Nobel prize-winning economist Joseph Stiglitz said the global economy is entering a severe slowdown, but told AFP in an interview he did not see it hurtling towards crisis.

"I would say that I don't see a crisis," said the US economist in Paris where he was promoting the French version of his latest book: People, Power, and Profits: Progressive Capitalism for an Age of Discontent.

"What I see is a significant slowdown," he said. "In the process of this significant slowdown, there will be bankruptcies."

He said that slowdown deprived corporate managers of a cushion to soften the consequences of their errors.

"When you are slowing down and you mismanage, you go bankrupt."

This made people nervous, "but the particular situation for a global crisis requires much more disruption than that", he said.&nbsp;

Stiglitz said some developing countries like Argentina might be swept into dire straits "but I don't think it is likely that Europe and America will."&nbsp;

The 2001 winner of the Nobel Memorial Prize in Economic Sciences said he was concerned about rate cuts by US and eurozone central banks and a revival of liquidity injections into the economy.

"I think the benefit that they get out of this is very little," he said. "They are clearly losing ammunition in case the situation gets worse."

'A problem called Trump'

Stiglitz said the three main economies <a href="https://www.wionews.com/world/chinese-foreign-minister-calls-for-international-efforts-to-solve-iran-nuclear-issue-252120">China</a>, the eurozone and the United States were all having problems.

"China has been having a hard time going from a manufactured export-led growth to a more domestically driven growth," he said.

Germany is under pressure to stimulate its own economy as well as its eurozone partners, while the US "has a problem called <a href="https://www.wionews.com/world/us-house-to-launch-trump-impeachment-inquiry-over-ukraine-controversy-251842">Trump</a>", said Stiglitz.&nbsp;

"It's not just a trade war. He has introduced a new degree of political uncertainty, a new level of chaos" that has reduced growth.

"Those three together mean slow economic growth," said Stiglitz. "The trade war just makes it all worse."

In his book, Stiglitz argues for "progressive capitalism" where the state would again wield more power over the economy, including regulating markets.

He recommended the breakup of internet giants.

"There was no reason that Facebook should have been allowed to acquire Instagram and WhatsApp," said Stiglitz.

The economist welcomed the French government's move to tax the revenue of Facebook, Apple, Amazon, and Google who have been declaring global profits in targeted low-tax jurisdictions.

The French initiative had forced "a global conversation about the taxation of the digital companies", he said.

"And it helps the people realize that there is something fundamentally wrong when the richest corporations in the world are not paying taxes".

Stiglitz was chief economist at the World Bank for three years after serving as the head of US President Bill Clinton's Council of Economic Advisors.

Nobel prize-winning economist Joseph Stiglitz said the global economy is entering a severe slowdown, but told AFP in an interview he did not see it hurtling towards crisis.

Nobel prize-winning economist Joseph Stiglitz said the global economy is entering a severe slowdown, but told AFP in an interview he did not see it hurtling towards crisis. "I would say that I don't see a crisis," said the US economist in Paris where he was promoting the French version of his latest book: People, Power, and Profits: Progressive Capitalism for an Age of Discontent. "What I see is a significant slowdown," he said. "In the process of this significant slowdown, there will be bankruptcies." He said that slowdown deprived corporate managers of a cushion to soften the consequences of their errors. "When you are slowing down and you mismanage, you go bankrupt." This made people nervous, "but the particular situation for a global crisis requires much more disruption than that", he said. Stiglitz said some developing countries like Argentina might be swept into dire straits "but I don't think it is likely that Europe and America will." The 2001 winner of the Nobel Memorial Prize in Economic Sciences said he was concerned about rate cuts by US and eurozone central banks and a revival of liquidity injections into the economy. "I think the benefit that they get out of this is very little," he said. "They are clearly losing ammunition in case the situation gets worse." 'A problem called Trump' Stiglitz said the three main economies China, the eurozone and the United States were all having problems. "China has been having a hard time going from a manufactured export-led growth to a more domestically driven growth," he said. Germany is under pressure to stimulate its own economy as well as its eurozone partners, while the US "has a problem called Trump", said Stiglitz. "It's not just a trade war. He has introduced a new degree of political uncertainty, a new level of chaos" that has reduced growth. "Those three together mean slow economic growth," said Stiglitz. "The trade war just makes it all worse." In his book, Stiglitz argues for "progressive capitalism" where the state would again wield more power over the economy, including regulating markets. He recommended the breakup of internet giants. "There was no reason that Facebook should have been allowed to acquire Instagram and WhatsApp," said Stiglitz. The economist welcomed the French government's move to tax the revenue of Facebook, Apple, Amazon, and Google who have been declaring global profits in targeted low-tax jurisdictions. The French initiative had forced "a global conversation about the taxation of the digital companies", he said. "And it helps the people realize that there is something fundamentally wrong when the richest corporations in the world are not paying taxes". Stiglitz was chief economist at the World Bank for three years after serving as the head of US President Bill Clinton's Council of Economic Advisors.

