hurricane Archives - The Automatic Earth

The conundrum of stubbornly low inflation despite a pick-up in global growth and continued monetary stimulus is a “trillion dollar” question, the umbrella body for the world’s leading central banks said on Sunday. The Bank for International Settlements (BIS) said in its latest quarterly report that cheap borrowing rates and the rare simultaneous expansion of advanced and developing economies are driving financial markets higher, with signs of “exuberance” starting to re-emerge. U.S. corporate debt is much higher than before the financial crisis and a drop in the premiums investors demand for riskier lending has boosted sales of so-called covenant-lite bonds offering high yields. The BIS said this raises a question over the potential for another crisis if there is a significant rise in interest rates.

The body has called for a gradual return to higher rates, though central banks are being tentative because of persisting low inflation. “It feels like ‘Waiting for Godot’,” said Claudio Borio, the head of the monetary and economic department of the BIS, referring to a play in which the main characters wait for someone who never arrives. But the BIS says no one has yet worked out why inflation has remained so subdued while economies have approached or surpassed estimates of full employment and central banks have provided unprecedented stimulus. “This is the trillion-dollar question that will define the global economy’s path in the years ahead and determine, in all probability, the future of current policy frameworks,” Borio said. “Worryingly, no one really knows the answer.”

The BIS is surprised by lack of inflation, or does it pretend that? And it’s also surprised by swaps and forwards? Really?

• Global Debt Underreported By $14 Trillion – BIS (ZH)

In its latest annual summary published at the end of June, the IIF found that total nominal global debt had risen to a new all time high of $217 trillion, or 327% of global GDP…

… largely as a result of an unprecedented increase in emerging market leverage.

While the continued growth in debt in zero interest rate world is hardly surprising, what was notable is that debt within the developed world appeared to have peaked, if not declined modestly in the latest 5 year period. However, it now appears that contrary to previous speculation of potential deleveraging among EM nations, not only was this conclusion incorrect, but that developed nations had been stealthily piling on just as much debt, only largely hidden from the public eye, in the form of swaps and forwards.

According to a just released analysts by the Bank of International Settlements, “FX swaps and forwards: missing global debt?” non-banks institutions outside the United States owe large sums of dollars off-balance sheet through instruments such as FX swaps and forwards. The BIS then calculates what balance sheets would look like if borrowing through such derivative instruments was recorded on-balance sheet, as functionally equivalent repo debt, and calculates that the total “is of a size similar to, and probably exceeding, the $10.7 trillion of on-balance sheet dollar debt”, potentially as much as $13-14 trillion.

[..] “Every day, trillions of dollars are borrowed and lent in various currencies. Many deals take place in the cash market, through loans and securities. But foreign exchange (FX) derivatives, mainly FX swaps, currency swaps and the closely related forwards, also create debt-like obligations. For the US dollar alone, contracts worth tens of trillions of dollars stand open and trillions change hands daily. And yet one cannot find these amounts on balance sheets. This debt is, in effect, missing.”

Who says they’re ignoring it? They’re frantically looking to control it.

• World’s Central Banks Can’t Ignore the Bitcoin Boom – BIS (BBG)

The world’s central banks can’t sit back and ignore the growth in cryptocurrencies as it could pose a risk to the stability of the financial system, according to the Bank for International Settlements. It said central banks will need to figure out whether to issue a digital currency and what its attributes should be, though the decision is most pressing in countries like Sweden where cash use is dwindling. Institutions need to take into account of not only privacy issues and efficiency gains in payment systems, but also economic, financial and monetary policy repercussions, the BIS said in its Quarterly Review. The analysis comes at the end of a rough week for digital currencies, with JPMorgan CEO Jamie Dimon calling bitcoin a “fraud” and China moving to crack down on domestic trading of cryptocurrencies.

But with bitcoin and others gaining in popularity as payment systems go mobile and investors pour in money, central banks are beginning to delve into them and their underlying blockchain technology, which promises to speed up clearing and settlements. At the Bank of England, Mark Carney has cited cryptocurrencies as part of a potential “revolution” in finance. To better understand the system, the Dutch central bank has created its own cryptocurrency, albeit for internal use only. U.S. officials are exploring the matter too, though in March Federal Reserve Governor Jerome Powell said there were “significant policy issues” that needed further study, including vulnerability to cyber-attack, privacy and counterfeiting.

