Iran (or Persian culture in general) has fascinated me ever since I read Marjane Satrapi’s Persepolis and Women, life and Freedom a couple of years ago. I am far from being an expert on the region, but I believe it remains one of the most heavily stereotyped countries in the world. It is deeply unsettling to watch Western commentators, including those from progressive circles, constantly weaponize women's rights to justify military intervention or the bombing of the innocent populations they claim to liberate. Iran is indeed a brutal, authoritarian regime, but I just want the readers to not lose sight of the fact that wars have a devastating human cost historically imposed on ordinary people.

But this is an economics blog, and we cannot simply ignore the physical supply chains or the rippling economic effects such a conflict triggers. Everyone is obsessed with oil, rightly so, given the region’s pivotal role in global energy security. But as I dug into the data this week for this report, I kept finding second and third-order effects that the broader markets have yet to fully price in. So, let’s dive in one by one.

This is a comprehensive piece of analysis, so feel free to use the index below to navigate straight to the topics that interest you.

1. The Overall Market Reaction

2. Logistics, Maritime Insurance, and Shipping

3. The Agricultural Commodities Risk

4. LNG and Energy Security

5. Petrochemical Exposure

6. Helium Supply and Semiconductor Vulnerability

7. Structural Shifts in the Gulf's Sovereign Wealth Fund Model

8. What Markets Are Pricing

9. Impact on Emerging Markets

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Overall Market Reaction

With the US-Israel war on Iran rapidly escalating over the past week, drawing in multiple regional actors, the conflict has evolved into a major systemic risk to the global economy if sustained. As Mohamed El-Erian noted, market dynamics are decisively shifting away from predictable “mean reversion” toward highly volatile “chain reactions” and “multiple equilibria.”

I also share the sentiment of Bloomberg's Joe Weisenthal, who recently pointed out that from a macro perspective, there are distinct shades of 2008 right now. While this does not necessarily mean we are on the immediate doorstep of a global financial crisis, the structural pressures facing the economy are increasing from every direction. Oil rising higher, disappointing reports from the labour markets (especially youth unemployment), AI job displacement fears, a looming crisis in the private credit sector, an increasingly chaotic geopolitical landscape led by the most eccentric leaders of our times. All of this makes the underlying fragility of the current system impossible to ignore.

This fragility was clearly visible in global markets last week as equities across all regions took a beating. The Euro Stoxx 50 took a brutal 6.8% hit, the Nikkei dropped 5.5%, and the S&P 500 was down 2.0%. But the most intense volatility impacted Asia. South Korean indices, for example, suffered their steepest fall in history amid the increasing instability, as investors are pricing in their localized exposure (South Korea’s economy depends heavily on foreign oil and gas, importing roughly 98 percent of its fossil fuel needs from overseas) to the war.

The true focal point of the past week’s panic was the energy market. Oil prices surged violently, with Brent Crude recording its the largest weekly increase on record (up 27.9%), while WTI saw a historic 35.6% spike. Natural gas was also up by over 11%. These are not typical movements. Notably, this rally did not subside as the week progressed, signaling that markets are no longer just pricing in a standard geopolitical “war premium.” It clearly reflects a realization that any disruptions to actual physical energy infrastructure and cross-border supply chains will have severe ripple effects. As we will explore later in the newsletter, this shock will trigger profound second-order consequences across multiple sectors of the economy.

Among all the headlines regarding Iran’s retaliatory attacks on regional oil infrastructure, the one that caught my attention came on Saturday from Kuwait. They announced physical cuts to their production and refinery output strictly due to shipping disruptions in the Strait of Hormuz, with similar distress signals now emerging from Iraq (already announced supply cuts but signalled more to come), Qatar, Saudi Arabia and the UAE. All of this clearly indicates that the disruption has already moved beyond Iran and spilled over into the broader Mideast Gulf production complex.

It is really hard to predict, but the overall oil trajectory depends on how long the regional producers are forced to continually shut in production simply because tankers cannot safely load or transit. And the eventual restart of these production facilities will not be quick or smooth either. However, if the disruption persists for weeks, the rippling effects, especially on emerging economies which It is perhaps the one of the most are most likely dependent on oil imports for their needs are terrifying to think about.

Logistics, Maritime Insurance, and Shipping

As you can see from the video below, the shipping traffic through the Strait of Hormuz is effectively hampered right now. Although Iran’s physical blockade of Hormuz contributes a bit to this, what isn't spoken about much is the maritime insurance companies' refusal to actually insure the vessels sailing through it. Insurers have essentially cancelled or aggressively repriced their war risk coverage, and as a result, very few vessels are willing to risk sailing through the strait.

To give you readers some background, every commercial vessel transiting a designated war zone has to carry specific “war risk” insurance on top of its standard hull and cargo coverage. In normal times, this premium is basically a negligible (roughly 0.05% to 0.1% of the ship’s insured value per voyage). However, when the Joint War Committee in London officially updates its high-risk areas (which they did a few days ago adding several gulf regions to the list), those premiums violently reprice. We are currently seeing war risk premiums on Hormuz transits spike to 20 to 30 times their normal baseline. Transits through Hormuz are now being quoted between 1.5% to 3% of the hull’s value, levels not seen since the Tanker Wars of the 1980s.

To put this in perspective, for a standard $100 million VLCC supertanker, a 3% premium translates to an immediate $3 million surcharge per voyage. A surcharge that did not exist a few days ago.

But that insurance premium is only the first layer of the shock; the second is the physical distortion of the global shipping fleet. As risk-averse operators refuse to enter the Gulf, they are forced to reroute vessels around the Cape of Good Hope. That massive delay adds 10 to 15 days to a typical European cruise and 7 to 10 days for Asia-linked routes. Because every vessel is likely stuck at sea longer now, the available supply of tankers worldwide mechanically shrinks, driving spot freight rates higher across the entire market, not just on Gulf routes.

You can see this panic perfectly captured in the Baltic Dirty Tanker Index (BDTI) above. The physical shipping market is pricing in this disruption aggressively. For example, the cost to charter a VLCC (stands for Very Large Crude Carrier, basically a type of large tanker ship designed for the transportation of crude oil) supertanker from the Gulf to China rose significantly, hitting an astonishing $423,736 per day — a 94% surge in a single weekend that easily overtakes the 2020 Covid-era floating storage boom.

And this contagion is spreading beyond Gulf as the cost of shipping oil from West Africa to China (measured by Baltic's West Africa-to-China VLCC index) jumped 40% over the weekend.

The Agricultural Commodities Risk

But why is everyone so hyped about the Strait of Hormuz. The answer usually starts with oil. But that is only half the story. The Strait is obviously a critical chokepoint for global energy, but the Gulf is also a massive powerhouse for agricultural commodities. Between a quarter and a third of the global trade in raw materials for fertilizer passes through the Strait.

As you can see in the chart below, while roughly 20-25% of global oil and LNG flows through Hormuz, the exposure for critical crop nutrients is actually much higher. A staggering 44% of global sulfur exports and 31% of urea, 18% of ammonia, and 15% of processed phosphates all transit this single waterway.

This closure of the Strait is currently paralyzing the transport of several indispensable agricultural inputs, mainly ammonia and nitrogen, which are key ingredients in many synthetic fertilizer products:

• Urea: Urea is the world’s most widely used chemical fertilizer. It is highly exposed to this blockade as nearly 31% of global urea exports transit through this critical waterway. A long-lasting disruption will squeeze global supplies, creating an acute pricing shock for major agricultural hubs like Europe — which relies heavily on these Middle Eastern and North African imports. Even India imports about 30% of its fertilizer requirement, with the Middle East supplying nearly 40% of it.

• Sulfur: It is an important fertilizer as well as a key input in the production of phosphate fertilizers. Around 44% of global sulfur exports come from countries west of the Strait and transverse the Strait of Hormuz.

• Phosphates: Saudi Arabia is a top-four global exporter of phosphates and the leading supplier to the US. The timing of this Hormuz blockade is also brutal because China has already restricted its own phosphate exports until August to protect its domestic supply. This bottleneck effectively leaves global buyers heavily dependent on just two alternative major producers: Russia and Morocco.

The futures market is already aggressively pricing in this exact chain reaction. As the chart below illustrates, European natural gas (TTF) and Middle East urea futures violently increased by a significant margin following the US-Israel strike on Iran, Wheat futures are lagging slightly (up 16%), but they are beginning to catch a bid.

What makes this agricultural shock so dangerous is the complete lack of a safety net. While the global oil market has massive buffers like the US Strategic Petroleum Reserve (SPR) to offset sudden supply disruptions, the nitrogen fertilizer market has absolutely no equivalent stockpile. Because fertilizers make up a significant portion of a farmer’s production costs, any sudden price increase puts immediate pressure on their business. For instance, if fertilizer becomes too expensive, farmers will simply apply less of it to protect their margins. This inevitably translates into lower crop yields, creating structural food shortages that push up food inflation across the board.

The countries most vulnerable to this specific shock are those running massive structural deficits. Brazil, for instance, imports over 90% of its urea needs, 80% of its phosphate fertilizers, more than 80% of its nitrogen fertilizers, and more than 90% of its potassium fertilizers. This could have massive fiscal, economic and stagflationary ripple effects around the world.

LNG and Energy Security

Another area of critical Gulf exposure is natural gas. Natural gas is a dominant source of electricity generation globally and in some regions, it is the largest single source. Roughly 20% of the world’s liquefied natural gas (LNG) makes its way through the Strait of Hormuz. Qatar is the world’s second biggest liquefied natural gas supplier and the Iranian drone attacks have forced the country to completely halt its production.

This surely has wider implications especially for Europe and Asian markets. Although Europe only sources about 10% of its LNG directly from Qatar, the continent is exceptionally vulnerable to this disruption. After the Ukraine war, European nations actively pivoted away from Russian pipeline gas, relying almost entirely on seaborne LNG imports to keep their grids running. With no pipeline buffer left to absorb the shock, any geopolitical threat to maritime trade instantly triggers a massive repricing of European energy security.

You can see the market’s panic vividly in the futures chart below: European wholesale gas futures (TTF) broke out of their recent consolidation, rising almost vertically to $16.7 per MMBtu as traders are aggressively pricing in the supply squeeze.

This price (and supply) shock hits at the worst possible time. Europe’s natural gas inventories were already sitting at multi-year lows. Across the bloc, European gas reserves are currently less than 30% full, which is way below the historical early-March average of 54%. The Iran war, therefore, exacerbates Europe’s energy crisis and threatens renewed inflationary exposure. If the war persists for weeks, European governments will likely be forced to pivot back to alternative baseloads, primarily by reactivating dormant coal-fired power plants or leaning heavily on France’s nuclear fleet. (although that itself seems to face uncertainty amid a uranium supply crunch).

LNG exposure is structurally more acute for certain Asian economies. Industrial countries like Japan and South Korea possess virtually no domestic energy resources and lack any international pipeline connections. As a result, they rely entirely on seaborne LNG shipments to meet their domestic demand. To put that reliance into perspective: Japan imports roughly 97% of its natural gas, and South Korea imports close to 100%. As the same chart above shows, the futures market is aggressively pricing in this exact vulnerability, with the Asian JKM benchmark also rising vertically to $14.8 per MMBtu.

It is worth noting that both Japan and South Korea actually import less than 20% of their total LNG directly through the Strait of Hormuz. But the point is that a structural supply bottleneck in the Middle East instantly raises prices across the board. This is already triggering a bidding war between European and Asian economies. Resource-starved Asian buyers are aggressively outbidding Europe for “flexible-destination cargoes”, which are willingly absorbing the soaring LNG freight rates and the much longer transit times to reach Asia. Just the past week, three different LNG tankers (two from US and one from Nigeria) abruptly pivoted toward Asia after initially signalling they were heading to European ports.

Petrochemical Exposure

Apart from energy and fertilizer, the Middle East is also a central hub for the world’s base plastics and the intermediate chemicals that feed global manufacturing. The scale of the exposure is equally massive. As the chart below illustrates, the Gulf’s share of global seaborne trade for base chemicals like methanol (31.6%) actually surpasses its share of crude oil exports. Furthermore, the region is the world's largest exporter of polyethylene, accounting for a staggering 43% of all global exports (18.7 million tons). It also ships millions of tonnes of other core polymers like polypropylene and monoethylene glycol (MEG).

The chart also highlights heavy exposure in Natural Gas Liquids (23.3%) and the combined streams of Dirty and Clean Petroleum Products. These are the fundamental feedstocks required to produce everything from structural plastics and synthetic fibers to pharmaceuticals, paints, and adhesives. Because these inputs sit two or three steps upstream from finished consumer goods, the resulting price shock may not be visible instantly. But if the war and Hormuz blockade persists for weeks, the price impact could be transmitted broadly across the entire manufacturing sector, especially for the Asian and European factories that rely on these feedstocks to manufacture everyday consumer goods.

For instance, just days into the conflict, South Korea’s Yeocheon NCC — the country’s largest single ethylene producer was forced to declare supply force majeure (which in layman’s terms means formally stating they cannot deliver promised goods due to an uncontrollable crisis). This is not unique to South Korea. Petrochemical companies in Indonesia, Singapore, and elsewhere are already declaring ‘supply force majeure’ as naphtha supplies are blocked.

Helium Supply & Semiconductor Vulnerability

Another critical element in question is helium. This wasn't entirely on my radar when I first started outlining this report, but I am thankful to Ayesha Tariq, CFA whose wonderful macro newsletter brought this perspective to my attention and prompted me to dive deeper.

See, Helium production itself is a mess. It cannot be manufactured artificially, nor can it be commercially extracted from the atmosphere. It has to be produced by the slow radioactive decay of elements deep within the Earth's crust, only releasing when tectonic forces fracture the rock. Commercially, the vast majority of helium is captured as a low-grade byproduct of natural gas production, usually found in trace concentrations of just 0.04% to 0.35%. Because it is merely a byproduct, producers cannot simply ramp up output when demand rises. This makes the global helium supply perfectly inelastic, meaning any sudden disruption guarantees structural upward pressure on prices. The world has already been in an acute helium supply shortage since 2006.

Qatar accounts for approximately 30% of the world’s helium supply, all of it extracted as a byproduct of LNG liquefaction at the Ras Laffan facility. Qatar is also home to one of only two plants on Earth that produce “semiconductor-grade helium”, which is ionized and used to etch silicon wafers. The escalating war has officially taken this massive (almost one third) supply off the market. QatarEnergy has completely halted production at Ras Laffan, declared force majeure, and stated they will not restart until the conflict entirely ends.

If the Ras Laffan plant is unable to export for much more than two weeks, distribution firms will be forced to radically rework their logistics and contracts, and even relocate equipment and personnel to cope with the loss of Qatari supply. So even if the conflict ends tomorrow, the transition back to normalcy won't be smooth. Unwinding those emergency supply chains could take months, as per the industry experts.

But why does this obscure gas matter to us?

While helium is a vital resource across the technology, science, medical MRIs, quantum computing, aerospace engineering, and manufacturing industries, its immediate vulnerability is in semiconductor and fiber optics industry. The semiconductor industry accounts for roughly 24% of global helium demand. As a cryogenic liquid, it cools superconducting magnets in spectrometers, cryostats, and imaging devices, creating stable vacuum environments and preventing overheating at the high temperatures required to etch transistor patterns.

As you can see in the supply and demand breakdowns below, the market is highly concentrated. Helium demand is heavily concentrated in the North Pacrim region (33%), which is exactly where semiconductor giants like TSMC and SK Hynix operate, while global supply is heavily reliant on the Qatar/MidE region (35%). South Korean lawmakers have already sounded the alarm, noting the exposure of firms like SK Hynix and TSMC to a prolonged supply squeeze.

As chipmakers advance to the smaller, next-generation nodes required to power the global AI boom, their reliance on helium actually increases until viable scalable substitutes are developed.

Structural Shifts in Gulf’s Sovereign Wealth Fund Model

This is a bit gradual, yet profound structural shift that the Iran War would likely accelerate in the near future. And I believe the broader market has not priced it in yet. The Gulf Cooperation Council’s sovereign wealth funds collectively manage nearly $6 trillion in assets, representing roughly 40% of the global SWF total. For decades, these colossal pools of capital recycled their oil and gas revenues into Western markets — initially in US Treasuries, but also in real estate, private equity, global banking, and critical technology infrastructure over time. And of course, global sports franchises and AI data centres more recently. GCC funds have been the backbone of the Western capital markets for years now.

But they weren’t doing this out of charity, as it was the operating logic of the petrodollar system, and it kinda worked remarkably well for both sides for fifty years.

It was a straightforward and reinforcing arrangement. The United States would provide military protection and security guarantees to Gulf producers from regional threats. In return, Gulf states would price oil exclusively in US dollars and recycle the resulting surplus revenues back into US financial assets. Since every country that wanted to buy oil had to first acquire dollars, the dollar enjoyed a form of perennial global demand regardless of their fiscal condition. They were able to run massive, persistent fiscal deficits without the currency collapse that would usually follow.

But this entire model rests on the assumption of regional stability, which is now rapidly evaporating. A prolonged conflict and potential disruptions in the Strait of Hormuz threatens the Gulf’s core oil and gas revenues at the exact moment the war is creating significant fiscal demands such as defence spending, air defence procurement, critical infrastructure protection, and securing vulnerable supply chains for basic necessities like food and water.

This has immediate consequences for global capital markets. If Gulf countries are forced to raise cash quickly to meet the existential demands of a broader regional war, they will pull liquidity from U.S. Treasuries and listed public equities, as these represent the most accessible and liquid sources of capital. They could also consider tapping into international debt markets to cover the shortfall, but an escalating regional conflict severely spikes their risk premiums and drives up the cost of borrowing.

We actually have a historical blueprint for this exact scenario. During the 1990 Iraqi invasion, Kuwait was forced to draw down roughly $17 billion from the Kuwait Investment Authority (which is also the world’s first sovereign wealth fund). As their domestic state assets were frozen due to the invasion, they rapidly liquidated their foreign assets to finance the country’s liberation, support citizens at home and abroad, and cover the operating expenses of its government-in-exile.

And when it comes to private capital markets, an immediate fire sale is less likely due to the highly illiquid nature of these assets. However, as the Iran conflict drags on, analysts are expecting a pullback in new capital deployments. The scale of the Gulf’s penetration in global private markets cannot be overstated. These funds have moved far beyond acting as passive Limited Partners (LPs) and are now actively acquiring General Partner (GP) stakes, effectively buying direct ownership shares in the world’s leading management firms to deepen their market exposure. If regional security forces these funds to redirect capital inward, Western asset managers will lose their largest anchor investors and a source of long-term capital they have increasingly come to rely upon.

Taking a step back, this whole situation forces us to look at the foundation of the petrodollar system itself. The current escalation with Iran is showing that Western security guarantees might not fully keep them safe from regional chaos. If the US cannot guarantee absolute protection, these monarchies could naturally begin to rethink their side of the bargain. In truth, the groundwork for this shift is already visible. Saudi Arabia and the UAE’s recent entry into BRICS, their participation in non-dollar digital clearing systems like Project mBridge, and their growing openness to pricing oil in the yuan or their relationship with China in general — are some of the signs of this gradual shift.

This brings up a major structural problem for the bond market. If the Gulf significantly scales back its U.S. debt purchases to fund its own survival, and China keeps dumping its Treasury holdings at the same time, who is actually left to finance US deficits in the long run? This projected scenario may seem far-fetched today, but I want to nudge you to think about these structural shifts.

What Markets Are Pricing

When you look across asset classes right now, you do not see a unified consensus on the economic consequences of geopolitical fallout in the Gulf. But we can consider some indicators to get a rough picture. On one side, the equity and bond markets are confidently pricing in a sharp, contained, and entirely temporary shock. On the other side, the physical commodity and oil options markets are bracing for a severe, structural regime change.

The bond market is “currently” flashing a brief, stagflationary warning. Look at the US Treasury yield curve chart: over the past month, the short end (1 to 2 years) has jumped significantly as traders price in an immediate burst of supply-chain inflation due to the geopolitical fallout, while the long end (10Y to 20Y) remains heavily anchored. This indicates that the bond market is pricing in an immediate supply-chain shock, but believes the broader economy will absorb it without permanently derailing long-term economic growth.

Conversely, this can also be seen as the continued erasure of the US Treasuries as a safe haven asset. In a typical geopolitical crisis, capital floods into government bonds, driving yields down across the board. But today, because the market's primary fear is an oil-driven inflation spike rather than just military escalation, bonds are selling off instead of catching a bid. You can see this safe-haven failure playing out in real-time through the actions of institutional players. PIMCO, for example, is actively stockpiling cash equivalents to navigate the uncertainity rather than hiding in long-duration debt.

Nonetheless, this “acute but temporary” narrative is also mirrored in the equity volatility market. The VIX term structure has inverted into backwardation (a fancy finance term where an asset’s spot price is higher than its future prices), with the 30-day VIX surging above the 3-month VIX (29.49 vs. 27.09). There is indeed panic in the equity markets right now, but by pricing the 3-month volatility lower, traders are betting that the geopolitical escalation will resolve (or at least ease) within 90 days. Maybe this belief is motivated by the last few years of geopolitical events, where the VIX has reliably and rapidly mean-reverted. The market likely thinks “this time is no different.”

The equity markets are either right, or they haven’t fully priced in the second and third-order effects of this crisis yet. I like to think the latter.

The oil options market is signalling the opposite though and it is worth discussing that part a bit. The Brent crude options skew chart shows the 6-month and 12-month implied volatility measures rising alongside the 2-month. Such an increase in longer dated options did not happen after previous Gulf disruptions, including last year's US bombing of Iran's nuclear sites.

What this means in plain English is that oil traders are paying massive, sustained premiums to hedge against extreme upside price spikes stretching a full year into the future. They do not believe this geopolitical crisis will be resolved any time soon.

Impact on Emerging Markets

If the oil options market is right, we could see a scenario modelled by Goldman Sachs. They estimate that a spike to $100 a barrel (which it did already on Monday! Reaching almost $119 a barrel before coming down to $90) would push global headline inflation up by 0.7 % and decrease global GDP growth by 0.4%. A persistent shock of this magnitude will be particularly hard-hitting for emerging Asian economies and countries in Central and Eastern Europe that are massive net oil importers.

To make matters worse, geopolitical panic traditionally drives a flight to safety in the US dollar (which is already up by 1.6% over the week, as seen in the market snapshot above). Since crude is priced in dollars, a strong dollar would further exacerbate the crisis for these emerging markets, importing even more severe inflation and crushing their local purchasing power.

India is particularly exposed to the current disruption, especially through its dependence on imported natural gas and liquefied petroleum gas (LPG). Roughly 60% of India’s LPG consumption is imported, and about 90% of those imports pass through the Strait of Hormuz. The country also imports around half of its natural gas, with a significant share now disrupted by the conflict. The Indian government has directed refineries to maximise LPG production by diverting propane, butane, propylene and butenes streams to the LPG pool. As a result of these measures, domestic LPG production would be increased by 25%. But this is still not enough.

Crude oil is relatively secure, as India maintains strategic petroleum reserves and currently holds sufficient stocks at refineries and ports. But it lacks comparable strategic storage for LNG or LPG, leaving the country structurally vulnerable if the war persists for an extended period. And this is not an exaggeration. Nearly 70% of India’s restaurants and small eateries run almost entirely on LPG, making the food service sector highly exposed to any supply disruption. Small businesses operating on thin margins would feel the pressure first and as always, a large share of those higher costs would ultimately be passed on to consumers through higher food prices.

India is one of the world’s largest urea importers (in fact, the single-largest in 2025) — with over 40% of its supply sourced from the Middle East. For now, however, the country appears relatively insulated. The government has built substantial buffer stocks, with fertiliser reserves up 36.5% year-on-year. That should provide enough cover for the upcoming Kharif sowing season. But if the war drags on, those reserves will not last forever. India would have to return to global markets just as fertiliser prices rise, feeding directly into higher food inflation.

Don’t sleep on Brazil though, as it could be an exception and much better placed than most, if not all, emerging economies. As macroeconomist Robin Brooks points out, this setup is a near-perfect replay of 2022 when Russia attacked Ukraine. Back then, as commodity prices violently increased across the board, an agricultural and commodity powerhouse like Brazil experienced a massive positive "terms of trade" shock as its export revenues increased significantly.

That exact dynamic is playing out right now. Add in the fact that Brazil has structurally transformed into a trade-surplus nation since the pandemic (a shift that hasn’t happened in any other emerging market) and the Brazilian Real continues to remain deeply discounted relative to its pre-COVID baseline. When you combine a massive commodity windfall with a deeply undervalued currency, Brazilian assets could serve as the ultimate structural hedge against a broader EM meltdown.

The latest balance of trade figure confirm this. Brazil just posted a massive $4.2 billion trade surplus in February, where exports ​rose ⁠15.6% on a YoY basis. This boom is being overwhelmingly driven by crude oil, with export volumes surging 110.8%. With the current geopolitical conflict actively pushing Brent crude prices even higher, oil is now on track to permanently overtake soybeans as Brazil's top export. All things considered, this global supply shock could provide Brazil a massive economic windfall.

Some closing thoughts…

To conclude, the scale and extent of the geopolitical escalation from both sides will dictate the immediate path forward. But I want to reiterate the core point I have made throughout this report. Even if diplomatic channels succeed and a ceasefire is reached tomorrow, the damage caused by these supply chain disruptions and their second-order effects will linger for quite some time.

Companies (or even national governments) will put efforts to reroute trade or build emergency supply networks, but physically rewiring global logistics requires immense capital, labor, and time. Furthermore, the market must navigate a complex set of pre-existing long-term contracts between global producers and industrial buyers that cannot simply be violated and rewritten overnight. A sudden positive headline might instantly deflate the geopolitical risk premium in financial assets, bringing them back to pre-war levels, but the resulting structural inflation has already been imported into the global economy.

That’s all for now folks, and thank you so much for making it this far! I hope you had lots of takeaways.

If you enjoyed this, please subscribe and share it with a friend or colleague. It really helps as I always want to keep this newsletter free! :)

Happy reading!

Shreyas

It wasn’t exactly a week of explosive macro narratives until the historic geopolitical escalation in Iran this weekend. But two notable narratives caught my eye this week. Both point to a growing anxiety about the real-world economic fallout of Artificial Intelligence.

First, I want to discuss the viral Citrini Research "doomsday" report that articulated the market's deepest fears about AI, white-collar job destruction, and what they are calling "Ghost GDP." Second, there are serious cracks forming in the Private Credit space, as investors wake up to the fact that billions of dollars in highly leveraged SaaS buyouts are vulnerable to AI obsolescence and could pose a systemic risk.

Because there is so much to unpack, we are only going to dive into the Citrini report today. I will keep the systematic risks of private credit for a future discussion.

In this week’s issue:

1. The Citrini Memo: Core Arguments

2. Where the Citrini’s Scenario Falls Short

3. Global Market Snapshot and The Week Ahead

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The Citrini Memo: Core Arguments

It is rare for a single piece of independent macro research to influence the narrative of the entire Street, but that is exactly what happened earlier this week with the viral publication (over 20M views across platforms!) of Citrini Research’s “The 2028 Global Intelligence Crisis.” The report was released over the weekend and by Monday morning, the substack blog was the talk of the market. There was a violent, reflexive sell-off across traditional software (SaaS), consulting, and payment processing equities.

The S&P 500 Index ended down more than 1% on the day. A gauge of financial shares had its worst session since April. A major software exchange-traded fund dropped more than 4%. The report also named a number of specific companies, including ServiceNow Inc., DoorDash Inc. and American Express Co., and those shares dropped considerably. Investors have already been on edge after weeks of AI-related selloffs targeting a range of industries with a significant exposure, but the report reaffirmed the fears that if agentic AI actually achieves the capabilities being modelled, the fundamental revenue base for these legacy moats simply evaporates.

While the broader market managed to rebound by Tuesday, but this intense one-day panic revealed just how fragile the underlying psychology of Wall Street has become lately. It is a signal that the market is fundamentally struggling to price the trajectory of AI. Investors are now trapped between two contradictory fears: either the multi-trillion-dollar AI buildout won't be lucrative enough to justify the massive capital expenditure, or it will be so successful that it structurally breaks the consumer economy. Thus, the era of macroeconomic mood swings continues. Perhaps nothing captures this violent repricing better than Goldman Sachs' "AI-at-Risk" basket, which has completely wiped out years of gains to dip back to 2016 levels:

Although the authors explicitly frame the memo as a thought exercise and scenario analysis rather than an outright prediction, its core premise presents a severe macro tail-risk that is worth considering, even if we do not agree.

The memo is set in June 2028, written as a post-mortem on how things unravelled. It maps out a deflationary spiral where rapid AI advancements trigger mass white-collar unemployment, a collapse in consumer spending, a wave of software-backed loan defaults, and a severe economic contraction. But perhaps the most notable element of this modelled scenario is the sheer institutional inertia — the negative feedback loop accelerates, the money keeps moving, and almost nobody does anything in response. It is modelled as a clear, mechanical extension of our current economic trajectory: what happens if our bullishness on AI is actually a structural bear case for the broader global economy?

Or, to view this non-cyclical disruption as a diagram:

To understand why this thought process triggered such a visceral reaction, you have to look at the two core deflationary mechanisms the authors outline. They argue we are systematically destroying the demand side of the economy in the pursuit of infinite supply-side efficiency.

1. The "Ghost GDP" Spiral

The baseline assumption of the AI boom is that displacing human workers delivers record corporate profit margins. Citrini points out the fatal flaw in this logic that the machines do not drive discretionary demand. They don’t buy groceries, they do not take out loans, they do not buy houses, and they don’t pay medical bills. You know the actual economic activities that serve as the real engine of the economy.

The hypothesis is that when highly paid white-collar workers lose their jobs or are forced to take massive pay cuts just to stay employed, the hit to aggregate consumption is exponentially worse than what the headline unemployment numbers suggest. The velocity of money (the rate at which money changes hands in the broader economy) simply declines, and the US consumer economy that drives roughly 70% of total GDP begins to suffer. This creates what the authors have coined "Ghost GDP." On paper, everything looks phenomenal. Nominal GDP keeps printing mid-to-high single digits and productivity is booming. But that economic output never actually circulates through the real economy. Instead, wealth concentrates entirely at the top, while the broader demand base quietly hollows out.

The alarming part of this feedback loop is that it has “no natural break.” AI capability improves, payrolls shrink, consumer spending softens, corporate margins tighten, companies invest even more in AI to protect those margins, and the cycle drastically accelerates.

2. The Death of the "Friction" Moat

Perhaps the most notable section of the report maps the destruction of what Citrini calls "habitual intermediation" — the trillions of dollars of enterprise value built over fifty years on extracting rent from human limitations. We humans get tired. Comparing prices takes time, reading fine print is annoying, and eventually, we are perfectly willing to pay a little extra just for convenience.

Citrini argues that AI agents will ruthlessly dismantle this "intermediation layer" because machines do not get tired, nor do they have the brand loyalty that previously left human consumers at the mercy of friction. In Citrini’s modeled world, if you tell your AI to order groceries or renew your insurance, it will instantly scan the entire internet, compare every single competitor, and automatically select the absolute cheapest option. It will switch your insurance provider in a millisecond just to save you five dollars, and it will route transactions through zero-fee digital networks just to avoid a credit card swipe fee. And when AI eliminates the hassle of shopping around, the massive profit margins of these “convenience” companies, will simply vanish to zero.

