), or indeed, the annihilation of our species, whether quickly in a nuclear war or more slowly through the agonizing effects of climate change.

But even in such an age, I suspect that it’s time for many of my generation to trust those coming up behind us and pass the torch. They may not be ready, but neither were most of us when someone shoved that cone of flame into our hands.

Still, if I can bring myself to let go and trust those coming after me, then maybe I’ll be ready to embrace the idea behind one of my favorite Spanish words. In that language, you can say, “I’m retired” (“����پ������岹”), and it literally means “pulled back” from life. But in Spanish, I can also joyfully call myself “jubilada,” a usage that (like “sabbatical”) also draws on a practice found in the Hebrew scriptures, the tradition of the , the sabbath of sabbaths, the time of emancipation of the enslaved, of debt relief, and the return of the land to those who work it.

Maybe it’s time to proudly accept not my retirement, but my future jubilation. But not quite yet. We still have an election to win.

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Concurrently, the unemployment rate edged up to 4.3%, the highest since October 2021, surpassing the expected 4.1%. These disappointing figures triggered a rush into government bonds, driving benchmark yields below 4%. After the data release, US President Joe Biden the mixed signals: While inflation shows signs of easing, job growth is evidently slowing. This dual challenge paints a complex picture for policymakers juggling between fostering employment and curbing inflation.

The market’s reaction to the jobs data highlights the precarious balance that the US economy must maintain. As investors seek refuge in safer assets, the broader implications for growth and stability remain a pressing concern. The road ahead for the country’s economy is fraught with uncertainty, with market dynamics reflecting the underlying anxieties of a potential recession.

Tanking US tech stocks raise economic concern

Similarly, US stocks took a nosedive the next day, on August 3. They closed sharply lower after a weak July jobs report stoked fears about the softening economy. Technology stocks were particularly hard as they reeled from disappointing earnings reports. The Nasdaq Composite market index tumbled 2.4% and the S&P 500 fell 1.8%, while the Dow Jones Industrial Average slid 1.5%.

Each major index ended the week on a sour note. The Dow’s four-week winning streak came to an abrupt halt. Both the Nasdaq and S&P 500 marked their third consecutive weekly declines. Notably, the Nasdaq has slipped into technical correction territory, and now sits 10% below its July 10 .

The weak jobs report underscored the precarious state of the economy. It exhibited a picture of uncertainty, with employment gains failing to meet expectations. This dismal news, coupled with underwhelming earnings from tech giants, cast a shadow over the markets. Investors are left grappling with the dual challenges of a faltering labor market and lackluster corporate performance.

As the summer heat blazes on, so do concerns about the future trajectory of the US economy. The recent downturn in the stock market serves as a stark reminder of the volatility that lies ahead.

The Sahm Rule warns of an imminent recession 

The July non-farm data from the US has intensified concerns about the employment landscape, raising the specter of a looming recession. With the release of this data, the unemployment rate has surged by 0.6% from its earlier this year. 

This rise the , a principle introduced in 2019 by former Federal Reserve economist Claudia Sahm. According to the rule, when the three-month moving average of the unemployment rate increases by 0.5% or more from its lowest point in the previous 12 months, the US economy practically enters a recession.

The rule serves as an early warning system for the US government. It signals when a recession is imminent and enables timely policy interventions to support households through economic downturns. Its accuracy and reliability have made it a cornerstone in economic forecasting.

As the unemployment rate climbs, the pressing question becomes how the government will respond to cushion the blow for American families. The current data denotes the urgent need for strategic measures to mitigate the impact of a potential recession.

The latest US non-farm employment report has sparked two significant market concerns: fears of an impending recession and anxiety over a potential Federal Reserve policy misstep. Analysts now worry that the economy may be weaker than the central bankers at the Federal Reserve had anticipated. This could compel the Federal Reserve to make a sharp cut in borrowing costs in September, or even resort to an emergency rate cut beforehand to stimulate demand.

The sharp slowdown in payrolls in July and a more pronounced rise in the unemployment rate have made a September interest rate cut seem . This situation has increased that the Federal Reserve might commence its loosening cycle with a significant 50 basis point cut, or an even more drastic intra-meeting move. With the economy seemingly teetering on the brink of recession, market expectations for Federal Reserve rate cuts are intensifying. Traders are now betting that the Federal Reserve will reduce rates by 50 basis points next month.

Rate cuts are a double-edged sword

Furthermore, the outlook for 2024 has shifted dramatically. on total rate cuts for the year have reached 111 basis points. This growing speculation underscores the precarious balance the Federal Reserve must maintain.

The market’s trajectory hinges not only on economic data but also on how investors interpret potential interest rate cuts. These cuts are typically designed to stimulate economic activity, encouraging businesses to expand and consumers to spend. However, they can also indicate underlying concerns about the economy’s health.

The delicate balance the Federal Reserve must maintain becomes evident in times like these. On one hand, cutting rates can provide much-needed relief to a slowing economy, fostering growth and stability. On the other hand, such measures might be perceived as a red flag. They could indicate that the Federal Reserve is apprehensive about the economy’s robustness. Investors are acutely aware of this duality.

When the Federal Reserve signals a rate cut, the immediate reaction can be a mix of optimism and caution. The optimism stems from the potential boost to economic activity, while the caution arises from the implicit admission that the economy might be faltering. As the market digests these signals, the broader implications for economic growth and stability remain a pressing concern.

The Federal Reserve’s actions are under intense scrutiny, with every move potentially influencing market sentiment. The interplay between rate cuts and market perception reflects the complex dynamics at play, shaping the future trajectory of the US economy.

[ edited this piece.]

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A key battleground in this competition is the between the US and China. Both nations recognize the immense importance chip production holds for economics and national security. A secure and reliable supply is crucial for maintaining functioning weapon systems and communication networks, not to mention consumer electronics, automation and healthcare. 

The stakes of the global chip industry

East Asia dominates global chip production, with powerhouses like Taiwan (), South Korea (, ) and Japan (, ) the way. Taiwan over half the world’s most advanced chips, while South Korea boasts a significant memory chip share and heavy research and development investment. Japan critical equipment for over a third of global chip manufacturing. This concentration establishes East Asia as an indispensable tech hub.

China presents an anomaly. It is not a major producer but the world’s consumer, nearly $380 billion in chips annually. The chips fuel China’s booming tech sector, which spans consumer electronics to the telecom and automotive industries. China, however, is now pursuing self-sufficiency in chip production, by significant state-backed investments, positioning semiconductors as a key industry for its future.

The US and China battle for tech supremacy

Chinese President Xi Jinping having a “world-class” People’s Liberation Army () by 2035. This vision of an intelligent military force implies unparalleled technological sophistication, superior combat capabilities and global influence. It relies heavily on autonomous weaponry and extensive artificial intelligence integration. For this, China has AI investment, with a particular focus on military application.

A United States Department of Defense report China’s aggressive pursuit of next-generation capabilities through AI and advanced technologies. US companies have led the development of advanced microchips and semiconductor manufacturing equipment, and China has historically on US-developed semiconductors to help it progress in high-tech fields like AI. By utilizing these technologies, China has been able to its military modernization and close the gap with other leading powers. The US fears China’s chip advancements could give the nation an edge, built on the back of US engineering.

To counter China’s efforts, the US President Joe Biden’s administration export controls in October 2022. It restricted the nation’s access to US-made chips and chip-making equipment. Now Chinese entities must obtain a special US license to make such purchases. Further tightening its grip, the US the Netherlands and Japan to restrict similar exports to China in January 2023.

The US’s escalating restrictions on chip exports have sent ripples through both the US and global semiconductor industries. Nvidia, the US’s tech company by market capitalization, a significant revenue decline in key markets. Its year-on-year revenue from China and Hong Kong plummeted 20% in the 12 months leading up to February 2023. Tightened US export controls directly this downturn. In response, Nvidia introduced a less advanced A800 chip specifically for the Chinese market. However, subsequent US restrictions this solution ineffective, further straining their regional performance.

The chip war has hit Chinese companies hard as well. Data from China’s General Administration of Customs a near-30% reduction in chip imports during the first five months of 2023 compared to the same period in 2022. This decline has disrupted production schedules and hindered technological advancements across numerous sectors. China’s official newspaper, People’s Daily, condemned the US for pursuing a strategy of “containment and suppression.”

In May 2023, Chinese Commerce Minister Wang Wentao Japan to reconsider its export controls.

Retaliating against US restrictions, Beijing banned the use of chips from major American semiconductor company in critical infrastructure projects. Chinese businesses have by finding alternative methods to obtain high-quality chips. This includes chip rental, the use of intermediaries and even semiconductor smuggling. 

Beijing has exports of rare earth elements, vital for chip manufacturing. These elements modern technology: Lanthanum aids camera lenses and battery electrodes, neodymium strengthens magnets and dysprosium keeps data storage devices and advanced electronics functioning. This move has escalated tensions with the US.

The chip war endangers the world

This conflict extends beyond chips, encompassing AI and cybersecurity — in this field, technological dominance is a national security issue. While China supplies raw materials for chip production, products like AI algorithms, cybersecurity frameworks and data analytics systems hold greater strategic weight. These advanced technologies shape military and economic power, influencing the trade war’s dynamics. The Australian Strategic Policy Institute (ASPI) research China leads the US in 37 out of 44 key technology sectors. Geopolitical tensions, technological rivalry and supply chain vulnerabilities combine to create a high-stakes global chip industry.

China’s dominance in specific AI applications like facial recognition contrasts with its domestic semiconductor industry’s limitations. Despite significant investments, China to close the gap with leading manufacturers like TSMC and . This is due to technological , including the inability to produce high-end chips that match the precision and efficiency of those made by established industry leaders​. Recognizing this dependency, the government has initiatives to bolster domestic semiconductor production.

The chip war threatens to cripple the global economy. Telecommunications equipment shortages threaten to delay smartphone production and lead manufacturers to hike prices and hinder infrastructure advancements. Governments must address national security concerns by diversifying suppliers. The risk of broader economic disruption looms large; telecommunications troubles could cascade, leading to job losses and economic decline.

Furthermore, the semiconductor dispute could exacerbate trade tensions in other areas as countries retaliate against each other by raising tariffs and barriers. To prevent this, international collaboration is needed.

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The VIX index, a measure of volatility, , its third-highest reading in history. Only in 2008, after the demise of Lehman Brothers, and in 2020, during the onslaught of COVID-19, did the index top that number.

A reading of 65 on the VIX is very high. To justify such a high volatility, stock prices would have to move by at least 4% (in either direction) on at least 13 trading days over the following 20 trading days. This would indicate a major economic calamity of global importance, which, to our best knowledge, has not occurred.

What happened?

On Wednesday, July 31, the Bank of Japan interest rates to 0.25%, sparking a rally in the yen that caught hedge funds off guard.

The same day, the US central bank at a possible interest rate cut in September. Two days later followed a worse-than-expected US job market . The unemployment rate reached a 3-year high.

As predicted by futures markets, the probability of a 0.5%-point cut in interest rates by September briefly reached 100%, with some contracts even implying a reduction by 0.75 percentage points. Jeremey Siegel, who lectures on finance at the Wharton School at the University of Pennsylvania, for an immediate 0.75%-point via cut emergency meeting followed by another 0.75%-point cut in September.

Within a few days, the Japanese currency reversed its weakness and compared to the US dollar, causing large losses to the so-called yen carry trade.

A carry trade involves borrowing funds in a low-yielding currency, like the yen, and investing the proceeds in a higher-yielding currency, like the US dollar. Since the summer of 2023, a large difference in interest rates between the US (5.3%) and Japan (-0.1%) attracted plenty of money.

The exact size of the yen carry trade is unknown. Cross-border yen loans as of March. Speculative positioning in yen futures at the CME futures exchange in Chicago contracts at the beginning of July. With each contract being worth ¥12.5 million, a total of ¥2.25 trillion ($15 billion) was thus at stake.

The prospect of rising Japanese interest rates combined with falling US interest rates meant the yen carry trade became less attractive. Higher volatility in the yen/dollar exchange rate led quantitative and trend-following investors to reduce their positions.

Why did the Bank of Japan raise rates?

Around of the Japanese population is aged 65 and older, making Japan the country with the highest share of elderly people globally.

Elderly people are retired and live off their savings or fixed pension payments. Their income usually does not adjust to inflation. Elderly people are hurt by inflation.

Japan had built up a network of 54 nuclear reactors. The Fukushima incident in 2011 led to the shutdown of all 54 reactors, of which only 10 are back in operation today. This has left a wide gap in energy production, leading Japan to import large amounts of fossil fuels, which make up roughly a of Japanese imports.

Fossil fuels are quoted in US dollars. A decline of the Japanese yen thus makes imports more expensive, leading to higher inflation. The further the yen/dollar exchange rate declined, the lower the approval rating of the current government fell.

Throughout May, the Japanese Ministry of Finance in foreign exchange markets with more than $62 billion, which did not help to stop the yen’s slide. Hence the surprise interest rate hike in late July.

After having achieved its goal of stabilizing the yen, the Bank of Japan quickly reverted to damage control by stating it would not raise rates during times of market instability.

What does this mean for investors?

Stock markets quickly recovered from Monday’s shock — the Nikkei Index 10% and the S&P 500 around 1%. Volatility receded; while current reading (about ) is still elevated, it is a far cry from Monday’s panic-driven levels.

Monday’s sell-off can be explained by technical factors. But what about fundamentals? The market value of all US equities amounted to as of December 2023, or nearly twice the US . In the past, this has been considered an “expensive” ratio.

Market breadth, or the number of shares participating in a trend, has narrowed down to a few mega-cap stocks. The weight of the ten largest US companies makes up around of the S&P 500, a proportion that has been growing for at least 50 years. The weight of the largest stock compared to the stock in the 75 percentile even levels seen in 1929.

Microsoft trades at operating cash flow while NVIDIA is valued at . Few market observers dispute that US stock valuations are exceptionally high, and therefore vulnerable to setbacks.

But what about the economy?

Market turmoil, if sustained, can feed into the “real” economy. Initial public offerings might get postponed due to a lack of risk appetite. Financial costs for corporations might increase as the risk premium over (presumably risk-free) US Treasury bond yields widens. Leveraged takeovers might fail due to lack of financing.

A recent survey of purchasing managers in the manufacturing sector (ISM) showed many companies reporting a noticeable slowdown in business. On the other hand, the (much more important) service sector painted a more benign picture.

Undoubtedly, employment growth is slowing down, while the rate of unemployment has begun to increase slightly. Consumer confidence is between mediocre and abhorrent. Adjusted for inflation, retail sales in 15 out of the past 20 months. While personal disposable incomes are still by a low single-digit percentage, little is left after accounting for inflation.

Even the current large fiscal deficit of of GDP fails to stimulate the economy; the government sector deficit instead translates into a surplus for the foreign sector (a mirror image of the US trade deficit).

Investors hoping that falling interest rates benefit stocks might be disappointed. Financial markets have anticipated those cuts for years, as evidenced by the negative slope in the .

Now would be a good time to go through portfolios and ask questions. “Would I buy this entire company at this price?” (the question of valuation) and “Would I be comfortable holding this company if the stock market closed for 10 years?” (question of quality).

Yes, in the long run, stocks go up, thanks to the inflationary bias of our fiat system. In the short- and medium-term, the stock market doesn’t owe you anything.

[ edited this piece.]

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He also reported some of what he learned from his conversations with people who attended the recent summit of the Shanghai Cooperation Organization.

“Three key topics were discussed:

–   Non-dollar finance

–   Military cooperation

–   New trade rules

Premier Modi was strategically absent.

Note: It is important to understand that the SCO is seen as a security organization, not quite like NATO yet, but its activities primarily focus on security. Initially centered on establishing border security between China and the republics of the former USSR, its scope has expanded to include trade security, economic security, cyber security, etc. The BRICS is primarily focused on trade, and the SCO – on security; there’s some overlap between the two.

Regarding the first topic – non-dollar finance – several key projects were addressed. Work involved allocating funds, personnel, and other resources to:

1. BRICS Bridge: Consensus was reached to proceed with using the ‘BRICS Bridge’ to replace the USD in all military and arms trade among member states.

The BRICS Bridge purportedly utilizes gold-based digital tokens and other derivatives as a medium for transactions involving any combination of currencies, including digital currencies, with a focus on CBDCs. Notably, pilot transactions have already begun for trading energy, commodities, and arms, mostly at the level of single-digit millions.

This system employs highly secure, permissionless, and trustless blockchain technology, likely based on Ethereum (ETH), including smart contracts and various types of mixers to obfuscate transacting entities’ identities for a fee. It’s confusing, but one interesting feature of BRICS bridge is the ability to transact via SWIFT as well. The infrastructure is reportedly developed in Solidity, with engineering conducted concurrently by multiple ‘very agile’ teams across different countries under the coordination of a ‘prominent software and hardware corporation.’

2. New Non-dollar Finance Mechanics: A significant discussion revolved around establishing a new risk-free standard to replace T-bills as a risk-free asset. This problem is seen by many as the most difficult to solve. In June, during the recent BRICS meeting of foreign ministers, several technical proposals on the topic were presented to the finance working group.

There was some informational ‘echo’ that one could observe; most notably (I’m quoting from the sources linked):

1. July 4, President of Belarus, whose country has just become a full member of the SOC, stepping up practical interaction across the entire complex agenda of the Shanghai Cooperation Organization. He suggested starting with finance.

‘As a priority matter, Belarus sees the creation of a mechanism for bilateral payments using national currencies and the creation of a collective financial institution of the Shanghai Cooperation Organization,’ he stated. The president noted that Shanghai Cooperation Organization countries account for a considerable share of the world’s population and the world’s GDP. ‘Only our organization includes two most powerful leaders – China and the Russian Federation. And we still have this awe for the  US dollar. Well, let’s finally take certain steps in order to reduce dependence on the dollars. And you will see how those, who wave around the dollar club, understand that things can no longer continue like that. We see all of it but we don’t take action. While people are waiting,’ the Belarusian leader noted.

2. July 3, One of Russia’s key bankers, Andrey Kostin, that all cross-border transaction work be conducted in strict confidentiality:

‘I see very clearly how each of our appearances, especially with such coverage, prompts someone in the US Embassy, perhaps the Second Secretary, to sit and record everything. We’ve observed that regardless of the steps we take, their reaction is very swift,’ noted Mr. Kostin, speaking at the Financial Congress of the Bank of Russia, streamed on the bank’s YouTube channel. ‘Whenever VTB representatives discuss international settlements, a delegation promptly arrives and begins pressuring local authorities about what they shouldn’t do. How many times have I been asked, “What’s happening in China?” Our response has always been, “Everything is fine for us in China.” Then, on June 12, we faced new special sanctions against our bank in Shanghai,’ added the head of VTB.

Note that only one of the two contending presidential candidates in the US takes notice of what’s going on. Former president of the United States, Donald Trump on All In :

‘We are losing a lot of countries on the dollar. I mean they’re going like flies. If we ever lose that, that’s the equivalent of losing a war. That would really make us third-world. We have lost so many countries, I looked the other day. So Russia is gone. You take a look: Ukraine doesn’t sort of exist in a sense, nobody knows what’s going on there, but when you look at China, it’s essentially gone, they’re trying to get out of it, they’re our primary competitor. Iran is not there. The other day I read that Saudi Arabia is willing to now go in various different currencies instead of the dollar. This is a tragedy, this is a big thing that is happening against our country and we cannot let that happen.’”

Some days later I shared with our group of friends a that had come to my attention and that I thought further clarified the meaning of the BRICS initiatives. It contains the reflections of precious metal broker Andy Schectman. He offers his take on:

·         the changing status of gold,

·         , a multi-central bank digital currency (CBDC) platform and potential rival to SWIFT,

·         Digital CBDCs

·         and the imminent emergence of the “Unit,” described as the future BRICS currency.

I then made the following comment and asked three questions.

“All I know about Schectman is that he’s CEO & president of Miles Franklin Precious Metal Investments, which could explain his bias in favor of gold or his higher than normal expectations for its future role. But his explanation of the mechanics of a carefully crafted new global payments system designed to be backed by 40% gold and 60% commodities in the framework of BRICS and the BIS sounds credible.

So here are three basic questions:

• How solid is the logic concerning the repatriation of gold and what appears to be a concerted effort to craft this into an effective international system?
• How much of this is simply ‘good intentions,’ unlikely to see the light of day?
• Assuming that there will be resistance from the US side, what form might that resistance take and how effective is it likely to be?”

Alex responded quickly with his response to the first two questions.

“A lot of self-declared ‘gold’ experts just play on people’s fears only to sell them some ‘gold savings account’ or ‘gold-backed credit card,’ a scheme in which you buy gold through them, have them store it at a presumably safe (from US confiscation) location. Usually, they won’t buy any gold and just take your money until the Ponzi scheme collapses.

But let’s assume these guys have no nefarious intentions and analyze their claims.

Repatriation of gold: During the cold war, Germany, France, the Dutch and other Western nations had some of their gold stored in London and New York to prevent confiscation in case the Russians should invade Western Europe. Germany and the Netherlands repatriated a good portion of their gold held in London and New York during 2014-2016:

The NY Fed does not report who withdraws gold; we only know about it if reported by the countries holding / repatriating said gold.

The latest data point is from May 2024. The last withdrawal happened in August 2021 (4 tonnes). During 2023, a total of 130 tonnes have been added by an unknown country (could be Turkey, who we know stored gold with NY Fed before, or other US-friendly Arab or Asian countries).

From the NY Fed data we cannot substantiate the claim of countries repatriating gold ‘en masse’ (unless NY Fed makes the numbers up).

For London, the most important trading place for physical gold, the LBMA (London Bullion Market Association) publishes monthly data of precious metals ‘held in London vaults’ (which is a bit vague):

We can observe a modest decline from 9,700 tonnes in August 2021 to 8,600 tonnes in June 2024. The UK has no gold mines; hence any gold additions must be imported.

The Indian repatriation of 100 tonnes is confirmed by media that ‘the Reserve Bank of India held 822.10 tons of gold at March-end, of which 408.31 tons were held domestically.’

The break-down between gold held locally and abroad is now almost 50:50 (408 + 414 tonnes), meaning the ratio was previously more tilted towards gold held abroad (308 + 514).

For a gold-loving nation like India 822 tonnes is not a lot; especially per-capita. The German Bundesbank holds 3,355 tonnes or 1.27 ounces per capita compared to 0.02 ounces per capita in India (63 times less).

Now, central bank gold ownership is often dwarfed by private ownership. For example, German private individuals are estimated to hold 11,000 tonnes (4.2 ounces per capita) while Indian private ownership is estimated at 25,000-27,000 tonnes (0.58 ounces per capita).

Increased Indian household wealth is likely to increase the amount of gold held per capita. Gold demand, and therefore gold imports, is already so strong it often creates a problem for the Indian current account balance (gold imports mean dollars leaving the country). Indian governments regularly try to discourage imports by tariffs, which leads to gold smuggling.

The South-African repatriation seems to be more a case of selling the table silver for lack of other funds:

Saudi Arabia (323 tonnes) and Egypt (126 tonnes) are the only countries mentioned  with noteworthy gold holdings. Nigeria (21 tonnes) and Ghana (8) have little, while Cameroon and Senegal have no reported gold holdings according to the World Gold Council. The news of Saudi gold repatriation is based on an anonymous source.

I am not denying that gold repatriation is happening; I am just not impressed with the amounts reported.

