Friday, 28 November 2014

Oil prices plunge as OPEC holds supply steady

Oil prices crashed below the $US70 mark this morning as OPEC chose to keep its production levels steady despite decreasing demand.

The decision to leave the output ceiling at 30 million barrels per day came before markets closed in the United States for Thanksgiving weekend.

At its semi-annual meeting on November 27, OPEC's secretary general Abdallah Salem el-Badri said that although there was a price decline, the organisation would not “rush to do something”.

"We don't want to panic. I mean it," said Mr el-Badri. "We want to see the market, how the market behaves, because the decline of the price does not reflect a fundamental change."

Saudi Arabia has indicated that the decision is in line with its policies.

The West Texas Intermediate (WTI) benchmark measured the dip as roughly 7% to just below $US69. Brent Crude also fell by 7% but sits slightly higher at $US73.

Stocks in major oil producers also took a beating. Royal Dutch Shell fell 4.3% while Total SA slipped 4.1%.

The Organisation of the Petroleum Exporting Countries resisted calls from member Venezuela to drop production and lift crude oil prices. Venezuela’s currency reserves are already low which is placing pressure on the Latin American economy and government.

The Automobile Association (AA) expects petrol prices in New Zealand to fall again shortly as the effect of the downwards slide reaches this part of the world.

Another few cents could be shaved at the tank if commodity prices continue track the global dip in crude oil costs. Petrol prices have already dropped 14 cents in six weeks.

Oil is now at the lowest cost since May 2010. In July this year, oil prices hovered around $US100 before beginning to fall away consistently to today’s price.

The OPEC decision reflects a widely held sentiment among members that stability in the oil market may be further away than first assumed.

An oil price below $US90 will be a high concern for certain OPEC members such as Nigeria, Russia and Venezuela. Each have balanced a national 2015 budget on an assumed oil spot price ranging from $US90 to $US120.

The Gulf States - including Qatar, Kuwait, Saudi Arabia and the UAE - have a combined rainy-day fund of an estimated $US2.5 trillion in savings which means they do not rely on high crude oil prices.

However, Saudi Arabia’s minimal concern reflects the country’s deeper buffer range, although a consistently low oil price will begin to pinch its economy if it doesn’t stabilise higher next year.

Analysts point to the United States shale and tight oil revolution as a major factor in the reasons behind the low prices.

Other causes include a lower demand from Asia and Europe and a larger global shift towards non-fossil fuel energy sources. The return to the market of significant crude production from Libya and Iraq is also a factor.

Lower prices will favour Gulf States over the long run, as a minimal return on investment may discourage US shale and tight oil producers out of the market.

OPEC also predicts a growth in non-OPEC supply next year which will further pressure the crude oil price.

OPEC accounts for a third of the world’s oil sales.

Wednesday, 26 November 2014

Nuclear extension reflects unstable Mid East

In November 2013, the United States and Iran made a landmark decision towards a rapprochement over the thorny issue of Iranian nuclear power. At the time - and throughout 2014 - this outlined the gradual aligning of interests between the US and Iran as the region boiled.

Monday’s calm rescheduling of talks by another seven months may appear that all the tough work is undone, but the extension fits with the realignment. The new deadline is March of 2015, when the two sides will decide what needs to be done. In the meantime, Iran will be able to access $US700 million per month in sanctions relief.

What happened this week will frighten those who see almost all the offramps fading behind in the mirror on the highway towards a Persian bomb. In their eyes, the long game is being won by a sneaky Iranian regime and the United States has been outplayed. 

In Washington’s view, Iran is not an imminent nuclear threat with the US effectively ceding the existence of an Iranian nuclear capability for civilian use. The current talks are simply the working out of the details.

If Iran is a nuclear threat then plenty of future problems will appear - that much has always been true. Yet possessing highly enriched uranium and actually being able to deliver a viable nuclear weapon to a target are two very different things.

After all, two superpowers spent billions last century developing rocket and telemetry technology. The process exhausted one superpower and weakened the other. This process is terribly difficult and both Tehran and Washington know it. One capability does not magically spawn the other and now Washington thinks it can solve both problems through a balance-of-power agreement with Iran.

What hasn’t been fully appreciated is that over the last year US and Iranian high-level talks has become a relatively routine fixture on the world stage. That’s new and important given their deadly history. To his credit, US President Barack Obama has made all the right signals that he intends to push this evolution as far as possible with his Iranian counterpart equally engaged.

The Iranians may view possessing a nuclear capability in a different light, but this by no means suggests their reasons for pursuing a nuclear programme are exclusively combative. Tehran’s actions over the years show the Islamic Republic is quite happy to portray the goals of this pursuit in whatever way it feels benefits its relative geopolitical position.

Which is why this week’s almost nonchalant rescheduling must be viewed in the context of the broader Middle Eastern dynamics. The single overarching thread controlling the politics of the region is the story of what is emerging from the chaos of the so-called Arab Spring.

Almost no one predicted the huge uprising and even fewer people forecast what was to come next. Autocracies and dictators fell as the vacuum ripped the lid off the top of the bottle. It is now obvious that something had been shaking that bottle for hundreds of years. 

Al Qaeda dreamed of upending the hated Arab regimes but thankfully never came close. The Islamic State on the other hand, holds more physical space than al Qaeda ever did and various world powers are noticing an opportunity for Machiavellian advantage.

The rise of the Islamic State is only a symptom in the Middle East but it’s causing a wide strategic rethink. Aligning to deal with the cancer of Sunni Islamic radicalism fits the strategy of both the US and Iran but it also pushes the nuclear talks to the backroom where diplomats prefer to work.

The group’s apparent power has given the US and Iran a convenient reason to pretend to marginalise the nuclear issue and inflate the Sunni terror problem instead in a way that was impossible earlier in the year.

Iran and the US are deeply accustomed to arbitrarily altering their geopolitical rhetoric to reflect the current environment. But as the threat from particular militant groups seem to show, the region is highly unstable and needs a rebalance.

Whether that balance is achievable is uncertain, but Iran must be part of that equation if it is to work. So if the US wants Iran to be an adult power it is going to have to start treating it like one. The question is: what does Saudi Arabia think of the growing friendship?