For any readers tracking emerging markets, the report explicitly maps out how this dynamic would also devastate India's $200 billion IT services export sector. As the authors bluntly frame the existential risk to the sector's core business model:

“The country’s IT services sector exported over $200 billion annually, the single largest contributor to India’s current account surplus and the offset that financed its persistent goods trade deficit. The entire model was built on one value proposition: Indian developers cost a fraction of their American counterparts. But the marginal cost of an AI coding agent had collapsed to, essentially, the cost of electricity. TCS, Infosys and Wipro saw contract cancellations accelerate through 2027. The rupee fell 18% against the dollar in four months as the services surplus that had anchored India’s external accounts evaporated.”

This threatens to trigger a structural current account crisis for the country. And clearly, this isn't just a futuristic 2028 problem. The Nifty IT sector plunged 4.4% this week, even as domestic-focused sectors like PSU Banks and Metals held firm, suggesting the market is already beginning to price this risk at the margin.

(Note: For a deeper dive into how this contagion vector might stress-test the broader Indian economy, including the vulnerability of the $245B IT export model and the effects on Bengaluru real estate and domestic NBFCs, I highly recommend reading Swapnika Nag’s phenomenal adaptation - India 2028: The Intelligence Export Crisis).

Where the Citrini’s Scenario Falls Short

The Citrini scenario is a brilliant thought exercise and I appreciate how it encourages us to think in the direction of extreme logical endpoints of AI acceleration and the potential strain on our current policy frameworks. I believe its real value lies not in whether the scenario actually unfolds, but in forcing investors to stress-test their core assumptions, pushing policymakers to rethink the institutional (legal, fiscal, and regulatory) frameworks surrounding AI, and challenging the rest of us to redefine what it means to create value in a world of abundant intelligence.

However the report fundamentally misunderstands how enterprise technology, human psychology, and global capital actually function in the real world (and overstates their impact). It would be wrong, however, to single out Citrini for "doomerism," as they have explicitly framed this as a high-conviction scenario exercise rather than a deterministic prophecy.

My goal in highlighting these following counterarguments is simply to provide a necessary balance at a time when grim narratives are becoming increasingly common (and perhaps overly influential) within the financial space.

1. The Jevons Paradox, AI and Elastic Software Demand

The doomsday scenario largely assumes a "fixed pie" of work — the idea that the total amount of software code or technical output humanity needs is completely static. It operates on the linear assumption that if an AI makes a developer 10x faster, the company will simply replace the other nine developers. However, this fundamentally ignores how rapid technological advancements change the very nature of work. The integration of AI does not just eliminate routine tasks; it could create an immediate necessity for human roles that complement, govern, and direct it.

As the recent NASSCOM and NITI Aayog report highlights, the workforce will become hybrid, requiring humans and AI to integrate into cohesive teams. While AI can effortlessly write conventional code or run basic regression testing, humans are required to orchestrate these systems, manage complex integrations, ensure ethical guardrails, and handle edge-case analysis. The human role shifts from mere generation to higher-value critical thinking, strategy, and complex problem solving.

To understand why this hyper-efficiency doesn't automatically equate to mass unemployment, we have to look at the Jevons Paradox. In 1865, English leaders were panicking that the country would run out of coal, assuming that the only way to save it was to build more energy-efficient steam engines. Economist William Stanley Jevons argued the exact opposite in his book “The Coal Question.” He observed that making steam engines more efficient didn't reduce coal consumption; instead, getting more power out of every lump of coal effectively lowered the cost of energy. Because the power was now cheaper, businesses found numerous new applications for it. From new factories to trains and steamships, causing demand and overall coal consumption to skyrocket. A similar thing could play out in the AI space.

For this paradox to apply to the modern labor market and AI, Stanford economist Erik Brynjolfsson notes that three crucial economic boxes must be checked:

• AI must make workers more productive (which a growing body of research seems to confirm).

• This higher productivity must translate into lower prices for the end consumer (this is debateable. And although technological advances have historically been deflationary, that does not seem to be the case for AI so far.)

• Consumer demand must be highly elastic — meaning that demand explodes in reaction to these lower prices

This concept of demand elasticity is the deciding factor between an industry shrinking or booming due to automation. Take agriculture: when tractors and robotic pickers made farmers hyper-productive, the cost of producing food fell. However, human demand for food is inelastic; people can only eat so much regardless of how cheap it gets, causing the percentage of American workers in agriculture to plummet from 40% in 1900 to less than 2% today. Conversely, when jet engines were invented, pilots became drastically more productive, effectively lowering the cost per mile of air travel. Because consumer demand for travel is highly elastic, people chose to fly exponentially more, and this explosion in demand vastly outpaced the efficiency gains, ultimately creating a massive increase in the total demand for pilots.

When we apply this to the tech services sector, software and intelligence closely mirror the airline example. The “unmet demand” for software is massive. If AI makes writing code dirt cheap, companies will not just pocket the savings and stop building. Because demand for digital solutions is highly elastic, cheaper development costs could spur an explosion of new applications and technological hyper-specialization.

As the NASSCOM/NITI Aayog report explicitly outlines, AI will create massive upward tailwinds by unlocking three distinct categories of job creation.

• First, “Enterprise AI Skills” will surge, mainstreaming roles like AI prompt engineers, AI architects, and AIOps engineers to manage the new infrastructure.

• Second, the horizontal integration of AI across other industries will spawn “Frontier AI Skills,” creating roles at the intersection of emerging tech, such as Quantum ML Engineers and Neurohaptic Engineers.

• Finally, there will be a compounding need for “AI for AI” talent — the advanced research scientists and engineers tasked with building the next generation of language models and protocols.

Raghuram Rajan in his recent interview with Bloomberg echoed the similar sentiments where he said a massive reskilling wave could happen instead of total displacement. India’s software firms have successfully navigated the shift from Y2K to Web 2.0 and the Cloud. The pivot to AI-managed services is simply the next, although much faster iteration of this cycle.

The doomsday scenario assumes that efficiency inherently destroys value. It is indeed true that AI will make some (perhaps many in some sectors) jobs obsolete, but we do not have to outright dismiss the historical reality that when a highly desired input becomes abundant and cheap, it simply widens the sphere of employment. I personally believe the AI boom will spawn entirely new industries centered on human trust, physical presence, and authentic craftsmanship that algorithms simply cannot replicate. We will continue to need humans.

2. The Trust Factor: Why Agentic AI Cannot Simply Replace Enterprise IT

One of the most popular doomerish narratives circulating today is that agentic coding will soon render enterprise software obsolete. For instance, it has become so common to come across people on financial social media claim that consumer AI tools like Perplexity will dismantle the Bloomberg Terminal overnight. All these narratives are strikingly reminiscent of DeFi and Web3 evangelists, back when cryptobros told us that decentralized applications would make cross-border settlement systems obsolete, that “code is law” would eliminate the need for corporate lawyers, and that everyone would soon “be their own bank.”

But just like the DeFi fantasies before them, these AI narratives entirely ignore the strict compliance requirements, legacy system integrations, proprietary data access, edge cases, institutional knowledge, and regulatory obligations that actually keep large businesses running. The gap between a very intelligent AI demo and production-grade enterprise software is enormous, and that gap is precisely where most AI implementations currently live.

This gap is further widened by the massive network effects that anchor modern SaaS platforms. Enterprise software is rarely a standalone utility, and it derives value not merely from its underlying code, but from the thousands of third-party integrations, custom data pipelines, and trained human habits built on top of it. An isolated AI agent cannot magically migrate an established company’s entire operational history and user ecosystem to a cheaper alternative without causing catastrophic business interruption.

In a technological environment flooded with unverified AI agents, hallucinated code, and automated workflows, enterprise clients will actually pay a higher premium for certainty. When intelligence becomes a cheap and abundant commodity, the ultimate scarce resource becomes human trust. For example, a global bank does not just need a task executed; it needs a guarantee that the task was executed securely, legally, and flawlessly. As the operational risks of AI exponentially increase, firms will actively turn to established vendors and IT partners who have the balance sheet, the security infrastructure, and the institutional reputation to underwrite that risk.

To understand why this is not easy to disrupt, I highly recommend the analogy presented by fellow substacker Will Manidis in his brilliant essay "On the Garden". He argues that models like the Citrini report treat the global economy like a French formal garden, much like Versailles. They view the market as a perfect, geometric system that can be razed, flattened, and replanted overnight with modern, efficient AI agents. In reality, the global economy is an English garden. It is a messy, complex thicket of legacy systems, legal liabilities, and deeply entrenched human habits.

3. Non-Linear Diffusion and Comparative Advantage

These predictions often assume the instant and frictionless global deployment of AI. However, the reality of technology diffusion is highly non-linear. The fastest adopters of any new technology are naturally the people building it. While Silicon Valley and top-tier software firms operate at the technological frontier and integrate AI almost immediately, execution across the broader global enterprise landscape takes considerably longer. This lag creates a massive adjustment window, giving established IT service providers the crucial time needed to pivot from writing basic code to deploying, integrating, and governing complex enterprise AI systems.

Finally, the doomsday narrative fundamentally ignores the foundational economic principle of comparative advantage. Even if an AI agent achieves an "absolute advantage" and becomes faster and better at every single task than human workers, it remains bound by physical constraints like energy consumption and finite compute resources (and regulatory landscape in the future?). Because computational power is finite, capital will naturally allocate AI to the highest-margin, most complex problems, which leaves a vast spectrum of necessary tasks where humans retain a comparative advantage.

Therefore, the business model of Indian IT services will not magically disappear. Since an Indian engineer would still costs roughly one-fifth the price of a Western counterpart, these firms has the potential to evolve into the most cost-efficient hubs to manage, govern, and run these new AI agent fleets.

To conclude, none of this means that AI will have no effect on labour markets, enterprise software, and the broader economy. It almost certainly will, and it would be a massive error on my part to assume otherwise. The more likely path is one where AI functions as a hyper-efficient complementary tool to human judgement, helping to navigate complex economic realities rather than serving as an outright replacement. Enterprises will continue to rely on established IT partners to absorb operational risk, paying a premium for human accountability, regulatory compliance, and legal risk transfer rather than just raw code generation.

The truth, as it usually does with most things in life, will settle somewhere between the doomsday scenario and the utopian promise.

Global Market Snapshot and The Week Ahead

Looking across the broader dashboard, it was a mixed picture for global equities. While the S&P 500 drifted lower (-0.4%) under the weight of the tech and financials sell-off, international indices like the Nikkei (+2.4%) and the FTSE 100 (+2.1%) managed to catch a solid bid. Meanwhile, the selloff in digital assets continues, with Bitcoin sliding another 2.6% to push its YTD losses past -25%.

But outside the defensive equity rotation, the real story remains in the physical markets. Silver surged an astonishing 14.7% this week to push its YTD gains to nearly 34%. As I outlined in our deep dive last week, the convergence of a structural supply deficit, safe-haven flows, and price-insensitive industrial demand means this rally has some serious foundational strength and might continue for a while.

However, all of this week’s price action is likely about to be overshadowed by a massive geopolitical escalation in the Middle East.

At the time of writing this newsletter (Saturday afternoon), the United States and Israel have launched a hostile attack on Iran following the collapse of negotiations aimed at securing a new nuclear deal. The rhetoric has immediately shifted toward “regime change”, with President Donald Trump explicitly urging Iranian citizens to step up, stating: “It will be yours to take. This will be probably your only chance for generations.”

And right when I was concluding the final edits on this piece (Sunday morning), Iranian state media officially confirmed that Supreme Leader Ayatollah Ali Khamenei was killed in the opening strikes. Just a stark reminder of exactly how fast the world can move….

Because this news broke after the markets closed, they have not yet priced in the fallout. But as I warned in last week’s issue, the economic significance of a direct military conflict with Tehran cannot be overstated. When the Asian markets open on Monday, it wouldn’t be wrong to expect violent repricing — particularly concerning the Strait of Hormuz, global energy supply chains, and the broader inflation narrative.

Next Week’s Economic Calendar

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways.

If you enjoyed this, please subscribe and share it with a friend. It really helps as I always want to keep this newsletter free! :)

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Happy reading!

Shreyas

Commodities continue to dominate this week. Silver surged 8.9%, Gold extended its 12-month rally to +72%, and Brent Crude jumped 6.3% as US-Iran tensions are intensifying. Meanwhile on the policy front, the U.S. Supreme Court struck down President Trump's use of IEEPA to impose sweeping "reciprocal" tariffs. While Treasury yields ultimately closed the week lower, they initially spiked on the ruling as investors grappled with a blunt reality. Tariffs had been generating $118 billion in projected revenue, and without them, the deficit picture gets likely worse.

Here's what it all means and what to watch next week.

In this week’s issue:

1. The Commodity Surge: Silver, Oil, and the Trade Behind It

2. India Corner: PSU Banks Lead a Cautious Week

3. The Tariff Ruling: What the Supreme Court's Decision Means

4. Global Market Snapshot and The Week Ahead

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The Commodity Surge: Silver, Oil, and the Trade Behind It

Energy markets snapped back sharply this week, with Brent Crude surging 6.3% and WTI following close behind at +5.7%, pushing Brent back above the $70 mark. The driver is geopolitical as US-Iran tensions have escalated to a point where prediction markets are now pricing a ~70% probability of a US military strike on Iranian nuclear facilities. President Trump signalled the US is "ready, willing, and able" to act, while Iran has vowed to respond "like never before."

And although the equity market’s reaction has been neutral, the market is only beginning to price the tail risk. BloombergNEF estimates Brent will average around $55/bbl in 2026 under a no-disruption scenario. But that estimate changes dramatically if Iranian supply is impaired. As Iran’s fifth-largest OPEC+ producer pumping roughly 3.3 million barrels per day, even a partial disruption could push Brent to average $71/bbl in Q2 2026, with prolonged gepolitical tensions potentially driving prices to $91/bbl by Q4.

BNEF estimates that only a modest $4/barrel war premium is currently embedded in prices. (For comparison, Brent’s implied war premium was $31 a barrel immediately following Russia’s invasion of Ukraine on February 24, 2022.) This means that markets are not yet treating conflict as the base case, even as rhetoric intensifies. But the war premium could easily spike during an outlier event like the closure of the Strait of Hormuz -- the world's busiest oil shipping channel which handles 20% of global petroleum liquids consumption.

Blocking it would have profound consequences not just for oil prices but for the global economy, as it would potentially inflate the cost of goods and services worldwide, and hit some of the world’s biggest economies, including China, India and Japan, which are among the top importers of crude oil passing through the strait. But for now, oil is the one market paying attention to Iran. The question is whether equities follow if the situation deteriorates.

Silver - the Next Generation Metal?

But oil isn’t the only commodity catching a bid right now. Silver continues its absolute dominance, surging another 8.9% this week, while Gold extended its staggering 12-month rally to +72%. I want to focus particularly on Silver, though, because it simply doesn’t seem to cool down. Even after posting its strongest annual performance since 1979 last year, the momentum has carried well into 2026. The metal reached multiple record highs in January, finally breaching the psychologically important $100 level. Because of this, the gold-to-silver ratio just fell below 50, a level last seen in 2012. And until the fundamentals change, the silver market is projected to remain in a supply deficit for a sixth consecutive year!

So, what is driving this relentless breakout? Under the hood, silver is being squeezed by three significant converging forces:

1. The Macro Environment

The underlying key factors here are the same ones driving gold. Elevated geopolitical tensions, persistent US policy uncertainty, and growing concerns over the Federal Reserve’s independence have combined to drive precious metals investment in 2026. Physical silver investment (coin and bar demand, basically) has strengthened materially in recent months and is projected to jump 20% this year to a three-year high of 227 million ounces. But notably, this buying frenzy is colliding with an already tight physical supply in major hubs like London. Unlike Gold, which can absorb large investment flows relatively smoothly, Silver’s market is smaller and less liquid. This means when investors pile in, the price response is more violent. That’s exactly what we’re seeing.

2. Massive Industrial Demand

This is where Silver diverges completely from Gold, and where its long-term story becomes genuinely compelling. Silver possesses the highest electrical conductivity of any metal — a property that makes it indispensable across three of the fastest-growing industries in the world: solar photovoltaics, electric vehicles, and AI data centres.

2.1 Solar PV

Solar cells allow sunlight to be converted into electricity. A typical solar cell contains a conductive silver paste on its front and back. In solar PV, global installed capacity has grown more than tenfold in the last decade (mainly led by China (51% of growth)), and the IEA expects solar to become the dominant global renewable energy source by 2030, with capacity growing at a 17% CAGR through the decade. Silver demand from PVs has grown threefold over the same period and now represents 29% of total industrial silver demand, up from just 11% in 2014.

While traditional solar (PV) demand is actually forecast to dip 2% this year due to manufacturers "thrifting" (engineering panels to use less silver), two massive new tech sectors are aggressively eating up that slack: Artificial Intelligence and Electric Vehicles.

2.2 Electronic Vehicles

In electric vehicles, the story is equally powerful. The rising demand for EVs is creating a deeply entrenched, price-insensitive demand floor. Battery electric vehicles consume on average 67–79% more silver per vehicle than internal combustion engines, driven by the need for battery management systems, power electronics, and an increasing number of safety and comfort features. Oxford Economics forecasts global silver demand from the automotive industry will grow at a CAGR of 3.4% through 2031, with EVs overtaking ICE vehicles as the primary source of automotive silver demand by 2027.

2.3 Artificial Intelligence

And of course you have AI. Data centres are integral to the ongoing AI boom and global IT power capacity has exploded roughly 53-fold since 2000. Because silver possesses the highest electrical and thermal conductivity of any metal, these centres rely on silver across electrical contacts, server components, semiconductors, and cooling systems.

Oxford Economics forecasts US data centre construction spending will grow 57% over the next decade alone, and similar build outs are underway across Europe and Asia. The AI hardware driving this - GPUs, TPUs, neural processing units;all depend on high performance semiconductors that use silver in their internal connections and packaging.

3. Supply Side Dynamics

But all of the above are demand-side factors. What makes all of this explosive is that it is happening against a supply backdrop that simply cannot keep pace. The silver market is expected to remain in a supply deficit for a sixth consecutive year in 2026, with the Silver Institute projecting a shortfall of 67 million ounces. See, the core problem here is that silver supply is incredibly inelastic. Because the vast majority of silver is mined merely as a by-product of extracting other base metals (like zinc, lead, and copper), miners can't just flip a switch and ramp up primary production to chase these high prices. In fact, total global mine production is expected to increase by a mere 1% this year. This forces the market to continually drain above-ground bullion inventories to plug the shortfall, adding even more pressure to an already tight physical market.

India Corner: PSU Banks Lead a Cautious Week

While global markets were affected by the looming geopolitical risk and tariff uncertainty this week, Indian state-owned banks continue to thrive. The Nifty PSU Bank Index surged 5.5% this week alone, its biggest weekly gain since October 2024, logging its third consecutive weekly advance and hitting an all-time high of 9,691. YTD, the index has now gained 13.3%, making it the standout sectoral performer in a market where the Nifty 50 itself is still down 2.1%.

And the factors that are leading this trend are:

1. First, balance sheets have quietly undergone a transformation. Average Net NPA ratios across major PSU banks have hit multi-year lows, with corporate credit stress that once defined these institutions now appearing almost negligible. For example, SBI's gross NPAs improved to a mere 1.57% in Q3 FY26. This structural clean-up has paved the way for historic profitability for this sector.

2. Second, 2026 Union Budget set the stage for massive infrastructure financing by rolling out a record capital expenditure outlay of ₹12.2 lakh crore. Because govt infrastructure spending flows disproportionately through PSU banks — it expands their credit books, improves their loan-to-deposit ratios, and gives them a pipeline of high-quality sovereign-backed lending. The market briefly panicked when the budget also revealed higher FY27 borrowing targets (meaning a massive flood of new government bond supply drives up yields and increases borrowing costs across the broader economy), but that fear has since been overwhelmed by the earnings reality.

3. Despite the growth, a massive valuation gap still exists. Many mid-tier PSU banks are still trading at significantly lower Price-to-Book (P/B) multiples compared to their private-sector peers. For investors navigating a high-yield, volatile global environment, these state-owned banks offer the perfect blend of structural growth, clean balance sheets, and deep value.

The Tariff Ruling: What the Supreme Court’s Decision Means

In a landmark ruling this week, the Supreme Court struck down President Trump's use of IEEPA to impose sweeping country-level tariffs, with Chief Justice Roberts ruling that Congress alone holds tariff authority during peacetime. This ruling effectively voided the legal mechanism responsible for roughly 73% of the President's new tariff revenue. However, the market's hope for a relief rally was immediately crushed. Within hours, the administration pivoted to "Plan B," invoking Section 122 of the 1974 Trade Act to slap a new baseline tariff on imports. Section 122 can only be used for flat tariffs of up to 15%, with no between-country variation allowed. President Trump has already moved to maximize this temporary authority, announcing that the rate will be hiked to the legal limit of 15%

The reality of this prolonged trade war is becoming impossible to ignore. Despite the massive tariff walls, the policy is fundamentally failing to achieve its primary objectives. The U.S. manufacturing sector continues to shed jobs, and annual net imports of goods and services actually hit a staggering new all-time high of over $1 trillion in 2025. Back in 2018, Trump famously declared that trade wars are "good, and easy to win." Today, the evidence suggests otherwise. Instead of bringing back blue-collar manufacturing jobs, the tariffs are acting as a highly regressive tax on the domestic economy, paid overwhelmingly by American consumers.

Global Market Snapshot and The Week Ahead

Apart from the notable changes discussed above, here is how the rest of the market performed.

Next Week’s Economic Calendar

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. By the way, keep an eye on the storm brewing in the private credit space. With Blue Owl recently halting redemptions, cracks might finally be showing in the private lending boom. I might unpack that in next week's issue. Until then, have a great weekend.

If you enjoyed this, please subscribe and share it with a friend. It really helps as I always want to keep this newsletter free!

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Happy reading!

Shreyas

It has been more than 3 years since the last edition of The Economics Hub hit your inbox. We are completely in a different world now. To put my hiatus in perspective, my newsletter was last active before the launch of ChatGPT — well before the generative AI boom even began. As I try to rekindle my writing process, I’ve been told by my friend not to use too many em dashes — but we will — see.

On a personal level, a lot has happened, both good and bad. I am grateful for all of it, as it has made me a better person. I have plenty of good updates, but I prefer to keep the spotlight on the economics, not me. I wanted to restart this newsletter a long time ago, but life kept happening and I couldn’t quite resolve my “writer’s block.” Anyway, I will be covering weekly macro updates along with periodic long posts, if my schedule permits.

I have decided to focus primarily on macroeconomics, monetary policy and financial market themes in the US and India, and occasionally the Eurozone (when relevant); though I will try to cover other interesting topics as they arise. This time, my goal is to keep my focus narrow and not burn myself out.

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I’d also like to focus on Substack and won’t be having any bandwidth to post on Instagram regularly as I think Substack is still an excellent platform for the kind of nuanced analysis I want to share. For the next few weeks, I’ll be experimenting with different formats and schedules to see what works best for my writing rhythm (and for you!). So, if you have any suggestions, then please let me know.

Without further ado, let’s discuss what happened this week:

1. The Takaichi Trade

2. India’s Statistical Reset

3. US Labour Data Beats Projections

4. Global Market Snapshot & The Week Ahead

The Takaichi Trade

Prime Minister Sanae Takaichi won Japan's snap general election on February 8th. She didn't just win — she secured a landslide victory, giving her Liberal Democratic Party a supermajority in parliament’s lower house. Equity markets immediately reacted and the Nikkei 225 index surged by more than 5% over the week.

This is primarily because the landslide victory gives Takaichi a blank check to pass aggressive fiscal stimulus without opposition. She has also pledged to suspend consumption tax on food (a promised ¥5tn ($32bn) suspension) for two years, along with other expansionary measures. But here's where it gets interesting: the yen strengthened 2.5% against the dollar in the same week.

The “Takaichi Trade” caused a lot of turmoil in Japan’s currency and bond markets leading up to the elections, driven by fears of reckless spending and debt. The rise in equity markets despite the currency headwinds has taken many market observers by surprise as it runs counter to the textbook logic: “Japanese equities benefitting from the weaker Yen.”

This disconnect likely signals that the new prime minister has convinced some investors that her plans will be realised, although many are sceptical about the feasibility of financing these measures without issuing new debt, which Takaichi has claimed would happen.

For instance, as Shusuke Yamada, head of Japan FX and rates strategy at Bank of America, points out:

“I ask myself if these flows will reverse just because Takaichi achieved a historic victory and they say they won’t rely on extra JGB issuance? I don’t think so. They need to see hard evidence that Japan is a better place to invest long term... and that takes years.”

Given that Japan’s debt ratio is already among the highest in the world, the interplay between these fiscal ambitions and the bond market will be fascinating to watch from here.

India’s Statistical Reset

On February 12th, something significant happened that will shape how we read India’s inflation data for years to come. The Ministry of Statistics released India’s first retail inflation reading under a completely new CPI series, shifting the base year from 2012 to 2024.

India’s headline inflation under the revised base year is 2.75%, comfortably within the RBI’s 2-6% tolerance band. While the inflation trend is ticking upward, it remains well below the central bank's 6% upper threshold. As a result, immediate key policy rate adjustments are unlikely to be on RBI’s table.

This change in consumption was a long due, considering India’s consumption patterns have vastly changed since 2012. One of the key changes in the new series is the lower weight for food relative to the earlier series. The weight of food in the basket has been slashed to roughly 37% (from 46%). The item count has expanded, and for the first time, the basket tracks "modern" spending like Netflix and Amazon Prime subscriptions, airfares, and online services.

Given that food has been a major component of the inflation metric, this revision will make the CPI series less volatile and suspectible to sudden food shocks. This will also allow the Monetary Policy Committee to focus on genuine aggregate demand pressures rather than supply-side noise.

However, this is just the start. Base year for GDP and IIP estimates will be revised to 2022-23 in February 2026 and May 2026 respectively. By mid-year, the statistical picture of the Indian economy will look substantially different and reflect the latest economic structure.

The underlying macro story, however, remains unchanged. PMIs look good — Manufacturing at 55.4, Services at an impressive 58.6. GST collections at ₹1.93 lakh crore, marking a 6.2% year-on-year growth driven by strong domestic consumption and a 10.1% rise in import-related taxes. So basically the domestic demand is holding.

The problem remains external. FPIs pulled another $3.2B in January, though the pace has slowed from the recent worst months. Bank Credit accelerated sharply in January, expanding 14.6 per cent YoY. The pick-up in credit growth has been aided by GST rationalisation on products and services, rate cuts by RBI, and a rise in wholesale credit demand. As corporate bond yields rise, big borrowers are finding bank loans more attractive, prompting companies to shift their demand back to bank credit.

US Labour Data Beats Projections

The delayed January Non-Farm Payrolls (NFP) report finally arrived on Wednesday, delivering a surprising beat: +130,000 jobs added (vs. ~70,000 expected). The unemployment rate ticked down to 4.3%. This positive start to the year took markets by surprise after recent reports showed lay-offs rising, job openings falling and unemployment claims on the rise. The strong labour market report signals that the Fed will be in no rush to cut interest rates for a while and also help reinforce Federal Reserve chair Jay Powell’s argument that the labour market was showing “evidence of stabilisation”.

Global Market Snapshot and The Week Ahead

Other than these, here is your weekly market summary. Gold continued its stellar performance this week, and combined with silver’s recent resilience and the growing buzz around copper, the commodities space is becoming too interesting to overlook. Maybe I will discuss them in one of the upcoming weeks!

Next week’s Economic Calendar

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. As I mentioned, the next few weeks will be about getting my writing rhythm back and experimenting to see what works best for both of us.

If you enjoyed this, please subscribe and share it with a friend. It really helps.

Have a great week ahead.

Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

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🟦 If this is your first visit, then please consider subscribing to my weekly newsletter for free educational content and resources! 👇

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Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Background: Central Banks and Interest Rates

• Summarizing this Week’s Interest Rates Related Monetary Policy Decisions by Central Banks

  • Countries Covered: USA, England, Switzerland, Turkey, Japan, Norway, Taiwan, Vietnam, Indonesia, South Africa, UAE, Saudi Arabia, Qatar, Bahrain, and Brazil.

• Finance and Economics - Weekly Digest

• Privacy - Major Headlines of the Week

• Crypto Corner

• Miscellaneous

• Charts of the Week

  • Google Results Spiked for “How to leave Russia” after Putin’s speech.

  • The Cost of Europe’s Energy Crisis.

  • A typical “60/40 Portfolio” is down 19.3% in 2022, the 2nd worst year in history after 1931.

  • Global Inflation Rates Update.

  • More than 40 central banks have increased interest rates by at least a three-quarter point in one go since the start of 2022.

  • Fund managers are favourably long Healthcare, Staples and Energy; and short Discretionary, Industrial and Tech stocks.

  • Goldman’s US Financial Conditions index is hitting fresh highs.

  • Financial conditions relative to their 5-year average are at Great Financial Crisis levels.

  • Consumers are Struggling to Pay their Longer-Term Credit Card Debt.

  • Cost of shipping around world via container (ocean freight rates) continues to collapse.

  • Norway's Sovereign Wealth Fund’s Stock Portfolio Breakdown.

  ---

Background: Central Banks and Interest Rates

This was a crazy week for macro with lots of updates across the board.

Following the Federal Reserve’s latest interest rate hikes of 75 bps, central banks across the globe have also continued raising rates this week. It is worth mentioning that they are raising their key interest rates in the most widespread tightening of monetary policy on record ever. For instance, the number of rate increases announced by central banks around the world was the highest in July since records began in the early 1970s — according to the World Bank.

Notably, the size of these rate hikes is now progressively rising as central banks become desperate to reduce soaring inflation, which is already at multi decades high in most countries.

See, central banks’ theoretical rationale for hiking interest rates is to reduce overall demand in the economy. By increasing key policy rates, they aim to increase the cost of borrowing for households and businesses. As a result, consumer spending and investment activity fall for major economic sectors. When demand for goods and services decreases, their price tends to decline. This is exactly what central banks intend to do now: curb spending to curb inflation.

Nevertheless, it is now evident that they aren’t hesitating to do their part in taming inflation, irrespective of its *actual* effectiveness in combating inflationary pressures in the economy — which seems to have been exacerbated by the supply chain issues, global commodity crunch and energy crisis. It is reasonable to question the effectiveness of monetary policies, when the drivers of inflation are country/region specific and monetary policy, through interest rate adjustments, might do little to fix these issues.

In fact, some economists fear that the central banks may go too far if they don’t take into account their collective impact on global demand and might drive the global economy into a recession.

Okay, now that we are done with a bit of background, let’s review the key interest rates-related decisions pursued by a group of central banks from across the world this week.

1. Federal Reserve

The Federal Reserve on Wednesday raised benchmark interest rates by another three-quarter of a percentage point and indicated it will keep hiking well above the current level. Fed took its federal funds rate up to a range of 3%-3.25%, the highest it has been since early 2008, following the third consecutive 0.75 percentage point move.

