Finance

Tether said its holdings of U.S. Treasury bills rose 13% to $39.2 billion, while commercial paper fell 17% to $20.1 billion.
The company said it now also owns around $286 million in non-U.S. government bonds.
It comes after tether, the digital currency, briefly fell below its intended $1 peg last week.

Tether previously claimed its stablecoin was backed 1-to-1 by U.S. dollars.
Justin Tallis | Afp | Getty Images

The issuer of the stablecoin tether said in a report that the controversial digital currency is now backed in part by “non-U.S.” government bonds.
Stablecoins are a type of cryptocurrency pegged to the value of sovereign currencies and other traditional assets. Tether, the company behind the token of the same name, aims to track the U.S. dollar.

In its latest so-called “attestation” report, Tether said its holdings of U.S. Treasurys rose 13% to $39.2 billion in the first quarter.
The amount of commercial paper — short-term loans to companies — Tether owns fell 17% to $20.1 billion in the period, and declined a further 20% since Apr. 1, the company said. Tether’s commercial paper holdings have been a concern for regulators and economists due to the potential exposure of money markets.
Tether’s latest disclosure is notable as it’s also the first time the company has revealed it is buying government debt from countries outside the U.S. in addition to Treasury bills.
At around $286 million, the amount of non-U.S. bonds is only a minor portion of the more than $82 billion in assets Tether claims to own. But the source of the funds, and the governments issuing them, isn’t clear.

Arrows pointing outwards

Bonds issued by the U.S. government are widely viewed as safe and highly liquid. Debt from other less developed economies is riskier, as it comes with a higher probability of default.

Tether was not immediately available for comment on which non-U.S. bonds it has bought.
Paolo Ardoino, Tether’s chief technology officer, said the “latest attestation further highlights that Tether is fully backed and that the composition of its reserves is strong, conservative, and liquid.”
Tether is meant to maintain a 1-to-1 peg to the dollar at all times. But volatility in cryptocurrencies last week, coupled with panic over the collapse of terraUSD, a competing stablecoin, temporarily dragged tether below $1 on several exchanges. TerraUSD, or UST as it’s known, is a so-called “algorithmic” stablecoin that attempted to maintain a value of $1 using code rather than cash.
Tether is a crucial part of the crypto market. With $74 billion in circulation, it’s the world’s biggest so-called stablecoin, facilitating billions of dollars’ worth of trades each day. Investors often park their cash in tether in times of heightened volatility in bitcoin and cryptocurrencies.
“This past week is a clear example of the strength and resilience of Tether,” Ardoino said. “Tether has maintained its stability through multiple black swan events and highly volatile market conditions.”
Still, the amount of cash flowing out of tether has raised fresh questions about the reserves behind it. Tether previously claimed to be backed solely by U.S. dollars. Investors have withdrawn more than $7 billion from Tether in the past week alone.

Tether started releasing quarterly financials after a 2021 settlement with the New York attorney general, which accused the company of lying about its stablecoin’s backing (Tether admitted no wrongdoing).
The documents are signed by MHA Cayman, a little-known accountancy firm based in the Cayman Islands.
Some economists and investors aren’t convinced by Tether’s attestations and are calling for a full audit. The company says such an audit is on the way.

Contagion risk

Treasury Secretary Janet Yellen last week warned about the risk of a “bank run” scenario in which investors flee stablecoins, potentially causing a contagion of other markets. Stablecoins are now a $160 billion market.
“The stablecoin market has grown so much that I think there is some systemic risk at this point,” John Griffin, professor of finance at the University of Texas, told CNBC. “There is definitely a risk that this could spread. And I think people probably underestimate that risk.”

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Nevertheless, some of Tether’s early backers say they’re confident the digital coin is sufficiently backed.
“Tether breaking its peg is an overstatement,” Brock Pierce, a co-founder of Tether, told CNBC. Deviations in tether’s price have happened “dozens and dozens of times,” he said.
Pierce, a former child actor, turned to crypto in 2013 and has founded numerous other ventures in the space.
“All start-ups have the challenges of growing pains,” he said.
Reeve Collins, another co-founder of Tether, said the firm’s management has “everything to lose if they screw it up.” Tether is controlled by Ifinex, which owns the cryptocurrency exchange Bitfinex.
Not many financial institutions could redeem over $7 billion in a matter of days, Collins said.
WATCH: Terra halts blockchain, Tether loses $1 peg

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Cisco logo exhibited during the Mobile World Congress, on February 28, 2019 in Barcelona, Spain.
NurPhoto | Getty Images

Check out the companies making headlines in midday trading Thursday. 
Harley-Davidson – Shares of the motorcycle maker fell more than 8% after the company said it’s suspending most vehicle assembly and shipment for two weeks due to a parts issue related to a supplier. Its LiveWire division is excluded from the suspension.