Thursday, 20 November 2014

Simple 'grassroots' terror attacks could threaten New Zealand, experts

A spate of simple but deadly attacks in Israel this week highlight a new pattern of terrorism that governments are largely powerless to counter, analysts say.

Following the recent release of information by Prime Minster John Key that New Zealand security services have identified multiple New Zealand citizens sympathetic to extremist ideologies in the country, experts warn that New Zealand could face similar “grassroots” attacks in the future.

Four people were killed and dozens wounded when two Palestinians armed with axes and a gun attacked a Jerusalem synagogue before being shot dead by police on Tuesday. One policeman later died of the wounds he received in the attack.

The Popular Front for the Liberation of Palestine claimed responsibility for the terror attack while Hamas publically gave its own support saying it was in response to an alleged murder of a Palestinian bus driver earlier in the week. Palestinian police disagreed, ruling the bus driver’s death a suicide.

Israel ambassador to New Zealand Yosef Livne says the attacks are a product of an environment that supports and glorifies terrorism “through an unending campaign of vicious incitement and outright lies”.

“Since late October, there have been seven such attacks costing the lives of 10 people and a score have been injured. All of the attacks took place in civilian sites such as train stations, academic centres and now a House of Worship.

“These were not valiant acts of resistance; they were horrendous cases of terrorism - no ifs or buts,” Mr Livne says.

The trend of low level but deadly terrorism is forcing Israeli officials - and governments of developed countries - to question whether such attacks could be the new normal for modern societies with the New Zealand government rethinking its approaches to countering the threat.

The problem for security services is that these simple attacks – where the killers use readily available weapons – will be far more difficult to protect against than “traditional” terror acts. Grassroots-style violence is less deadly, but it is now a more common threat emerging from inside developed nations.

Massey University’s Centre for Defence and Security Studies academic Dr Rhys Ball, who served in New Zealand’s SIS and GCSB in counter-terrorism roles for more than 10 years, says New Zealand isn’t immune.

“There are individuals [in New Zealand] that happily acknowledge support of the Islamic State (IS).

“The Herald, for example, published an article at the beginning of the month titled “Hawkes Bay Muslim Backs ISIS”. The individual had been interviewed ten years earlier following claims that the he had been visiting prisons in an effort to convert inmates to Islam.

“Now, whether the prisons remain a potential source of radicalised individuals, I would not know, but the possibility cannot be discounted,” he says.

The threat and danger of radicalised individuals living in New Zealand conducting simple attacks are likely low, but the probability is certainly not zero. Some of these people have been influenced by what they have heard or seen via social media and other methods of communication.

The Washington Institute’s terrorism expert Aaron Zelin says a Christchurch man revealed that there could be about a dozen jihadist supporters in the Christchurch area.

“In an interview this guy said: ‘I can’t stay in a country that’s going to be fighting my religion. If my country is going to make me an enemy to my religion then I have no choice but to go and join IS where I’ll be welcomed as a citizen and not be persecuted for my religion or beliefs.’

“This is very similar to other quotes from radicalised New Zealanders. There’s a persecution narrative in saying that the government’s fighting the religion even though Islamic State doesn’t represent all Muslims.  

“So you can see how these ideas are starting to seep into some people’s minds, they’ll be trying to openly proselytise these ideas within their communities,” Mr Zelin says.

Mr Ball points out another example of an individual who had had his passport cancelled on the grounds that he was a danger to the security of New Zealand.

“At the time, [the man] couldn’t understand why he was stopped at the airport by ‘SIS agents’ when all he wanted to do was ‘travel to the Middle East…to get an education.’ My question to you, and to the television reporter whom it appears didn’t have an opportunity to ask similar, was why did [he] need to travel to Yemen to get an education? 

“Why didn’t he come to a university here in New Zealand? The quality of the education is second to none, he would have access to religious studies scholars, he would have access to Middle Eastern studies scholars, and he would have access to international security studies scholars. 

“There is, of course, no reason why any New Zealand citizen cannot travel overseas to pursue educational opportunities. We all have the right to do this. But equally, police, customs – and more significantly, the SIS, do not remove somebody’s passport without good reason. 

“We have to accept that people may not be completely honest in sharing their version of events. Making sure that all relevant legislation is ‘fit for purpose’ will be part of the on-going refinements that we have seen recently and will see going forward,” Mr Ball says.

Even while both Messrs Zelin and Ball suspect the threat to New Zealand from homegrown grassroots radicals is likely low, attacks mimicking the style occurring in Israel are now the most likely version of terrorism in the modern world.

And not only will New Zealand’s security services struggle to deal with potential grassroots threats, there are a number of legal gaps and regulatory inconsistencies which need mending as well.

“Revoking passports is something other Western countries are doing, but there are potential dangers in doing that too. We saw last month in Canada where they had revoked the passports of two or three individuals which led to different attacks in Canada,” says Mr Zelin.

“There are also some potential loopholes between Australia and New Zealand. Because of rules of flying between Australia and New Zealand, a lot of [radicalised] Australians will fly to New Zealand. The New Zealand government doesn’t know about them so they fly on to Turkey to set into Syria,” he says.

Mr Ball agrees that parts of New Zealand’s legislation requires rethinking, but cautions against trading too much freedom for security in response to a real but low level terror threat.

“Is the ’48-hour warrantless surveillance’ warranted? I tend to agree with Dr David Kilcullen when he recently said that we need to tread carefully when considering making such powers available. 

“I am comfortable with such changes and powers so long as there is sufficient and robust safeguards to ensure that these powers are not abused or exploited. And for that to happen, we need to be confident there is adequate oversight in place to monitor such activity – and we need to be confident that abuses will be called out, if they do take place,” says Mr Ball. 

To this end, the Inspector General of Intelligence and Security and the newly appointed Minister in Charge of the Service and GCSB, have some very important responsibilities. Mr Ball says there can be “no suggestion or hint of politicisation of intelligence”, or exploitation of the intelligence debate for political gain. 

Mr Zelin says one of the weaker spots for Western governments has been in providing exit ramps for people who no longer wish to be involved in militancy.