According to the BIS, one option for central banks might be a currency available to the public, with only the central bank able to issue units that would be directly convertible with cash and reserves. There might be a greater risk of bank runs, however, and commercial lenders might face a shortage of deposits. Another question to be resolved would be the question of privacy.

“It’s going to be like the dot-com bust, but on a much more epic scale.”

• Dogecoin Creator On Cryptocurrencies: “Very Bubble. Much Scam. So Avoid.” (NYT)

Jackson Palmer no longer thinks it’s funny to imitate Doge, the internet meme about a Shiba Inu dog whose awe-struck expressions and garbled syntax (e.g. “Wow. So pizza. Much delicious.”) made him a viral sensation several years ago. But if he did, he might channel Doge to offer a few cautionary words for investors who are falling for cryptocurrency start-ups, Silicon Valley’s latest moneymaking craze: Very bubble. Much scam. So avoid. Mr. Palmer, the creator of Dogecoin, was an early fan of cryptocurrency, a form of encrypted digital money that is traded from person to person. He saw investors talking about Bitcoin, the oldest and best-known cryptocurrency, and wanted to find a way to poke fun at the hype surrounding the emerging technology. So in 2013, he built his own cryptocurrency, a satirical mash-up that combined Bitcoin with the Doge meme he’d seen on social media.

Mr. Palmer hoped to use Dogecoin to show the absurdity of wagering huge sums of money on unstable ventures. But investors didn’t get the joke and bought Dogecoin anyway, bringing its market value as high as $400 million. Along the way, the currency became a magnet for greed and attracted a group of scammers and hackers who defrauded investors, hyped fake products, and left many of the currency’s original backers empty-handed. Today, Mr. Palmer, 30, is one of the loudest voices warning that a similar fate might soon befall the entire cryptocurrency industry. “What’s happening to crypto now is what happened to Dogecoin,” Mr. Palmer told me in a recent interview. “I’m worried that this time, it’s on a much grander scale.”

[..] Mr. Palmer, a laid-back Australian who works as a product manager in the Bay Area and describes himself as “socialist leaning,” was disturbed by the commercialization of his joke currency. He had never collected Dogecoin for himself, and had resisted efforts to cash in on the currency’s success, even turning down a $500,000 investment offer from an Australian venture capital firm. [..] Mr. Palmer worries that the coming reckoning in the cryptocurrency market — and it is coming, he says confidently — will deter people from using the technology for more legitimate projects. “The bigger this bubble goes, the bigger negative connotation it’s going to have,” he said. “It’s going to be like the dot-com bust, but on a much more epic scale.”

Peters is the CIO at One River Asset Management. “Once private markets perfect cryptocurrency technology, governments will commandeer it, killing today’s pioneers. Then with every cryptodollar, yen, euro and renminbi registered on their servers, they’ll have complete dominion over money, laundering, taxation.”

• The Future Of Cryptocurrency Is Not As It Seems (Eric Peters)

“Any other thoughts on the matter?” he asked. We’d spent quite some time discussing Bitcoin, Ethereum, and copycat cryptocurrencies popping up faster than North Korean nukes. I mostly listened, he knew far more about the subject; blockchain, distributed ledgers, mining, halving, hash rates. Unlike the S&P 500 realized volatility’s collapse to 8%, these new creations are realizing at 90%. Which makes them attractive to day-traders, adrenaline junkies, who launched 100 crypto hedge funds just last month. It’s the millennial’s wild west. Like all generations, they’ve discovered a new frontier, with few rules, seedy saloons, gunfights, corpses. As our earthly unknowns disappear, we find new ones in the ether. Which is where money belongs; it’s not real, it’s an abstraction, an age-old illusion.

As a golden myth captured mankind’s imagination, we built our societies upon a rare yellow metal. For 2,500 years we fought, killed, conquered. Until governments tired of the arbitrary spending constraints imposed upon them by a scarce element. So they invented today’s fiction, a printed promise, fiat currency. Seigniorage is the difference between that currency’s market value and its cost of production – that spread is a source of vast wealth and power. And in all human history, not a single government has willingly forfeited such a thing. Nor will one ever. Only after a hyperinflationary depression, confronted with revolution, do governments sometimes relinquish their power to print (Zimbabwe most recently).

Consequently, the future of cryptocurrency is not as it seems. Once private markets perfect cryptocurrency technology, governments will commandeer it, killing today’s pioneers. Then with every cryptodollar, yen, euro and renminbi registered on their servers, they’ll have complete dominion over money, laundering, taxation. They’ll track every transaction. Imposing negative interest rates in an instant. There will be no hiding, no mattresses. And in a deflationary panic, they’ll instantaneously add an extra zero to every account, their own especially.

