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Unregulated Cryptocurrency Bubble Could Send the Economy Into a Tailspin

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by Selvam Canagaratna

“Bank regulators are rushing to come up with cryptocurrency rules, according to the Federal Reserve official overseeing financial regulation, but many fear the rule-making comes too late, and the unregulated bonanza may already be on the cusp of crashing and causing a broader recession that would hurt the poor most intensely,” wrote Sam Knight in The Week.

Fed Vice Chair of Supervision Randal Quarles said on May 25 that his agency and two others — the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) — are taking the lead in what appears to be a scramble to act amid a period of instability with the potential to do serious damage to the rest of the economy. About one in five financial industry professionals believe that a cryptocurrency downturn could deliver a “salient shock to financial stability” over the next 12 to 18 months, according to conducted between February and April.

Though the rich might lose substantial sums in economic downturns, working-class people invariably suffer the most. The recessions and the sent millions of on the margins into poverty, with people of colour hit the hardest.

“We along with the OCC and the FDIC are engaged right now in what we are calling a ‘sprint’,” Quarles said at a hearing before the Senate Banking Committee. The OCC is the primary regulator of federally chartered banks, and the FDIC is the agency that guarantees customer savings and oversees state-chartered banks. The Fed oversees bank holding companies and non-bank financial firms, and regulates the stability of the financial system as a whole.

Quarles said the three agencies have been working “over a relatively concentrated period of time, to pull together all of our work in digital assets, and to have a joint view, a joint framework for their regulation and supervision practices with regard to them.”

“It would be premature for me to tell you where that’s going to turn out,” , “but this is something that is a high priority not only as a matter of importance, but as a matter of chronology. And we expect to be able to give at least some results from that soon.”

The sudden “sprint” by regulators to examine cryptocurrencies might come too late, with the entire market on the brink of collapse. A sell-off earlier this month saw cryptocurrencies lose some $1 trillion in value in a week, from a peak global market cap of $2.5 trillion on May 11.

Volatility has been fueled by the of cryptocurrency markets. Traders 50-125 times the amount of cryptocurrency that they purchase on popular exchanges. Ownership of cryptocurrencies is highly concentrated in the hands of a relatively small number of owners, with some 42 percent of all Bitcoin owned by 2,155 unique purchasers. The value of cryptocurrencies has also fluctuated wildly in recent weeks in response to restrictions imposed by the Chinese government, and tweets from billionaire Elon Musk.

“While it’s welcome that the Fed, OCC and FDIC are going to be examining regulatory gaps when it comes to crypto, it’s crucial that they also examine any implications for systemic risk,” said Alexis Goldstein, a senior policy analyst at Americans for Financial Reform and a Truthout contributor. “With no cryptocurrency reporting requirements whatsoever for hedge fund or private equity funds, the regulators are in the dark.”

Regulatory agencies had an opportunity to act two and a half years ago, after a previous cryptocurrency crash. Since then, the global market has grown significantly, making the negative consequences of a downturn more severe. The value of the cryptocurrency market’s most recent peak, at $2.5 trillion, was three times the size of its previous peak of $815 billion in January 2018. The most recent market boom has also come at a time of great uncertainty and hardship for many throughout the world amid the COVID-19 pandemic, suggesting that the growth might be driven by irrational optimism.

By comparison, there was roughly in outstanding subprime mortgage debt in March 2007 amid the housing market meltdown that caused the Great Recession. Banks might now be engaged in safer consumer lending practices than they were during the subprime mortgage crisis, but corporations have borrowed heavily in recent years, racking up some $10.5 trillion in debt under relaxed lending standards. Fed Governor Lael Brainard warned on that inflated stock prices and “very high levels of corporate indebtedness bear watching because of the potential to amplify the effects of a re-pricing event.”

