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What if world decides to bypass USD as global currency and SEC cracks down?

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3 hours ago, Wandering_Dog said:

I'm getting trolled hard :rofl:

 

EDIT: @BrownBear you are totally correct. The US might default at any time, because the gov debt is so high. The only way to save yourself from the impending bankruptcy is to BUY MOAR XRP!   :drinks:

I never said anything about the U.S. defaulting. I was simply responding to your incorrect statement. But all you have done is responded with personal attacks and strawman arguments. Now you are making up false statements all because you refuse to acknowledge that you are wrong.

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2 hours ago, KarmaCoverage said:

Technically you are describing a "Liquidity Crisis", not "insolvency".

There is a subtle yet significant difference. 

- Being in "Insolvency" = a Balance Sheet with a negative equity value.

- Being in a "liquidity crisis" = the Cashflow statement is running negative for the period of time.

---

I did not describe a cash flow problem. I was describing a nation having a GDP to debt ratio so large that is it literally unable to pay it's debt. Hence insolvency. If I had said something such a Central Bank printing more funds like wandering_dog did, then I would have been describing a liquidity issue. A Central Bank can help avoid temporary liquidity shortages, but it wouldn’t be a solution if debt levels were fundamentally unsustainable and the country were insolvent. Pumping additional liabilities into the financial system cannot change the unalterable fact that assets cannot be created from thin air. Insolvency crises require a different exit plan than their less troublesome illiquidity counterparts.

For example, in 2008, the Zimbabwe economy was bankrupt by falling demand and shortages of goods. In response, the government printed more money – but this only caused hyperinflation and did not solve the fundamental problem.

 

Quote

I too am concerned about the US govt falling victim to the negative side of the double edge sword that is the "Triffin Dilemma". We have a large and rapidly growing  national debt, and floating that debt in a rising interest rate environment will be increasingly ruff.

I do believe that XRP will become a significant piece of the international settlements puzzle, and that (one way or another) the USD will be retired as the dominant global reserve currency. This means the US will be left without the positive side of the double edge sword that is the Triffin Dilemma 

That said, governments have many options that regular humans/corps dont have.... and I have almost no idea how this will unfold over the '20s & '30s?

I was just looking at how the US govt funded the Civil war via expansive monetary efforts, and how holding the base money supply at a fixed amount, lead to repeated financial crises between the 1870s and when the Fed was established.

You have to realize that goverment income is derived from the amount of economic activity that unfolds with in the domestic economy. Unless the economic activity stops... there are all kinds of things a govt can do.

I never said I was concerned. Those words were put into my mouth by another user. I never once said that.

AS for saying I must realize that Government income is derived from economic activity. Where are you getting the opinion that I think differently? In my response regarding the other users claim that Russia defaulted as a political move and not due to a collapsing economy in 1998, I think I already demonstrated I understand how it works.

But I'm pretty much done here. It's like arguing with people that think Governments can give things out for free.

The fact is, Countries can go insolvent, they have gone insolvent and they will continue to fall victim to insolvency. It's not even up for debate. But Insolvency is not a permanent thing, they can become solvent again. Spain has gone insolvent six times.
 

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50 minutes ago, BrownBear said:

I never said I was concerned. Those words were put into my mouth by another user. I never once said that.

AS for saying I must realize that Government income is derived from economic activity. Where are you getting the opinion that I think differently?

Those are my words, not yours. I said them, not you. I did not attribute the statement to you. I simply made the statement.

I have no idea if you think differently or not. However, these are things that I dont believe to be subjective. It is, what it is.

---

I'd like to point out that the governments you point to as "insolvent" are still in existence today... this is the nature of an entity living through a Liquidity Crisis, -vs- it's existence ceasing to be due to insolvency. 

It's cool that you are into knowing this kind of stuff. Learning the subtitle differences can be done by including Discrete Time Periods into your thinking.

Such as the difference between a Balance sheet (being cumulative of all time) -vs- a Cashflow statement (being representative of only a specific time period).

It sort of seems you are thinking from a "Cash basis" rather than an "Accrual basis"...

..add to that the factor of Governments having monetary policy as an arrow in their quiver.... and it becomes a whole other situation.