Cisco – Shares of the network company dropped 13% after the firm said it generated lower quarterly revenue than analysts predicted and called for an unexpected sales decline in the current period. Cisco said it was impacted by the war between Russia and Ukraine as well as Covid-19 lockdowns in China.
CSX, Norfolk Southern, Union Pacific — Rail stocks were under pressure after Citi downgraded CSX, Norfolk Southern and Union Pacific to neutral from buy. Citi said in a note to clients that an economic slowdown limited future slowdown for the sector. Shares of CSX and Norfolk Southern fell more than 4%, while Union Pacific was down nearly 5%.
Kohl’s – The retail stock rose 3% even after the company posted a massive earnings miss for its fiscal first quarter and slashed its profit and sales outlook for the year. Kohl’s said final and fully financed bids from potential buyers are expected in the coming weeks, as the retailer faces heightened pressure from activists to sell.
Bath & Body Works – Shares of the personal care products retailer slid 8% after the company cut its full-year earnings forecast due to inflationary factors as well as increased investments. Bath & Body Works did report better-than-expected profit and revenue for its latest quarter, however.
Under Armour — Shares of the apparel brand sank more than 10% after CEO Patrik Frisk announced that he would be stepping down, effective June 1. Morgan Stanley downgraded Under Armour to equal weight from overweight following the news.

Canada Goose — The apparel company reported stronger-than-expected results for its fiscal fourth quarter, helping shares rise nearly 10%. The company beat estimates for earnings per share and revenue, according to analysts surveyed by Refinitiv. Canada Goose reported an expanding gross profit margin year over year.
BJ’s Wholesale — The retail stock leapt 12% after a better-than-expected first-quarter report. BJ’s earned an adjusted 87 cents per share on $4.5 billion in revenue. Analysts surveyed by Refinitiv had penciled in 72 cents in earnings per share on $4.24 billion in revenue. Comparable sales also grew faster than expected.
Target — The retail stock continued its post-earnings report slide, falling another 5% after shedding nearly 25% on Wednesday. Investment firm Stifel downgraded Target to hold from buy.
Synopsys — The packaged software company rose more than 11%, which makes it one of the best performers in the S&P 500, after reporting its fiscal second-quarter results. Synopsys earned an adjusted $2.50 in earnings per share on $1.28 billion in revenue. Analysts surveyed by FactSet’s StreetAccount were looking for $2.37 in earnings per share on $1.26 billion in revenue.
– CNBC’s Tanaya Macheel contributed reporting.

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Check out the companies making headlines before the bell:
Kohl’s (KSS) – Kohl’s reported adjusted quarterly earnings of 11 cents per share, well short of the 70-cent consensus estimate. Revenue was better than expected, but the retailer noted a tough sales environment as well as higher costs. Kohl’s shares fell 3.3% in premarket trading.

BJ’s Wholesale (BJ) – The warehouse retailer jumped 5.8% in the premarket after an upbeat earnings report. BJ’s beat estimates by 15 cents with adjusted quarterly earnings of 87 cents per share. Revenue and comparable-store sales were also better than expected.
Spirit Airlines (SAVE) – The airline’s board unanimously recommended that shareholders reject JetBlue’s (JBLU) $30 per share tender offer. Spirit said a JetBlue transaction would have little chance of clearing regulatory hurdles, and it is moving ahead with its plan to merge with Frontier Airlines parent Frontier Group (ULCC). Spirit fell 1.7% in premarket trading.
Canada Goose (GOOS) – The outerwear maker’s stock rallied 8.9% in premarket action after the company reported an unexpected profit as well as better-than-expected revenue. Canada Goose also raised its full-year forecast.
Target (TGT), Walmart (WMT) – The two retailers remain on watch after both suffered their worst one-day drops since October 1987 following their quarterly earnings reports this week. A surge in costs led both to report earnings that came in far below expectations.
Cisco Systems (CSCO) – Cisco tumbled 10.7% in the premarket after cutting its full-year forecast. The networking equipment maker is seeing its sales hit by Covid lockdowns in China and the war in Ukraine. Networking rivals fell in the wake of Cisco’s forecast with Juniper Networks (JNPR) down 4.6% in the premarket and Broadcom (AVGO) down 3.8%.

