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Montoya

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  1. I'm just desperate to keep my mind of the schlacking I took in the stock market again today.
  2. I initially thought this as well. But what would occur in such a system during a run on the bank? The current system dealt with it by simply saying "the dollar isn't backed. If you want dollars we can print all you want." If it is backed by a redeemable asset, this restricts the bank's ability to solve the liquidity problem during a run by printing more IOUs. After all, why would you accept a rapidly inflating IOU when you could have the underlying asset? Of course they could simply say the IOUs are never redeemable, but then why would anyone accept them in the first place? And how would it be preferable to the current system? The way I figure, the only solution would be those entities that issue IOUs back them 100%. OP seems to be right, at least as far as I can tell, deflationary currency does not seem to mesh with fractional reserve banking. Someone please convince me otherwise.
  3. I think I am (sadly) in agreement with your assessment that there would be a liquidity trap using a deflationary currency to backstop the current fractional reserve financial system. But the idea of using a deflationary currency in a non-fractional reserve system still intrigues me, and so far it seems that in such an environment a liquidity trap may not occur. I know it is mostly academic and the thought of a functioning system without fractional reserve banking seems far fetched at this point, but let's hash it out anyway. I honestly don't know what it could look like either. Wouldn't a run be fairly harmless if banks are not involved in fractional reserve credit creation? And wouldn't economic expansion simply be dealt with by falling prices across the board depending on resource scarcity and growth of production efficiency? If we assume a massively divisible currency that is essentially omnipresent (such as some sort of crypto) would liquidity be a problem? Is there any reason such a system would not work in theory using crypto? As can be seen from several periods in history, deflation can coexist with economic expansion. Couldn't such a system actually provide more accurate information to consumers on the real costs of production and resource scarcity, being that it is able to convey the real interest rate in the economy to the investor? Isn't capital a scarce good like any other that cannot have a fixed price without creating distortions? Isn't the Fed rate simply price controls on capital? Wouldn't such a system drive efficiency in the use of this scarce resource? Wouldn't better information on the real value of capital not drive more efficient production? Once again, just a thought experiment here. I can't find any fault in your logic concerning the liquidity problems faced by XRP in the current environment unfortunately. **Not sure what denotes a Neo-Keynsian. My economic education is fairly rudimentary at this point. That being said, I have found myself in agreement mostly with the Austrian school but I dither on the topic of monetary policy and sometimes feel swayed by Milton Friedman's arguments in that area.
  4. Just want to interject that I absolutely love this thread. This is a topic that I have grappled with for some time. Even amongst free market zealots like me, there is an ongoing debate as to the question of the role or need of a lender of last resort. While ostensibly the US acts as a lender of last resort right now due to the dollar being the de facto world reserve currency, it is only able to do so because of inertia and trust. Inflationary currency could, and would, still exist in a deflationary backed system. It would simply be another commodity that one could choose to settle in should they not trust the other party in a transaction, or the debt-swaps in either direction become so lopsided, or the pathfinding to patch together a debt-swap using other countries becomes burdensome, or they simply wish to increase the value of their own currency, they could choose to settle in the crypto asset. I really see it as little different than how today many nations choose to still buy gold. Why do they do so? And why do some nations demand to be paid in gold by some others? In most cases, settlement in a crypto-asset would be unneeded. US dollar debt swaps allow for easy pathfinding for most currencies. It is convenient since most everyone accepts it, and almost every country has accounts in NYC to facilitate these swaps. But a fall in the US economy, a massively increasing US debt, etc, may all shake the confidence in the dollar. It is likely inevitable that at some point in the future the US will be forced to monetarize its debt. I think we take it for granted that the dollar will always be fairly stable and widely accepted. But this may not be the case. Let's say something like a run on the dollar happens and everyone wants to "settle" all at once; that is to say they want to dump their dollars and get something else of value that is not dropping precipitously against goods and services. This is where the