It may seem off topic, but hopefully this video helps.

I'm happy to help answer anything, if I dont know, I will find the answer and enjoy learning something. Please voice any thoughts or concerns, if you have them, others are also thinking it.

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12 hours ago, KarmaCoverage said:

Those are my words, not yours. I said them, not you. I did not attribute the statement to you. I simply made the statement.

I have no idea if you think differently or not. However, these are things that I dont believe to be subjective. It is, what it is.

---

I'd like to point out that the governments you point to as "insolvent" are still in existence today... this is the nature of an entity living through a Liquidity Crisis, -vs- it's existence ceasing to be due to insolvency. 

It's cool that you are into knowing this kind of stuff. Learning the subtitle differences can be done by including Discrete Time Periods into your thinking.

Such as the difference between a Balance sheet (being cumulative of all time) -vs- a Cashflow statement (being representative of only a specific time period).

It sort of seems you are thinking from a "Cash basis" rather than an "Accrual basis"...

..add to that the factor of Governments having monetary policy as an arrow in their quiver.... and it becomes a whole other situation.

It may seem off topic, but hopefully this video helps.

I'm happy to help answer anything, if I dont know, I will find the answer and enjoy learning something. Please voice any thoughts or concerns, if you have them, others are also thinking it.

You said "I too am concerned" this is implying that at one point I also expressed concern and you share it with me. If you wanted to attribute the statement to only include yourself, you should simple state "I am concerned" 

The next thing is you are confusing Insolvency with bankruptcy, these are different things. Just because you go insolvent doesn't mean you stop existing. It simply means you are at that point in time you are unable to meet your debt payments. That's it. An entity can go from being insolvent to solvent again if they can secure loans or refinance debt or sell assets to meet the repayments.


What do you think the word insolvency means? I think you seem to think it means that a country is also bankrupt. Bankrupt while being a form of insolvency can only be determined by a court, countries therefore cannot go bankrupt because creditors cannot seize Government assets,  but can and do go insolvent. Cash Flow issues are also a form of insolvency.

  • Cash flow insolvency occurs when an entity is unable to pay its debts when they are due.
  • Balance sheet insolvency occurs when an entity has negative net assets (total debt surpasses total assets).

An entity can be cash flow insolvent, but balance sheet solvent, if it holds non-liquid (non-cash) assets worth more than its liabilities. The reverse is also possible: An entity can be balance sheet insolvent (more debt than assets), but cash flow solvent if its revenues allow it to meet its immediate financial obligations.

Insolvency is not the same as bankruptcy. Insolvency is a state of economic distress, whereas bankruptcy is a court order that defines how an insolvent debtor will meet his or her obligations and/or have assets liquidated (sold) to pay the creditors.

It is really worrying that in today's age there are people that do not know the difference between insolvency and bankruptcy.

 

Edited by BrownBear

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On 11/8/2018 at 6:48 AM, BrownBear said:

Yes they can. Just because you can print money does not mean that money will hold value.

Ok, I'll give you the benefit of the doubt and assume you are not taking the **** [EDIT: p-i-s-s, figure of speech], and go back through your first post with a bit more alacrity :popcorn1:

First, let's define the term "printing money". Printing money occurs when the US Treasury issues bonds which are then purchased by the US Federal Reserve (CB), resulting in an expansion of the CB's balance sheet. The Treasury must also increases it's spending in the domestic economy, either buy purchasing goods and services or reducing taxes.

It is this creation of reserve account balances by the CB to purchase bonds and the spending by the gov together which is considered "printing money". These reserve balances, known as "outside money", or money created by the gov, is recorded in the ledger of the CB. As the gov "pays" a firm for goods and services, it increases the balance of the commercial bank of the firm on the CB ledger. The commercial bank then increases the balance of the firm's account on it's own private ledger, this is known as "inside money". The sum of all the freshly created liabilities and assets is 0, always, by definition. This is a tiered money system, currently we've described just 2 tiers, CB ledger (outside money) and commercial bank ledgers below (inside money). 

When you say:

 

Quote

All new currency enters the economy as debt, not a credit. When currencies were back by Gold, they entered the economy as credits but this is not the case now.

