The Economic perspective for understanding an Internet of Value

[KarmaCoverage]

Thanks to the YouTube AI suggestion engine I stumbled upon this guy just a little bit ago. I have opened up a dialog with him, and am awaiting his thoughts on a few things IoV, and credit in crypto related.

In short, Perry did a through 5 lecture series for Warsaw School of Economics, in Oct 2017. Each video is just over an hour long and I very highly recommend viewing all of them. I watched them in reverse order, starting with the global monetary system (more RippleNet/XRPLedger related), but they are posted in order.

Much of what I was trying to convey with the write up A complex adaptive global financial system is an amateur attempt at explaining what he covers across his 5 video crash course. This includes a focus on Liquidity & Dealers (aka ILP Connectors & Market Makers as liquidity providers), Central Banks as a "Dealer of last resort" providing liquidity (what happened in '08 crash), Banking as a Payment System, and the process of credit creation and settlement. Banking as a Market Maker (business model) keeping the focus on what I call "The Spread View" of a business's activity.  I basically view all business as market makers, or "dealers" as he defines it.

He also builds up from history into modern Domestic Economic settlement systems, money markets, and he actually functionally defines/describes the business model of "shadow banks".

He discusses three tiers of global Liquidity (Monetary, Financial, Market liquidity), which was fascinating. He discusses the sources of elasticity and discipline in the markets for liquidity and each's system... 

• from the Fed via "Monetary Liquidity" <---- this is where final paper cash settlement happens, and where I think CBDC's place should be
• from the Banks expanding/contracting credit via "Financial Liquidity" <--- is where RippleNet's non-XRP settlement happens based upon bank deposits
• from the private markets via collateral backed "Market Liquidity" <--- is where XRP would fit it, as settlement collateral

There is a whole lot of excellent & current perspective on how types of global liquidity flows through existing monetary systems in an interconnected way, which he articulates here. These are probably "multi watch" videos. I think to fully grasp what RippleNet and the IoV means to the world, these are the briefest possible way to get a "full perspective", and from that foundation, one can begin to compare and contrast international monetary systems like RippleNet and the IoV.

It's all about liquidity and cash flow risks (not solvency, balance sheet risk), and I believe that Blockchains as a market place tool are uniquely able to reduce Liquidity Risks, so all of this hits home. Please enjoy...

I. Why is Money Difficult? 

II. History of Money and Finance

III. Fundamentals of the Money View 

IV. Past, Present, and Future of Shadow Banking 

V. Understanding Global Money

@tar @Wandering_Dog @JCCollins @Hodor.. @Wellington is that you? If so, here is your economic fundamentals to understand the systematic impact of "Just in time Liquidity" & maybe think through towards some understanding of how real time liquidity flows, and real time settlement flows could impact monetary systems and policy execution. At least that's my 2 cents on this material.

Edited December 1, 2018 by KarmaCoverage

[Paradigm]

This may or may not be the appropriate thread to add this to. I didn't want to create a new thread on this report alone and I think it fits in well with the OP in regards to the liquidity issue and overall re-vamping of the global financial landscape. Originally shared in The Zerpening but I know not everybody is in the Zerpening so here it is for whomever may be interested:

https://www.globalfinancialgovernance.org/assets/pdf/G20EPG-Full Report.pdf

 

MAKING THE GLOBAL FINANCIAL SYSTEM WORK FOR ALL

Report of the G20 Eminent Persons Group

on Global Financial Governance

 

Some of the quotes stood out to me. Particularly:

"The development of a standardized, large-scale asset class, that diversifies risk across the development finance system, will help to mobilize this huge untapped pool of investments."

"We will not know where the next crisis will start. But it will become a full-blown crisis, with broader global consequences, when we are not prepared for it"

"The ambition is in the doing. Some of the reforms are low-hanging fruit. Most are achievable within a few years, with focused effort. Some others go beyond current thinking. We urge that they be considered with an open mind, and developed further or adapted if necessary to enable their implementation. Achieving these reforms will also contribute to a larger goal that every nation has a vested interest in. They enable us to build a cooperative international order for a new, multipolar era – one that enables nations everywhere to fulfill the aspirations of their citizens, and serves the global good."