liquidity trap should come in. If we assume XRP is the best of the best, then everyone will want it at once. But perhaps not everyone getting the demands has enough XRP, or any for that matter, to settle the debts. I hope this is a good explanation of the problem you describe. For my part, I see the problem as a symptom. Liquidity traps only exist because of fractional reserve banking being conducted on top of an inflating currency. There is nothing wrong with this per se, so long as trust in the reserve currency's issuing nation continues. Because the value backing the bank itself is being actively inflated by the bank, it is weakening its own ability to settle should a run occur. However, if a bank has a deflationary asset backing their reserves, then it doesn't matter how much the dollar inflates, so long as their stores of that asset are not diluted through fractional reserve banking. You are correct in stating that liquidity traps will be a problem in the current banking system. But the current banking system is likely a problem in and of itself. If banks held something, anything, of real value, and not simply fiat, or the right to draw fiat, then perhaps a liquidity trap would not come to pass. Let's look at what may occur during a run on the dollar, if each bank held crypto reserves, and that crypto is deflationary. Let's assume the bank never loans out more in value in dollars than it currently has in crypto, given the current exchange rate. That is to say, it never engages in fractional reserve banking with regards to its crypto assets. Liquidity shouldn't be a problem, as the US dollar can still be inflated as much as one desires. Banks simply would need to constrain themselves to only loaning out the equal value to that of their crypto reserves at any given time, given the changing exchange rate. For example, let's say the US dollar loses 100% against XRP in a year. Banks could create 100% more dollars and still remain 100% solvent. In this scenario, if a run does occur, all debts could be paid in full in the underlying asset (crypto) if so demanded. This assurance, in and of itself, should prevent a run. Indeed, during the gold standard era, it was only the inability of the US to adhere to its own claimed backing, that led to a run on the dollar and the subsequent dropping of the gold standard. Had the US been responsible and honest in its management of its gold reserves, there would've been no run in the first place, or had there been anyway, they could've settled 100% in gold reserves, restoring faith to the dollar itself. I'm not certain this is the solution to avoiding the liquidity trap you site, but it seems to make sense to me. Thoughts?
  5. Isn't it primarily property taxes that fund schools?
  6. There is no reason why your suggestion would not work. In fact, with the advent of sovereign cryptos I find it increasingly likely. However, it is a separate issue from your main critique which is the suggested unworkability of a deflationary currency underpinning an inflationary international monetary system. You seem to take it for granted that all schools of economics are in agreement that deflation is necessarily a problem. This is not the case. I cannot fault you on your logic as it is most likely coherent within your school of economics. Other schools have begun to question this assumption, as the metric used to draw this conclusion is GDP, which is increasingly being recognized as not indicative at all of quality of life or actual economic growth. Access to goods and services is a far better metric to gauge quality of life and economic growth. Take for example the myth of the lost decade in Japan. It was long assumed that due to deflation, growth in Japan ground to a halt for two decades. Japan's money supply remained largely stable during the course of the lost decades, but due to an asset bubble bursting, increased production efficiency, and inflation in importing countries, prices dropped and the currency became, in-effect, deflationary. If one simply looks at GDP per capita, this assumption is confirmed. However, it did not, and does not, reflect the reality on the ground in Japan. GDP per capita is measured using a metric that is itself floating. It tells you very little about actual growth unless one knows the purchase power of the currency. If one instead uses GDP per capita adjusted for PPP and compares it between countries, we find that economic growth in Japan was relatively equal to that of the US during the lost decades, despite GDP growth per capita being far lower. Why did no deflationary spiral occur? According to all traditional Monetarist theory, it should have, and did. Once again, if one looks at GDP they see less money going into assets and money being "hoarded". But the problem is that we are conflating the financial and equity markets with the whole economy. "Hoarding" is simply an ugly way of saying saving or spending on consumer goods and services. While, Japanese consumers increasingly decided against loaning money to banks or businesses, they still purchased goods and services at a good pace. While the standard irrational exuberance of the modern equity markets may have been