What’s up today? (Part 1)

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7505

Pegged coins are a slightly different animal, but as they are mostly pegged to a fiat (effectively a closed-source) currency, the pegging mechanism isn’t as relevant because the token itself mirrors the flaw of what is being pegged. OTOH, one that is pegged to gold and silver would be better, with the caveat that gold and silver prices are set at the COMEX - so pegging is going to reflect the manipulation going on in this market as well.

I don’t see the point of any of these in the long run. Collateralized or pegged. In the short run you have more price stability with pegged/collateralized relative to majority of goods and services, but as more and more goods and services are traded in sound crypto, it too will become relatively less volatile.

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7506

This is only true of productive debt, eg debt which is put into a business which creates value and repays the loan and interest from the value created by activities enabled by the loan.

Otherwise the repayment and interest do both come from money derived from value already within the economy. Value in general is not the monetary value to the borrower, but the worth of the real world economic activity which the fiction of money is supposed to represent.

The problem we are now facing is that the more debt you add, the less productive it becomes.

7507

You are mixing the way new money is created with what that money might do.

Not what he talked about, he talked about new money only comes from existing value.

7508

I assume he meant the value of new money comes from existing value. Money is not the same thing as value.

I don’t think so, its where new money gets its value that was being discussed isn’t it? If it creates value it has the value of what it creates. If it doesn’t create value it has to take its value from something it didn’t create doesn’t it?

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7509

No, it is if new money comes from existing value or is new value created. As you can example buy a new house with a new loan, it is new value created through the promise of specified future repayment. A loan is future income used today. You have a total expected lifetime income, through loans you can spend future income today, so that you can buy example a house for the family in your middle age when you need it instead of having to wait until you are 50 years old.

7510

Yes, but the loan doesn’t create that future income, it consumes it.

This is probably a good example of productive debt, because its a new house which presumably would not have been built unless there was someone to buy it. But what about a house which was built 50 years ago? In that case value changes hands, but is not created. The principle goes to the seller, so this is a simple transfer of value, but the value of the interest must be drawn out of the economy by consuming the future wages of the buyer while creating no additional value.

7511

Not what discussed.

Not what you said, you only said

And you might buy an existing house.
I don’t think this discussion will go much further.
I recommend Robert Shillers 101 lectures at Yale on youtube, he is a smart cockie.
Further it might be worth reading about the economic theory Life-Cycle Hypothesis, by the great Franco Modigliani

7512

That’s what I meant. Total value of economy divided by currency = value of currency. Create more currency (via central bank or by bank credit) and value of currency goes down. As poor people don’t hold many real assets and rely on the core value of their currency, they are predominantly the victims of monetary inflation.

All of the new currency is debt based, so this feeds into the boom-bust cycles in the economy. As the central banks setting interest rates causes people to take out more loans from local banks, this drives a large expansion in credit (creating a boom) … the boom heats up the economy, so then the Central banks increase the interest rate (well historically they did!!) and that leads to a sharp contraction (as bank loans are always being paid back, so when new loans slow down, the total currency supple shrinks). This is the Bust.

One of the big (fraudulent) issues with Central Banks controlling this mechanism is that they know in advance what’s going to happen as they set the rates. So all of their buddies also know and are able to invest/divest accordingly. All part of the big bankster scam.

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7513

But the statement from cryptonewstoday is wrong, you should have said that the creation of new money affects the value of existing money by inflation, or something similar.

Only if they don’t make money by sallaries or have a bank account as they tend to follow inflation, the value and buying power is also relative to other currencies and the buying power of people in other nations. But it is no hidden conspiracy that it is bad to be poor and that you might not be a winner. But it is also important to remember that the only way to be rich is if others are poor because being rich is a relative thing, relative to others. You can only be rich if you have relative more buying power than others.

7514

And now for something completely different …

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image720×960 119 KB

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7515

It must be a nightmare to learn English. For every rule there are 100 exceptions. I admire anyone who is fluent, especially in writing, when it’s not their mother tongue.

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7516

All currency has always been debt of some sort, be it “do this and you’ll be in my favour” or whatever. The best primer on it comes not from economists, but from an anthropologist… Graeber’s Debt: The last 5000 years basically tells the story. Settlement however, is a different issue.

Private banks without bailouts (key) are a stable system. Look for example at Scottish Free-Banking. One of the actual services banking provides is temporal smoothing: they give us the best signals about future demand by adding now and subtracting in the future, go bust if they’re wrong (key) and that enhances efficiency in the economy.

The real scam and abomination is the central bank. They abrogate the distributed right to prognostication and can print base money, not paired self-neutralizing obligations. Private banking and credit creation functions decently well, even during hard base money regimes, it’s about control. Look up e.g. the Vienna money experiment. Even during a deflation, a local government was able to create a scrip currency that rebooted the economy without having hard money in reserve… the economy is about credit, and in a balanced flow where currency is spent on needs and recycled, that can happen without much net settlement.

Where things have gone wrong is 1) when settlement does not occur primarily in assets, but in printable obligations. (Target2, and the US/China trade imbalance are the two biggest factors here). 2) When base money is created to bail out the private banking system (or to paper over the trade imbalance, where we are today as net foreign accumulation of e.g. treasuries stopped a few years ago).

