On equation (4) in “A Computationally Useful Algebraic Representation of Nonlinear Disjunctive Convex Sets Using the Perspective Function”


In our recently published paper “A Computationally Useful Algebraic Representation of Nonlinear Disjunctive Convex Sets Using the Perspective Function” (write-up available here), we established a (not very restrictive) condition (in equation 4) that was needed for our algebraic representation to be equivalent to the original disjunctive program.

However, this condition is somewhat obscure. As such, the purpose of this expository note is to provide more insight around it in a visually intuitive way. The note is available below; alternatively, it can be downloaded here.




These last two days have been hard to process. In talking with family, friends and acquaintances in #Lebanon, you realize how many of them are “fine”, but not fine. How many of them count themselves lucky to be alive or with only minor injuries. How many of them have survivors’ guilt. How many of them are still processing the calamity and trying to understand how to pick up the pieces.

You also learn about those who didn’t make it. And your heart breaks a little. The scenes coming out of #Beirut are devastating. The videos, the pictures, the human stories being shared are all so tragic. The Beirut port, through which 80% of Lebanon’s imports passed through, is completely leveled. Large parts of the city are destroyed beyond repair, and every part of the city has some amount of visible damage. The number of casualties keeps rising. The latest count is 200 dead and 5000 injured, with hundreds still missing. There are 300,000 people homeless in a city of 1 million, with a large number of them unable to rebuild. What are these people supposed to do?

The country was already in the midst of its worst economic crisis since the Civil War due to the political and banking class’ complete mismanagement of the economy, which has destroyed enormous amounts of wealth and people’s life savings, and led to hyper-inflation and skyrocketing prices that have eroded whatever was left of people’s purchasing power. More than 30% of the population was already unemployed. Nearly 50% of the population was already living in poverty, defined as less than $4/day. And everyone was struggling to cope in the midst of the COVID-19 pandemic. And now this. What are these people supposed to do?

Lebanon and its people are legendary for their resilience. It’s true. In my lifetime only, people in Lebanon have experienced a devastating 15 year Civil War. They’ve experienced multiple Israeli invasions, massacres, an 18-year Occupation and a massively destructive war in 2006. They’ve experienced a 30-year Syrian Occupation and countless political assassinations. They’re currently experiencing a debilitating economic crisis that threatens to unravel the country at its seams. And now, they’ve experienced an explosion with the blast yield of a small atomic bomb detonated in the middle of Beirut because of this ruling class’ criminal negligence for its own people. And yet, I have no doubt that Beirut will rise again, and take its place as the jewel of the Middle East, precisely because Lebanon is resilient.

But in this very moment, people are not thinking about being resilient, or upholding their reputations. They’re thinking about how to deal with the immediate crisis at hand. And as such, Lebanon and its people need help right now. They need your support. For those who have sent messages of solidarity, thank you. For those who have donated, thank you. For those who have stood in support of Lebanon and its people in hard times, thank you. You have no idea how much it all means. Thoughtfulness in times of hardship is worth its weight in gold.

So for those who would like to help, or continue helping, the most effective way to help Lebanon is to donate money to organizations on the ground doing relief work right now. This link provides you with several options. If you have any questions, please let me know. Much love to everyone in these hard times.


Michael Moore’s “Planet of the Humans”


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Michael Moore in 2013 (Source: Wikipedia Commons | License: CC 2.0)

So I watched Michael Moore’s “Planet of the Humans” yesterday, a film directed and produced by Jeff Gibbs (Moore was the executive producer). Lots of good and bad noise being made about the documentary, so I wanted to see it for myself to judge. Note that you can see it for free on Youtube.

My overall impression of the movie is a mixed bag, but mostly negative. However, to be fair, I’ll mention some of the good, as well as the bad in my brief (and necessarily non-comprehensive) notes on the movie, with the usual disclaimer that these are my own personal views, and I speak solely in my individual capacity.

(1) Certain parts of the movie were shot way earlier than 2020, and as a result of that, some of the information you hear in the movie is quite dated. For example, some of the casually communicated information on solar panels regarding life span (10 years) and efficiency (8%) seemed quite old. Solar-powered generation has made significant progress over the years.

(2) One of the central messages of the movie (although by no means the only message) can be succinctly summarized by this argument:

(A) Fossil fuels are bad (this is taken as a given)
(B) Fossil fuels are used in the life cycle production of solar and wind power generation (to make solar panels, to pour the concrete for wind turbine structures, and so on)
(C) Ergo, solar and wind power generation are bad

Both premises can strongly be challenged, and by extension, the conclusion isn’t tenable.