“..we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.”

• China’s $40 Trillion Banking System: “Largest Imbalances I’ve Ever Seen” (ZH)

KB: We’re in the such late stages of a game that is the largest global imbalance I’ve ever seen in my life. When you look at on balance sheet and off balance sheets, you look at on balance sheet in the banks, you look in the shadow banks. The number of total credit in the system, China is right at $40 trillion. Think about the number I just said. $40 trillion. And that’s using an exchange rate of call it 6.7 to the dollar, right? So it’s grown 1,000% in a decade. And we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.

RP: Where do you get the equity and liquid reserves from?

KB: Well, it’s the amount of equity in the banks of China. It’s right at about $2 trillion. So that’s kind of a stated number. The reserves is my own calculation, right? The Chinese magically have leveled their reserves out around $3 trillion, which happens to be the minimum level of IMF reserve adequacy as defined by the IMF rule.

RP: So what have they been doing now? So, they were under pressure, and then everything kind of eased off, I guess, as the dollar started weakening a bit.

KB: Yeah. Actually, they’ve done three things. Well, so four things have caused this, quote, easing off that you refer to. Three have been driven by SAFE and the PBOC, one that’s been driven by our illustrious Trump. So the first three are, number one, they essentially halted all cross-border M&A. So if you look at the parabola of M&A coming out of China from 2012 to 2016, it reached dizzying heights in 2016. In 2017, it’s like 15% of the 2016 number and no new deals being announced. Now, they’ll always be some outbound M&A that’s driven by really policy at the Communist Party level, right?

They’ll always buy copper mines in Uganda. They’ll always invest in ports in Greece. They’ll always do things that are from a strategic perspective and a policy perspective. The things that the Communist Party needs to procure resources for its people over the long-term. But when you look at the rampant M&A of money leaving China, they just put a halt to it in November of 2016. And the second thing they did was they made it impossible for multinational corporations to get their profits and or working capital out of China. And that’s something that has been a problem for a lot of the multinationals that do business in China.”

Perma bear.

• Stockman: Trump’s Now ‘Blowing Kisses to Janet Yellen’

Stockman: Trump’s ‘Done Nothing in Nine Months’ and Is Now ‘Blowing Kisses to Janet Yellen’ (Fox Business, September 15, 2017)

EU, UN, US, nobody stands up for democracy. Revealing.

• Spain’s Prosecutor Warns Over Catalonia Referendum As Leaflets Seized (R.)

Spanish authorities on Sunday pursued efforts to block an independence vote in Catalonia, seizing campaign materials as the chief prosecutor said jailing the region’s top politician could not be ruled out. The government in the northeastern region is intent on holding a referendum on October 1 that will ask voters whether they support secession from Spain, a ballot Madrid has declared illegal. In a raid on a warehouse in the province of Barcelona on Sunday, police confiscated around 1.3 million leaflets and other campaign materials promoting the vote issued by the Catalan government. The haul was the largest in a series of similar raids, the Interior Ministry said in a statement.

Spanish prosecutors, who have ordered police to investigate any efforts to promote the plebiscite, said last week that officials engaged in any preparations for it could be charged with civil disobedience, abuse of office and misuse of public funds. More than 700 Catalan mayors gathered in Barcelona on Saturday to affirm their support for it. Asked if arresting regional government head Carles Puigdemont was an option if preparations continued, Spain’s chief public prosecutor said in an interview: ”We could consider it because the principal objective is to stop the referendum going ahead. “I won’t rule out completely the option of seeking jail terms… It could happen under certain circumstances,” Jose Manuel Maza was quoted as also telling Sunday’s edition of newspaper El Mundo.

Promising.

• After Single Payer Failed, Vermont Embarks On Big Health Care Experiment (WP)

Doug Greenwood lifted his shirt to let his doctor probe his belly, scarred from past surgeries, for tender spots. Searing abdominal pain had landed Greenwood in the emergency room a few weeks earlier, and he’d come for a follow-up visit to Cold Hollow Family Practice, a big red barnlike building perched on the edge of town. After the appointment was over and his blood was drawn, Greenwood stayed for an entirely different exam: of his life. Anne-Marie Lajoie, a nurse care coordinator, began to map out Greenwood’s financial resources, responsibilities, transportation options, food resources and social supports on a sheet of paper. A different picture began to emerge of the 58-year-old male patient recovering from diverticulitis: Greenwood had moved back home, without a car or steady work, to care for his mother, who suffered from dementia. He slept in a fishing shanty in the yard, with a baby monitor to keep tabs on his mother.