This is sounds like a paradoxical statement from your use of the term "credit"--a debt necessarily has both an Asset, A, and Liability, L, component; it cannot be that money on a ledger has no corresponding L component, if that is the case we are describing a real good--something that exists, such as a commodity. This term "credit" as you have used it is unclear--so I'll state that I think you mean an account is "credited", or the balance increases.

A balance in an account, Asset and Liability, is created by creating an asset and creating a liability, ex nihilo, or from nothing (4 entries on 2 balance sheets, the bank's asset (loan) and liability (deposits), and a person's asset (deposits) and liability (loan)). From your manner of writing it's implied that you are treating money as an exogenous variable, something real, such as a commodity like gold, or XRP.

To be clear, inside and outside money are not commodities, they expand with loan issuance by entities which have the legal authority to create money and contract with loan repayment. This is a fundamentally different process to intermediation of money, which is the debiting of one pre-existing account balance and the "crediting" of another account balance, which does not result in an increase in money, but does increase the total amount of debt in an economy. In this way entities which cannot create money exchange assets, such as a freshly created bond for some pre-existing bank deposits. This is an important distinction, in your world money is exogenous and intermediated, while in our actual world, money is both created and intermediated by both public and private institutions, with the majority (95%+) of all "money" aka bank deposits (or other derivatives) created by private institutions (banks).     

 

Quote

In order for a currency-issuing country to avoid insolvency by doing so, the currency entering the economy in swap for sovereign debt must cause economic activity, and tax receipts as a result, to be greater than the cost of servicing the sovereign debt over a long period of time. 

For a country with a sovereign currency, or a country that possess a treasury and central bank with the authority for that CB to purchase gov bonds and without any obligation to exchange that unit of account (such as USD) for another unit of account (such as EUR) due to a currency peg [note that EUR countries are do not have a sovereign currency as the EU has no Treasury and the CB is not technically legally permitted to purchase state gov bonds as they have been :wacko3:], to avoid insolvency (L > A) all that must occur is the increase of the Treasury's account at the CB, by increasing expanding the CB's balance sheet. If the country is a soveriegn currency but is heavily reliant on imports, as most developing or emerging countries are, import prices may increase. Or, if output is constrained, such as through political agreements like restrictions on land ownership or use, then domestic prices may increase. But the capacity for the gov to afford anything denominated in terms of their unit of account is guaranteed regardless of the level of domestic inflation, economic activity, or tax receipts, by accounting definition. Any goods or services denominated in the state's sovereign currency regardless of tax income or economic activity is affordable, by definition 

This is an important idea to understand: tax receipts are not required for government spending because the causality of economic activity of a sovereign monetary economy is from Gov spending -> Economic Activity. Without gov spending the unit of account will not exist by accounting definition. This pisses capitalists off because the Gov is democratically controlled, and people can vote to do whatever they want, which endangers the profitability of decisions they made in the past when creating their businesses. So what better way to screw the electorate than create something like XRP, get your cartel to force it onto constituents by making it the only payment method accepted, thereby eliminating the gov's ability to spend as its unit of account must now necessarily be convertible into a fixed unit of account that is controlled by no one (oh, and your countries are all import dependent :smoke:).       

 

Quote

If that occurs, the currency will maintain its value. If it does not and the currency-issuing economy exceeds the solvency threshold, which is the point at which more than 25% of tax receipts are required to service existing debt, the country becomes terminally insolvent. Once the threshold is exceeded, no changes of any kind can reverse the terminal insolvency trajectory. Changing taxing schemes, deregulation and increases or decreases in government spending are rendered mathematically inoperative as mechanisms for creating economic growth, and thus tax receipts that exceed debt service requirements. 

We cannot say that a currency will maintain value because of some arbitrary level of economic activity or level of tax receipts. This is an extremely simplified statement regarding an extremely large, extremely non-linear system--it is futile to bother. But I can say that tax receipts are not required, are never required, and fundamentally that causality between economic activity and gov spending in your world is reversed: for economic activity to take place in the unit of account of a monetary sovereign, the gov must first spend. The notion that some level of interest payments makes the unit of account meaningless, especially in a globalized system of production, is not trivial. Likely, the CB will simply restart the system by erasing it's ledger and starting over--as has been the standard for the past 5000 years ("Jubilee"). The question is whether or not people (who have everything to gain) will be led by capitalists (who have everything to lose) into a war in order to define how ownership is carved up, again. Without gov debt there is no private savings, and for the world to accumulate in monetary terms the amount of gov debt must always be increasing. 