Top economist Stiglitz sees 'significant slowdown', not crisis

Authors: Co-Pierre Georg and Qobolwakhe Dube*

With the price of a bitcoin reaching record highs of more than $10,000, more and more ordinary people consider investing in the cryptocurrency. The recent price surge, however, comes with tremendous risks. Investors should be prepared for the possibility that they could lose their entire investment.

Bitcoin was launched in 2008 by an anonymous author under the name of Satoshi Nakamoto as a means of transacting among participants without the need for intermediaries. Since the beginning of this year, the price of bitcoin has increased by 1300 per cent as more and more consumers flock to it hoping to profit off its increasing popularity and the associated increase in value.

Cryptocurrencies are not currencies at all. As the Financial Times explains, bitcoin is a string of computer codes which means that new bitcoins can be created &ndash; up to an agreed limit &ndash; by computers that gain the right to do so by solving complex puzzles. Transactions are recorded in a database called a blockchain.

Bitcoin, like other assets like gold, doesn&rsquo;t yield income. You have to sell it to realise any value. And, like gold and other currencies, it can be transferred peer-to-peer.

Part of the nervousness about bitcoin is that, along with other cryptocurrencies, it challenges the traditional role of banks and central banks. In the classical world, banks act as intermediaries by providing loans out of the deposits they took and from funding from the central bank. The central bank uses the rate at which it provides this funding as a lever to ensure price stability. The introduction of cryptocurrencies threatens this model because banks are no longer necessary to intermediate funds and there is no central bank to ensure that prices are stable.

The more immediate fears about bitcoin center on the recent dramatic rise in its value. There&rsquo;s nervousness in the market that a flash crash might be imminent after the cryptocurrency tumble by more than $1,300 in minutes on the bitcoin exchange Bitfinex. It did recover to levels above $10,800.

The flash crash echoes long-standing warnings that the bitcoin party is set to end in tears. Most recently Jamie Dimon, CEO of JPMorgan, one of the world&rsquo;s largest investment banks declared that he would fire any employee trading bitcoin for being stupid.

In a highly unusual alliance, his words were echoed by economics Nobel Laureate Joseph Stiglitz, who has gone even further arguing that bitcoin ought to be outlawed.

All of these are clear warning signs that the professionals do not trust the lofty promises of crypto enthusiasts.

The blockchain factor

There is no doubt that Bitcoin &ndash; and in particular blockchain, the technology behind it &ndash; has the potential to revolutionise the financial services industry.

A blockchain functions as a transparent and incorruptible digital ledger of economic transactions, recorded in chronological order, that operates on a peer-to-peer network.

Fundamentally, the technology allows an exchange of value to occur in an environment of peers with conflicting interests without the need for trusted intermediaries. That, in effect, wipes out the need for banks or financial services companies which fulfil this role.