 

Cryptocurrencies have recovered somewhat since shedding $1 trillion in value earlier this month, but have said the market resembles a bubble. This cohort of skeptics Vitalik Buterin, the 27-year-old who co-founded Ethereum, one of the more popular cryptocurrencies. “It could have ended already. It could end months from now,” Buterin told CNN.

Nouriel Roubini, an economist who became famous in 2008 for predicting the subprime mortgage crisis and the Great Recession, also believes that a cryptocurrency bubble is bursting. Unlike Buterin, he questions whether cryptocurrency has any use-value at all.

“A bubble occurs when the price of something is way above its fundamental value. But we can’t even determine the fundamental value of these cryptocurrencies, and yet their prices have run up dramatically,” Roubini said on . “In that sense, this looks like a bubble to me.”

Despite Quarles’s promise of a “sprint,” recent remarks made by one of his colleagues failed to convey the same sense of urgency. FDIC Chair Jelena McWilliams said on , at the height of the market, that her priorities in examining cryptocurrencies were to “allow entrepreneurship to flourish in the United States,” and that she would be consulting with the banking industry to see “what (if anything) the FDIC should be doing.”

McWilliams made the remarks in a speech to the Federalist Society, a highly ideological right-wing organization known for its embrace of laissez-faire dogma, and for handpicking judicial nominees for the Republican Party. The FDIC a request for information on digital assets the week after giving her speech.

Both McWilliams and Quarles are Republicans who were appointed to their current positions by former President Donald Trump. Quarles’s term as a top Fed official is set to expire in October. McWilliams’s FDIC Chairmanship won’t expire until 2023.

Quarles, in particular, has a reputation for having a rosy view of what will happen if banks are left to do whatever they want. In , while serving as under-secretary of the Treasury, he reacted to predictions of a housing market downturn by remarking: “I have to say that I do not think this is a likely scenario.” About two years later, the collapse of the US housing market brought down the entire global financial system.

The Fed vice chair was criticized at the May 25 Senate Banking Committee hearing for more recent laxness by Democratic Sen. Elizabeth Warren of Massachusetts. Warren berated Quarles for the Fed’s decision to relax its supervision of Credit Suisse before the bank lost $4.7 billion in late March after the collapse of the family fund Archegos — a firm run by Bill Hwang, a man who had been previously banned by US regulators from managing public money after pleading guilty in 2012 to insider trading and wire fraud charges.

Warren for their decision last year to absolve Credit Suisse and other foreign banks from answering to an oversight board called the Large Institution Supervision Co-ordinating Committee. She noted that prior to this decision, Credit Suisse had failed a Fed stress test in 2019 because its models were unrealistic. “Your term as chair is up in five months, and our financial system will be safer when you are gone,” Warren told Quarles.

Though the Credit Suisse debacle involved more conventional forms of assets, there are lessons for those concerned about digital asset markets, Goldstein told Truthout. She noted that family funds like Archegos Capital Management aren’t subject to disclosure requirements like other asset management firms.

It would be one thing if rich asset managers were only harming themselves. But by recklessly playing with huge sums of money, they risk spreading calamity throughout the economy. The Great Recession was caused by predatory lending and complex derivatives leading to systemic failure that spread misery among the working class, starting with the collapse of the investment bank Lehman Brothers in 2008. In the ensuing recession, neighborhoods with more than 40 percent of inhabitants below the poverty line increased their population by five between 2010-2014. A recession could similarly spread should the market for cryptocurrency plummet even further.

“There may be multiple Archegos-sized crypto whales in the shadows,” Goldstein said. “If so, they’d all be invisible to regulators because of the total lack of reporting requirements for cryptocurrency.”



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Features

The challenge of keeping value-based politics alive

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Anti-migrant protests in Durban, South Africa. BBC

The current outbreak of anti-immigrant protests in Durban, South Africa is bound to have taken many a subscriber to value-based politics or political idealism quite by surprise. After all, this is evidence that despite the historic accomplishments of nation-builders of the stature of the late President Nelson Mandela it cannot be taken for granted that identity politics, including racism in its worst forms, is no more in South Africa.

