A Central Bank for the people to restore dignity and competitiveness in capitalism

by Apr 17, 2020Thinking outside the bottle0 comments

People walk past the Euro Sign at Willy-Brandt-Platz, Frankfurt, in front of the Eurotower (former seat of the European Central Bank). (Photo: Breno Salvador, January 2020)

People walk past the Euro Sign at Willy-Brandt-Platz, Frankfurt, in front of the Eurotower (former seat of the European Central Bank). (Photo: Breno Salvador, January 2020)

 

(Paulo Pinto, Alti Wine Exchange founding member)

 

Every now and then you can read the Alti Wine Exchange team’s analyses on wine investment or about wines themselves. This time, however, I want to come back to an issue I have discussed previously around here and that has led to some interesting discussions because of the coronavirus pandemic: resetting capitalism through what I call Central Banks of Social Security.

You may recall that EU finance ministers agreed a 500-billion-euro rescue for European countries because of the covid-19 incoming financial crisis, but the package is probably still short of what many believe is necessary to restart the European economy.

The economic situation triggered by the virus is a new reality for many people. The financial consequences will be devastating even with the many programs created to support the economy.

Many politicians are talking about “coronabonds” as a way towards a recovery, but that would be more of the same under a different name.

Personally, I claim the need for a new economic system, based on a new Central Bank that belongs to the Social Security and has the people as the main goal, and not the banks.

***

Traditionally, a capitalist system is based on savings and investment, but since 2000 our system is based on credit and consumption.

This is probably unsustainable – because we are in the late stages of a long-term debt cycle, that started in 1971. More borrowing instruments just add to the problem and are not a solution.

Traditionally, at the end of the cycle we will see many forms of conflicts, because of slower growth. But the most worrying of them is the social conflict, the breakdown of the social contract.

We have started to see this already in the past years, under many pretexts. In London, in Spain, in France – with the recent Gilets Jaunes movement –, but other such movements are brewing in many places and will undermine democracy.

The coronavirus crisis can only accentuate the problem in the job market.

Many supply chains now in China will return to the west, but with no effect in the job market. This is because of the increased use of artificial intelligence to compensate labour costs, which can only increase the distrust in politicians and institutions.

***

The only thing working, and mainly in the USA, are financial markets. The US Government and the FED have stipulated that they will not allow financial markets to fall – probably because falling markets is the surest way of alarming consumers, signaling that things are not fine.

The consumer is the basis of the US economy, representing 70% of the GDP. This is a very strong motif, because if 70% of the economy goes, everything goes.

But here is also where it gets technical and usually people switch off, not caring about what is going on.

What is the FED doing to sustain the economy? Printing money and buying financial assets.

Everybody knows the sound bite from the media, the famous QE, the name used to describe money printing, but few understand the process.

The FED is buying all sort of debt instruments from financial institutions effectively nationalizing the bond market, and commercial banks will keep the responsibility to provide loans to small business.

Obviously, banks are the primary beneficiaries of the fact that the FED can create money out of thin air to buy debt from them, but fund managers, hedge funds, pension funds and other asset accumulators also benefit, because the FED acts as counterpart and support prices in order to reduce interest rates.

usd.jpg

There is no bailout for the people. The bailout is for the capital.

Because of this policy, all other central banks have to follow in the same steps.

Unfortunately, this process is creating more distortions because it remains in the financial system, in the hands of investors, rather than being transformed in loans to the economy.

The result of this practice worsens the wealth gap while causing asset price inflation. This is a process becoming more and more obvious since 2008 and will accentuate more now. Everything being done is with the intention to appease the people, but with the perverse effect of not changing the status quo, which is bailing out insolvent governments and financial institutions.

 

***

 

Nothing can be corrected or adjusted by doing the same things. An out-of-the-box solution is needed.

I argue this solution is a Central Bank of Social Security.

Instead of Central Banks creating money for governments and banks, we need a new Central Bank creating money to distribute directly to the people, guaranteeing a minimum income wage.

(We will address the conditions for that another time and the moral hazard associated with it, I promise you).

 

The Central Bank of Social Security will guarantee that the money will reach the people, and that everyone will receive a pension, freeing companies and a much needed new banking system to operate in a competitive market under a new system with 100% reserves, as a way to regain price discovery with a natural rate of interest and sound practices of risk. This should reinstate real economic growth rates in the economy.

A new Central Bank of Social Security will also reinstate the social contract by bringing dignity to humanity by implementing a subsidized minimum guaranteed income.

Democracy could be improved with such Central Bank helping public policies with rules. For example, establishing rules to limit debt to GDP at 60%, level at which governments will be able to finance themselves at 0% and above that level at market rate.

