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>Given the timing of this drop in solar generation, in the middle of the production ramp-up and without any meteorological phenomena to explain it, the most plausible explanation is that it is due to market reasons (prices)

>These changes in production can be significant (if the price signals from the markets are sufficiently strong) and affect the energy flows in the networks and the stresses in the nodes

>Regarding the correlation between changes in generation and voltage: if the generation operating at power factor falls (with the existing regulation, the renewable generation), there is a decrease in the reactive energy absorbed by these installations (since it is reduced proportionally to the reduction in generation). Additionally, as the energy transmitted by the networks decreases due to this reduction in generation, the capacitive effects of the electrical circuits increase as they become more discharged, which causes an increase in reactive energy. Both effects (higher reactive power production by the circuits and lower reactive power absorption) push the voltages upwards.

As expected, renewables played the leading role in destabilization of the grid which led to the collapse. Of course, these instabilities could be worked around on the grid level using various (not cheap) measures, so you may argue that it's not renewables' "fault", but the fact still stands: above the certain threshold of renewable generation the current grid architecture becomes increasingly unstable.

I wrote exactly about it in this comment https://news.ycombinator.com/item?id=43831523 and its child comment, but the fans of renewables just flagged it.


What I'm reading from that quote is that the issue wasn't renewables as such, but an issue of power generation reacting too quickly and too intensely to price fluctuations. "Renewables" only matter insofar as they're the sort of generation that, under the current regulatory regime, get to react to those pricing changes.

The report goes to great lengths to avoid certain words or phrases. The market failed here, it didn’t price in risk of grid collapse correctly.

That is a simple and great explanation.

It's also just unfounded conspiracism and factually incorrect.

> It's also just unfounded conspiracism

I don't see that.

> and factually incorrect.

Then substantiate your point.

Stability is one of the things grid operators pay for-- not just production.


Stability is one of the things grid operators pay for, sometimes, but whether they pay enough and validate that they're actually getting it is another thing. One core thing the report highlights is that many of the plants on the grid didn't do what they were required (and being paid) to do.

It's unfounded conspiracy to bang on about how "they are clearly hiding something".

Read the report. Power systems are complicated and not as easy as just "build another nuclear plant". It was (by regulation) conventional units that were required to provide voltage support, and it was in part their failure to operate according to their requirements that lead to the voltage excursions that caused the system collapse. The renewable systems that were capable of providing voltage stability were not allowed to do so.


> It's unfounded conspiracy to bang on about how "they are clearly hiding something".

It's also a bit of a straw-man to put your own version of what someone's saying in their mouth.

Buying insurance and other mitigations against rare circumstances, outside of well regulated and well understood products in stable marketplaces, is really hard. You need to do your homework with the counterparties and be sure that incentives align well enough to get what you want.

Unfortunately, when you set up an incentive system, you tend to get exactly what you pay for-- whether that's what you want, or not.


[flagged]


Except to point out that it's not nice that renewables arrive at random prices in the grid and start crapping all around it until they disappear when expensive again.

The stability of a nuclear plant vs the instability of a solar far when a cloud passes over.


That wasn't the core issue. It was the spark to the powder keg, so to speak.


But the quote literally spells out it was market forces, not some instability in solar generation?

Your other comment probably got flagged because it started with a huge straw man and had multiple unwarranted jabs in it.


Temporary negative prices have been caused by the renewable generation which exceeded the grid demand at the time, which then evolved into the nasty feedback loop caused by the reaction of renewable generation to those conditions. You simply do not get such situation with traditional generation, it's the direct consequence of the intermittent nature of renewables and its high ratio in the total generation.

Also, have you read after the market part? Please watch this video https://www.youtube.com/watch?v=7G4ipM2qjfw if the last quote is gibberish to you. It discusses somewhat different issues, but the point still stands.


So an incredibly cheap source of supply exceeded the demand, and the market rules and some trips caused cascading failures.

Why is the problem the cheap source of supply rather than the market rules and incentives that made everything act the way it did?

Your comment suggests move back to good ol' expensive fossil generation instead of looking at how to bring the market rules up to date with evolving technologies.


>Why is the problem the cheap source of supply rather than the market rules and incentives that made everything act the way it did?