To be clear, the idea that a sovereign monetary economy cannot afford something in its own unit of account is false. Whether it is interest payments or goods and services--whether the gov manages that responsibility by constructing well functioning institutions, is an entirely different question. Whether or not the people create some more beneficial alternative system, likely the reason many of us are interested in being here and talk about it, is a different question. The gov can at any time take corrective action to alter the characteristics of its economy to balance wealth, income, payments, institutions, this notion of "only markets can do it" is flawed. Without gov there exists no market, this is the basis of modern English history, the connection between a gov and its institutions that enable markets to (...) [do something other than hunter-gathering].  

 

Edited by Wandering_Dog

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1 minute ago, Wandering_Dog said:

some random text not based on the topic at hand but I feel if I argue enough people will think iamverysmart

The topic is : What does insolvency mean and can countries meet those conditions?

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10 minutes ago, BrownBear said:

The topic is : What does insolvency mean and can countries meet those conditions?

:drinks:

It's just L > A mate, and when you've got a Treasury, a CB, and everyone saves in terms of your unit of account, you can always pay.  

Edited by Wandering_Dog

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2 minutes ago, Wandering_Dog said:

I am posting again with my iamverysmart comment in the hopes my wit will cover the fact I avoid the topic at hand because people will know I do not understand what the word insolvency means

/boring

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5 hours ago, Wandering_Dog said:

This is an important idea to understand: tax receipts are not required for government spending because the causality of economic activity of a sovereign monetary economy is from Gov spending -> Economic Activity. Without gov spending the unit of account will not exist by accounting definition.

The pre-financing of government spending starts it all, e.g. Germany 1948:

The equalisation claims, denominated in DEM as the new money of account, did not result from "credit operations" of banks or non-banks in favour of the state authorities, but were created out of nothing - similar to sole bills. The debtors de jure were the state authorities, the debtors de facto were the tax- payers of these authorities. It is the German tax-payer who has to pay the remainder of these claims from the year 2024 onward as mentioned.

These claims went to the monetary authorities (Bank deutscher Länder, Landeszentralbanken). These predecessors of the Bundesbank handed out the new DEM as money proper (bank notes) in turn only after receiving these equalisation claims. These bank notes were created out of nothing because the claims which exclusively could be converted into new DEM banknotes also were created out of nothing.

The most striking proof for this creation of "pure chartal or state money" is seen in the combined balance sheet of all banks (Deutsche Bundesbank 1976, Table 1.02). In their final RM report they show RM 3,3 billion in cash and 36,4 billion in deposits with monetary authorities. After the currency reform these assets were zero. To keep the banks afloat and to avoid bankruptcy of the whole banking system as consequence of lacking assets the banks got DM 6 billion of these claims - by far the largest position of their asset side (total 11,3 billion).

These claims now could be used to procure DEM from the mentioned monetary authorities. These claims were distributed to the banks without the banks in any counter-move handing out assets to the state. The assignment was a gift which the state donors created out of nothing and which the taxpayer finally had to settle. :bye:

Without expected tax revenues, no government spending. Tax revenues, however, always lag behind government spending.

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5 hours ago, BrownBear said:

You said "I too am concerned"

Sorry, I intended the --- to be a break in topic, and in that concerned part, I was replying to the original question in the thread, which is one that I have been thinking about...

On 11/7/2018 at 10:21 PM, utawwjizz said:

This space is full of hypotheticals and speculation, however, I would appreciate someone’s opinion on this scenario.

Say the world adopts XRP and facilitates all trade through Ripplenet essentially bypassing USD’s use as a medium of exchange through international trade.

---break---

5 hours ago, BrownBear said:

The next thing is you are confusing Insolvency with bankruptcy, these are different things.

  • Cash flow insolvency occurs when an entity is unable to pay its debts when they are due.
  • Balance sheet insolvency occurs when an entity has negative net assets (total debt surpasses total assets).