However, significant movement of gold can be observed via Switzerland, home of three of the worlds’ largest gold refineries. Over the past decade, around 15,000 tonnes of gold have been exported to predominantly Asian countries, while most of the (grade-adjusted) gold has been supplied by the UK, USA and Emirates.

Conclusion: the movement of gold from West to East is nothing new; it has been ongoing for more than a decade. Eventually, western vaults will run empty, probably caused by (or causing) a run on gold.

Yes, China is probably underreporting its gold purchases / holdings (makes sense if you want to ‘catch up’ on Western holdings without upsetting the apple cart, meaning pushing the price of gold up).

Yes, confiscating Russian assets and cutting them off the dollar market was a wake-up call for many non-US aligned countries.

Yes, central banks have been buying a lot of gold recently (see my article on 51�Թ�).

But is this enough to declare the ‘end of the dollar?’ I see little alternatives available currently.

Regarding the ‘re-monetization’ of oil and gold:

• Oil is a terrible store of value, since it is a) toxic, b) has high storage costs relative to its value and c) is being consumed.
• Gold is a great store of value, but a terrible means of exchange (in its physical form). Gold may be useful in restoring confidence in a fiat currency after a collapse in trust.

Regarding BRICS currency basket with 40% gold:

Emerging countries with fast growth usually have large trade deficits, and often have little or no gold reserves. Of what value would be a basket of currencies with little or no external value or use be? Surplus countries would be interested only in the gold part, and deficit countries would quickly run out of gold to deliver.”

Edward helps us to understand that a lot of things are going on in the background. Alex sees reasons for not expecting rapid changes.

We will be exploring these two contrasting vantage points in September when we resume the weekly publication of “Money Matters.” The months between now and the end of the year promise to be very interesting from a geopolitical perspective. The BRICS summit in October, which should have the effect of modifying some of our perceptions.

Join the debate

Money Matters…, is dedicated to developing this discussion and involving all interested parties.

We invite all of you who have something to contribute to send us your reflections at dialogue@fairobserver.com. We will integrate your insights into the ongoing debate. We will publish them as articles or as part of the ongoing dialogue.

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How significant is from , which could look to some people like a turning point? “After Pausing BRICS, Saudi Arabia Starts Issuing US Dollar Bonds.”

The article concludes with this: “However, Saudi Arabia has not officially confirmed if it wants to join BRICS or reject the invitation. We have to wait and watch for an official statement from the Kingdom on its decision to join the alliance.”

The fundamentals don’t change, but I’m sure they don’t tell the whole story. Is it even possible even to begin speculating sanely, let alone draw conclusions about which laws produce which effects?

Still, I find nothing astonishing or revealing when I read that “these bonds are solely aimed at institutional investors. The issuance is managed by leading US banks such as Citi, Goldman Sachs, JP Morgan, HSBC, Morgan Stanley, and SNB Capital, among others. Therefore, Saudi Arabia is working closely with the US institutional banks for the dollar-denominated bonds.”

Does this simply reflect the current strong position of the dollar or is it a significant bet on the future?

Edward promptly offered his own strategically ambiguous take on the question of Saudi intentions by posting of Dr. Ali Rashid Al Nuami, Saudi Arabia’s representative at the 10th BRICS Parliamentary Forum in St. Petersburg. He was present, but with something of a scowl on his face (at least at the moment the photo was taken).

Alex contributed a more detailed response that offered much needed clarity without resolving a question that both Saudis and Americans, as Alex explains, prefer to keep shrouded in mystery. Here, on the question of the Saudis’ use of dollars, are what Alex calls his “two cents.”

Saudi Arabia has already $279 billion in government outstanding.

The local currency is too small and not fungible in international markets, hence not suited for issuing debt.

Due to oil exports, a large part of revenue is in United States dollars (USD); hence, issuing debt in USD makes sense.

Issuing USD debt also serves as a “hedge” against USD debasement (devaluation). If the USD falls, USD-denominated debt also shrinks (if measured in another currency; the Saudi riyal is pegged to USD, so not much there is reprieve from falling USD if measured in riyal, but you get the idea).

A broader question: Why does Saudi Arabia have to issue debt at all? Saudi Arabia has a current account surplus of 6% of GDP and only a slight government deficit of 2% of GDP. However, this is very much dependent on oil prices. In 1987, for example, when oil prices fell to $8 a barrel, the government had a deficit of 25% of GDP. In 2008, when oil prices reached $140 a barrel, a surplus of 30% resulted. Being an established issuer of debt, with long-standing credit ratings (currently “A”), helps when one is forced to issue debt in times of budget problems.

Saudi Arabia is very aware that the “oil age” will eventually come to an end. Former oil minister Ahmed Zaki Yamani famously said, “The stone age didn’t end for lack of stones,” implying that the oil age will not end for lack of oil. Saudi Arabia is hence trying to diversify away from oil (airline, luxury accommodation, tourism etc).

Saudi Arabia has experienced rapid population growth from 4 million people in 1961 to 34 million last year. In order to prevent locals from revolting against an unelected royal family, they have to be kept happy. Additional government spending can be useful in this regard. Locals already enjoy a personal income tax rate of 0%, while corporate taxes are low, too (20%).

Government spending is also necessary for large purchases of US-made military equipment. Pre-9/11, military spending averaged around $20 billion annually. After 9/11, military spending increased to $60–$90 billion, which can be seen as “protection money” to be paid to the US in exchange for not instigating a palace coup. During his term, US President Donald Trump about the amount of arms sold to Saudi Arabia.

The 2017 detention and torture of 400 of “Saudi’s most powerful people” at the Riyadh Ritz Carlton might have been a counter-coup or simply a shake-down of people who were thought to have excessively enriched themselves to the detriment of the state (estimated $28 to $107 billion were recovered).

The headline is therefore not only wrong (Saudi Arabia didn’t “start” issuing USD bonds), but also wrongly suggest the Saudis were in the BRICS camp.

Each time the Saudis mention the possibility of selling Treasury bonds, the US mentions the “Saudi passports found on the sidewalk in Manhattan” after the 9/11 attacks (in clear terms: “We will tell the American public who really was behind 9/11, instigate a palace coup and have the Yemeni Houthis lob a bunch of rockets into your refineries/oil installations).”

Journalism and the question of context

Everything Alex cites is public information. Vinod Dsouza, the journalist who produced the story for Watcher.guru, obviously had access to that information. He could have put together the data as Alex has done and provided a truly enlightening analysis that takes into account the rich complexity of the trio of actors whose complex relationships are at play: Saudi Arabia, BRICS and the US. But as often in this type of journalism, rather than seeking to stimulate the public’s reflection, Dsouza pushed a simplified message. In this case, as Alex shows, this message was simply wrong.

In fairness, however, to Dsouza, he did make this point in the article: “The move suggests that Saudi Arabia might reject the BRICS invitation as it wants the US dollar to flow into its economy.” But even in that acknowledgement of the fact that Saudi Arabia has not joined BRICS, the message that its hesitation is based on its desire to keep USD flowing “into its economy” is so simplistic as to be wrong. As Alex explains, it isn’t about what the nation “wants,” but the convenience of using the existing components of the international system as works today in the most efficient way.

Watcher.guru describes itself as “a leading source in finance, with a focus on cryptocurrency, Bitcoin, Ethereum, Blockchain, DeFi, and more. Our goal is to build a trusted and influential media platform for a worldwide community involved in rebuilding the current financial state to a decentralized system.”

Perhaps it would be better “trusted” and more “influential” if it offered some authentic analysis, such as Alex has provided in our ongoing dialogue. Instead, Watcher.guru appears content with publishing articles highlighting random observations followed by partial and misleading conclusions. I am not suggesting that the website is spreading disinformation or even misinformation (the less intentional form of dupery). But like much of the press, its journalism appears to privilege simplistic, shocking headlines and facile conclusions over solid insight.

Again, to be fair, the website describes its philosophy thus: “Unlike other news sources, we focus on speed as a main priority. Watcher Guru is known for its speed when it comes to news, thus we publish headline-like alert reports first, as our editorial team works on an article to provide context to those who need it.”

The problem may lie in the understanding of context. Alex has provided multiple elements of context. Dsouza’s article is, at best, minimalist. I highlight this contrast to demonstrate the principle we at 51�Թ� are following in our “Crucible of Collaboration.” For any serious question — and most people would acknowledge that Saudi Arabia’s geopolitical alignment is a serioius question — context is more than a few random facts and statistics. Our “crucible” is a place of exchange in which the confrontation of contrasting interpretations can lead to greater clarity.

At 51�Թ�, we intend to continue developing our Crucible of Collaboration with “Money Matters…” and extend the principle to other topics in the news. We invite readers with their own insights or interrogations to join and enrich the debate. One of our aims is to help all of us to make sense of the headlines we see elsewhere!

Join the debate

“Money Matters…” is dedicated to developing this discussion and involving all interested parties.

We invite all of you who have something to contribute to send us your reflections at dialogue@fairobserver.com. We will integrate your insights into the ongoing debate. We will publish them as articles or as part of the ongoing dialogue.

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The EU initiated anti-subsidy on Chinese EVs on June 12. From the moment these began, Germans from the government to industry insiders expressed opposition. Chancellor Olaf Scholz even publicly that the German automotive industry would be able to compete with Asian car manufacturers.

Typically, a company applies for an investigation. This time, the EU Commission an investigation on its own. So why does European Commission President Ursula von der Leyen not even give the German automotive industry a chance for “?” The EU clearly had a pre-established position, and the results of the investigation are foreordained. It only targets China; one can only call it another witch hunt. 

The EU’s anti-subsidy investigation on Chinese EVs launched in October 2023. Von der Leyen warned that the vehicles would “” into Europe. This had the potential to destroy the continent’s automotive industry. It was a reasonable fear; from 2012 to 2013, China damaged Europe’s solar energy industry by selling and illegally €21 billion (over $22 billion) of solar panels there.

Von der Leyen intended to use this new investigation to further the EU into a geopolitical institution, which has been a core goal of hers since she took office. Von der Leyen is running for as EU Commission president, and if that fails, she could try for the position of NATO Secretary-General with French and United States aid. So she is simultaneously using the investigation to gather political support, as she presents herself as a hardliner against China in her campaign.

But at what cost is she doing all this? Perhaps the destruction of the Eurasian continent due to trade conflicts? That’s not her concern.

Right-wing protectionism attempts to protect European industry

There’s been a significant rightward in the EU’s politics, as evidenced by the of the 2024 EU parliamentary elections. This change undoubtedly casts a heavy shadow over China’s tariff policy. conservative European forces will inevitably use trade protectionism to defend their own industries and employment. In response, these member states have further strengthened their demands to protect their own automotive jobs. Currently, at least EU countries provide land subsidies for industrial investment and several more preferential loans to enterprises.

This move completely caters to . (What comes after the rightward turn? The last time Europe faced the storm of populism and trade protectionism was in Germany before World War II.) Given China’s cost and technological in EVs and wind power, the EU’s restrictions will also delay its efforts in energy conservation and emission reduction. This further delays its goals to address global climate change, which is incongruous with the EU’s claims of leading global climate governance.

Trade protectionist policies initiated by the US have also propelled the growing protectionism within the EU. In 2022, the US introduced the Inflation Reduction , which provides up to $7,500 in tax credits for new EVs and loans for used EVs. This move raised concerns within the EU about the impact on its own automotive industry and has led to the adoption of trade protectionist measures.

Meanwhile, the US’s recent trade war and decoupling practices against China have intensified the EU’s concerns about its own industrial development and security. In May 2024, the US announced an in tariffs on Chinese EVs from the previous 25% to 100%. The European Commission immediately followed suit by firing at Chinese EVs. This was hardly a coincidence.

The EU’s discriminatory subsidies and weaponized tariffs

For a long time, China and Europe have maintained a “cold politics, hot economy” model of cooperation — ideological differences do not affect both sides as important trade partners. However, this new emotional prejudice will chill the few commonalities between China and Europe. Von der Leyen seems to have forgotten that it was Europe itself that initiated the subsidy era in the field of new energy.

On February 1, 2023, von der Leyen officially launched the Green Deal Industrial . This relaxed restrictions on government subsidies to enterprises, which is usually prohibited by the rules of the EU single market. But under the current policy on batteries, EU member states can offer financial assistance to battery manufacturers.

This plan was originally intended to improve Europe’s competitiveness in the field of clean energy, but its actual implementation has created discriminatory subsidies. According to statistics, the EU has provided ($3.2 billion) in subsidies to battery manufacturers.

This EU tariff investigation has exposed the division within the EU, with countries like Germany and Hungary expressing . Meanwhile, countries that do not export their own cars to China, represented by France, support the EU’s imposition of tariffs. In fact, Paris plans to raise the threshold for Chinese EVs entering the EU market, forcing Chinese manufacturers to invest and construct factories in France. As early as May, French Finance Minister Bruno Le Maire publicly stated that he the automotive manufacturer BYD to build factories there.

Like France, those who support increasing tariffs on Chinese cars have communicated with Chinese officials and car companies, expressing their will to cooperate. These countries do not oppose Chinese EVs, but rather the fact that they cannot benefit from them. They hope the companies will cooperate to drive the development of Europe’s automotive industry.

Objectively speaking, this goal is not difficult to achieve. Before this tariff policy started, manufacturers such as BYD had already started factories in the EU. However, if Europeans use tariffs as a weapon to force China to build factories on their soil, that is a different story.

Can the EU’s automotive industry really develop if Chinese EVs are kept away? The protective tariffs have achieved nothing but delaying the use of low-cost, low-carbon energy in Europe by a few years. The EU’s anti-subsidy can’t solve the problems faced by the EU in related industries, but may further worsen the situation. European consumers welcome inexpensive electric vehicles as well as low-carbon energy; after the anti-subsidy investigation, the EU members may have to buy Chinese EVs at higher prices. The only group not grateful for the reduced carbon dioxide emissions because of China is the EU, which has chosen a tariff war.

Europe and China could cooperate

The cooperation potential between China and Europe’s automotive industries far exceeds their differences. With electrification and — the use of artificial intelligence with decision-making capability — the proportion of the cost of chips in car prices will rise dramatically. Although the Netherlands has technology and Germany has , the majority of the chip industry’s profits goes to the US and the non-European countries like Japan and South Korea.

In this regard, China and Europe have common interests. China must develop its own chip industry. With its production capacity, the chip prices will definitely be reduced followed by the increased proportion of its chips in the global market. This is already in effect.

From January to May 2024, China’s integrated circuit amounted to 444.73 renminbi (over $62 billion), a year-on-year increase of 21.2%, even exceeding the 20.1% of cars. It became the country’s second-largest industry with year-on-year growth. China has already occupied the popular mature process of 28-40nm. Most car chips use 28nm or 40nm chips, so cooperating with China to use its chips can greatly reduce the production cost. The two countries would gain a competitive edge over US and Korean cars.

If the European automotive industry can’t cooperate with China in this game, Europe cannot participate as a player. Rather, it would be more like a bargaining chip. Habeck’s visit to China is a signal that Berlin has reached a consensus with Beijing to “decrease the impact” while Paris is still facing choices.

[ edited this piece.]

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On June 19, Edward Quince, playing the literary critic, offered this succinct commentary on the tone of the G7’s pronouncement to the rest of the world:

If you were Mr Xi Jinping, you probably noticed how harsh the most recent G7 language was in relation to China.

Frankly, if it weren’t for the calendar, I would think it was written by a sovereign of some colonial power trying to reign in its subjects who have gone rogue: We will take this money from you, and we will spend it this way (and listen to us, what we are doing is legal, all in accordance to “our respective legal systems”), and those guys must stop doing this, and those guys must start doing that, we will punish them this way, and we will hit those guys that way… And all of that is of course, “consistent with all applicable laws and our respective legal systems.”

Sitting in Beijing, would you conclude that you need to obey, compromise a little, compromise a lot or get ready for a long confrontation?

Intransigence and indifference to the idea of opening a dialogue with other emerging poles in a visibly changing world order have become the watchwords of the Western alliance.

Changing his focus from the G7’s bombastic expression of the required attitudes, principles and rules it associates with its vaunted “free and open rules-based international order,” Edward followed up on July 5 with a focused look at what is concretely happening with the G7’s unacknowledged rivals: BRICS and the Shanghai Cooperation Organization (SCO). In its current form, and before its next wave of expansion likely to occur during its annual summit in October, BRICS already represents a GDP superior to the G7. And it is only just beginning to define the elements of its system, and notably its financial tools.

The BRICS have allegedly already advanced to practical implementation of an alternative non-dollar financial system based on gold derivatives, smart contracts, permissionless and trustless blockchains.

A few notes from my conversations with people who attended the recent summit of the Shanghai Cooperation Organization:

Three key topics were discussed:

·         Non-dollar finance

·         Military cooperation

·         New trade rules

Premier Modi was strategically absent.

Note: It is important to understand that the SCO is seen as a security organization, not quite like NATO yet, but its activities primarily focus on security. Initially centered on establishing border security between China and the republics of the former USSR, its scope has expanded to include trade security, economic security, cyber security, etc. The BRICS is primarily focused on trade, and the SCO on security; there’s some overlap between the two.

Regarding the first topic, ie non-dollar finance, several key projects were addressed. Work involved allocating funds, personnel, and other resources to:

1. BRICS Bridge: Consensus was reached to proceed with using the ‘BRICS Bridge’ to replace the USD in all military and arms trade among member states.

The BRICS Bridge purportedly utilizes gold-based digital tokens and other derivatives as a medium for transactions involving any combination of currencies, including digital currencies, with a focus on CBDCs. Notably, pilot transactions have already begun for trading energy, commodities and arms, mostly at the level of single-digit millions.

This system employs highly secure, permissionless, and trustless blockchain technology, likely based on Ethereum (ETH), including smart contracts and various types of mixers to obfuscate transacting entities’ identities for a fee. It’s confusing, but one interesting feature of BRICS bridge is the ability to transact via SWIFT as well. The infrastructure is reportedly developed in Solidity, with engineering conducted concurrently by multiple “very agile” teams across different countries under the coordination of a “prominent software and hardware corporation.”

2. New Non-dollar Finance Mechanics: A significant discussion revolved around establishing a new risk-free standard to replace T-bills as a risk-free asset. This problem is seen by many as the most difficult to solve. In June, during the recent BRICS foreign ministers’ meeting, several technical proposals on the topic were presented to the finance working group.

There was some informational “echo” that one could observe; most notably (I’m quoting from the sources linked):

• July 4, President of Belarus, whose country has just become a full member of the SOC, suggested stepping up practical interaction across the entire complex agenda of the Shanghai Cooperation Organization. He suggested starting with finance.

“As a priority matter Belarus sees the creation of a mechanism for bilateral payments using national currencies and the creation of a collective financial institution of the Shanghai Cooperation Organization,” he stated. The president noted that Shanghai Cooperation Organization countries account for a considerable share of the world’s population and the world’s GDP. “Only our organization includes two most powerful leaders – China and the Russian Federation. And we keep trembling around U.S. dollars. Well, let’s finally take certain steps in order to reduce dependence on the dollar. And you will see how those who wave around the dollar club understand that things can no longer continue like that. We see all of it, but we don’t take action. While people are waiting,” the Belarusian leader noted.

• July 3, One of Russia’s key bankers, Andrey Kostin, suggested that all cross-border transaction work be conducted in strict confidentiality: “I see very clearly how each of our appearances, especially with such coverage, prompts someone in the US Embassy, perhaps the Second Secretary, to sit and record everything. We’ve observed that regardless of the steps we take, their reaction is very swift,” noted Mr. Kostin, speaking at the Financial Congress of the Bank of Russia, streamed on the bank’s YouTube channel. “Whenever VTB representatives discuss international settlements, a delegation promptly arrives and begins pressuring local authorities about what they shouldn’t do. How many times have I been asked, ‘What’s happening in China?’ Our response has always been, ‘Everything is fine for us in China.’ Then, on June 12, we faced new special sanctions against our bank in Shanghai,” added the head of VTB.

Note that only one of the two contending presidential candidates in the US appears to have noticed what’s going on. Former President Donald Trump had this to say on an All In :

“We are losing a lot of countries on the dollar. I mean they’re going like flies. If we ever lose that, that’s the equivalent of losing a war. That would really make us third world. We have lost so many countries. I looked the other day. So, Russia is gone. You take a look: Ukraine doesn’t sort of exist in a sense. Nobody knows what’s going on there, but when you look at China, it’s essentially gone. They’re trying to get out of it, they’re our primary competitor. Iran is not there. The other day, I read where Saudi Arabia is willing to now go in various different currencies instead of the dollar. This is a tragedy. This is a big thing that is happening against our country and we cannot let that happen.”

It may be fitting that Edward ends with this quotation from Trump, who, thanks in part to a failed attempt, appears to have consolidated his position against a waning incumbent President Joe Biden in the upcoming election. Biden’s silence on this question is deafening. Does he have nothing to say? He certainly cares.

Edward’s contributions leave us with the impression that, in contrast with the dynamic focus of everyone involved in BRICS, the Western bloc, especially in its incarnation as the G7, exists less an institution seeking to shape a changing world than as the remnant of a self-admiring fan club dedicated to two things:

• celebrating, for lack of a founding constitution, the historical idea of a rules-based international order,
• the pursuit of the war in Ukraine viewed as a holy Crusade that permits it to maintain its faith.

The G7 believes it has given the world its shape, and — like the God of Genesis during the seven days of creation — looked at its work and “saw that it was good.” BRICS, in contrast, is busy putting numerous elements in place with a view to designing a new shape to the world. Edward imagines President Xi’s reaction, but it is the entire world that now finds itself wondering whether the choice is “to obey, compromise a little, compromise a lot, or get ready for a long confrontation.” The rhetoric of the G7’s ���dz����ܲԾ����é indicates that the West sees that confrontation as already taking place in Ukraine, mentioned 52 times in that document. BRICS, in contrast, was not mentioned once.

Join the debate

Money Matters…, is dedicated to developing this discussion and involving all interested parties.

We invite all of you who have something to contribute to send us your reflections at dialogue@fairobserver.com. We will integrate your insights into the ongoing debate. We will publish them as articles or as part of the ongoing dialogue.

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We pay the rich interest on that debt — paying money for money. Most of us pay well over half of our paycheck to private banks for rent, mortgages, car loans, student loans, credit card payments and more. Wouldn’t it be nice if we didn’t need to borrow from the rich to get a loan for a new car or house or to start a business?

Turns out we don’t have to! The answer is public banking, and it’s already been working for more than a century — in North Dakota, of all places!

The Bank of North Dakota serves its state

Back in 1919, a populist political organization called the Nonpartisan League a majority in the state legislature — don’t ever say you can’t change anything by voting! It created the Bank of North Dakota (BND), the only state-owned bank in the country. The BND’s job, according to its charter, is “encouraging and promoting agriculture, commerce, and industry” in the public interest.

The goal from the outset was to free the state’s farmers from becoming debt-dependent on the big private banks in the Twin Cities, Chicago and New York City. Since World War II, the BND has been turning profits over to North Dakota’s general fund, frequently saving the state from budget shortfalls. In 2011, for example, the bank contributed to the state budget.

Ownership is the key difference that sets the Bank of North Dakota apart from other banks. The traditional private banking model is set up to enrich its owners: the shareholders. By contrast, public banks are owned by the public — the people who live in the state or community that bank exists to serve.

And the people are well-served by the BND. That’s why North Dakota, one of the reddest of red states, continues to operate what amounts to a socialist enterprise. Even though other banks and Republicans might loathe its existence, the BND is far too popular and helpful to kill off.