curbed, leading analysts to declare that Japan was in a deflationary spiral, the average consumer became better off. The financial markets were now forced to follow the market's real interest rate, as opposed to that imposed by the Central Bank. This drew money out of speculative markets, which in the dogma of modern financial analysts is tantamount to the apocalypse, but in reality benefits savers and investors. The US dollar is deflationary against almost all goods and services from abroad. In the logic of the "deflationary spiral" argument, no one would ever buy these goods because they could buy more at a later date. The same goes with electronics, which have experienced price deflation for decades. What this obviously ignores is the subjective value placed on time by a buyer. A car bought next year is worth less than a car bought today because I get one less year of time-usage from it. This can create periphery costs as well. For example, what are the costs to my business by putting off purchasing the car? Will I need to take public transportation? What enjoying will I miss out on? These are all subjective metrics, but suffice it to say, If the value placed on the usage time of the item by an individual outweighs the value to them which can be expected from an increased value currency, then they will spend it, regardless of its future value. Time has value. Another example is that of the latter half of the 19th century, a time of deflation and also the greatest economic expansion in history. During a forty year period US real economic growth grew over 400% meanwhile prices actually fell 12%. The great depression is usually cited as the best case for the danger of a deflationary spiral because it occurred during a deflationary period. Yet, if it was deflation that led to the depression, surely it would have also occurred in so many other instances. And yet it didn't. This make it rational to assume that it was perhaps correlation during the depression rather than causation. A much more powerful explanation of the causes of the depression may be the massively incompetent responses to a standard crash that were enacted by bureaucrats. Deflation is simply a barometer. Contrary to causing problems, it just reveals them. If an over indebted company is not performing in a manner supportive of that debt it cannot paper over it with an inflating currency. Inflationary environments naturally favor borrowers over savers and investors, deflationary environments turn this on its head. It is no wonder that borrowers are so prone to declaring it the greatest evil known to man. But one man's "deflationary spiral" is simply another man acting on his preferences with the benefit of access to real interest rate information. If he chooses to loan the entrepreneur money, he will be doing so based upon good information rather than on the premise of a distorted artificial bubble. Lending still occurs in such environments, it is just much more advantageous to the investor because firstly, they are not punished for not investing, and secondly they are doing so with information on real rates.
  7. For what it is worth, at least in the realm of international settlement, the gold standard never really went away. We just like to think it has because it conforms to our domestic financial monetarist theories. But what happens, ultimately, when countries want to settle and they don't have adequate trade, foreign currency reserves, and/or their currency has been grossly devalued by profligate spending? Their creditors demand assets. While this is often provided in physically shipped gold bullion, it can also be any other hard asset that can be liquidated easily: oil, raw materials, contracts, land, etc. The point is that the shell game that is international settlement only works so long as there is adequate trade, and so long as everyone trusts everyone else. As can be seen from many cases in recent history, countries do not always maintain trust in each other or their willingness to honor their debts. This is why you have seen countries being forced to perform, what seem to us like absurdly antiquated things, such as shipping tons of gold to another country. Settlement must ultimately occur in goods and services, the rest is just noise. What XRP and other crypto are trying achieve is an ability to be an asset rather than a debt instrument. Think of it as the difference between a physical US$ greenback and a bank issued balance in US$. They are not equal. The greenback can be traded to almost anyone on earth with no third party needed. The XRP ledger takes on the role of the third party. This makes its utility much higher. Meanwhile, the bank issued US$ balance can only be liquidated to a person who holds an account at that bank, or who has access to someone who does. Sometimes this is forex traders and sometimes it is the central bank. But regardless, each of these are forced to carry accounts at the originating bank in the U.S. There is no fundamental way to avoid the correspondent bank because the actual money never leaves their coffers. They are simply making balance adjustments on their ledgers from one account to another, something for which they charge