“That’s proven difficult because a fighter could lie to law enforcement and potentially to attempt a terrorist attack in New Zealand. We actually saw hints of this in the Saudi rehabilitation programme a few years ago, so it’s important to continue intelligence operations.

“But it’s very important to supply avenues for these people, especially if they become disillusioned and want to return to their regular lives.” Mr Zelin says.

Friday, 14 November 2014

The many faces of the Islamic State

The Islamic State is not a new phenomenon but its recent successes and level of support is truly unique, according to a US academic.

More international fighters have joined the various jihadist groups fighting in Syria and Iraq over the past three years than during any Islamic war in decades. Some estimates place the figure at 15,000 individuals, including a handful of New Zealand citizens.

Now, as New Zealand prepares to join the three-month old international coalition battling the group in Iraq, US commanders are warning of a long fight against the Islamic State (IS) group.

New Zealand Prime Minister John Key reportedly spoke with US President Barack Obama at the recent Apec meeting in China. The two discussed the IS threat and agreed that the long term solution can only be found in diplomacy.

The Washington Institute’s Richard Borow fellow and jihadist expert Aaron Zelin says that the present-day “Islamic State” incarnation has gone through many splits and consolidations over the years.

“It’s not really anything terribly new, at not least in terms of the group’s history. Their basic structure goes all the way back to 1999/2000 when it originally called itself ‘Jama'at al-Tawhid wal-Jihad’.

“Later on it changed its name to ‘al Qaeda in Iraq’. This was a sort of marriage of convenience between [Osama] bin Laden and Jordanian leader Abu Musab al-Zarqawi since they both needed each other to stay relevant and gain resources,” he says.

Since joining the Syrian civil war, the adopted the name ‘Islamic State of Iraq and Syria’ (ISIS). It was only recently, in June this year, when the group overran the Iraqi city of Mosul, that they changed their name again to ‘Islamic State’.

“Its long term goal is to take over the entire world,” Mr Zelin says. “But its mid-term goal is to retake all Muslim territory - areas like Spain or parts of the Balkans. All the way up into parts of Xinjiang in western China. Obviously a lot would have to happen for this to occur.”

High estimates of foreign fighters in Syria and Iraq, according to the United Nations, suggest about 15,000 people have travelled to the region. A lower estimate is closer to 4000, but this lower figure represents individuals who have actually been confirmed by name.

“Based from my own research, the true number is around 10,000. This isn’t how many people are currently there, it’s a total of the last three years. People have died or returned home, been arrested or moved on to other conflict zones such as the Sinai [Peninsula], Libya or Yemen.

“About 90 or so countries are represented in these numbers, so pretty much all of the world’s major nations. The largest regional draw cards are from the Arab world - primarily from Saudi Arabia, Tunisia, Libya. And then from Western Europe – the highest numbers from France, the UK, Belgium and the Netherlands.”

Aaron Zelin
One of the reasons for such high numbers, says Mr Zelin, is the relative ease of travel to the region. In comparison, it is extraordinarily difficult to travel to other conflict zones such as Libya, Mali, Afghanistan or Yemen.

“If you have a plane ticket to those places it looks sketchy. Whereas Turkey gets a lot of tourists, so it’s not as suspicious.

“There’s also the legacy of the facilitation of logistics networks left over from the Iraq War. Although Turkey today is the hub of these networks, last decade it was Syria helping people move into Iraq. So all the infrastructure is already in place,” he says.

Currently, the bulk of individuals heading to the region are Muslims, but the spectrum of belief is wide. Some are converts, some have been believers for life. Others are more appropriately classed as “reverts” – holding nominal Muslim belief from an early age, only recently observing.

“It depends on a country-by-country basis. For example, from Europe we see a lot more people that were born Muslim. They didn’t necessarily grow up religious but they became reverts. Whereas at least 50% of foreign fighters from the US are converts.

“So it’s important to get the data of who these individuals are. In New Zealand, since there’s only 6-8 individuals, it’s hard to know if that’s representative. But it seems by looking at the information available that many of the Kiwis are converts, but there needs to be more data,” Mr Zelin says.

Mr Zelin isolates a number of reasons for the resurgence of the group and its international popularity.

“One of the first things was the US military withdrawal. I’m not saying that the US should have stayed, a lot of the blame should be placed on the Iraqi government after the US left in terms of some of the politics they conducted.

“But the biggest thing that changed the game was the so-called Syrian Jihad. In April 2013, the Islamic State officially entered themselves into the conflict which allowed them to access new recruits, weapons and new sources of funding.”

The group also piggy-backed off the grievances of the Iraqi Sunni community. After the US troops departed in 2011, the Sunnis were promised political integration by the Iraq government which wasn’t delivered.

“The entrance of Islamic State in Syria in 2013 led to the break up between that group and [al Qaeda affiliated] Jabhat al Nusra. One of the things they’re arguing about is the methodology of how to govern and take territory, but also how to deal with the local populace.”

He says the post-Arab Spring Middle East is a very different place compared a decade ago. After more than ten years fighting Western troops in Iraq, IS have taken some notes on what not to do.

“Jihadists have started to provide governance and social services. That’s an area where IS has been able to learn from some of the lessons of their failures last decade.

When they were in control of [Iraq’s] Anbar province last decade, the group wasn’t providing any services, they were primarily doing law and order. But now, in addition to a brutal method of governance they are also providing soft governance such as medical, food and education services.”

Of course these ‘friendly’ municipal actions are based off the group’s own interpretations of the doctrine of Islam, but since they currently monopolise the utility services that’s making it difficult for the local population to push back.

“They’re cleaning roads, fixing the electrical lines, and running one of the dams on the Euphrates [River]. It’s a relatively sophisticated operation,” he says.

After announcing their so-called “Caliphate” this year, IS are now recruiting volunteers not just for fighting. They are calling for doctors, engineers, nurses and people with other careers.

“This expands the scope of people who can be recruited. Volunteers don’t need to simply fight to join up with this group, this is truly a state-building enterprise. We see many foreigners involved in the governance aspect of IS operations, since often they don’t have a background in military training, and are highly educated in relevant social skills,” Mr Zelin says.