That’s because the BND exists to serve the public, not to extract profits for the rich. The bank’s charter requires it. As an from Salon describes, “Through its Partnership in Assisting Community Expansion, for example, it provides loans at below-market interest rates to businesses if and only if those businesses create at least one job for every $100,000 loaned.” The 49 states that don’t have a public bank are sitting ducks for Wall Street banks to extract profits, privately financing public infrastructure and loans for important projects like new schools. Expensive bonds can mean repayments up to ten times the value of the original loan. These schemes also mean enormous fees and unnecessary risk because bankers are trying to make as much profit as possible.

The BND is more stable than even the biggest private banks. Back during the 2008 financial crisis, The Wall Street Journal , “It is more profitable than Goldman Sachs Group Inc., has a better credit rating than J.P. Morgan Chase & Co. and hasn’t seen profit growth drop since 2003.”

That’s right, it’s also super ! The BND posted record profits in 2023. It holds more than $10 billion in assets and has a $5.8 billion lending portfolio.

The bank also exists as a counterexample to bankers’ claims that they must offer outrageous salaries to retain talent. The BND’s executives are state employees making less than a year. That’s a far cry from investment bankers on Wall Street. All of the BND’s costs are lower than private banks. Another article , “no bonuses, fees, or commissions; only branch office; very low borrowing costs; and no FDIC premiums.”

Private banks fear public banks

This all sounds amazing, right? So why don’t we already have public banks in every state and large city in the country? Private bankers will cite startup costs, government inefficiency, conflicts of interest or lack of expertise. As one industry spokesperson Vox, “Our position hasn’t been secret… We’re opposed to the concept in general.” 

That’s putting it mildly. The truth is, private banks are scared to death of the competition. As writer Ellen Brown , “the public banking model is simply more profitable and efficient than the private model. Profits, rather than being siphoned into offshore tax havens, are recycled back into the bank, the state and the community.” 

Public banks could easily push private banks right out of business. Fortunately, back in 1920, the BND has already survived a constitutional challenge that went all the way to the Supreme Court. 

Do you remember how during the 2008 financial crisis we started hearing about private banks that were “too big to fail?” Bankers and our own government kept telling us that some banks were so big that if we let them fail, they could take the entire American economy down with them. That’s why I think too big to fail is too big to exist.

Let’s change our banking

Here’s an idea! How about the next time a too-big-to-fail bank starts to go under, the government does something different? Instead of forcing a sweetheart sale to a competitor, it could seize that bank’s assets and use them to establish public banks? I bet it would have huge positive public benefits.

Once we have lots of public banks, excessive profits could be handed out to the public in the form of dividend checks, like Alaska does with its oil fund nest-egg. In 2023, every Alaskan got a check for $1,300. Can you imagine if your state sent you a check because its public bank made too much money last year? It’s not impossible to imagine.

We don’t need the rich to have banking. In fact, the Bank of North Dakota proves that so much of what we accept about private banks is unnecessary: systemic risk, excessive fees for things like overdrafts, exorbitant charges for loans and bonds and massive profit extraction. We don’t need to accept any of those things. There is a living, breathing alternative right here in the United States. We should take our inspiration and run with it.

Let’s make them pay.

[ first published this piece.]

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Mutual funds in the US a century ago. This financial instrument in 1924 was popular with our parents’ generation. Their advantages include diversification, professional management, affordability, daily liquidity, variety of choices by region, sector, company size or investment style and automatic reinvestment of dividends and capital gains.

However, most mutual funds come with considerable up-front sales charges as well as annual fees, eating into returns over longer periods. Making matters worse, up to 96% of all active US equity funds underperformed their benchmark over a 15-year period, as described in this earlier article. They underperform the market.

The emergence of ETFs

A relatively new type of fund has been cannibalizing mutual funds in recent years. Known as exchange-traded funds (), the first such fund was launched in Canada in 1990. In 1993, the first ETF was launched in the US. ETFs took time to catch on before growing rapidly in popularity. They seek to an index, which is typically weighted as per market capitalization, in order to capture the risk and return of a given market. ETFs comprised only 1% of total fund trading in 2000. The crash of the dotcom bubble in 2001 boosted the popularity of ETFs, and a graph on the popular site Investopedia reveals that they have really taken off since 2010. 

Since most mutual funds underperform the market and ETFs are largely so-called passive investment vehicles that replicate the market, why would someone pay higher fees for an inferior performance?

Before we carry on, it is important to understand what active and passive investment means. “Active” describes the process of actively selecting a few stocks, hoping their performance would beat a broad index, like the S&P 500. “Passive”, on the contrary, involves simply replicating the performance of said index. Once funds are invested according to the weights prescribed by the index, the manager can fold his hands and remain passive. 

Why do ETFs perform better and what are the risks?

Why are an increasing number of investors switching to so-called passive investment vehicles? Since there is no need to do any security research, passive ETFs can do without hiring expensive analysts. This allows them to charge much smaller fees and outperform the mutual funds.

The State Street Global Advisors SPDR S&P 500 ETF Trust (symbol “SPY”), with more than $500 billion in assets, charges annual of less than a tenth of one per cent, ie <0.1%. By contrast, Capital Group’s “,” the largest active US equity mutual fund, carries an expense ratio of 0.63% — more than 6 times as much as “SPY.” In addition, investors in the active fund need to digest a front-load of up to 5.75%.

Unsurprisingly, passive ETF have been cannibalizing active mutual funds over the past years. Conversely, since 2017, US equity mutual funds had only one month of net inflows, and 87 months of outflows.

According to fund analytics firm , active US equity funds saw outflows of $290 billion over the past 12 months, while their passive counterparts enjoyed inflows of $320 billion. Passively managed equity vehicles now make up more than 60% of the total funds invested in markets.

As the share of passively managed investment grows, so does their ownership of individual stocks. In some companies, passive investors are already in the majority. Take Central Garden and Pet (symbol “CENT”), for example, where 60% of shares are owned by passive vehicles. Those funds are not interested in the fundamentals of the company such as sales, earnings or dividends. The company might announce terrible results, and passive investors would not sell a single share. It could, theoretically, be approaching bankruptcy, and, as long as the company remains in the index the fund tracks, the fund would not sell. 

Passive investment vehicles are insensitive to price. They are always fully invested. If fresh money comes in, the funds buy no matter what. Regular contributions to retirement accounts (“401k”) lead to a continuous stream of money driving index members share prices regardless of fundamentals.

As more investors become price insensitive, you expect to see more “crazy” price movements, leaving rational investors scratching their head. A rally induced by the recent index inclusion of Super Micro Computer (symbol SMCI) serves as an example. The company’s stock price rose from $284 at the end of 2023 to $1,229 on March 8, 2024, shortly before its inclusion into the S&P 500 Index on March 18. It has since lost around 37% of its value.

Erratic price movements could lead to the impression fundamentals did not matter anymore. Inexperienced investors might be tempted to bet on so-called “momentum” stocks, or worse, options, with quickly eroding time value.

Of course, indiscriminate inflows could reverse. An aging population of investors might want to cash out of stocks, realizing their capital gains. Persistent outflows would lead to selling, with the sellers, again, being insensitive to price. 

So, are ETFs a cure, or rather a curse in disguise?

Low-fee, passive index ETF are the most efficient investment vehicle available to individual investors. For each individual the decision to move into passive ETF is, undoubtedly, rational. However, individual rational behavior doesn’t guarantee a rational outcome in aggregate. For investors as a group, the outcome might be detrimental.

[51�Թ�’s interns, working as a team, edited this piece.]

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The 2023 banking crisis, headlined by the of Silicon Valley Bank, exposed the challenges banks face with their large and growing share of uninsured deposits. Uninsured depositors could trigger runs on banks when they perceive unmanageable risks, the paper noted. The paper was discussed at a recent co-hosted by the Wharton Initiative on Financial Policy and Regulation () with Yale’s Tobin Center for Economic Policy.

Goldstein and Davila provide a framework to determine the optimal level of deposit insurance to stave off bank runs. The framework allows ways to measure the welfare impact of changes in deposit insurance coverage limits, and the costs it will entail. The authors demonstrate the efficacy of the framework by applying it to the 2008 financial crisis. As it happens, that crisis triggered the most recent change in deposit insurance to $250,000 per account; the previous limit had been $100,000, since 1980.

“The deposit insurance limit is updated every once in a while, but not very rigorously or not with much data or science behind it,” Goldstein said. “What we wanted to ask is, can we have a framework that will guide policymakers on what that limit should be?”

The pros and cons of deposit insurance

Optimal deposit insurance limit would essentially have to be “socially optimal” in a way that maximizes the welfare or utility among economic agents or people, Goldstein continued. “It entails a cost-benefit analysis to see whether the benefit of changing the limit is significant enough relative to the cost.”

The benefits are clearly in helping create a more stable banking environment. “When you have more deposit insurance, it reduces the probability of a run and a bank failure,” Goldstein said. “Depositors might run on a bank when they think that their money is at risk. But if you insure them, their money is not at risk.” Governments will typically meet the costs of providing that insurance through taxation.

The paper noted that after the introduction of the federal deposit insurance in 1934 (with a limit of $2,500 per account), the number of bank failures dramatically reduced. More than 13,000 US banks failed between 1921 and 1933 in the midst of the Great Depression, but only 4,057 banks failed between 1934 and 2014.

While deposit insurance helps reduce bank failures, it involves a moral hazard, where market participants could, for instance, go lax in running the banking system. That possibility underscores the need to design optimal levels of deposit insurance coverage.

Designing the deposit insurance framework

The framework in the paper incorporates the tradeoffs that policymakers would have to consider in determining the optimal deposit insurance limit. It visualizes an environment with uncertainty about the profitability of banks’ investments, where both fundamental-based and panic-based failures are possible. It then mimics deposit insurance arrangements and weighs the implications for social welfare with varying degrees of coverage.

Essentially, the tradeoffs boil down to two possible scenarios: On the one hand, a marginal change in deposit insurance coverage may substantially reduce the likelihood of bank failure with significant gains from avoiding that failure. In such a situation, it is optimal to increase the level of coverage, the paper stated. On the other hand, when bank failures are frequent and when the social cost of subsequent interventions is high, the optimal route would be to decrease the level of coverage, it added. It might be unwise to incur the social cost of intervention, for instance, when it is very costly to raise resources through distortionary taxation, the authors wrote.

Goldstein said the framework incorporates four ingredients: One is the likelihood of a bank failure. The second is the cost of funds for the government to provide deposit insurance. The third is the relationship between the benefit from deposit insurance and the probability of a crisis, such as bank run. The fourth is the likely damage from a run.

Determining the right insurance coverage

When the authors applied their framework to the change in the deposit insurance limit in early 2008, they came up with an optimal level of coverage of $381,000 per account. That is substantially higher than the decision back then to raise the coverage limit to $250,000 in October 2008. Even so, the welfare gains are “very large” from increasing the coverage from the earlier limit of $100,000, they stated in their paper. They also qualify their choice of $381,000 as the coverage limit by noting that it is “perhaps more aligned with the extended guarantees that were implemented soon after” the 2008 financial crisis.

Incidentally, in March 2023, after Silicon Valley Bank and Signature Bank collapsed, the Treasury, the Federal Reserve and the FDIC extended to them a “systemic risk ,” where it made whole all of the bank’s depositors. Taxpayers will not bear the losses from the two banks, they announced in their joint statement.

That one-time exception was widely seen as an attempt to prevent a contagion effect where depositors across the banking industry might feel vulnerable. Silicon Valley Bank’s assets were eventually moved to a the FDIC set up, and New York Community took over select parts of Signature Bank. The episode policymakers and regulators into exploring ways to strengthen the banking system from bank failures.

Pointers for bank regulators

Goldstein recalled that after the 2023 crisis, many policymakers and legal scholars called for unlimited deposit insurance. “Our paper exactly goes against that. There is a benefit. There is a cost. You want to find the optimal balance between the cost and the benefit.”

Goldstein said that while it would be prudent to revisit deposit insurance limits from time to time, it would be unwise to change it too often. “It would be good to have a dynamic adjustment of the deposit insurance limit, but it might be infeasible because you can’t readjust it every month.”

Their paper also looks at how emerging economies should set their insured limits. In most European countries, the current deposit insurance coverage limit is 100,000 euros ($108,000 at the current exchange rate).

Goldstein and Davila do not, of course, provide a fail-safe way to prevent bank failures, but stated that their analysis provides the tools to build a “theory of measurement for financial regulation that can be applied to a wide variety of environments.” The ability to measure aspects such as “the sensitivity of bank failures to changes in the level of coverage and the relevant fiscal externalities associated with such a policy change” can potentially guide regulators, they added.

Goldstein said that their framework may end up capturing too many moving pieces that may be seen as “noisy,” but argued that it is still a step forward. “It’s better to have a noisy framework than have no framework at all. The way that this policy has been set over the years was very arbitrary.”

Deposit insurance helps minimize or prevent bank runs, but it must be accompanied by other actions to strengthen the banking system, Goldstein said. Among his suggestions: increased scrutiny of mid-sized banks, more imaginative stress tests and more effective capital and liquidity regulation.

In the first quarter of 2024, the US banking industry showed growth in net income, along with favorable asset quality, according to an FDIC . But it continues to face “significant downside risks” from inflation, interest rates and geopolitical uncertainty, it noted. It specifically mentioned a deterioration in certain loan portfolios such as commercial real estate and credit cards.

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Dear friends,

As fair observers, we have embarked on a wide open discussion about global trends concerning means of payment, currencies, trade and geopolitics. We agree that this is a transitional moment in history, in which the burning question of dedollarization is on many people’s minds. There are a lot of factors at play. As such, it requires literally thinking outside of multiple boxes.

In other words, we welcome discussion that is as open as possible, precisely because reaching a firm and convincing conclusion about the likelihood, the timing or the extent of the dethroning the dollar as the world’s reserve currency is highly unlikely. In such cases, the principle of democracy — rather than, say, “the wisdom of crowds” — requires that we share enough of our collective insights to allow even those at a great distance from the “science” to have a grasp of the way things may be trending.

Because we acknowledge this as a transitional moment of history, evidence from multiple sources tells us that dedollarization is real, if only in the sense that it’s being more and more frequently talked about. That remains true even where there is no evidence justifying the suspicion that today’s efforts at dedollarization might succeed in the kind of coup d’état some people imagine.

To place the focus on history, I submit the following representation of the trends over the past eight decades.

Warm regards,

Peter 

*

I was pleased to see Ed Quince’s succinct response to this:

I like your categorization — it does outline the lifecycle of the USD as the world reserve currency very well. It also seems prudent to assume that the future will bring more choice and flexibility to the world.

Alex also approved, offering his own extended reflections.

One thing that is missing so far: we should get the “official” narrative. Of course, no official will admit that “the end for the dollar is near.” And the Europeans will have different views than the US. And, of course, the BRICS+ in turn will have even more radically different views. The hard part is to get people on the record; I assume the subject is so sensitive that nobody wants to go on the record.

But it would be great if anyone had a source that would be able to contribute anonymously. I am still searching for papers to the tune of “Reforming the International Monetary System” but wasn’t very successful. Any leads or connections at IMF, World Bank, European Central Bank, BIS, other central banks or think tanks are greatly appreciated. I am absolutely certain that discussions regarding the future of our monetary system are held among Western powers, who want to preserve the status quo, and emerging powers, who would like to change it.

The Europeans had to play their hand very carefully, being entirely dependent on the US after the destruction of their industrial base during WWII. A lot of their gold had been moved to New York, for fear of Russian invasion. The US took a dedicated path towards demonetization of gold, leaving the Federal Reserve without a single ounce of gold. But this only works if other countries follow suit; Germany had to promise the US not to purchase any gold with USD proceeds from its rising trade surplus (the “”). As a “work-around,” Germany exempted purchases of gold from VAT, thereby encouraging its population to increase savings in gold. The amount of gold held by Germans is unknown, due to the decentralized and often anonymous nature of gold ownership, but according to polls Germans might own 11,000 tons (which would exceed the amount held by the US Treasury).

This might turn out to be a smart move. Why? In case of a currency crisis, the ECB would not sell its gold, but rather purchase additional gold, thereby achieving three purposes:

Afraid Germans won’t part with their gold? As frugal as Germans are, being attracted by substantial seasonal sales promotions, they sure will take advantage of a scenario where the ECB (or Bundesbank) declares “We will be bidding for gold EUR 10,000 per ounce (or any other arbitrary number) for the next two weeks only.”

The Federal Reserve does not own any gold. It had to turn over its gold to the US Treasury, receiving a non-redeemable gold “certificate,” valuing gold at $42.22 an ounce. It’s worthless. Over 80% of the Treasury’s gold is under control of the military (West Point, NY and Fort Knox, KY), underlining the importance of gold holdings for the US (despite downplaying it perpetually). You can see it under “gold stock” (valued at $11 billion, pay attention to footnote 1).

The ECB system of central banks owns 10,792 tonnes, valued at market value. The ECB could buy or sell gold if it wanted to. The Federal Reserve cannot sell any gold since it does not own any. It probably cannot purchase any gold either, since US Code 5117 makes it unlawful to value gold at a price different from the last official price of $42.22 per ounce (for transactions among public entities). Why? Because Nixon merely ‘temporarily suspended’ gold convertibility – hence enormous amounts of gold are theoretically still owed to foreign official holders (central banks) of US dollars. The Federal Reserve would hence immediately have to recognize large write-downs on any gold purchased at market prices. But I am sure that would be their least concern in case of a currency crisis.

You can probably see how the Europeans and the Americans are set up differently to deal with a currency crisis (due to the role of gold). It is a pre-programmed collision course, and it is hard to see how an agreement would be found during a “Bretton Woods” 2.0. And we haven’t even started to include any BRICS.

The US has one ace up its sleeve: gold held by the Federal Reserve Bank of New York for “foreign official accounts” (non-US central banks, sovereign wealth funds). And it’s a lot. You can see itunder position 4, “earmarked gold.” 7.9 billion dollars, duly valued at $42.22, which comes out to 188.7 million ounces or 5,869 tons, worth around $430 billion.

The US might just choose to never return those tons to their rightful owners. What are they going to do? Invade New York? French President Georges Pompidou, pursuing his predecessor De Gaulle’s stated concerns, sent a French frigate to New York in early August 1971 to exchange dollars into gold. On August 15, Nixon closed the “gold window.” The convertibility of the dollar into gold did NOT exist for US citizens (which had been forced to hand over their private gold holdings in 1933). It existed for non-US central banks, but only as long as the bluff wasn’t called. The French called the bluff, and the game was over. But it failed to dethrone the US dollar!

Of course, a lot of conspiracy theories have spun up surrounding gold, but the above is all well documented and withstands any scrutiny. Gold, this inert stupid little metal, extracted from the earth under enormous efforts, has all but vanished from the eye of the public. But behind the scenes, the chess pieces are being moved quietly, by velvet-gloved hands, setting up the game of currencies for an epic battle.

Join the Debate

Money Matters…, is dedicated to developing this discussion and involving all interested parties.

We invite all of you who have something to contribute to send us your reflections at dialogue@fairobserver.com. We will integrate your insights into the ongoing debate. We will publish them as articles or as part of the ongoing dialogue.

Money Matters… in a Multipolar World!

*[51�Թ�’s “Crucible of Collaboration” is meant to be a space in which multiple voices can be heard, comparing and contrasting their opinions and insights in the interest of deepening and broadening our understanding of complex topics.]

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Ethiopia is the most populous nation in East Africa. In the 20th century, it faced economic troubles and civil war between communist and non-communist forces. Today, it is quickly developing, building infrastructure and factories. Much of the capital for this development comes from foreign partners, especially China, whose ambitious Belt and Road Initiative has focused on this core of the Horn of Africa. Ethiopia’s industrial sector now employs millions of people, and Ethiopians are growing more prosperous. Yet it is not rosy for everyone; indeed, any development this large and fast will have uneven effects on the human lives involved in it.

Three women, three lives

It is easy to misunderstand industrialization in Ethiopia and China’s growing involvement. Made in Ethiopia takes a look at these developments through the lives of three women: a factory worker, a local farmer and a Chinese factory director who is charged with filling no fewer than 30,000 jobs.

The documentary takes a close and long look at the period between 2019 and 2023. It raises profound questions about what is fair and for whom in Ethiopia’s growing factory towns. These characters struggle to defend their own wellbeing in a rapidly changing, chaotic world. The trade-offs materialize in the concrete struggles of people’s lives. Still, people fight and they persevere.

Watching the characters navigate tricky terrain inevitably makes you reflect on how challenging it is to build prosperity for all.

Making a film in a tumultuous time

I am an Emmy-nominated Ethiopian American anthropologist and filmmaker. I served as an executive producer of the documentary along with Anna Godas, Oli Harbottle, Susan Jakes and Roger Graef.

First-time directors Xinyan Yu and Max Duncan shot the film over the course of four years, through both the pandemic and a civil war. I was living in Ethiopia when this film was shot and remember when Max and Xinyan started this journey. Ethiopia was in a very different place than it is now. The directors captured a particularly dynamic few years and indeed the pandemonium of a country that is rapidly accelerating towards the future.

The filmmakers had unprecedented access to the Eastern Industrial Zone (EIZ) in Dukem, Ethiopia. Dukem is a farming town that is home to the largest and first Chinese industrial park in Ethiopia. Located 40 kilometers outside of Addis Ababa, the EIZ is considered the benchmark for the development of industrial parks in Ethiopia and was established to accelerate the process of industrialization and job creation financed by Chinese investors.

Made in Ethiopia screens today in Washington, DC, which is home to the largest population of Ethiopians outside of Ethiopia. There, the film finds its largest Ethiopian audience yet and hopefully an even larger audience of global development policymakers.

Breaking through conventional thinking

The film reminds me that the power of cinema lies in its ability to take an audience into your mind’s eye. The film calls on all who see it to consider what lies beyond the binaries of technocratic frameworks.

Recently, The New York Times the headlines “Why It Seems Everything We Think We Knew About the Global Economy is No Longer True.” People are coming to understand the limits of conventional thinking in policy circles. We need new perspectives on growth, development and the global economy. Long-form storytelling enables us to delve deep into local communities’ experiences. Everyday people on the ground understand things that Washington- and London-based think tanks and international institutions easily ignore.

To be sure, this is not the first time we have realized that reality is complicated. Chimamanda Adichei us about the danger of a single story and Michel-Rolph Trouillot how perception can distort reality in his tour de force Silencing the Past. Yet we need many reminders because it is so easy to get stuck in lazy thinking, stereotypes, soundbites and echo chambers.

Made in Ethiopia invites audiences to practice perceiving the more complicated layers of China’s expansion into Ethiopia. The film aims to give the viewer a more rounded understanding of what is going on and what exactly might make for a better life for ordinary Ethiopians.

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For years, doomsdayers have been trumpeting the dollar’s demise. Once the Japanese yen was deemed a rival. Then, it was the euro. Now, it is the Chinese renminbi, also known as the yuan. Yet these fears are exaggerated. The reason is simple. People invest in the dollar because the American economic model is still the most dynamic in the world. The US has top universities, great laboratories, ease of setting up businesses, investors, depth of markets and culture of innovation are still unparalleled. 

Yet the dollar is unlikely to have the same dominance as in the past for a very simple reason. The hegemony of the US was historically unprecedented. Sir Arthur Harris, known as “Bomber” Harris, had bombed Germany into oblivion. The US had dropped two nuclear bombs on Japan. France had been occupied by Germany, and the UK was victorious but exhausted. Russia was still under Joseph Stalin and had been decimated by Nazi Germany.