They are now raising rates at the most rapid pace since the 1980s and have approved increases at five consecutive policy meetings, starting in March when they lifted the fed-funds rate from near zero. Until June, the Fed hadn’t raised rates by 0.75 point since 1994.

“My main message has not changed since Jackson Hole,” Powell said in his post-meeting news conference, referring to his policy speech at the Fed’s annual symposium in August in Wyoming. “The FOMC is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done.”

The “dot plot” of individual members’ expectations doesn’t point to rate cuts until 2024. Powell and his colleagues have emphasized in recent weeks that it is unlikely rate cuts will happen next year, as the market had been pricing.

2. Bank of England

At its meeting ending on 21 September 2022, the Bank of England’s MPC voted to increase Bank Rate by 0.5 percentage points, to 2.25% — taking it to the highest level since late 2008 but disappointing some who had thought it would make a three-quarter-point move.

In Britain, consumer prices rose 9.9 percent in August from a year earlier, slowing slightly from the previous month but still near the fastest pace of inflation in four decades, as energy and food prices climbed higher.

The BOE now expects inflation to peak at just under 11% in October, down from a previous forecast of 13%.

The hike was in line with economists’ forecasts, according to Reuters, however many in the market had been expecting a 75-basis-point raise, in line with the U.S. Federal Reserve and many other major central banks.

In a release explaining its decision, the bank noted volatility in wholesale gas prices but said announcements of government caps on energy bills would limit further increases in consumer price index inflation. However, it said there had been more signs since August of “continuing strength in domestically generated inflation.”

3. The Swiss National Bank

The Swiss National Bank on Thursday raised its benchmark interest rate to 0.5%, a shift that brings an end to an era of negative rates in Europe. The 75 basis point increase comes after a rate hike of -0.25% on June 16, the first in 15 years. Previously, the Swiss central bank has kept interest rates at -0.75% since 2015.

The interest rate hikes come after inflation in Switzerland hit 3.5% last month — its highest rate in three decades.

The bank said raising the policy rate was “countering the renewed rise in inflationary pressure and the spread of inflation to goods and services that have so far been less affected.” It added that further policy rate increases “cannot be ruled out.”

4. Bank of Japan

The Bank of Japan has maintained ultra-low interest rates and dovish policy guidance as it seeks to reassure markets that it will continue to swim against a global tide of central banks tightening monetary policy to combat soaring inflation.

The annual inflation rate in Japan rose to 3% in August, the highest level since September 2014, largely driven by food and raw materials prices as well as yen weakness.

5. Norges Bank (Norway)

Norway's central bank raised its benchmark interest rate by a widely-anticipated 50 basis points to 2.25% on Thursday, but said future hikes would be more "gradual."

Norges Bank will probably hike again in November, by 25 basis points (bps), although predictions are unusually uncertain at the moment, its governor Ida Wolden Bache said. Norges Bank was the first major central bank to begin hiking rates in September 2021, and could now be the first to signal that the peak is near, analysts said.

The Norwegian policy rate, now at its highest since 2011, is currently set to peak at 3% next year and could start falling in 2024, Norges Bank's forecasts showed. The policy rate was zero a year ago, and the hikes are now starting to have a tightening effect on the Norwegian economy, Norges Bank said.

6. South African Reserve Bank

South Africa’s central bank delivered another big interest rate hike on Thursday, taking its main lending rate back near pre-COVID levels as it battles to bring inflation back to target.

The South African Reserve Bank (SARB) raised its repurchase rate by 75 basis points (bps) to 6.25%, in line with the forecast of the majority of economists polled by Reuters. The SARB has now raised rates for the sixth time in a row, adding a total of 275 bps to the repo rate since its latest tightening cycle began in November 2021.

7. Central Bank of the UAE

The Central Bank of the United Arab Emirates said on Wednesday it was hiking its base rate by three-quarters of a percentage point to 3.15% effective from Thursday, moving in parallel with the U.S. Federal Reserve's third straight hike of that size as its currency is pegged to the dollar.

8. The Saudi Central Bank

The Saudi Central Bank (SAMA) hiked its reverse repo rate by 75 bps to 325 bps from 250 bps. It also increased its repo rate to 375 bps (3.75 per cent) from 300 bps. This recent rate hike is the fifth this year, as the central bank raised rates in March, May, June and July.

In line with the Saudi Central Bank's objective of maintaining monetary and financial stability, and in light of recent global developments, SAMA has decided to raise the rate of Repurchase Agreement (Repo) by 75 basis points to 3.75 percent, and the rate of Reverse Repurchase Agreement (Reverse Repo) by 75 basis points to 3.25 percent. 

9. Central Bank of the Republic of China (Taiwan)

Taiwan’s central bank increased its benchmark interest rate by a modest amount on Thursday, the third hike this year, as it tries to battle inflation without further weighing down its slowing economy.

The central bank raised its policy rate by 12.5 basis points to 1.625%, in line with forecasts of most economists surveyed by Bloomberg. It also increased its reserve requirement ratio by a quarter point.

At the same time, the bank cut its 2022 economic growth forecast for the third time this year -- to 3.51% -- with gross domestic product expected to slow further next year to 2.9%. 

10. State Bank of Vietnam

Vietnam's central bank announced on Thursday it would raise its policy rates by 100 basis points, in a rare monetary tightening move aimed at keeping inflation under 4% this year.

Can Van Luc, an economist with the Bank for Investment and Development of Vietnam and an advisor to the government, said the rate hike "is in line with the global trend and is expected to help better control inflation in Vietnam."

Before the series of rate hikes, Vietnam’s central bank had left its key rates unchanged since late 2020

11. Bank Indonesia

Indonesia's central bank increased interest rates by more than expected on Thursday as it sought to rein in inflation after the government raised subsidised fuel prices earlier this month, while also supporting the rupiah currency.

The BI Board of Governors agreed on 21st and 22nd September 2022 to raise the BI 7-Day Reverse Repo Rate (BI7DRR) by 50bps to 4.25%, while also raising the Deposit Facility (DF) and Lending Facility (LF) rates by 50bps to 3.50% and 5.00% respectively.

The rate decision comes after the government raised fuel prices by about 30% earlier this month, a move that BI Governor Perry Warjiyo said would push headline inflation to peak at slightly above 6% and core inflation at 4.6% by year-end, before easing.

The decision to raise the policy rate was taken as a front-loaded, pre-emptive and forward-looking measure to lower inflation expectations and return core inflation to the 3.0%±1% target corridor in the latter half of 2023, while simultaneously strengthening the exchange rate stabilisation policy in line with the rupiah's fundamental value, caused by elevated global financial market uncertainty amid strong and increasing domestic demand.

12. Central Bank of Brazil

The Central Bank of Brazil (BCB) left interest rates unchanged at its monetary policy meeting on September 21. As a result, the key Selic rate remains at 13.75%. The latest monetary policy decision put an end to twelve consecutive increases which took off in 2021 to bring down inflation. In doing so, the BCB became the first central bank from a large economy to pause the cycle of interest rate increases.

The Committee judges that this decision reflects the uncertainty around its scenarios for prospective inflation, an even higher-than-usual variance in the balance of risks, and is consistent with the strategy for inflation convergence to a level around its target throughout the relevant horizon for monetary policy, which includes 2023 and, to a lesser extent, 2024.

The Committee will remain vigilant, assessing if the strategy of maintaining the Selic rate for a sufficiently long period will be enough to ensure the convergence of inflation. The Committee emphasizes that it will persist until the disinflationary process consolidates and inflation expectations anchor around its targets. The Committee reinforces that future monetary policy steps can be adjusted and will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected.

13. Central Bank of the Republic of Turkey

Surprisingly, Turkey stands out from the crowd as it becomes one of the rarest central banks in the world to cut its key interest rate this week. The country’s monetary policymakers opted for a 100 basis point cut, bringing the key one-week repurchase rate from 13% to 12% — this is despite the country’s rapidly soaring inflation. In August, the Turkish inflation rate was recorded at 80.2%, quickening for the 15th consecutive month and the highest level in 24 years.

The Central Bank of Turkey’s (unconventional) reasoning for lowering key interest rates in such a volatile geopolitical and inflationary environment can be understood from its press statement:

It is important that financial conditions remain supportive to preserve the growth momentum in industrial production and the positive trend in employment in a period of increasing uncertainties regarding global growth as well as escalating geopolitical risk. Accordingly, the Committee has decided to reduce the policy rate by 100 basis points, and has assessed that the updated level of policy rate is adequate under the current outlook. To create an institutional basis for sustainable price stability, the comprehensive review of the policy framework continues with the aim of encouraging permanent and strengthened liraization in all policy tools of the CBRT. The credit, collateral and liquidity policy actions, of which the review process is finalized, will continue to be implemented to strengthen the effectiveness of the monetary policy transmission mechanism.

Turkey's unconventional policy approach has long astounded investors and economists, who believe the refusal to tighten policy is due to political pressure from Turkish President Recep Tayyip Erdogan. Erdogan has long railed against interest rates and turned against economic orthodoxy by insisting that lowering rates is the best way to reduce inflation.

Analysts called the monetary easing unsustainable and driven by President Erdogan's effort to lower borrowing costs to stoke exports and investment, and they predicted more currency depreciation ahead.

14. Qatar Central Bank

The Qatar Central Bank on Wednesday raised its deposit rate from 3% to 3.75%, its lending rate from 3.75% to 4.5% and its repo rate from 3.25% to 4%. 

15. The Central Bank of Bahrain

The Central Bank of Bahrain raised the rate for its one-week deposit facility from 3.25% to 4%, as well as its overnight deposit rate from 3.00% to 3.75%, the four-week deposit rate from 4.00% to 4.75% and lending rates from 4.50% to 5.25%.

In light of the development of the international financial market and the continuous measures taken by the CBB to ensure the smooth functioning of the money markets in the Kingdom of Bahrain, the Central Bank of Bahrain (CBB) has decided to raise its key policy interest rate.

The CBB continues to monitor global and local market developments closely in order to take any further necessary actions to maintain monetary and financial stability in the Kingdom.

Finance and Economics - Weekly Digest

• Singapore Overtakes Hong Kong in World Financial Centers Ranking. (South China Morning Post)

• The Global Race to Hike Rates Tilts Economies Toward Recession. (Bloomberg)

• Electric-Car Demand Pushes Lithium Prices to Records. (The Wall Street Journal)

• Tightening liquidity may force Indian banks to compete harder for deposits. (Reuters)

• U.S. mortgage interest rates reach 6.25%, highest level since October 2008. (Reuters)

• Emerging Markets Stocks hit 28-month lows on Fed outlook; cenbanks in focus. (Nasdaq)

• Fed Interest Rates Hikes might Affect Rural America (International Monetary Fund)

• India Inc expects another 35-50 basis points policy rate hike by RBI. (ET Wealth)

• After Fed, RBI may hike rates; how will it impact your equity, debt mutual funds? (The Economics Times)

• BofA Says Cash Is King as Investor Pessimism Hits 2008-Era High. (Bloomberg)

• The 12 Charts to Watch in 2022 [Q4 Update] (TopDown charts)

• 2-year Treasury yield surges above 4.1% after Fed hike, highest level since 2007. (CNBC)

• Quantifying the role of interest rates, the Dollar and Covid in oil prices. (Bank for International Settlements Working Paper)

• Russian banks lost around $25 billion from Ukraine conflict, central bank official says. (Reuters)

• The Unexpected Rise in Remittances to Central America and Mexico During the Pandemic. (International Monetary Fund)

• Japan intervenes to stop yen slide, after BOJ holds rates super low. (Reuters)

• More Americans Are Stuck With Long-Term Credit-Card Debt. (Yahoo)

• 14 ways to cut flying costs while booking air tickets (ET Wealth)

Privacy - Major Headlines of the Week

• Exclusive Report: The right to privacy in the digital age. (United Nations)

• US to expand internet access to help Iranians evade state surveillance. (Guardian)

• Proton follows other VPNs in pulling servers out of India over new anti-privacy laws. (Reclaim the Net)

• Morgan Stanley hard drives holding sensitive client data got auctioned off online (CNN)

• $35M fine for Morgan Stanley after unencrypted, unwiped hard drives are auctioned. (ARS)

• Revealed: US Military Bought Mass Monitoring Tool That Includes Internet Browsing, Email Data. (Motherboard by Vice)

• Military Whistleblower Challenges Pentagon's Warrantless Purchase Of Internet Data. (The Dissenter)

• San Francisco votes to give cops access to private CCTV cameras. (Reclaim the Net)

• Ad-blocker AdGuard struggles with Google’s extension rules. (Reclaim the Net)

• As unrest grows, Iran restricts access to Instagram, WhatsApp (Reuters)

• Facebook Report Concludes Company Censorship Violated Palestinian Human Rights. (The Intercept)

• Would you geotag your home for your government? 50 million Indians did. (Rest of World)

• Proton launches Proton Drive (Proton)

• EU parliament majority now in favor of banning AI surveillance in public. (Biometrics Update)

• EU Court Rules Against German Data Collection Law. (Security Week)

• Advocates still see a lot of danger for individuals using government digital IDs. (Biometrics Update)

• Rights holders end legal demands for ISPs to ban movie pirates from the internet. (Reclaim the Net)

• Beijing bus drivers have been told to wear wristbands to monitor their emotions. (South China Morning Post)

Crypto Corner

• White House Releases First-Ever Comprehensive Framework for Responsible Development of Digital Assets. (The White House)

• Bitcoin Dips as Fed Again Raises Interest Rates to Combat Inflation. (Decrypt)

• For Myanmar’s revolutionaries, adopting digital currency can mean life or death. (Rest of World)

• EU Finalizes Legal Text for Landmark Crypto Regulations Under MiCA (Coindesk)

• Japan makes big steps towards a cashless society. (Reclaim the Net)

• Nasdaq Starts Crypto Custody Service for Institutional Clients. (Coindesk)

• Was the Ethereum Merge a Mistake? (Decrypt)

• Crypto market de-risking. (Arcane Research)

Miscellaneous

• How Mathematical Curves Enable Advanced Communication. (Quanta Magazine)

• Israeli Forces Deliberately Killed Palestinian American Journalist, Report Shows. (The Intercept)

• How the War Changed Overnight. (Consortium News)

• Text of Putin’s Speech. (Consortium News)

• Protests in Russia against mobilisation – in pictures (Guardian)

• Report from Moscow: Antiwar Protests Grow as Thousands Flee Russia to Avoid Being Drafted into Army. (Democracy Now)

• 87% of world doesn't support West's new cold war on Russia. (Multipolarista)

• Mahsa Amini’s death could be the spark that ignites Iran around women’s rights. (Guardian)

• Puerto Rico’s vulnerability to hurricanes is magnified by weak government and bureaucratic roadblocks. (The Conversation)

Charts of the Week

1. Google Results Spiked for “How to leave Russia” after Putin’s speech

2. The Cost of Europe’s Energy Crisis

Using data from Bruegel, the infographic above reflects spending on national policies, regulation, and subsidies in response to the energy crisis for select European countries between September 2021 and July 2022. All figures in U.S. dollars.

3. A typical “60/40 Portfolio” is down 19.3% in 2022, on pace to become the 2nd worst year in history after 1931.

4. Global (Official) Inflation Rates Update:

5. More than 40 central banks have increased interest rates by at least a three-quarter point in one go since the start of 2022

6. Fund managers are favourably long Healthcare, Staples and Energy; and short Discretionary, Industrial and Tech stocks

7. Goldman’s US Financial Conditions index is hitting fresh highs

8. Financial conditions relative to their 5-year average are at Great Financial Crisis levels

9. Consumers are Struggling to Pay their Longer-Term Credit Card Debt

10. Cost of shipping around world via container (ocean freight rates) continues to collapse

11. Norway's Sovereign Wealth Fund’s Stock Portfolio Breakdown

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!

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I hope you are having an enjoyable weekend!

🟦 Before we proceed, I would be pleased to know which themes would you like to see the most in the newsletter so that I can effectively optimize my content in the next editions. Please help me by answering this anonymous survey. Thank you! :)

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Regrettably, I did not have enough time this week to evaluate research reports, essays, and opinion pieces to present them to you in a simplified manner, as I usually do in my weekly newsletters. Instead, let’s do a quick headline roundup of the important news of the week across themes.

Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Finance and Economics

• Privacy - Major Headlines of the Week

• Crypto Corner

• Miscellaneous

• Charts of the Week

  • European nations became less reliant on Russian gas supplies in 2022

  • Financial Markets are Pricing In Higher Interest Rates in the US

  • Countries that are still under the Monarchy Regimes

  • Investors are Increasingly Bullish on Energy Stocks and Bonds

  • US stocks suffer their worst day in more than two years

  • Mortgage Rates and Housing Affordability in the United States

  • Countries are Betting Big on Quantum Computing

  • Public Opinion Towards the Monarchy Over Time

  • 2022 Global Crypto Adoption Index - Top 10 Countries

  • The Top 10 Countries Hit Hardest by Food Inflation (in Nominal Terms)

  • The Top 10 Countries Hit Hardest by Food Inflation (in Real Terms)

  ---

Finance and Economics

• Is a Global Recession Imminent? (World Bank Report)

• Global Economics Intelligence executive summary, August 2022 (McKinsey)

• India’s Retail inflation surges to 7% in August; IIP slows to 2.4% in July (The Economics Times)

• Inflation Is Upending Politics in the Most Unequal Region on Earth (Yahoo News)

• 'Inflation, Supply Issues Top Risks for Emerging Asia' (The Economics Times)

• Surging cost of living in the US drives class tensions to the breaking point (WSWS)

• Why is India’s August unemployment rate the highest in the past 12 months? (The Indian Express)

• Sterling falls to 37-year low against the dollar; European stocks close down 1.6% (CNBC)

• How the ECB Plans to Avoid Fragmentation and Contain Inflation (Goldman Sachs)

• Ripple effects of Europe’s Energy Crisis (Bloomberg)

• The United States - August inflation update (Noah Smith)

• Strong US inflation keeps the Fed on a hawkish track (ING Economics)

• Rising inflation sparks fears of hard landing for US economy (FT)

• Five Questions for Fed Chair Jerome Powell (American Institute for Economic Research)

• A stubborn US inflation, a jumbo worry for Indian economy (The Economics Times)

• How the rise of clean energy impacts Oil and Gas Assets in the United States (The Breakthrough Institute)

• Cyber risk in central banking (Bank for International Settlements)

• A Powerful Dollar Could Spell Troubles for Investors (Morgan Stanley)

• Buy now, pay later: how it works (The Indian Express)

• U.S. consumer watchdog plans to regulate 'buy-now, pay-later' companies (Reuters)

• Is the US Dollar Too Strong? (Goldman Sachs)

• How Investors Can Hedge Against Inflation (International Banker)

• ETFs in vogue amid volatility as mutual funds suffer worst exodus since 2008 (ETF Stream)

Privacy - Major Headlines of the Week

• 20 Years After 9/11, Surveillance Has Become a Way of Life (Wired)

• Facebook says it was a mistake to censor The Falling Man photos and articles to commemorate 9/11 (Reclaim the Net)

• A summary of the Peiter “Mudge” Zatko, Twitter whistleblower, hearing (Reclaim the Net)

• Twitter Whistleblower Says There Was at Least One Chinese Spy Working at the Company (Motherboard by Vice)

• Privacy-Focused Technology Companies Call for a Floor Vote on Antitrust Legislation (Duckduckgo)

• Big Tech CEOs Push Congress to Oppose Antitrust Legislation, Reports Say (CNET)

• Facebook Engineers: We Have No Idea Where We Keep All Your Personal Data (The Intercept)

• Border Agents Are Grabbing Data From Americans' Phones Without Warrants and Storing It for 15 Years (Gizmodo)

• Google Faces $25B Claims in UK, Dutch Courts on Adtech Norms (The Economics Times)

• South Korea fines Google, Meta over privacy violations (AP News)

• Google pays 'enormous' sums to maintain search-engine dominance, DOJ says (Tech Xplore)

• Enable These Instagram Privacy Settings Right Now (Life Hacker)

• NZ police illegally collecting biometric data from Māori, new investigation suggests (Biometrics Update)

• Uber hacked, internal systems breached and vulnerability reports stolen (Bleeping Computer)

• Beloved browser extension acquired by non-beloved antivirus firm (ARS)

Crypto Corner

• Ethereum Successfully Executes Highly-Anticipated Merge Event, Ushering in Proof-of-Stake Era (Decrypt)

• Everything You Need To Know About the Ethereum Merge (Hacker Noon)

• Ethereum Posts Biggest Losses on Merge Week (Decrypt)

• The 2022 Global Crypto Adoption Index: Emerging Markets Lead in Grassroots Adoption, China Remains Active Despite Ban, and Crypto Fundamentals Appear Healthy (Chainalysis)

• Key takeaways from the 2022 Crypto Adoption Index (Chainalysis)

• Emerging markets lead global adoption index: Chainalysis report (Cointelegraph)

• China Back Among Top 10 Countries In Bitcoin Usage Despite Ban (Bitcoin Magzine)

• Norwegian central bank uses Ethereum to build national digital currency (Cointelegraph)

• Asset management giants take a leap of faith in crypto (ETF Stream)

• Australia police form digital asset unit amid rising ‘crypto’ money laundering cases (Coin Geek)

• Doctor Bitcoin, Jailed For Selling P2P, Warns Others They’ll Be Next (Bitcoin Magazine)

Miscellaneous

• NASA’s James Webb takes its first direct image of an exoplanet (Free Think)

• Royal Pageantry Can’t Disguise that Britain Is Broken (Tribune Magazine)

• The United States Is Waging a New Cold War: A Socialist Perspective (Tricontinental)

• India Far Less Committed to Liberal Values Than Imagined, Data Shows (Consortium News)

• Cold shutdown reduces risk of disaster at Zaporizhzhia nuclear plant – but combat around spent fuel still poses a threat (The Conversation)

• Ukraine Nuclear Power Plants (The Breakthrough Institute)

• DOE Report Finds Hundreds of Retiring Coal Plant Sites Could Convert to Nuclear (Office of Nuclear Energy)

• King Charles inherits crown with support for monarchy at record low – but future not set in stone (The Conversation)

• Police crackdown on UK anti-monarchy protesters tears apart democratic pretensions of ruling elite (World Socialist Web Site)

• New research suggests ‘turmoil’ in Russian society over Ukraine war (Open Democracy)

• The number of people working remotely tripled during COVID (Axios)

• Adobe snaps up Figma for $20B, taking out one of its biggest rivals in digital design (Tech Crunch)

Charts of the Week

1. European nations became less reliant on Russian gas supplies in 2022

2. Financial Markets are Pricing In Higher Interest Rates in the US

3. Countries Still under the Monarchy Regimes

4. Investors are Increasingly Bullish on Energy Stocks and Bonds

5. US stocks suffer their worst day in more than two years

6. Mortgage Rates and Housing Affordability in the United States

7. Countries are Betting Big on Quantum Computing

8. Public Opinion Towards the Monarchy Over Time

9. 2022 Global Crypto Adoption Index - Top 10 Countries

10. The Top 10 Countries Hit Hardest by Food Inflation (in Nominal Terms)

11.The Top 10 Countries Hit Hardest by Food Inflation (in Real Terms)

🎯 That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free! 👇

Subscribe now

Also, please help me spread the word by telling your friends about my newsletter and encouraging them to subscribe. It would mean a lot :)

Share The Economics Hub

Have a great week ahead,

Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources!

Subscribe now

Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Rupee hits all-time low of 80 against US dollar

• An NRI investor's guide to navigating Rupee at 80

• British pound falls to its lowest level against the dollar since 1985

• IMF announces preliminary bailout loan agreement with Sri Lanka

• Privacy News of the Week

  • US asked British spy agency to stop Guardian publishing Snowden revelations

  • Ireland fines Instagram €405 million over the protection of children's data

  • TikTok denies security breach after hackers leak user data, source code.

  • EU broadens inquiry into the use of Pegasus spyware

  • Israeli Defence Minister's Cleaner Sentenced for Spying Attempt

  • Iranian authorities plan to use facial recognition to enforce new hijab law

  • China Targets Online ‘Rumors’ Ahead of Xi’s Leadership Bid

  • Doxxed, threatened, and arrested: Russia’s war on Wikipedia editors

  • Ad blockers struggle under Chrome's new rules

  • Internet Security & Encryption Pioneer Peter Eckersley Passes at 43

• Charts of the Week

  • Longest Reigns since the 17th Century

  • The Ascent of CBDCs

  • India and China soften Russia’s oil sanctions pain

  • The Meteoric Rise of UPI

  • Food and Energy are Driving the Global Inflation Surge

  • Global Policy Rates and Inflation Update

  • Investors Ramp Up Short Positions in Futures

  • Recession Outlook for Major Countries

  ---

1. Rupee hits all-time low of 80 against US dollar

Very recently, the Indian rupee hit an all-time low of 80 against the US dollar as major currencies continue their downward spiral against the mighty dollar. The Rupee breaching the psychological mark of 80 on Wednesday for the second time ever has set off alarms if this slump signals a further deterioration of the Indian economy. The Indian currency has now lost more than 7% against the U.S. dollar since the beginning of 2022.

This is happening despite the Reserve Bank of India (RBI) intervening in the foreign exchange market by selling dollars from its foreign exchange reserves and buying rupees. The RBI sells dollars and purchases rupees to ensure that there are adequate dollars in circulation and that the rupee does not lose value rapidly.

Although RBI’s intervention has been relatively effective in maintaining the Rupee at around 80 per dollar, this intervention strategy might not be fully sustainable in the long term as India’s forex reserves continue to dry up. As noted by Mint:

India's foreign exchange (forex) market erased its over $560 billion mark in the week ending September 2. In August month, the reserves witnessed a sharp decline as RBI leaned toward taming rupee depreciation against the US dollar. In the latest week, reserves dived lowest in more than 23 months. All components of forex reserves contracted during the week under review with foreign currency assets (FCA) weighing the most on the performance.

Let us look at the primary reasons why the Indian Rupee is falling:

• As evident from Fed Chair Jerome Powell’s speech, Federal Reserve will maintain its hawkish monetary policy stance and would continue to hike key policy rates for the time being. The result is that foreign investors might continue to sell their assets to pull the capital away from India (and other EMEs) in an anticipation of higher risk-adjusted returns.

• Weaker growth projections in the short-to-medium term, resulting in fewer capital investments in India via the FDI route.

• We do not have the capacity to export goods and services to increase our Forex reserves to offset the freefall in the rupee against the dollar because the developed markets are expected to grow slowly or even get into a recession.

• India’s import bill has risen considerably due to the rise in global commodity prices. This weighs a lot on the rupee considering that the nation imports around 86% of its oil needs.

• In general, Asian currencies continue to weaken against the dollar, especially the Japanese Yen and Chinese Yuan. For instance, global hedge funds are increasingly betting against the yen as they anticipate that the Bank of Japan’s ultra-loose monetary policy would continue. Even the Chinese Yuan continues to weaken against the dollar given its uncertain macroeconomic situation and continued covid-19 lockdowns, which have weighed on industry and the economy.

2. An NRI investor's guide to navigating Rupee at 80

This is an interesting article by The Economic Times, which briefly explains how non-resident Indians (NRIs) can visualize the downside in the Indian rupee from an investment perspective.

Historically, the downfall of the rupee has always been considered an attractive investment opportunity by NRI investors. Borrowing funds outside India at cheaper rates and then investing the same in India for higher returns can create a plethora of investment opportunities in India.

When the Rupee slides against the dollar, a typical person gets more rupees in exchange for dollars. This creates a valuable opportunity for NRIs who plans to invest in India or repatriate income to their family in India through remittances.

Before we proceed, let’s summarize the different investment options available to NRIs and the process involved in investing.

There are three main types of fixed deposit accounts that serve as NRI investment options in India:

1. Income from India - Non-Resident Ordinary (NRO) Bank Account:

   • This type of account is generally used by NRIs to manage their incomes earned domestically.

   • Rent income, dividends from investments, or pension funds can be paid into these accounts.

   • Furthermore, the interest earned on an NRO fixed deposit is taxed at a rate of 30%.

2. Income out of India - Non-Resident External (NRE) Bank Account:

   • You can remit your foreign income earned (in currencies other than Rupees) outside India in the NRE bank account.

   • Interest rates on these accounts vary depending on the deposit size and/or bank. You can expect interest rates to be around 5-7% per year.

   • This account is maintained in Indian Rupees.

   • Transfer from NRE accounts maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

3. Foreign Currency Non-Resident (FCNR) Account:

   • This is a kind of fixed deposit account opened for depositing income earned overseas.

   • The account is held in foreign currency.

   • It helps to avoid currency fluctuations that take place in financial markets.

   • The currency you deposit into the account will determine its interest rate of it.

Investment options available for NRIs:

• Fixed Deposits in the aforementioned three bank accounts.

• Mutual Funds

• Direct Equity

• Real Estate

• Government Securities

• Bonds and Non-Convertible Debentures (NCDs)

• Retirement Plans

• National Pension Scheme (NPS)

• Child Plan

If you wish to dive deeper into these investment options then I recommend this article by Policy Bazaar.

Okay, so to make direct equity investments on any recognized stock exchanges in India, NRIs need to open a PIS bank account - a type of saving bank account that will only have secondary market transactions and charges, and oh yes, TDS is also applicable. Under this scheme, NRIs can buy/sell shares of Indian companies through the stock exchanges in India. PIS account is primarily required by the regulator to monitor the investment limit by NRIs in the stock market.

An NRI investor will need the following things:

• An NRE/NRO savings account dedicated only for your PIS purposes.

• A dematerialized account that holds shares in an electronic form.

• A SEBI trading account with a registered broker.

For investing in other financial instruments, investors must ensure the type of bank account they are supposed to have among NRE, NRO and FCNR and other additional requirements if any.

Okay, back to The Economic Times article for NRIs on navigating uncertain economic climate.

🟦 Fixed Income

With the rise of interest rates across the world, fixed income instruments may be appealing to risk-averse investors. The interest rates offered varies from 5-7% and it depends on the bank you have opened your NRE account. You can check the fixed deposit rates offered by popular banks on NRE accounts here.

Interest earned on these term deposits is credited in the Indian Rupee. Please take note that your money (denominated in the Indian Rupee) in this account is subjected to exchange rate fluctuation risk when you wish to repatriate the money to your residing country. If you are concerned about the exchange rate fluctuation risk and wish to be vigilant, then you may consider opting for FCNR deposits. However, as you can see from the following table, interest rates on FCNR deposits are relatively low — typically ranging from 2-4%.

🟦 Direct Equity or Equity Mutual Funds

Equity mutual funds are in vogue in recent years as most investors are beginning to see the benefits of mutual funds in India as a distinct asset class. Equity investments are also loved by NRI investors as they provide relatively higher inflation-adjusted returns along with tax benefits. However, given the persistent market volatility driven by a set of different economic and geopolitical factors, equity MF inflows have dropped by a significant 78% from the year’s peak. Even the direct equity indices have lost around 10% since the start of the year.

Therefore, given the market volatility and weak economic outlook, equity investments may not seem like a preferred investment option at this point. However, if you are a long-term investor who aims to average down or someone who anticipates a better economic outlook, this may prove to be an excellent opportunity to buy equities.