The use of the technology is not limited to financial transactions. Virtually anything of value can be traded on a blockchain.

But no matter how useful the underlying blockchain technology is, or how widely it can be applied, there are real and substantial risks involved in bitcoin.

Volatility versus returns

The first and most significant risk is that compared to any currency, share, or gold, bitcoin is extremely volatile. The volatility of bitcoin to US dollar is almost six times the volatility of the Rand to US dollar. While this is great in good times, it is potentially devastating for investors in bad times.

When professional investors decide on which assets to hold, they look at both the return and the volatility of the asset. Only investors with a healthy appetite for risk are willing to invest in risky, volatile assets. Usually these are finance professionals, for example in large investment banks or hedge funds.

Investors with a lower risk appetite, such as asset managers or pension funds, prefer assets with a somewhat lower return, but which are less volatile.

The rule of thumb is that the sophistication of an investor increases with the volatility of the asset she invests in. But with bitcoin, this rule of thumb doesn&rsquo;t hold true. More and more private investors have been flocking to bitcoin &lsquo;exchanges&rsquo; that have sprung up all over the internet and that are aggressively advertised on social media.

Overvalued

There is a huge risk that bitcoin is already overvalued.

The practical use cases for bitcoin are limited. It doesn&rsquo;t enable enough transactions to take place per second to be used as a replacement for a modern payment system. And it doesn&rsquo;t offer any functionality other than pseudonymous transactions &ndash; transactions where the true identity of the counterparties is hidden.

Bitcoin is favoured by pyramid schemes, including the infamous MMM pyramid scheme in Nigeria. In a recent article, the Financial Times called bitcoin itself a pyramid scheme, much to the dismay of crypto enthusiasts. (A pyramid scheme is usually an illegal operation in which participants pay to join and profit mainly from payments made by subsequent participants. If no new people come in, it collapses.)

Regulatory risk

The third, and possibly biggest risk is regulatory. In September 2017, the Chinese government outlawed bitcoin exchanges in mainland China, sending the price of bitcoin tumbling.

Despite the claim that bitcoin is a &ldquo;global currency&rdquo;, the reality is that 58 per cent of all bitcoin mining happens in China. If at any point the Chinese government should decide to make Bitcoin mining illegal the price is likely to plunge into oblivion.

Other countries have also voiced concern. The Russian Central Bank recently issued a warning to investors on the risks of investing in cryptocurrencies, citing concerns about a bubble. This suggests that there might be a concerted crackdown.

Cryptocurrencies are banned in India as their use is a violation of foreign exchange rules. The Australian Reserve Bank has taken a different approach. It monitors the cryptocurrency market in a bid understands the underlying technology.

The South African Reserve Bank has expressed its openness to blockchain technologies. But it has also highlighted potential risks to consumers.

A classic bubble

There are real risks that many consumers investing in cryptocurrency don&rsquo;t fully understand. Advertisements promise that bitcoin can make you rich fast. And social media is alive with stories about friends of neighbours or distant cousins who have made a lot of money through bitcoin.

Without a doubt, these cases are real, and those who invested early can reap large benefits. But this is true in every bubble &ndash; from the dotcom bubble to the tulip mania. It&rsquo;s also true in every pyramid scheme.

As always, investors should be extremely wary with any scheme that promises quick returns.

This article was originally published on <a href="http://theconversation.com" rel="nofollow">The Conversation</a>. Read the <a href="https://theconversation.com/bitcoin-is-a-highly-speculative-investment-why-caution-is-required-88440" rel="nofollow">original article</a>.

Qobolwakhe Dube: A PhD student at the African Institute of Financial Markets and Risk Management at University of Cape Town.

(Disclaimer: The author writes here in a personal capacity).