Re debt: the best framework I have found is from Marvin Minsky. Debt and credit creation is not a problem as long as it funds productive enterprise. If I am loaned $100 and can produce a profit on $10 of new goods every year, the $10 can be used 10 times to pay back the loan, leaving the economy neutral, but with an extra $10/y productive capacity. The issue becomes when debt is used for speculation or, worse, to pay interest that the system runs away.

What is happening now is that people with access to financial capital are swapping it for real assets. Why? Because the carrying cost is 0. Blackrock and the others that are buying out the housing stock (20% of US home sales in May are to people without the intention to move in) are doing it because it’s essentially a free gamble and costs nothing to maintain as long as the Fed doesn’t let rates rise. And if it goes far enough, they will become neo-feudalist barons.

TLDR: It isn’t private credit creation, rather central bank underwriting, that is fueling the current conditions. But they are trapped, as even the most minor cessation of fuel provision will lead to carrying costs and inventory dumping (read: crash)

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7517

Americanized ‘English’ is my mother tongue and all I can say is, thank God for spell checkers. :wink:

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7518

If private banks offer sufficient interest to make it worth depositing money in their accounts, then people may think it is worth the risk. If they don’t, they may not. That is how competition should work. Let banks actually do some banking and maybe the economy will stop lurching from credit binges to debt busts too.

I suspect having safe custody and easy electronic payments are also high up on people’s lists. If you can make cheap, direct, b2b or p2p digital payments that is also great. Cutting out the middleman will be a good thing.

Of course, the above can be any type of crypto, from any provider. El Salvador seem to have figured that out already too.

If central banks were really concerned about losing control, they just need to issue a stable coins where they print more or less of it directly. QE directly to the people and government if they must. So, I call BS on that too. I suspect they fear competition with their central bank fiat money more than anything else.

7519

The problem is, people don’t understand how all this works. I don’t mean you or I, I mean the average person.

Even the terminology has been twisted. They do not loan out other people’s money, they extend credit to them. They still call them loans though, which is all part of the deceit that stokes misunderstanding.

Privage banks create credit in exchange for other assets as collateral. This keeps their balance sheet balanced. If they are asked to produce the cash and they don’t have enough, they will claim it is just a liquidity issue and will get some cheap cash from the central bank. No one cares about the cash - it is all about the credit and the assets.

This also makes me skeptical of these central bank concerns. They know banks don’t need cash to make ‘loans’. They haven’t made ‘loans’ in decades. They know this, private banks know this too, so why the pretence?

Maybe unsecured ‘lending’ could be impacted, as I’m not certain how that is represented on their balance sheets. I suspect much of it is from the interest/charges they make for extending credit in exchange for assets though (read: property mostly). Tbh, they probably just have a promise to repay as collateral and the mechanisms remain the same.

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7520

For the past 4 years or so, Sweden’s central bank has been investigating the possibility of an official electronic currency called “e-krona”. In April they published a report on the “E-krona pilot phase 1”. I found it a pretty interesting read:

Link to web page with PDF
Direct link to the PDF

It seems like they are investigating something similar to DBCs?

The next steps after this pilot look like they will start giving more answers. Right now it’s smaller scale testing and some is only theoretical with no implementation yet.

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7521

Good post, but even free banks can misjudge the value of the collateral have made loans against. There is an inherent risk in any form of lending.

If a bank had used tulips as collateral back in the day, their balance sheet would be in a terrible state when they were reevaluated and their assets were marked down.

While central banking with an endless supply of fiat money is the root cause, the private banking system pivots around it and is utterly dependent on it. Arguably, they are one and the same in some cases, where the revolving door is spinning and speci relationships continue. Perhaps this is why the central bankers protest so much about stable coins?

7522

True, but in a system where they knew they wouldn’t be bailed out, they accounted for errors in the value of collateral. With modern machine learning, credit card companies have that problem sorted, for real. And if a bank had tulip assets, but their obligations were also in tulips, no problem.

The protest about stable coins isn’t about that relationship, it’s about geopolitical control. The real nexus of power is that interbank transfers of USD reserves (base money settlement) require both parties to have an account at the fed, allowing a single switch to be thrown to sanction a party. This system of control extends even to the eurodollar system, where the threat of sanction can make counterparty assets ‘unavailable’ and thus even exert a degree of control over EU banking institutions.

With stablecoins as a functional system (not yet there, but moving quickly in that direction), entities can transact and settle in USD (or any currency) without the possibility of applying central sanctions. I believe it is this geopolitical aspect that is underlying the current panic on stablecoins.

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7523

No, you don’t understand economics. At any point in time the total value in an economy is FIXED. You can’t create NEW value, without doing real work - creating a new good or service that people want. Currency and credit are merely PROXIES for value. Hence when new currency or credit is created out of thin air, it MUST take it’s value from the total pool - thus diluting the value that everyone else has.

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7524

Very much agree! Great insight.

As always, you have to be looking at what the man behind the curtain is doing, rather than what they want you to believe.

I was initially skeptical of stable coins, as I didn’t trust the people managing them. As time goes on, I realise their potential more and more. What seemed to start as a way to avoid the banking on and off ramps (to exchanges) has morphed into an alternative, free access, fiat banking network.

On the journey to crypto everywhere, these stable coins offer an interim solution. They do lack transparency though and they seem rather tied to the private banking system. Perhaps that is the price to pay for what they offer and in the long term, fiat will become less relevant as crypto continues to blossom. After all, why limit ourselves to fiat and allow central bankers to control them? We can do better than that.

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