(A) Fossil fuels are not bad (personally, I like fossil fuels, especially oil and gas; I’m sure you’re surprised). Although no energy source is “cost-free”, and fossil fuels are certainly no exception, when balancing costs versus benefits, fossil fuels have been and continue to be one of the greatest boons to humanity, having lifted billions of people out of energy poverty over centuries, significantly improved their standard of living, and underpinned modern civilization as we know it. If you don’t like this fact, come at me bro.

So why does Gibbs think fossil fuels are bad? One primary reason (though not the only reason) clearly implied throughout the film, is because of Green House Gas (GHG) emissions (like CO2) and the link to climate change. I’ve documented my issues with certain parts of climate science for nearly 2 decades now, so I won’t rehash these again in this post. But if that’s your issue, you may want to consider fossil fuels coupled with technological solutions like Carbon Capture and Storage (CCS), which is unsurprisingly not discussed in the film, and which can potentially play an important role in solving the GHG emissions problem; see more on CCS here.

For power generation, renewables can be cheaper on a levelized cost of electricity (LCOE) basis than fossil-fuel generation with CCS (especially coal + CCS), depending on the quality of your solar or wind resource versus the price of fuel (coal or gas). In fact, in many locales with (historically) expensive fossil fuels and very good quality wind or solar, un-subsidized renewables are cheaper than fossil-fuel power generation even without CCS. However, renewables are intermittent, and emerging technologies like Combined Cycle Natural Gas + CCS could possibly serve as a complement to renewables to provide the grid with reliable non-intermittent power (and could be cheaper than other alternatives like batteries, depending on gas price, although battery costs are coming down).

Perhaps more importantly, on the non-power generation side, CCS can potentially play a major role in providing carbon-neutral solutions like blue hydrogen (in its molecular form or via various hydrogen-carrier molecules), which is hydrogen made from fossil fuels like natural gas, and with its carbon emissions captured and sequestered via CCS technology. Blue hydrogen can be used as a carbon-free fuel for process heat (for e.g.) in major industrial processes that would be extremely expensive to electrify, such as processes in refineries, chemical plants, fertilizer plants and so on, and for which other alternatively-made carbon-free fuels are currently not competitive (although it will be interesting to monitor the competitiveness of processes such as electrolysis, which can make hydrogen from electricity and water; when the electricity is generated purely from renewable power, we call this green hydrogen).

(B) It is true that fossil fuels are currently used in the renewable manufacturing life-cycle. But two points need to be made here.

  • If the issue is GHG emissions, then you would think that Gibbs would be heartened to know that the amount of GHG emissions produced in the manufacturing of renewables (like solar or wind) is much less than the amount of GHGs emitted over the life cycle of unabated fossil fuel generation (although fossil fuel generation + advanced CCS would leave you with similar amounts of GHG emissions as renewables).  In fact, the amount of GHG emissions in the renewables manufacturing process is quite low. The notion of relative quantity of emissions, which is crucial in any comparative discussion between technologies, is never even broached in the film.
  • Furthermore, if Gibbs insists on zero GHG emissions throughout the entire renewables manufacturing process, then CCS can always be used in ways described in section A above.

(C) As such, the conclusion that solar and wind “are bad” isn’t tenable if we’re focused on GHG emissions.

(3) At one point in the movie, sulfur hexafluoride (SF6) comes up briefly on the screen with huge letters reminding you that SF6 has a global warming potential of 23,000 times that of CO2 and that it’s used in renewable power generation equipment like wind turbines. That is true, but again, Gibbs fails to discuss relative quantities of emissions. The amount of SF6 emissions (mostly via leaks from electrical equipment such as switchgear) in the world is small, and the concentration of SF6 in the atmosphere is in the order of parts per trillion. So the overall warming effect of SF6, per consensus climate science, is relatively small compared to CO2 despite its significantly larger global warming potential because of massive differences in relative emissions. See more here on SF6.

(4) In the film, there’s a small segment about electric cars not being as “green” as they’re marketed to be, because the electricity they pull from the grid isn’t completely GHG-free (there’s a discussion of how 95% of electricity in Lansing, MI, comes from coal). That was certainly true back when that clip was recorded (in 2010?), and it’s still true today (although to a lesser extent), but as solar and wind generation costs continue to drop, they will continue to be added to grids around the world, and thus, these grids will slowly but surely “green” up over time. By extension then, electric cars will become “greener” over time.