The astronomic rise of the price of bitcoin over the past 12 months raises fears that the cryptocurrency is set to crash which could see many people lose money

Authors: Co-Pierre Georg and Qobolwakhe Dube* With the price of a bitcoin reaching record highs of more than $10,000, more and more ordinary people consider investing in the cryptocurrency. The recent price surge, however, comes with tremendous risks. Investors should be prepared for the possibility that they could lose their entire investment. Bitcoin was launched in 2008 by an anonymous author under the name of Satoshi Nakamoto as a means of transacting among participants without the need for intermediaries. Since the beginning of this year, the price of bitcoin has increased by 1300 per cent as more and more consumers flock to it hoping to profit off its increasing popularity and the associated increase in value. Cryptocurrencies are not currencies at all. As the Financial Times explains, bitcoin is a string of computer codes which means that new bitcoins can be created – up to an agreed limit – by computers that gain the right to do so by solving complex puzzles. Transactions are recorded in a database called a blockchain. Bitcoin, like other assets like gold, doesn’t yield income. You have to sell it to realise any value. And, like gold and other currencies, it can be transferred peer-to-peer. Part of the nervousness about bitcoin is that, along with other cryptocurrencies, it challenges the traditional role of banks and central banks. In the classical world, banks act as intermediaries by providing loans out of the deposits they took and from funding from the central bank. The central bank uses the rate at which it provides this funding as a lever to ensure price stability. The introduction of cryptocurrencies threatens this model because banks are no longer necessary to intermediate funds and there is no central bank to ensure that prices are stable. The more immediate fears about bitcoin center on the recent dramatic rise in its value. There’s nervousness in the market that a flash crash might be imminent after the cryptocurrency tumble by more than $1,300 in minutes on the bitcoin exchange Bitfinex. It did recover to levels above $10,800. The flash crash echoes long-standing warnings that the bitcoin party is set to end in tears. Most recently Jamie Dimon, CEO of JPMorgan, one of the world’s largest investment banks declared that he would fire any employee trading bitcoin for being stupid. In a highly unusual alliance, his words were echoed by economics Nobel Laureate Joseph Stiglitz, who has gone even further arguing that bitcoin ought to be outlawed. All of these are clear warning signs that the professionals do not trust the lofty promises of crypto enthusiasts. The blockchain factor There is no doubt that Bitcoin – and in particular blockchain, the technology behind it – has the potential to revolutionise the financial services industry. A blockchain functions as a transparent and incorruptible digital ledger of economic transactions, recorded in chronological order, that operates on a peer-to-peer network. Fundamentally, the technology allows an exchange of value to occur in an environment of peers with conflicting interests without the need for trusted intermediaries. That, in effect, wipes out the need for banks or financial services companies which fulfil this role. The use of the technology is not limited to financial transactions. Virtually anything of value can be traded on a blockchain. But no matter how useful the underlying blockchain technology is, or how widely it can be applied, there are real and substantial risks involved in bitcoin. Volatility versus returns The first and most significant risk is that compared to any currency, share, or gold, bitcoin is extremely volatile. The volatility of bitcoin to US dollar is almost six times the volatility of the Rand to US dollar. While this is great in good times, it is potentially devastating for investors in bad times. When professional investors decide on which assets to hold, they look at both the return and the volatility of the asset. Only investors with a healthy appetite for risk are willing to invest in risky, volatile assets. Usually these are finance professionals, for example in large investment banks or hedge funds. Investors with a lower risk appetite, such as asset managers or pension funds, prefer assets with a somewhat lower return, but which are less volatile. The rule of thumb is that the sophistication of an investor increases with the volatility of the asset she invests in. But with bitcoin, this rule of thumb doesn’t hold true. More and more private investors have been flocking to bitcoin ‘exchanges’ that have sprung up all over the internet and that are aggressively advertised on social media. Overvalued There is a huge risk that bitcoin is already overvalued. The practical use cases for bitcoin are limited. It doesn’t enable enough transactions to take place per second to be used as a replacement for a modern payment system. And it doesn’t offer any functionality other than pseudonymous transactions – transactions where the true identity of the counterparties is hidden. Bitcoin is favoured by pyramid schemes, including the infamous MMM pyramid scheme in Nigeria. In a recent article, the Financial Times called bitcoin itself a pyramid scheme, much to the dismay of crypto enthusiasts. (A pyramid scheme is usually an illegal operation in which participants pay to join and profit mainly from payments made by subsequent participants. If no new people come in, it collapses.) Regulatory risk The third, and possibly biggest risk is regulatory. In September 2017, the Chinese government outlawed bitcoin exchanges in mainland China, sending the price of bitcoin tumbling. Despite the claim that bitcoin is a “global currency”, the reality is that 58 per cent of all bitcoin mining happens in China. If at any point the Chinese government should decide to make Bitcoin mining illegal the price is likely to plunge into oblivion. Other countries have also voiced concern. The Russian Central Bank recently issued a warning to investors on the risks of investing in cryptocurrencies, citing concerns about a bubble. This suggests that there might be a concerted crackdown. Cryptocurrencies are banned in India as their use is a violation of foreign exchange rules. The Australian Reserve Bank has taken a different approach. It monitors the cryptocurrency market in a bid understands the underlying technology. The South African Reserve Bank has expressed its openness to blockchain technologies. But it has also highlighted potential risks to consumers. A classic bubble There are real risks that many consumers investing in cryptocurrency don’t fully understand. Advertisements promise that bitcoin can make you rich fast. And social media is alive with stories about friends of neighbours or distant cousins who have made a lot of money through bitcoin. Without a doubt, these cases are real, and those who invested early can reap large benefits. But this is true in every bubble – from the dotcom bubble to the tulip mania. It’s also true in every pyramid scheme. As always, investors should be extremely wary with any scheme that promises quick returns. This article was originally published on The Conversation. Read the original article. Qobolwakhe Dube: A PhD student at the African Institute of Financial Markets and Risk Management at University of Cape Town. (Disclaimer: The author writes here in a personal capacity).