After World War II, the US was the only game in town, the American economy was 50% of the global GDP, the US was the factory of the world and the dollar replaced the pound to emerge as the top dog. Since then, no other economy has held a candle to the American one. Yet others are on the up, and the dollar’s status is not as dominant as before.

Rivals Emerge but Still Lag Behind

China has risen like a phoenix after two centuries of ignominy. It, and not the US, is now the workshop of the world. As a result, China is the biggest importer of commodities. Russian gas, Saudi oil and Brazilian soybeans all make their way to this giant Asian market. So, it is only natural that some trade is denominated in renminbi/yuan. As a trade currency, the is picking up. In China’s cross-border transactions, the yuan reached 48.4% and the dollar declined to 46.7% from 48.6% a month earlier.

Yet there is no challenge to the status of the dollar as the reserve currency. There is nothing today that can replace it. For one thing, the yuan is not freely convertible. Under President Xi Jinping, China has tightened currency and capital controls. Even Jack Ma, the richest Chinese entrepreneur, has been brought to heel. Yet convertibility is only one of many shortcomings the currency has, and wealthy Chinese still go to great lengths to take their money out of the country and invest it in real estate in Vancouver, shares in Western companies and plain simple dollars. No American billionaire or millionaire thinks of storing wealth in yuan.

To put it bluntly, China lacks investor protections, institutional quality and capital market openness. The Middle Kingdom also has an opaque banking system with a mountain of non-performing loans, a gigantic real estate bubble, poor enforcement of contracts, and arbitrary and draconian regulations. Yes, China is the top global factory now but it still has not figured out how to create a financial system that is efficient, transparent and trustworthy.

The euro has problems too. The jury is still out on whether the euro will survive in the long term. At the heart of the matter is the fundamental difference between the north and the south. The Greek debt crisis threw the eurozone into disarray. Italy’s burgeoning debt, sclerotic growth and aging population threatens to sink the euro ship. 

Furthermore, Europe lacks US-style deep capital markets, banking, fiscal and political union. Will German taxpayers bail out Italian banks? Also, European bond markets are more fragmented and shallower than their American counterparts. There are simply not enough high-quality euro-denominated assets for investors to buy and sell.

Other currencies cannot be challengers. The pound fell from grace many decades ago. Post-Brexit, the British economy is caught in a low-wage, low-productivity and low-growth spiral. Cool Britannia is distinctly uncool these days. India, a fast rising former British colony, is growing impressively fast, but it has a very long way to go before its currency becomes a medium of exchange internationally.

Dreams of a BRICS currency will remain dreams. These economies have little in common with each other. Russia, Brazil and South Africa remain exporters of commodities. China is the global industrial superpower, and India is striving to boost manufacturing after decades of focus on services. Jim O’Neill, the former Goldman Sachs banker who coined the term BRICS for these five countries, has concluded that this proposed currency means little for the US-centered global financial system.

Dreams of gold replacing the dollar run into liquidity issues. The crypto mirage has now well and truly crashed. Other ideas of using a basket of currencies are simply too unwieldy. As yet, there is no alternative in sight to the dollar, flawed though it may be.

As geopolitical analyst wrote, “the dollar continues to be widely used for funding, pricing, trade invoicing and settlement, and cross-border borrowing and lending even when the US is not involved.”  A brief look at the graph below tells us all that we need to know about the global importance of the dollar.

There is also another important statistic that Bremmer touts. Central banks hold $12 trillion in dollars as foreign exchange reserves. This figure has declined since 1999 but “it is still that of the euro, yen, pound, and yuan combined – the same as it was a decade ago.” The Chinese yuan comprises a measly 3% of foreign exchange reserves. 

Despite the US Federal Reserve following a policy of quantitative easing that dramatically devalues the dollar, China has felt compelled to keep purchasing dollar-denominated assets. Even the weaponization of the dollar against Russia has not forced a change in Chinese policy when it comes to keeping these assets. 

The graph below captures the dominance of the dollar as the world’s reserve currency. For all the chatter by analysts, geopolitical gurus and media pundits, this domination is not yet under threat.

The dollar dominates because it is stable, liquid, safe and convertible. As stated earlier, the US is still the largest and most innovative economy in the world. American financial markets are the largest, deepest and most liquid in the world. Assets around the world are denominated in dollars, giving many investment options to those who hold the currency. The dollar also continues to be a safe haven for non-Americans, including people from the BRICS economies. 

Top Dog Status Secure but Not Eternal

As stated earlier, the US economy is the largest and most dynamic in the world. American educational, economic and political institutions inspire global credibility and confidence. ���Ի徱��’s blue-blooded Indian Administrative Service (IAS) officers who rule the country are willing to give their right arm to send their children to Harvard or MIT, and even Emperor Xi himself sent his daughter to Harvard.

The inherent strength of the US is a cliché that everyone parrots. The US has everything to be top dog from the most powerful military to a robust economy. Innovative companies such as Google, Apple and Tesla sprout up ceaselessly in the US and become dominant global players. Ultimately, people trust the US. They buy into the myth of Harvard and Hollywood, giving the US not only hard power but also what Joseph Nye calls soft power.

Yet all of this trust is also fragile. As we think about the dollar, Americans are playing political football yet again with its . Democrats want to spend like no tomorrow. Republicans cannot countenance any increase in taxes. And the American citizenry has gotten used to pain-free goodies racked up on Uncle Sam’s credit card. Thus, fiscal deficits continue to grow. Quantitative easing, the de facto printing of money, has fueled asset bubbles that are deflating as the Federal Reserve raises interest rates to combat inflation.

Smaller banks are going under and big banks are buying them up. Too big to fail has become even bigger to fail, amplifying moral hazard and systemic risk. The US financial sector is a world leader, but it is not as stable or resilient as it once was. The military-industrial complex demands ever increasing investment, while higher education costs an arm and a leg. Healthcare is stratospherically expensive and yields worse outcomes than economies that spend far less on it. In fact, American life expectancy recently declined and so, too, did social mobility. For too many, the great American dream has turned into the terrible American nightmare, straining the very fabric of society.

If the US continues to fragment, if American democracy keeps becoming even more dysfunctional and if Americans lose faith in their institutions—as many did on January 6, 2021—then the dollar may not remain top dog. Nothing lasts forever. For now though, reports of the dollar’s death are greatly exaggerated.

The views expressed in this article/video are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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The mechanism by which globalization spread throughout the world, the key strand of its DNA, has been the “free trade” treaty. 

“We’ve had 30 years of free trade agreements and bilateral investment treaties,” points out Luciana Ghiotto, a researcher at CONICET-Argentina and associate researcher with the Transnational Institute. “They’ve created this enormous legal architecture, what one friend of ours calls the which has spread like grass and gives legal security and certainty to capital. It has nothing to do with the protection of human rights or environmental rights.”

Indeed, among the many problems associated with the expansion of world trade has been environmental degradation in the form of land, air, and water pollution. More recently, however, attention has turned to the more specific problem of carbon emissions, which are largely responsible for climate change. According to the World Trade Organization, the production and transport of goods for export and import account for of global carbon emissions.

Embedded in many of the treaties governing trade and investment are clauses that give corporations the right to sue governments over regulations, particularly those addressing the environment and climate change, that adversely affect the expected profit margins of those businesses. These investor-state dispute settlement (ISDS) provisions have a “chilling effect on the regulatory system because governments, worried that they will be sued, decide to delay reforms related to climate change,” points out Manuel Perez Rocha, an associate fellow of the Institute for Policy Studies in Washington. “There have been several cases around the world where companies were able to defeat regulatory changes that favor the climate.” Trade rules that privilege corporations over the environment are particularly influential in the realm of agriculture, which is an extractive industry no less powerful than mining.

“The global system of trade and investment contributes to the monopoly control by just a few transnational corporations over fossil-fuel-guzzling agrobusiness, whose products are often transported thousands of miles before they reach a dinner table,” relates Jen Moore, an associate fellow at the Institute for Policy Studies. “At the same time. the system has been decisive in making the lives of millions of small-scale farmers more precarious, undermining their role as a better alternative to mass monoculture operations.”

Carbon emissions are not the only byproduct of the agrobusiness that global trade sustains. “There’s also methane emissions,” adds Karen Hansen-Kuhn, program director at the Institute for Agriculture & Trade Policy. “A lot of methane comes from meat production. Nitrous oxide, which is 265 times more potent than carbon and stays in the atmosphere over 100 years, results from chemical fertilizers.”

These perspectives on global trade—and more environmentally sound alternatives to the “free trade” model—were presented at a December 2022 sponsored by project of the Institute for Policy Studies and the .

The Rise of “Free Trade”

Throughout the modern era, states throughout the world protected their domestic economies through tariffs on foreign goods and restrictions on foreign investment. Behind these protective walls, states helped local farmers and businesses compete against cheaper imports and deep-pocketed investors.

But states that depended increasingly on exports of cheap industrial goods and surplus food—aided by transnational companies eager to boost their profits—lobbied for the reduction of these barriers. Arguments for “free trade,” traditionally linked to the presumed benefits of globalization, emerged within the most powerful economies in the nineteenth century, but it was more recently, in the 1970s, that states and international institutions dramatically revived this discourse under the banner of “neoliberalism.”

“When we talk about the circulation of capital, we’re talking about trade,” explains Luciana Ghiotto. “That is, import and export for states and the circulation of thousands of vessels and planes for the transport of commodities all around the world. One of the aims of capital is to make that circulation faster, simpler, and easier. Who would not want to make trade easier or faster? Well, the state.”

Faster and more efficient trade, while more profitable for corporations, also has meant a number of negative consequences for states such as job loss among domestic producers. Because of the wide array of free trade agreements and bilateral investment treaties now in force—and the power invested in international bodies to enforce these agreements—states have lost many of the tools they once used to protect or develop national industries.

The spread of the free-trade orthodoxy has had a major impact on the energy industry, which has in turn pushed up carbon emissions. Ghiotto points to the efforts of fossil-fuel corporations to protect their investments in Russia after the collapse of the Soviet Union as a primary motivation to negotiate an Energy Charter Treaty (ECT) in the early 1990s, which guaranteed free trade in global energy markets. The ECT was originally signed by 53 European and Central Asian countries. Today, another 30 countries from Burundi to Pakistan are in .

“The ECT is actually a treaty made specially to protect fossil fuel Industries,” Ghiotto continues. “It’s already been used by investors to protect their investments in the face of state policies. But that was 30 years ago. Now, because of the global climate crisis, states are pushing for other kinds of regulations that are jeopardizing the investments of these corporations.”

Energy companies have taken states to dispute settlements in 124 cases, with around 50 against Spain alone because of its reforms in the renewable energy sector. Companies “have used the ECT as a legal umbrella in order to increase business and profits, or simply to protect their investments against state regulation,” Ghiotto adds. Italy, for instance, instituted a ban on offshore drilling only to be hit by a suit from the UK energy company Rockhopper. In November 2022, the ECT arbitration panel ordered the Italian government plus interest.

“Investors in the mining and oil sector have launched 22 percent of the claims against Latin American states,” she reports. “There was the big case of Chevron against Ecuador. But there have been others. For instance, Ecuador had to pay a $374 million penalty to the French oil company Parenco after the state changed some clauses regarding the amount of taxes the company had to pay in order to give back some of the revenues to the Ecuadorian people.”

Agriculture and Climate Change

Global food production generates of greenhouse gasses every year. That’s about a third of the of such gasses emitted annually. The production of beef and cow milk are the worst offenders, largely because of the methane that’s released by the animals themselves. But other major contributors include soil tillage, manure management, transportation and fertilizers.

“Along with Greenpeace and Grain, our institute has been working with scientists to think about how increased fertilizer use is affecting climate change,” Karen Hansen-Kuhn reports. “Fertilizer use has been increasing all over the world. It’s a key part of Green Revolution practices. The scientists we worked with , bringing together the natural gas and the energy used in production along with transportation and the impacts in the field, amounts to more than 21 percent of emissions from agriculture, and it’s been growing.”

According to , countries like China, Netherlands, Saudi Arabia, Pakistan, Egypt, and Venezuela are using more nitrogen for fertilizers than the crops can even absorb. “This excess contributes to more emissions and causes other problems, for instance with run-off into waterways,” she continues. “The incentives right now in the agricultural system are for extreme overproduction, especially around commodity crops, like corn, soybeans, and wheat, which require these cheap chemical inputs.”

Many of these commodity crops are produced for export. The Netherlands is the of food; China is the second largest importer of food but also . The challenge is to continue to feed the world while reducing the use of so much fertilizer. “Many countries are advancing important agroecological solutions like crop rotation, using plants that fix nitrogen in the soil, and doing more composting,” Hansen-Kuhn adds. “These techniques are under the control of farmers, so they don’t rely on imports or trade in these chemical inputs.”

Another strategy, embraced by the European Union, has been to use trade rules to reduce the carbon content of imports and exports. “In Europe, they are currently in the process of finalizing a Carbon Border Adjustment Mechanism,” she reports. “The CBAM mostly applies to things like aluminum, steel, and cement, but fertilizer is part of it as well. A lot of firms in Europe are modernizing their plants so they’ll be more energy efficient. And they say they need protection in order to do that. Under this plan, fertilizer imports coming from other countries that don’t have the same environmental standards would be subject to a fee tied to the price of carbon.”

In theory, the CBAM would push exporting countries to raise their environmental standards and/or make their fertilizer production more efficient. “Maybe these plants will become more efficient,” she adds. “But maybe some firms will just decide to produce fertilizer in other countries. Or maybe in cases where a country has two factories, it will just export from the efficient factory, and there’s no change in emissions.”

On top of that, the CBAM will affect countries very differently. “Most of the fertilizer imports into the EU come from nearby countries like Russia or Egypt,” she continues. “But some imports come from countries like Senegal, where the fertilizer exports to Europe amount to 2-5 percent of their entire GDP. So, the CBAM would be a huge problem for such countries. And there’s nothing in this initiative that would give countries the technology they need to make changes. In fact, there are strong incentives against that in the trade deals. The CBAM provision specifically says that all of the resources generated by the carbon fee will be kept internally to foster the transition within Europe.”

Although CBAM may make European trade greener, it may also widen the “green gap” between Europe and the rest of the world. “We need a transition to agroecology, but what we’re getting in the trade deals lock in new incentives to continue with business as usual,” Hansen-Kuhn concludes. “If we look at the renegotiated NAFTA, there’s a new chapter on agricultural biotechnology that streamlines the process for approving both GMOs and products of gene editing. There are also restrictions on seed saving and sharing. And this new NAFTA will probably be the model for other agreements like the Indo-Pacific Economic Framework.”

Action at the Global Level

Civil society organizations have been pushing for a legally binding at the UN level to make businesses responsible for human rights violations and environmental crimes connected to their operations.

“Since the UN is made up of states, the more industrialized countries who can invest in the world are opposed to such a binding treaty,” Luciana Ghiotto points out. “In the United States, Canada, and Japan, we’ve seen debates about holding companies responsible for human rights violations throughout the production chain. It’s a relatively new political process. But it’s an example of civil society organizations putting a question of human rights and environmental rights at the center of discussion.”

Efforts at the international level are very complicated, Manuel Perez Rocha concedes: “For instance, the World Bank has the International Centre for the Settlement of Investment Disputes (ICSID) through which corporations can sue states.” He recommends a more regional approach. “We have proposed a dispute resolution center for Latin America that countries could use after pulling out of ICSID. “Unfortunately, most progressive countries have not embraced this,” he reports.

One of the challenges to persuading governments to embrace these alternatives is corruption. “There’s a tremendous circle of corruption,” he adds. “We’re talking here about the revolving door where public officials who negotiate these treaties then become private lawyers or counselors or board members of the corporations who are lobbying for their adoption. This corruption helps explain why governments sign these treaties even if they’re going to be sued.”

He points as well to the issue of access to critical minerals needed in the green energy transition. “The Biden administration is trying to combat fossil fuels at the cost of communities that live around the deposits of critical minerals like lithium and cobalt,” Perez Rocha explains. “There are a lot of concerns among native populations about how to make this transition to a so-called clean economy without violating human rights and destroying the environment.”

Trade has been a mechanism to make deals around these minerals. “These efforts at near-shoring and friend-shoring have been ways to control the supply chains around minerals and metals,” notes Jen Moore. “The United States in particular but also Canada have made themselves clear: to be identified as a ‘friend’ is to have an FTA or a bilateral investment treaty.”

There have been other actions at the global level related to climate issues and jobs. For instance, the United States in the WTO in 2014 over domestic content provisions in its effort to boost solar energy. India returned the favor two years later over similar domestic content provisions in state-level solar policy. “The WTO deemed both rules illegal,” Karen Hansen-Kuhn recalls. “In the United States, the programs continued, I don’t think any changes were made. But when we think of a just transition, it has to be about not just reducing emissions but about creating jobs.”

Resistance to Business as Usual

Resistance to the corporate-friendly trade architecture has come from many corners of the globe. “From the perspective of my work with mining-affected people,” Jen Moore reports, “there’s been a rise in resistance from farmers, indigenous peoples, and other communities facing the detrimental Impacts of this highly destructive model of capitalist development that’s been accompanied by violent repression and militarization and often targeted violence against land and environment defenders.”

For example, after buttressing the fossil-fuel status quo for three decades, the Energy Charter Treaty is no longer unassailable. In November, the German cabinet that the country would withdraw from the ECT. It joins a number of European countries—Italy, France, the Netherlands, Poland, Spain, Slovenia, and Luxembourg—that have made similar announcements. “In times of climate crisis, it is absurd that companies can sue for lost profits from fossil investments and compensation for coal and nuclear phase-outs,” points out the deputy leader of the parliamentary group of the Greens in the German parliament.

The treaty has a surprise for countries that want out: signatories withdrawing from the ECT are still bound by the treaty for 20 years. There’s also a related problem involving the provisions of other trade treaties.

“European countries are pushing to update treaties with Mexico, Chile, and others to include clauses like the investor-state dispute mechanism, which also allow energy corporations to sue governments,” notes Manuel Perez Rocha. “This is nothing short of neocolonialism being exercised against countries on the periphery.” In response, he urges the “strengthening of national judicial systems so that companies will feel more protected by national systems and not pursue options at the supranational level.”

The backlash to the ECT is nothing new. “The system has created a lot of resistance and critiques since practically day one,” Luciana Ghiotto adds. “I was raised in the spotlight of the battle of Seattle in 1999 against the WTO and the struggles against the Free Trade Area of the Americas.”

Karen Hansen-Kuhn agrees that it’s necessary to claim victories. “Civil society helped weaken the ISDS system,” she notes. “With the Transatlantic Trade and Investment Partnership, massive opposition to ISDS was a major reason it fell apart..”

Another form of pushback comes from the field itself. “On our website, we’ve started tracking the adoption of agroecological approaches, which are not just about the inputs but instead look at the fuller picture including food sovereignty, namely each community’s right to choose the food systems it wants,” Hansen-Kuhn continues. She points to Mexico phasing out GMO corn, which relies heavily on the pesticide glyphosate. The government made that decision because of input from civic movements. After objections from the U.S. government, Mexico on that commitment by applying the phase-out only to corn for human consumption.

“Mexico is making some concessions, for example allowing GMO for animal feed, but otherwise it’s standing firm despite enormous pressure,” she concludes. “That’s not a complete transition to agroecology, but here’s a country deciding that it will make a change in its food system regardless of what the trade deals say.”

“It’s important to recall the totality of the system supporting corporate control around the world,” Jen Moore says. “Sometimes it feels like we make only piecemeal attempts to go after it.”

Manuel Perez Rocha agrees. “We need to discuss alternatives from different perspectives, which would put an end to the patriarchal, neocolonial capitalist system,” he suggests. “But while we strive for a utopian vision, we also should discuss more realistic, more feasible, and more concrete alternatives. For instance, companies can sue states. Why shouldn’t states have the right to sue companies? Affected communities should also have access to dispute resolutions. We should eliminate the privileges of foreign investors, like the ‘national treatment’ clause, that tie governments down in their efforts to promote local, regional, and national development.”

The Global South has begun to develop in the debate on a just energy transition. “In Latin America, we have said that there is no new green deal with FTAs and bilateral investment treaties,” Luciana Ghiotto reports. The region has seen the rise of a number of dynamic organizations from the rural activists in Via Campesina to various indigenous movements and feminist movements articulating a feminist economy. Meanwhile, certain countries have taken the lead. “In its constitution, Ecuador prohibited entry into any international agreements that include international arbitration that compromises the country’s sovereignty,” she adds. “The new neoliberal government is struggling with dozens of lawyers to find a way around it, but they still can’t.”

Another example of successful resistance is the growth of the climate justice movement, which goes well beyond environmental protection and has linked activists across struggles from economic justice and human rights to agroecology and post-growth economics.

“After the disruptions of the last couple years, we can come together more in person,” Karen Hansen-Kuhn notes. “Movements require building relationships in person. We need to come together to build these alternatives.”

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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A previous article by 51�Թ�, “Is The Gold Standard Alive or Dead,” came to the conclusion that a gold standard would be unworkable due to its .  Deflationary bias in terms of gold represents large disadvantages. For example, if a nation backs its currency with the stock of gold, it is faced with the following problem: the stock of gold is around 200,000 tonnes, while produces only about 3,500 tonnes per year. This means that the stock of gold increases by only 1.75% a year. That low growth rate directly dictates the rate at which the money supply in that economy can grow. This would simply not be enough to accommodate population growth and productivity, resulting in a decline in the overall prices of goods and services. So why are central banks, who are surely aware of these limitations to the gold standard, frantically accumulating gold?

A by the 2022 Gold Reserves studied 56 central banks, and provided very interesting insights. When asked which topics they considered relevant for “reserve management decisions”, respondents named “low / negative interest rates” as the number one item (chosen by 91% of respondents), followed by inflation (88%) and geopolitical instability (84%). The fact that “low / negative interest rates” was ranked so highly as an influencer of monetary policy is somewhat ironic, since interest rates are typically controlled by central banks themselves. 

Is the Gold Standard Now Alive or Dead?

The same could be said about inflation, although many experts attribute the 2022 inflationary surge to the unprecedented alloted in response to COVID-19, as well as the persisting supply chain that occurred when countries went into lockdown. When analyzing the survey results concerning factors relevant to the decision of whether or not to hold gold, two common answers by central banks raise eyebrows: (1) “anticipation of changes in the international monetary system” (which 20% of respondents deemed “somewhat relevant”), and (2) as “part of de-dollarization policy” (which 9% of respondents deemed “somewhat relevant”). While these statistics may seem negligible, their responses  are actually quite revolutionary. 

These insights most likely came from central banks in developing countries, and are an expression of concern regarding the stability of our current international monetary system, which is currently dominated by the US dollar. The severe economic placed on Russia in response to its invasion of Ukraine have rendered its dollar reserves useless, a fact which has not gone unnoticed by other countries. As a result, many developing countries are now questioning the continued use of US dollars as reserves.

When asked about the reasons for increasing their gold reserves, 39% stated that they did so “as a buffer against balance of payment crises”, while 34% (up from 13% in 2021) claimed their increases in gold serve as a “backstop for the domestic financial system”.

A crisis is a common occurrence in developing nations, when import costs, to be paid in dollars, exceed the value of export profits over an extended period of time, leading to an overall shortage of dollars.