I explicitly mentioned this line of argument in the GP. The problem is that renewables only sometimes cheap and plentiful and often not when we want it. Even without accounting for the politically-driven preferential treatment covered in the sibling comment, from the purely technical point of view intermittency above certain threshold wreaks havoc in the traditional grid architecture designed for the traditional easily controlled "rotating" generation. It becomes really hard to manage the grid with existing tools when you have too much of intermittent highly distributed generation and in the extreme it leads to collapses like this.

As I wrote, yes, you could upgrade the grid, increase transmission redundancy, add battery/pumped/flywheel storage, introduce "smart" tools to manage the grid, and do a plethora of other things to accommodate renewables. Hell, you could even migrate the grid to DC!

But the cost of doing it is substantial. It's effectively a form of externalities of renewable generation, which are not accounted for in naive "cheap" $/kW metrics. Properly accounting for those externalities and adding them to the cost of renewable generation is possible, but politically unappealing.

>Your comment suggests move back to good ol' expensive fossil generation instead of looking at how to bring the market rules up to date with evolving technologies.

No, I believe we should remove the politically motivated shoehorning of renewables at the cost of grid stability. There should be a limit on how much intermittent generation we can have depending on the preparedness of the grid and we should pay less for power from such sources, not guarantee purchase from them!

As you say, we should have proper incentives structure which accounts for various externalities (including CO2 emissions!). We need to remove the existing subsudies on renewables which made sense in the early days, but not now. Let the generation sources play at the even field.


This makes sense to me to an extent, however, I do not entirely follow. You say:

> Properly accounting for those externalities and adding them to the cost of renewable generation is possible, but politically unappealing.

Implying this was/is not done and should be done. As a certified fan of looking out for (cost) dependencies, I agree with this to put it very mildly. I find it unlikely this wasn't done however, rather, I think renewables were likely onboarded harder than the externalities were taken care of to allow for it, possibly due to political pressure and/or mismanagement. Or at least, that rings all too familiar to me personally, not just from real world topics, but even from work. But then what you actually propose is:

> There should be a limit on how much intermittent generation we can have depending on the preparedness of the grid and we should pay less for power from such sources, not guarantee purchase from them!

Which is a different concern.

Also, this reads to me awfully like just flowery language for "hey, what if the obviously bad thing that happened wouldn't be allowed to happen anymore" with the logic retconned into it, but then I'll never have a way of proving or demonstrating that conclusively.

Finally,

> We need to remove the existing subsidies on renewables which made sense in the early days, but not now. Let the generation sources play at the even field.

This further doesn't follow from even your own explanation (i.e. "which made sense in the early days but not now" is not a substantiated claim). It's just your own political stance on the matter to the best I can tell.


> We need to remove the existing subsidies on renewables which made sense in the early days, but not now. Let the generation sources play at the even field.

This is also factually incorrect (unless Spain are now doing some country level subsidies on renewables). Fact is, new solar and new wind offer the lowes average power generation costs of any method. Regular market forces (without susidies) will favor renewables over anything else. Hydro being the most profitable.


a couple of things to add to an excellent explanation.

I'm glad people are coming around to accepting that renewable energy has problems. We have some solutions to these problems but we do not have experience with them.

I agree entirely - the externalities of renewable energy are significant and are not paid for by the source of the problem - the renewable generators themselves.

Just as one example, what is the solution to an extended wind drought, say of a week or ten days? All the batteries in the world could not store enough energy for that.

A major challenge with renewable energy is that it is intermittent and variable but also unpredictable. it is impossible to predict wind speeds more than 24 or 36 hours out and even those predictions are often inaccurate. just building more wind turbines or solar panels won't cut it.

There is also the reluctance of grid operators to use the capacity available in renewable energy generators. The majority of wind turbines are capable of active and reactive power control but most grid operators either don't use this capacity or use it minimally.

A distribution connected wind turbine could do wonders for reactive power control but this is rarely done. More grid operators should pay for reactive power, like the UK is starting to do. This should also be sourced from EVs and small solar inverters.


> There is also the reluctance of grid operators to use the capacity available in renewable energy generators. The majority of wind turbines are capable of active and reactive power control but most grid operators either don't use this capacity or use it minimally.

I wonder how much is the near-complete inability for grid operators to communicate with smaller systems. My little solar inverter is capable of reactive power control over a respectable range of phase angles, and the grid operator has absolutely no ability to invoke this ability short of whatever formula the combination of PG&E, the various regulators, and the UL stuck into some standard for how small inverters are supposed to behave under various voltage and frequency conditions.