Opinion: Bitcoin is a highly speculative investment. Why caution is required

Badly conceived and economically wrong, the euro is at the heart of most of the eurozone&#39;s problems such as stagnation, unemployment and the rise of the far-right, Nobel-prize-winning economist Joseph Stiglitz told AFP on Wednesday.&nbsp; 
 
The outspoken economist said the single currency was structurally flawed from the outset and takes away member states&#39; ability to make crucial adjustments to their economies. 
 
&quot;What they did was to put the cart before the horse. They tried to create the euro before they had the institutions,&quot; said the former World Bank chief economist, 73. 
 
While the euro might be a boon for &quot;a few people and the bankers who can move money more easily around,&quot; it&#39;s less positive for ordinary individuals in the eurozone, suffering from sluggish economies and high unemployment. 
 
&quot;Our societies are stagnating, we are not growing. That would give impetus to extreme parties of the right,&quot; said Stiglitz, as far-right parties gain ground in France, the Netherlands, Germany and Austria in part due to high unemployment. 
 
&#39;Mount Sinai&#39; 
 
Stiglitz, who loosened his tie for the interview in a sweltering Paris, took a blistering swipe at the rules underpinning the single currency, as well as those governing the European Central Bank. 
 
&quot;You have to change the rules when the rules are wrong. If you have the wrong rules, then the consequence is a disaster,&quot; he stressed. 
 
&quot;These rules are not like the ten commandments that God gave from Mount Sinai,&quot; he said, adding that the economics and politics behind the eurozone&#39;s fiscal and monetary rules &quot;needs to be rethought.&quot; 
 
He took aim at both the Stability and Growth pact - which limits member state&#39;s budget deficits to a maximum of three per cent of total output - as well as the strict rules governing the ECB. 
 
The European Central Bank has as its mandate to keep inflation to &quot;close to but below two per cent&quot; but unlike the Federal Reserve in the United States, does not have creating jobs as one of its objectives. 
 