🟦 Real Estate

Investing in property or real estate instruments has always been one of the popular NRI investments in India. I am personally not a very big fan of real estate investments but investors’ rationale for investing in real estate is that it might potentially be a good long-term investment with steady growth.

The depreciating rupee provides an attractive avenue for NRIs looking to buy a house property or pre-pay a part of the housing loan given the fact that every dollar would bring in more rupees. NRIs considering moving to India in the foreseeable future may also find this to be a good opportunity to take advantage of the favourable exchange rate.

Overall, NRI investors need to consider the following factors while investing in Indian financial instruments:

• Being mindful of your investment objective and current market conditions.

• Considering interest rates and tax implications.

• Being aware of your risk appetite, risk capacity and time horizon.

• Recognizing specified conditions for investment and their compliance requirements.

• Maintaining regular cash flow/income streams.

• The amount of time you can dedicate to analyzing the markets and optimizing the portfolios

The Economics Hub

The Economics Hub Newsletter: Week 7

Happy Sunday! Welcome to another issue of The Economics Hub Newsletter! I hope you are well. If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources! Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to j…

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4 years ago · 1 like · Shreyas Urgunde

If you are curious to explore a sensible investment philosophy, I highly recommend my previous newsletter where I extensively discussed Howard Marks’ investment philosophy. Check it out!

3. British pound falls to its lowest level against the dollar since 1985

The British pound on Wednesday plummeted to its lowest level against the U.S. dollar since 1985. Sterling fell to $1.1407 — a level not seen in 37 years — as investors responded to the U.K.’s darkening economic landscape with a new prime minister at the helm.

The British pound has significantly declined in recent months by surging inflation — currently at the highest level among all G-7 nations — and the prospects of a looming recession. The appointment of Truss, who is widely expected to cut taxes and boost borrowing, has added to U.K. debt market concerns.

Deutsche Bank has warned that the policy stances of newly appointed Prime Minister Liz Truss might pose a threat to Sterling’s stability in the imminent future.

4. IMF announces preliminary bailout loan agreement with Sri Lanka

If you are still unaware, Sri Lanka, the island nation of 22 million people has been facing a severe socio-political and economic crisis triggered by rapidly dwindling foreign currency reserves, shortages of fuel, food and medicines, inability to borrow money from creditors due to debt defaults, etc. You can read more on that in my previous edition of the newsletter.

The Economics Hub

The Economics Hub Newsletter: Week 4

Happy Saturday! Welcome to another issue of The Economics Hub Newsletter! I hope you are well. If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources…

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4 years ago · 3 likes · 2 comments · Shreyas Urgunde

The International Monetary Fund (IMF) last Thursday announced that a preliminary staff-level agreement with the Sri Lankan government had been reached for a 48-month arrangement to provide a $US2.9 billion loan facility to restore the stability of the economy and help the country manage its debt as it presses forward with “structural reforms.” The new arrangement is subject to the approval of the fund's management and executive board.

The objectives of Sri Lanka’s new Fund-supported program are to restore macroeconomic stability and debt sustainability, while safeguarding financial stability, protecting the vulnerable, and stepping up structural reforms to address corruption vulnerabilities and unlock Sri Lanka’s growth potential.

Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be required to help ensure debt sustainability and close financing gaps.

Key features of this program are:

• Raising fiscal revenue to support fiscal consolidation. Starting from one of the lowest revenue levels in the world, the program will implement major tax reforms. Fiscal consolidation is a macroeconomic process where policies are designed to reduce fiscal deficits and debt accumulation.

• Introducing cost-recovery-based pricing for fuel and electricity to minimize fiscal risks arising from state-owned enterprises. Under the cost-recovery method, a firm doesn’t record income related to the sale of its services until the money collected exceeds the cost of the services rendered.

• Mitigating the impact of the current crisis on the poor and vulnerable by raising social spending, and improving the coverage and targeting of social safety net programs.

• Restoring price stability through data-driven monetary policy action, fiscal consolidation, phasing out monetary financing, and stronger central bank autonomy that allows pursuing flexible inflation targeting regime.

• Rebuilding foreign reserves through restoring a market-determined and flexible exchange rate.

• Safeguarding financial stability by ensuring a healthy and adequately capitalized banking system, and by upgrading financial sector safety nets and regulatory standards with a revised Banking Act.

• Reducing corruption vulnerabilities through improving fiscal transparency and public financial management, introducing a stronger anti-corruption legal framework.

• The target is to raise huge new revenues to ensure a fiscal surplus of 2.3 per cent of gross domestic product (GDP) in 2025, from the estimated current deficit of 9.8 per cent for this year.

World Socialist Web Site (WSWS) observes that the new IMF-Sri Lanka agreement is yet another “round of savage austerity measures to make workers and the poor pay for the country’s unprecedented economic crisis.”

Furthermore, WSWS notes that a turnaround from a deficit state to a surplus state in two years (as specified by IMF’s agreement) can only be accomplished with enormous tax increases, substantial cuts to government spending on essential services such as health and education, and a major downsizing of the public sector through massive job losses.

Given the current economic framework where inflation is at multi-year highs, commodity crunch across the globe, dollar favouring environment and an imminent threat of global recession, such a turnaround in a short span of 2 years for a crisis-prone developing country is certainly unattainable.

The article also presents other reasonable arguments such as how the loan agreement can potentially hold Sri Lanka at the whim of IMF’s austerity measures.

The IMF will approve its first loan installment only if it is satisfied that the austerity measures are being implemented. IMF official Masahiro Nozak warned that “a review will precede each set of payments.”

I also share the views of WSWS, where they report how the international loans were channelled to pursue the ethnocentric nationalist dreams of the Sri Lankan government to fund the persecution of minority communities — Tamils in particular.

Successive regimes that obtained these loans to boost their profits and offset the impact of the worsening global capitalist crisis. Half of the borrowings were to prosecute the bloody anti-Tamil war that lasted nearly three decades and devastated the economy and whole areas of the island.

I highly recommend reading one of my previous editions of the newsletter where I have explained how the road to Sri Lanka’s crisis was more influenced by socio-political reasons than macro-economic factors. Check it out!

Privacy News of the Week

The United States asked the British spy agency to stop the Guardian from publishing Snowden’s revelations

According to a new book, the US National Security Agency (NSA) attempted to persuade its British counterpart to prevent the Guardian from publishing details concerning secret mass data gathering from NSA contractor Edward Snowden.

Sir Iain Lobban, the head of Government Communications Headquarters (GCHQ), was reportedly called with the request in the early hours of 6 June 2013 but rebuffed the suggestion that his agency should act as a censor on behalf of its US partner in electronic spying.

The late-night call and the British denial to stop publication of the leaks were the first of several episodes in which the Snowden affair caused internal divisions within the Five Eyes signals intelligence coalition, as recounted in The Secret History of Five Eyes, a new book by film-maker and investigative journalist Richard Kerbaj.

Read more on The Guardian

Ireland fines Instagram €405 million over the protection of children's data

Ireland's data privacy regulator has agreed to levy a record fine of 405 million euros ($402 million) against Meta’s Instagram following an investigation into its handling of children's data, a violation of strict European Union data privacy rules.

The investigation, which started in 2020, focused on how Instagram displayed the personal details of users ages 13 to 17, including email addresses and phone numbers. The minimum age for Instagram users is 13. The investigation began after a data scientist found that users, including those under 18, were switching to business accounts and had their contact information displayed on their profiles. 

Under the EU's data privacy rules, the Irish watchdog is the lead regulator for Facebook, Apple, Google and other technology giants due to the location of their EU headquarters in Ireland.

Read more on Euro News

TikTok denies security breach after hackers leak user data, source code

On Friday, a hacking group known as “AgainstTheWest” created a topic on a hacking forum claiming to have breached both TikTok and WeChat. The user shared screenshots of an alleged database belonging to the companies, which they say was accessed on an Alibaba cloud instance containing data for both TikTok and WeChat users.

TikTok denies recent claims it was breached, and source code and user data were stolen, telling BleepingComputer that data posted to a hacking forum is "completely unrelated" to the company.

Read more on Bleeping Computer

EU broadens inquiry into the use of Pegasus spyware

According to Nikolaj Nielsen of EU Observer, the EU's Pega investigative group, which is investigating the extent to which states utilize intrusive surveillance technologies such as Pegasus, the spyware manufactured and sold by NSO Group, may broaden its scope to include the Italian firm Tykelab and its parent, RCS Lab.

The move has been sparked by a recent investigation by Lighthouse Reports in collaboration with Der Spiegel, Domani, and Irpimedi, which found that the Italian companies were surreptitiously attacking phones with spyware with capabilities almost as sophisticated as Pegasus in southeast Asia, Latin America, Africa, and Europe.

Read more on EU Observer

Israeli Defence Minister's Cleaner Sentenced for Spying Attempt

A man employed as a cleaner in Israeli Defence Minister Benny Gantz's home was sentenced to three years in prison for attempting to spy for Iran-linked hackers, the justice ministry said Tuesday.

He was arrested and charged with attempting to spy for the Black Shadow group after offering to pass information from Gantz's home to the hackers. On Tuesday, the justice ministry said the man had reached a plea deal in which "he confessed to an attempt to pass on information to an enemy," with the court sentencing him to "three years' prison".

The justice ministry statement described Black Shadow as "a hacker group affiliated with Iran".

Read more on Security Week

Iranian authorities plan to use facial recognition to enforce new hijab law

The Iranian government is planning to use facial recognition technology on public transport to identify women who are not complying with a strict new law on wearing the hijab.

The secretary of Iran’s Headquarters for Promoting Virtue and Preventing Vice, Mohammad Saleh Hashemi Golpayegani, announced in a recent interview that the government was planning to use surveillance technology against women in public places following a new decree signed by the country’s hardline president, Ebrahim Raisi, on restricting women’s clothing.

It followed the Hijab and Chastity Day, a national holiday held on July 12, which saw women protest all over the country by posting on social media pictures of themselves without the head covering. Some of the women that have been arrested for violating the new law were identified after videos showing them without the hijab or wearing the hijab the wrong way went viral on social media.

Read more on Reclaim the Net

China Targets Online ‘Rumors’ Ahead of Xi’s Leadership Bid

China’s cyberspace watchdog has vowed to crack down on fake news before a key summit where President Xi Jinping is set to take a precedent-defying third term in power.

The Cyberspace Administration of China launched a three-month campaign targeting “online rumours and fake information about major meetings, important events and policies,” starting Friday, it said in a statement. Offenders should be handled “strictly, quickly and severely,” the agency added, without specifying punishments. 

The cyber crackdown will also rein in “rumours” about work safety, transport, natural disasters, as well as false information on society, the economy, and people’s livelihoods, according to the statement. Online platforms were urged to blacklist accounts posting such content and government agencies were instructed to respond swiftly. 

Read more on BNN Bloomberg

Doxxed, threatened, and arrested: Russia’s war on Wikipedia editors

One Friday in March, not long after Russia invaded Ukraine, Mikhail, a Russia-based Wikipedia editor, opened the Telegram app to discover that he had been doxxed. His personal information, including his name and social media accounts, had been posted in a channel run by a group of Russian online vigilantes targeting Wikipedians writing about the war.

Below the text was an image with a single word: “Retribution.” The post had been viewed more than 110,000 times.

That month, at least four other Wikipedia editors were also doxxed, and accused of smearing Russia’s war efforts. Among them was Mark Bernstein, an editor based in Belarus, Russia’s ally in the war in Ukraine. After Bernstein’s name appeared in the Mrakoborec group on March 10, he was arrested, and detained in Minsk’s notorious Okrestina detention centre.

Bernstein’s arrest and the threats to individual Wikipedia editors are part of a broader campaign to stifle the platform as the Russian government pushes a pro-war propaganda drive, including banning Western social media platforms and cracking down on independent reporting.

Read more on Rest of World

Ad blockers struggle under Chrome's new rules

Next year, Chrome browser extensions – such as ad blockers and other privacy tools – will stop working if they are reliant on an API called Manifest v2 (MV2). The cut-off date for MV2 is January 2023 though it can be used to June via an enterprise policy.

In Google's mind, ad blockers and similar extensions, under the MV2 regime, have too much control over and access to the pages you've got open in the browser. If one of these add-ons turns rogue, it can harvest all kinds of sensitive data about you from these pages as you visit them.

Its successor spec, MV3, got rid of powerful but potentially exploitable capabilities, such as the ability to intercept and rewrite requests for pages – a useful weapon for extensions that seek to preserve your privacy and security by blocking requests to undesirable stuff, such as trackers, malware, and ads.

Privacy-focused developers and advocacy groups have warned that Google's ostensible effort to promote privacy (by limiting data access and enforcing permissions) will end up harming extensions that promote privacy.

Read more on The Register

Internet Security & Encryption Pioneer Peter Eckersley Passes at 43

The privacy community has lost a notable figure this week with the death of Peter Eckersley, a beloved security software engineer and privacy activist who played a crucial role in many of today's web encryption technologies.

He had spent 12 years working for the Electronic Frontier Foundation, where he helped co-found and co-create many of today's most notable privacy-inclined projects, including the likes of Let's Encrypt, Certbot, Privacy Badger, HTTPS Everywhere, SSL Observatory, and Panopticlick (later rebranded to Cover Your Tracks).

The privacy community expressed their condolences.

Read more on Risky Business News

Charts of the Week

🎯 Queen Elizabeth II has died

Queen Elizabeth II, the UK's longest-serving monarch, has died at Balmoral aged 96, after reigning for 70 years. Ascending the throne in 1952, Elizabeth led the UK through a time of political upheaval. She began her reign as head of an empire, albeit one in decline. By the time of her death, the future of the UK itself was in doubt, with recurrent calls for independence in Scotland and Britain's exit from the European Union leading to renewed tension in Northern Ireland.

Britain's Queen Elizabeth II was the second-longest reigning monarch in history, after France's Louis XIV. In June this year, she overtook Thailand's King to become the world's second-longest reigning monarch. Thailand's King Bhumibol Adulyadej reigned for 70 years and 126 days between 1927 and 2016.

Louis XIV of France remains the longest-reigning monarch, with a 72-year and 110-day reign from 1643 until 1715.

🎯 The Ascent of CBDCs

Central banks are rolling up their sleeves and familiarizing themselves with the bits and bytes of central bank digital currencies, also known as CBDCs. The central banks are increasingly considering CBDCs, which is evidently from the above chart which monitors the CBDC development of countries across different categories: Pilot stage, Research phase, Proof of concept and Launched.

The Economics Hub

Central Bank Digital Currency and the Dystopian World of Cashless Economy

Assume that you and I are two random people from the Stone Age era that had begun roughly 2.6 million years ago. I require some stones and hunting tools from you in exchange for some meat that I possess. We both mutually and voluntarily decide to trade and exchange. This direct exchange of goods and services was the essence of the barter system that pre…

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5 years ago · 8 likes · 5 comments · Shreyas Urgunde

If you are still unaware of the central bank digital currencies, then you should check out my essay titled, “Central Bank Digital Currency and the Dystopian World of Cashless Economy.” You will learn lots of interesting things!

🎯 India and China soften Russia’s oil sanctions pain

Indian and Chinese oil buying has offset most of the fall in Russian shipments to Europe, raising questions about the impact of sanctions on Moscow that have led to soaring energy bills for European consumers.

A Financial Times analysis of available data from Chinese and Indian customs statistics shows the two countries imported 11mn tonnes more oil from Russia in the second quarter of 2022 compared with the first quarter. Payments for Russian oil from the two countries increased by $9bn.

The biggest volume growth came from India, where imports of Russian oil jumped from 0.66mn tonnes in the first quarter to 8.42mn tonnes in the second.

🎯 The Meteoric Rise of UPI

UPI is a digital payment platform in India that enables fast inter-bank transactions.

Ever since its launch in 2016, UPI has achieved numerous commercial milestones. For instance, UPI has seen a remarkable CAGR of 414% until FY 19-20 and it is expected to reach 169 billion (16,900 crores) by 2025-26, growing at a CAGR (compounded annual growth rate) of 122 per cent. It has already become the most preferred payment instrument in terms of volumes.

Partnerships with other countries in Asia to enable low-value transactions and cross-border remittances through UPI will contribute to this growth in the next years, according to a PwC report. Furthermore, the report said that existing products and emerging use cases such as UPI, Fastag, transit (NCMC) and cards will continue to make inroads and gain additional wallet share of the Indian customers. These methods will continue to drive growth in adoption and transaction numbers.

The above infographic by Finshots presents yet another milestone for UPI, as its payment transactions value rose to Rs 10.73 lakh crore in August this year.

🎯 Food and Energy are Driving the Global Inflation Surge - IMF

In the last 12 months, consumer price inflation has hit multi-year highs in most countries including the advanced countries driven by a set of different factors. International Monetary Fund’s research reveals that the price increases in food and energy are the main drivers of this inflation.

IMF notes that since the start of last year, the average contributions just from food exceed the overall average rate of inflation during 2016-2020. In other words, food inflation alone has eroded global living standards at the same rate as inflation of all consumption did in the five years immediately before the pandemic.

A similar story holds for energy costs, which show up both directly and indirectly, through higher transportation costs. This is not to say that prices of other items are not rising too. For example, services inflation has increased in the United States and the euro area. And the relative impact of food, energy, and other items in driving inflation varies considerably across countries.

🎯 Global Policy Rates and Inflation Update

🎯 S&P 500 Futures Positioning Suggests More Down is Coming, as Investors Ramp Up Short Positions

Traders are adding to short positions in S&P 500 futures as the stock market's summer rally stalls. Positioning in S&P 500 futures grew more net-short in the latest report from the Commodity Futures Trading Commission. That means more investors are betting on the benchmark’s decline or hedging against a downturn.

Net-short positioning is approaching the June 2020 low. In other words, market pessimism is on the rise again.

🎯 Recession Outlook for Major Countries

Citi economists’ view is that there is a 50% chance of a global recession, but that it’s more likely to happen in 2023.

They now see contractions over the next 12-18 months in the Euro area, the United Kingdom, and—towards the end of the period—the United States. The timing of these recessions is expected to vary, based on each economy’s exposure to global shocks and its underlying momentum.

The underlying drivers of performance across countries are broadly similar. Surging inflation pressures are afoot, with global headline inflation running at its hottest pace in decades. However, one intensifying downside risk for both Europe and the global economy involves the reliability of the Russian gas supply.

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!

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Have a great week ahead,

Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources!

Subscribe now

Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Eurozone Inflation rose to a record level of 9.1% in August

• Global Energy Crisis Spurs a Revival of Nuclear Power in Asia

• Ports & airports, power, media: Adani’s $137.4-billion footprint across businesses, explained

• Dollar jumps to a 20-year high as data supports aggressive Fed

• Instagram Posts of the Week

• Privacy News of the Week

• Charts of the Week

1. Eurozone inflation surpasses 9% as cost of living crisis deepens

Inflation in the eurozone rose to a fresh record of 9.1% in August, underscoring the economic shock dealt by Russia’s war in Ukraine and increasing the pressure on the European Central Bank to respond by raising interest rates aggressively next week.

The increase was mainly seen in processed food and goods prices, but services also ticked up slightly. Energy inflation fell for the second month in a row on base effects and lower petrol prices, despite soaring gas and electricity prices.

Inflation in the 19-nation eurozone has surpassed U.S. levels in recent weeks as Russia’s actions curtailed Europe’s energy supplies and drove up prices. The U.S. recorded an inflation rate of 8.5% in July, down from 9.1% in June.

This is a good breakdown of inflation-contributing factors in the United States and the Eurozone. The following chart also implies that the effects of aggressive monetary policies by central banks might be minimal in taming inflation as the demand and supply side factors are major contributing forces to the current high inflationary environment.

Global supply-side pressures have been easing in recent months. Commodity prices have fallen, including food and oil, which has resulted in lower prices at the pump. Transportation costs have also been moderated, and inputs are more widely available again. Still, specific European problems continue to push inflation higher. The gas supply crisis and droughts are adding to persisting supply-side pressures on inflation at the moment.

Worryingly for the ECB, the core rate of inflation—which excludes volatile items such as energy and food—increased to 4.3% in August from 4% in July. That suggests high inflation rates could linger even if energy and food prices stabilize. The ECB aims to keep inflation at 2% over the medium term.

Demand-side inflation remains weak in the eurozone. The output gap is still negative, household consumption is well below pre-pandemic levels and retail sales have in fact been on a declining trend since November. The latest negotiated wage growth data for 2Q came in at 2.1%, which means there is no evidence of a wage-price spiral at this point, but that the eurozone is mainly facing an unprecedented squeeze in real incomes.

Eurozone inflation is likely to rise toward 10% over the coming months, analysts say, as some government energy and public-transport subsidies expire, especially in Germany, and companies pass on higher costs to customers.

There is little the ECB can do to address supply bottlenecks for energy and other commodities. Still, officials at the bank have signalled in recent days that they are willing to act forcefully to prevent high inflation rates from becoming entrenched, including by considering a 0.75-percentage-point interest-rate increase at their policy meeting on Sept. 8. That could help to shore up the value of the euro, which has slid below parity with the U.S. dollar in recent weeks, driving up the cost of Europe’s imports and in turn fanning inflation further.

Several ECB officials have signalled recently that concerns about high inflation currently trump concerns about growth. “We should not delay further rate hikes for fear of a possible recession,” Joachim Nagel, president of Germany’s Bundesbank, said in a speech in Berlin on Tuesday.

2. Global Energy Crisis Spurs a Revival of Nuclear Power in Asia

Governments in Japan and South Korea are removing anti-nuclear policies, while China and India are looking to build more reactors to avoid future supply shortages and curb emissions. Even developing nations across Southeast Asia are exploring atomic technology.

The embracing of nuclear energy comes after the prices of natural gas and coal, the two fossil fuels used to generate most of Asia’s power, shot to record levels this year. As the world shifts away from Russia, a major fuel exporter, supply will remain tight and prices high well into the future.

That’s making clean and reliable nuclear power very attractive for policymakers and utilities eager to rein in inflation, achieve green goals and curb dependence on overseas energy suppliers. It’s a dramatic turnaround for the nuclear industry, which spent the last few decades beset by cost overruns, competition from cheaper fossil fuels and stricter regulations.

If you are interested in understanding the economics behind nuclear energy, then I highly recommend watching this video by Real Engineering. It really summarizes the topic well, while also presenting the challenges this industry faces on economic, social, political and technical front.

While the nuclear power comeback is global, gaining proponents from the UK to Egypt, the shift is perhaps most surprising in Asia, considering it had the closest view of the catastrophe that struck Japan in 2011 during the Fukushima nuclear disaster.

Now, as power bills surge and nations deal with fossil fuel-induced inflation, governments are again looking to nuclear. It requires little uranium to operate, which is currently abundant, and it produces power around the clock, unlike intermittent renewable energy projects such as wind and solar.

Let’s summarize the latest development in the nuclear sector in Asia.

🌎 Japan

The country is considering building next-generation nuclear reactors, prime minister Fumio Kishida said last week. The government will also discuss bringing more nuclear plants online and extending the service life of reactors if safety can be guaranteed, Kishida said at an energy policy meeting.

‘As for nuclear power plants, in addition to securing the operations of the 10 reactors that are already back online, the government will spearhead an effort to do all it takes to realise the restart’ of others whose safety has been approved by the country’s nuclear watchdog, he said.

Kishida urged policymakers to consider “constructing next-generation nuclear reactors equipped with new safety mechanisms as well as ‘making maximum use of existing nuclear plants”.

🌎 South Korea

South Korea’s previous government was planning to close six of the country's 24 reactors. Now, this year the country elected a pro-nuclear president who wants atomic energy to account for 30% of total energy generation and wants to build four more nuclear reactors. He also vowed to make the nation a major exporter of nuclear equipment and technology, and integrate atomic power and renewable energy to push for carbon neutrality.

South Korea is already described by the World Nuclear Association as being one of the “world’s most prominent nuclear energy countries.”

🌎 China

The nation is amid the largest build-out of reactors in the nuclear industry’s history to meet its insatiable energy demand, while also curbing dependence on dirty coal-fired power plants.

Last year, CGTN reported that China has the most number of nuclear power plants in the world under construction, citing an industry report by China Nuclear Energy Association.

China currently has nearly 24 gigawatts worth of nuclear power capacity under construction, and another 34 gigawatts planned, according to WNA data. If all of that comes to fruition, China will become the world’s top nuclear power producer.

🌎 India

India plans to put 21 new nuclear power reactors - including ten indigenously designed PHWRs - with a combined generating capacity of 15,700 MWe into operation by 2031, the Department of Atomic Energy announced. The Indian government is committed to growing its nuclear power capacity as part of its massive infrastructure development programme.

The country currently generates about 70% of its electricity using coal and around 3% from nuclear, but Prime Minister Modi is aiming to more than triple its nuclear fleet over the next decade.

🌎 Singapore

Although, the country is deemed as advanced and a global front-runner in sustainable urban development, it has yet to find a solution to decrease its dependence on fossil fuels, which is currently higher than any other country. Indeed, about 95% of the electricity generated in Singapore comes from natural gas. The surge in natural gas prices has impacted the nation due to its dependence on natural gas.

A report commissioned by the country’s Energy Market Authority (EMA) to draw a pathway to decarbonisation highlighted that while scaling up renewables might be tough given the geographical and geological restrictions, nuclear power could represent Singapore’s net-zero game-changer.

The report predicts that including this energy source in the energy mix could allow the country to cover almost 10% of its power needs by 2050. Indeed, once deemed unsuitable for Singapore, nuclear technologies have undergone incredible advancement in recent years, making it a viable option (and one that can’t be ignored) to drive the country’s decarbonisation goal. 

🌎 Taiwan

Having discussed these developments, it should be noted that not all governments in Asia are convinced. Taiwan hasn’t changed its position to phase out nuclear power. It plans to shut its reactors at the end of their 40-year lifetimes through 2025, the Ministry of Economic Affairs said earlier last week, according to the Taipei Times.

3. Ports & airports, power, media: Adani’s $137.4-billion footprint across businesses, explained

In the last week’s issue, we discussed why Gautam Adani, India’s richest and world’s fourth richest person wants to acquire New Delhi Television (NDTV) network. We also covered the economic, financial, legal, social and political causes behind his acquisition move, you can read that newsletter for detailed analysis.

The Economics Hub

The Economics Hub Newsletter: Week 11

Happy Sunday! Welcome to another issue of The Economics Hub Newsletter! I hope you are well. If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources! Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to j…

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4 years ago · 5 likes · Shreyas Urgunde

This week, Gautam Adani surpassed France’s Bernard Arnault to become the world’s third-richest person in the world. This is the first time an Asian person has broken into the top three of the Bloomberg Billionaires Index.

Let’s understand the rise and breakdown of Adani’s massive business empire.

Gautam Adani’s flagship Adani Enterprises, which started with the commodity trading business in 1988, is today one of the largest conglomerates in India with a significant presence in:

• Ports

• Airports

• Power

• Roads

• Financial Services

• Fast Moving Consumer Goods

• Renewable Energy

• Real Estate

• Transmission Gas Distribution

• Media

⌚ Timeline of Adani’s rise as a businessman:

• 1988: Adani Exports Limited commenced as a commodity trading firm and diversified into the import and export of multi-basket commodities.

• 1994: Adani Enterprises became the first listed entity for the Group and today it has seven listed entities that together have a market cap of Rs 19.29 lakh crore.

• 1995: The Group’s Mundra Port commenced operations, and since then the Group has consolidated its position in the ports business. With a presence across 13 domestic ports in seven states, Adani Ports accounts for nearly a fourth of the cargo movement in the country.

• 1998: Adani Group became the top net foreign exchange earner for India.

• 1999: Adani Group entered into the integrated resource management business and ventured into coal management. Adani Enterprises is currently the largest coal supplier in India and the largest importer of coal from Indonesia.

• 2000: The company commenced trading in Edible Oil business, with the formation of Adani Wilmar. Today, Adani Wilmar has the market capitalisation of almost 90000 crores.

• 2001: The Group entered the gas distribution business.

• 2006: The company became the largest coal importer in India with 11 Mt of coal handling.

• 2008: The Group acquired Bunyu Mine in Indonesia, and in 2010 it acquired the Carmichael mine in Australia.

• 2011: Adani group bought Abbot Point port in Australia with 50 Mt of handling capacity. It commissioned India's largest solar power plant with a capacity of 40 MW. As the firm achieved 3,960 MW capacity, it became the largest private sector thermal power producer in India.

• 2014: Adani Power emerged as India's largest private power producer.

• 2017: Adani Group acquired the power arm of Reliance Infrastructure for ₹18,800 crores (US$2.89 billion) and entered solar photovoltaic (PV) panel manufacturing business.

• 2019: The Group entered the airports business, as it won the mandate to modernize and operate six airports in India.

• 2020: Adani Group announced that it will acquire 74 per cent stake in Mumbai International Airport Limited, and completed the acquisition by August 2021. Currently, Adani Airports operates seven airports across the country.

• 2021: They set up a data centre joint venture, “Adani Connex”, with EdgeConnex to develop and operate data centres across India. The Group plans to build data centres in the NCR, Mumbai, Chennai, and Hyderabad to begin with.

• 2022: The Group acquired Ambuja Cements and ACC for US$10.5 billion. The deal will make the Adani Group the second largest cement maker in India.

As usual with most billionaires, Adani is a crony capitalist who can rapidly expand his business empire with the help of political favours and malpractices. It is disappointing to see mainstream financial news outlets in the West presenting him as a “first-gen, extremely shy, skilled, and talented” businessman without providing detailed context and political factors that led to his immense wealth in recent years, especially after Modi came to power in 2014.

I mean, let’s not forget Adani’s wealth has risen from an estimated $8bn at the time of Modi's election in 2014 to $141bn today, a rise of more than 1,600%.

I will do a detailed examination of the political reasons behind Adani’s rapid rise in wealth in the future for sure.

4. Dollar hits 20-year high as data support aggressive Fed

The dollar index hit a 20-year high on Thursday, and notched a 24-year peak against the rate-sensitive Japanese yen, after U.S. data showed a resiliently strong economy, giving the Federal Reserve more room to aggressively raise interest rates to curb inflation.

The U.S. currency strengthened after a government report showed that the number of Americans filing new claims for unemployment benefits declined further last week, consistent with strong demand for workers and tight labour market conditions.

The Dollar Index—which measures the U.S. currency against a basket of six other major currencies—rose more than 0.6% early on Monday to a high of 109.44 points before settling at 109.22. The index briefly hit 109 in July this year but Monday’s peak is the highest level it has been since 2002.

The report also showed that layoffs dropped in August, despite hefty interest rate increases from the Fed to quell inflation, which have raised the risk of a recession.

Data from the Institute for Supply Management (ISM) showed U.S. manufacturing grew steadily in August as employment and new orders rebounded, while a further easing in price pressures strengthened expectations that inflation has likely peaked.

All these statistics from the labour and manufacturing sectors indicate that the Federal Reserve might adopt a more hawkish stance toward taming inflation.

Instagram Posts of the Week

I had some free time this week, so curated some content for my Instagram page. Please follow if you haven’t yet!

1.

The new DuckDuckGo email privacy forwarding feature is pretty cool and now open to all, for free. It enables the users to remove invasive email trackers and lets you create unlimited unique private email addresses. Check this post (click on it) for more details!