Never mind that inverters could also be fooled into thinking they’re islanded and therefore disconnect themselves if the grid frequency is too far out of range. This is usually designed to occur at above-nominal frequency, which is at least mostly not what happened in this event.


Because the law mandates that renewables must be bought. Thats why prices fall negative.

Because the only reason that solar is still generating power at negative prices is because they are getting subsidies to do it. Otherwise they would disconnect themselves apart from in extreme scenarios (control system down or something), and I bet when you are paying many tens of thousands of euro an hour you'd get someone to fix/manually turn it off sharpish.

Looks like there are a multitude of schemes of various vintages in Spain, which tl;dr basically give you a guaranteed price per MWh you generate. So imagine you get a 100eur/MWh subsidy for a (legacy) solar plant. The market price is €-20/MWh. You will still continue to produce power until the price reaches -100MW/h. Even worse are some contracts for difference (poorly thought through) which give you a guaranteed price regardless of what the market is at. So even if the price was -1,000eur/MWh the government or grid operator would still give you your €50/MWh (and the subsidy would be 1,050/MWh!).

The problem is if you reform this (and it is happening worldwide) solar is much, much less appealing. Because suddenly your solar plant which was getting (say) a guaranteed 70/MWh all year round suddenly does not make money for 6 months of the year at least at peak sun hours.

On top of all this, you have a lot of domestic solar in places like Spain. The grid operator _cannot_ control these assets in nearly all circumstances. They will continue to dump power into the grid regardless of the market price. This again will change but it requires an awful lot of work to retrofit invertors with remote control capability OR a lot of public backlash for charging end customers who bought solar in "good faith" now getting hit with peak time negative prices (so they change their behaviour).

I think my core message would be _any_ negative power prices is a sign of market failure. Acceptable in rare extreme occurrences, but the fact most of europe has highly negative prices very frequently is telling you the grid and market design is not able to handle what is going on.


> Because the only reason that solar is still generating power at negative prices is because they are getting subsidies to do it.

This massively simplifies reality.

E.g. in Finland where I live we also have issues with negative power prices. A few years ago we had some really low prices. It turns out, a fair bit of wind power producers never opted to add to their windmills any remote shutdown possibility, nor did they have the ability to monitor prices and react to them automatically. I.e. they just kept generating no matter the price, and had offers in at the network level at the lowest permissable price.

Since then, when they lost a non-insignifcant amount of money by running at negative prices, they've started installing control electronics in windmills and building IT systems and prediction algorithms to be able to react to this.

In the EU it is not as simple as "turning off when the prices are negative" since producers offer a certain capacity to the grid in an auction system the day before. You have to predict the weather + overall demand and set your offer accordingly.


Where is the market for someone to get paid to pump water into a reservoir and let it fall down later for $$$?

That market exists, but the window of time here is like twenty minutes. Pumps have inertia and take time to spin up, you can't HFT load and generation.

I'm not fully informed about pumped storage, but twenty minutes is more than enough for most hydroelectric plants to go from 0 to full power, and that's probably the case for pumped storage as well. Eg,

In the case of Cruachan Power Station: “It takes just two minutes for a turbine to run up from rest to generate mode,” says Martin McGhie, Operations and Maintenance Manager at the power station. “It takes slightly longer for the turbines to run down from generate to rest, but whatever function the turbines are performing, they can reach it within a matter of minutes.”

https://www.drax.com/power-generation/in-energy-storage-timi...


If you read the report there was a significant amount of solar being produced at low prices and being pumped for storage. Further, the pumped hydro is the first load to be disconnected to balance demand on their system.

you are correct, but your analysis is not popular here. You will soon be presented with several reasons as to why renewable energy is not the problem and how batteries are the one true solution to these problems.

The reality is that electricity is complex and that renewable energy presents a new set of problems, problems to which we do not yet have complete solutions.


True, but the market moves fast because renewables (or, more precisely, wind & solar) move fast.

There is not much fast trading to be done on a nuke/gas/coal/hydro powerplant ramping up or down, but there is a lot of instability (and thus market volatility) to be found in fast varying solar/wind conditions.


That's inaccurate on the whole though, because while those big generators can't move fast, demand can move fast! Which is a difficult problem to manage in baseload grids.

Renewables just change one set of challenges for another set, at the end of the day it's all manageable.


> because while those big generators can't move fast, demand can move fast! Which is a difficult problem to manage in baseload grids.