(5) There were segments interspersed throughout the movie on the sustainability of mining the raw materials needed to make renewable power generation (rare Earth metals, quartz etc), and the disposal of end-of-life solar panels, wind-turbines and so on. I have to admit I don’t know enough about this topic to comment intelligently at this point, but it is something I’ll have to look into.

(6)  A part of the movie that I agreed with is the last part of the film focused on biomass. I strongly agree that large-scale biomass power generation, where large parts of forests are cut down to be burned in large power plants, is a disaster and should be avoided. There is a lot more to talk about when it comes to biomass in general (and not just in power generation; hello, corn ethanol), but some of it can be done “sustainably” under certain restricted circumstances. I’ll leave this for another day given the length of this post already. However, I will say that the very last few minutes of the movie stayed with me, where scenes of orangutans are shown in trees being cut down, forcing them down to the ground as they lose their homes in the tree-tops. They are then shown staring into the cameras, as they take their last dying breaths. These scenes were clearly meant to pull on heart-strings, and tie deforestation with biomass use in energy, and they were quite effective.

(7) A part that I truly enjoyed was the grilling of “green” billionaires like Michael Bloomberg, Richard Branson, Jeremy Grantham and multi-hundred millionaires like Al Gore. Always happy to see hypocritical virtue-signaling billionaires who want to “Save The Planet” be knocked down a pedestal or two. Kudos to that (on a tangential but related note, please read this piece by Roger Pielke Jr on the impact of “green” billionaires like Bloomberg and Tom Steyer regarding the state of climate science).

(8) In a similar vein, Gibbs skewers “green” organizations like the Sierra Club and Bill McKibben’s 350.org (with McKibben himself being shown in a less than flattering light) by highlighting some of their hypocrisy. There were a litany of points raised in this segment, and I won’t go over all of them, other than to highlight the following and important point. This film is really directed at a segment of the environmental movement, with a message that can be roughly summarized as follows: renewable energy (via green capitalism) is not going to solve the environmental problems of modern industrial society. The problem is industrial society itself, and our massive consumption, which leads to these environmental problems. The only solution is to control human overpopulation in order to live sustainably.

There is a clear Neo-Malthusian message permeating throughout the film, and I couldn’t help but be somewhat exasperated every time one of the interviewees would communicate it in somber tones. I really don’t have the time or energy to go over why these types of arguments have an almost perfect record of failure, so hopefully you’ll give me a pass.

Finally, I’d like to highlight one last point. The reception of the movie by “mainstream” environmental organizations has been swift and brutal. Michael Moore is taking a shellacking across large parts of the environmental media space. Criticism is of course warranted, but some, like Josh Fox and many others, have tried really hard to censure the movie. People like Josh Fox, who put out one of the most misleading and propaganda-filled energy-focused movies I’ve ever seen (GasLand), have no leg to stand on. More importantly, people like Josh Fox, who are authoritarians at heart and who refuse to entertain speech that runs afoul of their favorite talking points, need to appreciate that the only way to counter bad speech and ideas (like most of Moore’s film), is to come up with better speech and ideas, and not to deny people the right to express themselves. So on that parting note, please don’t be like Josh Fox.

Lebanon Uprising: Some More (Tentative) Thoughts on the Currency Crisis



Leb Lira

One of the lessons of the currency crisis is that if you’re going to peg your currency, you need to structure your economy in such a way to (nearly) guarantee that you have net positive inflows of foreign currency into the country year on year in order to have a long-term sustainable economic system. To be clear, this is true even if Lebanon wasn’t running a “Ponzi-like” scheme, where new $ from overseas are needed to continuously meet old $ liabilities (in order to, for e.g., meet growth in $ deposits because of interest on them; see previous post on Lebanon currency crisis).

Why is this true? It’s true because in the opposite scenario (where you have net positive outflows, because, for example, of a large structural deficit in your balance of trade), you end up drawing down your foreign reserves continuously, which leads to your eventual inability to defend the peg and therefore, a forced devaluation of the currency.

You can try maintaining positive $ inflows by a combination of:

(1) Reducing imports
(2) Increasing exports
(3) Attracting foreign currency via alternative means (e.g. foreign investment, tourism, remittances).

For the longest time, Lebanon relied on (3) to make the “system work”, given that it maintained a large structural trade deficit (i.e. more imports than exports). And for two decades, it worked. Until now. The big problem with relying on (3) is the large exogenous risk (i.e. risk from outside your system) you take since something outside your system can topple your system by significantly reducing these alternative inflows. In the case of Lebanon, the Syria War in 2011 and the Oil Crisis in 2016 significantly reduced alternative foreign currency inflow by reducing tourism, investments and remittances, which precipitated the $ crisis.