2.

A short thread on zombie companies, their growth in recent years, how the Federal Reserve can create an environment for nurturing zombie companies and the lack of incentives for busting/restructuring the zombie companies in a low-interest booming era.

Source: Federal Reserve, Investopedia, Bank for International Settlements and Financial Times.

3. Europe's Energy Inflation - Visualised.

Credits: James Eagle

Privacy News of the Week

• Facebook parent Meta Platforms Inc. agreed to settle a notable lawsuit that accused the social-media platform of allowing third parties, including Cambridge Analytica, to access private user data.

  The suit followed revelations that Cambridge Analytica, a now-defunct British consulting firm that worked on former President Donald Trump’s 2016 campaign, had improperly obtained and exploited Facebook user data.

  Read more on WSJ.

• China-Taiwan Threat Intelligence Landscape. (CyberInt)

• A court in Russia on Tuesday fined streaming company Twitch 3 million roubles ($50,209) for refusing to remove a two-hour interview with an adviser to Ukrainian President Volodymyr Zelenskiy, Russian news agencies reported. (Reuters)

• Trudeau’s government to try and rush through the online censorship bill. (Reclaim the Net).

• Don’t Let Fraud Cost Your Business. (Hackernoon).

• The Low Threshold for Face Recognition in New Delhi. (Wired)

• Chile now becomes the latest government across the world to deal with a ransomware attack against one of its official agencies, after similar attacks have recently hit Montenegro, the Dominican Republic, Costa Rica, Peru, Argentina, Brazil, and many others. (Security Week)

• Digital identity verification spending to pass $20B by 2027, but security challenges remain. (Biometrics Update)

• Biometric payments win for convenience and security, privacy concerns remain: Mastercard. (Biometrics Update)

• Apps used as alternatives to prison in the US were found to have privacy flaws. (New Scientist)

• Nothing Is Protecting Child Influencers From Exploitation. (Wired)

Charts of the Week

👉 1. How Rising Food and Energy Prices Impact the Economy

👉 2. Investments in sustainable fuels are gaining momentum.

Investments in sustainable fuels—which include biofuels such as hydrotreated vegetable oil and synthetic fuels such as ammonia or methanol—are gaining momentum. A pipeline of $40 billion to $50 billion of total investment in sustainable fuels is planned, with 46 million metric tons of capacity projected by 2025.

This is primarily because the demand for sustainable fuels is expected to triple over the next 20 years.

Across scenarios, sustainable fuels are expected to play an increasingly important role in the transportation sectors, including hard-to-abate sectors such as aviation and heavy-duty road transport. By 2050, the share of sustainable fuels in transportation’s energy demand could land between 7 per cent and 37 per cent, depending on net-zero ambition levels across countries.

👉 3. Cross Asset Holders had their Worst Month Since 1981.

Last month was the broadest cross-assets (stocks, treasuries, investment grade, high yield, commodities) drop since ‘81. This essentially means the investors have no place to hide from the continued market capitulation across financial asset classes led by multiple factors in recent months. Having a diversified portfolio with a long-term objective should only be the way forward.

👉 4. The Japanese Yen is experiencing its worst drawdown ever

The yen’s slump is now its worst on record, at least going by peak to trough declines since Japan introduced the floating-rate system in 1973. The embattled currency has lost over 46% of its value against the dollar from its 2011 peak, a steeper drawdown than the 45% slump it experienced during the time of the late 1990s Asian financial crisis.

The yen’s cratering to ¥140 per dollar breaks new ground in testing Bank of Japan Gov. Haruhiko Kuroda’s defiance of a global wave of interest rate hikes and the strength of Prime Minister Fumio Kishida’s support for his stance.

The move of Japan’s currency into the ¥140 range takes it closer to the ¥146 mark that prompted joint action with the United States in 1998 to prop it up. It also sharply increases the likelihood that inflation will top 3% in Japan, way above the BOJ’s 2% target, casting further doubt on why the central bank is so insistent on sticking with rock-bottom interest rates.

As angst among households and businesses continues to rise over soaring energy and import costs, cracks may begin to emerge in the united front the government and BOJ have so far shown.

👉 5. Asian Currencies are now at Covid low and GFC low

J P Morgan’s Asia Currency Index or Asia Dollar Index which tracks Asia's most actively traded currency pairs valued against the U.S. dollar is at a record low since Covid-19 and Global Financial Crisis levels.

👉 6. World’s Least Affordable Housing Markets

According to Demographia’s 2022 Housing Affordability Report, the number of housing markets around the world deemed “severely unaffordable” increased by 60% compared to 2019 (prior to the pandemic).

This graphic looks at some of the least affordable housing markets across the globe, relative to median household income. The report covers 92 different cities in eight nations: Australia, Canada, China, Ireland, New Zealand, Singapore, the United Kingdom, and the United States.

.👉 7. Global Inflation Update

👉 8. 89% of countries experiencing more than 6% inflation.

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!

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My newsletter subscription rate has taken a hit lately and it kinda hurts. So please help me spread the word by telling your friends about my newsletter and encouraging them to subscribe. It would mean a lot :)

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Have a great week ahead,

Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources!

Subscribe now

Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• The Adani-NDTV saga: Everything you need to know

• Highlights: Fed Chair Powell’s speech at Jackson Hole

• Privacy News of the Week

• Charts of the Week

1. The Adani-NDTV saga: Everything you need to know

Gautam Adani, India’s richest and world’s fourth richest person is likely to acquire a majority stake in New Delhi Television (NDTV) in the next few days and this transaction has been the centre of huge attention in the Indian news industry over the last week.

In the left-liberal political space, NDTV is regarded as one of the few independent voices in India's rapidly polarizing media landscape, and the takeover attempt could jeopardise its editorial independence. It has also ignited the debate around the influence of business tycoons and political parties on mainstream Indian journalism.

Through an indirect deal, Gautam Adani’s new media venture AMG Media Networks announced on Tuesday that it had acquired a 29 per cent stake in NDTV and was making an open offer for a further 26 per cent, kicking off a battle for control with NDTV’s founders Radhika and Prannoy Roy.

But what exactly is an “open offer” you ask?

Well, for beginners, an open offer essentially involves a secondary-market transaction where the acquirer presents an offer to the shareholders of the target company inviting them to tender their shares in the target company at a particular price. The primary objective of an open offer is to provide a safe exit option to the shareholders of the target company on account of the change in control or substantial acquisition of shares, occurring in the target company.

According to the Securities and Exchange Board of India (SEBI), the acquirer is “required” to make an open offer to shareholders of the target company, if it has agreed to acquire or acquired control over a target company/shares/voting rights in a target company which would be over the threshold limits.

What are the threshold limits for the acquisition of shares/voting rights, beyond which an “obligation to make an open offer” is triggered? These are:

• Acquisition of 25% or more shares or voting rights

• Acquisition of more than 5% shares or voting rights in a financial year, given the acquirer already holds 25% or more but less than the maximum permissible non-public shareholding (75%) in a target company.

In layman’s terms, a shareholder in a company has every right to exit an investment if he/she/they believe a massive change in ownership structure could have an impact on the company’s future. The open offer simply enables the shareholder to sell the shares at a predetermined price and exit the investment if he/she/they wish to do so. In this context, Adani had to make an open offer to shareholders due to the potential change in NDTV’s ownership structure from Roys to AMG Media Networks Limited (AMNL).

Rumours of Adani acquiring NDTV have been doing the rounds for close to a year but they were dismissed by the Roys earlier. In September last year, NDTV said in a statement that the company was “not in discussions now, nor has been, with any entity for a change in ownership or a divestment of any sort” and the “founder-promoters, Radhika and Prannoy Roy, who are both journalists, own 61.45 per cent of the company and remain in control of it”.

NDTV sent a similar statement to the stock exchanges on August 22, claiming that the acquisitions talks are nothing but baseless rumours.

However, this doesn’t show the complete picture. To fully comprehend the extent and origins of the current saga, we must go back to 2007.

In 2007, the Roys made an offer to buy back shares from their existing investors. Initially, the plan was to buy a 7.73% stake from another entity GA Global Investments. Promoters may have different reasons for buying back shares, such as if they anticipate that their price will rise, or want to further consolidate their holding in the company. But this immediately triggered the open offer.

They did not have enough money to execute this transaction and thus, they borrowed around ₹500 crores from Indiabulls Financial Services Limited by pledging NDTV shares as collateral.

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However, the global financial crisis significantly changed the entire landscape. The value of NDTV shares plummeted, and the collateral backing the loan lost the majority of its value. And when the Indiabulls’ loan payments were due, the promoters took another loan of ₹375 crores from ICICI Bank Limited, to repay Indiabulls Financial Services. The ICICI loan was only one link in the larger chain of borrowing that the Roys were trapped in, which had begun with the India Bulls loan.

Even for the ICICI loan, the Roys pledged all of their shares in NDTV and it also carried a staggering interest rate of 19 per cent! At this point, NDTV/Roys were anything but financially stable. This is when a very strange, mysterious and little-known Indian company: Vishvapradhan Commercial Private Limited (VCPL) comes to NDTV’s rescue.

VCPL was a shell company and has had no assets in its 14 years of existence, apart from some debentures of RRPR (Radhika Roy Prannoy Roy), a promoter entity of NDTV. In 2009, the Roys took a loan of Rs 403.85 crore on behalf of RRPR from VCPL. This was an interest-free loan but in exchange, the agreement gave VCPL the right to convert the loan into 99.99 per cent of RRPR’s equity—effectively, complete ownership.

Those warrants were convertible at any time. This is important and we will get back to this in a moment.

RRPR held a ~29% stake in NDTV and by obliging warrants to VCPL in RRPR, this mysterious company indirectly held a 29% stake in NDTV itself. But to extend this huge loan to RRPR, the VCPL had to have this amount in their cash box.

Did they have this amount of money?

Of course not, it was barely founded in 2008 with no record of any investments or holding valuable assets. The company’s documents revealed it had no assets, businesses or transactions on its books before the NDTV loan. So to extend the loan to RRPR, VCPL itself borrowed Rs 403.85 crore from Shinano Retail Private Limited, a wholly-owned subsidiary of Mukesh Ambani-led Reliance Industries Ltd.

Yes, you can imply that Mukesh Ambani’s Reliance have had considerable influence over RRPR all these years and thus over NDTV as well.

In 2012, however, VCPL’s ownership was shuffled around.

The new owners were Nextwave Televenture Private Limited and Skyblue Buildwell Private Limited, companies linked to Mahendra Nahata, a director at Reliance Jio Infocomm Limited, a subsidiary of Reliance Industries Limited. Interestingly, between 2009 and now, VPCL, indirectly owned by Reliance’s subsidiaries, chose not to exercise their option to convert the loan into equity.

Everything was going without a hitch until this week when Adani went ahead and bought VCPL from its owners, in an all-cash deal worth Rs 113.75 crores, making VCPL a wholly owned subsidiary of AMG Media Networks Limited, which in turn is a wholly-owned subsidiary of Adani Enterprises.

If this wasn’t enough, the Adani Group also announced that they are exercising the right to turn the warrants into shares — effectively and legally enabling them to have full ownership of RRPR. And a 29% stake in NDTV as a consequence. As they said in their statement that the group has:

exercised its right to convert 1,990,000 warrants into 1,990,000 equity shares of RRPR constituting 99.50% of RRPR’s equity share capital, by issuing what is known as a warrant exercise notice on Tuesday.

Do you recall in the beginning when I mentioned, that the acquirer is obliged to make an open offer if it sets to control 25% or more shares in a target company, providing the shareholders with an opportunity to exit the investment due to potential change in ownership structure?

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Since Adani Group is now acquiring more than 29% of NDTV, they are mandated to make an offer to buy an additional stake in the company from the other shareholders. The group is offering Rs 294 per share. The NDTV stock closed on Tuesday at Rs 366.20, 2.6 per cent higher than its previous day’s close. At the time of writing this newsletter, it is trading at an insane valuation of Rs 427.70 per share.

This means that Adani Group has made an offer at a discounted price (Rs 294 per share) to the current/trading market price of Rs 427.70 per share, implying that the shareholders may not be incentivized enough to sell their shares to Adani. However, Adani has a secret weapon to counter this problem.

Newslaundry notes that NDTV’s shareholders include two main Foreign Portfolio Investors: LTS Investment Fund, which owns 9.75% of the shares, and Vikasa India EIF I Fund, which owns 4.42 per cent. Interestingly, LTS Investment Fund has invested nearly 98 per cent of its total Indian allocation in four companies of the Adani group. LTS Investment Fund’s ownership in the Adani Group is as follows:

• 1.69 per cent in Adani Enterprises

• 1.63 per cent in Adani Transmission

• 1.27 per cent in Adani Total Gas

• 1.09 per cent in Adani Power

It is reasonable to assume that Adani could still come to own a sizeable stake by buying out these large institutional holders at a bargain price.

📺 NDTV’s Response

NDTV isn’t backing down either, and it clearly wants to fight back — at least for the time being. Following Tuesday’s takeover, NDTV alleged that the move had come without “notice.” As Suparna Singh, president of the NDTV Group puts it in an internal memo to staff:

This acquisition was made without their (the Roys) consent or without any sort of notice. It rests on a loan agreement dating back to 2009-10.

The memo added the company was "in the process of evaluating next steps, many of which involve regulatory and legal processes," without elaborating further.

But as The Quint reported, it is not legally mandatory for Adani Enterprises to issue a notice if the terms of the loan agreement do not warrant them to do so, although issuing a notice before the acquisition is considered as a good business practice.

“Even if we were to consider that the terms were such that the loan would not get converted (into equity) automatically, the market practice is that a notice has to be given to RRPR, not to its subsidiary NDTV,” Puja Singh, a Principal Associate at corporate law firm Khaitan & Co told The Quint.

As a matter of fact, the terms of the loan agreement were such that VPCL, could convert it into 99.9% of the shares in Radhika Roy-Prannoy Roy Private Limited “at any time during the tenure of the loan or thereafter without requiring any further act or deed on the part of the lender” — as reported by Caravan in 2018. This essentially means that regardless of repayment, VCPL could officially take over RRPR at any time if it wishes to do so.

You might wonder what if the RRPR or the Roys manage to raise some money and repay its loan to VPCL. Is it too late now? Will they be able to retain their ownership/control over RRPR and thus, over NDTV? The industry experts claim that it is not that easy for the Roys as the Adani Group has already acquired VPCL and holds discretionary rights guaranteed by the decade-old warrant, which means that he gets to decide if he wants to take the money or retain equity.

The only possible way through which the founders-promoters can still come to control NDTV is if they somehow manage to make an attractive open offer of their own to shareholders. However, it is quite unlikely that the Roys have this amount of money with them nor it is feasible to raise such amounts in the capital markets, given their damaging reputation in the securities markets due to the ban imposed by SEBI in November 2020 due to inside trading.

As per the November 2020 SEBI order, the Roys have been restrained from "accessing the securities market, and prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with securities market in any manner whatsoever; for 2 years.”

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According to M&A and corporate law experts, Adani is well within his legal rights in the acquisition deal so far and the Roys' odds of defeating Adani Enterprises are absolutely minimal. “If you stall for time and make it long enough maybe the raider loses interest and goes away — but they are clearly dealing with someone who wants the brand and the asset,” said Ravi Kumar, partner at IndusLaw and public markets M&A specialist.

🎯 Why does Adani want ownership of NDTV?

The way I see it, the bitter NDTV acquisition by Adani Enterprises is simply a continued endeavour by India’s richest person to influence public opinion through news and media platforms. For instance, in May, Gautam Adani's AMG Media Networks acquired a 49% equity stake in Quintillion Media. Quintillion Business Media runs the news platform Bloomberg Quint, now called BQ Prime.

Even the widely discussed AMG Media Networks (the media arm of Adani Enterprises Ltd) was established just this year in April to foray into businesses of “publishing, advertising, broadcasting, distribution of content over different types of media networks”. Expanding his business empire in the media industry will give India’s richest man a sizeable influence to shape public opinion and restructure the media landscape.

The Adani Group had hired journalist Sanjay Pugalia last September to lead AMG Media Networks. According to Pugalia’s statement:

(Through the NDTV acquisition), AMNL seeks to empower Indian citizens, consumers and those interested in India, with information and knowledge. With its leading position in news and its strong and diverse reach across genres and geographies, NDTV is the most suitable broadcast and digital platform to deliver on our vision. We look forward to strengthening NDTV’s leadership in news delivery.

Sanjay Pugalia also added that the new acquisition is a “significant milestone” in Adani’s goal to “pave the path of new age media across platforms”.

Non-profit news platform The Wire notes that Pugalia’s statement is reminiscent of Mukesh Ambani-led Reliance Industries Limited’s statement in 2014 when the conglomerate acquired Raghav Bahl’s Network 18 Media & Investments Ltd (NW18). This Rs 4,000-crore deal gave then India’s richest person a considerable influence over several television companies such as Colors, CNN-IBN, CNBCTV18 , IBN7, CNBC Awaaz as well as digital media platforms like Moneycontrol, Firstpost, Cricketnext, Homeshop18, Bookmyshow, and so on.

Paranjoy Guha Thakurta in an opinion piece for the Economic and Political Weekly (EPW) observed that RIL’s acquisition move “is a clear loss of heterogeneity in the dissemination of information and opinions.” He envisaged a growing homogenisation and commodification of news; a greater spread of information aligned with corporate interests rather than those of the less influential and underprivileged groups in society. He further anticipated an increase in corporate ownership of media institutions.

I'll leave it to Paranjoy Guha's insightful commentary to wrap up this segment of the newsletter. As he puts it:

Media plurality in a multicultural country like India will diminish. In particular, the space for providing factual information as well as expressing views that are not in favour of (or even against the interests of) India's biggest corporate conglomerate will shrink, not just in the traditional mainstream media (print, television and radio) but in the new media (internet and mobile telephony). There is growing concentration of ownership in the country's already-oligopolistic media markets. In the absence of restrictions on cross-media ownership, these trends will inexorably lead to the continuing privatisation and "commodification" of information instead of making it more of a "public good" that could benefit larger sections of society, in particular the underprivileged.

Eight years later, the richest man in India is set to acquire arguably the only mainstream media institution with "some" media legitimacy left, proving that Paranjoy's anticipated analysis has stood the test of time.

2. Highlights: Federal Reserve Chairman Jerome Powell’s Speech at Jackson Hole

In his much-anticipated annual policy speech at Jackson Hole, Fed Chair Jerome Powell affirmed that the Fed will “use our tools forcefully” to tame inflation that is still running near its highest level in more than 40 years.

You can read the transcript of the speech here.

You can watch the speech here:

He also posed a stark warning about the Fed’s determination to fight inflation with more sharp interest rate hikes: It will likely cause pain for citizens in the form of a weaker economy and job losses. “These are the unfortunate costs of reducing inflation,” Powell acknowledged.

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The message landed with a thud on Wall Street, sending the Dow Jones Industrial Average down more than 1,000 points for the day. The S&P 500 closed down 3.4% on the day, hitting its lowest level since late July. The Nasdaq Composite Index also extended losses, shedding 4%. Overall, U.S. equities shed around $1.25 trillion in a single session.

Even the crypto market took a sharp hit as bitcoin (BTC) dipped 4.3% to $20.60K, the lowest level since mid-July, and ether (ETH) fell 9.2% to $1.54K. Overall, the global crypto market cap dipped below $1T, standing at $954.1B at the time of writing, according to CoinMarketCap data.

Here are the highlights of the speech:

• Fed’s main focus: “The Federal Open Market Committee's (FOMC) overarching focus right now is to bring inflation back down to our 2 per cent goal. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone.”

• Pain to Households and Businesses: “Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation.”

• Fed’s judgement of the current status of the economy: “The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers. Inflation is running well above 2 per cent, and high inflation has continued to spread through the economy. While the lower inflation readings for July are welcome, a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down.”

• Policy Stance: “We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2 per cent. July's increase in the target range was the second 75 basis point increase in as many meetings, and I said then that another unusually large increase could be appropriate at our next meeting. Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases. Restoring price stability will likely require maintaining a restrictive policy stance for some time.”

• Learning from Past Episodes: “Our monetary policy deliberations and decisions build on what we have learned about inflation dynamics both from the high and volatile inflation of the 1970s and 1980s and from the low and stable inflation of the past quarter-century. In particular, we are drawing on three important lessons.”

  • The first lesson “is that central banks can and should take responsibility for delivering low and stable inflation. There is clearly a job to do in moderating demand to better align with supply. We are committed to doing that job.”

  • The second lesson “is that the public's expectations about future inflation can play an important role in setting the path of inflation over time. Today, by many measures, longer-term inflation expectations appear to remain well anchored.”

  • The third lesson, “which is that we must keep at it until the job is done. History shows that the employment costs of bringing down inflation are likely to increase with delay, as high inflation becomes more entrenched in wage and price setting.”

In the end, he acknowledged how Volcker was ultimately successful in his fight against sky-high prices through what he called “a lengthy period of very restrictive monetary policy.” The current Fed is hoping to act strongly now in order to avoid such an outcome, Powell said.

Privacy News of the Week

• Ex-Twitter executive blows the whistle, alleging reckless and negligent cybersecurity policies. (CNN)

• Whistleblower Documents Prompt Questions about Twitter’s Approach to Election Integrity. (Tech Policy Press)

• Protect Your Inbox: DuckDuckGo Email Protection Beta Now Open to All! (DuckDuckGo)

• Several Russian "hacktivist" groups have announced coordinated DDoS attacks against Moldavian targets. The campaign appears to have been triggered by the visit of a Moldavian government official to Bucha, the site of one of Russia's genocides in Ukraine. (Risky Biz News)

• The IT Army of Ukraine Attacks Russian Money Transfer Sites. (The Cryptosphere)

• Enterprise giant Oracle is facing a fresh privacy class action claim in the U.S. (TechCrunch)

• Larry Ellison's Oracle Started As a CIA Project. (Gizmodo)

• University can’t scan students’ rooms during remote tests, judge rules. (The Verge)

• The number of companies caught up in recent hacks keeps growing. (ARS Technica)

• Google refuses to reinstate a man’s account after he took medical images of his son’s groin. (Guardian)

  ---

Charts of the Week

👉 1. Confidence in Powell Below Historical Average for Fed Chair

Current Federal Reserve Chairmen Jerome Powell's latest economic confidence reading of 43% is below his term average of 50%, which is also the historical average for the Federal Reserve chairperson over the past 22 years. Alan Greenspan, who served five terms in the position, inspired majority-level confidence for each of Gallup's five readings between 2001 and 2005.

In contrast, the two chairs of the Federal Reserve who followed Greenspan -- Ben Bernanke and Janet Yellen -- failed to register confidence ratings above 50%, and each averaged far lower ratings over their terms in office, 44% and 41%, respectively.

👉 2. Russian Corporate Profits Jump 25% despite Western Sanctions

Russian corporate profits jumped 25% in the second quarter, even as the sweeping US and European sanctions imposed over the Kremlin’s invasion of Ukraine pushed the economy into recession.

“The second quarter results were very good, demonstrating the resilience of the Russian economy,” analysts at the state-owned lender wrote. “The solid profit growth provides hope for a revival in corporate investment.”

👉 3. Consumer perception of inflation across categories

👉 4. Russia-Ukraine War and Human Displacement

Since the onset of the Russian invasion, one-third of Ukrainians have been forced from their homes. This has created one of the largest human displacement crises in the world.

According to the UN refugee agency, UNHCR, there are more than 6.6 million refugees across Europe and some seven million internally displaced within Ukraine. It is mostly women and children who have fled Ukraine, as men aged between 18 and 60 have been instructed to remain and fight.

The map presented above shows where people have been fleeing.

👉 5. Where Will the World’s Next 1,000 Babies Be Born?

Every four minutes, approximately 1,000 babies are born across the globe. But in which countries are these babies the most statistically likely to come from?

Using data from the CIA World Factbook, this infographic by Pratap Vardhan (Stats of India) paints a picture of the world’s demographics, showing which countries are most likely to welcome the next 1,000 babies based on population and birth rates as of 2022 estimates.

👉 6. French Electricity Price Exceeds 1,000 Euros per Megawatt hour for the First Time

The price of power in Europe’s two key markets surged more than 25% on Friday, a chaotic spike that will see the continent’s leaders hold an emergency meeting to discuss the crisis.

French 1y ahead electricity price exceeds €1,000 per megawatt hour for 1st time. The German equivalent also gained to a record, hitting as high as €829 a megawatt hour, capping a 48% gain this week.

Electricity for next year in Germany and France- both beset by their own severe crises- are setting almost records daily. This is a result of both Russia's restrictions on natural gas supplies and France's ongoing nuclear power production downturn.

Across Europe, governments have begun to take the drastic step of limiting energy use. In the UK, household bills are set to jump in October after a cap on costs was lifted. The soaring prices look set to force millions of people to curb consumption.

👉 7. US Dollar nears its 20-Year High

👉 8. Bitcoin Tanks After Powell Says Fed May Keep Raising Interest Rates

The price of Bitcoin took a hit this morning, falling near $20,000 after Federal Reserve Chair Jerome Powell said the U.S. central bank may well keep raising interest rates. The rest of the crypto market was also in the red following Powell’s comments. Ethereum, the second biggest digital asset, trading for around $1,500, an 8% drop in the past 24 hours. 

The continued monetary policy stance of central banks of raising interest rates to tame inflation has led to a strong dollar while other markets, like U.S. equities, have taken a hit as investors move away from risk assets (such as tech stocks and crypto) in the face of economic uncertainty. 

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!

Subscribe now

My newsletter subscription rate has taken a hit lately and it kinda hurts. So please help me spread the word by telling your friends about my newsletter and encouraging them to subscribe. It would mean a lot :)

Share The Economics Hub

Have a great week ahead,

Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources!

Subscribe now

Unfortunately, I did not have enough time this week either to evaluate research reports, essays, and opinion pieces to present them to you in a simplified manner, as I usually do in my weekly newsletters. But I still managed to glance over some of the important headlines of the week. Anyway, from the next week onwards, you can regularly expect some notable insights from me! Thank you for your patience :)

Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Economics and Finance

• Privacy and Surveillance

• Charts of the Week

  ---

1. Economics and Finance

• Economic conditions outlook, June 2022

• How inflation is flipping the economic script, in seven charts

• Charges on UPI services not under consideration, clarifies govt

• Minutes of the Federal Open Market Committee

• Fed minutes show more rate hikes in the pipeline, but pace could slow

• Thoughts on the Fed Minutes

• Explained: What investors should look out for before putting money in an IPO

• India at 75: 11 charts to understand how far India has come and how far it

  needs to go still

• India's Razorpay buys Ezetap to tap into offline payments

• Decades After Coining ‘ETF,’ Morgan Stanley Is “Finally” Launching Its Own

• The age of exchange-traded funds and the launch of single-bond ETFs

• Top 10 Investor Errors: Excess Fees

• Europe’s Plan to Wean Itself off Russian Gas Just Might Work

• How Buy Now Pay Later (BNPL) schemes get you to spend more

  • While you are here, you should definitely read my summarized article based on Dvara Research’s report titled, “The Costs of Using Buy Now, Pay Later (BNPL) Products.”

• What can 30 years of equity mutual fund investing do to your savings?

• Inflation is Easing, but a Target of 4% will be Challenging

• Global Food Inflation still Remains High - World Bank

• China’s Economy Slows Unexpectedly as Covid and Property Woes Mount

• China is making the yuan more international by opening up its bond market - but economists say the currency faces a big test

• Central Bank of Turkey surprises with a 100bp rate cut

• This Economy Is Proving Too Hard for Economists

2. Privacy and Surveillance

• Google says it stopped the largest DDoS attack ever recorded in June

• Mike Pompeo & CIA Sued by Assange Attorneys for Spying on Americans Who Visited Julian Assange in Ecuadorian Embassy in the U.K

• The Biden-Trump Persecution of Julian Assange

• Twilio breach exposed some Signal users’ numbers

• How electronic warfare is reshaping the war between Russia and Ukraine

• New report exposes the militarized nature of British Policing

• Meta sued for violating patient privacy with data tracking tool

• 2022 Mid-year blockchain security and AML Analysis Report

• TikTok's in-app browser has code that could be used to track data like passwords and credit card numbers — and Apple should ramp up security to prevent it, a researcher says

• iOS Privacy: Announcing InAppBrowser.com - see what JavaScript commands get injected through an in-app browser

• TikTok Browser Can Track Users’ Keystrokes, According to New Research

Charts of the Week

1. Volatility has increased since the war in Ukraine

2. Updated Covid-19 Stringency Index

3. The world's second-largest economy is slowing down. And that has sent alarm bells ringing around the world.

4. Global Central Bank Policy Rates Update

5. Cyberattacks have been rising

6. The World’s Biggest Military Spenders

7. Inflation is the top worry for countries, according to McKinsey’s latest survey

8. Declining Global Real Disposable Income

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!

Subscribe now

Also, please help me spread the word by telling your friends about my newsletter and encouraging them to subscribe. It would mean a lot :)

Share The Economics Hub

Have a great week ahead,

Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources!

Subscribe now

Unfortunately, I did not have enough time this week to evaluate research reports, essays, and opinion pieces to present them to you in a simplified manner, as I usually do in my weekly newsletters. But I still managed to glance over some of the important headlines of the week across sectors.

Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Economics and Finance

• Privacy and Surveillance

• Cryptocurrency

• Charts of the Week

  ---

Economics and Finance

• Argentina hikes rate to 69.5% as inflation surges to 30-year high

  • Tip: In my last week’s newsletter I extensively discussed the imminent economic crisis in Argentina, please have a look!

• India’s Retail inflation eases to 6.71 per cent in July

• Easing inflation, robust industrial output signals uptick in growth

• India’s trade deficit almost tripled to a record $30 billion in July from a year before

• US inflation falls to 8.5% in July but still close to multi-decade high

• Inflation Is Sticky, Structural and Hard to Solve. The Party Is Premature

• Russia could buy yuan, rupees, Turkish lira for rainy day fund - central bank

• How to Think About Investing During a Recession

• Importance of holding through tough economic and business times

• Meme-Stock Investors Are Back! Sort of, Anyway

• ETFs in Europe shed €4.7bn in ‘rare’ consecutive months of outflows

• Electric Cars Too Costly for Many, Even With Aid in Climate Bill

• Germany must cut gas use by 20% to avoid winter rationing, says regulator

• India’s open banking revolution is here, but convenience comes at a price

• War, Peace, and Wheat

• 27 deaths reported in Sierra Leone after protests sparked by rising food and fuel prices

• Cash withdrawals in the UK soar as Brits grapple with the rising cost of living

• Rakesh Jhunjhunwala, known as ‘India’s Warren Buffett’, dies aged 62

Privacy and Surveillance

• Weak Cybersecurity is taking a toll on Small Businesses

• Facebook testing end-to-end encryption as a default on Messenger

  • Don’t get sold cheaply to corporations’ PR stunts, especially when it comes to preserving our privacy. Read this post instead to understand why centralized end-to-end encrypted messaging applications are not as private as you think.