Thursday, 6 November 2014

Signs that Bitcoin is here to stay


Special Economic Analysis
by Peter Warburton, Ph.D.

Virtual currencies, of which Bitcoin is the most prominent, offer a cheaper and more efficient online payments mechanism than debit or credit cards. The peer-to-peer transaction process reduces the risk of identity theft as fewer personal details need be disclosed. The appeal of Bitcoin is that it is in finite supply, and independent of any central bank or government body. This safeguards it against the debasement of the currency.

On these merits, Bitcoin has gained favor with both investors and advocates of financial disintermediation – pulling business away from the big banks. Its inability to function as a reliable store of value however, seesawing wildly in response to technological and regulatory developments, may limit its prospect as an alternative to fiat currencies.

Created anonymously in 2009 under the pseudonym Satoshi Nakamoto, Bitcoin’s ascendancy has been tempestuous. Now the most prominent of the “virtual” currencies, its market capitalization is equal to $12.5 billion, with just over 12 million out of a maximum 21 million Bitcoins having been “mined” or discovered. This means that each Bitcoin is worth approximately $1,000, up from $13 at the beginning of 2013.

On the whim of their creator, Bitcoins are buried in a complex algorithm. These are released or “mined” as ever more powerful computers locate correct sequences of data, called blocks. An analogy is the search for prime numbers: the first few dozen were easy to identify, but the 5,000th requires a massive amount of effort and time – and electricity. The mining process is designed to suffer from diminishing returns as the number successfully extracted grows. Since it is so difficult, requiring complex computer software and calculations, the vast majority of people simply buy Bitcoins from online exchanges.

Fundamentally, Bitcoin is an electronic payment system based on cryptographic proof (complex algorithms) documenting each transaction. It allows any two willing parties to transact directly with each other, without the need for a trusted third party. Payments are made instantaneously over the Internet, with much lower transaction costs than normally encountered when paying by credit or debit card.

The notion of Bitcoin was introduced in 2008, when Satoshi Nakamoto issued a white paper outlining the system of exchange. Setting Bitcoin apart from its rivals was the use of public records documenting all Bitcoin transactions with a “timestamp.” This eradicated fraudulent attempts to “double spend” the virtual currency since the order of payments was made available for all to see, with only the first payment binding.

In 2011 Bitpay – a payment processing system developed especially for Bitcoin transactions – was unveiled. This facilitated e-commerce merchants’ acceptance of Bitcoin as a form of payment, enabling them to price products in local currency while consumers still pay using the virtual currency. Accordingly, retailers avoid any exchange rate volatility, with the Bitcoin price paid by the consumer adjusting accordingly.

One example of an online merchant transacting in Bitcoins is Bitmit. This is similar to eBay, with sellers auctioning unwanted goods and buyers bidding for them. Pizza, socks, mobile phones and much more can all be paid for using Bitcoin. A growing number of bricks-and-mortar institutions also accept the virtual currency. The University of Nicosia in Cyprus, for example, accepts the digital currency for tuition and other fee payments. A bar in Berlin also permits Bitcoin as a form of exchange, while a Canadian coffee shop introduced the world’s first Bitcoin ATM last October.


Despite its growing popularity, the value of Bitcoin has remained turbulent, swinging wildly in response to regulatory developments, technical difficulties and general media coverage. In mid-2011, propelled by media attention, Bitcoin climbed to a value of $32 (figure 1). Thereafter it entered a period of free fall.

The formation in 2012 of the Bitcoin Foundation, a trade group focused on developing Bitcoin standards and improving its function as a medium of online exchange, put a stop to this downward trend, with the value rising throughout 2012.

In 2013 the value of the Bitcoin surged. It is believed that demand for an alternative, decentralized medium of exchange (independent of any government or central bank) was sparked by the Cypriot bank account freeze and the threat of government-imposed deposit taxes. In the two weeks following the freeze, the value of Bitcoin surged 98 percent – closing at $93 on March 31.

The rest of 2013 proved tempestuous, with Bitcoin’s value reacting to regulatory and technological hurdles. Trading was halted at the largest exchange in Japan, known as Mt Gox, as it became overwhelmed by trading volumes. A Ponzi scheme, promising huge returns, was identified and shut down in the United States. Silk Road – an Internet-based organization dealing in illicit goods and benefiting from the anonymity of Bitcoin – was also closed. Nevertheless, by December 2013, Bitcoin had climbed to a record high on the Mt Gox exchange, reaching $1,106. This was primarily driven by a surge in speculative demand from Chinese citizens (figure 2).

Bitcoin’s rally proved short lived, however, a consequence of the Chinese National Bank banning Bitcoin exchanges (institutions that exchange money into the virtual currency and vice versa) from accepting new inflows of cash and financial institutions from facilitating transactions. Following the clampdown, which took place in early December, it appeared that the Bitcoin bubble had burst (figure 1). Remarkably, it has since recovered nearly 70 percent of its value. In the past month, the number of businesses on CoinMap, a website showing physical (as opposed to online) companies and vendors accepting Bitcoin around the world, has tripled to more than 2,300.

The degree to which the Chinese were viewing it as a medium of exchange, as opposed to a form of investment, is arguably questionable. Indeed, rampant speculative demand for the currency was cited as one of the Chinese authorities’ primary concerns.

Elsewhere, such as Germany, virtual currencies have been recognized as a legitimate unit of account. The first ever U.S. congressional hearing on virtual currencies took place on Nov. 18, 2013, in which Bitcoin’s “potential to promote more efficient global commerce” was discussed. This bolstered the value of Bitcoin by 48.7 percent on the day.

Bitcoin’s decentralized nature, meaning that it is not declared or issued by any government or central bank as legal tender, is similar to gold. Unlike gold, however, Bitcoin and other virtual currencies lack intrinsic value. Moreover, Bitcoin can be replicated by other cryptographic currencies. Litecoin, for example, retains Bitcoin’s finite supply characteristic but offers even faster transactions and tries to avoid resource intensive “mining” to release additional supply. Peercoin has no supply limit but builds in price inflation of 1 percent. Other alternatives, Anoncoin and Zerocoin, aim for complete anonymity.