So perhaps the right focus then is on (1) and/or (2) if we want to try and minimize some of that exposure. To be clear, that would not completely eliminate exogenous risk since you would still be relying on others to buy your exports, but with enough diversification and trade partners, coupled with a reduction of imports, you would be able to mitigate against a large chunk of that risk. Now can the peg be maintained while nurturing a robust export economy and/or a structural reduction in imports (via for e.g. self-sufficiency) to maintain a trade surplus? Perhaps, but the peg is currently artificially inflating the value of the LL against the $, which hurts the country’s ability to develop an export economy and encourages excess imports. Why? Because suppose, based on fundamentals, that the “true” conversion rate is 1 $ = 3000 LL. Given that we pay for imports in $ and foreigners pay us for our exports in LL, and given that the pegged conversion is 1 $ = 1500 LL, imports are currently costing us half as many LL to buy as they should (based on the “true” conversion rate, thus encouraging excess imports and increasing $ out of country), and exports are currently costing foreigners twice as many $ as they should, making us less competitive (thus decreasing the amount of $ into the country). So maintaining the current peg while trying to develop a robust export economy and/or reducing our imports is like running into a head-wind.

It should be noted that we may be able to develop an export economy and reduce imports while maintaining the current peg if we, for example, ever discover commercially viable quantities of natural gas offshore, which would in theory (1) increase our $ via our government take (from, for e.g. taxes and royalties on the produced gas that the International Oil Companies (IOCs) would have to pay us) (2) replace at least some of our imports like heavy fuel oil for power generation (thus reducing $ exiting country to buy fuel) (3) potentially generate export revenues (thus increasing $ entering country), depending on how our contracts with the IOCs are structured. However, there are significant hurdles to “get there” in the near to medium term for a variety of reasons that I won’t get into right now, which means this will not solve the problem any time soon (I may address this in a separate post).

So maybe we should think about giving up on the peg, and letting the currency float? On the plus side, this would set the value of the LL to its appropriate value based on the country’s fundamentals, which, based on today’s Lebanese economy, would weaken the LL versus the $ compared to today. This, in turn, would stimulate the export economy over time and naturally limit imports, since our products would be cheaper to buy for foreigners, and their products would be more expensive for us to buy. On the downside, this would cause significant short term pain as the purchasing power of the average Lebanese citizen decreases, and measures would need to be put in place to mitigate against that, especially for the most vulnerable among the population. This is, no doubt, a very sensitive subject that would require careful management, but devaluation seems to be happening already in parallel exchange markets at your local money changer (~2000 LL per $ now), except that it’s being done haphazardly while Riad Salameh pretends all is fine and the peg is intact.

These are just some tentative thoughts, but we need to have these types of conversations to be able to participate in shaping the future economy of the country.


Lebanon Uprising (Days 39 and 40): Attacks Escalate Against Protesters



Nov 24 Ring

Soldiers formed a barrier between supporters of Amal / Hizballah and anti-government demonstrators on the Ring Bridge [Mohamed Azakir/Reuters]


Some very concerning scenes over the past 36 hours in Lebanon. On Day 39 (Nov 24) of the uprising, we saw significant escalation by Amal / Hizballah supporters against protesters on the Ring Road (near downtown Beirut), and on Day 40 (Nov 25), we also saw significant violence by Amal supporters against protesters in Tyre (South Lebanon).

However, most concerning were the sectarian slogans that were being shouted out during and after the Ring Road battles by Hizballah / Amal supporters at the Ring, the anti-Dahieh chants heard in response to the violence on the Ring by protesters opposed to Hizballah in Ain el Remmeneh, and some dark references by Hizballah / Amal supporters the following day during Hussein Chalhoub’s vigil to another May 7 2008 (see videos below). The latter is the date of the infamous street battles between a Hizballah-led coalition of fighters and pro-Hariri/government fighters after the Lebanese government threatened to dismantle Hizballah’s telecommunications network, which Hizballah claimed was essential to its fight against Israel and which the government claimed was being used by Hizballah to spy on/target opponents; the one week battle that ensued saw the take-over of Beirut by Hizballah and its allies, the death and injuries of dozens of people and brought back fears of civil war.