Don't forget rotational inertia. This gives the system a high-frequency response mode: it can resist sudden demand changes through stored kinetic energy, effectively acting as a low-pass filter with a fast dominant pole.

As you get a smaller share of generation with rotational inertia, you need a lot more buffering on short to medium timescales.

And, of course, it doesn't help for longer timescales that in many places renewable production slopes off in the late afternoon right when demand slopes upwards for cooling.


> in the late afternoon right when demand slopes upwards for cooling.

Demand rises because that's how people have their system set up. That cooling load can be shifted earlier in the day by using a slightly smarter thermostat to precook your house when the electricity is plentiful.


> Demand rises because that's how people have their system set up. That cooling load can be shifted earlier in the day by using a slightly smarter thermostat to precook your house when the electricity is plentiful.

You can do this a bit, but the insides of houses don't have that much thermal mass and the best insulated houses add a pretty large phase delay that makes the quickest rise in internal temperatures during the late afternoon as framing in the attic heats up.

I don't have a lot of luck in accomplishing meaningful precooling in my house. My best plan is to suffer until the late afternoon, turning on the AC at the end of the peak demand period when at least outside temperatures are lower, my AC units are shaded, and the cooling is more efficient.


Should’ve said ‘not enough spinning mass’ and it’d be perfectly fine for the politically correct and mean the same thing. This was highlighted as a risk for years and it finally materialized.

According to the operator report linked in another comment by leymed [1], the problem was not a lack of spinning mass (inertia) but voltage instability. From page 16 of the PDF:

The incident was NOT caused by a lack of system inertia. Rather, it was triggered by a voltage issue and the cascading disconnection of renewable generation plants, as previously indicated. Higher inertia would have only resulted in a slightly slower frequency decline. However, due to the massive generation loss caused by voltage instability, the system would still have been unrecoverable.

[1] https://news.ycombinator.com/item?id=44360052


Obviously I’m as good of a grid operator as I was a stealth bomber expert on the weekend, but superficially that just doesn’t seem right. Maybe I’m underestimating how much spinning mass would be required, but that still qualifies as ‘not enough was present’.

You very much are underestimating it. Spinning mass helps even out very short term fluctuations in supply vs demand. Like on the timescale of tens of seconds, even when the whole grid is spinning mass. Even 10x the inertia in the grid would have maybe bought a few extra minutes, because the problem by the point the grid was collapsing was there were not enough plants online to provide the demand.

(Spinning mass on its own doesn't do much to deal with the voltage fluctuations. It's entirely something that's reactive to grid frequency, which is the most 'global' indicator of supply vs demand in a grid, since it can't fluctuate locally. But voltage and current can vary wildly in different parts of the grid, and required separate management)


please can you explain what doesn't seem right?

It's worth pointing out that the worst part of the behaviour of renewables specifically in this incident (a fixed power factor for managing reactive power), is currently mandated by the regulations in Spain, even though many of them are already equipped to do voltage control.

You quoted

>the most plausible explanation is that it is due to market reasons (prices)

Seems to be market conditions or manipulations or inefficiencies in the market.


While I can't say that Musk is right, I also can't say he is completely wrong here.

The private sector can also spend on dumb and inefficient things and we are fine in counting it in the GDP metric, the difference between private sector and the government is the source of revenue. The private sector has to produce something for the economy before spending (it may be done indirectly through debt, but it's not important here), while the latter forces the economy to share it's productive capacity (using violence if necessary) while not producing anything itself (well, technically it does, but it's usually a tiny amount of the total revenue). It's still fine, since it's just a form of re-distribution from one private entities to others. It can be grossly inefficient, but so can be the private spending.

The problem is when a significant portion of the government revenue is fueled by debt which can not be paid by the future economy growth. The government quickly engineers negative real interest rates either by forcing commercial banks and pension funds to buy it with regulations, or by outright money printing, which is easy to do in a fiat system. Such debt-fueled GDP growth is not a sign of strength, but instead a sign of weakness, and ideally it should be heavily discounted.


Nah, it's dumb. He's saying a dumb thing because he doesn't understand the use and importance of it (and also its limitations). We (economist) count everything because excluding an economic agent that has a massive effect on the economy, is such a intellectually foreign concept that we don't even consider it. There's no rational honest argument that would make sense.

BTW, government expenditure only appears in the GDP calculations by expenditure. It doesn't appear in the income nor in the production. The later one the one you are actually thinking of.


