A holiday topic starting with NPR. “Seattle Times business reporter Paul Roberts spoke to KUOW’s Angela King: I’ve talked with a number of workers from India and from China who are really not sure what to do. Some have been here for years. They’ve got families. They’ve purchased houses. Now, they’re faced with scrambling to find a new employer that will sponsor them through the immigration process. One of the big factors behind the cooling housing market is that you now have a lot of tech workers who either are getting laid off or are just kind of concerned about maybe getting laid off. Those are the men and women whose high incomes allowed them to not worry about affordability, so they could continue to buy houses and to rent expensive apartments. That helped prop up the Seattle-area housing market.”
From Bloomberg. “After years of exuberant growth and hiring, layoffs have burst the bubble of Silicon Valley inviolability. A worker at Amazon recently lost their job because the team they worked for was eliminated. ‘LinkedIn is a pit of despair right now,’ the person said.”
From Fortune. “Employees at Google are bracing for ramped up work anxiety as the Silicon Valley giant intensifies its performance review process for the end of the year. Those inside and outside the Mountain View headquarters are looking to see if the tech giant will be next to put employees on the chopping block. ‘Google execs will want to cut people,’ a former executive at the company told Insider. ‘Just to clean up the culture by making people a little more scared.’”
From Rest of World. “Citra had only joined GoTo Group, the massive Indonesian ride-hailing and e-commerce decacorn, in early October 2022. So it was a shock when, a month and a half later, she discovered she’d been fired as part of mass layoffs. On November 18, the Alibaba and SoftBank-backed company, valued at some $15 billion, announced it was laying off 12% of its roughly 10,500-person permanent workforce. ‘[At the] end of the day the company [is] only about saving their asses … losing competition with [Grab] and demand from downturn is very apparent,’ one impacted worker commented in a GoTo thread on Ecommurz.”
“‘Most of the startups that are doing mass layoffs now were ‘pandemic darlings,’ Bhima Yudhistira Adhinegara, a director of the Center of Economic and Law Studies (Celios), wrote in a memo. Their over-optimism for future growth led to overstaffing, he wrote. Business leaders dismissed the possibility of people going back to offline stores once Covid-19 restrictions eased, which was exactly what happened.”
From ABC Business. “Author and former financier Satyajit Das said the cryptocurrency market had been propped up by rampant liquidity and cheap cash pumped into the financial system by central banks. ‘I can understand why people went into crypto. It was populist anger,’ Mr Das said. ‘There is a whole bunch of people who are very skilled in terms of exploiting investors’ desire for rapid riches.’ Mr Das’s comments come as the fallout continues from the spectacular collapse of cryptocurrency exchange FTX.”
“Overall, the market capitalisation of the crypto market has dived from roughly $US3 trillion this time last year to about $US800 billion. ‘That’s a loss of over 70 per cent,’ Mr Das told The Business. ‘One way to think about the cryptocurrency problems at the moment is it’s part of, essentially, the great financial bubble of every bubble being pricked,’ he said. ‘And that’s being pricked by higher interest rates, and the general move to somewhat greater degrees of financial sanity.’”
“This is where Mr Das pointed to the financial sector issue that ‘nobody is really taking much notice’ about. Broadly, traditional financial markets have also been selling-off all year. The tech-heavy Nasdaq on Wall Street is down 30 per cent in a year. The broader S&P 500 is off around 18 per cent. ‘The losses in cryptocurrencies pale into insignificance when you compare them to the $30 trillion worth of write downs in assets,’ Mr Das said. ‘Which are going on in equities, they’re going on in bonds, they’re going in private market assets in housing. So it’s part of an overall adjustment in valuation.’”
“‘People are now basically having a cold shower,’ Mr Das said. ‘This has been coming for four or five years. It’s not a surprise to anybody who’s been actually looking at it carefully.’ ‘I think there’s two runaway trains, which have been running away for a while,’ he said. ‘One is geopolitics. And the other one is de-globalisation, particularly in the form of sanctions and trade restrictions, which are accelerating around the world. And that has a tendency historically to de-stabilise growth and economic prosperity fairly radically.’”
The Los Angeles Times. “The most uplifting aspect of the Sam Bankman-Fried story was always that he guided his way to a putative cryptocurrency fortune of more than $16 billion by following a philosophy of charitable giving known as ‘effective altruism.’ Adam Fisher, the author of a credulous profile of Bankman-Fried published in September by the venture firm Sequoia Capital, which invested in FTX,asked his subject how much money would be too much: ‘So, is five trillion all you could ever use to help the world?’”
“The denouement of this story is now well-known. Bankman-Fried’s crypto company has collapsed in a whirlwind, amid indications that it may have defrauded customers who deposited their funds with FTX to buy cryptocurrencies. Billions of dollars are missing. FTX and effective altruism existed in a sort of symbiotic relationship. Bankman-Fried posed as a world-beating philanthropist. During an appearance in May before a House committee, he boasted about personally committing to ‘donating 99% of his wealth.’”
“Yet the siren call of Bankman-Fried’s wealth blinded MacAskill and his colleagues to the void at the center of the cryptocurrency concept itself: It’s a field rife with fraud and chicanery and lacking any cogent case for its usefulness. That Bankman-Fried would exploit his image as a philanthropist to obscure the flaws in his enterprise seems almost predetermined.”
“Interviewed via text messages by Kelsey Piper of Vox.com, Bankman-Fried seemed to acknowledge, as Piper put it, that ‘the ethics stuff’ was ‘mostly a front.’ ‘Yeah,’ he replied. “I mean that’s not all of it but it’s a lot. … It’s what reputations are made of, to some extent.’”