Before I provide additional details, I should note that, similar to the events of October 29, some people are denying that Hizballah supporters were involved in the events on the Ring Road, and that despite Hizballah flags, chants in support of Nasrallah and so on, that these were all Amal supporters mimicking Hizballah to sow confusion. Although that may have been true on October 29, and some of the thugs who were identified then were indeed Amal supporters from Khandaq al Ghamiq, the explanation this time is starting to wear thin. If this tactic is again being used, then unless Hizballah explicitly denies their involvement in events over the past 36 hours, and explicitly distance themselves from what happened and categorically puts the blame solely on Amal, then they are complicit in these events (either tacitly if they were not involved but remain silent or explicitly if they did indeed participate).

Another note regards the supposed presence of some Lebanese Forces (LF) supporters among the protesters (a claim made by the Hizballah / Amal side). We all know the LF is trying to “ride the wave”, but it’s impossible to know the ID of every single protester. What I can say is that I didn’t hear chants in support of Geagea in the videos I saw or any evidence that there was a significant LF presence among protesters, although of course, there could have been some.

Finally, there’s this notion that protesters are “asking for it” when they swear against political leaders and block roads. Protesters have the right to peacefully block roads as a pressure tactic against the government, and the UN rapporteur clearly stated that the free flow of traffic doesn’t necessarily take precedence over freedom of assembly, including blocking roads. And frankly, if the problem really was about blocking roads preventing people from going to work as is claimed, then why did the Amal / Hizballah supporters go to Riad el Solh square to destroy the tents there? Why did Amal attack protesters in ‘Alam square in Tyre? Clearly, there were no roads being blocked in the squares. And of course, it should go without saying that swearing is no justification for physical assault.

With that as a preface, this all began on the night of Nov 24 on the Ring road/bridge, where protesters blocked the road by around 9 PM. The details of what happened after and what precipitated the pandemonium that ensued were documented in detail by Timour Azhari, a reporter for the (Hariri-owned) Daily Star, who was there the entire night and who wrote the attached dispatch for the Daily Star (which he helpfully downloaded and shared given that the article was behind a paywall):

Timour Azhari Nov 24_1

Timour Azhari Nov 24_2

Azhari also captured on video several intense scenes that transpired throughout the night between Hizballah /Amal supporters and protesters:

Nov 24 2019 (Ring Road, Beirut) – “Incredible scenes as protesters who fought back Hezbollah and Amal supporters return to a jubilant crowd. They drag a moped seized as a trophy and set in on fire in the middle of the road”

Nov 24 2019 (Ring Road, Beirut) –“Massive amounts of tear gas used on peaceful protesters”.

Below is some additional footage (not from Azhari) from the night of Nov 24 2019:

Nov 24 2019 – Amal / Hizballah supporters throw rocks at government security forces (not my video) 

Nov 24 2019 (Martyr’s Square, Beirut)- Amal / Hizballah supporters destroy tents (not my video)

Nov 24 2019 – LBC reporter with Amal / Hizballah supporters who threaten anyone who dares curse at Nasrallah (not my video)

Nov 24 2019 (Ain el Remmeneh) – Protesters march in the streets cursing Nasrallah and Dahieh.

Nov 25 2019 (Riad Al Solh Square, Beirut) – Aftermath of destruction in Riad Al Solh square (not my video)

Another development worth mentioning happened early in the morning of Nov 25, when 2 people were killed in a car accident, supposedly because of a protester road block. That turned out to be false, per video footage that clearly shows that the army, not the protesters, had set up the barrier that caused the unfortunate and tragic deaths (see videos in this post). The reason why this is relevant is because these 2 individuals (Hussein Chalhoub and his sister in law Sanaa el Jundi) were Shiite and were claimed as martyrs by Hizballah / Amal supporters, who were present at a vigil later that day in Dahieh (Beirut suburbs), and the narrative being pushed by the Hizballah / Amal side is that protesters were responsible for their deaths because of the roadblock, thus further increasing tensions (on a side note, my understanding from sources is that Hussein Chalhoub actually belonged to the Arab Socialist Action Party of George Habash at some point, and not Hizballah or Amal, but if that’s wrong, please let me know).

Nov 25 2019 (Barja) – Video of the tragic scene that took the lives of Hussein Chalhoub and Sanaa el Jundi (not my video)

Nov 25 2019 (Barja) – Clear evidence that the army erected the road blocks, not protesters (not my video)

Nov 25 2019 – Pro Amal / Hizballah vigil held for Hussein Chalhoub and Sanaa el Jundi in Dahieh. Sectarian chants and reference to infamous May 7 2008 event (not my video)

The third incident worth mentioning is the situation in Tyre South Lebanon, where protesters braved continued thuggery by the Amal movement (and Hizballah?) who encircled them and burned down tents and beat people up. The Lebanese army had to step in to protect the protesters from further abuse:

Nov 25 2019 (‘Alam Square Tyre) – “There’s no media coverage whatsoever on what’s going on in Tyre. Haraket Amal thugs attacked protestors, broke their tents, and plastered the photo of Nabih Berri in Sahat Al Alam so the Army started shooting to scare them away. PLEASE SHARE THIS. They’re even assaulting women”.

