I’m Breno, back here with some thoughts on the economic unfolding of the coronavirus crisis. After all, that’s an issue which every one of us, investors, are extremely anxious about.
Yesterday, as I was asking our Instagram followers what kind of wine they were planning to drink this weekend, an old friend of mine suggested a Brunello di Montalcino. Great option. He subscribed to the IBO of IoSonoDonatella, the beautiful Brunello by the first Italian all-woman winery – but decided to take delivery of some of the bottles subscribed. I don’t think he is going to be much of an investor, as he claimed he wants to be, if he keeps drinking it.
Oh: and just yesterday I bought my first IBO, a German gem launched this week. Just the first of many bottles, I hope. It’s selling fast!
A few days ago, I mentioned Yuval Harari’s article and how worried he is about the social experiment we are living. Just a day later, I read that former UK Prime Minister Gordon Brown was calling for a kind of Global Government to fight covid-19. Honestly, it sounded a bit out of touch, given the highly competitive geopolitical reality of these days and the extreme difficulties we would have on developing such a taskforce to tackle the social issues of the pandemic.
Personally, it seems to me the economic focus should be on rethinking social security and the welfare state.
I’ve had some very interesting debates with our founding member Paulo Pinto on this, and then decided to write this article on it.
Paulo’s main stance is to replace the current central banks with Central Banks of Social Security, to guarantee that money goes bottom-up, instead of up-down – as it has been done so far.
The global financial crisis due to the pandemic has been here for over a month already, and the extreme remedies – applied through massive government and Central Banks intervention – will have probably no results in view of the truly gigantic disaster in the job market. This week’s news on the unforeseen boom in unemployment claims in the United States shows that.
The consequences will probably be the biggest wave of delinquencies in history. If debt cannot be repaid, the solution known is called restructuring of the debt. Complicated, right?
A new model is needed to guarantee not only the valuation of assets, but also the future responsibilities of reforms and social security.
I find the idea of Central Banks of Social Security quite interesting, and even though I would have never thought it would be possible before the current crisis, this idea seems to be ever wiser and not that hard to implement.
This new concept of central banks, instead of the current model, would guarantee pensions and minimum income to people. Banks would need to go back and operate under 100% reserve model and compete for clients by offering true market rates, instead of gambling on bonds and housing markets without liquidity – and having to be rescued when a crisis comes.
Nowadays, as banks and big companies are saved through giant rescue packages, people who have been contributing to social security for their whole lives lack protection and deeply suffer, not knowing what will come next. That’s precisely what has happened so far in this crisis.
For example, only very recently governments have started to urgently adopt more severe measures to provide urgent income for the people and smaller companies, whilst the big players have been contemplated by multibillionaire plans. Too big to fail.
I then asked him: “Paulo, but how can you convince players in the capitalist system to accept such a move that seems to turn away from what capitalism itself has become decades ago?”
He simply put it that way:
“This social state model based on a Central Bank of Social Security aims to make capitalism truly capitalist by making each taxpayer a shareholder.”
Well, he got me with that one. Kudos.
There’s not going to be a lasting solution for this frenzy of printing money without investing in the bottom of the pyramid: the people directly in order to guarantee dignity. This is the only way to go back to basics and reset the system. Central banks are nationalizing the economy, and we need to free the people in order to free the economy.
Central banks, and particularly the FED, have a reason now with the pandemic crisis to print as much money as needed by the banks. This is only the first part of the problem. The second part is when the world loses confidence in their currencies and particularly in the US dollar as a store of value, but this we will keep it for another day.
Have a nice weekend!