But can gold really be used as a “backstop for the domestic financial system”?

Is the Reckless Swiss National Bank Endangering Its Independence?

Can gold really jumpstart the economy?

In case of a breakdown of the international monetary system, the primary concern of most governments will be to prevent the collapse of the domestic banking system, as it would lead to widespread economic depression and civil unrest. Commercial banks will be largely insolvent if this occurs, due to devastating credit losses. Central banks would have to extend fresh loans to reliquefy commercial banks, which they could potentially accomplish with gold reserves.

But is there enough gold to back all currency? The answer is surprisingly simple; yes, there is technically always enough gold – it just depends on the price. However, it also depends on what is defined as “money”.

For example, the current outstanding value of US currency (dollar bills and coins) is about. The US government also owns ounces of gold. At the current price of $1,875 per ounce, US gold reserves are worth approximately $490 billion. In order to back all outstanding currency with gold reserves, the price of gold would have to reach $8,800 per ounce, roughly five times higher than it is today.

If gold were to cover all money created by the Federal Reserve (which is equal to its currentliability of ) the price of gold  would have to be upwards of $32,000 per ounce (nearly eighteen times the current price of gold).

If you add to that sum the $17.7 trillion in , the correlating price of gold required would come close to $100,000 per ounce, a practically inconceivable amount compared to today. Furthermore, the widest measure of money in the US,total credit outstanding, has accrued a hefty $92 trillion, which would require a gold price of more than $350,000 per ounce to be fully insured. 

The Reality of Bank Deposits

A bank deposit is a digital token. You cannot take it home. Traditional bank deposits are not issued by a central bank – they are conducted by commercial banks. The moment you walk into a bank and deposit cash, you exchange a central bank’s liability against the liability of a commercial bank. Your counterparty has changed, unbeknown to most.

Bank deposits cannot, in aggregate, be converted into central bank-issued currency, since, as we saw above, the amount of bank deposits ($17.7 trillion) exceeds the amount of available currency ($2.3 trillion) by a factor of eight.

Bank deposits are supposed to match central bank-issued money one-to-one, but with certain limits. In the US, bank deposits are “insured” by the Federal Deposit Insurance Corporation (FDIC) forup to per account. According to theFDIC’s 2021 , the Deposit Insurance Fund (DIF) had assets of $124 billion, or 0.7% of all US bank deposits, a mere drop in the ocean of the $17.7 trillion that Americans have deposited into commercial banks – deposits they will eventually want back. Most people think of bank deposits as “money”, when in fact, they are nothing but (with a very questionable stabilization mechanism).

Central Banks and the Potential of Digital Currency

A functioning monetary system is crucial for any society, so central banks have contingency plans for all kinds of calamities. , the German central bank, hadhidden an entire set of alternate worth 15 billion deutsche mark (approximately $7.5 billion) in the basement of a house camouflaged as a residential villa in the suburbs of Frankfurt. Bank notes with a new design were ready to be exchanged overnight in case the existing ones had been rendered unusable. The list of potential threats included poisoning, nuclear contamination or attempts to derail the economy by mass introduction of counterfeit bank notes.

According to the , awebsite which monitors the status of Central Bank Digital Currency (CBDC) projects across the globe, all major central banks are either in the beginning stages of research or piloting for the introduction of a . The advantages of a retail CBDC for the average user are not immediately clear, but become more evident with further research. 

Most of what we call “money” is digital already. Instant settlement options are being offered by private sector companies (such as Venmo, Zelle, and Cash App), which offer currency for users to trade and distribute that is not backed by a central bank. The massive popularity of these apps have effectively cut time and costs of cross-border transactions across the globe. 

However, a retail CBDC would have one major advantage: being able to offer central bank-issued money directly to users. Currently, the only way for citizens to get access to central bank-issued money is by obtaining cash via a commercial bank. Having a CBDC would allow  central banks in crisis to credit users with new currency, enabling them to bypass commercial banks completely. 

However, for this method to be effective, users would need to establish digital wallets and be comfortable using them. The introduction of CBDC has the potential to resolve many monetary inconveniences. Central banks with gold reserves would be able to offer both partial or full gold-backing for their digital currency. However, countries lacking in gold would not be able to participate in a gold-backed monetary system, and may have to back their currencies with other items, such as government-owned land or the rights to raw materials to be mined in the future.

While unprecedented, combining a 5,000-year store of value (gold) with modern technology (digital currency) could turn out to be just the tool the world needs to reset its monetary system. Once confidence in the novel CBDC system has been established, gold backing could be gradually removed, and the cycle of credit-based monetary expansion could begin anew.

Gold is the anathema to a monetary system. Record gold purchases by central banks are a red flag regarding the stability of our current monetary system. When central banks embrace gold, it is an indicator that they are losing trust in the current system. 

This phenomenon was seen previously during the of 2008, when commercial banks refused to lend each other money on an unsecured basis. Central banks lacking in gold reserves have good reason to increase their holdings, as it could help them establish their own digital currencies and avoid future financial ruin. Historically, central banks tend to prepare for the worst. Will the combination of gold reserves and digital currency be enough to bail us out? We can only wait and see. [ edited this piece]

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

The post The Great Gold Rush: Central Banks in Frenzy appeared first on 51�Թ�.

The Greek national economy grew by 2.2% in the first three quarters of 2019. Unemployment fell to16.6% in late 2019 though it still remained the highest in the EU. In 2020, Greek Prime Minister Kyriakos Mitsotakis initiated a gradual and promising recovery due to a series of reforms, tax cuts and investment promises. These measures eventually led to.

Despite the pandemic and its consequent series of lockdowns that had partly interrupted the process of economic growth by affecting fundamental sectors such as tourism and the naval industry, the Greek economy is now growing steadily. A by the European Commission forecasted an increase of 6% in the national GDP by the end of 2023. The report proposed a plan to bolster the economy, making 2023 a year for Greek economic recovery. 

The transcript has been edited for clarity.

Alissa Claire Collavo: After more than ten years of crisis, the Greek economy is showing signs of growth. In September 2019, the newly-elected Mitsotakis announced a series of fast-track reforms which the parliament later approved. These aimed at spurring investments and accelerating growth by the end of 2023. What has Greece learned from the economic crisis?

Dimitris Katsikas: The new government has undertaken new measures to increase growth in Greece because their big bet was to make the debt more sustainable. They also wanted the EU to reduce Greece’s fiscal targets. 

To achieve these two goals, the government proposed reforms. One of them was to reduce taxation rates and to improve tax collection. Tax reforms were the main issue during the crisis.

Furthermore, the introduction of the new pension law led to an increase in household disposable income. The government also encouraged investments that had suffered during the crisis. 

Collavo: The so-called “hot money” has done well investing in Greece. Traders looking for short-term returns have profited. Will long term investment follow?

Katsikas: After such a huge economic and financial crisis, Greece had little money left. Therefore, it welcomed foreign investment of all sorts.

The pandemic caused a setback to the economy. Lockdowns affected foreign exchange earners such as tourism and the shipping industry. Things have changed in 2022 and are looking to improve further in 2023.

Collavo: What are the main sectors for investments aside from tourism in Greece?

Katsikas: The main sectors remain tourism, real estate and resorts.  During 2019, there was an increase in bread and breakfast investments. The mortgage system had collapsed and people started renovating their apartments. This was especially the case in the most touristic areas where owners were allowed to shorten leases, creating an inflow of investments. 

Greece is also trying to attract more investments in the urban project around the Ellinikon International Airport. New sectors like IT, research and logistics are attracting investment. So is infrastructure such as the expansion of the ports of Piraeus and Alexandroupolis. These ports have successfully attracted investors from China and Saudi Arabia. Companies from France, Russia and Korea have also come flocking.

Investment in the energy sector has already brought good results too.

Collavo: What is the growth forecast? How will this concretely reflect in the daily life of Greek citizens?

Katsikas: The Greek economy registered its first positive growth right before the pandemic. Unemployment fell to 16.6.% in 2019 from 18.5% in 2018. In 2023, things are improving but wages in part-time/temporary jobs continue to be low. Unemployment continues to remain high and, as a result, wage growth is low.

In 2022, about 4.03 million people were employed in Greece, compared to 3.93 million in 2021 and 3.88 million in 2020. The economy of Greece is finally improving.

[ edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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Poor economies are now paying more for stuff, getting less for their exports and seeing rising deficits. In turn, these increase debts. And rising interest rates, a necessity because central banks have to combat inflation, mean that the cost of servicing existing debt and of borrowing new debt has shot up. As a result, there is a food and debt in the poorest countries. Countries like Sri Lanka, Pakistan, Bangladesh and Argentina are going with a begging bowl to the International Monetary Fund (IMF).

It is not just the poor who are suffering. Europe is going through a tremendous crisis. Elections in Italy, Hungary and Sweden have reflected that phenomenon. Germany is under tremendous strain. German industry is : the legendary Mittelstand is turning into Mittel-kaput.  Deutsche Bank economist Stefan Schneider has said: “When we look back at the current energy crisis in 10 years or so, we might consider this time as the starting point for an accelerated deindustrialization in Germany,”

Singh takes the view that quantitative easing that began with the 2007-08 financial crisis followed by lots of pandemic spending has created a perfect storm. The former was akin to the Spanish discovery, loot to be precise, of silver in the New World that caused asset bubbles, especially in stock markets and housing. The latter led to governments ballooning deficits and debts. The Russia-Ukraine War has pricked the bubble and the chickens have now come home to roost.

Glenn Carle is more optimistic. He points out counterpoints to the alarming stresses and trends that Singh emphasizes. Carle makes the case that inflation is down in the US, growth trends are strengthening and the shift to renewable energy is slowly but surely occurring. As per this retired CIA officer, “as goes the US economy, so goes the world economy” even though 18-24 months later. 

Yet Carle is not pollyannaish either. He points out that 350 million people are starving today. The Russia-Ukraine War has led to a global food crisis. Risks of economic, social and political collapse have increased. For Americans, the cost of gas is the issue. For many other countries, the crisis is far more existential.

The food, fertilizer and fuel crisis is something that concerns the Global South. India as the leader of the G20 had highlighted this crisis in a recent conference in New Delhi. In short, poor countries are suffering terribly.

Singh adds that the US has the advantage of cheap gas, top universities and new technologies. The American economic engine can turn these new technologies into successful businesses. However, American success might be on the backs of European failure. As European businesses go under because of expensive gas prices, American companies might take their place. So, the American economy might do well at the cost of economies in many other parts of the world.

Carle sees a silver lining. He thinks American technologies, especially in green energy, will eventually benefit the rest of the world.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

The post FO° Exclusive: Where is the Global Economy Headed in 2023? appeared first on 51�Թ�.

Rising inflation means an end to the Goldilocks economy of low interest rates that began in 1991. Then, the Soviet Union fell. In 1992, Deng Xiaoping’s Nanxun tour, the historic tour of South China, put China firmly on the market reforms path. As a result, China became the factory of the world. This entry of hundreds of millions of workers from the former communist and socialist economies dampened labor costs. Inflation declined dramatically, allowing low interest rates to prevail. Central banks failed to calibrate this dramatic shift in the new realities regarding inflation.

After the 2007-08 financial crisis, central banks did not only lower interest rates but also practiced quantitative easing. This policy is a modern way of printing money. This monetary easing, the unleashing of liquidity in the economy, led to asset market bubbles. This has parallels with the Spanish and Portuguese finding silver in modern day Latin America, a third of which found its way into China and led to the collapse of the Ming Dynasty.

That La La Land era of low inflation and low interest rates is now over. The Soviet collapse in 1991 caused a benign supply side shock. The Russian invasion of Ukraine in 2022 has caused a malign supply side shock. Now, interest rates have to rise to keep the price of milk, bread, eggs and butter, if you can afford it, in check. However, rising interest rates will make life difficult for businesses and households with mortgages.

Debt has become more expensive and servicing the debt has become more difficult. Indebted households, companies and countries will now be in trouble. During the COVID era, fiscal loosening, i.e. spending more than earning, increased debts dramatically. Servicing these debts has just got more difficult.

On June 28, the World Bank observed that 58% of the world’s poorest countries are in debt distress. The danger is spreading to some middle-income countries too. In the words of the World Bank: “High inflation, rising interest rates, and slowing growth have set the stage for financial crises of the type that engulfed a series of developing economies in the early 1980s.”

China’s economic decline has lowered Chinese demand for commodities from suppliers from places like Latin America and Africa. These economies now have to pay higher bills at the same time as many face an earnings crisis. Their current account deficits are rising and so are their debts. Countries like Argentina, Turkey. Ghana and Sri Lanka are being called submerging economies.

Rising inflation, interest rates and debt are causing a massive squeeze on the global economy. After the heady days of fiscal loosening and quantitative easing, a prolonged global recession and a decade of low growth, if not stagnation, loom ahead. The chickens have come home to roost.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

The post FO° Explainers: Is a Global Recession Coming? appeared first on 51�Թ�.

Alan Greenspan, former chairman of the Federal Reserve Bank, in a 2016 stated “If we went back to the gold standard as it existed prior to 1913 it would be fun. Remember that the period 1873 to 1913 was one of the most progressive periods economically that we have had in the United States.”

Current chairman Jerome Powell, however,does not a return to the gold standard would be a good idea. Economist John Maynard Keynes famously referred to gold as a “,” which was no longer needed as a backing for currency.

Is the Reckless Swiss National Bank Endangering Its Independence?

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What is a gold standard and why is gold valuable?

A is a monetary system where a country’s currency has its value linked to gold. This can be done directly, by setting a fixed price of gold to the dollar, or indirectly, by other currencies setting a fixed price in relation to the dollar, thereby linking indirectly to gold. One could imagine a full gold standard, where 100% of paper money issued must be backed by gold. Another option is a partial backing, covering only a fraction of money supply that is backed by gold. Under the Bretton Woods currency system, only non-US official holders of dollars (i.e. central banks) were able to exchange dollars into gold at the fixed price of $35 per ounce. Private ownership of gold in the US was under President Franklin Delano Roosevelt in 1933. President Ford gold ownership in 1974.

The amount of above-ground gold is limited ( around 200,000 tonnes). The amount of gold contained in ores has been declining as most rich deposits have been exploited. The average grade of gold mines has fallen to. Large amounts of energy are needed (to crush and transport rock, for example), limiting how much gold can be economically mined. Over the past decade, ranged from 2,800–3,600 tonnes, adding less than two percent annually to the stock of gold available.

Pros and cons of a gold standard

The idea behind a gold standard is to ensure a stable currency that is the bedrock of a well-functioning economy. A currency collapse impoverishes large sections of the population. This could lead to political extremism, and, ultimately, threaten democracy. Historians point out how hyperinflation in Germany led to the rise of Nazis.

There are several advantages to a gold standard, which are as follows:

1. Linking the growth of money supply to the growth of gold stocks would keep inflation in check, thereby ensuring monetary stability.
   
2. Government spending would be limited to the amount of tax receipts. Any deficit financing via debt issuance would require additional gold.
   
3. Central banks would be immune from political pressure as the amount of money in circulation is determined by gold.

However, there are considerable drawbacks, which are as follows:

1. Under a gold standard, growth of money in circulation would be severely restricted and could suffocate economic growth.
   
2. Fixed supply of money would be deflationary, and most likely lead to a period of depression with bankruptcies and high unemployment.
   
3. The expansion of money supply would depend on successful gold mining operations and continued investment in exploration of new deposits.
   
4. Gold standards in the past might only have worked because the stock of existing gold was much lower. So an increase in the stock of gold was possible. The of gold stock between 1900 and 1909 would be impossible to repeat today.
   
5. Policy makers would be unable to respond to economic shocks.
   
6. Not all countries have equal access to gold for lack of gold mines or existing reserves.
   
7. International trade deficits, if settled in gold, would, over time, lead to a depletion of gold reserves, leading to a balance of payments crisis coupled with the inability to pay for critical imports.
   
8. In the (unlikely) event that the amount of gold available would allow for additional debt to be issued, who would be entitled to do so? The government? Banks? Households? Who would decide on who has access to fresh debt?

The problem with a gold standard

In August 1971, US President Richard Nixon “temporarily” the convertibility of the US dollar into gold, effectively ending the gold standard. Since then, the total amount ofUS dollar debt has increased from $1.6 billion to $92 trillion — an annual expansion rate of 8%. During the same time, gross domestic product () has grown from $1.1 billion to $25.7 trillion, an annual increase of 5.8%. Debt, synonymous with “money,” is growing faster than GDP.

Most economic activity is dependent on the availability of credit. An increase of average rates in the US from 2.7% at the end of 2020 to over 7% in October 2022 has led to a decrease in from 6.5 million to 4.1 million, a 36% reduction. Potential homeowners without access to debt would have to accumulate the entire purchase price through savings for an “all-cash” deal, which would exclude most people from being able to afford a home in their lifetime.

Proponents often counter that a gold standard could be flexible, with adjustments of the amount of gold backing (downwards) or the price of gold (upwards, hence devaluing the currency) as necessary. But how would that be different from the current system? A flexible gold standard would let imbalances accumulate over time, require large adjustments, introduce speculation, financial friction, and potentially unintended consequences. The cure could turn out to be worse than the disease.

The current monetary system is unsustainable

The current fiat monetary system seems unsustainable in the long run, for mathematical reasons. 

First, it is impossible to create money without simultaneously creating an equal amount of debt. The current system is “damned” to increase debt continuously to enable the economy to grow. Given positive interest rates, debt with interest owed is an exponential function (interest on interest in subsequent periods), which is a problem in a world of finite resources.

Second, the marginal utility of debt has decreased as debt levels increased. Since 2007, US increased by $11 trillion, while the amount of grew by $40 trillion. In other words, an additional dollar of debt generates only 27 cents of additional GDP. Interest on debt is owed annually (and increases the debt pile), while GDP resets on January 1^st to zero. It gets harder and harder to generate additional GDP with additional debt.

Third, the amount of interest due on rising debt levels is reaching dangerous levels. According to the Institute of International Finance (IIF), theglobal ratio of stands at 343%. If we (generously) assume an interest rate of three percent, more than 10% of GDP is siphoned off the economy for interest payments – every year. This does not even include repayment of principal.

Is return to the gold standard inevitable?

Would a crisis or collapse in the current system open the way for a return to the gold standard? Central banks, while denying gold had any monetary function, still holdmore than of gold valued at more than $2 trillion at current market prices ($1,838 per ounce; 1 metric tonne = 32,150.75 troy ounces). Central banks reduced their gold holdings from 1968 to 2008. Interestingly, gold sales ceased after the “Great Financial Crisis” of 2008/9, and central banks began purchasing between 250 and 750 tonnes annually.

Over the past two decades, purchases have been led by countries mostly outside the Organisation for Economic Co-operation and Development (OECD ), led by Russia (1,875 tonnes), China (1,447 tonnes), India (428 tonnes), Turkey (373 tonnes) and Kazakhstan (324 tonnes).

In absolute terms, the largest holders of gold are the US (8,133 tonnes), Germany (3,355 tonnes), the International Monetary Fund (IMF), (2,814 tonnes), Italy (2,452 tonnes) and France (2,437 tonnes), mostly “old world” countries. Members of the euro-area, including the European Central Bank (ECB ), hold a combined 10,771 tonnes. But none of those countries are adding to their holdings, since doing so could signal to markets a dwindling confidence in their own currencies. Emerging market economies have, in absolute terms and relative to GDP, to catch up to developed ones.

The advantage of gold holdings is evident: in a currency crisis, a central bank could arbitrarily set a (dramatically increased) gold price, thereby realizing a large revaluation gain on existing gold holdings. Euro-area central banks could, for example, by raising the price of gold ten-fold, generate a book gain of roughly 6 trillion euros. In a recent interview, Klaas Knot, Governor of the Central Bank of the Netherlands, suggested as a tool to remedy any solvency crisis.

As a bonus, gold revaluation would lead to windfall profits at private owners, potentially providing consumers with a boost in otherwise dire economic circumstances. According to reports, German citizens privately than the Bundesbank, Germany’s central bank.

For the US, the outcome is less clear. Data on private ownership of gold in the US is not available. The Federal Reserve, unbeknown to most, does not own any gold. The Gold Reserve Act of 1934 required it to all of its gold to the Treasury. In exchange, the Fed received a “non-redeemable gold certificate,” valued at the “statuary” gold price of $42.22 per ounce, a fraction of today’s market price ($1,838 per ounce). The Fed is “owed”, but only at the book value of, due to the gold price of $42.22.More than 75% of US gold is actually controlled by the military, as it is stored at West Point and Fort Knox.

The European Central Bank (ECB), on the other hand, values its gold at market prices (currently worth around, about $633 billion), listing it above all other assets. The ECB is free to sell or buy gold in the market.

The Federal Reserve cannot sell any gold since it does not own any. It might also have difficulties buying gold at market prices since this would, due to the above-mentioned mandatory gold price of $42.22, create an immediate loss on the position.

The Fed’s hands are tied regarding gold. As the issuer of the world’s reserve currency, demonetizing gold was necessary for the dollar to replace gold as prime reserve asset for central banks around the world.

This reveals a fundamental rift across the Atlantic Ocean: European central bankers are, albeit covertly, gold-friendly, the Federal Reserve is not. The former is ready to use gold as a tool to recapitalize its central bank (and subsequently commercial banks), while the latter is not.

In case of a break-down of the current monetary system, an international conference (akin to Bretton Woods) would unlikely be able to agree on a common position on the role of gold. This would signify the end of the dollar as the world’s reserve currency. In the ensuing turmoil, market participants would value currencies issued by central banks with sufficient gold holdings. Central banks will not revert to a gold standard, given before mentioned disadvantages, but use their revalued holdings to restore confidence in the continued use of paper currencies.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

The post Is the Gold Standard Now Alive or Dead? appeared first on 51�Թ�.

Attention, in the most basic sense, is a creature’s informational-management strategy. We use our attention to determine what matters, where it is, and whether I can trust it? Vertebrate attentional systems evolved over hundreds of millions of years to let a body use and trust its senses. The brain’s hardware learned to squeeze meaning from scenes like the savannah, scenes containing multiple tiny, faint cues. To a sensory system, faint statistical outliers are eye-candy, attractive,like sugar, precisely because they are rare.  Attention works properly only in a world of sticks, stones, sky, people, fauna and flora, and not much else. Man-made things distract and mis-direct human attention even without meaning to.  And now they mean to and are built to do so, automatically and at scale. 

At the finest level, tiny pixels use microsecond tuning to draw our eyes toward interesting things which aren’t there.  Video games anticipate our anticipation in order to dose us with dopamine. Social media synthesizes the illusion of friendship. Search engines synthesize illusions of meaning. Smartphones rule from our pockets.  Smartphones are the grandest intruders, allowing multinational corporations skilled at using science to design what we will see, believe, and love.

They have successfully commandeered and monetized the growing brains of children and are inflicting widespread damage, according to a powerful new book by the psychologist who saw this coming thirty years ago.  Decades ago Dr. Susan Linn was a child psychologist (and puppeteer!) who appeared on the famous US childrens’ show Mr. Rogers Neighborhood.   Seeing firsthand the damage done to kids by marketing and monetized play, she founded the Campaign for a Commercial-Free Childhood (now Fairplay). It is among the few child-advocacy groups accepting to follow neuroscientific principles, and not accepting corporate money. Now Linn is a professor of psychology at Harvard. 