Nov 25 2019 (‘Alam square, Tyre) – Voice of woman protester saying that they are being attacked by Hizballah and Amal supporters and that the Army is protecting them (not my video)

Nov 25 2019 (‘Alam Square, Tyre) – Amal thugs burn down tents in ‘Alam square (Tyre), with the Army firing bullets in the air to disperse them (not my video)

Nov 25 2019 (‘Alam square, Tyre) – Amal thugs declare the square to be Nabih Berri’s property

This is all quite unfortunate. To make matters worse, the economic situation is deteriorating with no end in sight (for e.g., I’m now hearing of informal rates of conversion of 1 USD to 2000 LL at various money exchanges) while our oblivious and corrupt politicians are still bickering about the formation of a new government. A case of fiddling while Rome burns. I was in the process of writing a few posts to further discuss the economic situation in the country, but had to put those on hold because of events over the past couple of days. More to come on that soon, and I sincerely hope we see a calming of the situation as soon as possible.


Lebanon Uprising: The Currency Crisis


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I’ve been trying to better understand the current economic crisis in Lebanon, and this post is my attempt to describe my understanding of the situation.

As a preface, I’ll note that my understanding has, for the most part, been mostly influenced by Toufic Gaspard (former advisor to Lebanese Minister of Finance) and Dan Azzi (former CEO of Standard Chartered Bank in Lebanon), as I found their (financial) arguments to be more convincing than their opposite counter-parts. Nassim Taleb (of Black Swan fame) seems to also be in broad agreement with them about the fundamentals (though they may differ on the details). I’ve provided several links at the bottom of the post to articles that helped me form my opinions.

Although the title of this post reads “Lebanon’s Currency Crisis”, Lebanon is actually going through multiple crises:

(1) A currency crisis (specifically a US Dollar crisis; I will use $ to refer to US Dollars going forward)

(2) A debt crisis

(3) An economic crisis (lack of jobs, economic contraction etc).

The focus of this post is on the currency crisis, although I plan on discussing the other crises in future posts. The crux of the currency crisis is this: Lebanon has been running a $ “Ponzi-like” scheme, which depends on a continuous flow of new $ entering the country from overseas to make good on old $ liabilities inside the country (for e.g. customer deposits at banks in $). When the inflow of fresh overseas $ significantly reduces over an extended period of time while liabilities in $ continue to grow (for e.g. because of increasingly generous interest on $ deposited, which compound over time), it becomes harder and harder to meet $ obligations over time. As such, when enough depositors start knocking on bank doors demanding the $ in their bank accounts and there aren’t enough physical $ (i.e. “real $”) to go around to meet all obligations – and importantly, your central bank can’t act as a lender of last resort by “printing” $ (i.e. Banque du Liban is not the Fed) – you have a currency crisis. This may all sound surreal or incomprehensible. To some extent, it is surreal, although I hope to make it less incomprehensible by working through the details in this post.

What is the evidence for the claim above? Answer: Banque du Liban’s (BDL) balance sheet. Indeed, it is highly likely that BDL’s $ liabilities significantly exceed its $ assets (based on educated estimates of $ assets and liabilities on its balance sheet, which doesn’t split Lebanese Lira (LL) from $). This means the difference between the two can be interpreted as “virtual $”, in the sense of not actually being backed by “real $” or actual physical $ (I call these “virtual $” and not “fake $”, in the sense that these $ can be transferred from one bank to another within Lebanon, but good luck moving these $ out of the country, as people outside of Lebanon want real “physical $”; Dan Azzi calls these virtual $ “Lebanese dollars”).

If you look at the Central Bank’s balance sheet, you’ll notice Foreign assets of ~LL 56 trillion (mostly cash $ and liquid US treasuries), and liabilities in the form of financial sector deposits of LL 167 trillion (important note: BDL reports everything in LL, even though those numbers include $; they simply use the official conversion of 1507.5 LL to $ when reporting their numbers on the balance sheet). Given the lack of LL vs $ split on the liabilities side, one has to make some assumptions on that LL vs $ split. The best estimate I’ve seen is that ~70% of those deposits are in $ (in fact, Riah Salameh himself mentioned a “dollarization” percentage of 70% on the BDL website). If we take that split, this means that there is ~$37 billion of physical $ on BDL’s balance sheet (excluding gold), and about ~$77 billion of liabilities in the form of deposits (i.e. LL 167 trillion / 1507.5 * 0.7). This means that there is a difference of 40 billion $ between foreign assets and liabilities (i.e. there is ~40 billion “virtual $”). Given that these $ deposits (on the liabilities side) are actually customer deposits that commercial banks have deposited at the Central Bank (we’ll talk about that below), if you follow this logic to its bitter end, this implies that people’s $ accounts in their banks aren’t fully backed by real physical US $ (although some portion is, of course).