Under Armour (UAA) – Under Armour CEO Patrik Frisk is stepping down, as of June 1, to be replaced on an interim basis by Chief operating Officer Colin Browne. Frisk became CEO of the athletic apparel maker at the beginning of 2020, just before the Covid-19 pandemic hit, and sales have fallen nearly 50% since then. Under Armour slid 5.3% in premarket trading.
Bath & Body Works (BBWI) – Bath & Body Works reported better-than-expected profit and revenue for its latest quarter, but the personal care products retailer cut its full-year earnings forecast due to inflationary factors and increased investments. The stock slumped 6.8% in the premarket.
Synopsys (SNPS) – Synopsys rallied 4.2% in premarket trading after the design automation software company reported better-than-expected profit and revenue for its latest quarter and issued an upbeat forecast.

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It has been a vicious year for financial markets, and more punishing still for crypto assets. The market capitalisation of crypto has slumped to just $1.3trn, from nearly $3trn in November. On May 18th bitcoin traded at around $29,000, a mere 40% of its all-time high in November; the price of ether, another cryptocurrency, has collapsed just as spectacularly. Six months ago Coinbase, an exchange and the leading crypto-industry stock, was worth $79bn. Now it is valued at just $14bn, and the firm is “reassessing its headcount needs”. The sell-off comes as the Federal Reserve begins raising interest rates. Tech stocks, high-yield bonds and other risky assets have also swooned. But crypto’s bruising comedown is interesting for a deeper reason: it has exposed weaknesses in the plumbing of the system. The problems lie with the market for stablecoins, a type of cryptocurrency that is pegged to another currency, often the dollar. Added together all stablecoins, the largest of which are tether and usd coin (usdc), are worth around $170bn. These act as a bridge between conventional banks, where people use dollars, and the “on-blockchain” world, where people use crypto. The biggest such coins are also used by exchanges as a base for trading between cryptocurrencies.From May 9th, terra, then the fourth-largest stablecoin by market capitalisation, began to unravel. The implosion put pressure on tether, which is meant to be pegged one-for-one with the dollar. On May 12th its price dipped to 95 cents. Some $9.1bn in tether has since been redeemed for cash. The technology (and the jargon) associated with crypto may be newfangled, but to students of financial history, these events look familiar. They resemble the confidence crises that precede bank runs. Every stablecoin has a mechanism to maintain its peg. The simplest (and safest) method is to hold a dollar in a bank account, or in safe, liquid assets like Treasury bills, for every stablecoin token. The token can be traded freely by buyers and sellers; when a seller wants to offload their stablecoin they either sell it on the open market, or redeem it for its dollar value from the issuer, who then destroys the token. usdc and tether use versions of this method.Others, like terra, are called “algorithmic stablecoins”, because they use an automated process to support the peg. Their main distinguishing feature, however, is in how they are backed. Terra is backed by luna, a cryptocurrency issued by Terraform Labs, which also runs terra. The idea was that holders of terra could always redeem it for one dollar’s worth of newly minted luna. On May 5th, when luna was trading at $85 a piece, that meant a terra holder could redeem it for 0.0118 lunas. If for some reason terra was trading at less than $1, arbitrageurs could swoop in, buy a terra, redeem it for luna and sell that for a profit.That system worked as long as luna had some market value. But on May 9th the price of luna began to slide. And that in turn put pressure on terra’s peg—causing a rush to redeem. The supply of luna ballooned. On May 10th 350m tokens existed. By May 15th 6.5trn did. As the price of luna collapsed, terra also went into free fall. Its price is now hovering at around 10 cents. Luna is worthless. Do Kwon, the founder of Terraform, has tried to resuscitate terra. He has turned the blockchain off and on again, “burned” tokens and attempted to split the blockchain. But nothing has worked so far. Terra’s implosion has had wider and more worrying repercussions: it has prompted flight from tether. Those fleeing may have felt anxious about the lack of detail regarding tether’s backing. The company once said it backed its tokens with “us dollars”, a claim New York’s attorney-general said in 2021 was “a lie”. Now the firm says its tokens are “backed 100% by Tether’s reserves”. This appears to be some mix of cash, Treasuries and corporate debt, but the company has refused to disclose the details, claiming that its asset mix is its “secret sauce”. As with many past bank runs, where depositors fled to safety, holders have sold off terra and tether and rushed to tokens perceived to be of higher quality. One example is usd coin, which holds only cash or Treasuries, and publishes regular audited reports to that effect. Dai, another stablecoin backed by crypto and managed by algorithms, has managed to maintain its peg. Still, that other stablecoins have survived might be small comfort if tether does not. If tether really is backed by illiquid assets, or perhaps assets that have fallen in value this year, then the more some holders redeem its tokens, the less remains in the pot for others. The implosion of the world’s biggest and oldest stablecoin would be much more catastrophic than was terra’s. Tether is not only a financial bridge between crypto and conventional money—ie, dollars in bank accounts—but also between all kinds of crypto pairs that are traded on exchanges. The three biggest and most liquid cryptocurrency pairs on Binance, the biggest exchange, for instance, are bitcoin and tether; ether and tether; and Binance’s own stablecoin, busd, and tether.Tether redeems only its big users, who are pulling $100,000 or more from it at a time, and even then at its discretion. Nonetheless, redemptions have continued apace over the past week. The loss of the peg on May 12th was a reflection of the stinginess of that system. Smaller holders who wanted out had to sell the token on the open market. The stablecoin has not fully recovered its peg. For a year it traded at or above $1; since May 12th, it has traded slightly below it. Crypto’s most important bit of plumbing is still leaking. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