This more expansive checkup is part of a pioneering effort in this New England state to keep people healthy while simplifying the typical jumble of private and public insurers that pays for health care. The underlying premise is simple: Reward doctors and hospitals financially when patients are healthy, not just when they come in sick. It’s an idea that has been percolating through the health-care system in recent years, supported by the Affordable Care Act and changes to how Medicare pays for certain kinds of care, such as hip and knee replacements. But Vermont is setting an ambitious goal of taking its alternative payment model statewide and applying it to 70% of insured state residents by 2022 which — if it works — could eventually lead to fundamental changes in how Americans pay for health care.

“You make your margin off of keeping people healthier, instead of doing more operations. This drastically changes you, from wanting to do more of a certain kind of surgery to wanting to prevent them,” said Stephen Leffler, chief population health and quality officer of the University of Vermont Health Network. Making lump sum payments, instead of paying for each X-ray or checkup, changes the financial incentives for doctors. For example, spurring the state’s largest hospital system to invest in housing. Or creating more roles like Lajoie’s, focused on diagnosing problems with housing, transportation, food and other services that affect people’s well-being.

The Troika is in Athens to turn on the thumbscrews.

• Greek Government Told To Begin Online Auctions Or Face A Bank Bail-In (K.)

The possibility that banks will need for a fresh recapitalization grows with every day the delay in the implementation of online property transactions drags on. This might lead to a deposit haircut, along with generating a major crisis in relations between the government and the country’s creditors. Creditor representatives are accusing the government of delay tactics, for party political purposes, in starting electronic auctions. This puts the sustainability of the credit system at risk as it denies them a crucial tool in efforts to tackle the problem of nonperforming loans (NPLs).

The creditors have explicitly warned Athens about the prospect of a new recapitalization and the risk of a bail-in for banks and their depositors unless the auctions proceed quickly, as their representatives told notaries and banks in Greece during the presentations of the auctions’ online platform, according to the president of the Notaries’ Association, Giorgos Rouskas. The creditors reacted strongly when told that the first online auctions would not take place before early 2018 even though during the second bailout review Athens had committed to start the auctions on September 1. The government claimed the system is in place but the law provides for a period of two months between the submission of an auction request and its realization.

Seeing that the government is again trying to renege on its commitments, the creditors put fresh pressure on Athens, which backed down and said the system may open in the coming days for banks, so that the first online auctions can take place by end-November. In an interview with Kathimerini, Rouskas stressed that “the online platform is ready and all technical tests have been completed.” The onus is therefore on the banks now, which Rouskas explains have to register the repeat auctions or any new ones in the system, being the party initiating the auctions. They will then get a date based on the new system. “We have prepared the platform. It is now up to the lender, be that a bank or a private individual, to issue a request for an online auction scheduling, which notaries are forced to follow. This has not happened yet, but I believe we are very close to its implementation,” said Rouskas.

Why Greece will not recover. Money supply way down, money velocity way way down.

• In Greece, Full-Time Work Is Not The Norm It Once Was (K.)

Official data by the Hellenic Statistical Authority point to an increase in employment by about 250,000 jobs in the last three years (from the second quarter of 2014 to this year’s Q2), but that is only part of the truth. The figures also reveal a constant decline in average salaries, an ongoing increase in the percentage of employed workers who earn less than 500 euros a month – at least one in four gets less than that amount – soaring temporary work (either due to project-specific hirings, subsidies being paid for a restricted period, or time contracts), and a rise in the rate of part-time employment.

Senior and top officials are no longer offered such handsome pay packages, the primary sector is being abandoned and any new enterprises that are being set up are mostly in the field of restaurants, hotels and retail stores. Greeks can only find jobs such as waiters, cleaners, maids or sales assistants, which as a rule are of a seasonal character and fetch a low salary. The 40-hour working week concerns ever fewer workers nowadays, and without the subsidies handed out by the Manpower Organization (OAED) and the increase in tourism flows the unemployment rate probably wouldn’t have declined at all.

The season is far from over.