Now for people familiar with fractional reserve banking, this is not a big deal, right? Afterall, every bank in the world operates in similar fashion. That is true. Except for one very important difference: their centrals banks own the currency! BDL cannot act as a $ lender of last resort because it can’t print physical $, which means if everyone wanted to withdraw their $ at the same time, banks could not possibly give everyone their full $ deposits (which is why you keep on hearing from the corrupt political class that all is fine as long as you don’t withdraw your $ from your bank accounts). I should mention that the aforementioned is partially mitigated by the fact that many $ deposits are “frozen” in longer-term deals (so 1 or 3 or 5 year deals where $ cannot be withdrawn if the accounts are to receive the generous interest rates from the banks), but this doesn’t change the basic “virtual $” math (but does have an impact on available liquidity).

How did we get into this mess?

It’s essential to understand that the Lebanese system is entirely reliant on fresh $ flowing into the country from overseas (via remittances, investments, tourism and so on) in order for the system to “work”. When the inflow of these $ decreases, big problems arise, because of 3 reasons:

(a) The structural trade imbalance that Lebanon carries, with imports significantly exceeding exports

(b) The interest (and principle) paid to people outside of Lebanon on foreign-currency denominated debt (like Eurobonds, which unlike the name implies, are typically $ denominated)

(c) The desire by the Central Bank to maintain the official peg of the LL to the $, which has officially been pegged at 1507.5 LL to 1 $ (I believe that the band is actually between 1500 and 1515).

The trade imbalance is a result of Lebanon importing much more than it exports, which results in significant $ exiting the country (the most recent numbers suggest a trade imbalance of negative $14 to $15 billion). Why? Imports are typically paid in $ (i.e. importers must pay suppliers in $, especially for fuel, wheat and medicine), so importers who get paid locally in LL for their imported goods have to convert their LL into $, which they use to import those goods (resulting in an outflow of $ outside the country). Exports are typically in LL, which means overseas buyers must convert their $ into LL to purchase these exports (resulting in a new inflow of $). If the trade balance is negative, then more $ exit the country than $ enter the country (i.e. there is a net outflow of $ out of the country), which means new $ need to be sourced from outside the country in order for Lebanon to continue carrying a structural trade imbalance.

Foreign-denominated debt (such as Eurobonds) is issued by Lebanon in exchange for foreign currency (typically $), which (temporarily) increases $ reserves. Although most of this debt is owned by Lebanese banks, some portion of it is owned by people outside of Lebanon, which implies that the interest paid to them in $ exits the country and decreases $ reserves. Regarding the capital that needs to be paid back at maturity, typically, governments will issue new debt to pay for old debt, thus netting that out. It should, however, be mentioned that if the market believes that the country will default (which would be reflected by very high interest rates on any new bond offering), then the Lebanese government will be reluctant to issue new Eurobonds because it would not be willing to pay the extremely high interest on them; this means the country is essentially “locked out” of capital markets. In that scenario, the government will then also have to pay back the capital on maturing bonds from their $ reserves since it can’t issue new bonds to pay for maturing bonds, thus causing additional $ to leave the country to meet those maturing Eurobonds held by foreigners.

Finally, and importantly, the Central Bank in Lebanon has made it its primary missions to protect the peg at all costs. In order to do so, it needs to maintain a significant $ reserve to use when events necessitate either buying $ (and selling LL) or selling $ (and buying LL). So, for example, in the case of a “negative event” where people scramble to convert LL to $, this increases demand for $, and decreases demand for LL, which should theoretically strengthen the $ against the LL if the currency was floated. However, the currency is pegged, and to maintain the peg, the Central Bank has to buy up LL and sell $, which means this operation is costing the Central Bank precious $ that reduce its $ reserves (note that the Central Bank does not publish the $ cost of such operations, but it needs to replenish its $ reserves after such negative events).