• Zimbabwean Journalists Arrested Under Cybersecurity Law

• Evaluating the American Data Privacy and Protection Act

• The Hidden Danger of QR Codes

• Expanded scope of biometrics collection, storage for Indian police enters into force

• Explained: The new Criminal Procedure (Identification) Act and Why it has raised some concerns

• Cybercrime a Key Revenue Stream For North Korea's Weapons Program

• Cyberattack on Albanian government suggests new Iranian aggression

• The privacy wars have escalated by TFTC

• Swan Bitcoin Discloses Data Leak Due to Phishing Attack on Newsletter Provider

• Crypto Privacy Protocol Monero Is Getting a Major Upgrade

Cryptocurrency

• Russia plans to roll out digital ruble across all banks in 2024

• BlackRock launches a private trust to give clients exposure to spot bitcoin

• Feds Blacklist Tornado Cash, Ban Ethereum Mixing Tool in US

• OFAC Sanctions Popular Ethereum Mixer Tornado Cash for Laundering Crypto Stolen by North Korea’s Lazarus Group

• 'Welcome to the War on Code': Crypto Twitter Reacts to Arrest of Alleged Tornado Cash Dev

• China Can’t Seem to Stop Bitcoin Mining

• Bitcoin traders still favor new $20K lows as Ethereum hits $2K

Charts of the Week

1. Broadest tightening cycle in history. Per cent of the world's
central banks’ hiking rates are at an all-time high.

2. 10 Years of Global EV Sales

3. Russia Crude Oil Exports by Countries/Regions

4. Global Economic Confidence Trends

5. Meme stocks are back! The Roundhill Meme ETF ($MEM) is up
23% in 10 days, which is its best run since its launch.

6. Commodity and Energy prices have eased in the recent weeks

7. During the last 6 recessions, the S&P 500 has gained an average of 61% from its low by the time the official end of the recession was declared by NBER

8. Evolution of Bitcoin Mining Country Share

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!

Subscribe now

Also, please help me spread the word by telling your friends about my newsletter and encouraging them to subscribe. It would mean a lot :)

Share The Economics Hub

Have a great week ahead,

Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources!

Subscribe now

Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Highlights: India’s Central Bank RBI’s MPC meet

• The Indian Government Scraps Personal Data Protection Bill

• Argentines turn to black market dollars as crisis worsens

• Microsoft blocks Tutanota users from its service

• Other Articles of the Week

  • Economics and Finance

  • Privacy and Tech

  • Geopolitics

1. Highlights: India’s Central Bank RBI’s MPC meet

Reserve Bank of India’s Monetary Policy Committee (MPC), whose primary objective is to maintain price stability while keeping in mind the objective of growth met between 3rd August to 5th August to review the macroeconomic framework of India and its outlook.

Some of the highlights are:

• The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday hiked the repo rate by 50 basis points (bps) to 5.40% with immediate effect, RBI Governor Shaktikanta Das announced. This is the third consecutive rate hike by the central bank in this financial year.

• After RBI's August policy meet decision, the repo rate is above pre-pandemic levels of 5.15%. With this, the overall rate hike in three successive policy meets has now gone to 140 basis points, in line with the global trend of monetary policy tightening to cool off inflation.

• With inflation currently at 7.0% year-on-year, the MPC also decided to remain focused on the “withdrawal of accommodation” policy to ensure that inflation remains within the target going forward while supporting growth.

• RBI’s MPC believes that these decisions align to achieve the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2% while supporting growth.

• The MPC’s rate hike is intended at curbing demand, and, thereby, control high inflation. However, much of the risks to inflation are emerging from external factors, including a huge upswing in global commodity prices and foreign fund outflows.

• The latest round of rate hikes is unlikely to prompt banks to pass on the impact in a big way, analysts say. That’s because banks have already hiked rates by a significant margin this year. A further rate hike in loan rates could affect the nascent recovery seen in the economy in the post-pandemic period.

• ING observes that, if the destination for the RBI is to get real rates (policy rates minus inflation) to approximately zero, then continuing at even a 25bp pace over the remainder of the year should see the repo rate rise to 5.9% by the year-end.

• RBI has proposed to enable Bharat Bill Payment System to accept cross-border inward bill payments. This will enable NRIs to undertake bill payments for utilities, education and other such payments on behalf of their families in India. This will benefit the senior citizens, in particular, Das said.

RBI’s assessment of the domestic economy:

• Domestic economic activity remains resilient. As of August 4, 2022, the southwest monsoon rainfall was 6 per cent above the long period average (LPA). Kharif sowing is picking up. High-frequency indicators of activity in the industrial and services sectors are holding up. Urban demand is strengthening while rural demand is gradually catching up. Non-oil and non-gold imports were robust, indicating strengthening domestic demand.

• Overall system liquidity continues in surplus, with average daily absorption under the LAF at ₹3.8 lakh crore during June-July. Money supply (M3) and bank credit from commercial banks rose (y-o-y) by 7.9 per cent and 14.0 per cent, respectively, as of July 15, 2022. India’s foreign exchange reserves were placed at US$ 573.9 billion as of July 29, 2022.

• CPI inflation eased to 7.0 per cent (year-on-year, y-o-y) during May-June 2022 from 7.8 per cent in April. Food inflation has registered some moderation, especially with the softening of edible oil prices, and deepening deflation in pulses and eggs. Fuel inflation moved back to double digits in June primarily due to the rise in LPG and kerosene prices. Core inflation remains at an elevated level.

Macro-economic outlook:

• Elevated risks emanating from protracted geopolitical tensions, the upsurge in global financial market volatility and tightening global financial conditions continue to weigh heavily on the outlook.

• The appreciation of the US dollar can feed into imported inflation pressures.

• Cost pressures are expected to get increasingly transmitted to output prices across the manufacturing and services sectors.

• On the growth outlook, rural consumption is expected to benefit from the brightening agricultural prospects. The demand for contact-intensive services and the improvement in business and consumer sentiment should bolster discretionary spending and urban consumption.

• Investment activity is expected to get support from the government’s CAPEX push, improving bank credit and rising capacity utilisation.

• The MPC has noted that inflation is projected to remain above the upper tolerance level of 6% through the first three quarters of 2022-23, entailing the risk of destabilising inflation expectations and triggering second-round effects.

• Further MPC policy actions should be expected to contain inflation in the future.

• The central bank now sees inflation for Q2 at 7.1%; Q3 at 6.4%, and Q4 at 5.8%.

• The real GDP growth projection for 2022-23 is retained at 7.2 per cent, with Q1 at 16.2 per cent; Q2 at 6.2 per cent; Q3 at 4.1 per cent; and Q4 at 4.0 per cent, and risks broadly balanced.

• The next meeting of the MPC is scheduled during September 28-30, 2022.

2. The Indian Government Scraps Personal Data Protection Bill that Alarmed the Tech Giants

On August 3, 2022, the Indian government scrapped the Personal Data Protection Bill it's worked on for three years. The bill drew widespread criticism and scrutiny from privacy advocates all over the world and also from tech giants who feared the legislation could restrict how they managed sensitive information while giving the government arbitrary powers to access and control it. For instance, Delhi-based privacy advocacy group Internet Freedom Foundation said the bill:

The point of the data bill is to empower you with rights relating to your own data. But in its current form, it provides large exemptions to government departments, prioritises the interests of big corporations, and does not adequately respect your fundamental right to privacy. This move, when taken with the lack of literacy around data protection in India, may be dangerous on an individual level - where your everyday privacy is threatened - and on a collective level, given how it makes allowances for mass surveillance.

Meta, Google and Amazon were some of the companies that had expressed concerns about some of the recommendations by the joint parliamentary committee on the proposed bill. The tech companies questioned a proposed provision in the Bill called data localisation, under which it would have been mandatory for companies to store a copy of certain sensitive personal data within India, and the export of undefined “critical” personal data from the country would be prohibited.

(Similar: My short explainer on India’s IT Rules and new amendments)

In the “reasons for withdrawal” shared with other Members of Parliament, Ashwini Vaishnaw, the Minister for Communications and Information Technology, stated that the government now considers a “comprehensive legal framework” to regulate the online space, including bringing separate laws on data privacy, the overall internet ecosystem, cybersecurity, telecom regulations, and harnessing non-personal data to boost innovation in the country.

Union minister Rajeev Chandrasekhar also tweeted about the cancellation and echoed the importance of replacing it with a comprehensive framework in accordance with global standards.

Behind China, India is the world’s second-largest internet market, has seen an explosion of personal data in the past decade as hundreds of citizens came online for the first time and started using internet applications and services. However, unlike the European Union’s General Data Protection Regulation (GDPR), India never had a robust legal provision for the protection of the personal data of its citizens, and desperately needed one.

With Personal Data Protection Bill, the Indian government originally sought to empower Indian citizens with rights relating to their data. Privacy advocates had argued that the bill had so many loopholes and it rather benefits the government and large corporations way more than it benefits users such as you and me. The Internet Freedom Foundation had started a new series that actively highlighted the drawbacks of the bill. You can check it out here. According to IFF, the top 10 issues and loopholes in the DPB, 2021 are:

On its cancellation, IFF's executive director Apar Gupta told The Register:

It has been close to ten years since the government constituted the A.P. Shah Committee report on privacy, five years since the Puttaswamy Judgement and four years since another government constituted the Srikrishna Committee report – they all signal urgency for a data protection law and surveillance reforms.

Each day lost causes more injury and harm. Hence the withdrawal of the Data Protection Bill, 2019 is concerning – for a belated, deficient regulation is being junked.

The revamped bill is expected to be tabled in the winter session of Parliament. According to senior government officials, the new data protection Bill will do away with some recommendations by the JCP such as including “trusted hardware”, and local storage of some kinds of personal data within the boundaries of India. Instead, it will add these ideas to the larger framework for the Internet ecosystem, which will replace the Information Technology Act of 2000. All these separate laws, it is learnt, will be presented at the same time.

I sincerely hope that the new bill is put up for a consultation with the public, advocacy groups and industry stakeholders. After all, wider participation will improve the robustness of the legislative framework underlying the Personal Data Protection Bill. The importance of robustness should not be undermined as our livelihoods continue to be digitalized and surveilled by governments, corporations and start-up firms.

3. Argentines turn to black market dollars as crisis worsens

Argentina’s name is very tantamount to the occurrence of a financial crisis and this time is no different. With inflation hurtling toward triple digits and, economists say, just a policy mistake or two away from setting the stage for hyperinflation, the central bank is desperately trying to avert a peso devaluation that would only trigger another wave of price hikes. 

Bloomberg notes that the problem stems from their depleting foreign exchange reserves as they are now so low that no one can tell just how much more they can spend. By some accounts, policymakers have already blown through all the easy-to-spend reserves they had on hand, leaving them scrambling to come up with ways to turn illiquid assets into cash.

Why the foreign exchange reserves are depleting? The primary reasons are worsening trade balances and costly energy imports due to higher commodity prices in global markets. The rising global cost of energy and rampant government spending in the first half of the year caused total import costs to outpace revenue from agriculture and other exports. Argentina’s trade balance dipped negative in June for the first time since December 2020, according to Bloomberg data.

Furthermore, Argentina has been largely cut off from international debt markets since its default in 2020. The government is instead funding itself through money-printing and domestic debt, most of which is inflation-linked and comes at ever-higher rates of interest.

Therefore, Argentina’s chances of getting some financial help from international capital markets look very slim. For instance, their sovereign bonds are now worth 20 cents on the dollar, less than half of their post-2020 debt restructuring value as foreign bond investors are too scarred by a string of past defaults to lend the country money now. The International Monetary Fund is unlikely to step in this time either. It’s already committed some $44 billion to the country and is showing no interest in pledging more capital.

With depleting foreign exchange reserves, soaring dollar value, and slim chances of receiving foreign aid or capital, the administration has resorted to money printing to cover its chronic fiscal deficit. This in turn has resulted in peso devaluation and skyrocketing peso value to the dollar. With the peso plummeting, prices are soaring to keep up. Inflation reached 64 per cent a year in June and is forecast to accelerate beyond 90 per cent by the end of the year, according to Morgan Stanley.

Local traders are now positioning for a major devaluation. They drove the peso to as low as 338 per dollar last month in the parallel, unofficial market where it trades free from government intervention, some 60% weaker than the 130-per-dollar rate in the “official” market. The gap between the black market dollar and the artificially controlled official rate has widened to more than 150 per cent — a level last seen during Argentina’s hyperinflation in 1989-1990, according to broker Portfolio Personal Inversiones.

A devaluation of such a magnitude, economists say, could potentially spark an immediate surge in prices of up to 30% on essential goods such as foods and even bigger increases for fuel, deepening the financial pain that Argentines have been enduring for years.

At the time of writing this newsletter, the Peso is trading at 293 per dollar in the black markets. If you are not aware, then the dollar has been king in Argentina for years due to Peso’s rapidly depreciating value and the dollar’s role as a “safe haven” currency. Argentines hold so much U.S. currency — experts believe perhaps more than anywhere outside the United States. Please note that this phenomenon is not unique to Argentina as citizens of economically challenged, politically unstable and war-prone regions usually collect/stash U.S. dollars because they are about as secure a currency as exists in the world. Argentines are simply more accustomed to this practice than others because their economy has been intermittently challenged for decades if not centuries. According to economist Steve Hanke, the country has been in default for nearly 35 per cent of the time over the past 200 years.

Also, Argentina’s arbitrary currency exchange restrictions have forced its citizens to turn to black markets. In black markets, Argentines can get more pesos for their dollars at a “blue” rate in contrast to what they get at the official rate at government outlets.

Blue dollar’s website describes the whole black market currency exchange process beautifully, I will let them explain instead:

So how do you track down the more favourable blue rate? Many foreign visitors set up a local contact who can make the change, or ask their hotel to recommend a “Cueva” (literally meaning cave; in reality, more like a fully functioning businesses, accepting dollars, euros and pounds). Other tourists simply head to central shopping streets and respond to not-so-subtle calls of “Cambio! Cambio!” (exchange); the wise ones having checked the current rate first, so they can barter.

If you want to stick to using US dollars in your day-to-day transactions, that’s common too. The Argentinian market, which experienced a complete economic meltdown in 2001/02, has quickly adapted. Many businesses, including hotels and restaurants, will accept US dollars. Some will work to the blue rate, even though that is illegal, or they will come close to it. When a shopkeeper recognises you are a tourist, you are likely to be offered an upfront deal: “We accept dollars at 12 pesos”, or something similar.

The dual rate began after the government initiated a number of restrictions on currency exchange in an attempt to prop up the fledging peso and reduce capital flight (ie investors taking their fortunes out of the country). Argentinians have, of course, been hit much worse than any visitor. There has been a prohibitive amount of red tape they have to get through if they wanted to exchange pesos to dollars.

All these factors are alarming the fears of government insolvency and imminent risks of hyperinflation. In fact, fears of the government’s insolvency are so acute that savers rushed to withdraw dollars from their bank accounts last month. Dollar deposits fell to their lowest since 2016 as Argentines withdrew almost $750 million.

Given Argentina’s past episodes of hyperinflation, bank runs, currency devaluations, defaults and insolvency, Argentines are super quick to react in times of market stress, reflecting their desperateness to protect their hard-earned savings and minimize losses. In such dire times, they prefer to stash their dollar savings under mattresses, jackets, beds, floorboards, etc. rather than keep them with banks amid fears of bank runs, government confiscation and rapid devaluation.

If you want to read more on how Argentines deal and have adapted to years of high inflation, then I recommend this piece by New York Times.

What Lies Ahead?

In a bid to contain the crisis, Sergio Massa was appointed as the new economy minister, last week, giving the former cabinet chief and veteran politician an expanded portfolio and a mission to fix the economy. Investors are optimistic that Massa will have a better chance of improving the crumbling economy than his predecessor, Silvina Batakis.

He has pledged to stop printing money in an attempt to halt a spiralling currency crisis and prevent runaway inflation. Massa's economic roadmap also focuses on boosting exports, reducing the country's fiscal deficit, and refilling the central bank's severely depleted reserves. The government will finance its budget by reducing its deficit or via private lending. The country is considering four loan offers by three international banks and a sovereign wealth fund, he said.

Still, there may be only so much he can do. Devaluing the currency would stoke inflation that’s already above 60%, but trying to keep it near its current levels will be a challenge given the lack of dollars in the country. The government needs to trim spending, but that risks undermining popular political support.

Further reading resources:

• Argentines turn to black market dollars as crisis worsens

• Argentina Is Running Out of Cash to Stave Off Devaluation

• Argentina Vows Not To Go Full Weimar, Will Stop Printing Money Amid 60% Inflation

• Bitcoin Usage Continues To Accelerate In Argentina

• Why Bitcoin Is the Perfect Haven for Argentines in This Economic Crunch

• Many Developing Countries are increasingly Vulnerable to the Risk of Sovereign Debt Default

4. Microsoft blocks Tutanota users from its service

Tutanota is one of the most popular and well-respected privacy-preserving email providers out there. Since 2011, it is run by a small team of enthusiasts based in Germany. Along with Protonmail, it is a serious competitor among secure email providers. It uses a hybrid encryption system that avoids some of the drawbacks of PGP and is protected by the GDPR and other pro-privacy EU regulations. The following characteristics embodied in the Tutanota ecosystem make it appealing to privacy enthusiasts:

• Encrypted mailbox: The entire mailbox – emails, calendar and address book – are stored end-to-end encrypted in Tutanota.

• Tutanota uses symmetric (AES 128) and asymmetric encryption (AES 128 / RSA 2048) to encrypt emails end-to-end. When both parties use Tutanota, all emails are automatically end-to-end encrypted (asymmetric encryption).

• Zero-knowledge calendar: End-to-end encrypted calendar that lets you store all your appointments confidentially.

• Tutanota stores all data encrypted in highly secure data centres in Germany and Germany has one of the strictest data protection laws.

• Highest level of TLS encryption with Perfect Forward Secrecy (PFS), DNSSEC, DKIM, DMARC and MTA-STS.

• Free and Open source

There are other features that make it one of the competitive privacy-preserving email providers but I want to keep it simple for now. This newsletter isn’t sponsored by Tutanota and I even use it personally, but the bottom line is, that you should seriously consider “transitioning” to Tutanota or Protonmail, especially taking into account Gmail/Google’s unprecedented level of tracking history.

Anyway, back to the topic.

Microsoft is being accused of blocking Tutanota users from registering an account with its cloud-based collaboration platform, Teams if they try to do that using a Tutanota email address. “This severe anti-competitive practice forces our customers to register a second email address – possibly one from Microsoft themselves – to create a Teams account”, Tutanota argued in a blog post.

The problem is Microsoft treats Tutanota as a corporate email instead of an email service. So, when a Tutanota user attempts to register an account with Teams, they get a message that the registration has been blocked and that they should “contact your admin or try a different email.”

In one of the responses, obtained by TechCrunch, Microsoft said: “We have reviewed this internally and as of now, it is currently not feasible for the domain to become a public domain and this is because the domain has used the Microsoft Teams services.”

This is yet another anti-competitive behaviour by Microsoft and illustrates how Microsoft can and does abuse its dominant market position to harm competitors, which in turn also harms consumers. This anti-competitive behaviour reminds me of the infamous 1995 United States vs Microsoft case, a noted American antitrust law case in which the U.S. government accused Microsoft of illegally maintaining its monopoly position in the personal computer market primarily through the legal and technical restrictions it put on the abilities of PC manufacturers and users to uninstall Internet Explorer and use other programs such as Netscape and Java.

As Victor Luckerson puts it well in his article:

Its most famous victim was Netscape, the pioneering web browser, but everyone from Apple to American Airlines felt threatened by late-’90s Microsoft. The company was big enough to be crowned America’s most valuable firm, bold enough to compare attacks on its domain to Pearl Harbor, and, eventually, bad enough to be portrayed as a (semi-fictionalized) cadre of hyper-capitalist murderers in a major motion picture.

Tutanota further argues that “competing with Microsoft is nigh impossible given their sheer market power”, and urges authorities to “break up the market power of Big Tech” — highlighting the contrast between a pro-privacy end-to-end encrypted email service, such as Tutanota, and a tech giant like Microsoft which has a big ad-tech business that’s fuelled by tracking web users, stripping them of privacy to monetize targeted advertising.

It’s not the first time Tutanota has found its users’ access being blocked by larger platforms, having previously experienced issues with AT&T and Comcast in the U.S.

Other Articles of the Week

Economics and Finance

• July GST revenue collection second highest ever at Rs 1.49 lakh crore

• 3 reasons why GST collections continue to surge

• Banks offering highest 5-year FD interest rates

• Bank of England raises key interest rate by 50 bps, highest since 1995

• How will the Bank of England’s rate rises hit borrowers?

• Taking Digital Currencies Offline

• Suddenly, stock-market investors are wrestling with ‘boomflation’ after hot July jobs report

• The west’s phantom energy sanctions fuel Russia’s war machine

• Warren Buffett’s Berkshire reins in stock purchases and books $43.8bn loss

Privacy and Tech

• Environmental hacktivists publish 2 terabytes of mining company emails

• Taiwanese military reports DDoS in wake of Pelosi visit

• Twitter confirms January breach, urges pseudonymous accounts to not add email or phone number

• Denmark bans Chromebooks and Google Workspace in schools over data transfer risks

• Biometrics market to reach $136B by 2031…if mobile segment doesn’t top $184B first

• A handful of nations distributing new digital ID documents

Geopolitics

• ‘Playing with Fire:’ China on Pelosi in Taiwan

• An Expert Explains: Taiwan, China, and the US — the big picture in the Indo-Pacific

• Fueling the Warfare State

• Israeli air strikes take Gaza death toll to 24, including six children

• Ayman al-Zawahiri: Shock in Kabul as US kills al-Qaeda leader

• Ukraine war: First grain ship out of Ukraine cleared to sail to Lebanon

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!

Subscribe now

Also, please help me spread the word by telling your friends about my newsletter and encouraging them to subscribe. It would mean a lot :)

Share The Economics Hub

Have a great week ahead,

Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources!

Subscribe now

Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Howard Marks, his latest memo and a deep dive into his key investing strategies

• What else I read this week (article recommendations)

1. Howard Marks’ Latest Memo: I Beg to Differ

Howard Marks, the founder of Oaktree Capital Management is widely considered as one of the most successful investors of all time. He particularly specializes in high-yield and distressed debt investing opportunities. In the investment world, he is famously known for his client memos, sharing his wisdom and perspective on the macro-economic and investment landscape and more general insights. He published his first memo to clients on October 12, 1990, and since then, his memos are periodically sought out by some of the best investors in the world. You can check the complete list of his memos here.

“When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something.”

Warren Buffet, Chairman and CEO, Berkshire Hathaway

On a similar note, I am currently reading his “The Most Important Thing” book and I cannot recommend it enough! The book dives deeper into the time-tested key investing strategies backed by his fundamental investment philosophy. He also outlines the pitfalls that can destroy your capital or ruin a career. He utilizes passages from his memos to illustrate his ideas and demonstrate the development of an investment philosophy that fully acknowledges the complexities of investing and the perils of the financial world. It doesn’t matter if you are a beginner or a professionally trained investor, the book offers broad takeaways. It is a short, accessible and qualitative book, please consider getting a copy!

Okay, back to the topic.

In his latest memo, he argues that investors seeking superior performance must have the courage to depart from the pack, even though doing so means accepting the risk of being wrong. Thinking differently and better than others is key to outperformance, he explains, because in investing, it’s not enough to be right. You have to be more right than most. This means being able to tell when the investment crowd is focused on all the wrong things.

He begins his memo by presenting a simple two-by-two matrix to illustrate the importance of “unconventionality” in investing. Unconventionality, as he puts it, is required for superior investment results, especially in asset allocation. To distinguish yourself from others, it helps to have ideas that are different and to process those ideas differently. The bottom line is, that you can’t take the same actions as everyone else and expect to outperform.

The matrix presented above can be summarized as:

If your behaviour and that of your managers is conventional, you’re likely to get conventional results – either good or bad. Only if the behaviour is unconventional is your performance likely to be unconventional . . . and only if the judgments are superior is your performance likely to be above average.

He proceeds to assert that to make returns above average, you have to depart from consensus behaviour. You have to overweight some securities, asset classes, or markets and underweight others. You need to make active bets. However, every active bet placed in the pursuit of above-average returns carries with it the risk of below-average returns. Okay, what does it mean? It essentially means that you cannot expect to earn more than average returns if your “active bets” are wrong and if they are wrong, your return will simply be below average. As easy as it sounds on paper, this is extremely difficult to accomplish in reality. As he puts it:

Anyone who thinks there’s a formula for investing that guarantees success (and that they can possess it) clearly doesn’t understand the complex, dynamic, and competitive nature of the investing process. The prize for superior investing can amount to a lot of money. In the highly competitive investment arena, it simply can’t be easy to be the one who pockets the extra dollars.

So what can you do as an investor to prevent your “active bets” from being wrong? He advises that you have to depart from the pack, and by departing from the pack, the difference will only be positive if your choice of investing strategies and tactics are correct and you’re able to execute them better. He then proceeds to summarize his key investment strategies, some of which are discussed below:

1. Second-Level Thinking

2. Contrarianism

3. The Decision to Risk Being Wrong

Second Level Thinking

The idea of second-level thinking is built on his memo titled, “Dare to Be Great.” The concept of Second Level Thinking has been instrumental to Howard Marks’ success. It builds on the foundation that most investors are exposed to the same level of information and assuming that these investors are smart, well-informed and highly computerized, you must find an edge they don’t have. You must think of something they haven’t thought of, see things they miss or bring insight they don’t possess.

You have to react differently and behave differently. In short, being right may be a necessary condition for investment success, but it won’t be sufficient. You must be more right than others ... which by definition means your thinking has to be different.

How can first-level thinking be different from second-level thinking? Let’s see some examples:

• First-level thinking says, “It’s a good company; let’s buy the stock.”
  Second-level thinking says, “It’s a good company, but everyone thinks
  it’s a great company, and it’s not. So the stock’s overrated and
  overpriced; let’s sell.”

• First-level thinking says, “The outlook calls for low growth and rising
  inflation. Let’s dump our stocks.” Second-level thinking says, “The
  outlook stinks, but everyone else is selling in panic. Buy!”

The difference in workload between first-level and second-level thinking is
massive, and the number of people capable of the latter is tiny compared to the number capable of the former. Second-Level thinkers need to take into account:

1. What is the range of likely future outcomes?

2. Which outcome do I think will occur?

3. What’s the probability I’m right?

4. What does the consensus think?

5. How does my expectation differ from the consensus?

6. Is the consensus psychology that’s incorporated in the price too
   bullish or bearish?

7. How does the current price for the asset comport with the consensus
   view of the future, and with mine?

8. What will happen to the asset’s price if the consensus turns out to be
   right, and what if I’m right?

Again, as easy as it sounds, it isn’t in reality. There are no simple formulas or cheat sheets. As Charlie Munger once said:

It’s not supposed to be easy. Anyone who finds it easy is stupid.

The majority of investors work with the same information, data, reports, portals, etc. as everyone else and are subject to the same psychological influences, which in turn, makes it very difficult to have a second-level thinking perspective on the markets. Furthermore, it is not only important to have different thinking from the consensus, but your line of thinking or analysis has to be correct or closer to being correct.

Howard Marks and his son Andrew described a few factors that distinguish second-level thinking in the 2021 memo titled, “Something of Value.” Their superiority essentially stems from their ability to:

1. better understand the significance of the published numbers

2. better assess the qualitative aspects of the company, and/or

3. better divine the future

In the end, the whole concept of Second_level thinking can be summarized as follows:

For your performance to diverge from the norm, your expectations— and thus your portfolio—have to diverge from the norm, and you have to be more right than the consensus. Different and better: that’s a pretty good description of second-level thinking.

Howard Marks in his book “The Most Important Thing”

Contrarianism

It is obvious from the above discussion that the key to superior investing cannot be achieved by following the “investment herd” — masses of people (or institutions) that drive asset prices one way or the other. It’s their actions that take prices to bull market highs or market bubbles driven by the psychological trap of “something will always go up.” And on the other hand, the actions of the investment herd can also lead to bear market territory and occasional crashes — these are particularly driven by the collective notion of “Oh no, this is the end. I need to sell everything to get at least a part of my initial investment.”

Clearly, following the judgement of the crowd cannot be the key to successful investing as joining in the market swings of highs or lows tricks people to own or buy assets at high prices and selling or fail to buy at low prices. This is where the need for being a contrarian arises. For attaining more than average returns, following the herd wouldn’t be enough. We need to bet against the consensus view, the trend and most importantly, we need to do it correctly. We need to be contrarians. As Howard Marks put it well in his 2002 memo titled, “The Realist’s Creed”:

It's easy to make guesses about the future but hard to be consistently more right in those guesses than your fellow investor, and thus hard to consistently outperform. Doing the same thing others do exposes you to fluctuations that in part are exaggerated by their actions and your own. It's certainly undesirable to be part of the herd when it stampedes off the cliff, but it takes rare skill, insight and discipline to avoid it.

The thing I'm surest of is that the solution doesn't lie in making guesses about the big-picture future. Rather, it lies with investors who possess skill, insight and discipline.

In the same memo, he outlines some of his desired characteristics:

1. contrarianism, scepticism, modest expectations, humility and defensiveness

2. eschewing macro forecasts

3. attention to the cyclical nature of things (always remember the pendulum never goes in one direction forever but rather swings.)

4. consciousness of timeframe

5. concentration on valuation

6. awareness of prevailing investor psychology or market consensus

7. concentrate on avoiding pitfalls

8. face up to the uncertainty that surrounds the macro future

9. invest in a few areas of specialization based on in-depth analysis, conservatively
   estimated tangible values and modest purchase prices

For being an effective contrarian, you should be aware of the following things:

1. what the investment herd is doing or preaching

2. what is the rationale behind it

3. what’s wrong, if anything, with what it’s doing; and

4. what you should do about it

Again, intelligent contrarianism is hard, deep and complex. It involves much more than simply doing the opposite of the crowd. It is challenging, uncomfortable and requires superior judgment, a trace of wisdom, etc. Nevertheless, being a contrarian enables us to “buy when everyone else is selling — and if our view turns out to be right — that’s the route to the greatest returns earned with the least risk.”

The Decision to Risk Being Wrong

So far, we have discussed enough on improving our ability, insights, mindfulness, aptitude, etc. for having second-level thinking, being contrarian and indifferent to the consensus of the crowd — all for aiming to achieve superior or more than average level of returns, consistently. However, Howard Marks also compels us to account for the risk of being wrong. The would-be investors must understand that every attempt at success by necessity carries with it the chance for failure. The two are inseparable.

In a market that is even moderately efficient, everything you do to depart from the consensus in pursuit of above-average returns has the potential to result in below-average returns if your departure turns out to be a mistake. Overweighting something versus underweighting it; concentrating versus diversifying; holding versus selling; hedging versus not hedging – these are all double-edged swords. You gain when you make the right choice and lose when you’re wrong.