>BTW, government expenditure only appears in the GDP calculations by expenditure. It doesn't appear in the income nor in the production. The later one the one you are actually thinking of.

I am not sure against what you argue exactly. My point is that if we use GDP as a metric of economy strength, then it's easy for the government to cheat it by fueling it's spending by printed money (ah, sorry, the reputable economist use the "quantitative easing" euphemism instead) or by unfair debt issuing practices (like forcing banks, pension funds, or even people directly to buy government bonds), then it results in a short term "sugar rush" GDP growth, while consequences are kicked down the road. In the US case we also have an additional masking factor in the form of having control over the world's reserve currency, which significantly dampens the usual inflation reaction.

So if we want a better metric, we should somehow discount this factor. Obviously, simply removing the government spending is too simplistic (or you can call it less charitably as "dumb").


Ok, here's another neat trick about the GDP. We do not measure growth of the GDP in nominal values, but real values, aka, we adjust for inflation (yes, this is the _only_ case where you can actually "adjust for inflation" and will be valid). We use something called deflator which allows us to ignore the variances of value in the currency due changes in monetary policy.

So, the government can "print money" (that's not how it works), which would cause inflation (aka, the currency loses value), so the effect on the real GDP is muted. There's another thing that happens when the government goes into a spending spree which is "crowding out", basically the government buys what households and business would have bought and therefore they don't buy anymore, so the effect of the GDP is muted. There are many other things that happen also due such actions that would actually make the GDP to contract!

Anyways, reckless fiscal policy alone doesn't "manipulate the GPD values". Economies do not work in a vacuum. There's tons of interactions that are not explained because it's too complex to do so without the previous knowledge, to do so in a short amount of hours would be very dangerous because you would think you understand things that you really don't understand. Take a course of macroeconomics, of about 100 hours, and it would only be the start. Then industrial economics, economic policy, taxation, international economics, monetary policy, monetary economics, you get it?


>we adjust for inflation

Using a very debatable inflation metric (e.g. should deflationary technological advancements in electronics manufacturing boost the "real GDP" metric?), which is quite muted (even with the post-COVID spike!) on top of that because of the "exorbitant privilege".

>that's not how it works

Suuuure. The recent examples of collusion between banks, the government, and the central bank to quickly increase amount of base money is not outright "money printing", just benign "quantitative easing", nothing to see here.

>crowding out

This works only when government engages in "fair" and competitive debt issuance. But we see a different picture, government bonds are counted as bank reserves and even worse banks do not even have to apply the mark-to-market accounting rules for them in some cases. And everyone knows that the Fed immediately will ride to the rescue on the first sign of trouble in the bond market as was done during not-QE.

>reckless fiscal policy alone doesn't "manipulate the GPD values"

Alone? No. But it certainly boosts GDP (both real and nominal) in the near term and makes the economy look better than it really is. It's the same story as in China where they had massive "infrastructure investments" to artificially stimulate the economy and make GDP numbers look good. We can see in the real time how it unravels.


> Using a very debatable inflation metric

No, there's no debate in using a deflator. The deflator only takes into account monetary effects on the currency. Why there isn't one? Because nobody knows that thing exists! GDP deflators are calculated and used around the world by non-partisan. And even when partisanship is involved, the people discussing it [0] have the knowledge to be able to discuss it.

> The recent examples of collusion between banks, the government, and the central bank to quickly increase amount of base money is not outright "money printing", just benign "quantitative easing", nothing to see here.

Ok dude, you have an obvious ax to grind. I guess expecting actual constructive economic debate was my misinterpretation.

[0]: https://indianexpress.com/article/explained/explained-econom...


A really great video from Tom Nicholas which discusses the same topic: "How Britain Became a Poor Country" https://www.youtube.com/watch?v=vry5deT8lc0



The place was originally selected because of the combination of several factors:

- Closeness to the equator.

- Ease of access by rail.

- Lack of populated/foreign areas at the path of falling booster stages.

- Relative closeness to production centers.

- Far enough from borders and small population around the site to make spying harder (remember that in the early days it was also an ICBM launch site).

Other central Asian Soviet republics were farther south, but much worse on the other factors.

Russia simply continues to use it because of the existing infrastructure and tries to gradually move its civilian space program to the new Vostochny Cosmodrome.