&quot;They tied the hands of the countries in Europe and then they tied the hands of the central bank and said &#39;focus just on inflation&#39;,&quot; charged the economist. 
 
Auf wiedersehen Germany? 
 
So what is the solution, according to Stiglitz?&nbsp; 
 
&quot;More Europe&quot; and &quot;less austerity that just leads to contraction&quot;. 
 
He called for eurobonds&nbsp;- allowing eurozone countries to pool debt issuance that is a taboo subject in Germany.&nbsp; 
 
The economist also appealed for &quot;common deposit insurance, a common way to resolve the problems in the banks.&quot; 
 
And he aimed a barb at Germany, Europe&#39;s economic and political powerhouse that spearheaded the drive towards austerity in the wake of the eurozone&#39;s debt and banking crisis. 
 
&quot;The view that you can recover to full employment and to prosperity by austerity is rejected by most economists, rejected by the IMF, but still seems to be the dominant view in the German government, and particularly in the finance ministry,&quot; he charged. 
 
&quot;The easiest way would be for Germany to leave Europe.&quot; 
 
(AFP)

The single currency, he says, takes away member states' ability to make crucial adjustments to their economies

Badly conceived and economically wrong, the euro is at the heart of most of the eurozone's problems such as stagnation, unemployment and the rise of the far-right, Nobel-prize-winning economist Joseph Stiglitz told AFP on Wednesday. The outspoken economist said the single currency was structurally flawed from the outset and takes away member states' ability to make crucial adjustments to their economies. "What they did was to put the cart before the horse. They tried to create the euro before they had the institutions," said the former World Bank chief economist, 73. While the euro might be a boon for "a few people and the bankers who can move money more easily around," it's less positive for ordinary individuals in the eurozone, suffering from sluggish economies and high unemployment. "Our societies are stagnating, we are not growing. That would give impetus to extreme parties of the right," said Stiglitz, as far-right parties gain ground in France, the Netherlands, Germany and Austria in part due to high unemployment. 'Mount Sinai' Stiglitz, who loosened his tie for the interview in a sweltering Paris, took a blistering swipe at the rules underpinning the single currency, as well as those governing the European Central Bank. "You have to change the rules when the rules are wrong. If you have the wrong rules, then the consequence is a disaster," he stressed. "These rules are not like the ten commandments that God gave from Mount Sinai," he said, adding that the economics and politics behind the eurozone's fiscal and monetary rules "needs to be rethought." He took aim at both the Stability and Growth pact - which limits member state's budget deficits to a maximum of three per cent of total output - as well as the strict rules governing the ECB. The European Central Bank has as its mandate to keep inflation to "close to but below two per cent" but unlike the Federal Reserve in the United States, does not have creating jobs as one of its objectives. "They tied the hands of the countries in Europe and then they tied the hands of the central bank and said 'focus just on inflation'," charged the economist. Auf wiedersehen Germany? So what is the solution, according to Stiglitz? "More Europe" and "less austerity that just leads to contraction". He called for eurobonds - allowing eurozone countries to pool debt issuance that is a taboo subject in Germany. The economist also appealed for "common deposit insurance, a common way to resolve the problems in the banks." And he aimed a barb at Germany, Europe's economic and political powerhouse that spearheaded the drive towards austerity in the wake of the eurozone's debt and banking crisis. "The view that you can recover to full employment and to prosperity by austerity is rejected by most economists, rejected by the IMF, but still seems to be the dominant view in the German government, and particularly in the finance ministry," he charged. "The easiest way would be for Germany to leave Europe." (AFP)

Euro the root of all eurozone's ills, says economist Joseph Stiglitz

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Top economist Stiglitz sees 'significant slowdown', not crisis

Opinion: Bitcoin is a highly speculative investment. Why caution is required

Euro the root of all eurozone's ills, says economist Joseph Stiglitz