By creating a new Central Bank of Social Security, we could change the money system and have a new world order.

For the moment, the only reason governments continue to function in many countries is because Central Banks are lending money. This is known as ‘’monetizing debt’’, but it’s also a process of destroying the currency.

That is the reason we are investing in fine wine – in our personal case, to be safe from this wave of devaluations.

 

 


Articles by Paulo Pinto

Alti Wine Exchange founding member

News


Summer is coming – and things really do not look promising

Building a sound strategy for your resources in the face of inflation and worsening living standards has become more crucial than ever


Read More →


Outside the bottle | Building wealth wisely, change is both need and opportunity

Away from falsely reassuring economic news, seeking alternative financial strategies is inevitable in the face of low interest rates and looming inflation


Read More →


Outside the bottle | A scale for reasoning and a crisis warning

 


Outside the bottle | Luxury is far simpler than what we once thought it was

 


Outside the bottle | On miscommunication and generational mismatches

 


Outside the bottle | A digital euro is coming. We should be worried

 


Outside the bottle | Prosperity is not automatic: a lesson from top wine producers

 


Outside the bottle | A Great Reset to save democracy: rebooting the financial system

 


Outside the bottle | Reseting the monetary regime to achieve true freedom

 


Outside the bottle | Why we need a Great Reset of the financial system

 

Explore More from Our Blog

The Beginning and The End.

Alas, the sun has crossed the celestial equator from north to south. Summer is now quite uneasy, shifting into fall in the north, while life is springing into action down south. What a beautiful time of the year! When grapes are cut from the vine to create new wine,...

Ever heard of a wine cocktail?

DEAR READER, I hope some of you learned from the reader letter last week [hyperlink to Week Ten post] and checked your attics! You never know how much wine sits above you, waiting to be uncorked and decanted—on someone else’s dime! Dear Sommelier Ferdinand, I have a...

The Future of Wine

We humans are bold if nothing else. Unlike any other species (that we know of), only we have chosen time and again to go boldly where no other has gone before. This holds especially true to the modern European, the first to really “discover” ignorance. Though they...

What on earth is a ‘Wine Decanter’?

DEAR READER, It’s come to my attention that many of you are ill-informed, misinformed, and frankly, uninformed about how wine is to be consumed. Were I only a wine enthusiast, it would be wholly dispiriting. But—wine is my profession, and I’m obligated to recognize...

“What’s My Next Question?” – Benjamin Kaplan

What’s My Next Question? On a random day like today 11 years ago, a legendary Harvard Law professor and lawyer, Benjamin Kaplan, died at 99 years of age. A rich, marked life that left an impact long after his last breathe. Apart from influencing the likes of Ruth...

Wine that Makes You Look Up

Wines that Make You Look Up Can you imagine having a device that magnifies your view and never thinking to look up, never pointing it toward the sky? Until August 25, 1609, nobody had. Enter Galileo Galilee, the man who changed the way we see and interpret all that is...

Should you be swirling your wine before consumption?

DEAR READER, Through all the melodrama of the past few weeks, I’ve neglected to educate the newcomers about the art of winetasting. So, I dug deep into my inbox for this query: Sommelier Ferdinand, I went to a ball last night and wasn’t aware of the proper pre-drink...

Sommelier Ferdinand answers “What’s the point of drinking wine from a hundred years ago?”.

DEAR READER, I’ve heard what you’ve all had to say, and I’ve decided to reach out to Jerry, once again, to bury the hatchet. Who’s to say if he would be open to making amends… but I made the effort, on behalf of all you insightful readers! I’ll keep you all updated on...

BOXED WINE AND AN ANGRY RECIPIENT – A FOLLOW UP

DEAR READER, Something unprecedented has happened. My assistant has received an additional letter from Jerry. Remember him—from last week [READ HERE] Well, our beloved wine purist wrote back after reading yesterweek’s column: Sommelier Ferdinand, I don’t care about...

Transcending Time through Wine

On August 11, 1888, The Scientific American published its 658th issue, replete with exciting findings. From “A Study on Whirlwinds,” to “The Distillation of Peppermint" and thoughts on the human conscious, this popular science magazine had already been around since...

Boxed Wine and an angry recipient.

What an experience, to receive all your criticisms. That would shake any normal individual. But I’ve spent years having my judgments under a microscope, so I’ve learned to shut my doors to it. You are all welcome to try—but I won’t be changing any time soon! Speaking...

Sommelier Ferdinand answers “What it takes to become a Sommelier”.

DEAR READER, As the grapes grow richer, so do the bottler and buyer! Wine is an investment, my dear readers. Never forget the long game! Now, for some advice you folks have solicited: Sommelier Ferdinand, I want to be a sommelier, like yourself. I have the respect for...