Where do these replenishing $ come from? Ultimately, they come from outside the country of course, since the Lebanese Central Bank can’t physically print $. The main outside source of these $ are investments, tourism, and remittances from the Lebanese diaspora (in 2008, remittances alone were an insane ~25% of GDP). Now in 2016, mostly because of the oil crisis in the Gulf (and the Yemen war), Gulf countries’ finances got hit hard and they started restructuring their economies, and remittances started to decrease into Lebanon as Lebanese expats living in Saudi, UAE etc lost their jobs or weren’t being paid (I’ve seen numbers suggesting that nearly half of remittances into Lebanon come from the GCC). This trend over the past several years has only worsened, and the numbers this year suggest that remittances will likely total only a couple of billion $ (far lower than historical averages).

Of course, the other two sources of $ inflows (investments and tourism) have also been hit for several years in a row, mostly because of the geo-political situation in the region (the Syria war and decisions by Gulf countries to limit tourism to Lebanon because of security and political reasons).

With $ inflows reducing over time, the Central Bank started getting desperate as it needed to attract fresh $ to continue maintaining the peg and the country needed $ to plug the large trade imbalance. So in 2016, it engaged in the infamous financial engineering operations that have rightfully received much criticism. Without getting into details, the Central Bank essentially offered up massive returns (in LL) to commercial banks to deposit their customers’ $ at the Central Bank (I’ve seen estimates of 17% return or higher offered by the Central Bank to commercial banks). This incentivized commercial banks to increase $ interest on $ deposits to attract additional $ so that they could deposit those new $ at the Central Bank to earn that high interest (the interest on $ deposits at commercial banks would of course be set at less than the interest they would receive from the Central bank, with the delta being bank profit). These deposited $ would then be used by the Central Bank to continue protecting the peg, paying $ denominated debt and ultimately, plugging the trade imbalance. Commercial banks made lots of money, and depositors were receiving very high $ interest on their $ deposits. Everyone should be happy, right? Wrong. Unless you can print physical $, the amount of physical $ in the country is entirely dependent on the existing $ reserves in the country plus the physical $ inflow minus the physical $ outflow. So although the accounts, on paper, were increasing in $ value because of the generous interest being paid on them, they weren’t entirely backed by equivalent physical $ because the rate of increase of $ in accounts was higher than fresh physical $ net inflow. With higher and higher interests needed over time to continue attracting fresh $ from overseas, and lower and lower amounts of fresh $ making their way into Lebanon because of the aforementioned reasons, the amount of “virtual $” continued to grow over time. And when enough people started demanding their $, there simply wasn’t enough physical $ to go around, thus the $ currency crisis.

Some references that I found useful:

  • Toufic Gaspard’s 2017 paper, which in retrospect, seems prophetic
  • Toufic Gaspard’s 2019 update
  • Fitch report that downgraded Lebanon’s credit rating even further

Several articles by Dan Azzi:

Other articles:


Lebanon Uprising: On Cursing




One thing that I found refreshing during the beginning of the Lebanon uprising was the amount of cursing and insults being hurled at politicians. With a few exceptions, these have mostly ceased, and to my disappointment. There has been a clear attempt to “sanitize” the uprising across the board, from within the uprising unfortunately and clearly from without. This is quite unfortunate.

The focus on sanitizing the uprising is interesting to me, and for a variety of reasons. There’s no doubt that the negative view of cursing and insulting has always had a class dimension, as every language I’m familiar with typically “looks down” at people who curse. In Arabic, we have an expression that essentially rubbishes people who curse as “children of the streets”, and we were taught from a very young age to mind our language. It’s simply uncouth to curse in polite society.

People who enforce these social protocols during normal times have always irritated me to some extent, but they especially irritate me now as they tone-police those who have every right to curse the living shit out of politicians who have made their lives into living hell.

Cursing at these politicians is an extremely powerful expression of rage. It’s raw. It’s emotional. It’s authentic. And when deserved, it should not be bottled up. And these politicians deserve it. They deserve every single insult in the creative Lebanese cursing lexicon. They deserve to know that the majority of the people of Lebanon have no respect for them. That they spite them. That they hate them with a fiery passion that can only be expressed by insulting them in the most personal of ways.

And perhaps most importantly, cursing at these politicians is an authentic political statement, as you risk getting arrested, jailed or sued for defamation based on our nonsense laws on the books. Cursing at them explicitly signals to them that the wall of fear that they’ve erected for decades is crumbling. It sends them the message that we’re not afraid of you. That we don’t respect you or your supposed authority. And ultimately, that we are free of the psychological shackles you have imprisoned our minds in for so very long.

And so, with that, I’d like to direct this message to the entire Lebanese political class: get fucked.