The best possible book on the topic

With that background Professor Linn is the best possible person to write this book.  And she has produced the best possible book.  While her sentences are often professorial (of course!), there are plenty of cute anecdotes, appearances of charming children, wry observations, and tales of comically misguided products, like the video game advertised to make going to sleep exciting (p. 104).  For a relentless point-by-point compendium of why moneyed interests must be kept away from children’s play, Who’s Raising the Kids still provides a remarkably funny, easy read.  While it employs US examples for a US audience, her reasoning applies outside the US as well, and will probably be easier to act on in those other places.  This book is for the world. 

Most thoughtful people already know that commercial influences are bad for kids, so they don’t need to read this book.  They don’t need its ruthlessly clear thinking and comprehensive, evidence-laden summary of fifty years of scientific study, because their parenting instincts are already fine.  Besides, pondering such depressing content is a grim reward for reading what one already knows.  On the other hand, some responsible officials hoping to make their case may demand even more powerful evidence., Some might even hold out for the formulation of undisputed natural laws to provide them with the clout to successfully rearrange budgets. I’ll give them such laws at the end, since that’s my professional specialty. As a general rule, many parents already have the evidence. They don’t need even the best book imaginable to tell them about the obstacles to raising functional children provided by a market-saturated world. 

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On the other hand, if you are in a position to influence children or guide their experiences—as a superintendent, teacher, nanny, app designer, marketer—you must read this book.  Your ignorance would be a moral hazard when other people’s children are entrusted to your care. And when you finish digesting its contents, to double your investment. Mail your well-thumbed copy to your favorite venture-capitalist or corporate executive, since they need wisdom even more than you do. Ignorance is no excuse when truth is so important, and easily available.

Professor Linn’s barrage of evidence is overwhelming: the wasteful excess of crinkly packaging around toys, kids falling in love with characters from ads, apps designed to spy on kids. Her list of all the easy ways there are to make money from kids’ innocence goes on and on.  Like taking candy from a baby.

After this book, there should be no dispute that markets threaten children’s sanity. Only Self-serving industry will of course gripe about how impractical solutions are to protect the status quo.  Those gripes are true as far as they go, because the only sustainable solution is a tough sell in a pro-capital society. It implies neutralizing market forces present in domains affecting kids. So, in a word, this book is about changing everything.

This book is so good, the best possible review need only use Professor Linn’s own words. Which I will do. No reviewer could add anything more than praise to this magnificent work, except perhaps a commonsense explanation of how this crisis has been mounting for thirty thousand years, and what society must do to save future generations.  

Who’s Raising the Kids, Compressed

Herewith the titles and a few representative lines from each of the thirteen chapters of Who’s Raising the Kids by Prof. Susan Linn (To each quote I append in italics a dense comment using the technical language of trust-formation, to simplify a unification at the end).

Chapter 1: What Children Need and Why Corporations Can’t Provide It

 “The more a toy or app drives the form and content of children’s play and the more the characters or the toys kids play with are linked to popular media properties and franchises, the less children get to exercise curiosity, initiative, creativity, flexible problem-solving, and imagination.” (p. 19)

Comment: Children’s innate learning algorithms need autonomy and real life detail as inputs.  Standardization, broadcast, and synthetic attractiveness undermine those algorithms by restricting freedom and damaging data, and thereby undermine learning and trust.

Chapter 2: Who Wins the Games Tech Plays?

 “Technologies are problematic when they optimize profits at the expense of the health and wellbeing of individuals and the larger society. Yet no independent review of the potential harms and benefits is required before they go to market.” (p. 35)

Humans evolved to capture attention from each other in real life, and to defend ourselves from it. Now cheap and tireless machines capture our attention all the time, everywhere. They are inhumanly designed to dodge our defenses. Accumulated micro-distractions and micro-deceptions erode everyone’s trust and mental function. Yet regulators cannot agree either about how to limit the overall damage, nor even about how to measure it in the first place.

Chapter 3: And the Brand Plays On

 “When commercial values dominate children’s environment, kids are in danger of losing out on exposure to some of the best human values, such as altruism, generosity, nonconformity, and critical thinking.” (p. 69)

Our brains evolved to associate meaningful phrases with actual human values (e.g. Motherhood, God, Country).  When a child’s mind instead locks onto a slogan optimized for attractiveness by a focus group, the child fixates on something slippery which can never teach it trust.

Chapter 4: Browse! Click! Buy! Repeat!

 “When corporate executives talk about reducing friction, some of what they mean has to do with reducing external barriers to buying, but it also means reducing or eliminating our intra-psychic friction—the cognitive and emotional brakes that enable us to set limits on consumption. For that reason, kids are not just fair game for advertisers—they are essential targets.  Their immature capacities for judgment and impulse control render them especially susceptible to marketing messages.” (p. 81)

The younger a child is, the more innocent its brain, apt to believe the propositions it is exposed to, the longer damage to learning will last.  For a child to waste crucial brain-cells learning bad habits and things which are not true is a tragedy, while for a marketer those represent long-term investments.

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Chapter 5: How Rewarding are Rewards?

 “In nurturing environments where there are opportunities to explore the world on their own terms, young children are intrinsically motivated to learn, to gain competence, to strive for autonomy, and to satisfy their curiosity.” (p. 107)

Natural environments (unlike synthesized ones) can be instinctually explored in continuous space and time, exactly what a brain evolved to do. Only interaction with unbiased, natural statistics allows a brain’s zooming algorithm to converge on trustworthy solutions. Alternative statistical profiles, such as artificially “intermittent rewards,” undermine that algorithm by over-stimulating dopamine release.

Chapter 6: The Nagging Power of Pester Power

“Except for the fact that children and families are being harmed, there’s something darkly comic about living in a commercialized culture that thrives on business models dependent on encouraging obnoxious behavior in children. No sane parent would welcome people into their home whose every interaction with children is designed to instill in kids such intense desires that they nag incessantly to get them fulfilled.  Yet that’s exactly the goal of all advertising to children.” (p. 123)

Messages and interactions optimized to produce revenue from children must of course somehow free that money from the family coffers. But using children to communicate a sales pitch inserts family conflict and undermines trust.

Chapter 7: Divisive Devices

 “Whether with reluctance or open arms, we have invited into our homes powerful, seductive entities designed to generate profits by monopolizing our attention. And they don’t give a damn about our family relations or our children’s wellbeing.” (p. 131)

“Like all other nervous systems, ours evolved to forage, not produce. Humankind uniquely produces things that captivate our senses, and now they do” more than ever. (, p. 2334)

Chapter 8: Bias for Sale

 “A society’s material culture simultaneously reflects and influences the values, norms, preferences, and taboos of that society. Stories and toys represent a significant component of the material culture belonging to childhood, and they profoundly influence how children make sense of the world around them, including how they view and experience themselves and others.” (p. 154)

Stories and toys sell better when optimized for pre-existing concepts and stereotypes. Oversimplified ones sell best of all. But when it comes to social values, pre-existing means backwards-looking, and simplified means caricatured. Backwards-looking caricatures describe regressive attitudes like racism, sexism, and mercenary individualism. Those are already built into mass-produced communication, but kids absorb them fastest.

Chapter 9: “Branded Learning”

“Because [corporate-sponsored teaching materials] are often slickly produced, require no up-front cash outlay, and can bypass school boards and be sent directly to teachers, they may appear to be a godsend to cash-strapped schools.” (p. 169)

Corporations have money and underfunded schools have young eyeballs, so an inevitable market-driven (but corrupt) transaction lets corporations disguise their advertising as educational material, offered to schools for free. But there is no such thing as free information. In this case kids and society pay the price.

Chapter 10: “Big Tech Goes to School”

“The value of quality, teacher-driven instruction is well supported by research. There is no credible research supporting industry claims that online, personalized learning programs improve academic outcomes. Test scores do not rise. Dropout rates do not fall. Graduation rates do not improve.” (p. 185)

Human brains evolved to learn from physical objects and physical people in real life.  Pixels and frames on screens are so chopped up, they only carry one millionth of the detail young brains need to trust their eyes, as long-established laws of neuroscience prove. So screen-based inputs of any kind not only don’t help reading and writing, they cause actual harm to seeing itself. 

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Chapter 11: Is That Hope?

 “In the United States, two types of laws would help to stop tech companies from exploiting children.  A national privacy protection law, which we do not have, and adequate laws protecting the rights of children, which we also do not have.” (p. 199)

As long as US law more successfully protects growing capital than growing brains, capital will damage children.

Chapter 12:  Resistance Parenting: Suggestions for Keeping Big Tech and Big Business at Bay

“Six principles of child development to help adults make decisions about introducing tech to young children:

1. Young children live and learn in the context of social relationships.

2.Young children use their whole bodies and all their senses to learn about the world.

3. Young children learn best and benefit most from direct, first hand experience in the world of actual relationships and objects.

4. Young children are active learners who learn by inventing ideas.

5. Young children build inner resilience and coping skills through play.

6. Young children make sense of the world through play.”

(p. 210)

All humans, young children especially, evolved for interaction in the three-dimensional real world, which is our native sensory interface. Synthesized inputs, or even real inputs selected for impact, provide fake data and thus undermine real learning. 

Chapter 13:  Making a Difference for Everybody’s Kids

 “I am for a world where children are universally valued for who they are, not for what they or their parents can buy. Where family and community values no longer compete with commercial values for precedence in children’s lives. Where kids have lots of “in the real world” time with their friends and with the adults who love and care for them. Where their friendships can flourish without interference from, and monetization by, tech and media companies.”  (p. 239)

The environments in which brains grow and learn best are the natural, socially supportive ones for which they evolved.  Because all experience is training data for a growing mind, commercial interference damages learning in often irrecoverable ways.  Monetizing children’s brains means the end of our species. 

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The Battle for the next generation’s sanity

This point summarizes Professor Linn’s book. The sensory and social needs of growing children are actively opposed by the needs of capital. Widespread and growing monetization technologies are already eating the brains of our young.  Legally. And sometimes the young even like it.

Attention is easy to harvest because humans offer it so freely. But that doesn’t make the ethics of attention-harvesting different from those of organ-harvesting. Both attack vital biological systems, and thus share a dysfunctional dynamic which, above a very low threshold, ensures that revenue can only derive from inflicting  harm.  As targets, children provide the easiest profit and suffer the longest-term damage.

In recent years bosses and hiring managers worldwide have privately lamented the latest generations’ poor social skills, low attention span and diminished motivation, to say nothing of their defective team spirit, absence of critical thinking and decline in physical endurance. Young people now don’t simply work as well as earlier generations. Studies confirm these mass deficiencies, which happen to be the same problems this book reveals.  Thus, the decision made decades ago, under US President Reagan, to expand the dissemination of kids’ ads has now exploded into what one should expect: sad, damaged, dysfunctional adults everywhere.  The economy is already hurting from how it abused human brains twenty years ago, long before today’s far more invasive technologies took hold.

Although Linn doesn’t stress this point, the class of guilty parties is obviously not limited to large corporations. .Tiny startups and lone influencers can also do damage as they desperately flail about to attract  revenue and attention. The problems Linn points to are deep systemic ones: How can society neutralize a wide class of market mechanisms which have been optimized for hundreds of years to produce revenue by any available means, including means that  have a damaging effect on  children? Is it reasonable to think we can stop capital from doing what it’s best at? Legislation—like the Five Rights bill in the UK and COPPA2 and KOSA in the US—is a start. But it’s not enough.

As of now, the biggest companies in the world have promised their shareholders money produced by  strip-mining the brain-cells of future generations. Can that be stopped? Seen from the coldly mathematical of information flow through space and time, the problem is even worse than what Professor Linn describes. And the possible solutions will inevitably be more profound.

It Started with Cave Art and Loincloths

Allow me a parable. A long long time ago, in Paleo Paradise, people were only exposed to each other and Nature, and paid attention accordingly.  But human interests are fickle, so to manage them somebody, let’s say a proto-administrator, invented figurines and cave art for people to look at, and loincloths to keep them from looking away. Ever since then, humans have seen less and less of each other and the natural world our sensory instincts evolved for, and more of man-made things which exploit those instincts. In fact as a species we’re proud of those creations. We call them art.  When they make money, we call them entertainment or advertising.

The takeaway message is that attention has long been for sale, but it’s never been so cheap. The ancients had salesmen, but not rack-mounted computers serving a million times the harassing sales pitch for the price of a human salesman and with no qualms about the quality of the message.  A few decades ago new active technologies—radio, television, video, cable, internet—let machines represent live talking people. Recently, the ability of The Machines — designed to micro-monitor, micro-monetize, and micro-prod — increased hundreds-fold thanks to the omnipresence of mobile devices. As a result, machines now capture attention far too efficiently for human sanity and safety.  The open security holes of our nervous systems have been utterly hacked. Human communication is corrupt in every medium but the air we breathe.

Roughly, a species whose intimate, subtle social communications evolved through a million years of live campfire singing, dancing, and group hugs has in a couple generations become thoroughly immersed in ever-more-mesmerizing panoplie of blinking things, whose primary purpose is to capture attention and induce belief.  And those things work. The bandwidth and authenticity of human interaction has been dropping steadily since cave-times. Now humans know less and less how to feel, to move, to see, or to connect with one another in more than caricatured ways. The mechanism at the core of the problem is recordable communication. Things like texts, tweets, likes and videos are not even empty calories in terms of biological signals. They provide no calories at all. Our nervous systems are failing from informational starvation, and trust — the essential cement of human society — is dying by the year.

If you worry about Platform Capitalism and the Rise of the Machines, then think about this:  robot-toys, robo-calls and robo-therapists pretend to be our friends, but secretly they obey their spreadsheet overlords.  

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Grand Projects

Humanity has solved problems this hard before, or almost as hard.  Water-pipes made of lead, exploding boilers, crashing trains and cars, toxic food, fake accounting, risky drugs, filthy restaurants, the list goes on and on of tricks we’ve learned to keep the things we make from killing us. As a general rule, when society realizes that saving or making money here creates danger over there, it makes laws and sets up snap inspections. Think financial enforcement, or health inspectors who check that restaurant dishwashers use water that’s hot enough.

Killing bacteria by turning up a thermostat is straightforward.  Killing the influence of money in communication is far harder, since at present capital owns the major channels and doesn’t want to part with them.  In that light, here are some angles for regulators to use in protecting children from toxic commercial interactions:

Disclaimers don’t work; double-blind does.  Any self-respecting judge, I hope, would laugh out of the room the legal fiction that a printed disclaimer will insulate the unconscious against manipulation. The unconscious doesn’t work that way. Learning requires autonomy, so all manipulation harms it.  Fortunately manipulation can be measured objectively, as advertisers do, using randomized testing (“A/B testing”).  As long as regulators can look over the shoulder of marketers measuring ad impacts, honesty has a chance.

Disgorgement discourages damage.  Ill-gotten data, like ill-gotten money, should poison the well. If for example algorithms are trained on kids’ private profiles, or on racist historical data, not only should the data be purged, algorithms and workflow trained on it should be wiped clean.  As an incentive principle, the ease by which technology violates trust must be balanced by draconian consequences when it crosses that line.

Transparency brings balance.   Trust only works when everyone has the same high-quality information.  So private claims about ad “eyeballs” or behavioral impact — the kind of claims companies use to get money from investors and advertisers — must be equally available to the public and to regulators, because those claims are proportional to the public harm being done.

Health Not Test Results.  Until kids again become happy, energetic, social, curious, and motivated, they should get more music, art, live games, and physical activity, and less of everything else, especially technology.  Written tests of academic performance mean nothing compared to live 3-D tests of nervous system function.

This month, the US Senate is considering two laws which would help the situation enormously: the Children’s Online Privacy Protection Act (COPPA 2.0), and the Kids Online Safety Act (KOSA).  The Senators who vote should read this book.
In fact, Who’s Raising the Kids should be required reading everywhere, especially in countries (like France) with strong protections for public health. But also in countries (like India and Pakistan) whose advertisers seem proud of teaching kids to nag and pester parents (p. 117).  When well-paid grownups brazenly brag about wrecking kids’ relationships, children are doomed.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

The post How Capital Eats Its Young appeared first on 51�Թ�.

I have been thinking about this subject matter for some time now and could not help noticing that there are as many International Financial Institutions/Regional Development Banks/Funds as there are SDG’s! That is as inefficient as it is unsustainable.

COVID-19 has to a large degree pushed back the realization of these global goals and slowed down whatever dynamic previously existed. It’s time to get the machine going again and full throttle this time. The long and the short of it is that all the development partners must urgently reconsider deploying their current approach towards the delivery of their development finance work aimed at the recipient countries. This is the only way we can cover the lost ground and hope to achieve the SDGs by 2030. 

The UN must exercise its leadership

The first idea that comes to mind is for the United Nations (UN) to step in and encourage the International Financial Institutions, the Regional Development Banks and Funds to refocus their future country partnership frameworks, strategies and programming priorities. They must move away from the present overstretched exposure and instead zoom in on just a couple of SDG’s. That  means that each IFI/MDB/Regional Bank/Fund should be thinking about taking the lead in targeting at least two key SDGs while studiously avoiding overlap from the others. At the same time it means pulling back and placing less emphasis on the remaining SDGs. This would be a vast improvement over the current muddle in which each International Financial Institution Bank and Funds tries to target all the SDGs at once.

For example, the World Bank Group could take the lead in SDG1 & SDG10. At the same time the International Fund for Agricultural Development (IFAD) would focus on SDG2 & SDG15 and so on. These are just examples. But if this is done, each developing country in the world will have a diverse (and a more specialized) set of institutions, banks and funds addressing all its 17 SDGs. This contrasts with the current ineffective way in which everyone is trying to do too much at once and then wondering why nothing is successful! 

Of course, each country will still have the obligation to continue to address all its applicable SDGs. But the International Financial Institutions, Regional Development Banks and Funds need not be distracted by attempting to attain all the development goals of the same country at the same time. When each development institution focuses on what it does best, it has a much better chance of supporting the developing countries in their quest to catch up on what is missing or lagging behind concerning their SDGs.

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Moreover, it would become paramount for all the International Financial Institutions, Regional Development Banks and Funds to meet regularly, preferably every quarter until 2030, which has been designated as the final year set to reach the global goals. This should become the most urgent global development agenda item today. It would be the ideal means of reaffirming the message of seriousness in the pursuit of these goals. We absolutely must redouble all our efforts in the fight against poverty since development partners and developing countries need to be continuously involved in a dialogue permitting them to discuss among themselves and report on progress. More crucially they must decide on the redistribution of the SDGs among themselves, in other words, which partner will be leading, and which one will be supporting which goal.

This in my opinion is a much more efficient way of allocation of scarce resources. It takes into consideration the spirit of the “Paris Declaration” by instilling amongst all the development partners and countries the ‘H.O.R.M.A.’ principles: H=harmonization, O= Ownership, R= Results, M=Mutual-accountability, and A=Alignment.” That is the best way of putting back on the agenda of development cooperation the question of “who is jointly-responsible for which country’s development program and results”.

An SOS call

The above proposal is a “Save Our Ship/Souls” call. It is required since there seems to be no other way today to reach these global targets by 2030 other than seriously rethinking, refocusing and redefining our current process in “delivering development.” This is also an open call for International Financial Institutions, Regional Development Banks and Funds to refrain from their current “keeping up with the Joneses” routine, which has led to many replicating and duplicating each other’s work, with the added effect that they become stretched so thin they accomplish little or nothing at all. As one famous Arabic saying goes, these global goals end up looking a bit like “blood spilt among the tribes” as no single International Financial Institution, Regional Development Bank or Fund can be explicitly held responsible for the realization of any single goal.

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In summary, each development partner would focus on its comparative advantages and what it can deliver best rather than trying to address all the 17 goals or 169 targets under the SDGs. This should also move the current dialogue from being an internal ‘beauty contest’ to an external “global plan for action.” And since the developing countries will always be in the driving seat, the institutions, banks and funds must continue to facilitate this process and shoulder more responsibility with regard to the decaying human condition.

On a final note, we have a UN Security Council that seeks to prevent the killings of innocent people by preventing wars or conflicts. We now urgently need more than ever a similar but Socio-Economic Council within the UN with the teeth to prevent the death of millions of humans who die every day as a result of abject poverty, hunger, and spreading diseases due to the misallocation of scarce natural and human resources. This might be the last chance for the UN system to make a real impact and a difference to unite for peace and development.

I do hope and pray that the SDG’s will be achieved by 2030, but for this to happen, we must all act together and NOW, and embrace with utmost care the delivery of development cooperation.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

The post When Sustainable Development Goalkeepers Fail To Make A Stop appeared first on 51�Թ�.

Sharing the international stage with the queen, the war in Ukraine slogs on with cheerleaders continuing to applaud the plucky Ukrainians. Death and destruction continue, badly needed grain shipments rot in silos and ports, and a cold European winter is about to set in with limited fuel options. Even as the usual killing fields suffer carnage, climate change continues to wreak havoc. Children continue to go to bed hungry and preventable disease festers.

Cheap Labor Fuels an Exploitative Economy

Now inflation is added to the mix and is producing excessive hand wringing over the economy in the US and elsewhere. Curiously, this angst seems most acute among those impacted the least. For poor people and poor nations, the global economic system is what it has always been – rigged to serve those with resources at the expense of those without resources.  Meanwhile, there is little sign in the US that major lifestyle changes are afoot among the middle class and surely none to be found among the wealthy. Packed airports and stadiums are a far better barometer of economic hardship than trying to figure out if bottom round is replacing T-bone steak in shopping baskets.

As is often the case, the working poor are present in the inflation discussion but absent from the solution. Watching six-figure news readers carry on about inflation after just getting back from their summer vacations is laughable but only further obscures the depth of the problem for those with limited or no income and rising fixed expenses that they can’t meet.

So, this would be a good time in America to talk about raising the federal minimum wage. That minimum wage is still $7.25 per hour or a whopping $290 for a 40-hour work week. Even so, it seems in America that it is never a good time to raise minimum wages across the board to ensure a living wage adjusted for . The real problem with this good idea is that the cost of the basic services in our communities would likely go up. Imagine having to pay more to the people who clean houses, mow lawns, pick up trash, and generally make our lives easier. While many bitch about the cost of that T-bone steak, the working poor suck it up, work longer hours and multiple jobs, and eat a lot of beans and pasta.

And here is the point: those working poor are shielding the rest of us from what should be the real inflationary costs of our collective excesses and corporate greed. But now there is another catch. There don’t seem to be enough workers hanging around waiting for low wages to fill the low-paying jobs that support those excesses and corporate greed, so we are now doubly screwed. Prices are going up and basic services are going down. However, the long-term solution that seems most popular with many, except the working poor, is for the working poor to have more poor babies and then continue to provide the poor education, indecent housing, and unreliable health care that will ensure another generation of low-wage workers.

Or, how about immigration reform?  Instead of waiting for new American poor babies to grow up, Americans could figure out how to parse out immigrants to communities in need of low-wage workers, gin up some dormitory housing, open a food pantry so they can eat, and then pay them a wage that looks good to them while knocking out any likelihood of low-wage inflationary pressures. Both McDonalds and your lawn will thrive anew.

The Limits of the Right

Maybe you can see where this is heading. I want Governor Ron DeSantis to denude Florida of as many hardworking immigrants as he can find. Like international sister cities, America could develop its own sister sanctuaries program matching a sanctuary for White racists and Christian nationalists with another sanctuary that would welcome the Black and Brown immigrants so abhorrent to those racist Florida communities.

Using the DeSantis model, a matching sanctuary community would be found to welcome the diverse, hardworking, often skilled, low-wage workers that a significant segment of Floridians apparently wants shipped out of state. This would be good news, as well, for those looking for immigrants from White racist communities in Texas and Arizona.