The modern Indian state has a proud statistical heritage. Soon after the country gained independence in 1947, the government resolved to achieve its development through comprehensive five-year plans. The strategy, though economically inadvisable, nonetheless required the creation of a robust data-gathering apparatus. In 1950 PC Mahalanobis, the leading light of Indian statistics, designed the National Sample Survey, which sent staff to the far corners of the vast country to jot down data regarding its mostly illiterate citizens. The survey’s complexity and scope seemed “beyond the bounds of possibility”, reckoned one American statistician. Of late, however, admiration has been replaced by alarm. India’s statistical services are in a bad way. Across some measures, figures are simply not gathered; for others, the data are often dodgy, unrepresentative, untimely, or just wrong. The country’s tracking of covid-19 provides a grim example. As the pandemic raged across India, officials struggled to keep tabs on its toll. Officially, covid has claimed more than half a million lives in India; The Economist’s excess-deaths tracker puts the figure far higher, between 2m and 9.4m. India’s government has also hampered efforts to assess the pandemic’s global impact, refusing at first to share data with the World Health Organisation (who), and criticising its methods. The preference for flattering but flawed figures is pervasive. In education, state governments regularly ignore data showing that Indian children are performing woefully in school and instead cite their own administrative numbers, which are often wrong. In Madhya Pradesh, a state in central India, an official assessment showed that all pupils had scored more than 60% in a maths test; an independent assessment revealed that none of them had. Similarly, in sanitation, the central government says that India is now free of open defecation, meaning that people both have access to a toilet and consistently use it. Anyone who takes a train out of Delhi at dawn and looks out of the window, however, might question the claim. When it comes to poverty, arguably India’s biggest problem, timely figures are not available. Official estimates are based on a poverty line derived from consumption data in 2011-12, despite the fact that more recent but as yet unpublished numbers exist for 2017-18. By contrast, Indonesia calculates its poverty rate twice a year. India’s government explains its approach by pointing to discrepancies between recently gathered data and national accounts statistics—but many suspect the true reason is that newer data would probably show an increase in poverty.In some cases, flawed data seem more a problem of methodology than malign intent. India’s gdp estimates, for instance, have been mired in controversy ever since the statistics ministry introduced a new series in 2015 (a change that was in the works before the current government entered office). Arvind Subramanian, a former government adviser, calculated that the new methodology overestimated average annual growth by as much as three to four percentage points between 2011-12 and 2016-17. Although current advisers insist that the official methodology is in line with global standards, other studies have also found problems with the calculations. The erosion of India’s statistical infrastructure predates the current government, but seems to have grown worse in recent years. Narendra Modi, the prime minister, has previously bristled at technocratic expertise and number-crunching. (“Hard work is more powerful than Harvard,” he said in 2017.) India’s data woes are also troubling for what they suggest about the ability of the state to provide the essential public services needed to foster long-run growth. The statistics ministry, short of staff and resources, is emblematic of the civil service. Data-gathering has become excessively centralised and over-politicised. A National Statistical Commission was set up in 2005 and tasked with fixing India’s data infrastructure. But its work has been complicated by turf wars and internal politics; it is widely considered toothless, including by former members. Who’s countingThe situation is not hopeless, perhaps because of statisticians’ past efforts. According to the World Bank, the quality of Indian data is still in line with that of other developing countries, even after years of neglect. India’s new goods-and-services tax and digital-welfare infrastructure are yielding troves of data. Leading Indian statisticians argue that an empowered regulator could fix existing problems. State governments and departments are also doing their bit. Telangana, a southern state, is investing in its own household surveys, for example. India’s rural-development ministry recently released a dataset covering 770,000 rural public facilities, such as schools and hospitals, inviting data whizzes to peruse the figures and suggest improvements. Civil society is also responding. During the pandemic, dozens of volunteers co-operated to produce granular, timely estimates of covid cases. New technologies could help gather data quickly and cheaply, over phones and tablets.Yet in a modern economy there is no substitute for high-quality national data-gathering. The sunlight provided by accurate figures is often unwelcome for an increasingly autocratic government: transparency invites accountability. But neglect of the statistical services also leaves Indian policymakers flailing in the dark, unable to quickly spot and respond to brewing economic and social problems. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Few chinese companies have caught the imagination of global investors like its technology firms. But they have suffered a catastrophic spell. At one point in March, they had lost about 70% of their value since their 2021 peak. On March 14th Alex Yao of JPMorgan Chase and his team published a set of gloomy reports on internet firms such as Alibaba, an e-commerce giant, Dingdong, an online grocer, and Netease, a maker of computer games. Mr Yao fretted about the industry’s prospects over the next year, owing to China’s economic slowdown, its regulatory crackdown on tech and its souring relations with the West. Some of the reports even described the sector as “uninvestible”. That word caused a bit of a furore. JPMorgan lost its position as the lead underwriter for the listing in Hong Kong of Kingsoft Cloud, a Chinese cloud-computing firm. According to Bloomberg on May 10th, editors at the bank had in fact tried to replace “uninvestible” with the less apocalyptic “unattractive”. But some mentions slipped past them.Using the word was undiplomatic. But was it justifiable? It has been bandied around quite freely in recent years, applied not just to the usual suspects, such as Russian or Iranian assets fenced off by financial sanctions, but also to less obvious candidates. Jim Cramer of cnbc, a tv channel, described oil stocks as uninvestible in January 2020, calling them the new tobacco. Not so long ago, the same was said about big banks and the whole of southern Europe.The odd thing is that the word has become more common even as the world has become more investible. Thanks to financial innovation and globalisation, far-flung assets are far easier to buy than they used to be. Back in 1988 msci’s emerging-markets equity index included only ten countries with a combined market capitalisation of just over $50bn. The index now includes 24 countries with a market value of $6.9trn. At the end of last year the value of global investible assets reached a record high of $179trn, according to State Street, an asset manager. That is equivalent to 186% of world gdp in 2021, up from 116% in 2000.Even in his unedited report, Mr Yao did not argue that it was impossible to hold Chinese internet stocks. Indeed, he advised global investors to remain “neutral” on 11 of them. So what was on his mind? He worried that the depositary receipts of some internet firms might be delisted from American exchanges, because China has been reluctant to open the books of its auditors to American regulators. This in itself would not make them uninvestible, because the shares of most of these companies can also be bought in Hong Kong, as Mr Yao himself pointed out. But he saw this regulatory row as the latest manifestation of the geopolitical risks faced by China, which became more salient after Russia invaded Ukraine. Because of these risks, he said, global investors were likely to shun Chinese internet firms over the next 6 to 12 months, however cheap they became. During this “stage”, he argued, these stocks could no longer be valued by simply projecting their earnings and cashflow. Only after foreign investors had departed would his “valuation frameworks” regain relevance, presumably because the remaining investors (locals and China specialists) would be less sensitive to Sino-American relations. He recommended revisiting the sector only when this new stage arrived.When would that be? The answer, he admitted, depended on “many unpredictable factors outside our forecast capability”. It turns out he was right. In a more upbeat report on May 16th he said that the second stage had already arrived, well ahead of schedule. Thanks to some encouraging noises on the delisting dispute, Mr Yao believes that geopolitical risks have receded enough to give his valuation framework some purchase once again. He duly offered new, higher price targets for 18 companies. His editors were, then, right that “uninvestible” was the wrong word. “Unanalysable” would have been better, if even uglier. It is not that Chinese internet stocks could not be bought, merely that they could not be valued using Mr Yao’s preferred framework, which could not accommodate geopolitical risk. Unfortunately, few assets these days are entirely free of such risks. Anyone taking a view on commodity prices (and thus on inflation, and therefore interest rates) is also taking a view on war and peace. If more investible assets are not to become unanalysable, stockpickers may have to invest in a broader view of the world. Read more from Buttonwood, our columnist on financial markets:Why Italy’s borrowing costs are surging once again (May 14th)Who wins from carnage in the credit markets? (May 7th)Slow pain or fast pain? The implications of low investment yields (Apr 30th)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