At the time of this writing details are scarce on the substantive root causes of the protests but it could very well be that economic grievances, particularly on the part of the majority community in South Africa, are contributing considerably to the disaffection. Shrinking employment and material prospects are likely to figure majorly among the factors igniting the unrest.

Fortunately, the local authorities in Durban are losing no time in calling for peaceful co-existence among the relevant communities and are pointing to the vital importance of stepping-up national integration processes. Apparently, immigrants in sizable numbers from neighbouring countries are present in Durban. However, international TV footage of the protests quoted some local authorities as saying that the majority of the immigrants in some centres that housed them were not illegal migrants and had the documents that entitle them to be in Durban.

In the Durban protests the world has fresh proof of the socially divisive consequences of the gathering globe-wide economic disaffection, touched off particularly by the continuing crisis in West Asia. Going ahead, the world would need to brace for increasing identity-based unrest of the kind it is just witnessing in South Africa.

Considering that the material lot of ordinary people everywhere could only aggravate progressively, with the US and Iran showing no signs of negotiating an end to their confrontation any time soon, it will be left to the more democratic and progressive sections of the world community to initiate positive measures collectively to bring a measure of relief to the discontented.

The swiftness with which such relief will be provided would depend crucially on the importance those sections taking up these undertakings attach to value-based politics as opposed to Realpolitik of power politics.

Going by these yardsticks, Italy could be considered to be moving in the right direction. Recently Italy came to the fore in initiating the collective named, ‘Rome Coalition for Food Security and Access to Fertilizer’, which has as one of its aims the swift provision of fertilizer to economically weak African countries.

In a recent statement Italian Minister of Foreign Affairs and International Cooperation, Antonio Tajani, said that a principal aim of the project was to ensure that the farmers of Africa gained easy access to fertilizer, considering that food security is a growing concern among some of Africa’s economically vulnerable countries.

The statement went on to mention that some 30 countries hailing from the Mediterranean region, the Middle East, the Balkans as well as the FAO had been invited to join the coalition. The venture is far-seeing in that food security is main among the reasons for social discontent which in turn could degenerate into endemic political turmoil and bloodshed. Separatist violence and geographical fragmentation of countries wouldn’t be too far behind these developments, as Africa itself has often proved.

It is hoped that more G7 countries would take the cue from Italy and do what they could to ease the hardships of economically distressed countries, particularly of the global South. In these efforts they would need to break rank with the US, which is today brutally indifferent to the consequences of its policy of making ‘America First’, come what may.

Going by current developments, the Trump administration seems to be blithely oblivious to the wider, deleterious effects of its policy course in West Asia. Besides rendering Iran militarily and otherwise impotent nothing else seems to matter to Washington, as regards West Asia. This is policy short-sightedness of an extreme kind. After all, right now West Asia could be said to be sitting on the proverbial powder keg.

On the other hand, Iran is not giving the world the impression that it is doing anything constructive to get out of the policy straitjacket that it wove for itself decades ago. Rather than enter into a policy of ‘live and let live’ in relation to Israel in particular and initiate a process of reconciliation with the latter, it has chosen to operate within policy parameters that continue to damn Israel. This has put Israel always on the ‘defensive’ so to speak and prevented the opening up of space for meaningful dialogue.

That said, Israel is obliged to explore the possibilities of entering into a negotiatory process with the Arab-Islamic world that could lead to a de-escalation of tensions and bloodshed. It cannot continue to look at its neighbours through lenses that distort them as archetypal enemies who should be ‘wiped off completely from the face of the earth.’

In other words, the need is urgent for Realpolitik to give way to value-based politicks. Italy is beginning to prove that the latter approach could be pursued with some success. May be the EU and the UK could throw their weight behind these initiatives as well and establish that international politics could be refashioned on the basis of humane, civilized norms. The UN would need to be fully supportive of these moves and prove an organizational nucleus of the operations that follow.