Despite being the first prominent virtual currency, Bitcoin’s longevity is highly uncertain. Indeed, as pointed out by John Authers of the Financial Times, there have been many firsts which have drifted into insignificance: AltaVista, an Internet search provider, was quickly superseded by the likes of Google. MySpace, a social networking site, has been displaced by Facebook.

Ultimately, therefore, Bitcoin’s success is dependent on its use as a medium of exchange, its ability to maintain its value and to act as a unit of account. Indeed, these three criteria define any sound currency. Over the centuries, money has taken many different forms; from shells, to agricultural commodities, precious metals and now (most commonly) fiat money – all of which meet the three criteria to differing degrees. Virtual money is simply the latest incarnation.

Bitcoin is becoming a more widely accepted method of payment, facilitated by Bitpay and other exchanges that enable transactions into and out of the currency. That being said, no one is legally obliged to accept the virtual currency and countries like China and Thailand (which has ruled it illegal) are limiting its geographical reach.

As a store of value it certainly compares favorably to some agricultural products which are prone to rot. Some also argue that despite its volatility, Bitcoin is preferable to fiat currencies because these can be debased by central banks printing money. Put simply, inflation erodes the purchasing power of money over time.

The creation of money to facilitate asset purchase programs in the United States, UK and Japan since the eruption of the global financial crisis (also known as quantitative easing) has enhanced Bitcoins’ relative attractiveness as a store of value. This is also true of other commodities which are finite in supply and independent from central banks, such as gold.

It is its performance as a stable unit of account in which Bitcoin falls down, with speculative demand amplifying the currency’s volatility. While merchants pricing in U.S. dollars are insulated from this, the consumer (who still pays using Bitcoin) suffers the full brunt.


Despite its pitfalls, the virtual currency is here to stay. While it will evolve over time, just as tangible forms of money have done over the centuries, its merits as a low-cost, virtual payment system in a world in which Internet sales are rapidly gaining market share are encouraging to its survival. Like any new innovation, it will not be without its blips and the Bitcoin premium may not last forever.

The ascent of the virtual currency is also part of a bigger movement whereby banks and other financial institutions are eliminated from the transaction process. This transition, known as financial disintermediation, has grown in favor since the eruption of the global financial crisis. Perhaps the most prominent example is the proliferation of peer-to-peer lending websites. On this merit alone, digital currencies have gained stalwart supporters.

Wednesday, 5 November 2014

What NZ must do about Islamic State

New Zealand prime minister John Key revealed this week that up to 80 Kiwis are linked to the terror group known as the Islamic State (IS).

Mr Key also discussed plans to rearrange the visa laws governing the return of foreign fighters to New Zealand and upgrade the legislation around the surveillance of terror suspects in this country.

He ruled out sending combat troops to Iraq, however Mr Key indicated that “advisors” would travel to the region to assist in training local allied forces.

As the government moved into its decision on what to do about IS, New Zealand was sitting in an enviable position. Each of our Western allies had already joined the fighting in a combat role, but New Zealand hadn’t.

For this country, but also for the Iraqis, that’s is a very important distinction and one we shouldn’t overlook as we think about what will happen in the region when the bombs stop dropping.

An “advisory” role for our defence personnel in Iraq follows from the experience in Afghanistan where the majority of New Zealand’s activities were weighted towards providing security for reconstruction.

That the New Zealand Defence Force wasn’t heavily involved in major combat operations was crucial from the perception of Afghanistan citizens.

New Zealand now has an opportunity in Iraq to reinforce the message to the world that we truly care about peace and international security. It isn’t that this country is adverse to violence. But that our best role is when we participate the reconstruction of post-Iraq without the baggage of having killed Sunni tribesmen a few days ago.

Put yourself in the shoes of a villager in Sunni northern Iraq approached by two teams carrying reconstruction materials. One team is from the United States and the other is from New Zealand, which would you trust?

Would it be the one that was recently killing other Sunnis and acted exactly you think a Crusader force does, or would you trust the team which had no part in killing and wants to listen to your words?

The point is, for the long war against Islamic terrorism it’s time to start thinking differently about how to end the constant fighting. In order to do this, New Zealand can be part of the problem or it can be part of the solution, but it must not be both.

The US is already shown it is compromised in the Middle East as an arbiter for at least the next couple of decades - perhaps forever. But New Zealand’s unique position could be used to show the region that not all Western nations are war hungry and ready to kill. Such a thing will be extremely important in the coming years because Iraq and Syria are not coming back.

These two countries are experiencing the inevitable breakup of the colonial, post-WWII borders. The region is reforming back along its cultural and tribal affiliations of the past, and the process is causing a lot of pain.

Helping Iraq survive this process will be to misread the situation. That country isn’t coming back. New Zealand is better served spending precious resources on addressing the long term issues of trying to build a platform of negotiation for the warring Islamic sects.

No matter how much it might feel that way, using violence on a terror group in Iraq or Syria won’t stop terrorism from coming to New Zealand. None of their fighters will ever make it down here.

If there’s any threat from Islamic terrorism to New Zealand it is from people who have never travelled to the Middle East. They watch a few online videos, embrace the idea of jihad before shooting a few people in a shopping centre.

These people live right here amongst us. It has already happened around the world – three times just last week. All were self-driven claiming only oblique attachment to the main jihadist ideology.

Throwing a few bombs halfway around the world won’t fix the problem of grassroots attackers. If anything - should New Zealand ever decide to take aggressive action - it’ll legitimise any Islamic terrorism in New Zealand.

The world has to get used to the idea that terrorism is as much a part of modern life as McDonalds and Coke. To treat this threat as if were on parity with Nazism or Communism is wrong and ultimately destructive.

Take a look at the people telling us that Islamic terrorism is an existential threat. Each of them grew up hearing stories of their grandfathers fighting Nazism and each cut their foreign policy teeth on dealing with the evils of Communism. Those were true existential threats.

So of course they think this new threat is the same. It’s the only way they know how to characterise it. They don’t know how to think of marginal threats in a vacuum of existential threats. Young people on the other hand, don’t understand fighting for existence. But it certainly doesn’t feel like this.