When russia invaded Ukraine, tangible things at first seemed all too important. Bombs and bullets were what mattered; commodity markets were roiled; supply chains were upturned. As the war has gone on, however, intangible factors have asserted their importance, too. The managerial and logistical know-how of the armed forces on either side, as well as technological advantages, like Ukraine’s deployment of Bayraktar drones, have altered the course of the war. So too has the goodwill that Ukraine has attracted from people around the world, which has in turn led foreign governments to lend the country more support. The idea that intangible assets, though hard to see and measure, are critically important to foster, is the main message of a new book by Jonathan Haskel, a Bank of England policymaker, and Stian Westlake of Britain’s Royal Statistical Society. “Restarting the Future” is their second book. The first, “Capitalism Without Capital”, published in 2017, argued that the economics of intangible assets helped explain stagnating economic growth and rising inequality. The new book goes a step further, asking how the bottlenecks holding investment in intangibles back might be loosened—thereby fostering a more efficient and faster-growing economy. Their work is part of a wave of writing on the future pace of growth, which includes Dietrich Vollrath’s “Fully Grown” and Robert Gordon’s “The Rise and Fall of American Growth”. Intangible investment includes the research and development conducted by firms, as well as things like marketing, design and branding. In the late 1990s, by some measures, spending on intangibles in America overtook investment in tangible plant and equipment. But the pace of spending has slowed since the financial crisis. The authors note that annual growth in intangible capital in rich countries tended to be around 3-7% between 1995 and 2008. Over the subsequent decade, however, it barely surpassed 3% in any single year. That did not just reflect slower economic growth. Intangible investment also stopped rising as a share of gdp, which poses something of a conundrum, considering that corporate profits were strong. Although the burst of overall investment in the past year or so has been impressive, cross-country data on intangibles are not yet available. Nor is it clear that the investment surge has done enough to alter the sluggish trend.The nub of the problem, say Messrs Haskel and Westlake, is that the economic and financial arrangements that exist to support investment are geared towards spending on capital goods, not intangibles. They point out that bursts of economic growth, such as those in medieval Italian city states and in China between the 10th and 13th centuries, have often faded precisely because institutions failed to generate the right incentives and activity. Part of the solution this time, say the authors, is to encourage the financing of investment in intangibles. A study by the oecd, which looks at 29 developed economies from 1995 to 2015, suggests that intangible-heavy sectors are more productive in places with more developed financial systems, where they can access finance more easily. Differences in financial development, as measured by a combination of equity-market capitalisation and total credit to gdp, can explain why annual labour-productivity growth in a sector like computer equipment (where two-thirds of assets are intangible) has been a percentage point higher in more financially developed countries like Japan than in places like Portugal.Venture capital (vc) has been a preferred source of equity funding for firms conducting the most intangible activity, such as biotechnology and consumer-tech. But that has been disproportionately available to American companies with a plan for extremely rapid growth. In many parts of the world, a lot of business investment is still debt-financed, and more dependent on the use of physical assets as collateral. America’s vc industry took off after pension funds were allowed to invest in less liquid investments in 1979. That may help explain why business investment in America has held up better than in many other places. The authors therefore advocate for larger investment vehicles that pool risk for individual lenders elsewhere in the world, like the Long-Term Asset Fund launched in Britain last year, which helps pension funds gain exposure to long-term illiquid assets. Ending the tax advantages of debt financing by removing the tax deductibility of interest payments, say, would help level the playing-field between tangible and intangible investment. Other prescriptions relate to how and where investment occurs. Patent law, for instance, should not prevent the combination of existing ideas. More important still is the role of cities, which, the authors note, are cauldrons of intangible investment: they make it easier to form the relationships that make intangibles happen, encourage new ideas and create a larger pool of beneficiaries when investments spill over. Making cities work, therefore, with better land-use and zoning policies, is vital.Can’t touch this “Restarting the Future” may be emblematic of a shift in economists’ thinking on growth. In the 2010s debates raged over how best to address persistent shortfalls in demand. In the inflationary-looking 2020s, the emphasis is on unleashing the economy’s supply potential. But where researchers such as Mr Gordon and Mr Vollrath regarded the bursts of rapid growth in the 20th century as the exception, not the rule, Messrs Haskel and Westlake are more hopeful of a return to headier rates of growth. Mr Gordon argued that the digital economy was a busted flush when it came to growth; Mr Vollrath saw slower growth as a symptom of economic success, a larger services sector and reduced geographic mobility. By presenting solutions, “Restarting the Future” offers a more optimistic vision—as long, that is, as governments follow its advice. ■Read more from Free Exchange, our column on economics:The world needs a new economic motor. Could India fit the bill? (May 14th)Why long-term economic growth often disappoints (May 7th)How would an energy embargo affect Germany’s economy? (Apr 30th)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