We start there, and the movement grows. All of sudden, politicians willing to cruelly demonize immigrants would find their constituents trash on their overgrown lawns. Then think how inconvenient it would be if a good portion of those low-wage Latino workers in restaurants and country clubs headed out of town to a real welcoming sanctuary community somewhere else. While this all sounds fanciful, it just might work to break the back of the resistance to a humane and inclusive American immigration policy. This would be putting inflationary pressures to good use and remind those doing all the hand wringing that they are doing so at the expense of the working poor.

Maybe, with all of this wreckage around us, there will be a slowly creeping understanding that America’s self-delusional “exceptionalism” is just that and nothing more – self-delusion. Fantasy works sometimes in the movies, but it won’t last in real life. Maybe it took a warped Supreme Court, a dysfunctional Congress, an exposed insurrection, an unraveling rule of law, and a plane load of defrauded immigrants seeking asylum to finally begin to undermine the fantasy.

A New Moral Core for America

Women and thoughtful young people seem to be deciding that they are tired of rich White men and the people they buy trampling on the simple notions of access to meaningful healthcare and the freedom for women to make life choices for themselves. Many seem even more energized about losing access to their own healthcare than they ever were about making sure that everybody had access to meaningful healthcare in the first place. But they care now.

Also, there is some evidence that when essential governance is really threatened, Americans will awaken to protect and promote the governmental institutions required to confront existential problems like climate change and required to ensure the minimum infrastructure and basic services at the core of desirable community life. It is possible that this will be enough in the weeks ahead to see the shameless right-wing vacuum collapse and suck Trump, his acolytes, his family, and his friends into the vortex. However, if their cruelty prevails and the nation’s government continues at a stalemate, there certainly will be additional suffering in the land.

If you have any doubts about any of this, you are likely beyond hope.  But this may be the moment to actually think about the kind of community in which you want to live and who is most likely to lead you there. Think about the gun nut governors working to ensure that another school massacre comes to a neighborhood near you. Think about children without enough to eat and immigrant children bussed like cattle to be someone else’s problem. Think about all of this and more.

It is way past time for Americans to start standing for something with a clear moral core. Put the inflationary hand wringing on hold long enough to vote for a nation that we can start to be proud of. This could, at the least, provide a foundation for confronting the corporate greed, political corruption, White racism and White Christian nationalism that stand in the way of realizing an equality of opportunity and the social and racial justice needed to achieve it.

*[This article was first published on the author’s , Hard Left Turn.]

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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Meanwhile, those who are inarguably the real criminals go about their business looting the country unscathed.  These criminals are the political and business elites who have yet to form a cabinet while Lebanon and its people suffer a financial disaster the has described as “among the worst the world has seen.” How bad is that? “Real GDP,” the World Bank noted “is estimated to have declined by 10.5% in 2021, on the back of a 21.4% contraction in 2020 as policymakers have still not agreed on a plan to address the collapse of the country’s development model.” What that means for ordinary people is unemployment, rampant inflation, the denial of basic services, and the simple inability to be able to pay rent or put food on the table.

Saudi Arabia and Lebanon: A Tale of Two Economies

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The World Bank report came out in April this year, before the May parliamentary election that saw a brief moment of . A dozen candidates won who were independent of sectarian parties. However, this turned out to be a false dawn. The situation has gone from bad to worse. There is no plan in sight. Sectarian politicians and their business cronies bicker over the make-up of a cabinet, arguing over the division of the spoils.

Fox in the Henhouse

Riad Salameh, the governor of the central bank, Banque du Liban (BDL), continues his duck and dive tactics.  His latest gambit involves a claim that the Appeals Public Prosecutor lacks to handle his file, which is a large one involving not only the governor but also Salameh’s brother Raja and his “right hand person” . The prosecutor is investigating many financial matters, including commissions of on government bond sales to a company owned by Raja.  Property purchases of $12 million in France by the Salameh brothers are also in question. As we observed in , one of the properties is a . It is owned by Anna Kovakova who was described in the French press as “the mother of Riad Salameh’s illegitimate daughter.” This flat was rented out to BDL as a “reserve centre.” and Lebanon’s central bank was paying Kovakova US$500,000 per annum for the flat.

A 2020 Organized Crime and Corruption Reporting Project (OCCRP) conducted jointly with the Beirut-based investigative site revealed that the governor holds overseas investments amounting to nearly US$100 million:

(It) tracked Salame’s vast overseas investments, finding multiple real estate deals in the United Kingdom, Germany, and Belgium made over the course of a decade. Company accounts suggest the investments were often financed by borrowing, with tens of millions of euros in credit sometimes secured without collateral…Much of his money went to the UK, a favorite destination for overseas investors looking for a discreet place to make their money grow….

When contacted by OCCRP, Salame said he has broken no laws — that he amassed “significant private wealth” before he joined the central bank in 1993, and that “nothing prevents me from investing it.”

The wily Salameh has avoided arrest despite warrants issued against him. He has been moving between his office at BDL and his two homes, undoubtedly aided by corrupt officials within the police and the judiciary.

Contrast his story of vast wealth with that of who says her sister is dying from cancer. Hafez needed $13,000 of her own money that her bank was refusing to release. She needed this money to pay for her sister’s treatment. So Hafez borrowed a nephew’s gun and took matters into her own hands.  As did Jawad Sleem who took a hunting rifle into a branch of Lebanon & Gulf Bank and demanded his deposit. The father of seven has been out of work for months. He needs the money to feed his family. Neither has been charged  nor have the others who stole their own money. Six “robberies” thus far have taken place. Meanwhile, as noted by L’Orient Today, there is still a near complete lack of transparency about BDL’s . The BDL’s governor continues with his successful vanishing acts. Lebanon’s economy continues to collapse and its people are forced to take desperate measures simply to survive.

[ first published this article and is a partner of 51�Թ�.]

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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Not all countries have taken to manufacturing, though. Some of them have experienced premature deindustrialization, which economist Dani Rodrik has  extensively. ���Ի徱��’s manufacturing sector never reached full potential because of this phenomenon.

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Instead, India ended up with the “premature servicization” of its economy. This diminished its capacity to create enough well-paying jobs for its large population and did not allow for increased productivity.

���Ի徱��’s Drive to Industrialization and Innovation

Services now comprise more than half of ���Ի徱��’s GDP. As alluded to above, services do not deliver productivity growth in the same way as industry. Those who argue for free trade believe this does not matter. India can import industrial goods like cars and cellphones while exporting software writing and call center services.

Such arguments for a trade-based economy fail to recognize, or in many cases deliberately omit, increasing trade deficits when a country has poor manufacturing. In a volatile and uncertain world, these deficits can become a geopolitical liability for any nation because manufacturers can shut off access to the most basic of goods. Manufacturing does not only increase productivity and enhance security, but it also creates jobs and lowers inequality. For these reasons, India has recently embarked on a reindustrialization program. 

The new Production Linked Incentives (PLIs) to attract the more reputed global manufacturers, the best brains in industry and high-quality, long-term investments to India. Under PLIs, participants can manufacture for the domestic and/or export markets. The government applied these incentives to 14 sectors, of which telecoms, cellphones, electronic equipment and automobiles are benefiting already.

Many manufacturers station their Global Capability Centers (GCCs) in India, which has become a global base for services operations. A June 2021  by Deloitte and NASSCOM states that 1,300 GCCs employed more than 1.3 million professionals and generated $33.8 billion in annual revenues in the financial year starting April 1, 2020, and ending March 31, 2021. Another  estimates that GCCs are likely to grow by 6-7% per year and rise to over 1,900 by 2025. It also says that these GCCs are evolving from back-office destinations to global hubs of innovation.

Digitization is aiding this transformation of GCCs. Now, industrial design is no longer a monopoly of a headquarters in Michigan or Munich. Thanks to fast-speed internet and powerful computers, research, design and development of new machines, goods and consumption articles can take place anywhere in the world. Software is playing an increasingly bigger role in creating new hardware, driving additive manufacturing and automating factories. A process of disintermediation of manufacturing is under full swing, leading to what can be called a “servicization of manufacturing.”

This trend gives India a unique opportunity. Global businesses need rapid, at-scale and cost-effective innovation. With its cost advantages and services ecosystem, India can provide that innovation to the world. Conventionally, innovation is associated with creating something new such as an iPhone or a Tesla. However, innovation occurs in less flamboyant ways as well. Any change in design or development that creates new value for the firm or provides an operational competitive advantage is an innovation too.

A Unique Opportunity to Takeoff

Global companies aiming to operate faster, cheaper and better are increasingly operating in India. The country has become more innovative over the years. India granted 28,391  in the financial year 2020-21, up from 9,847 in 2016-17 and 7,509 in 2010-11. Last year, the press reported that India registered as many  in the past four years as in the previous 75. ���Ի徱��’s rank on the global innovation  has moved up from 81 in 2015 to 46 in 2021. The World Intellectual Property Organization also recognized India as the second most innovative low and middle-income economy after Vietnam.

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India missed out on the first and second industrial revolutions. The first one took place in Europe between the mid-18^th and mid-19^th centuries when India was fragmented and undergoing colonization by the British East India Company. The Second Industrial Revolution occurred in the 20^th century, but India was ruled by the British government directly, which had no interest in industrialization. London’s incentive was to use India as a provider of raw materials and as a captive market for finished British industrial goods.

After independence in 1947, India failed to industrialize unlike its East Asian counterparts. It chose a Soviet-style planned economy that was closed and protectionist. Only in 1991 when the Soviet Union collapsed did India embrace market reforms and liberalized its economy.

Today, India is  at 9% and its GDP is about to touch the $3-trillion mark. With strong global tailwinds, India can embrace industrialization and innovation, and finally enter what American economist  has termed the takeoff stage of economic growth.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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Water World: Is Climate Change Driving Our Future Out to Sea?  

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One of the challenges is to decide where to draw the line between sustainable and “normal” investments, and how to subdivide the universe of sustainable finance. The lack of clear rules on what can be labeled “sustainable” opens the door to unscrupulous companies and fund managers trumpeting their environmental, social and governance rating ratings — known as ESG — while simply relabeling existing funds without changing neither the underlying strategies nor the portfolio composition. As a result, some observers are concerned that “the overall prevailing mechanism is based on short-term maximization of financial returns, and [that] ESG is still essentially an idea.”

Thus, the first step to improve the situation, according to Domingo Sugranyes of the Pablo VI Foundation, is to create “an accepted framework of definitions and metrics” at regional or global levels to identify high-level standards and align the actions undertaken by political authorities around the world. But it is also important to act on the other side of ESG, which is direct financing as opposed to the stock market. For example, the European Commission has adopted several regulations to support and improve the flow of money toward sustainable activities.

In addition, Archana Sinha of the Indian Social Institute suggests that broader structural reforms may be necessary “to fully integrate climate-aligned structural change with economic recovery.” Not only should the legal framework be changed so “that emissions generate costs,” says economist Ladislau Dowbor, but “international financial transactions must be taxed, so that they leave a trail, shedding light on tax havens while generating resources for sustainable practices.” Other measures, Etienne Perrot says, may include “central bank rediscount policy favoring sectors that do not use fossil fuels; active and pugnacious mobilization of the shareholders most aware of the ecological crisis; [and] monitoring of speculative drifts.”

If sustainable finance is to become real hope instead of hype, then we will also need governments to step in to fix the rules, with a view to make any financial activity “sustainable by default,” says Eelco Fiole, an investment governance expert. Otherwise, Perrot warns, “the present enthusiasm around sustainable finance may well be short-lived.”

By Virgile Perret and Paul Dembinski

Note: From Virus to Vitamin invites experts to comment on issues relevant to finance and the economy in relation to society, ethics and the environment. Below, you will find views from a variety of perspectives, practical experiences and academic disciplines. The topic of this discussion is: What needs to be put in place in order to leverage the present enthusiasm around sustainable finance?

“…the ‘present enthusiasm around sustainable finance’ may be short-lived… ”

“Finance is only one of the means: directing public and institutional financial flows toward investments that exclude — or fight against — the carbon economy; central bank rediscount policy favoring sectors that do not use fossil fuels; active and pugnacious mobilization of the shareholders most aware of the ecological crisis; [and] monitoring of speculative drifts. However, whatever financial modalities are adopted, these ecological costs will necessarily weigh on financial profitability. Which leaves me to fear that the ‘present enthusiasm around sustainable finance’ is short-lived.”

Etienne Perrot — Jesuit, economist and editorial board member of the Choisir magazine (Geneva) and adviser to the journal Etudes (Paris)

“…labels should apply only to project financing related to clean energy… ”

“All sustainable finance labels should apply only to project financing related to clean energy. Investment houses should not finance fossil fuel firms in any way to declare themselves deserving of a sustainable finance seal of approval. This also goes for green financing.”

Oscar Ugarteche — visiting professor of economics at various universities

“…ESG is still essentially an idea…”

“The world produces an amount of goods and services amply sufficient to ensure everyone has a dignified life. We have the necessary technologies to produce in a sustainable way. And we presently have detailed understanding of the slow-motion catastrophe climate change represents. While the Paris conference presented the goals, the Addis Ababa conference on how to fund them reached no agreement. The overall prevailing mechanism is based on short-term maximization of financial returns, and ESG is still essentially an idea. The legal framework has to change, so that emissions generate costs. International financial transactions must be taxed, so that they leave a trail, shedding light on tax havens while generating resources for sustainable practices. The key issue is corporate governance.”

Ladislau Dowbor — economist, professor at the Catholic University of Sao Paulo, consultant to many international agencies

“…it is not clear that substantial public intervention is needed… ”

“Sustainable finance is a broad umbrella, but nonetheless has a clear meaning as investment strategies and products that aim at fostering activities that promote environmental, social and governance improvements. The private sector has rapidly developed, having realized that there is a clear appetite by investors for investment with such priorities. Specific products have been created, as well as rigorous metrics and certifications. It is therefore not clear that substantial public intervention is needed (in fostering sustainable finance, by contrast to ensuring proper pricing of, for instance, CO2 where taxes are needed). Public intervention could focus on requiring disclosure of the sustainability dimension of investment by financial intermediaries to facilitate transparency.”

Cedric Tille — professor of macroeconomics at the Graduate Institute of International and Development Studies in Geneva

“…every financial decision should take climate risk into account… ”

“Globally, the private sector needs altering processes, such that their investments do not worsen climate change. The Indian government needs to introduce guidelines to standardize climate-related revelations in all financial statements and push private companies to manage their exposure to climate risks in their tasks and processes. A lack of clarity about true exposures to specific climate risks for physical and financial assets, coupled with uncertainty about the size and timing of these risks, creates major vulnerabilities. It is suggested that the only way forward is to fully integrate climate-aligned structural change with economic recovery needing a fundamental shift in the entire finance system. Meaning that every financial decision should take climate risk into account and climate finance is integral to the transformation process.”

Archana Sinha — head of the Department of Women’s Studies at the Indian Social Institute in New Delhi, India

“…green rating for business firms…”

“Rendering sustainable finance an effective, practical concept depends, inter alia, on (1) measures regarding definitions, sustainability reporting and regulation; (2) genuine commitment to mitigation of climate change; and (3) honest and sound assessment of outcomes. Under 1, [it] can be singled out the extension of the definitions and accounting essential to regulation, with special attention to the concepts of natural capital and of contingent assets and liabilities. Under 2, there is the need for senior bankers and other key decision-makers to evaluate and explain the charting and navigation of the new business routes required for mitigation. Under 3, there are roles for many different parties — governments, central banks, research institutions and NGOs. The roles could include development and application of green ratings for business firms and other relevant institutions, which draw on historical experience with credit ratings.”

Andrew Cornford — counselor at Observatoire de la Finance, former staff member of the United Nations Conference on Trade and Development (UNCTAD), with special responsibility for financial regulation and international trade in financial services

“…an accepted framework of definitions and metrics…”

“The movement toward ecological sustainability is still in its infancy in the world economy. It is real and probably here to stay, but companies and governments will meet many economic, physical and human hurdles on the way, including raw materials bottlenecks and lack of specialized talent. ESG investment can be seen as an expression of demand for sustainability in society, pressing in the right direction. But to confirm their effectiveness and credibility, ESG-motivated investors will need an accepted framework of definitions and metrics (the ‘taxonomy’ being discussed at the EU level). Ideally, one would imagine a worldwide, self-regulated consensus about environmental cost, similar to the one which led to the international acceptance of the International Financial Reporting Standards (IFRS).”

Domingo Sugranyes — director of a seminar on ethics and technology at Pablo VI Foundation, former executive vice-chairman of MAPFRE international insurance group

“…a point of reference in public debate…”

“A transition from enthusiasm to reality requires 3 steps:

1: From the experts’ room to the public sphere. Sustainable finance cannot flourish without being a point of reference in public debate and a ‘visible’ concern in everyday life. Such a paradigm shift can only be initiated through a participatory, sociopolitical justification.

2: Toward a glocal perspective. As it happens with every declaration, the 17 sustainable development goals (SDGs) and the Agenda 2030 provisions need to be part of the national and local development strategy both as aims and evaluation measures.

3: From wishes to accountability. Various actions — mirrored in national and international law — are required to empower accountability: legislation initiatives that forbid hazardous products, give motives for ‘clean production’ and favor a circular economy, annual monitoring on sustainable practices, reduction of waste/emission and a regulatory framework for investment plans.”

Christos Tsironis — associate professor of social theory at the Aristotle University of Thessaloniki in Greece

“…any finance activity needs to be sustainable by default…”

“Given that rational justice requires the current generation to have a fiduciary duty to the future generation, any finance activity needs to be sustainable by default. In that sense, we need to distinguish between finance and unsustainable finance, and [we] need to focus on diminishing unsustainable finance to the benefit of finance. This means finance needs to be defined as purposeful and needs to account for all interests at stake. This then needs to be coded into law and into incentive systems. While ESG data is important, assessing and certifying impact on a case-by-case basis gives true input for governance and direction toward social and environmental sustainability, all things considered. This requires a new moral psychology for leadership.”

Eelco Fiole — investment governance expert, board director and adjunct professor of finance ethics in Lausanne and Neuchatel

*[An earlier version of this article was published by .]

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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The Financial Sector Needs to Address Whistleblower Retaliation

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How sustainable this period of prosperity will prove, however, is another question. Indeed, while the four major auditors — Deloitte, KPMG, PwC and Ernst & Young — are registering their strongest collective financial performance since the  20 years ago, the industry has yet to undergo the systemic overhaul necessary to ward off another Enron-scale incident. As high-profile scandals and legal battles have multiplied, it’s ever clearer that the UK must implement more robust and meaningful regulation of the auditing industry.

Still Mired in Scandals 

As recently , the auditing giants have all posted their strongest financial results since the 2002 Enron scandal led to the collapse of one-time competitor Arthur Andersen, shrinking the Big Five to today’s Big Four. Indeed, the auditing industry has been a standout performer amidst the pandemic, steadily outpacing the broader economy with the Big Four’s advisory arms reaping a particular windfall as businesses seek expertise on how to recover from the pandemic and protect themselves from future economic downturns.

The wave of mergers and acquisitions deals and increased spending on services such as environmental social and governance (ESG) consulting have given an impressive bump to auditors’ bottom lines. The Big Four a total of $167.3 billion in revenue this financial year, up 7% on 2019-20. Of the four,  experienced the greatest increase, with its global revenue jumping 10% to reach $32.1 billion. , meanwhile, reported a 7.3% rise in overall turnover, including 19.6% growth in its strategy consulting arm.  rose 5.5% to $50.2 billion, while  increased sales by 2% to the overall revenue of $45 billion, with its advisory sector growing by 3.1%.

Unfortunately, this impressive financial performance hasn’t been matched by a corresponding uptick in standards. While auditors have tried to deflect blame — the UK boss of PwC recently  that criticism of the audit industry from politicians and regulators is damaging the sector’s reputation — there’s little doubt that the industry continues to be embroiled in scandals, with all four firms associated with high-profile cases.

In one of the latest instances, KPMG is being for $600 million over its allegedly sloppy auditing of collapsed private equity firm Abraaj. In its heyday, the Dubai-based fund managed some $14 billion in assets, with Abraaj founder  selling himself as an ESG trailblazer to the global political and financial elite. Abraaj turned out to be a massive , and the firm  amid allegations of mass fraud and misuse of funds. 

KPMG played a particular role in the debacle, with the firm’s Lower Gulf affiliate  of failing to identify the irregularities at Abraaj and not maintaining sufficient independence from the troubled fund. In particular, red flags were raised by executives bouncing between posts at Abraaj and KPMG, as well as the fact that KPMG also audited companies in which Abraaj invested.

KPMG is also facing other investigations, including  from UK financial regulators over apparently providing misleading information and failing to spot discrepancies in its auditing of collapsed construction firm Carillion. Meanwhile, EY  of “actively concealing” a six-year fraud from investors during its auditing of Gulf-based NMC Health, which comes as the auditor deals with high-profile auditing failures with  and .

Deloitte was a record £15 million ($20.3 million) in 2020 for failing to “act with integrity and objectivity” in its audit of software firm Autonomy. PwC, meanwhile, has faced fines and lawsuits for audits of firms including  and racing car dealer , and its Frankfurt offices were recently  over a suspected tax evasion scheme.

In total, the Big Four have been  £42 million in the UK in the past three years for flawed audits — a startling sum that underscores the need to more effectively regulate the sector.

Regulation Needed

The trouble is that, two decades on from Enron, regulation hasn’t been beefed up sufficiently to curb abuses in the auditing sector. An independent review found that the current UK regulator, the Financial Reporting Council (FRC), is “rather ramshackle” and should be urgently  with a strengthened body with more accountability to Parliament. 

Plans for such a replacement have yet to materialize concretely, and the government’s appetite for audit reform is worryingly meager. Recent  that ministers are planning to water down suggested reforms — including replacing planned legislation to make company directors more accountable over financial reporting with a weaker, more narrowly applicable UK corporate code — are alarming given the deeply rooted problems in the auditing sector.

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Indeed, it is long past time to carry out a thorough overhaul of financial services regulation in the UK and install robust corporate governance to prevent another crisis on par with Enron. As American investigative journalist David Hilzenrath has , there are critical lessons to be learned from Enron, such as the imperative to end the multiple conflicts of interest that exist within the auditing sector, including close relationships and even “revolving doors” that develop between companies, auditors and regulators.

These can be tackled with measures such as ensuring that auditors are independently assigned rather than company-appointed, frequently rotating auditors, and instituting a politically accountable regulator with the power to implement penalties at an earlier stage before the damage has been done.

The UK government should heed the warnings that countless scandals have provided and implement suggested regulatory changes before it’s too late. There’s little point in championing the successes of the professional services sector if this is just paving the way for a headline-grabbing crisis that brings it all crashing down.  

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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The global financial crisis and the euro crisis have shown that the single market would not function without the common currency, the euro — one reason being exchange rate differences. Even though the euro has not displaced the dollar from first place in the global monetary system, it protects the European economies from external shocks, that is, negative impacts from the global economy.

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Moreover, monetary integration has shown its advantages during the COVID-19 pandemic. Without the euro, some member states would not only face a demand and supply crisis, but also a sharp weakening of their currency, which could even lead to a currency crisis. This would make it extremely difficult to fight the pandemic and support jobs with public money.

The citizens of the EU seem to appreciate the stabilizing effect of the common currency. According to the May 2021 Eurobarometer , 80% of respondents believe that the euro is good for the EU; 70% believe that the euro is good for their own country.