The Tribune News Service. “We have now witnessed the collapse of the largest (so far) 21st-century ‘tulip bubble’ as the FTX Crypto Exchange collapsed — taking down the value of the best-known cryptocurrencies, along with the equity of some very sophisticated players and the wealth dreams of small-time investors. When it was revealed that the FTX ‘exchange’ was backed by capital denominated in crypto tokens created by its founder Sam Bankman-Fried with no intrinsic value, the ‘Ponzi scheme’ collapsed into a $32 billion loss of value in one day.”
“Accounts are frozen. It is likely that those who held their cryptocurrencies at FTX will lose most of their value. And the major financial players who invested in FTX — including some big Wall Street venture firms — have lost billions. It’s a scenario reminiscent of Enron: balance-sheet shenanigans, no-value assets, interlocking companies — and no transparency. Yes, laws were changed after Enron — but FTX operated in an unregulated global marketplace, headquartered in the Bahamas. As in Enron, money has simply disappeared.”
“But a generation of young investors who thought they had discovered a new way to instant wealth is going to get burned. Not only did they lose out on ‘meme’ stocks like Robinhood, and now crypto prices, but their other tech heroes are proving vulnerable, too. And Meta Platforms’ stock (the former Facebook) had a similar dizzying plunge from a high around $350 to just over $100, as founder Mark Zuckerberg announced the need to lay off 13% of his workforce as he overindulged his passion for the ‘metaverse’ and spent way too much corporate cash to make his dream come true. Now, it has turned into a nightmare for more than 11,000 employees — as well as shareholders.”
“Do you see what they all have in common? They all had plenty of cash while the game lasted. But now that the Fed is raising rates (the cost of capital) and sucking excess liquidity out of the market by selling its portfolio of government bonds and mortgage-backed securities, cash has become more valuable, and scrutiny of corporate value has become more intense. There is no free lunch. Another generation is learning that lesson.”
From Mises.org. “The so-called expansionary policies have not been an instrument for reducing debt, but rather for increasing it. In the second quarter of 2022, according to the Institute of International Finance (IIF), the global debt-to-GDP ratio will approach 350 percent of GDP. IIF anticipates that the global debt-to-GDP ratio will reach 352 percent by the end of 2022.”
“Global issuances of high-yield debt have slowed but remain elevated. According to the IMF, the total issuance of European and American high-yield bonds reached a record high of $1,6 trillion in 2021, as businesses and investors capitalized on still low interest rates and high liquidity. According to the IMF, high-yield bond issuances in the United States and Europe will reach $700 billion in 2022, similar to 2008 levels. All of the risky debt accumulated over the past few years will need to be refinanced between 2023 and 2025, requiring the refinancing of over $10 trillion of the riskiest debt at much higher interest rates and with less liquidity.”
“The United States has $31 trillion in outstanding debt with a five-year average maturity, resulting in $5 trillion in refinancing needs during fiscal 2023 and a $2 trillion budget deficit. The situation in the eurozone is even worse. Governments in the euro area are accustomed to negative nominal and real interest rates. The majority of the major European economies have issued negative-yielding debt over the past three years and must now refinance at significantly higher rates. France and Italy have longer average debt maturities than the United States, but their debt and growing structural deficits are also greater. Morgan Stanley estimates that, over the next two years, the major economies of the eurozone will require a total of $3 trillion in refinancing.”
“Although at higher rates, governments will refinance their debt. What will become of businesses and families? If quantitative tightening is added to the liquidity gap, a credit crunch is likely to ensue. However, the issue is not rate hikes but excessive debt accumulation complacency.”
“Explaining to citizens that negative real interest rates are an anomaly that should never have been implemented is challenging. Families may be concerned about the possibility of a higher mortgage payment, but they are oblivious to the fact that house prices have skyrocketed due to risk accumulation caused by excessively low interest rates.”
“The magnitude of the monetary insanity since 2008 is enormous, but the glut of 2020 was unprecedented. Between 2009 and 2018, we were repeatedly informed that there was no inflation, despite the massive asset inflation and the unjustified rise in financial sector valuations. This is inflation, massive inflation. It was not only an overvaluation of financial assets, but also a price increase for irreplaceable goods and services. The FAO food index reached record highs in 2018, as did the housing, health, education, and insurance indices. Those who argued that printing money without control did not cause inflation, however, continued to believe that nothing was wrong until 2020, when they broke every rule.”
“In 2020–21, the annual increase in the US money supply (M2) was 27 percent, more than 2.5 times higher than the quantitative easing peak of 2009 and the highest level since 1960. Negative yielding bonds, an economic anomaly that should have set off alarm bells as an example of a bubble worse than the ‘subprime’ bubble, amounted to over $12 trillion. But statism was pleased because government bonds experienced a bubble. Statism always warns of bubbles in everything except that which causes the government’s size to expand.”
“In the eurozone, the increase in the money supply was the greatest in its history, nearly three times the Draghi-era peak. Today, the annualized rate is greater than 6 percent, remaining above Draghi’s ‘bazooka.’ All of this unprecedented monetary excess during an economic shutdown was used to stimulate public spending, which continued after the economy reopened … And inflation skyrocketed. However, according to Lagarde, inflation appeared ‘out of nowhere.’”
“All of the excess of unproductive debt issued during a period of complacency will exacerbate the problem in 2023 and 2024. Even if refinancing occurs smoothly but at higher costs, the impact on new credit and innovation will be enormous, and the crowding out effect of government debt absorbing the majority of liquidity and the zombification of the already indebted will result in weaker growth and decreased productivity in the future.”