Last week we discussed the 1918 Flu Pandemic, which looks eerily similar to today. There was one image that perfectly captures the three levels of a pandemic: physical, financial, and political.

Until we get a vaccine, this is the New Normal. So remember our goal:

Then we are out of the woods.

Meanwhile, while we work on a physical cure, we’ve got a lot of financial and political problems to solve.

This is why New York governor Andrew Cuomo has been asking repeatedly for federal help, telling the U.S. government, “You can’t pass the buck without passing the buck.”

Here’s what that conversation between the state government and federal government looks like:

If you've seen the funny Netflix cooking show Nailed It!, the judges have a "money gun" where they fire cash onto the winner at the end of the show. Essentially, this is what the federal government is doing. 

The problem is, a "money gun" is not exactly a financial plan. The states -- like all of us -- need a better solution than waiting for the federal government to rescue them.

As this recession wears on, the states -- like all of us -- will eventually be faced with a decision. Do we default on our debts, or do we reinvent ourselves and find new ways of making money?

Like all bonds, Liberty Bonds paid interest on a regular basis. On the date of repayment, the principal was paid in full. Citizens were taking a leap of faith that the government would win the war and pay them back, which had a secondary benefit: it galvanized public sentiment that the government should win the war. It united the cause.

Eventually this innovation would even reach down to the state level, where municipal bonds were issued to raise money for, say, a new school or subway line. Citizens bought bonds (lent money) to the state government, who would pay them back interest over time, and eventually repay the bond in full.

Here's what that conversation between the state government and citizens looks like:

Municipal bonds are actually quite safe: they pay you back 99.9% of the time. Also, they’re commonly called "munis," which is just too cute.

In the time of Coronavirus, municipal bonds will be a way for states to raise money directly from the public (rather than waiting for the “money gun” from the federal government). But how do states issue municipal bonds, when their citizens don’t have money to spend?

In 2017, the Initial Coin Offering was all the rage. The ICO allowed any investor to easily “buy into” a new blockchain project, being paid in “tokens” (like shares) that could be traded on the digital asset markets (like Binance or Coinbase).

Turns out the government didn’t like people printing their own money. So the party eventually ended -- but the model worked. Today, this blockchain-based fundraising model is being used to finance blockchain bonds.

For example, the bond-i project, a collaboration between World Bank and Australia’s CommBank, has issued two successful bond offerings, run entirely on blockchain. Here’s a quick video:

Blockchain bonds are more efficient. The typical bond issuing process looks like this:

Courtesy of Municipal Securities Rulemaking Board

Blockchain bonds are more transparent. All the information about the bond is stored on the blockchain, bringing transparency to an otherwise dark and closed system.

This also improves bond ratings, which have been criticized for being (at best) their own dark and closed system, or (at worst) a “pay to play” system where issuers can ratings agencies to buy better ratings, as Steve Carell demonstrates in The Big Short:

Blockchain bonds are more trusted. Let’s face it: Bondsare boring. In fact, bonds are the go-to "safety asset" that investors choose when they don’t want excitement. But in a time of Coronavirus, the opposite could happen: investors could flee junk bonds, which causes the whole Jenga tower to collapse, as Ryan Gosling and Anthony Bourdain explain:

The default on junk bonds, in other words, could cause a “domino effect” that would ripple throughout the bond market, then take down the entire world economy.

Blockchain bonds are more interesting. Here’s the deal: blockchain is cool. Those of us who have bought bitcoin, or some other digital asset, know how fun it is to watch the ticker every day. Blockchain bonds provide some of that real-time dopamine thrill, but with more safety and less volatility.

The final piece of the puzzle will be educating and encouraging the public to buy these bonds. Which brings us back to Liberty Bonds.

The first Liberty Bond issue was unsuccessful. It wasn’t until the U.S. government got their propaganda machine churning out millions of posters, window stickers, and buttons that the public really got on board. They enlisted celebrities to headline bond rallies, like the great movie star Douglas Fairbanks:

The invention of the air conditioner in 1902 means that now aristocrats can be a bit less seasonal with their investment/gambling habits and over the last decade, the market has fallen in May exactly three times, two of which showed only miner losses. Yet, somehow every year on May Day (1st of May (today)) several analysts, myself being guilty as well, write articles with the title "Sell in May" followed by a big question mark.

The U.S. stock market put up its best performance since 1987, which is pretty unbelievable considering that the unemployment rate, over the last two month, has swung from record lows to record highs.

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Mati Greenspan

Analysis, Advisory Money Management