• Hurricane Maria Heading For Caribbean (AFP)

Maria became a hurricane Sunday as it headed toward the storm-staggered eastern Caribbean with 75 mile (120 kilometer) per hour winds, the US National Hurricane Center said. Storm warnings and watches went up in many of the Caribbean islands still reeling from the destructive passage of Hurricane Irma earlier this month. As of 2100 GMT, Maria was a Category One hurricane, the lowest on the five point Saffir-Simpson scale, located 140 miles (225 kilometers) northeast of Barbados, the NHC said, bearing west-northwest at 15 miles (24 kilometers) an hour. “On the forecast track, the center of Maria will move across the Leeward Islands Monday night and then over the extreme northeastern Caribbean Sea on Tuesday,” it said.

Hurricane warnings were triggered for St Kitts, Nevis and Montserrat, while lesser ‘watches’ were issued for the US and British Virgin Islands where at least nine people were killed during Irma. A warning is typically issued 36 hours before the first occurrence of tropical storm-force winds while watches are issued 48 hours in advance. Tropical storm warnings were, meanwhile, issued for Martinique, Antigua and Barbuda, Saba and St Eustatius and St Lucia. Barbuda was decimated by Hurricane Irma September 5-6 when it made its first landfall in the Caribbean as a top intensity Category Five storm. The NHC said Maria could produce a “dangerous storm surge accompanied by large and destructive waves” that will raise water levels by four to six feet (1.2 to 1.8 meters) when it passes through the Leeward Islands.

Debt Rattle September 17 2017

Sep 172017

September 17, 2017 Posted by Raúl Ilargi Meijer at 9:11 am Finance Tagged with: austerity, bitcoin, firesale, Greece, hurricane, monopoly, Paris, pension, Seneca, trade war 1 Response »

Edward Hopper House tops 1921

• Trade War With China Will End US Global Finance Monopoly – Jim Rogers (RT)

• Pension Storm Warning (Mauldin)

• S&P On The Verge Of History (ZH)

• How Austerity Works (Steve Keen)

• Why Bitcoin May Be Worth Only A Third Of Its Value (MW)

• How Common is the Seneca Curve? (Ugo Bardi)

• Greek Debt Write-Offs To Be Based On Properties (K.)

• The Eurozone May Be Back On Its Feet. But Is Greece? (G.)

• Chinese Capital Bans Winter Construction To Improve Air Quality (R.)

• White House Denies EU Claim That It’s Shifting on Climate Deal (BBG)

“It will force the rest of the world to find an alternative to the US financial system.” They haven’t found one yet.

• Trade War With China Will End US Global Finance Monopoly – Jim Rogers (RT)

RT : What is the likelihood that the US will go through with and actually impose economic sanctions on China if it does not implement the new sanctions regime against North Korea? Jim Rogers : Sanctions are sanctions. They could do sanctions which are not very important or don’t do much damage. And then they will have good public relations which says they have sanctions, but it is meaningless. I would suspect if anything, that is what they will start with. If they put sanctions on China in a big way, it brings the whole world economy down. And in the end, it hurts America more than it hurts China because it just forces China and Russia and other countries closer together. Russia and China and other countries are already trying to come up with a new financial system. If America puts sanctions on them, they would have to do it that much faster and in the end America will lose its monopoly on the financial system, which will hurt America more than anybody.

RT : What do you think, is it an empty rhetoric and saber-rattling from Donald Trump because he said “those [UN] sanctions are nothing compared to what ultimately will have to happen” without specifying what he meant by that. Do you think this is just mere bluff on the part of the US, or would it really use the ‘nuclear option’? JR : If it uses a nuclear option for sanctions, it will hurt America much more than will hurt North Korea, it will hurt America much more than it will hurt China, Russia and everybody else. It will force the rest of the world to find an alternative to the US financial system. If he does that, it is going to cause a lot of turmoil in the world financial economy and in the end it is going to hurt America more than it is going to hurt anybody else. I would give you an example, if you look at Russian agriculture right now – America put sanctions on Russian agriculture trying to hurt Russia, but it has helped Russian agriculture. Russian agriculture is booming now. In the end, America has hurt itself more than it has hurt anybody else.

RT : If that happens, what would the consequences be for the global economy? Could this end up becoming a global economic crisis? JR : We are probably going to have a global economic problem, maybe even crisis, in the next couple of years. This may be one of the things that start it. There is always something which starts a crisis. If America does something like this, this could be the thing that did it. In 1929, it started when America started a huge trade war with the rest of the world and the economists said, “please, this is a mistake,” but America did that anyway. And then we had a great collapse and The Great Depression of the 1930s.

Pensions and hurricanes: lies and bad preparation.

