When assets become liabilities, it is time to reshape the system in favor of citizens

by Jun 19, 2020Thinking outside the bottle0 comments

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(Paulo Pinto

Alti Wine Exchange founding member)

Dear reader,

I’m happy to be back to you writing not only about fine wine investment, but also hopefully raising debates about the economy and the society as a whole.

A few months ago, we launched the idea of a Central Bank of Social Security (in a wine blog, what an irony) as a solution for the monetary system we have today. A system that is saturated with debt and is causing evident financial and economic problems.

The reason is simple: debt is a liability to all of us, but for the financial system it’s an asset. Therefore, our liabilities are their assets. Debt — there is too much of it: private debt, public debt, corporate debt. And all this debt is losing its ability to increase economic growth.

The saturation of debt is starting to cause cracks in the system. For instance, we learned that assets like oil can become liabilities when their price goes negative. Cash has become a liability too, given negative interest rates.

Abolishing the present system is the best solution to its problems.

So we started trying to answer only two questions:

1. Where we would want to go?

2. How to plan to get there?

Our thesis is the creation of a Central Bank of Social Security (CBSS) to replace national central banks. The goal to replace as much debt as possible by equity in order to put the necessary inflows of liquidity in the market and the system.

The CBSS will have two main responsibilities. The first one is to guarantee minimum basic income (as we have recently argued), and the second is to manage pension and social security (as explained here).

The rationale is because there is less risk entailed for the investor than it would have to when creating a private pension portfolio.

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INVESTING ON the BEHALF OF CITIZENS

Applying MMT (modern monetary theory) to the CBSS, they would guarantee the future responsibilities of pensions and social security.

A CBSS could create money and use the proceeds to guarantee minimum basic income and invest in equity investments with a value that rises and falls with the market, which would be held in individual Social Security Investment accounts.

The Bank of England, the European Central Bank and the Federal Reserve already own assets in excess of 25 percent of their countries’ GDPs, and this is done only to the benefit of banks and governments; So there is no reason not to invest those assets on behalf of the citizens.

The alternative to our suggested Central Bank of Social Security is raise taxes and cut benefits – which I see as a way to probably lead only to more societal dysfunction.

* * *

In the meantime, I will be sure to keep investing in fine and rare wines. As you may know by now, real, tangible assets are an excellent refuge for the pessimistic scenario ahead if debt and monetary inflation keep piling up. Fine wine is a valuable choice among these alternative investment class because it appreciates due to its rising quality and lessening supply.

You can read more about this in the articles on the gallery below.

Until then.

Paulo


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