The sustainability of our current standard of living has been questioned over the last few years. Public and private sectors are increasingly taking sustainable development into account. According to the working paper, “Financial Innovations & Sustainable Development” provided by Long Finance in 2018, “over the past few years, the disruptive effects of technology have meant that the financial services sector has embraced innovation in technology, services, platforms and, to some degree, systems”. As a result, the innovations in finance are expected to diminish the risks and exhilarate the sustainable outcomes.
The use of technology and modern solutions to solve some of the global economic problems are at the center of the conversation in this week’s episode of Principled Discord hosted by Thierry Arys Ruiz interviewing Ekkehard Ernst, AI specialist at International Labor Organization (ILO) and President/Founder of Geneva Macro Labs & Future of Work.
Mr. Ernst believes that “policymakers themselves can no longer be the only actors in terms of addressing sustainability issues”. Moreover, Mr. Ernst states “Central Bank money shouldn’t be politicized. As a Central Bank, you have one objective, that is, monetary stability and that is already enough. There are Central Banks with several objectives, but you can’t really get the job done well in all of them and you end up diluting the initial mandate of price stability.”
Concerning the topic of what is largely regarded as unsustainable pension deficits, Thierry believes that the three main drivers to solve the problem involve a technical default by:
1. Monetizing the debt/ inflation: Mr. Arys believes that governments will have the tendency to incentivize inflation in order to reduce the debt burden. The debt would be paid in full (Nominal) but with currency worth much less than when the debt was issued, this way monetizing the debt via inflation.
2. Pushing the retirement age: This would act as a bond for which the maturity has been pushed forward. In the case of public pension funds, the rationale for governments would be to assemble a group of actuaries to determine by how much the retirement age should be pushed forward in order to obtain a reduction of liabilities towards pensioners as there would be a reduction in the number of years where pensioners receive retirement payments and some would decease before benefiting from their pension.
3. Austerity/ Haircut: As it becomes increasingly evident that fiscal deficits are unbearable, governments can engage in austerity measures by simply cutting the amount paid to pensioners. This last solution is harder to swallow politically and therefore is it believed that most likely the former two actions are most likely to be used; in particular inflation and debt monetization which has already been hinted at by major central banks.
Mr. Ernst points out that “unless you are in Switzerland or USA or in some other countries that have private liabilities to pensions, most of it is hold as promises from governments, and these promises can be broken”. For Mr.Ernst, the objective to create inflation has been challenged by Globalization which has created a secular trend of deflation. It seems that Central Banks have failed to create inflation as evidenced by the Consumer Price Index (CPI). Mr. Arys ironically interjects by saying “The only thing they have achieved is stock market inflation”
Concerning global trade, frictions and conflicts might exacerbate as China and the USA are creating their own CBDC showcasing a new race to become the main “reserve cryptocurrency” a topic previously covered during the MonetaryReset.net, a webinar with expert speakers covering CBDCs, Cryptocurrencies, and the different dynamics concerning capital markets, global trade, and geopolitics.
Mr. Arys Ruiz emphasizes: “Unfortunately, throughout history you see that currency wars sometimes evolve into trade wars, and trade wars can turn into full blown out wars”.
Follow the link to watch the full Principled Discord Podcast with Ekkehard Ernst hosted by Thierry Arys Ruiz, and learn from two industry leaders about new methods of sustainable markets. Don’t forget to subscribe to Principled Discord’s YouTube channel to watch more episodes.