a tidy fee. In country pairs with fairly even balances of payments, settlement would rarely be needed, because debt swaps would largely offset. For example, the US moves large amounts of US$ from domestic accounts to Chinese held accounts at the correspondent banks in NYC (once again, the money never moves) to account for the massive amount of imports. The Chinese in turn have largely chosen to use these increased account balances to buy US stocks and bonds (government debt) rather than buying back their own currency or buying US made goods. This keeps the Yuan weak and the dollar strong and in their minds benefits them by allowing them to export more. Some obviously does go to buy back Yuan, this necessitates a forex trader with an account either at said bank or at the fed reserve, as well as one in China. Either that or access to a pathway that does include a combination entities with such accounts. Either way, due to the exclusivity of having such accounts, there is a significant bottleneck for the provision of this service. It is the difference between forcing everyone to use a few bridges to cross a river versus everyone being able to start a ferry business. The bridge works but it is not optimal (except for the bridge owners). My point is that bank issued fiat never moves. It can't. This is the important point. Meanwhile, crypto, like physical US$ or gold or oil or any other good, can actually move across borders. It is ultimately one of these, or a debt swap, that ultimately must settle all payments. And while the US can manage to square the debt swap equation directly quite easily because the are not only the originators of the currency but also because its bonds, stocks, currency, and real estate are attractive, not every country can do this. These other countries or businesses in these countries are forced to rely on turning to US bank facilitators (including national governments such as those in Beijing or Tokyo) to pathfind adequate liquidity to patch together a debt swap to settle. People make the mistake of thinking the current pathfinding mechanism goes through the US dollar and is functionally no different than were it to utilize crypto. This is wrong. The current system does not use the US dollar. It uses bank or Fed issued US dollar balance swaps. This is an important point. It means that almost all countries must use the framework (and pay for it) set up by the big correspondent banks in NYC or the Fed reserve. While trust is not the big issue in my mind (the Fed and correspondent banks are fairly trustworthy for the most part) the drawback is that one is forced to ultimately limit their liquidity providers to those with accounts at the Fed. Obviously this creates a limited number of privileged gatekeepers. Crypto on the other hand, if it has sufficient liquidity, replaces the correspondent banks and US Fed with the ledger, which is free and can provide literally billions of liquidity providers. There is no need to go through the gatekeepers who are lucky enough to have accounts at the Federal Reserve. Pathfinding can still done in the same way, using debt swaps, or actual settlement in crypto. The deflationary spiral that some monetarists fear, if it even exists, can be addressed by the ability to issue IOUs on top of the XRP ledger and thus functional form a system of fractional reserve banking. Central banks would still provide domestic liquidity in their sovereign currency. Only now, instead of needing to hold onto a US dollar balance in NYC, they would only need an account on the ledger.
  8. Your assumption seems to be based on the unsubstantiated premise that financial institutions will never create debt instruments on top of XRP in the same way that they do fiat currency. In my understanding, IOUs provide this role easily.
  9. This is true. Unfortunately not much I can do about that, lol. Although, once again, I never referred to anyone as garbage.
  10. Lol. Unbunch your chones and chill. I never called anyone garbage. I referred to much of the content published in support of crypto as garbage.
  11. A critical mass of poorly researched and written commentary most definitely affects how the populace sees XRP, and thus those who are associated with it. Simply saying "some books are garbage" is a poor analogy and fails to address the relatively overweighted role that garbage articles play in forming public perception of crypto. Perhaps a better analogy might be: Most reality TV is garbage. I love reality TV. Now I'm associated with garbage TV. Whether you like it or not, people will associate your involvement with a particular topic with the overwhelming popular conception of that topic. Whether or not someone forces you to watch it is irrelevant to perception. That was simply my point. It was meant to be a tongue-in-cheek attempt at irony. I suppose I should've known better.
  12. Thanks for explaining that. In other news, water is wet. Although if you want to address what I actually said, I invite you to do so.
  13. "XRP army" is the best argument for getting out of crypto. What an embarrassment to be associated with some of this garbage.
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