The pressure on the Islamic State is already crippling, they’ll be broken as a threat very soon. The real question is what we’re implementing to ensure other groups don’t emerge from the vacuum.

Stopping the production rate of Islamists is going to be the defining turning point for the next generation. It’s going to be tough and maybe impossible. But it’s not going to happen if we continue to make the same violent mistakes as seen over the past 13 years. 

The Islamic State and the Long Con

According to the government, New Zealand needs protecting from a threat so dire, so insidious and destructive, that the best option – nay, the only option – is for this country to send its elite troops to the Middle East and help crush it back into the sand from whence it came.

If we don’t do this, the threat will emerge on our shores (how?) if we don’t stop it, says our government. Therefore guns and killing and law changes are necessary so that the danger can be mitigated. Thanks goodness for the government.

But I know a long con when I see one.

Let’s start with a thought experiment. Before you first heard about the Islamic State (IS) sometime earlier this year, did your way of life feel in any way threatened by terrorism? That’s an important question because the whole premise of the government’s argument rests on you saying yes.

Because by the way the Western world is talking about the group, the minimally prudent thing to do right now would be for each of us to buy a gun. A big one. And hide out on the rooftops with plenty of PowerAde and sunscreen (bring a hat). The Islamic State are coming - in fact…is that clouds of dust I see on the horizon? Nope, just a Fonterra tanker.

If you answer yes to the above question, where did you hear that New Zealand absolutely, positively needs to send its troops to Iraq and fight the Islamic State? You probably heard it from the media, right?

I don’t blame you, the past few months of international news has been dominated by pictures and stories of the “rampaging” horde militants. The world’s a big place, but apparently it only stretches from Basra to Aleppo. Feeding us which threat to worry about isn’t even close to the long con, it’s just advertising for a product. The conman’s mark is still you, but the con isn’t about war.

Advertising has this theory that if you see an ad, then it’s probably for you. Ads are the most pure form of medium to glimpse how the system truly sees us, that’s why they’re so fascinating to analyse. But a billboard or 30 second TV spot aren’t the only kinds of ads. The ones on the front pages of newspapers are just as strong.

We all have busy lives and can’t watch all the trouble spots around the world, but does anyone know what’s happening in the Central African Republic? I’m not diluting the horror in that country just to make a cheap point, but does our government give speeches about how we need to uphold international security in that African state?

What about going into Syria where all those meddlesome terrorists are being spawned in the first place? No, of course it isn’t. And there’s a reason for that. The problems in CAR and Syria are largely impossible to fix by outside powers and besides, they don’t fit the requirements of the long con.

Think about where you keep hearing about IS and all the bad things it does. Are they really worse than other bad people around the world? How would you know they’re worse, you’re not even paying attention to other conflicts, I just introduced you to the CAR. But all you hear about is the Islamic State and how we’re doomed if we don’t fight it. Isn’t that a bit suspicious?

The long con isn’t to keep the Western world fighting endless wars so the greedy corporations and corrupt government can stay in power. It’s not even about perpetuating a threat to society and encouraging an “us vs them” mentality just so that the government can step in and save us from time to time.

No matter how much the National government acts nonchalantly ambivalent about the low voter turnout in this year’s election, they’re desperate to remain relevant in people’s lives. So they tell us we’re facing an existential threat and all of a sudden they’re re-legitimised as society’s relevant power structure. But they’re not relevant anymore and it scares the faecal matter out of them.

The government is warning us of the coming collapse of society from terrorism because they’ve lost the power. And I mean the true power. It’s slipping through their fingers and they’ve no idea what to do about it because all they have are a defunct set of old answers to the new problems. Hence why “we should totally kill them” ends up being this government’s first resort.

Attacking the Islamic State is the easy way out because that’s all the people in power know how to implement. We’ve become superbly good at fighting conventional warfare with bombs and fighter aircraft and SAS troops, especially against conventional targets like artillery and concentrated Islamic State positions. They’ve got no chance, that’s why they died in the hundreds last week.

So when an option appears to actually open that military garage and drive these solutions around, most Western governments clamber to grab the keys and take the military for a spin.

Bombs are “really cool” and intensely visual, and for a visual culture such as ours, they offer an indelibly strong imagery portraying exactly what the powerful people need to portray: “See, we are doing something to keep you safe!” But it’s an illusion. Even worse, if violence is the main solution then it’s not actually going to keep us safe either.

It’s not truly about our safety. That’s the long con. Fighting Islamic terrorism is about desperately building up the eroding legitimacy of a failing political power structure that’s in the midst of a deep democratic existential crisis of relevancy.

The government has only ever drawn a semblance of power from the citizens who thought that it was, actually, powerful. In many ways, government is a human-acted version of fiat money: we give it the arbitrary value but it exists only in our heads. Without that mental support, all we’re dealing with is colourful paper and people in shiny suits.

Our kids are going to wonder how the hell we managed to spend trillions of dollars fighting a threat that’s only killed perhaps twenty thousand Western citizens in 25 years. Each of those deaths should be mourned, there’s no question about that. But 1.5 million people died last year from curable diseases alone. Where’s the outrage? Oh, that’s right, curable disease deaths don’t fit the requirements of the long con.

We’re being told the sky is falling due to a largely defunct and increasingly unpopular ideology of Islamic terrorism. That ideology has never been weaker, despite what the headlines preach. So what’s really going on with this fear? Because if neither the government nor its citizens can stand the thought that we might just live in the best era humans have ever experienced, it might be something pathological.

Thankfully we’re not alone in the desire for problems. By the way the whole Western world has acted since the fall of the Berlin Wall, the problem seems to be everywhere. As Christopher Leach pointed out all the way back in 1979, our true problem is narcissism.

How often do you hear: “They're angry at us! We are their problem! If it wasn’t for meddling Westerners, there wouldn’t be unrest in the Middle East!" Which quickly turns into: "we need to use guns to fix this!” Madness.

Guaranteed, if we continue to fight the symptom rather than the cause of Islamic terrorism there will always be another IS-type group waiting to fill the vacuum.

