In November 2008 the Queen of England, at the London School of Economics asked a simple question about the crisis: ‘’Why did nobody notice it coming?’’ The response from Prof. Garicano of the London School was: ‘’At every stage, someone was relying on somebody else and everyone thought they were doing the right thing.’’.
One of the reasons for this blog post is to help you take whatever preparations you feel are appropriate in the current financial world, where the financial arrangements of western governments are no longer sustainable, but everyone thinks they are doing the right thing.
You have been reading about changes in the world of finance, that I have been presenting in previous posts. My thesis is, Central Banks are the engines of inflation and their main purpose is to inflate, while they manage the public fears, by understating ongoing inflation.
It is absolutely essential that you properly understand inflation in order to understand why a wine exchange makes sense.
When it comes to preparing for inflation, it is better to be early than late. Take a moment to think how it must be in Venezuela. Most people believe that inflation is an increase in prices when in fact it is an increase in the quantity of money and credit.
As we all know there is no shortage of supply of money or credit in Europe and the US and this inflation makes the prices of goods services and assets rise within the economy.
It is therefore important to understand the effect of the supply demand dynamic.
A constant increasing quantity of money and credit will diminish the value of money. As can be seen already, monetary inflation does not affect everybody the same way, and is the cause of great wealth divide, this sometimes degenerates into social instability and wars (Germany,Greece and Yugoslavia are close examples).
The biggest increase of money in history has happened since 1999 and in particular since 2008 as can be seen from these charts.
That’s inflation, even if it’s not yet seen in consumer prices. Going back to Germany in 1930 prices rose at 29000% annual rate, in Yugoslavia in January 1994 daily inflation was 62% and in Greece in 1944 prices doubled every four days.
Fine wine is a consumer asset produced in limited quantities, consumed through time. Shortage of an item, which cannot be reproduced cause its value to appreciate due to this obvious scarcity.
While I do not claim to have a crystal ball, I approach this subject with conviction, integrity and open mind because no one knows for sure why these hyperinflations happen. What I do know is that they can happen and that is the reason I am one of the founders of a new market offer: Alti Wine Exchange.
The question I asked myself was:
Do governments go out of business?
No. They print money, was the answer. So this could be the event that will change our way of life. This looming crisis can be infinitely more dangerous.
The questions you should ask yourself are:
Are we going to have inflation, yes or no?
If so, how will inflation change the future?
How safe are your sources of income? Why?
How safe are your monetary assets?
How safe do you consider those assets to be?
How will you finance your retirement?
If you struggle to answer those questions, it is probably because you are wondering why do Central Banks claim they are fighting inflation, when in fact they are doing everything to create inflation?
Let me help you with that: They need to protect the interests of the banks, because banks are in the business of lending money and creating credit.
In a world of inflated asset prices, fine wine is a hedge against inflation, because they are still inexpensive in real terms since they have to compete in the current consumer market, and consumer price increases are still relatively low.
Articles by Paulo Pinto