We are talking about shades of grey here, which is great. The more shades of grey one can see clearly defined, the more clearly they can observe a grey situation.

You first bullet point is called a "liquidity crisis", 

Quote

 

What is a 'Liquidity Crisis'

A liquidity crisis is a negative financial situation characterized by a lack of cash flow. For a single business, a liquidity crisis occurs when the otherwise solvent business does not have the liquid assets (i.e., cash) necessary to meet its short-term obligations, such as repaying its loans, paying its bills and paying its employees.

If the liquidity crisis is not solved, the company must declare bankruptcy.

An insolvent business can also have a liquidity crisis, but in this case, restoring cash flow will not prevent the business's ultimate bankruptcy.

 

Both balance sheet "insolvency", and a cashflow statement "liquidity crisis", are signs of distress on an economic entity, and restoring health may be possible. Bankruptcy is death.

---break---

@Wandering_Dog You wrote an excellent post, you really did good succulent job of explaining several complex issues and how they are interrelated :big_boss:

This caught my eye, because I have been thinking about "what does a global monetary system look like with XRP as a bridge asset?"... and you are hitting the exact same idea here that I have been wrestling with in my head. 

The idea that XRP has a fixed and dwindling supply + All fiat currency being directly convertible to XRP = Global monetary in-elasticity.

5 hours ago, Wandering_Dog said:

So what better way to screw the electorate than create something like XRP, get your cartel to force it onto constituents by making it the only payment method accepted, thereby eliminating the gov's ability to spend as its unit of account must now necessarily be convertible into a fixed unit of account that is controlled by no one (oh, and your countries are all import dependent :smoke:). 

In this new world domestic economies and CBs can still do domestic monetary policy, but on the international stage, it is much like going back on the gold standard, with a fixed supply of base money.

As I said above, I have recently been looking at how the US funded the Civil War, (and WW1 & 2) through monetary expansion. Specifically the the time period between the 1870s and 1913 (fed creation) where there was a fixed base money supply (backed by a fixed supply of govt bonds) which lead to repeated boom bust financial cycles as the demand for currency rose and fell with the seasons (agricultural economy, planting vs harvest seasons).

My next thought is to look at the global situation "relatively".. so I'd ask, "is this relatively better or worse than the current paradigm?"... and I dont know that I have an opinion here, I dont think I understand the current international monetary governance mechanisms. If there are any? IMF? World Bank? BIS? FX markets? idk

I have been shy to write about this, but others have mentioned it before so... Ripple Inc could become an important player in creating, setting, and managing international monetary policy.. if there is to be an effort in that regard. I really just dont know. It is all quite interesting.

@Wandering_Dog  @tar If you have some thoughts, please think them out here. I'm going to make a video soon on this topic soon. It was going to be based on that other thread, about CBDC, and I am going to draw it out. I think you were the one trying to draw out the chart of how settlement would work with CBDC vs Commercial Bank Deposits.

What limitations on Domestic Monetary policy would emerge as a result of a fixed supply of XRP, and XRP being a key bridge asset for cross boarder flows? 

Edited by KarmaCoverage

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17 minutes ago, KarmaCoverage said:

@tar If you have some thoughts, please think them out here.

What limitations on Domestic Monetary policy would emerge as a result of a fixed supply of XRP, and XRP being a key bridge asset for cross boarder flows?  

None. I see no special role here. XRP could be used to complement the central banks asset side and it could be used to complement the currency basket of special drawing rights which are more flexible than a limited XRP supply. I would be greatly surprised if international authorities would go back to a modern Gold Standard.

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3 minutes ago, tar said:

I would be greatly surprised if international authorities would go back to a modern Gold Standard.

Yeah that would seem like a "full tard" move to me, and I cant see that route being pursued.

3 minutes ago, tar said:

None. I see no special role here. XRP could be used to complement the central banks asset side and it could be used to complement the currency basket of special drawing rights which are more flexible than a limited XRP supply.

This is interesting, makes sense on the surface.

What do you think if like Wandering_dog hinted at, if we are talking about a mostly import economy. With the value of their domestic fiat being constantly compared to XRP? I would think that the CB (at some point) would lose its ability, or have a diminished ability to pursue independent monetary policy?