Narcissism desires constant attention, so if it’s not the Soviet Union or Nazism anymore, then painting Islamic terrorism as the overarching existential threat to our society maintains the delusion that it is us who are at the centre of our life stories. The Western world is the main character and everyone else is just antagonists and extras. If that doesn’t make sense, try to recall how you think about the booming Chinese economy. That’s a threat too, right? Exactly.

Neither the government nor Islamic terrorism is the true problem. The problem is us. And the first step to figuring out how to create a permanent solution in everybody’s interests is to understand this.

A never-ending war is the easy move, but that’s not good enough. Constant war will be the default, not because corporations are making too much money, but because the alternative is peace and the realisation that they’re not just angry at us.

For a narcissist, the worst circle of hell is their forced removal from the centre of attention. And if you know anything about insulting narcissists in this way, you’ll also know that you should expect the consequence to always be violence.

Remember, if you’re seeing the advertisement, it’s for you. But fighting IS will only reinforce our narcissism that it’s all about us in the end. Violence and terror law changes are used because the system knows us too well and, lo and behold, we agree with them because it all fits the requirements of the long con. The government isn’t the problem, the problem is you.

Monday, 3 November 2014

John Key's problem is having no problems

Prime Minister John Key today discussed with his Cabinet whether he will send troops to fight in Iraq against Islamic militants. He’ll also deliver a speech on security on Wednesday. That’s fine, but it all feels a bit too forced to be real.

Mr Key is shepherding New Zealand into 2015 as it begins a two-year seat at the United Nations Security Council. As preparation for this position, New Zealand will have to get used to more information about the world’s varied problems. After all, that’s what everyone on the Council does, isn’t it?

Even the prime minister will have to get used to the idea that he no longer governs a self-obsessed country, but a country sitting at the table of world responsibility. This will be a change of pace for the prime minister. And yet it smells a lot like New Zealand is searching for a problem to fix, like a smart bored teenager swinging its feet under a hammock at the beach.

The problem of Islamic terrorism is not our problem. But apparently the prime minster and New Zealand seem to think that it is, and it’s worth analysing why. We can start with the UN Security Council in all its glory.

The Council was built in the post-World War II era when the victorious powers of the United States, Russia, China, France and the United Kingdom were preeminent. It wasn’t long before this artificial alliance of convenience began pursuing their own goals, emasculating the Council and letting the system coagulate.

New Zealand wants to change the veto power to better suit today’s geopolitical realities. Bear in mind that no one is advocating getting rid of the veto, they only want to create a “third tier” of member states to offer the illusion of greater power but not enough to be considered a peer country with the veto nations. The status quo is more important than equality, it always has been.

Plenty is about to change for New Zealand, even if the Council never does. We’re entering a world in which people grapple with deep-seated problems they’ve struggled with for millennia.

So what message are we sending by joining the fight on one side (violence is always binary)?

What exactly is our government’s clearly articulable overarching ideology driving the decision to intervene in other people’s problems?

It’s not at all obvious that any of this is broadly understood. That’s why it’s so strange to listen to the prime minister when he talks about what New Zealand should do. What Mr Key is suggesting by using military force against the Islamic State (and I’m sure there’s plenty of nuance and subtlety) is that the answer to conflicts is in destroying the symptom rather than addressing the cause.

Killing jihadists in Iraq and Syria might feel like we’re doing something useful, and to a certain extent it is. But the glaring issue is that using military force assumes that it’s the only language these people understand. It also assumes that New Zealand knows how to speak that language when almost the entire history of the post-Cold War/post-9/11 world suggests that maybe we don’t.

It’s really hard to know what addressing the cause of Islamic radicalism looks like because the West hasn’t come up with a good answer. We were able to criticise Communism during the Cold War because that was a Western idea. It was a dumb idea of government - and an even crazier concept of history - but at least it was invented by a German writing in London. That gave us a little bit of legitimacy.

Islam has an entirely different history and to talk about its ideology is to see our words turn to dust the moment they leave the tongue. There is no common ground between us with the whole thing turning into an ‘us vs them’ tribalism. We may as well be on two different planets.

In other words, New Zealand has no language at all with which to defeat the threat of Islamic terror. But at least other Western countries have dealt with a history of serious social and political baggage which gives them a measure of experience in dealing with complex problems around the world. New Zealand has no such history.

The United Kingdom gets its name from grappling with centuries of its own problems. So does the United States. The US and UK were masters at projecting hard power (masses of men and metal) and soft power (ideas and culture) to every corner of the earth. New Zealand is the result of the conquest and control of these two consecutive superpowers.

Our institutions, culture, language, militaries, government, legislature, technology, and almost everything else – even down to the skin colour of the majority – comes from another place and another time. We think it’s ours, but it’s not.

For the kind of world-class responsibility New Zealand will have on the Council, it’s extremely important to remember just how different New Zealand truly is to rest of the world. But New Zealand doesn’t have any unique problems.

The social problems this country likes to self-flagellate about are not our own. By “not our own” I mean they were inherited, just like the country itself, from a long lineage of Western thought which arrived on the decks of ships captained by people with names like Cook and Banks. Their thoughts overflowed with old concepts like racism, slavery, liberalism, monarchy, welfare, capitalism, ambition, colonialism, classification, religion and thousands of other ideas.

Try to think of a truly systemic problem in New Zealand society that started - at its genesis - in this country. There isn’t one. Everything we ‘struggle’ with came from other people in other places.

We’ve got it so good in New Zealand that we adopt other people’s problems just to keep living. One of the only things Paul Henry said that I liked was when he started his morning TV show with the phrase, “welcome to another day in paradise”. And he was right. In fact, he’s still right. New Zealand is as close to the concept of paradise as any human culture in history has ever dreamed of living.

I’m astounded every time I hear New Zealanders say they want to travel overseas “for adventure”. Don’t they know that “adventure” is exactly what millions of people in the worst parts of the world want to escape by risking everything to come to New Zealand? Someone with $300 and a broken suitcase desperately wants to reach New Zealand, but apparently many people already in this paradise want out as soon as possible. That’s an astonishing implication of our society.