Consider an electric unicycle (EUC). It's much more compact, so you can easily bring it into shops and other buildings, as well as it's much less troublesome when you use public transport (most models can be easily kept between your legs).

From the safety point of view it's not as bad as it seems on the first glance, especially if you don't plan riding on it faster than 20-30 km/h.


Those must not be used on public roads in some countries though.


When I go down this chain of thought, I eventually end up at --

Legs. I have legs. They are built in. I can just use them. I can always bring my legs onto the subway.

If they don't go fast enough, then I have two options:

1. Give myself more time.

2. Jog or run. This will make me sweaty. Maybe I will want to shower at the office. That's an option. It will make me healthier, if I do it.

There is also a third choice:

3. Obtain real estate in such a way that substantial travel is not required.

Clearly most people will look at these options and say, "FooBar, you are insane."

It's simultaneously the easiest solution to the problem, and the most difficult.


>It seems more likely that people would trade in local currencies

Use of local currencies is certainly on the rise, but the problem is lack of bilateral financial trust caused by various factors, including capital controls. There is the recent example of Russian companies being unable to get rupee-denominated profits out of India, they had either to buy something from India or invest money there. China is also quite strict with its onshore RNB flows which is multiplied by risks of secondary US sanctions.

Honestly, I am really surprised that BRICS+ countries haven't yet developed a gold-based settlement system centered around central bank reserves. My main guess: such system would work fine with a more or less balanced trade, but many countries intentionally pursue the export-oriented model, which would work poorly with such system.


BRICS currency will not happen because China holds all the cards while keeping RMB non convertible. It's a charade with the only goal to piss of US a bit


> BRICS currency will not happen because China holds all the cards

More than that, like half of the BRICS have threatened to shoot at or actually shot at each other in the last decade [1]. A BRICS currency is like America proposing a currency union with North Korea.

[1] https://en.wikipedia.org/wiki/BRICS Egypt & Ethiopia, UAE & Iran, India & China, et cetera


>I dont think anyone's moved beyond freezing access to existing russian assets, eg disputing rightful ownership, yet.

They "just" appropriate "profits" from those assets, which effectively means inflationary erasure of purchasing power on the scale of several billions per year, and use assets to back Ukrainian loans with everyone's tacit understanding of future prospects of those loans.


The article has failed to address the most interesting question: why this spread exists.

The most interesting theory is that it's effectively a "bank rank" on "paper gold" issued by London, i.e. traders may fear that there are significantly more claims on gold than physically exists in London vaults. If this market blows up, it would be the most spectacular failure with very significant consequences for global financial markets.


> why this spread exists

"...when prices on the Comex surged above those in London late last year, baking in possible tariffs..."

It's anticipating tariffs on the import of foreign gold into the United States. (We import a lot of gold, mostly from Canada [1].)

[1] https://oec.world/en/profile/bilateral-product/gold/reporter...


This theory came up years ago when sites such as ZeroHedge were claiming JP Morgan controls a precious metals international scam and there isn’t enough physical gold or silver to cover everything. People were told to buy as much physical gold and silver as possible because it was all about to burst. Silver went to $50 and then collapsed and it was never mentioned again.

Is this theory back doing the rounds?


The difference now is that professional market participants act on this "theory" by physically moving a significant amount of gold from UK to US. And "weeks-long" withdrawal queues certainly do not look great and confidence inspiring.

And there is the example of Poland which has repatriated all of its gold from UK years prior and stories like this: https://x.com/SenatorRennick/status/1891051795159429514


And yet this physical transfer of gold has had largely zero impact on the price of gold. Nobody was fretting about 'where will we source Poland's gold?'


Well, there's the notion that price no longer quite reflects what's going on under the surface. Certainly, it's in the interests of an entity experiencing a run on its reserves to do everything it can to obfuscate any indication that a run is taking place, including suspicious price shifts. Perhaps it's even more suspicious that such clear movement isn't being reflected in price volatility. If there were no trouble, a small shift reflecting physical movement wouldn't be too dangerous to allow to happen. But what if it wouldn't be a small shift?


>there isn’t enough physical gold or silver to cover everything

What does this even mean in the context of trading derivatives of commodities? Of course there isn't, people financed other purchases by borrowing precious metals and selling them, or trading futures on margin with no physical position. Isn't that literally what this market is?

And, like it or not, it's the endpoint for all holdings of non-productive assets. Lease the metal back to traders and make 1%; hold it and pay 1% in storage fees.