As opposed to passive investing, active investing carries a cost that goes beyond commissions and management fees: heightened risk of inferior performance. Thus, every investor has to make a conscious decision about which course to follow. The conscious decision can be based on various factors such as:

• Your risk-taking ability and capacity

• Your investment objective based on the ultimate goal and time-frame

• Regular cash-flow/income streams

• the amount of time you can dedicate to analyzing the markets and optimizing the portfolios

As you can see, it ultimately depends upon the investor and his objectives. The bottom line is that you need to figure out whether you wish to pursue superior returns at the risk of coming in behind the pack, or simply embrace the crowd consensus and aim for the average returns. You can follow either path, but clearly not both simultaneously. Here is how he summarizes his view:

Unconventional behaviour is the only road to superior investment results, but it isn’t for everyone. In addition to superior skill, successful investing requires the ability to look wrong for a while and survive some mistakes. Thus each person has to assess whether he’s temperamentally equipped to do these things and whether his circumstances – in terms of employers, clients and the impact of other people’s opinions – will allow it . . . when the chips are down and the early going makes him look wrong, as it invariably will.

While his recent memo only discusses these three strategies, his investing philosophy also includes other tactics. I won’t go into their details but you can read more about them in his book “The Most Important Thing” and his memo “Dare to be Great.” These strategies are:

• Bucking the Trend

• Be a Pioneer

• Up Against the Institutions

• Avoiding the Agency Risk

• Understanding the Price-Value relationship

• Understanding, recognizing and countering different types of risks

• Efficient Markets Hypothesis and inefficiency of markets

• Being attentive to market cycles

• Combating negative psychological influences

• Patient opportunism

• Appreciating the role of luck

He further proceeds to give his valuable insights on some of the most pertaining issues in today’s world of macro-economic and geopolitical uncertainty such as inflation, interest rate hikes and the imminent possibility of a recession. But again, discussions around these topics, although important, mainly revolve under the same heading: the short term. Even if you ignore all the elements of uncertainty, the economic forecasts depend on other factors such as geopolitical events, the competency of policymakers, etc. This makes it harder to:

1. predict accurate or closer to being accurate movements in the short-term future

2. Marks advises investors that even if we have an opinion about the short term, we can’t (or shouldn’t) have higher degrees of confidence in it.

3. If we conclude, there’s not much we can do about it – most investors can’t and won’t meaningfully revamp their portfolios based on such opinions.

4. In the end, Howard Marks advises investors to stay invested in the markets and not be bothered much about the short-term movements – after all, we’re investors, not traders. This is similar to what I had discussed in the last week’s report, where I summarized JPM’s mid-year investment report. If interested, please read it here.

He highlights the dangers of putting too much importance on short-term movements as follows:

No one should fire managers or change strategies based on short-term results. Rather than taking capital away from underperformers, clients should consider increasing their allocations in the spirit of contrarianism (but few do). I find it incredibly simple: If you wait at a bus stop long enough, you’re guaranteed to catch a bus, but if you run from bus stop to bus stop, you may never catch a bus.

His final piece of advice for both retail and institutional investors is brilliantly laid:

One quarter’s or one year’s performance is meaningless at best and a harmful distraction at worst. If everyone else is focusing on something that doesn’t matter and ignoring the thing that does, investors can profitably diverge from the pack by blocking out short-term concerns and maintaining a laser focus on long-term capital deployment.

Many investors – and especially institutions such as pension funds, endowments, insurance companies, and sovereign wealth funds, all of which are relatively insulated from the risk of sudden withdrawals – have the luxury of being able to focus exclusively on the long term . . . if they will take advantage of it. Thus, my suggestion to you is to depart from the investment crowd, with its unhelpful preoccupation with the short term, and to instead join us in focusing on the things that really matter.

What else I read this week…..

1. Fed Hikes 75 Basis Points Second Time, Signals Third Is Possible (Bloomberg)

2. Explained: Fed Reserve rate hike, US recession and impact on India (The Indian Express)

3. A hawkish Fed signals further rate hikes and sees a slowing economy – but not a recession (The Conversation)

4. What the Fed's Latest Interest Rate Hike Means for Mortgage Rates, Credit Cards and More (Money)

5. Fed rate hike: How will it impact your mutual funds? (The Economic Times)

6. SEBI notifies social stock exchange framework (The Economic Times)

7. Instagram rolls back changes after backlash (The Economic Times)

8. Instagram is fueling a thrifting boom in India, Bangladesh, and Nepal (rest of the world)

9. Two Weeks In, the Webb Space Telescope Is Reshaping Astronomy (Quanta Magazine)

10. IMF: Risk of crypto contagion to wider financial markets ‘limited’ (ETF Stream)

11. What about all the FUN debt gave you? (Budgets are Sexy)

12. Danger lurks behind the glamour of celebrity investors (Live Mint)

13. Integrating blockchain-based digital IDs into daily life (Cointelegraph)

14. Quantitative Finance Reading List (Quant Start)

15. Visualizing the World’s Largest Oil Producers (Visual Capitalist)

    ---

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!

Subscribe now

Also, please help me spread the word by telling your friends about my newsletter and encouraging them to subscribe. It would mean a lot :)

Share The Economics Hub

Have a great week ahead,

Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources!

Subscribe now

Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Tor Browser now bypasses internet censorship automatically

• With $89 billion, India top remittance recipient in 2021: UN report

• J.P. Morgan Mid-Year Investment Outlook 2022

• Bank of America Global Fund Manager Survey Shows Full Investor Capitulation Amid Pessimism

• Many Developing Countries are increasingly Vulnerable to the Risk of Sovereign Debt Default

• Some Emerging market-related graphs

• The European Central Bank has raised interest rates for the first time in 11 years

• Bitcoin and the True Meaning of Inflation

1. Tor Browser now bypasses internet censorship automatically

The Tor Project has just recently released the updated Tor Browser 11.5. It is available on the Tor Browser download page and also on their distribution directory. This new release is noteworthy as it builds upon features introduced in Tor Browser 10.5 to transform the user experience of connecting to Tor from heavily censored regions. For those in countries such as Belarus, China, and Russia where Tor is blocked, the typical way to get around this censorship onto the network is via “Tor bridges.”

However, circumventing censorship of the Tor Network itself remained a manual and confusing process – requiring users to dive into Tor Network settings and figure out for themselves how to apply a bridge to unblock Tor. This manual bridge configuration placed the burden on censored users to figure out what option to pick, resulting in a lot of trial, error and frustration in the process. With this new update, the Tor Project seeks to reduce this burden with the introduction of Connection Assist: a new feature that when required will offer to automatically apply the bridge configuration they think will work best in your location for you.

Check their blog post for more details!

2. With $89 billion, India top remittance recipient in 2021: UN report

India received 89 billion dollars in remittances in 2021, the top remittance recipient, and way ahead of countries like China and Mexico, according to a World Health Organisation report released on Wednesday. The report by the specialised agency of the United Nations responsible for international public health said that in 2021 the top five remittance recipients in current US dollars were India, China, Mexico, the Philippines and Egypt.

The report notes that India gained a substantial 8% during the year, as a return of migrant labour to host countries and support to reduce the effects of COVID-19 in India boosted remittance inflows. Furthermore, recent experience from the pandemic suggests that migrants will continue to send remittances to their families in 2022. There is a possibility that the opening of the region’s economies will offer them the option to send more money through informal and digital than formal traditional money transfer channels, leading to a decline in recorded formal remittance inflow.

In its July 2022 report, the Reserve Bank of India noted that India’s inward remittances have proven to be a resilient source of current account receipts. Furthermore, the cross-country remittances inflows are found to be driven by altruism motive, captured by the infection rate in the destination country and the stringency of the lockdown in the source countries. For instance, overseas remittances for family maintenance represented a huge chunk of India’s inbound remittances, while local withdrawals from non-resident rupee-denominated deposit accounts increased substantially, implying the drawdown of savings to tide through the crisis.

You can read the report for more analysis, details, charts and tables. Please check it out!

3. J.P. Morgan Mid-Year Investment Outlook 2022

J. P. Morgan recently released a mid-year market insights report which summarizes the performance of financial asset classes and presents an outlook for the same. It is a good overview and I think it reflects the mildly increasing confidence of the investment banks in the economic rebound by next year. The summary of the report is presented below:

• JPM’s central scenario is that we could avoid a severe global downturn thanks in large part to fiscal support, and a more gradual pace of tightening by the central banks in the second half of the year. With major markets having already experienced double-digit declines, the significant further downside for risk assets is not their base case.

• With inflation as the root cause of the problem, investors have found themselves in the worst of all worlds, with the price of both bonds and stocks falling. For instance, fears of stagflation have caused the traditional 60:40 portfolio (conventionally considered as a "balanced portfolio" as 60% is invested in stocks and 40% in bonds) to trade over 18% lower year-to-date. As you can see from the chart below, it rarely happens.

  

• However, JPM foresees that the risks to government bond prices are now more evenly balanced and bonds can now offer some portfolio diversification in the more extreme negative scenarios.

  Signs of cooling economic activity could allow for a more gradualist approach from the central banks. This should limit the downside risk for assets and re-establish the negative correlation between stocks and bonds that had previously proved so helpful to investors trying to construct a balanced portfolio.

• Value stocks have outperformed growth stocks significantly this year. The MSCI World Index is down by over 20% but within that, the MSCI World Growth Index shrank by 30% while the MSCI World Value Index declined by just 13%. JPM expects value’s outperformance of growth may continue if economic activity proves resilient to higher commodity prices and interest rates.

• Until inflation subsides investors will remain concerned about stagflation. Alternatives such as core infrastructure and real estate, and stocks that offer resilient high dividends, are relatively attractive in this challenging backdrop. When the beta of markets is less supportive and capital gains cannot be relied upon, dividends and coupons become more important. Therefore, financial assets that provide sustainable income should be your priority in this stagflationary market framework.

• The report also advises the investors to stay invested in the markets and to look for potential opportunities as short-term challenges like these have always planted the seeds for long-term opportunities. For instance, the oil shock in the 1970s led to a tremendous shift in fuel-efficient automobiles and investment in renewable or nuclear energy sectors. Like in the 1970s, the current energy crisis will turbocharge the energy transition and investors will need to identify the relative winners of this trend.

In the end, they also highlighted the need for humility in economic forecasting by analysts as their projections have direct impacts on the confidence level of consumers and businesses, and subsequently impact monetary policy decisions.

Forecasting economies and markets are never easy. Understanding the post-pandemic economy and unprecedented policy response further complicates the forecasting process. On top of this, our projections depend on the judgments and decisions of a handful of key individuals: Whether the prospect of a long and costly war causes a strategic rethink in Moscow or whether Putin retaliates against the embargo; whether the central banks and politicians do prioritise growth over inflation and other influencing factors. These many variables demand a degree of humility when forecasting the economic outlook.

4. Bank of America Global Fund Manager Survey Shows Full Investor Capitulation Amid Pessimism

On the contrary, the Bank of America’s latest Global Fund Manager Survey does not provide an optimistic forecast on the financial markets in the imminent future. The survey, which included 259 participants with $722 billion under management was conducted between July 8 and July 15. It shows dire levels of pessimism among investors and their increased preference for cash, signalling bearish sentiment in the financial markets. However, from a contrarian perspective, holding too much cash also means that institutional investors are preparing themselves for buying any upside opportunity that may arise in the future.

Global growth and profit expectations sank to an all-time low, while recession expectations were at their highest since the pandemic-fueled slowdown in May 2020, strategists led by Michael Hartnett wrote in the note. Investor allocation to stocks plunged to levels last seen in October 2008 while exposure to cash surged to the highest since 2001, according to the survey. A net 58% of fund managers said they’re taking lower than normal risks, a record that surpassed the survey’s global financial crisis levels.

Bank of America strategists said their custom bull & bear indicator remains “max bearish,” which could be a contrarian signal for a short-term rally. “Second half 2022 fundamentals are poor but sentiment says stocks/credit rally in coming weeks,” strategists wrote.

Other notable findings include:

1. Among equity regions, investors are most bearish on Eurozone and Japan.

2. Although optimism is brewing again that inflation could be nearing a peak, fund managers largely believe that economic recession is imminent.

3. Most crowded trades are long US dollar, long oil and commodities, long ESG assets, long cash and short US Treasuries.

4. In the past 4 weeks, investors increased their exposure to bonds, staples, utilities, and healthcare, while slashing exposure to equities, Eurozone, materials and banks.

5. Many Developing Countries are increasingly Vulnerable to the Risk of Sovereign Debt Default

We have spoken at length about the looming debt crisis in emerging markets and developing economies (EMDEs) in week 4’s newsletter. Please check that article out for understanding the reasons behind the imminent debt crisis in developing countries and the imperative for impactful global action.

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As we have noted earlier, Sri Lanka was the first nation to stop paying its foreign bondholders this year, burdened by unwieldy food and fuel costs that stoked protests and political chaos. For all different reasons, Russia followed Sri Lanka and defaulted on its sovereign default in June 2022, for the first time in 100 years! But Russia and Sri Lanka aren’t alone as many debt-distressed countries are expected to follow the suit.

Bloomberg has developed a Sovereign Debt Vulnerability Index, which ranks the countries with the highest default risk. It’s based on four underlying metrics:

1. Government bond yields

2. 5-year credit default swap (CDS) spread

3. Interest expense as a percentage of GDP

4. Government debt as a percentage of GDP

Assuming you might not be familiar with the concept of a credit default swap (CDS) spread, let’s do a quick recap. Credit default swaps (CDS) are a type of derivative (financial contract) that allows an investor to swap or offset their credit risk with that of another investor. To insure against the risk of default, the lender (say foreign investor) buys a CDS from another investor (third-party) who agrees to reimburse the lender in the case the borrower (emerging/low-income country) defaults. If a CDS has a spread of 300 bps (3%), this means that to insure $100 in debt, the investor must pay $3 per year. As you can see from the following chart by Visual Capitalist, the 5Y CDS spread is pretty high in countries such as El Salvador, Ukraine and Argentina.

The number of emerging markets with sovereign debt that trades at distressed levels — yields more than 10 percentage points above that of similar-maturity Treasuries, which can indicate investors believe the default is a real possibility — has more than doubled in the past six months, according to data compiled from a Bloomberg index. Collectively, those 19 nations are home to more than 900 million people, and some — such as Sri Lanka and Lebanon — are already in default. Collectively, almost a fifth — or about 17% — of the $1.4 trillion emerging-market sovereign bonds are trading at distressed levels.

Historically, debt defaults have shown that it has the potential to trigger political turmoil among the masses resulting in overthrowing governments, food & fuel shortages, the absence of manufacturing and industrial activity, etc. “There’s a lot of academic literature and historical precedence in terms of social instability that higher food prices can cause, and then that can lead to political change”, said Anupam Damani, head of international and emerging-market debt at Nuveen.

Samy Muaddi, a portfolio manager at T. Rowe Price, points out that many emerging markets rushed to sell overseas bonds during the Covid pandemic when spending needs were high and borrowing costs were low. Now that global developed-market central banks tighten financial conditions, driving capital flows away from emerging markets and leaving them with heavy costs, some of them will be at risk.

Continue reading the article by Bloomberg, for a country-wise analysis of debt-distressed nations and the different geopolitical and economic factors that led them here.

6. Off-Topic ChartStorm: Emerging Markets

If you are interested in other interesting technical graphs related to Emerging markets w.r.t. debt levels, bond spreads, currencies, etc. then I would recommend you checking it out this newsletter by Callum Thomas.

Callum’s newsletter presents the following charts w.r.t Emerging markets, Please check it out if any of these topics interest you!

1. Emerging Markets (EM) vs Developed Markets (DM) Relative Performance in Perspective.

2. Emerging Markets Country Breadth

3. EM performance w.r.t US Dollar Index

4. EM Commodity Currencies Index

5. JPM EM Global Spread

6. EM Sovereign Stress

7. Investors abandoning EM bonds

8. EM Bond Technicals

9. Emerging Market equity valuations are close to 2009 lows

10. "High and Falling Inflation" regimes

7. The European Central Bank has raised interest rates for the first time in 11 years

In the last week’s newsletter, we discussed the ECB’s policy dilemma in raising interest rates amidst Intra-European bond spreads and ECB’s commitment to mitigate the fragmentation risks associated with it. I would recommend reading that part before proceeding because it is relevant to this topic.

This week, in a bold move the European Central Bank hiked its key interest rates by a half percentage point. That marks the first time since 2011 that the ECB has raised rates, and takes Europe's main rate back to zero. Rates in the region have been negative since 2014. The central bank had previously indicated that it would increase rates by a smaller margin (25 bps), but decided it needed to be more aggressive based on an "updated assessment of inflation risk."

Some of the meeting and press conference headlines can be summarized as follows:

• Further normalisation of interest rates will be appropriate, essentially signalling more rate hikes in the coming months.

• From now on, decisions will be made “meeting to meeting” in reaction to incoming data. The ECB doesn’t know what the data will be yet, so it can’t guide the rest of us on what its monetary policy will be.

• Inflation continues to be undesirably high and is expected to stay above our target for some time.

• In the baseline scenario, there is no recession, neither this year nor the near year according to ECB President Christine Lagarde.

Furthermore, they released some details on the new anti-fragmentation tools - policy initiatives aimed at preventing “unwarranted” moves in bond spreads (read my previous week’s newsletter for better understanding) across EU nations. The so-called “Transmission Protection Instrument can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area," the central bank said. The ECB stands ready to deploy the instrument if necessary, granted that countries meet certain metrics for fiscal and economic health, Lagarde emphasized. You can read more about The Transmission Protection Instrument, ECB’s new anti-fragmentation tool here.

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Bloomberg analyst John Authers noted that the investors are still not convinced with ECB can do what is needed to keep Italy in the eurozone. As he describes it:

Under the TPI, the central bank can buy securities “to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy.” It gives a series of conditions, but no numbers. Any financial interventions will be wholly at the discretion of Lagarde and her colleagues. And to quote Jean Ergas, chief strategist of Tigress Financial Partners in New York, this means that “unwarranted” and “disorderly" could become the new “transitory.” Decisions over intervention will hinge over definitional arguments about those words, adding more confusion to ECB’s actual policy stance.

I tend to believe along the same lines as the ING, who viewed the rate hikes move as:

The hike, as well as potential further hikes, are all aimed at bringing down inflation expectations and to restore the ECB’s damaged reputation and credibility as an inflation fighter. Today’s decision shows that the ECB is more concerned about this credibility than about being predictable. This matters more than forward guidance.

8. Bitcoin and the True Meaning of Inflation

Bitcoin is commonly presented as a hedge against inflation. Since Bitcoin has a fixed supply of 21 million, and fiat is a mind-numbing bacchanalia of printing and excess, it simply makes intuitive sense that Bitcoin would protect people, investors, and portfolios from the ravages of inflation. So why hasn’t it so far in these inflationary times, where the price increase has been observed in commodities, goods and services for over the last 7 months? This article by Steven Lubka presents some compelling arguments which untangle the myth about inflation and bitcoin.

His arguments stem from the core definition of inflation in a historical sense in which inflation was referred to as an increase of paper currency against the supply of fixed collateral (gold, silver) that backed the paper notes. He asserts that Bitcoin can be a great hedge against the debasement of the currency caused by the expansionary monetary policies pursued by the central banks, rather than being a hedge against consumer price increases - which are influenced by multiple factors in the real world. As he brilliantly puts it:

Bitcoin exists to provide users an alternative to irresponsible and fatalistic central bank monetary policy. After all, the headline cited in Bitcoin’s genesis block is “Chancellor on Brink of Second Bailout for Banks, ” not “Supply Chains Face New Obstacles.”

The goal of Bitcoin is clearly something that stands in opposition to central banks and their policy errors. We have to accept that bitcoin will not provide a hedge against CPI increases and that to hedge against central bank actions is to be in a directional relationship with those actions.

Furthermore, Steven argues that it is impractical to expect the “dollar-denominated price” of any financial asset class to be un-impacted in an era where central banks are rapidly withdrawing liquidity from a dollar-centric world. In a recent interview, Macro strategist Lyn Alden also echoed the same conclusions about the relationship between Bitcoin and the broad money supply. As she states:

There are different types of inflation. There’s monetary inflation and then there’s price inflation that often comes with a lag after that monetary inflation, and what we’ve actually seen for the most part is that Bitcoin is correlated very strongly with money supply growth, global M2 especially as measured in dollars, and so over the past couple years as we got that huge ramp up in broad money supply around the world, Bitcoin did very well.

I do understand that arguments like these might not sound convincing to you at the first sight but upon closer inspection of the debt-driven, overly-financialized dollar-centric world and visualizing the end game scenario, this defence of Bitcoin becomes more persuasive from a long-term perspective. If my summary of the article wasn’t enough, you can check out the article and Lyn Alden’s interview for a better understanding!

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!

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Share The Economics Hub

Have a great week ahead,

Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources!

Subscribe now

Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Euro hits US dollar parity for the first time in 20 years

• The European Central Bank’s policy dilemma amidst rising inflation and broadening bond spreads

• Sri Lanka’s Road to Ruin Was Political, Not Economic

• RBI allows payments for cross-border trade in rupee, move to benefit trade with Russia

• Global Military Spending Hits a Record High

• Fueling a Warfare State

• US inflation accelerates to 9.1%, the highest in 41 years

• Costs and risks of using BNPL products

• Global Financial Watchdog FSB to Propose Crypto Regulations in October

• Podcast Recommendations of the Week

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1. Euro hits US dollar parity for the first time in 20 years

Since the start of the Russo-Ukrainian war, there have been major incidences of currencies having a sharp decline against the mighty dollar, and the unlucky winner for July is the euro. The eurozone currency, shared by Germany, France, Italy and 16 others, is flirting with parity to the U.S. dollar for the first time since 2002.

Euro has depreciated by almost 12% against the dollar since the start of the year when one euro bought about $1.14. This may seem like no big deal unless you’re a currency trader or policymaker. However, such currency declines are unusual in developed economies. But sharp movements in exchange rates create uncertainty and can lead to economic and financial instability.

The decline in the Euro has also been crucial in strengthening the US dollar Index - a measure of the value of the U.S. dollar relative to a basket of foreign currencies, as the euro is the largest component of the index, making up 57.6% of the basket.

What caused the sharp decline in EURUSD? There are several factors, and they include:

1. Monetary policy: the U.S. Federal Reserve (Fed) has been tightening policy much more aggressively than the European Central Bank (ECB).

2. Trade balances: While both the U.S. and Europe have seen a deterioration in their trade balances, the eurozone has seen an especially sharp decline in its trade surplus in recent months as European natural gas prices soared.

3. Geopolitical reasons: The war in Ukraine has created geopolitical uncertainty and is driving up energy prices, especially in Europe given their vulnerability and high dependence on Russian energy supplies. Monday’s shutdown of the Nord Stream 1 natural-gas pipeline into Germany, apparently for maintenance, contributed to the latest pressure on the euro.

4. Intra-European bond spreads: Increasing tension within the eurozone debt market also appears to be weighing on the euro. In layman’s terms, there has been a sharp increase in yields in nations with higher levels of public debt such as Italy. Wider sovereign spreads between Germany and nations like Italy appear to be weighing on the euro. Instead of fighting inflation, the ECB is focused on extending monetary ease to these nations with high public debt to prevent “fragmentation.”

All these factors are weighing on the euro amidst issues of the European Central bank’s credibility. As Nobel economist Robert Mundell once observed, the dollar-euro exchange rate is the most important in the world, “and neither Europe nor the United States is going to want to have big fluctuations in that price.” This statement holds so much significance in today’s world of economic and geopolitical uncertainty.

2. The European Central Bank is Trapped. Here’s Why.

We just discussed the widening bond spreads between European countries and how it is weighing on the euro. But what exactly is the European bond spread? How did we get here? What policy options does the European Central Bank have to mitigate the imminent fragmentation risk? Well, to begin with, the European bond spreads are essentially concerned with the spread between highly rated German bonds and bonds of countries with high government debt such as Italy, Greece, etc. If you are unfamiliar with bond yield, it simply means the returns that an investor obtains from a bond.

As you can see from the chart, the yield on Italian government bonds has risen to an all-time high since 2014. This has been happening as investors continue to dump the bonds of the eurozone's most vulnerable members (including Italy) due to their uncertain economic outlook and their potential inability to service debt due to their high debt levels.

Consequently, markets have become increasingly concerned about ‘fragmentation risk’ in the euro area. Now, the European Central Bank has committed to mitigating “fragmentation risk” and pledged to "accelerate the completion of the design of a new anti-fragmentation instrument".

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The details of their anti-fragmentation tool remain unclear. Experience from the past has shown that only asset purchases are (relatively) effective in controlling bond spreads. But this is where the trouble begins and ECB’s policy dilemma arises. In usual times, the ECB would have temporarily managed to keep the bond yields of peripheral countries in check via lower interest rates or asset purchase programs. But we are in a different time frame now with altogether different economic challenges. Amidst rising inflation due to multiple factors, the ECB is now also compelled to hike interest rates.

The interest rate hikes and the rollback of quantitative easing will add pressure to the “fragmentation risk.” With the ECB no longer buying significant quantities of bonds, demand will fall, which will depress prices further and increase yields. In the end, it is unclear how the ECB would address this policy dilemma and to what extent they can assure the global investors about the credibility of their anti-fragmentation tool.

While this is the explanation of the present situation, the mentioned article by Lyn Alden dives deeper into the fundamental reasons why we got here. She asserts that much of the European debt’s problems stem from their common framework of “A Monetary Union Without a Fiscal Union.” The article is illuminating and thought-provoking, I cannot recommend it enough!

3. Sri Lanka’s Road to Ruin Was Political, Not Economic

This article was recently shared by one of my friends whose opinions I truly admire and respect. It gave me an alternative perspective to think about the ongoing Sri Lankan crisis. As most of the readers of this blog are from the finance field, it is quite a possibility that we are not aware of this line of thinking which is not characteristic of the finance profession. Therefore, I am sharing it with you so that you can have an alternative perspective while navigating the Sri Lankan political and economic crisis.

The article does not overlook or refute the economic factors such as high external debt, reliance on the tourism industry, fertilizer ban that intensified the food crisis, depleting forex reserves and debt defaults that have affected the country’s credit quality but rather compel us to consider the deeper problems of Sri Lankan society that have always persisted and led to the current dire socio-economic and political situation. As the author brilliantly puts it:

The proximate cause of the protests is ruinous economic policies, but what put the Rajapaksa family in power—a family formerly considered village bumpkins—was Sinhalese Buddhist nationalism. It was nationalism that enabled governance rooted in meritocracy to be supplanted by ethnocracy, which over time has led to kakistocracy— governance by a country’s worst citizens.

So essentially, the author points out the two major factors that have enabled the government to pursue corrupt policies without any accountability at the expense of people’s livelihood. These factors are:

• Sinhalese Buddhist nationalism: The Sinhalese, currently 75 percent of the population, subscribe to an ideology that claims they are the island’s original settlers and that all others—including Tamils (around 15 percent) and Muslims (around 10 percent)—live there thanks to majoritarian sufferance. Sri Lanka’s ethnocracy started when Prime Minister S.W.R.D. Bandaranaike made Sinhala the only official language in 1956 and successive governments thereby avoided hiring and promoting Tamils in particular.

• Kleptocracy: The administrative services influenced by ethnocracy were likewise gutted over the same period, enabling cabinet ministers to lord over ministries that competent and professional cabinet secretaries previously managed. The government basically wanted ethnocentric administrative and law enforcement bodies. As the integrity of the democratic institutions was undermined, many competent and qualified individuals moved abroad over the years. This brain drain amid ethnocentric recruitment saw standards decline throughout government sectors and eventually led to us the current situation.

These are the two major factors that the author shed the light upon. You can read the entire article for a better understanding. The Caravan has also published an article on the same topic last month, please check that out as well if interested!

4. Trade transactions will soon be in rupee as RBI brings in a mechanism to hedge the currency

The Reserve Bank of India (RBI) has said that it is introducing a new mechanism this week for international trade settlements in rupees, aiming to promote exports and facilitate imports. While the move is seen to benefit trading primarily with Russia, it is also likely to help check dollar outflow and slow rupee depreciation to a “very limited extent”.

How will this system work?

• For importers: To settle trade deals, authorised Indian banks will need to open Special Rupee Vostro Accounts of the partner trading country’s bank. Indian importers using this mechanism will need to pay in rupees. This will be credited into the special Vostro account of the correspondent bank of the partner country against the invoices for the supply of goods or services.

• For exporters: Indian exporters, on the other hand, will be paid in rupees from the balance in the designated special Vostro account of the correspondent bank of the partner country.

So far in the currency markets and before Russia was cut off from the SWIFT system, if a company exports or imports, transactions were always in a foreign currency (excluding with countries like Nepal and Bhutan). So in the case of imports, the Indian company had to pay in a foreign currency (mainly dollars and could also include currencies like pounds, Euro, yen etc.). The Indian company gets paid in foreign currency in case of exports and the company converts that foreign currency to rupee since it needs rupee for its needs, in most cases.

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Moreover, the move to facilitate trade settlement in rupees could also allow India to bypass certain orders that prevent the use of a global currency such as the US dollar for trade with certain countries. For instance, Russia’s attack on Ukraine has seen several countries impose sanctions on the former, with the US cutting off Russia’s access to the dollar. This has made Indian companies, looking to take advantage of the lower price of Russian commodities, consider alternative modes of payment for imports. I am not sure how this system would work in reality and its effect on the Indian rupee, but it is very important to watch the developments closely.

5. Global Military Spending Hits a Record High

In late April, new figures published by the Stockholm International Peace Research Institute (SIPRI) revealed that annual global military spending for 2021 had passed $2 trillion for the first time, reaching a staggering sum of $2.113 trillion. Last year was also the seventh straight year in which military spending around the world increased, with total expenditure almost doubling in this century alone. The five largest spenders in 2021 were the United States, China, India, the United Kingdom and Russia, together accounting for 62 per cent of expenditure.

The US, with just over 4 percent of the world’s population, accounts for nearly 40 percent of all global military spending. In an attempt to preserve a technological advantage over its competitors, US funding for military research and development has increased significantly, the report noted.

Russia increased its military expenditure by 2.9 per cent in 2021, to $65.9 billion, at a time when it was building up its forces along the Ukrainian border. ‘High oil and gas revenues helped Russia to boost its military spending in 2021. Russian military expenditure had been in decline between 2016 and 2019 as a result of low energy prices combined with sanctions in response to Russia’s annexation of Crimea in 2014,’ said Lucie Béraud-Sudreau, Director of SIPRI’s Military Expenditure and Arms Production Programme.

India’s military spending of $76.6 billion ranked third highest in the world. This was up by 0.9 per cent from 2020 and by 33 per cent from 2012. In a push to strengthen the indigenous arms industry, 64 per cent of capital outlays in the military budget of 2021 were earmarked for acquisitions of domestically produced arms.

China’s economic rise from a predominantly rural society in the 1970s to a motor of the world economy today has been accompanied by a rapid expansion of its military capabilities. Last year, the Chinese government allocated an estimated US$293 billion to its military. After increasing its spending for 27 consecutive years, it now accounts for 14 percent of global spending.

To summarize, the world continues to arm itself at an alarming rate, perhaps more fervently than ever before. And in 2022, despite all the global economic challenges we are facing, it does not appear to be slowing down in the coming years, given the geopolitical instability. It is not just the usual big spenders that are boosting their military capabilities. A growing number of countries with defence capabilities that, up until very recently, could only be described as limited have even joined in on the burgeoning arms race.