And it’s really interesting to think about. Because it suggests that humans prefer the concept of “being” to the concept of “having”. Actually getting the things we crave will never satisfy us. The only way to be satisfied is to continually yearn for the unattainable and imagine its attainment.

Like the proverbial dog chasing a car, humans want paradise but don’t know how to live when they find it, so we invent or adopt problems to keep us happy. When this mind-set is scaled up to the level of the nation state, some funny things start happening.

This country simply isn’t old enough to have forged its own identity and ideas. We haven’t had to grapple from the ground up with the evils that occur when cultures clash. Sure, plenty of people in this country think issues like racism or classism are New Zealand problems, but they aren’t. They’re European and American problems that we’ve adopted as our own because of our inherited history.  

I’m not suggesting that these problems don’t affect New Zealand. But the point is that they did not start here so they will not end here. Our problem is that we only have other people’s problems.

This is where the prime minister’s incoherent debate about fighting in Iraq converges with the inability of New Zealanders to enjoy the fortune of living in a paradise. We go out of our way to embrace other dilemmas to fill the void of having nothing to fight against because there’s clearly something so existentially frightening about living in a society that’s as close to paradise as humans have ever come.
Just when all the statistics suggest 2014 was the safest year in history for people - and 2015 will be even safer – the first thing we do is look for the storm clouds. Today the problem is the “rampaging” Islamic State, but don’t be surprised when the next problem appears which we’re all told to abhor and mobilise against. Child poverty, anyone? What about Chinese investment? The sky is falling.

This is not to say New Zealand shouldn’t be doing anything in the world, we certainly should. But the question we need to be asking is why we think these are problems for ours.

Listen to the way people talk about some of our problems and close your eyes. If it weren’t for the accents, you’d swear you were listening to someone from America or Britain. There’s almost no unique New Zealand quality to these issues and yet we talk like there is. It’s like we’re performing another person’s play with Kiwi characters.

Mr Key’s rush to join the coalition fighting the Islamic State militants reflects the bizarrely human frustration of living in a paradise. Bring out your problems, we trumpet. Send us your adventures. Because the alternative is devastating inactivity and the sheer boredom of living without fret or worry. And we can’t have that now, can we?

There’s never been a country in the history of the world with the opportunity to start truly afresh with every modern convenience and all the major cultural questions largely worked out. And yet, we can’t wait to burden our minds with all the old problems.  

People come to New Zealand to start new lives and leave their psychological and cultural baggage behind. Most of the original European immigrants to New Zealand thought the same way. But it looks like we want the conflict, problems and pain. We can’t stand peace, love and inactivity.

It may not say much about New Zealand, but it says volumes about humans.

Book Review: The Fourth Revolution

As far as elections go, the 2014 attempt had a horrible turnout. No one quite knows why citizens of developed countries feel less politically engaged, so a book by the editors of The Economist brings some of the ideas together.

The Fourth Revolution: The Global Race to Reinvent the State by John Micklethwait and Adrian Woolridge isn’t a manifesto on getting to a new era of political engagement and societal evolution. But it isolates what’s going wrong with politics, making some of the hidden answers more obvious.

Economic Development minister Stephen Joyce isn’t concerned about the poor voter turnout in 2014. When I asked him recently what National plans to do about the 1 million people frustrated with the system he responded dismissively saying “it’s really something for the other side to worry about.”

Yet, as the authors point out, Mr Joyce’s indifference probably stems not from his personal politics but from the sheer inability of almost anyone inside the current democratic system to notice how distant and ill-fitting the structure has become for the realities of the 21st century.

Moving through the first three (and a half) revolutions, the book constructs an oddly linear overview of the ideas of Thomas Hobbes and his Leviathan nation state, John Stuart Mill’s concept of the liberal state, Beatrice and Sydney Webb’s hit-and-miss welfare state and finally Milton Friedman’s economics which was either never fully conceptualised or unable to break through the existing structure, hence the half turn.

Present-day democracy retains a good chunk of each of these ideas - benign atavisms are just as important for an organism. And yet, the convoluted amalgamation of the ideas may be the very mud we’re dragging ourselves through without realising.

Knowing the past is crucial to reacting to future surprises. But this may not save us from making the same mistakes. The mere fact that some of the evils of pre-modern societies are returning (such as crippling income inequality) suggest moving society through a true fourth revolution could be far harder than many think.

Beatrice Webb’s safety net for the disenfranchised did more to help lift all boats with the rising economic tide than almost any other contemporary idea. However, the creation of a welfare class had the inevitable consequence of entrenching the existence of an aristocracy – because we’ve found it’s impossible to have one without the other.

As the world moves into another age of unprecedented wealth, the risk of that wealth coagulating at the very top increases. Although the authors don’t touch the concept explicitly, the emergence of truly global companies threatens to scuttle the next revolution before it begins.

There are too many interests in the current system to let it evolve. Some of those companies will amass so much true power that their movements around the globe will begin to look like nation states.

Despite all the faults of how fragmented our governments are (and the book supplies plenty of embarrassing examples), current politics is paving the way for the creation of these pseudo company-states and they don’t want some public longing for greater inclusion or enhanced representation messing it up.

The book’s overarching thread points to better ways of doing government (the Chinese, for instance, are showing a far greater flexibility than the West), unfortunately there few hints that the required new answers are anywhere to be seen.

The problem of grabbing the old answers of government and bending them with all our strength into the new questions is like shoving square pegs into a round holes. Sure, ideas are out there. Occupy Wall Street offered the destruction of the system but never suggested an alternative - and so it collapsed. It seems fledgling ideas often can’t penetrate the broader consciousness, fading into oblivion.

Modern governments are failing us, but probably only at the margins. They are not failing the people with true power. Yet there’s a nagging feeling the system itself is to blame for the lack of voter participation. But that’s not entirely accurate either. It’s us that’s the problem, most people don’t really care about the future anymore, at least enough to think about what the true problem is.

Smart people like Mill, Locke, Hobbes and Webb are desperately needed to spot new patterns in the noise and guide us towards a new government. The book isn’t optimistic about achieving this, but we are desperate for new ideas. The question is: will there be time between Friends reruns and little Timmy’s Mandarin lessons to think about it? Not likely.