Never mentioned again? You haven't been on the right parts of the Internet. It's still a common belief. Probably true too


I do suspect BoE doesn't have enough gold to deliver now, it looks like so


It’s also standard practice to delay or slow walk withdrawals when you know they’re going to run you dry.


There may be practical issues that explain delays. Consider a team who are staffed to suit normal activity. Then there is a period of increased activity, the team fall behind.


If there wasn't enough gold in London, wouldn't that mean that gold claims there would be more valuable, not less? Because in order to fulfill the delivery they will have to repurchase the gold, creating huge demand.


> Because in order to fulfill the delivery they will have to repurchase the gold, creating huge demand.

this is what happening now, gold price keeps rising

as for the reason behind gold price is higher in NY, there're many theories and we can not know the truth untill it passed

theories:

1. Most paper gold transactions take place in New York, when a short squeeze mentioned occurs, it can cause New York prices to react before London prices

2. some players are draining physical gold from london(world market de facto) by pricing gold higher


> in order to fulfill

Well, there's the rub. They'll just throw their hands up and the claimants are left holding the bag. Which is what sometimes happened historically.


Aren't most of those claims issued by giant diversified companies who have many other assets I can get in exchange?

When has this happened historically (I don't know of any examples, but I don't claim that means there aren't any).


The last real corner was the Piggly Wiggly corner, and the exchange changed the rules to screw the guy who cornered it rather than the shorts. With that kind of precedent, people understandably don't really try to do a proper corner any more.


You would have to have a contract that gives you claim on these other assets. I would guess that those kinds of contracts are very rare, because you’d no longer be buying gold but a derivative whose value derives in part from gold and in part from the other assets of the company selling the contract. I would bet that in practice buying gold plus a corporate bond would make a reasonable, simpler and more flexible substitute for said derivative, making demand for the derivative basically zero.


Until you discover all those assets they had were also vapor, and their total debt exceeds their total assets


I do not understand your logic. Imagine I have 1 gold bar and issued 100 paper claims on it. How would one claim worth more than one physical gold bar? After someone retrieves the bar, I will have zero gold bars and 99 claims. Would you buy such claim knowing that I do not have any gold in my vault?

It may not be even an outright scam. Those 99 claims may be backed by claims on someone else's gold, but it's likely I will not be able to exercise those claims in a timely manner, making me insolvent. Thus we have a "bank run" situation.


All your customers won’t withdraw all the gold at once. So you don’t need to have 100% reserves. That’s a fact. The problem is once you go less than 100% it’s always tempting to inch that number down. Because selling new claims, or selling reserves is free money.


OP is assuming the oversubscription is due to counterparties being on the hook for gold they are obligated to deliver at a certain time (this is commonplace with commodity derivatives, you simultaneously create contract to buy a certain amount of a commodity at a certain time in the future + a contract to sell a certain amount at the same time in the future - they cancel each other out), not that the entity holding the gold fradulently issued more claims than they could deliver on.

So OP is saying that if more gold was redeemed than expected, the counterparties to those claims would be forced to buy gold at whatever the price it ultimately settles on to fulfill the contract.

Of course the problem is that there is such a thing as counterparty risk. If delivering the contractually obligated gold bankrupts an individual counterparty, or is physically impossible in aggregate (eg more claims than gold exists) then the contract won't be fulfilled at least for someone.

But there is a lot of complexity here because not all futures are settled physically (they can be cash-settled) and there could be mechanisms in place to manage counterparty risk at various levels, like at the exchange, eg https://www.cmegroup.com/education/articles-and-reports/coun...

I wasn't able to read the article because of the paywall but stuff like this is why regular joes tend to think there are bigger problems with gold or finance in general than there actually is. "There is more paper gold than physical gold" - regular Joe thinks there is a problem. "Actually the paper claims' settlement are subject to various conditions, typically closed out before taking delivery, and there is a complex system in place which does its best ensure that anybody who actually wants to take delivery or settle their contract gets it settled as expected" - regular Joe lost interest and went back to doomscrolling.


The problem here is obviously liquidity management. You could think of the vault as a battery that charged and discharged.

If you drain and charge the battery at the same time, there is no net change in the charge level. Theoretically, you wouldn't need the battery to begin with.

Now add time lags. Now discharge may happen before charging. The net change is zero over the full duration of the cycle, but the battery is being drained temporarily and it is changing its state all the time.