The article is informative but unfortunately, it does not highlight the terrorization of the world caused by US military forces and its allies, in the middle-east, Latin America and elsewhere over the last many decades. Maintaining the global superiority and status quo of the United States is at the heart of the Military Industrial Complex and is primarily responsible for committing major war crimes, conflicts, invasions, overthrowing governments for vested interests, etc. all around the world. Blaming China and Russia is easy but utterly overlooking the role, existence and influence of the Military Industrial Complex is a sheer disrespect to the lives of millions of people lost due to American-led or backed military operations.

6. Fueling the Warfare State

Read this brilliant article by William Hartung instead, which highlights the increased militarization efforts taken by the United States in Europe and Asia, in recent months. It is not just the increased militarization efforts but also increasingly budgetary allocation to the American national security state including military, intelligence, and internal-security expenditures. The author brilliantly puts it:

This lust for yet more weapons spending is especially misguided at a time when a never-ending pandemic, growing heat waves and other depredations of climate change, and racial and economic injustice are devastating the lives of millions of Americans. In a world where such dangers are only increasing, perhaps the best hope for launching a process that could, sooner or later, reverse such perverse priorities lies with grassroots organizing. Consider, for instance the “moral budget” crafted by the Poor People’s Campaign, which would cut Pentagon spending almost in half while refocusing on programs aimed at eliminating poverty, protecting the environment, and improving access to health care.  If even part of such an agenda were achieved and the “defense” budget reined in, if not cut drastically, America and the world would be far safer places.

Please read the article by William Hartung and Poor People Campaign’s report for more details!

7. US inflation accelerates to 9.1%, the highest in 41 years

US inflation accelerated in June by more than forecast, underscoring relentless price pressures that will keep the Federal Reserve on track for another big interest-rate hike later this month. The consumer price index rose 9.1% from a year earlier, the largest gain since the end of 1981, Labor Department data showed Wednesday. The widely followed inflation gauge increased 1.3% from a month earlier, the most since 2005, reflecting higher gasoline, shelter and food costs.

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The so-called core CPI, which strips out the more volatile food and energy components, advanced 0.7% from the prior month and 5.9% from a year ago, all figures are exceeding analysts' forecasts and piling further pressure on the Federal Reserve to bring it down with faster interest rate rises.

Dan Morehead, CEO of Pantera Capital makes an assertive comment that the actual inflation figures are way above the official figures. He uses the Case-Shiller Index, an alternative real-time measurement for housing inflation in place of OER (owners' equivalent rent) – a very slow-moving index introduced in 1982.

If you were to ask me, the *actual* inflation figures are possibly way higher than that and honestly, it differs from person to person living in different regions with their respective consumption pattern on a specific basket of goods and services. I mean, as we buy goods and services and observe their prices, we get a sense of how fast prices change. But quite often our perceptions do not match the official inflation figures. This is primarily because a person’s monthly/yearly basket of goods and services does not coincide with the basket of goods and services that the government uses to measure inflation. In a current macro-framework, a person who spends disproportionately higher on food, fuel and housing rent might be experiencing a way harsher inflation.

8. The Costs of Using Buy Now, Pay Later (BNPL) Products

A couple of weeks back we discussed the potential dangers of using BNPL products and why you should be mindful while opting for such credit-based products. Buy Now Pay Later (BNPL) schemes let consumers finance payments for items such as clothes and furniture on credit with no interest or charges – unless they fail to pay back on time, at which point many firms impose late fees. In a short period, these products have become one of the popular modes for customers to make retail purchases in India. For instance, this sector grew by a whopping 569% in 2020 and 637% in 2021 to reach an estimated market size of USD 3.7 billion. According to market estimates, the BNPL user base in India is expected to reach 100 million by FY26.

However, the actual costs customers may incur have not been documented in the Indian context. This report by Dvara Research attempts to address this issue in detail. Their analysis presents insights from studying BNPL products of ten different BNPL providers in India and the findings help put a spotlight on customer protection concerns in the BNPL market. They conclude the report as:

The examination suggests that BNPL products can impose high monetary costs that may be comparable to those imposed on credit cards usage – we caveat this by saying that a more thorough examination of actual costs based on customers' usage of BNPL products and credit cards over time is warranted. We were also able to discover significant misalignment between BNPL providers' practices and key conduct obligations towards customers. Such misalignment could impose non-monetary costs, which include loss of creditworthiness, personal data-related harms, and misconduct from providers and their agents.

Dvara Research notes that BNPL providers’ terms and conditions are misaligned with key customer protection practices and thus, violating key conduct obligations. Customers are at risk of:

• Unknowingly incurring debt

• Borrowing credit that is unsuitable for them

• Being subject to aggressive debt collection practices

When it comes to user experiences with using BNPL products, they observe that “the onboarding and purchase experiences of the volunteers were seamless and completely digital. Barring a couple of rejections, all volunteers successfully registered for the BNPL product and made their purchase. However, specific information about the costs of the BNPL product, like interest rate, processing fee and other charges, was not prominently displayed before the onboarding process.”

The report is pretty informative and well-researched. Please check it out here and its summary analysis here and here.

9. Global Financial Watchdog FSB to Propose Crypto Regulations in October

The Financial Stability Board (FSB), an international body that monitors financial systems and proposes rules to prevent financial crises, plans to present recommendations for regulating crypto in October, according to a statement on Monday. This is huge as the Financial Stability Board reports to the Group of 20 of the world's largest economies. The recommendations will cover stablecoins and other crypto assets. They note:

The failure of a market player, in addition to imposing potentially large losses on investors and threatening market confidence arising from the crystallisation of conduct risks, can also quickly transmit risks to other parts of the crypto-asset ecosystem. It may have spill-over effects on important parts of traditional finance such as short-term funding markets.

The FSB plans to submit a report to the G-20 in October on "high-level recommendations for the regulation, supervision and oversight of stablecoins." The proposed rules may include ways to extend existing frameworks to "close gaps" and implement recommended regulations. These recommendations will greatly impact the way major countries approach the regulatory framework of the cryptocurrency world. At this point, we can only wait till they publish the report. I am closely watching the regulatory developments in the crypto industry, I will keep you updated!

10. Podcasts of the Week

1. Is this the End? | Lyn Alden - Bankless

This was one of the finest macro-podcast I have heard in a while. It covers so many things at once such as the current macro environment, historical analogues to the current global economic situation that is loomed by stagflationary fears, energy crisis, limitation to raising interest rates due to high debt levels, competency of central banks, food & fertilizer markets and its relationship to energy, the potential solutions and the importance of mental health during such times.

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The pace of this podcast can be overwhelming at some points (like it did to me!) especially if you are not much familiar with the subject but it is advisable to re-listen to the parts which you perceive to be important!

2. The State v Julian Assange with Gabriel Shipton & Stella Moris - What Bitcoin Did

As the title suggests this podcast focuses on the life, work and high-profile legal case of journalist, activist and cryptographer Julian Assange. Gabriel Shipton is a Film Producer & advocate for his brother Julian Assange; Stella Moris is a lawyer & wife to Julian Assange. In this interview, they discuss the unprecedented state assault on Assange’s freedom, the extra-territorial application of US Law, the effects on his mental & physical well-being, & the threat to journalism.

I have read and watched lots of stuff on Julian Assange but I personally felt this interview was heart-touching and I felt the necessity of sharing with you. While you are here, I would also recommend the previous podcast by Peter McCormick (the host of What Bitcoin did), when he interviewed Julian Assange’s father and brother, John and Gabriel Shipton. The podcast dives way deeper into Julian’s case, the importance of Wikileaks, suppression of journalistic freedom and more.

In the end, they also discuss the relationship between Wikileaks and Bitcoin, Satoshi Nakamoto’s pragmatic position on the matter and how they survived the banking blockade with the help of bitcoin donations. Please check it out!

3. The Dangers of Tech that Tracks Everything We Do - Tech Won’t Save Us w/ Shoshana Wodinsky

Paris Marx is joined by Shoshana Wodinsky to discuss how the digital infrastructure that companies have built out over the past couple of decades to track everything we do to serve us ads places us at risk, and how that’s come into focus since the overturning of abortion rights in Roe v Wade in the United States.

4. India Cracks Down on Online Expression - Tech Policy Press

In this podcast, Tech Policy Press focus on the Indian government’s efforts to create a bureaucratic apparatus to enforce what appears to be an ever more frequent number of requests for social media platforms to remove content deemed inappropriate for one reason or another. This podcast discussion touches on a range of issues, including:

• The political context and regulatory precedent for the 2021 rules implemented by the Ministry of Electronics and Information Technology and the recently proposed amendments to them.

• The dangers of weakening encryption with the goal of allowing.

• The challenges and dangers of establishing government bureaucracies to manage social media content moderation and ‘grievances’ that arise.

5. China’s Houses of Cards - Finshots Daily

In this episode, Finshots analyze why Chinese real estate developers are trying to sell property in exchange for wheat, garlic and watermelons.

6. Causes and costs of populism - VoxTalks Economics

Across Europe and beyond, populist movements have recently flourished. What does history teach us about the economic impact of populism – and is our taste for populists a bug or a feature of democracy? Tim Phillips talks to Moritz Schularick and Massimo Morelli.

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and kindly tell your friends to do the same. Subscriptions won't cost you a penny and it is the best way to support my work! If you have any positive feedback, then please do not hesitate to contact me. Thank you :)

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Share The Economics Hub

Have a great week ahead,

Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

If you have already subscribed, thank you! If you are here for the first time, then please consider subscribing for free educational content and resources!

Subscribe now

Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Explainer: The Economic Crisis in Sri Lanka

• Debt Crisis in Developing Countries: The Imperative of Global Action

• Simplifying RBI’s Latest Financial Stability Report (FSR)

• Are Indian Equity Markets still Overvalued? Here’s what RBI says

• Rise of the Central Bank Digital Currencies: Drivers, Approaches and Technologies - BIS Report

• More African Central Banks Are Exploring Digital Currencies (CBDCs)

• Banking-Related Frauds are Becoming Prevalent in India. Here’s What You Can Do

• Explainer: India’s New IT Rules, Dystopian Amendments and Why They Are a Threat to Freedom of Expression

• Cybersecurity Deals Surge Amid Rising Attacks - Podcast by Goldman Sachs

• Payment Failures in Direct Benefit Transfers - Dvara Research Report

• Copper price plunges to a 20-month low and historic recession alarm bells are ringing

• The End of Roe Will Bring About a Sea Change in the Encryption Debate - Stanford Law School

1. Explainer: The Economic Crisis in Sri Lanka

Sri Lanka is currently in an economic and political crisis of mass proportions, recently culminating in default on its debt payments. The country is also nearly empty on its foreign currency reserves, decreasing the ability to purchase imports and driving up domestic prices for goods.

There are several reasons for this crisis and the economic turmoil has sparked mass protests and violence across the country. The infographic and analysis presented by Visual Capitalist in this article break down some of the elements that led to Sri Lanka’s current situation mainly, high debt levels, depleting forex reserves, currency devaluation, the collapse of the lucrative tourism industry and heavy reliance on imports for their essential needs such as food and energy.

The combination of these factors makes it remarkably harder for the Sri Lankan government to:

• Finance their imports using depleting forex reserves, currency depreciation and higher global commodity prices

• Borrow fresh money it needs from the international creditors, due to their weak economic outlook and damaging reputation in the money markets as a result of debt defaults.

Some sort of debt structuring or IMF bailout could help but the scarier thing is that what’s happening in Sri Lanka may be an ominous preview of what’s to come in other low and middle-income countries, as the risk of debt distress continues to rise globally.

2. Sovereign Debt Sustainability in Developing Economies: The Imperative of Global Action

We just covered how the situation in Sri Lanka has been worrisome - economically, socially and politically. But Sri Lanka is not alone in this distressing situation. There is a debt crisis looming in emerging markets and developing economies (EMDEs) that has the potential to create widespread economic distress for a majority of the world’s population. IMF managing director Kristalina Georgieva stated that 60% of low-income countries are “at or near debt distress” and at least 20 African countries fall into this category. The inability of these cash-strapped countries to service their debts without any international assistance makes them vulnerable to economic distress followed by social unrest and political instability.

But how did we get here? Well, there are several factors but the debt levels were already surging in developing economies during pre-covid times. United Nations Conference on Trade and Development reported that the total debt service on external debt in the least developed countries rose from $33 billion in 2019 to $50 billion in 2021—each figure is a far cry from $10 billion in 2013. Coronavirus and the economic turmoil that followed exacerbated the situation even further as it limited their ability to raise resources domestically. Other key factors are:

• Supply chain disruptions caused by Covid-19 haven’t completely waned so far.

• War in Ukraine has led to an increase in global food, energy and fertilizer prices.

• Monetary tightening led by major central banks around the globe has resulted in foreign investors pulling off their capital from developing countries as they find refuge in dollar-denominated financial assets - putting more pressure on their domestic currencies.

• Credit rating agencies (CRAs) downgrading the outlook for many developing and low-income economies due to their high debt levels and the increasing possibility of debt defaults in the imminent future, making it harder for these countries to gain access to new sources of financing. Remember, credit rating agencies provide information to investors, institutions and financial markets to help them price risk, and thus can directly impact the foreign investments and the inflow of foreign capital in these countries. Historically, negative warning announcements by CRAs have been linked to increases in the cost of borrowing for low-income and developing countries. Credit ratings can essentially augment market volatility.

This article provides some key measures to manage the worsening debt profiles of these countries. These are:

• The first is to urge the international community to use some of the measures adopted during COVID-19 to help manage the situation (temporarily).

• Making a case for international cooperation via a comprehensive framework for managing debt that would accommodate the more expensive debts owed to commercial creditors as well as debts to other big lenders.

• Re-thinking of the international financial architecture for addressing both the lack of adequate access to development finance and the challenges posed by precarious debt sustainability.

3. RBI releases the Financial Stability Report

On June 30th 2022, the Reserve Bank of India released the 25th issue of the Financial Stability Report (FSR), which reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability and the resilience of the financial system. It is published bi-annually and includes contributions from all the financial sector regulators. Some key highlights:

1. The outlook for the global economy is shrouded by considerable uncertainty on account of the war in Ukraine, elevated commodity prices, supply chain disruptions and darkening growth prospects. In tandem, front-loaded monetary policy normalisation in response to persistently high inflation is imparting high volatility to global financial markets. The evolving outlook is particularly challenging for emerging market economies (EMEs) that face rising indebtedness, currency depreciations, capital outflows and reserve losses, even as they grapple with the ravages of the pandemic.

1. Banks, as well as non-banking financial institutions, have sufficient capital buffers to withstand shocks. “Macro-stress tests for credit risk reveal that Scheduled commercial banks (SCBs) are well-capitalised and all banks would be able to comply with the minimum capital requirements even under adverse stress scenarios.”

2. Strengthening the regulation of non-bank financial intermediation remains a priority. Domestically, efforts continue to fortify the financial system against sudden shocks and to improve the credit environment to support the recovery while ensuring macroeconomic and financial stability.

3. The report points out that the financial stability risks to the Indian economy are skewed towards external factors more than domestic ones. However, the spillover of the external risks to the financial sector stability can be quick in a volatile environment.

4. Domestic macroeconomic, institutional and general risks were perceived as ‘medium’. Nearly eighty per cent of the respondents judged that the prospects of the Indian banking sector are likely to improve or remain unchanged over a one-year horizon.

The report is richly occupied with important statistics, charts, and tables associated with the Indian financial sector. This report is a must-read for anyone associated with the financial sector but I would also strongly encourage you to have a look even if you are from other disciplines.

4. Despite the fall, are Indian stock markets still overvalued?

Just a while ago, we covered the RBI’s latest Financial Stability Report (FSR). It is the main document to understand the current status of risks to the stability of the Indian financial system.

This weekly newsletter by Udit Misra specifically focuses on the status of India’s equity markets and how RBI’s Financial Stability Report perceives it. Some points:

1. In the last FSR, one of the key observations that caught everyone’s attention was the growing disconnect between India’s stock markets and the real economy.

2. Over the past few weeks and months, much like several global stock markets, Indian stock markets have come off their all-time highs.

3. The third reason to look at this issue is driven by the remarkable change in the investor profile of the Indian stock markets since the start of the pandemic. The RBI’s report asserts that domestic investors still support Indian equity markets despite foreign investors having pulled off their capital from the market in recent months, leading to the capping of overall losses. In other words, in case the markets are still overvalued, what is at stake is the interest of the domestic investors.

4. Individual investors’ participation in stock exchanges has increased significantly since the onset of the Covid-19 pandemic and the registration of new investors on exchanges is reaching beyond metropolitan centres and big cities. The key reasons for it are a decline in real returns on fixed-income investments, simplification of KYC processes, more awareness and availability of information, and effective use of digital technology.

The RBI’s report then provides 4 key metrics to assess the valuation of Indian equity markets. These are:

• The 12-month “trailing” price-to-earnings ratio

• The 12-month “forward” price-to-earnings ratio

• The market capitalisation to GDP ratio

• The Bond Equity Earnings Yield Ratio (or BEER)

You can read the article for a detailed explanation but these metrics signal that the Indian markets are overvalued at the moment. However, a high valuation doesn’t necessarily guarantee a fall in stock markets, just as a low valuation doesn’t imply an immediate surge. But these metrics do help investors become aware of the risks and opportunities.

5. Rise of the central bank digital currencies: drivers, approaches and technologies

Central bank digital currencies (CBDCs) are receiving more attention than ever before. However, the motivations for issuance vary across countries, as do the policy approaches and technical designs. In this paper, the Bank for International Settlements (BIS) investigate the economic and institutional drivers of CBDC
development and take stock of design efforts around the world.

Some key findings from the report are:

• The drivers of CBDC development and projects originate in digitized and innovative economies.

• Retail CBDC work is more advanced where the informal economy is larger. None of the projects surveyed seeks to replace cash - all aim to offer a digital complement.

• On the technical designs, the BIS notice that more and more central banks are considering "Hybrid" or "Intermediated" architectures, where the CBDC is a cash-like direct claim on the central bank but the private sector manages all customer-facing activity.

• Only a few jurisdictions are considering "Direct" designs, in which the central bank takes on some or all of the customer-facing side of payments. At present, no central bank reports that it is pursuing a "Synthetic" or "Indirect" CBDC design.

• While many central banks are considering multiple technological options
  simultaneously, current proofs-of-concept tend to be based on distributed ledger technology (DLT) rather than conventional technological infrastructure.

• The notable highlight of the report is that the access frameworks of CBDCS would be based on account identification rather than allowing for token-based fully anonymous access. Privacy advocates might not welcome this pace of development in the CBDC space.

The mentioned report is from late 2020, but as per their July 2022 update, we can understand the stance of many central banks w.r.t. CBDC design, policy approach and issuance have not really changed much. In fact, central banks are being increasingly involved in the CBDC research and pilot projects.

6. More African Central Banks Are Exploring Digital Currencies (CBDCs)

Several sub-Saharan African central banks are exploring or in the pilot phase of a digital currency, following Nigeria’s October introduction of the e-Naira. Nigeria was the second country after the Bahamas to roll out a CBDC.

As you can see from the chart, South Africa and Ghana are running pilots while other countries are in the research phase. Countries have different motives for issuing CBDCs but the IMF observes that the region has some potential benefits from issuing CBDCs. These are:

• Promoting financial inclusion. CBDCs could bring financial services to people who previously didn’t have bank accounts, especially if designed for offline use.

• CBDCs can be used to distribute targeted welfare payments, especially during sudden crises such as a pandemic or natural disaster.

• They can also facilitate cross-border transfers and payments. CBDCs could make sending remittances easier, faster, and cheaper by shortening payment chains and creating more competition among service providers. Remember, Sub-Saharan Africa is the most expensive region to send and receive money.

Thankfully, the IMF blog also discusses the risks and challenges that need to be considered before issuing a CBDC. These challenges are crucial because we all know how the promises of identifying beneficiaries and pushing digital payments for welfare schemes end up in India. Nevertheless, that’s the topic for another day but if you are curious then you can read my analysis of CBDCs here.

7. Banking-Related Frauds are Becoming Prevalent in India. Here’s how to keep your money safe

Banking in India has seen tremendous growth over the last few years, right from instant payments, and money transfers to instant loan approvals. Along with this ease of banking, there has been a side-by-side increase in frauds and the types of frauds. You might be aware of these financial frauds/scams, but I am stating it anyway:

1. Frauds through WhatsApp/Facebook account: So basically, scammers access a customer's Facebook or WhatsApp account and send messages requesting money to the contacts on the customer's contact list. Usually, your acquaintance ends up sending money to the scammer assuming that they are sending it to you. So the next time you receive a shady message from your friend asking for money, then the bare minimum you should do is by confirming via call or meeting them in person.

2. Phishing: To obtain customer information like account numbers, login IDs, passwords, mobile numbers, addresses, debit card grid values, credit card numbers, CVV numbers, PAN, dates of birth, mothers' maiden names, passport numbers, etc., scammers use a combination of email phishing, voice phishing, and SMS phishing. They use cutting-edge social engineering techniques to trick users of online banking.

3. Vishing: Vishing - or voice phishing – is a form of cyber attack that attempts to trick victims into giving up sensitive information like credit card numbers, bank account details and passwords, over the phone. Fraudsters call consumers and pose as bank representatives to deceive them into giving their personal and financial information.

4. Smishing: Smishing is a phishing cybersecurity attack carried out over mobile text messaging, also known as SMS phishing. Victims are deceived into giving sensitive information to a disguised attacker. SMS phishing can be assisted by malware or fraud websites. Yep, all these shady website links you get over your text could potentially be a smishing trap. Scammers encourage you to open a URL link within the text message, where they then are led to a phishing tool prompting them to disclose their private information.

Kaspersky, an international cybersecurity provider has an informative guide on Smishing and what measures you can take that will help you protect yourself against these scams, frauds and attacks. Similarly, they have explainers on protecting yourself from potential Vishing and Phishing attacks. Check it out!

8. India’s IT Rules & New Amendments: ‘A Threat to Freedom of Expression’

In May 2021, the Indian government codified Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 - aiming to regulate (control?) social media firms such as Twitter, Facebook, etc. The rules primarily deal with the due diligence duties of “social media intermediaries (SSMIs)”, which are platforms with more than 5 million users (such as Facebook, Twitter, Telegram etc.). SSMIs are also mandated to appoint a Chief Compliance Officer, Resident Grievance Officer, and Nodal Contact person who shall collectively be responsible for ensuring compliance with the IT Act and rules.

Furthermore, they were also instructed to enable the identification of the first originator of the information on its computer resource. WhatsApp has previously said that it can’t comply with such traceability requests without compromising “end-to-end encryption” security for every user. These social media intermediaries were also mandated to inform users at least once every year, in case of non-compliance with rules and regulations. They now have the right to terminate the access or usage rights of the users to the computer resource immediately or remove it in case of non-compliance.

Now, a year later, the Ministry of Electronics and Information Technology (MeitY) proposed amendments to the rules because it feels that the directions were not being complied with properly by a few SSMIs. It also said that there have been numerous instances where intermediaries did not address the grievances “satisfactorily and/or fairly”. The newly issued draft is even more dystopian as it proposes the creation of government-appointed appeal committees that will be empowered to review and possibly reverse content moderation decisions taken by social media companies like Facebook, Twitter and YouTube. The draft proposal has triggered concerns about the government overriding social media platforms’ content decisions.

Simultaneously, SSMIs operating in India have increasingly approved a wave of content removals and account withholding notices for journalists and civil society groups. For instance, on June 27, British Pakistani journalist Murtaza Ali Shah, a reporter at GEO News and The News International, received a notice of his account being withheld in India under local laws. Prateek Waghre of the Internet Freedom Foundation has been maintaining a compiled list of incidents where law enforcement agencies have taken action based on content posted on social media. Please check it out!

“Provisions like these increase costs for companies that may seek to push back against unjust censorship demands, forcing companies to put their staff on the line to protect free speech is a tactic that governments increasingly use to tighten their grasp over the online expression,” said Kian Vesteinsson, a research analyst for technology and democracy at Freedom House. 

Delhi-based digital rights organization Internet Freedom Foundation have comprehensively highlighted the illegalities of the proposal and also provided some useful recommendations. These are:

• Withdraw IT Rules, 2021 in their entirety.

• Revive the erstwhile Cyber Regulations Advisory Committee (“CRAC”) under Section 88 of the IT Act, 2000 with the membership of the civil society, technologists and digital rights experts.

• Publish a white paper detailing the government’s intent concerning intermediary liability and online content regulation.

• Removing any definitional vagueness to prevent misuse.

• Ensuring that any decision to remove content is taken by an independent authority.

• Providing procedural safeguards when content is removed such as an obligation to provide reasoned order, a right to be heard to the content creator and the right to appeal the decision of the authority.

• Creating a minimum requirement for any forthcoming regulatory framework, so that such provisions provide a basic level of operational transparency.

9. Podcast: Cybersecurity Deals Surge Amid Rising Attacks

The scale and sophistication of cyber-attacks are rising exponentially. But so are the levels of investment, innovation and corporate activity in the space. In the latest episode of Exchanges at Goldman Sachs, David Campbell, managing director in growth equity in Goldman Sachs Asset Management, and Marco Poletti, Goldman Sachs’ head of Cybersecurity Investment Banking, discuss the evolution of technology and the acceleration of investment and M&A activity within the space. 

“There was over $30 billion invested in cybersecurity companies last year, so it is a very well-funded space,” Campbell tells Exchanges host Allison Nathan. “The challenge is there are literally thousands of businesses out there. The way we approach it is we're looking for things that have some longevity because typically valuations are quite high even in very early stages of these businesses.”

You can go through the podcast’s transcript if you prefer that way!

10. Payment Failures in Direct Benefit Transfers - Dvara Research

This week we have an excellent blog post by Dvara Research highlighting payment failures during the back-end processing of Direct Benefit Transfer (DBT) payments to welfare beneficiaries. Cash transfers to citizens through the Direct Benefit Transfer (DBT) infrastructure are among the most prominent developments in India’s social protection policy landscape. Their fieldwork and empirical analysis have revealed that such payment failures are leading to the exclusion of many citizens. They have identified various barriers to accessing social protection across four stages of the delivery chain: identification, targeting, payment processing, and cash withdrawal. Few headline findings from their survey:

• 72.85% of surveyed respondents reported experiencing some issues during the processing of their payments.

• 18% experienced ‘Bank Account and Aadhaar-related issues, indicating that citizens’ payments failed due to errors in their Aadhaar IDs, KYC procedures, or Aadhaar-bank account seeding.

They provide some recommendations in their report as well:

1. Improving coordination between organisations involved in the backend processing of DBT payments and beneficiaries’ banks.

2. They recommend creating a common Grievance Redress Cell for all DBT schemes across tiers: State, District and Block.

3. Facilitating transparency by improving channels of communication.

For a comprehensive analysis, please read the complete article and their well-researched report titled, “State of Exclusion.”

11. Copper price plunges to a 20-month low and historic recession alarm bells are ringing

Copper prices have fallen to their lowest level in nearly two years, as aggressive interest rates, a spike in covid-19 cases in China, potential recession, and rising inventories weighed on investor sentiment. It is the biggest quarterly percentage decline in more than a decade and trades at its lowest level since November 2020.

Okay, but why this is important and concerning? Well, copper or famously known as Dr Copper, is seen as an economic bellwether because the metal is used in many industrial applications in the real economy including construction, household appliances, and electric vehicles. Falling prices may indicate a sour outlook as fears mount over a global economic slowdown. This industrial metal is particularly sensitive to short-term economic expectations for the industrial outlook and is widely used as a gauge of economic health. This has been a reliable indicator of a looming recession going back as far as the past 30 years.

Other base metals have witnessed a substantial decline as well. For instance, The London Metal Exchange Index, which focuses on aluminium, copper, nickel, zinc, tin and lead, and the S&P GSCI Industrial Metals Index wrapped up the second quarter with the largest percentage declines since 2008. 

Furthermore, the disruption in the energy markets due to the Ukraine war has “reprioritized matters,” away from a focus on copper’s role in greener technologies and climate commitment, as policymakers scramble to have energy needs met, says Bernard Drury, president and CEO of hedge fund and alternative investment firm Drury Capital.

Goldman Sachs in their April 2021 report referred to copper as the “new oil” and its role in achieving the Paris climate goals “cannot be overstated.” Therefore, copper’s outlook in the long term is bullish, but in the short term, its dwindling prices ring the alarming bells of economic recession.

12. The End of Roe Will Bring About a Sea Change in the Encryption Debate - Stanford Law School

On June 24, the Supreme Court of the United States overturned Roe v. Wade in a 6-3 vote, unequivocally eliminating the constitutional right to abortion in the country and sending the decision to state legislatures. This blog post by Riana Pfefferkorn is pretty illuminating as it highlights similarities between encryption and abortion. They both save lives. They both support human dignity.

The loss of Roe will unavoidably usher in a new phase of the encryption debate in the U.S., because Roe has been the law of the land throughout the entire time that strong encryption has been generally available. Roe was decided in 1973, and the landmark Diffie/Hellman paper “New Directions in Cryptography” didn’t come out until 1976. In the decades since, strong encryption went from a niche concern of the military and banks to being in widespread use by average consumers – while, simultaneously, the constitutional right to abortion was slowly and systematically chipped away. Nevertheless, Roe still stood. In all the years since 1976, encryption policy discussions about “balancing” privacy rights and criminal enforcement have never had to seriously grapple with what it means for abortion to be a crime rather than a right. That’s about to change.

Riana specifically questions the legitimacy of mainstream encryption advocates from the US, appealing to law enforcement’s interests and settling for middle-ground solutions that do not do much better for human rights, digital rights, etc. She describes the wickedness of law enforcement bodies when it comes to encryption debates as:

The only reason there’s still any “debate” over encryption is because law enforcement refuses to let it drop. For over a quarter of a century, they’ve constantly insisted on the primacy of their interests. They demand to be centered in every discussion about encryption. They frame encryption as a danger to public safety and position themselves as having a monopoly on protecting public safety. They’ve insisted that all other considerations – cybersecurity, privacy, free expression, personal safety – must be made subordinate to their priorities. They expect everyone else to make trade-offs in the name of their interests but refuse to make trade-offs themselves.

That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and kindly tell your friends to do the same. Subscriptions won't cost you a penny and it is the best way to support my work! Thank you :)

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Shreyas

Welcome to another issue of The Economics Hub Newsletter! I hope you are well.

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Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!

Ready? Let’s dive in!

• Bank for International Settlements – Annual Economic Report 2022

• War Fuels Food Crisis by International Monetary Fund (IMF)

• The Global Housing Market is Starting to Wobble as Central Banks Hike Rates

• Russia Defaults On Foreign Debt For The First Time In 104 Years

• Russia Denies Defaulting on Foreign Debt

• Explainer: The free fall of the rupee

• Here’s how the right to abortion is also an economic issue

• In Pictures: The economic case for abortion rights

• Podcast: The Crisis of Inflation with Lyn Alden

• How Europe can cut natural gas imports from Russia significantly within a year

• Millions Of Children Will Soon Need Aadhaar IDs To Access Their Right To A Nutritious Meal

• Credit Card Spends Tough All-Time High

• A third of UK ‘buy now, pay later’ users say they can’t handle payments

• Think Outside the Portfolio by Nick Maggiulli

• SEC Chair Gensler Again Says Bitcoin Is Not a Security. What About Ethereum?

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