Moreover, joining the euro area is seen as attractive: Croatia will most likely join the euro area in 2023. Bulgaria also aspires to join. Due to dwindling confidence in the currencies of Poland and Hungary, the introduction of the euro could become a realistic scenario in the event of a change of governments in these countries.

A Long List of Reforms

Despite these developments, many of the euro area’s problems remain unresolved 20 years after the currency changeover. The fundamental dilemma is between risk-sharing versus risk elimination. It is a question of how many more structural reforms individual member states need to undertake before deeper integration of the euro area, which implies greater risk-sharing among member states, can take place. In the banking sector, for example, the issue is to improve the financial health of banks — that is, among other measures to increase their capitalization and reduce the level of non-performing loans before a common deposit insurance scheme can be created.

A second problem is the relationship between monetary and fiscal policy. Currently, the European Central Bank is the main stabilizer of the euro area public debt, which increased significantly as a result of the pandemic, and it will remain so by reinvesting its holdings of government bonds at least until 2024. However, an alternative solution is needed to stabilize the euro area debt market.

Joint debt guarantees, as recently proposed by France and Italy, must be combined with incentives to modernize the economies, especially of the southern euro are countries. In this context, it is important to keep in mind the limits of fiscal policy, which is currently too often seen as the magic cure for all economic policy problems. Linked to fiscal policy are the questions of how many rules and how much flexibility are needed in the euro area.

Heated discussions are to be expected this year on the corresponding changes to the fiscal rules. This is because there is a great deal of mistrust between the countries in the north and south of the euro area, which is mainly due to the different performance levels of the economies and the different views on economic policy. The persistent inflation and the problems with the implementation of the NextGenerationEU stimulus package, which is supposed to cushion coronavirus-related damage to the economy and society, could exacerbate the disparities in economic performance and thus also the disagreements within the euro area.

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The euro crisis has shown that turbulence in one member state can have fatal consequences for the entire currency area. In the coming years, however, the biggest challenge for the euro area will not be the situation in small member states such as Greece, but in the largest of them. The economies of Italy, France, and Germany, which account for almost 65% of the eurozone’s gross domestic product, are difficult to reform with their complex territorial structures and increasing political fragmentation. At the same time, these economies lack real convergence.

A decisive factor for the further development of the euro currency project will be whether the transformation of their economic models succeeds under the influence of the digital revolution, the climate crisis, and demographic change.

*[This  was originally published by the German Institute for International and Security Affairs (SWP), which advises the German government and Bundestag on all questions relating to foreign and security policy.]

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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Fintech’s Problem With Race

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The finance sector has built a reputation of secrecy, authority and corruption with its finance-first approach. This attitude has leaked into company culture, with an emphasis on activities that increase productivity, cut costs and build wealth. Unfortunately, a lack of transparency and a healthy distrust of the industry has led to widespread retaliation against whistleblowers. 

The Value of Whistleblower Laws

There are many reasons why financial firms should seek to be at the forefront of anti-retaliation efforts. Fraud is just one of the ethical issues facing the industry. The ever-evolving fintech marketplace rests on underlying security and fraud protection systems, but when industry leaders make it apparent that exposing fraud internally is not a priority, the effects of mistrust are felt among the consumers. 

Regular reporting is crucial for creating market barriers that lead to innovation. The only opposition to whistleblowers comes from those engaged in fraudulent and unethical activities. Current whistleblower protection laws employees from retaliation for reporting violations of workplace safety, financial and health care reform, motor vehicle safety, laws relating to consumer products, and financial and tax laws. Whistleblowers who engage in fraudulent activities themselves to expose violations are not protected under current US laws. 

So why should criminals be given more protection than the whistleblowers themselves? The answer is profits. Retaliation and fear-mongering within the financial sector can be tied to bad actors who want to continue making money in an unethical manner. Without adequate incentives for whistleblowers to come forward, goodwill may not be enough of a motivator.

Adverse actions can be taken to dissuade an employee from blowing the whistle, such as firing or laying off, demoting, disciplining or denying benefits; intimidation or harassment; subtle actions like isolating, ostracizing, mocking or falsely accusing the employee of poor performance; and blacklisting.

As an example, an African American employee of the Boston Treasury Department, Chantel Charles, was with poor job evaluations by her employer when she filed a complaint against receiving lower pay and benefits than her Caucasian colleagues. While Charles won her legal case against the city and was awarded more than $10 million in punitive damages, others are not so lucky. The effects of whistleblower retaliation can be financially, reputationally and personally for those brave enough to take the step.

Speak-Up Culture

Although many modern are centered around artificial intelligence software, the proper handling of whistleblowers and any subsequent retaliation is too important of a task to leave to machines. In order to build a culture of protection for whistleblowers, there are some preventative measures suggested by the Occupational Safety and Health Administration (OSHA) that should be enforced to reduce fear-mongering and retaliation.

A preventative approach to curbing retaliation starts with creating a culture that encourages criticism and debate over policies and procedures. This can start by addressing other, less critical issues like a harmful comment made about another colleague. 

If employees have no reason to believe that upper-level management takes small complaints seriously, then they are unlikely to believe that management would have their back if they blew the whistle and disrupted common practices. HR should work to encourage reporting, provide enough time and resources for a fair evaluation, and come up with just and effective resolutions. Transparency should be part of the brand, and building trust among employees is the first step toward building trust with customers. 

One way to encourage reporting and reduce retaliation is to implement a response system. Retaliation stems from management failing to address issues that are important to employees. An effective retaliation response system will include a review process completed by an independent party that has access to oversight bodies. 

Clearly defined roles, responsibilities and expectations during this process are critical. It is especially important that this system includes those in top leadership positions, managers at all levels, compliance and legal staff, as well as employees and even vendor relationships. 

While it may seem like an issue of conscience, it is clear that anti-retaliation skills are not intuitive. All members of a company, including the leadership and board members, need to receive training about what constitutes retaliation, legal protections and obligations for employees and how to retaliation in the workplace. 

OSHA recommends that this training be considered equal to all other training that is required and to “Ensure that the systems for reporting hazards, compliance concerns and retaliation are implemented, enforced, and evaluated by a designated manager who is responsible and accountable for these programs, and has access to top managers and the board.”

Additionally, union leadership should be consulted when it comes to developing such training, and unrepresented workplaces should collaborate with other leaders in the company and sector. For anti-fraud measures, tracking progress and other trends associated with whistleblowers, retaliation and anti-retaliation training is crucial for understanding whether prevention methods require improvement.

The incentive programs and measures that are currently used by organizations can actually encourage retaliation and stop whistleblowers from coming forward. For example, encouraging low numbers of incidents will automatically reduce reporting because the system actually incentivizes retaliation over reporting. New incentive systems should not be group-based and distributed on a more personal level. 

Leadership Role

If we have learned anything from the series of whistleblower crises over the past few decades, it’s that leadership plays a critical role in the entire company when it comes to retaliation and whistleblower protection. 

Executives and boards of directors must take the lead in implementing anti-retaliation programs that protect whistleblowers. Just as ensuring protects companies from regulatory, legal and public scrutiny, so do anti-retaliation programs. Creating an environment that explicitly condemns retaliation efforts avoids legal and PR risks, and improves employee satisfaction. 

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Organizational effectiveness and profitability improve when whistleblower protections are put in place. For example, auditors are only able to detect 19% of fraud cases in private corporations while whistleblowers 43% of active fraud. 

It is up to HR to ensure that employees are aware of the policies in place, protections for whistleblowers, corrective actions for retaliation and the proper reporting channels available. An effective system requires using technology and policy, as well as involvement from all levels of management. Organizations need to move from reactive protocols to proactive anti-retaliation systems and reporting programs to hear and resolve issues.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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Historically, professional investors have dominated stock markets. These investors assimilate vast amounts of information and make difficult investment decisions, sometimes on a daily basis. Picking the right stock among the thousands on offer can be daunting, especially for retail investors.

Retail Investing on the Rise

During the COVID-19 pandemic, the number and impact of retail investors have increased dramatically. Retail investors now account for almost as much on the US stock market as mutual and hedge funds combined. On the , the percentage of individual investors increased from 33% to 45% over the last five years. In this period, the percentage of institutional trading by both foreign institutional investors and domestic institutional investors declined from 32% to 18%. Retail investors increased their purchases on the as well, now holding 15% of the UK stock market. 

The rise in retail investment is the result of many factors. First, a number of people have more free time on their hands and need alternative sources of income. The COVID-19 pandemic spurred a global trend in working from home. Employees were no longer commuting and had more time to explore the stock market. Furthermore, many found themselves in economic distress. As jobs and salaries were slashed when businesses suffered severe setbacks and even went bankrupt, many turned to the stock market in search of alternative sources of income. 

Second, retail investors found a favorable opportunity to invest because of the dramatic crash in stock markets in the early days of the pandemic. The US fell by a whopping 37% from early February to March 2020. Stock markets worldwide saw a similar plunge. This gave many first-time investors an opportunity to invest in stocks at significantly lower prices while the market was bottoming out. In the past, after the of 2001 and the of 2008, retail investing went up as well. It seems many invest in stock markets at times of crisis in the hope of earning profits when the markets rebound.

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Third, retail investors were chasing higher returns at a time when central banks slashed interest rates to extremely low levels. To support businesses and increase consumer spending, central banks adopted extremely loose . While liquidity went up, the offered by most traditional investment options remained poor, making people turn to the stock market.

Fourth, reveal that many US citizens used the COVID-19 stimulus checks to invest in the stock market. 

Fifth, online trading platforms made it more accessible to trade on the stock market. Prior to the growth of such platforms, stockbrokers charged high commissions, asked for minimum account sizes, levied fees for inactive accounts and demanded subscription payments. Online like Robinhood in the US, FreeTrade in the UK and Zerodha in India made the online trading process seamless for retail investors and disintermediated traditional stock brokers. Investing in stock markets has become easier and cheaper.

Finally, retail investors now have easy about stock markets through platforms like Reddit. On one subgroup, r/wallstreetbets, retail investors discuss what stocks to purchase and reasons for doing so. This gives them the confidence and the direction to purchase stocks.

Retail Investor Mentality

Retail investors tend to be bullish about the market. They are more optimistic than professional investors and represent a younger demographic with a median age of 35, down from 48 before the pandemic.

These younger investors often navigate by sentiment in contrast to older and professional investors who are more conservative. Many of these investors have yet to experience a bust and pay less attention to company finances. Younger traders tend to jump from one hot trend to the next. In March 2020, they bought shares of airline companies and cruise ship operators on the assumption that the economy would reopen shortly. Apart from trends, younger retail investors tend to buy shares of companies in technology and gaming, their areas of interest.

One such bet has made international headlines earlier this year when GameStop, a struggling video game retailer that operates over 5,000 stores in the US, suddenly saw retail investors buying up its in droves in January. Many professional investors were shorting the company’s shares, which involves selling shares with the aim of buying them back later for cheaper prices. Professional investors estimated that GameStop’s business would go down in the pandemic, meaning that its share price was bound to fall. Retail investors took a different view. 

Some retail investors spread the message to buy GameStop shares on r/WallStreetBets, which led to GameStop’s share price rising by nearly 1,900% in less than a month as investors started buying. Those who shorted the GameStop stock, including hedge funds like Melvin Capital Management, lost nearly $6 billion. Most GameStop stock was bought on online trading platforms like Robinhood. 

The GameStop trading frenzy is one of the clearest examples of a shift in power on the stock market. As of August 27, was $204.95, below the $347.51 peak in January, but still much higher than the $17.25 mark at the end of 2020. This shows that retail investors can take on professional investors and win, at least in the short term.

Interestingly, the GameStop saga is not a one-off event. Shares of , a movie theater chain, rose by approximately 2,900% in May and June when information circulated on Redditt platforms caused stock purchases. Sophisticated institutional investors were selling the company’s shares because of its financial troubles, while retail investors continued to buy. GameStop and AMC shares fired up by retail investors using Reddit have been labeled as .

Retail investors are causing many across the markets. The share prices of many companies, especially smaller-cap ones, have become more volatile. Many professional investors believe that this volatility is driven by irrational and unpredictable investing by novices. Speculation and rumor now play a bigger role because information on social media is rarely fact-checked. Besides, social media traps people in echo chambers where they engage with others who hold similar viewpoints and beliefs. This leads to mob investing, exacerbating the already increasing volatility of stock markets.

Here to Stay?

If retail investors continue to operate on stock markets, will occur. They have caught the investment bug and might become seasoned investors with time. The influence of social media on stock markets might increase as well.

Some take the view that rising retail investing is a passing trend. History suggests that, more often than not, retail investors have lost money on the stock market. Their investments tend to be in companies with unsound fundamentals. They lack the training, experience and judgment to invest wisely. 

History offers a sobering example. October 29, 1929, when markets crashed, leading to the Great Depression, is known as “.” Billions of dollars were lost and thousands of investors wiped out. This could happen again. is rising. Interest rates might follow suit. Other investment options might become more attractive, and the stock market might suffer. This could easily lead to retail investors fleeing stock markets much in the same manner as they have flocked to them.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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Although public-private partnerships were only in France in 2004 — mainly as a response to the advantage gained by countries such as the United Kingdom, whose private finance initiative model had been in the early 1990s — the country has led the way in PPP innovation, particularly in the framework of concession agreements for the realization of long-term infrastructure projects.

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A concession agreement is as one under which “a grantor assigns, for a limited period of time, to one or several economic entities, the performance of works or the management of a service.” In France, such agreements are common and can be found in sectors like catering, water and sanitation, district heating, transport and sports facilities. They represent a form of economic and social innovation within a state that has been committed to institutional modernization for over a decade.

A French Style

For over half a century, France has developed one of the most modern, innovative motorway networks in Europe, thanks to a great extent to the concession structure put in place with a number of so-called concessionaire companies. These companies were by the French government’s public service delegation with the task of “financing, building, running, and maintaining their networks.” A “user=payer” toll system was then put in place to offset taxpayer funding and allow the concessionaire companies to collect annual revenues.

This model has several advantages for both the French state and the concessionaires. The governments delegate the construction and management of the network to private companies while retaining ownership and transferring financial risk. Private companies can create significant revenues through the user=payer toll system, and users are able to enjoy a highly efficient, modern and reliable service.

Sustainability is also on the list of advantages. The setup allows for a sustainable avenue of resource allocation, which over €18 billion ($21 billion) in investment between 2005 and 2015. A high rate of investment and the competition encouraged between concessionaire companies has produced a high-quality network with high-quality services that will remain without debt when the contracts come to an end as the risks are shouldered by the private sector.

The system has also had a profound impact on mobility, coupled with high investment in services. This has been made possible by concession agreements that have profits from “mature” concessions to subsidize less profitable sections of the network. These profits are raised through the toll system, run directly by the concessionaires. It is a highly innovative, collaborative system that meets the economic and social needs of both states and private companies in an of unstable financial market.

In 2011, France the European PPP market, accounting for 62% of the overall market value. According to the World Bank, this was in the “wave of new ‘social infrastructure’ investments in health, education, defense, transport and urban planning sectors.” In the water sector, France is a in private sector participation, with three French companies, Veolia, Suez and SAUR, dominating on the world stage. As Xun Wu and Leong Ching , the French model of concession agreements in the water sector has increasingly been adopted in developing countries, “particularly in large cities because of the large investments required to meet increasing demands due to urbanization, along with shortages in fiscal budgets.”

A Modern Solution

In 2013, the French government launched the Plan France Très Haut Débit, aimed at rolling out high speed broadband across all rural areas by 2022. The initiative received over €20 billion in funding from the French government and the European Union, with several PPP projects under concession contracts being in 2014 between local authorities and the private sector.

The concession system allows for a more viable initiative in rural areas, where investment cost is often very high and profitability difficult to achieve. The of the initiative is for France to guarantee 100% coverage by the end of the project, which will secure almost 1 million connections for both households and companies across more than 3,000 municipalities. Such targets could not be met without public-private cooperation.

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As public budget limitations have become more palpable as a result of often unstable financial markets, governments have found that PPP schemes have been a viable solution to the problem of financing modern infrastructure projects. Concession agreements can be hugely advantageous to both governments and private actors committed to finding innovative solutions to public infrastructure problems.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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Gandhi tied Indian industry in chains. She imposed capacity constraints, price controls, foreign exchange control and red tape. ���Ի徱��’s colonial-era bureaucracy now ran the commanding heights of the . Such measures stifled the Indian economy, created a black market and increased bureaucratic corruption. The Soviet-inspired Bureau of Industrial Costs and Prices remains infamous to this day.

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India also adopted the Soviet five-year plans. A centralized economy emerged with the state controlling the media and telecom, financial, infrastructure and energy sectors. Even in seemingly private sectors such as consumer and industrial, the state handled too many aspects of investment, production and resource allocation.

Opening Up the Economy

In the 1980s, India took gentle strides toward a market economy and opened many sectors to private competition. In 1991, the Gulf War led to a spike in oil prices, causing a balance-of-payments crisis. In response, India rolled back the state and liberalized its economy. The collapse of the Soviet Union that year pushed India toward a more market-oriented economy. 

Over the years, state-run monopolies have been decimated by private companies in industries such as aviation and telecoms. However, India still retains a strong legacy of socialism. The government remains a major participant in sectors such as energy and services.

After years of piecemeal reforms, the Indian government is again unleashing bolder measures. These involve the opening up of several state monopolies to private competition. They are diluting state ownership of public sector units. In some cases, they are selling these units to domestic or foreign buyers. In due course, professionals, not bureaucrats, will be running this sector.

The government’s bold move to is because of two reasons. First, ���Ի徱��’s public sector has proved notoriously inefficient and been a burden on the taxpayer. Second, the COVID-19 pandemic has made the economy shrink and caused a shortfall in tax revenue. Privatization is a way for the government to balance its books.

As Shwweta Punj, Anilesh S. Mahajan and M.G. Arun rightly point out in India Today, the country “will have to rethink how it sells” its public sector units for privatization to be a success. ���Ի徱��’s track record is poor. The banana peels of political opposition, bureaucratic incompetence and judicial proceedings lie in waiting.

Potential Benefits of Privatization

Yet privatization, if managed well, could lead to several benefits. It will lead to more efficiently managed businesses and a more vibrant economy. Once a state-controlled firm is privatized, it could either be turned around by its new owner or perish. In case the company fails, it would create space for better players. Importantly, privatization could strengthen the government’s fiscal position, giving it greater freedom to invest in sectors like health care and education where the Indian government has historically underinvested. Furthermore, privatization could increase investable opportunities in both public and private markets.

Given ���Ի徱��’s fractious nature and labyrinthine institutions, privatization is likely to lead to mixed results and uneven progress. One thing is certain, though. Privatization is inevitable and cannot be rolled back. Sectors in which market forces reign supreme and shareholder interests are aligned are likely to do well. State-controlled companies that prioritize policy goals over shareholder value are unlikely to do so. Similarly, sectors that have experienced frequent policy changes are unlikely to thrive. 

There is a reason why savvy investors are constructing portfolios weighted toward consumer and technology sectors. So far, companies in these sectors have operated largely free of state intervention. They have had the liberty to grow and function autonomously. Unsurprisingly, they have delivered good returns.

The state-dominated financial services sector also offers promise. Well-managed private companies have a long runway to speed up on. Among large economies, ���Ի徱��’s financial services sector offers unique promise. In the capitalist US, the state has limited presence and private players dominate. This mature market offers few prospects of high growth. In communist China, state-controlled firms dominate financial services, leaving little space for the private sector. With the Indian government planning to reduce its stake in a state-controlled life insurance company, as well as sell two state-owned banks and one general insurance company, the financial services sector arguably offers a uniquely important opportunity for investors.

Just as India did well after its 1991 balance-of-payments crisis, the country may bounce back after the COVID-19 pandemic. The taxpayer may no longer need to subsidize underperforming state-owned companies holding the country back. Instead, market competition may attract investment, create jobs and increase growth.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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No region is more complex in terms of confusing signals than the Middle East and North Africa (MENA) and Central Asia. This is the subject of the latest report by the International Monetary Fund , “Regional Economic Outlook: Arising from the Pandemic: Building Forward Better.”

What is clear from a review of the data is that 2020 was an outlier in terms of trend lines earlier in the decade, skewed by the COVID-19 pandemic, erosion of oil prices, diminished domestic economic activity, reduced remittances and other factors that have yet to be brought into an orderly predictive model. Even the IMF had to recalibrate its 2020 report upward for several countries based on rising oil exports, while decreasing marks were given countries slow to vaccinate against COVID-19 and that rely on service-oriented sectors.

Mixed Outlook

The numbers indicate a , ranging from Oman growing at 7.2% and the West Bank at 6.9%, to Lebanon receiving no projection and Sudan at the bottom of the range with a 1.13% real GDP growth rate. Yet, so much can impact those numbers, from Oman’s heavy debt burden to continuing turmoil in intra-Palestinian and Palestinian-Israeli affairs.

The good news is that real GDP is expected to grow by 4% in 2021, up from the projection last October of 3.2%. Much of the lift has come from two factors: a more optimistic trend line for the oil producers and the rate of vaccinations in countries that will promote business recovery.

As CNBC out, Jihad Azour, director of the IMF’s Middle East and Central Asia department, noted that recovery will be “divergent between countries and uneven between different parts of the population.” Key variables include the extent of vaccine rollout, recovery of tourism and government policies to promote recovery and growth.

In oil-producing countries, real GDP is projected to increase from 2.7% in 2021 to 3.8% in 2022, with a 5.8% rise in the region’s sector driven by Libya’s return to global markets. Conversely, non-oil producers saw their growth rate estimates reduced from 2.7% to 2.3%. In fact, Georgia, Jordan, Morocco and Tunisia, which are highly dependent on tourism, have been downgraded in light of continuing COVID-19 issues such as vaccination rollout and coverage.

As the IMF report summary notes, “The outlook will vary significantly across countries, depending on the pandemic’s path, vaccine rollouts, underlying fragilities, exposure to tourism and contact-intensive sectors, and policy space and actions.” From Mauritania to Afghanistan, one can select data that supports or undercuts the projected growth rates. For example, in general, Central Asia countries as a group seem to be poised for stronger results than others. Meanwhile, Arab countries in the Gulf Cooperation Council face greater uncertainty, from resolving debt issues to unforeseen consequences of negotiations with Iran.

So, how will these projects fare given a pending civil war in Afghanistan and the possible deterioration of oil prices and debt financing by countries such as Bahrain and Oman? Highlighting this latter concern, the report goes on to say that public “gross financing needs in most emerging markets in the region are expected to remain elevated in 2021-22, with downside risks in the event of tighter global financial conditions and/or if fiscal consolidation is delayed due to weaker-than-expected recovery.”

An Opportunity

Calling for greater regional and international cooperation to complement “strong domestic policies” focused on the need “to build forward better and accelerate the creation of more inclusive, resilient, sustainable, and green economies,” the IMF is on the countries to see a post-pandemic phase as an opportunity. This would involve implementing policies that promote recovery, sustain public health practices that focus on sustainable solutions, and balance “the need for debt sustainability and financial resilience.”

There is great uncertainty assigning these projections without more conclusive data on the impact of the pandemic, the stress on public finance and credit available to the private sector, and overall economic recovery across borders that relies on factors such as the weather, oil demand, external political shocks and international monetary flows. The IMF report is a very helpful bellwether for setting parameters for ongoing analyses and discussions.

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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