• Pension Storm Warning (Mauldin)

Total unfunded liabilities in state and local pensions have roughly quintupled in the last decade. You read that right – not doubled, tripled or quadrupled: quintupled. That’s nice when it happens on a slot machine, not so nice when it’s money you owe. The graph [shows] that unfunded pension liabilities for state and local governments was $2 trillion. But that assumes an average 7% compound return. What if we assume 4% compound returns? Now the admitted unfunded pension liability is $4 trillion. But what if we have a recession and the stock market goes down by the past average of more than 40%? Now you have an unfunded liability in the range of $7–8 trillion.We throw the words a trillion dollars around, not realizing how much that actually is. Combined state and local revenues for the US total around $2.6 trillion.

Following the next recession (whenever that is), the unfunded pension liabilities for state and local governments will be roughly three times the revenue they are collecting today, and that’s before a recession reduces their revenues. Can you see the taxpayer stuck between a rock and a hard place? Two immovable objects meeting? The math just doesn’t work. Pension trustees don’t face personal liability. They’re literally playing with someone else’s money. Some try very hard to be realistic and cautious. Others don’t. But even the most diligent can’t control when the next recession comes, or when the stock market will crash, leaving a gaping hole in their assets while liabilities keep right on rising. I have had meetings with trustees of various government pensions.

Many of them want to assume a more realistic discount rate, but the politicians in their state literally refuse to allow them to assume a reasonable discount rate, because owning up to reality would require them to increase their current pension funding dramatically. So they kick the can down the road. Intentionally or not, state and local officials all over the US made pension promises that future officials can’t possibly keep. Many will be out of office when the bill comes due, protected from liability by sovereign immunity. We are starting to see cities filing for bankruptcy. That small ripple will be a tsunami within 7–10 years.

“..a market rally that goes deep into 2019..”

• S&P On The Verge Of History (ZH)

U.S. stocks have risen more in the past eight years than in almost any other post-World War II time of economic growth, as defined by the National Bureau of Economic Research. The logic here is that economic expansions fuel bull markets and so it’s reasonable to measure market recoveries after a period of macro contraction ends. Using that definition, let’s review how the S&P 500 has performed during the last ten economic recoveries. To be precise, the birth of the stock market’s bull market is dated as the first day after an NBER-defined recession has ended. The market run continues through the peak. The S&P 500 Index jumped 172% from July 2009, when the current expansion started, through Wednesday. The biggest advance was about 300% and occurred from April 1991 to March 2001, when Internet-related stocks soared.

As Capital Speculator blog’s James Picerno notes, the question before the house: Will the momentum of late endure long enough to overtake the 1991-2001 record in duration and/or magnitude? If so, the bull market in the here and now has to last another 463 trading days, which translates into a market rally that goes deep into 2019. There’s just one thing wrong… Remember – the ‘market’ is not the ‘economy’… or maybe it is in the new normal?

It really is this simple.

• How Austerity Works (Steve Keen)

I provide a simple numerical explanation of how austerity works at the micro (individual person, industrial sector, or country) and the macro level (country, or group of countries in a currency union).

A thousand different views. At least this one took some homework.

• Why Bitcoin May Be Worth Only A Third Of Its Value (MW)

Dan Davies, senior research adviser at Frontline Analysts, argued there’s no point in attempting to value bitcoin as if it were just another type of security. “It’s not a security with some intrinsic value, rather it’s a currency that in the long term is governed by an exchange rate driven by trade or volume of transactions,” Davies said. The fact that a significant proportion of bitcoins is hoarded or held for investment doesn’t disqualify it from being a currency, according to Davies. But the BTC/USD BTCUSD, -3.37% exchange rate is entirely determined by speculative portfolio capital flows right now, he said, leaving it difficult to assign fair value. Viewing bitcoin as a currency makes it possible, at least in theory, to come up with a long-term exchange rate by using the quantity theory of money.

The formula is: MV = PT, where money supply multiplied by its velocity equals the price level multiplied by the transaction volume. Since both price and transaction volume is expressed in U.S. dollars, the price of bitcoin would be 1/BTCUSD, Davies said. In this case, bitcoin’s supply is fixed at 21 million and money velocity for normal currencies is usually at around 10, according to Davies. So, the long-term fundamental value of bitcoin equals the long-term value of transactions that will be carried out in bitcoin divided by 210 million (21 million bitcoins multiplied by velocity). The hardest value to plug into this formula is the transaction volume. If, for example, bitcoin was used primarily for global trade in illicit drugs, the figure would be around $120 billion, which is an estimate the U.N. used in 2014.