In fact the time is ripe for people of conscience to collectively stand up on the side of peace and say ‘No’ to war and violence. Organizations such as the ICRC, the WHO and Medicines Sans Frontiers have already taken up this call. Referring to the widespread destruction of health facilities and their dehumanizing results these organizations have said, among other things, that ‘This is not a failure of the law. It is a failure of political will.’

True, ‘failure of political will’ among those powers that matter accounts for the runaway, uncontrollable nature of war and destruction in contemporary times, but more fundamentally it is a failure of the human conscience. It could very well be that the phenomenal levels to which violence and war have been unleashed today have had the effect of deadening consciences. This is a matter for urgent study and wide discussion.

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Features

Vesak celebrations … with Cuteefly

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Perfect for celebrations, gifts, and meaningful occasions // Gift pack

I would describe Indunil Kaushalya Dissanayaka as innovative and creative, and she operates under the name of Cuteefly.

Indunil always comes up with something novel to celebrate special occasions, and she does it with candles … and that’s her profession.

She was in the spotlight when she created a happening scene, with candles, for Christmas, Sinhala and Tamil New Year, and Valentine’s Day.

As lanterns light up Sri Lanka for Vesak, the Colombo-based candle maker is quietly turning wax and wick into little pieces of the festival.

Candles reflecting Vesak themes

Her candles reflect Vesak themes – light, peace, remembrance, giving, etc., to enable you to fill your Vesak celebration with devotion and beauty.

Among her Vesak creations is a lotus-shaped soy candle, scented with sandalwood, lavender, etc., meant to burn during this Vesak Poya Day.

Indunil Kaushalya Dissanayaka: Customers
praise her for her creativity

These handcrafted Vesak candles are perfect for offering at the temple, she says.

What makes her creations so novel is that they come in different shapes, scents, themes, and all are handmade.

What’s more, her customers have heaped praise on her for her creativity.

According to Indunil, her creations are perfect as a thoughtful gift … to bring beauty, unity, and light into every moment.

Says Indunil: “Our beautifully handcrafted Unity candles are designed with premium detail and love, making them perfect for celebrations, gifts, and meaningful occasions.”

Cuteefly, says Indunil, is available online.

Readers could contact Indunil on 0778506066 for more details.

He Facebook Page is: Cuteefly.

Handmade with love

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Features

Dark Spots …

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Yes, dark spots do crop up on the skin, especially with sun exposure and, of course, as the skin ages.

However, these tips should be of immense benefit to those who are faced with dark spots.

Lemon and Honey Glow Mask:

You will need 01 teaspoon lemon juice and 01 teaspoon honey.

Mix the lemon juice and honey well and then apply this mixture, only on the dark spots.

Leave for 10–15 minutes and then rinse with cool water.

Benefits:

Lemon helps brighten pigmentation.

Honey moisturises and heals skin.

Gives a natural glow.

* Aloe Vera Gel Treatment:

All you need is fresh aloe vera gel.

Apply the gel apply on dark spots, before going to bed.

Leave overnight and wash in the morning.

Benefits:

Reduces acne marks and pigmentation.

Soothes irritated skin.

Helps skin repair naturally.

Turmeric and Yoghurt Paste:

You will need 01 teaspoon yoghurt and a pinch of turmeric

Mix the yoghurt and turmeric into a smooth paste and apply on affected areas.

Leave for 15 minutes and then wash gently with lukewarm water.

Benefits:

Turmeric brightens skin naturally.

Yoghurt removes dead skin cells.

Helps fade dark spots gradually.

Use these packs 02-03 times a week as results are generally seen over time.

You can also try this out: Mix a ripe papaya into a smooth paste and apply to the face, or directly on to the dark spots. Leave for 15-20 minutes and then wash with lukewarm water.

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