If the battery is not large enough, the system will shut down. This in itself is not necessarily a catastrophe, but you will have to pay damages over the shutdown duration for the consequences of that shutdown. This will probably ruin profitability of the counterparty.


> or is physically impossible in aggregate ... then the contract won't be fulfilled at least for someone.

> "There is more paper gold than physical gold" - regular Joe thinks there is a problem.

Is it a bunch of regular Joe's that are making gold "worth more in New York?"


I mean, if it's oversubscribed by 100x the amount in existence it complicates things (unless the issuers have 100x the value of their gold in other assets). But if you issued 100 claims on 99 bars, clearly one person is getting something else. If I offer to sell you my paper claim for 2x what it was worth yesterday (for example) then you lose the value of 101 bars of gold after selling 100 bars of gold (net negative 1 bar) and I make a tidy profit. Just like a short squeeze sent GME to $400/share.


One thing I think crypto has been good for is it’s gotten a lot of people to think much harder about the nature of money.

It’s so easy to spot incentive problems like this and communicate their seriousness to the public.


You are mixing casual relationships. GPS was jammed because of the Ukrainian drone attack, it's a standard electronic warfare countermeasure and civilian planes are well equipped to fly without relying on GPS. And it's perfectly reasonable to close airports when you have a drone attack in the vicinity (e.g. it's done regularly in Moscow airports).

You can easily verify that the jamming has started _before_ the plane started to lose altitude. In the first place, your scenario makes little sense, since its useless to cover things with jamming while this cover will be immediately blown up by inspecting the black box records. And wouldn't it be better to land the plane on your territory for anyone attempting a cover up?


It’s never reasonable to close an airport to an airplane experiencing an emergency. It’s not something that’s done. At most, ATC might advise against it if something makes it outright dangerous to land there, but the decision ultimately rests with the pilot.


The airport wasn’t exactly closed. Due to weather conditions they simply couldn’t do visual approach. There was no ILS and GPS was jammed, so they had to be diverted. And after they were hit it was too dangerous to use any nearby airport in the mountain zone, even if the weather was fine (they checked Mahachkala and decided against it). Aktau was a really good choice.


Yeah, it was a good choice. Aktau is surrounded by hundreds of kilometers of a really flat half-desert. Had they been able to land at even remotely correct orientation, they could have landed almost anywhere in that general area and would have likely been fine.


Attempts to ban AfD (which is projected to take the second place), "firewalled" LePen's party which has won with 33% of votes and has zero political power, and now this. And people wonder why trust in the "democratic" system gradually falls and anti-establishment sentiment is on the rise.


I would contend that the anti-establishment movements are the reason why parties like AfD and LePen's sprouted in the first place.


I’m not saying those parties are fascists but they lean that way. Once fascists gain power, they undermine the entire democratic system and stay in power. So how does one deal with this situation? Do you just hand over a democracy over because a certain percentage of the population voted for them or do you play dirty back?


I dislike the anti-immigration far-right in Denmark but for the past 25 years they have been electorally and influentially more successful with one simple trick: Don't support the geopolitical adversaries of the West. Maybe the AfD and LePen should have listened instead of publicly fellating Putin.


> Maybe the AfD and LePen should have listened instead of publicly fellating Putin.

They're winning, though. Why would they do anything differently? The reason why people vote for them is because they hate you.


>They're winning, though. Why would they do anything differently?

They are not really winning. At best they are just sewing chaos. Their voters only vote for them for anti-immigration and anti-trans reasons which they have failed to politically materialize. In Denmark their ideological brethren made mainstream parties fold on immigration and on some trans issues by simply not being complete idiots on foreign policy.


That is not entirely true. Le Pen just brought down the french government yesterday. She has some power as a King maker in the current configuration.

But she does not govern nor does she want to. However, the left wing coalition won the most seats in the national assembly but Macron refused to appoint a prime mister which was from this coalition as it is normally customary.

In July, he called on the left wing coalition to safeguard democracy by instructing his party to drop out of the races in which they had no chance to win so that the left could win these races against the National Rally.

Now he saying that the left wing coalition is extremist and that the National Rally is extremist just as well and that he won't have a government with either of them. Basically he just told half of the population to get stuffed.

Then people wonder how democracy dies, that is how it dies.

We can disagree with the right and with the left but if the will of the people is not respected, then the consequences will be dramatic.


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