“I used that number a few years ago, but we would have to come up with a different estimate, as bitcoin is clearly used for things other than illicit drugs now,” Davies said. Davies declined to offer an updated number, saying he needed to do more research. But doubling that transaction volume number to $240 billion, for example, and dividing by 210 million produces a value of $1,142, around a third of the current exchange rate of $3,569. That isn’t far from an estimate that Mohamed El-Erian, chief economic adviser at Allianz Global Investors, recently suggested as a fair value for bitcoin. In an interview with CNBC, El-Erian said the fair price should be about half or a third of what it is now. El-Erian argued the currency will only survive as a peer-to-peer means of payment and governments won’t allow mass adoption.

It’s universal.

• How Common is the Seneca Curve? (Ugo Bardi)

My talk at the Summer Academy of the Club of Rome was mainly a presentation of my latest book, “The Seneca Effect” (Springer 2017). In practice, of course, a book contains many more things than you can say in a 40 minute speech. So, I tried to concentrate on the idea that the behavior I call “the Seneca Curve” is very common, even universal. Below, you can see the Seneca Curve: things go up slowly but collapse rapidly, as the Roman philosopher Seneca said first some two thousand years ago. You may have heard the old Latin motto, “Natura non facit saltus” (Nature doesn’t make jumps) meaning that things change gradually, not abruptly. It may be true in many circumstances but, in practice, it is wholly normal that Nature accumulates energy potentials (as when you inflate a balloon) and then releases them all of a sudden (as when you puncture a balloon).

There are reasons why Nature behaves in this way, but the point I made at the school was not so much about why the curve is so common but how human beings are not normally aware of it. In fact, our thought is often shaped by the idea that things will continue evolving the way they have been evolving up to a certain point. Just think about economic growth, and you’ll notice how economists expect it to continue forever. It goes without saying that the economy is one of those complex systems which are most vulnerable to the Seneca collapse. So, I tried to stress that the understanding that the Seneca Curve exists and it is common is a recent discovery. Even though Seneca had understood it by intuition already almost 2000 years ago, in its modern form it is less than a century old. It was proposed for the first time by Jay Forrester in the 1960s and it was enshrined in “The Limits to Growth” study of 1972, even though the term “Seneca Effect” was not used.

During my talk, I showed this image to evidence how our ideas on the path that complex systems follow evolved over time. You see how modern the idea of “overshoot” (and the subsequent collapse) is. Malthus just didn’t have it. Despite being often accused of catastrophism, he couldn’t envisage societal collapse; he lacked the necessary intellectual tools. He was an optimist! Today, we have this concept. We know that complex systems tend not just to decline, they tend to collapse. But this perception is totally missing in the general debate. When you mention societal collapse, there are two possible reactions. The most common one is that such a thing will never happen.

Then, if you manage to convince people that it is possible, they endeavor to do everything they can to keep the system going; whatever it takes. They don’t realize that when you exceed the carrying capacity of the system, you have to come back, one way or another. And the more you try to stay above the limit, the faster and the harsher the return will be. What you have to do is to ease the collapse, follow it, not try to stop it. Otherwise, it will be worse.

Is that corruption I smell?

• Greek Debt Write-Offs To Be Based On Properties (K.)

Only business owners with no real estate properties will qualify for a partial write-off of corporate debts in the context of the extrajudicial settlement mechanism. This criterion excludes the owner’s main residence and the production properties, i.e. the professional properties used for the entrepreneurial activity. That was the decision that the technical experts of the country’s creditors are said to have reached with representatives of Greek banks and the Independent Authority for Public Revenue, while there was also convergence on setting the criteria for debt settlement for companies owing between €20,000 and €50,000. In this latter category of debtors, which mostly comprise small enterprises, a standardized procedure will be adopted for assessing repayment capacity and the determination of the amount that the debtor will have to pay on a regular basis.

The Greece firesale will never come anywhere near the €60 billion, but everyone keeps mentioning the number. Their entire railway system went for €45 million. Selling off an entire country is a very bad idea. Europe will find out, but too late.

• The Eurozone May Be Back On Its Feet. But Is Greece? (G.)