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19 minutes ago, KarmaCoverage said:

What do you think if like Wandering_dog hinted at, if we are talking about a mostly import economy. With the value of their domestic fiat being constantly compared to XRP? I would think that the CB (at some point) would lose its ability, or have a diminished ability to pursue independent monetary policy? 

You talk about the (dark) red countries here:

Cumulative_Current_Account_Balance.png

While the USA have their military power to enforce their USD as reserve currency GB will likely face already faced a debasement of the GBP. XRP cannot help GB on that, as far as I know, and the idea of @JCCollins to replace the USD with SDR (or XRP) as reserve currency (regarding China) will probably bring the USD into trouble.

Edited by tar

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I would agree with @tar, the idea that the US, thinking of that state as a single entity, would willingly give up its position as the reserve currency, seems very irrational. If the USD is usurped then US constituents will face a similar situation faced by the UK at the end of WW2, namely a currency falling in value relative to the new settlement currency which reduces standards of living as import prices rise. The US consumption engine based on credit creation would end--it would be a global catastrophe, but especially difficult for the US, despite their abundance of resources as production would need to be recreated in the US, which takes time. It would fall to China to literally save the world by buying everything that the US can no longer afford, which becomes nonsensical because China would produces those things! This is the "overproduction" story, or glut, associated with liberal economics that our most hated friend Marx made famous.

However, the US is not a single entity, it is a democracy and those voters are angry at the distribution of wealth and income. Because the US voting system is so tightly controlled by wealthy parties, the US voters have resorted to protest votes for non-sensical candidates. It is possible to imagine a world where the voters themselves choose to break their own system because there are no other feasible alternatives that have any impact on the distribution of wealth or income. In this context, XRP is seen very differently, a choice of the business class to remove some of that democratic power. Voters could always impose a ban on something like xrp, or force businesses to accept other forms of payment by law. The arms-race of altering the distribution of resources is always evolving, but my original thesis behind xrp as a ultimate-liquid asset, which has 0 risk, and is state-independent, is starting to take on a new view as I realize that there is some serious benefit to adoption from speed, usability, cost, among others that may lead to unintended consequences. 

The instability of fixed supply settlement systems, chiefly the Gold standard, is well researched. If xrp was implemented in such a way it would suffer from these same drawbacks--states would have no fiscal policy to pull themselves out of deflationary spirals. The result is austerity and the eventual collapse of society, often including exploitation from surplus nations, isolation and nationalism, and at worst war.   

The primary problem with something like xrp is actually similar to that faced by the EU: only so much is politically feasible. The European states knew the benefits of a union, but their constituencies were unwilling to complete the final steps of a strong federal government with a military and fiscal policy because of the history of conquest in Europe. The result was an incomplete union that is collapsing around us.

Implementing a fixed supply settlement asset like xrp faces a similar problem: when wealthy interests force negative interest rates on the population as ameans to retain power given massive zombie debt, people are robbed of their ability to save. Given stagnant wages and maximized household debt levels, people become interested in abandoning their currencies, because its no longer in their interest to use them--they are pulled ever further into debt and necessity of employment. An xrp asset, with its decreasing supply properties and speed seem like a great solution--but the solution we really need is a flexible supply "xrp_f" with robust global governance institutions. However, this complete solution, and the global governance it requires, is likely not feasible to implement because of the state of our world, just like the EU union. So, we would end up re-creating a global gold standard and independent monetary authority (extremely independent) as faith in our political systems continually decreases. Later, we would face a crisis just like the EU is facing, the deflationary characteristics of xrp are baked into our global system, and it leads to collapse--this doesn't mean xrp can't be updated to fix this issue, it can. That's one of the wonders of it. The question is what's the blueprint of that governance? And unfortunately, this is something that can't be discussed, because merely bringing it up as a topic makes xrp, or any other similar tool, a target. So, in this way, we will make our beds, building these systems out and getting as much done as we can, and leave it for the next generation to resolve that "pesky global governance issue", and we'll see how that works out in the EU over the next 18 months. 

   

Edited by Wandering_Dog

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