The loamy soil and dense jungle of the Sumatran rainforest in Indonesia can store an average of 282 tonnes of carbon dioxide per hectare. If a group of climate-conscious airline passengers were to find a hectare of such forest at risk of being cut down for palm oil and were able to stop that happening, they would offset the amount of greenhouse gases emitted by 175 passengers flying, economy class, from London to New York and back.Demand for such carbon offsets is forecast to rocket over the next couple of decades, as businesses attempt to make good on their promises to reach net zero carbon emissions. Last year an estimated $1bn was spent on offsets. McKinsey, a consultancy, predicts that the size of the market could expand by a factor of 15 by 2030 and 100 by 2050. Although a few projects use novel technology to suck carbon dioxide out of the air altogether and store it underground, most offsets promise to subsidise renewables or pay for carbon sinks, such as forests, to be restored or preserved. Such “nature-based” offsets can include protecting wetlands in Colombia, or restoring peatland in Scotland.But the market is not working. The price of a carbon offset is far too low. The opportunity cost of leaving land uncultivated is rising. A hectare of Sumatran rainforest, for instance, could produce around 2.5 tonnes of palm oil a year, and palm-oil prices have risen to $1,520 a tonne, from around $1,000 a year ago. But the price of nature-based offsets has fallen this year, to $10 per tonne of carbon dioxide, according to contracts traded on the Chicago Mercantile Exchange. Deforestation remains economically rational. Because a palm-oil plantation still captures around 170 tonnes of carbon dioxide per hectare, leaving the land uncultivated offsets only 112 tonnes. An offset price of $10 means that, if the accounting is done properly, selling offsets yields revenue of only $1,120—not enough to compensate for the potential loss of about $3,800 in annual sales of palm oil. At current prices, says Ariel Perez of Hartree Partners, a trading firm, the only agricultural activity that is less profitable than preserving forests is harvesting rubber in West Africa. For as long as the price of an offset remains below $20, cattle farming in the Amazon will remain attractive. Why has the price of offsets fallen? Some cap-and-trade schemes, in which companies must buy permits for their emissions, allow for a certain amount of emissions to be offset. By and large, however, offsets are not required by regulation. Firms and individuals seeking to reduce their carbon footprints choose to buy them, meaning that the demand for offsets is largely driven by ethical or public-relations imperatives. As the war in Ukraine began and attention turned away from climate change, offset prices declined. Another problem is that there are few internationally agreed rules for offsets. A report published earlier this month by Carbon Direct, a consultancy, said that “the voluntary carbon market largely consists of projects of questionable quality.” A surplus of older and less reliable offsets hangs over the market, depressing prices. It is not possible to truly know what would have happened had an offset not been paid for. “Most projects over-report and some don’t reduce emissions at all,” says Barbara Haya of the University of California, Berkeley. “It’s really hard for people to know what is real and what isn’t.”Some attempts are being made to bring clarity. Proposals from the Integrity Council for Voluntary Carbon Markets, an independent committee, are expected later this year. They are likely to emphasise the need for “additionality”, meaning that the reduction in emissions claimed must be a direct result of the offset. Paying for green-energy installation, for instance, would not count as a genuine offset if the project were viable without the offset payment. Nor would a forest that was never going to be cut down in the first place. Checking that offsets meet the criterion, though, will remain a daunting task. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More