“It is obvious. Our policies have changed radically, ” says Stergios Pitsiorlas, the deputy economy and development minister, whose airy office is visited daily by bankers, hedge-fund managers and industrialists jockeying for bargains. “Being leftwing doesn’t mean you are also a fool. It doesn’t mean, in the words of Lenin, that we are useful idiots. Let’s speak seriously. Those who complain that Greece is being sold off, that Greece will lose out, don’t know what they are talking about.” Tall, bearded and bespectacled, Pitsiorlas is the point man in Athens’s attempt to raise €60bn (£53bn) through privatisations – sales that, increasingly, have become the focus of international creditors keeping the debt-stricken country afloat. In what has been called the most ambitious sell-off in modern European history, assets ranging from public utilities and transport companies to marinas and hotels are up for grabs.

[..] Privatisations are central to completion of a new round of bailout negotiations with the EU and IMF. Greece’s third, €86bn, rescue programme is due to end next summer and Tsipras has made a clean exit from it, which would herald Athens’s return to the markets, an overarching goal. But hurdles lie ahead. On Friday, eurozone finance ministers warned that continued persecution of the country’s former statistics chief, Andreas Georgiou, could dent international confidence and derail chances of recovery. Officials also raised the prospect of fresh austerity should Greece fail to hit the primary surplus target of 3.5% – a prospect made likely by a huge shortfall in tax revenues. But in a week when the Italians finally took control of Greece’s state-owned train network (acquired by Italy’s own state operator for a paltry €45m) Pitsiorlas is optimistic.

He cites the takeover of Piraeus port by the Chinese shipping conglomerate Cosco as an example of what privatisations can bring: “They will make it the biggest port in Europe and that will boost other professions, create thousands of jobs, revitalise shipyards, which they are also looking at, pave the way to better trains, roads and logistic centres, and trigger development and growth.” In five years, he enthuses, Greece will be a very different place, cosmopolitan and vibrant. “There are rules which need to be observed but ultimately everything will be solved,” he insisted, referring to the obstacles Eldorado and others have encountered. “A miracle will happen. There will be huge change … but the state can’t do it alone, the private sector has to be involved.”

What happens to the bricklayers et al?

• Chinese Capital Bans Winter Construction To Improve Air Quality (R.)

Beijing will suspend construction of major public projects in the city this winter in an effort to improve the capital’s notorious air quality, official media said on Sunday, citing the municipal commission of housing and urban-rural development. All construction of road and water projects, as well as demolition of housing, will be banned from Nov. 15 to March 15 within the city’s six major districts and surrounding suburbs, said the Xinhua report. The period spans the four months when heating is supplied to the city’s housing and other buildings. China is in the fourth year of a “war on pollution” designed to reverse the damage done by decades of untrammelled economic growth and allay concerns that hazardous smog and widespread water and soil contamination are causing hundreds of thousands of early deaths every year.

Beijing has promised to impose tough industrial and traffic curbs across the north of the country this winter in a bid to meet key smog targets. In the capital, it is aiming to reduce airborne particles known as PM2.5 by more than a quarter from their 2012 levels and bring average concentrations down to 60 micrograms per cubic metre. Last year the city experienced near record-high smog in January and February, which the government blamed on “unfavourable weather conditions” Some ‘major livelihood projects’ such as railways, airports and affordable housing may be continued however, providing they are approved by the commission, said the report.

Paris is an empty deal.

• White House Denies EU Claim That It’s Shifting on Climate Deal (BBG)

The European Union said President Donald Trump’s administration is shifting its approach to a landmark global agreement on climate change, an assertion which was quickly denied by the White House. The U.S. signaled that it’s no longer seeking to withdraw from the pact and then renegotiate it, but rather wants to re-engage with the Paris Agreement from within, said EU’s climate chief Miguel Arias Canete. He spoke in an interview from Montreal, where the U.S., China, Canada and almost 30 other countries gathered to discuss the most-sweeping accord to date to protect the environment. “Our position on the Paris agreement has not changed. @POTUS has been clear, US withdrawing unless we get pro-America terms,” White House Press Secretary Sarah Huckabee Sanders said on Twitter.

Announcing plans to quit the pact, Trump said in June that the agreement favored other countries at the expense of U.S. workers and amounted to a “massive redistribution” of U.S. wealth. Trump’s administration last month began the formal process of exiting from the climate accord, drawing fire from allies and foes alike. EU climate commissioner Canete made the comments about a change of stance after meeting with Everett Eissenstat, deputy director of the National Economic Council and deputy assistant to the president for international economic affairs. “Now we don’t see the messages that they are withdrawing from the Paris agreement radically,” Canete said, adding that the countries at Saturday’s meeting agreed not to seek a re-negotiation of the Paris deal.