"Third, it is important to put in place a standing global liquidity facility,14 drawing on IMF permanent resources, to strengthen countries’ ability to withstand global liquidity shocks and avoid deeper crises. A reliable liquidity facility will also help them avoid building up excessive reserves as the price for being open to capital flows, and hence avoid hampering growth. The facility should be designed for countries with sound policies, and to minimize ‘IMF stigma’ when they draw on it." (I bolded liquidity facility because it made me think of xRapid/ On-demand liquidity.)

Edited December 1, 2018 by Paulo

[KarmaCoverage]

18 minutes ago, Paulo said:

Third, it is important to put in place a standing global liquidity facility,14 drawing on IMF permanent resources, to strengthen countries’ ability to withstand global liquidity shocks and avoid deeper crises.

He has a pyramid chart at that he uses to explain the "hierarchy  of money". The USD is obviously at the top, but just under that on the international scale is all the FX swaps markets, which the central banks of each domestic currency are large players in. He then shows how the actions of the central banks connect the monetary liquidity with the market liquidity when conducting "open market operations".

From the beginning of "global money" video #5... the "C6 Swap lines" those are the other major global currencies swaping out FX risk among each other. These are the 'edges" of the global monetary system, and these are the markets where Ripple is penetrating first. When these edges in the global financial network are able to directly connect, the entire system will grow in density of connections, which is generally a good indicator for a network's health. 

From video 3... showing the how the various Market Makers connect the various hierarchies of money.

 

Edited December 1, 2018 by KarmaCoverage

[aavkk]

Wow, there is an awful lot to chew on here.  Thanks!

[Paradigm]

3 minutes ago, KarmaCoverage said:

He has a pyramid chart at that he uses to explain the "hierarchy  of money". The USD is obviously at the top, but just under that on the international scale is all the FX swaps markets, which the central banks of each domestic currency are large players in. He then shows how the actions of the central banks connect the monetary liquidity with the market liquidity when conducting "open market operations".

From the beginning of "global money" video #5... the "C6 Swap lines" those are the other major global currencies swaping out FX risk. 

That's great stuff! Thanks for sharing. It will take a little bit of time but I'm going to watch all of these. I love good visual representations to gain a better understanding as I am not much of an economist at all.

[KarmaCoverage]

2 minutes ago, Paulo said:

That's great stuff! Thanks for sharing. It will take a little bit of time but I'm going to watch all of these. I love good visual representations to gain a better understanding as I am not much of an economist at all.

We live in a networked world, and networks are all about flows (which is liquidity in this network's case). So he just talks through all the balance sheet connections when economic activity occurs... If I give you $5 I have less cash, and you have more cash. If I give you a loan for $5 I have more financial assets and you have a debit financial asset. 

This stuff is really not that complicated to follow step by step. He does a good job keeping is simple, but still explaining the complex connections and how liquidity flows between them on a whole.

[enrique11]

I think it's important to figure out which cryptos have actual use cases.   Can Bitcoin really become a replacement for fiat currency if the supply and demand is not regulated so it's not volatile like a stock and can actually be used as a stable store of value like fiat currency?   I've been looking at such videos lately about the nature of curency, how fiat money is stabilized, supply and demand, the business models of banks, etc, but on different youtube channels than the one referenced in this thread, so it's a pleasant surprise to come across this thread. 

I think it's important to figure this stuff out quickly before the next bull run.  I feel like the next bull run will weed out a lot of silly coins by supporting the ones with the best use cases that actually have a chance at success, unlike the last bull run.

Edited December 1, 2018 by enrique11
additional comment

[Paradigm]

2 minutes ago, enrique11 said:

I think it's important to figure out which cryptos have actual use cases.   Can Bitcoin really become a replacement for fiat currency if the supply and demand is not regulated so it's not volatile like a stock and can actually be used as a store of value like fiat currency?   I've been looking at such videos lately about the nature of curency, how fiat money is stabilized, supply and demand, the business models of banks, etc, but on different youtube channels, so it's a pleasant surprise to come across this thread. 

I think it's important to figure this stuff out quickly before the next bull run.  I feel like the next bull run will weed out a lot of silly coins by supporting the ones with the best use cases that actually have a chance at success, unlike the last bull run.

I agree. Soon the world will know which tokens have utility. In the words of Brad Garlinghouse: "Bitcoin is not the 'panacea' people thought it would be."

The G20 report would like to thank a Ripple representative. This is huge. I think Ripple's tech is the holy grail of finance; the safety net the global financial system needs.

[Guest]

Excellent! Thank you for sharing @KarmaCoverage! 

[xrpmeplease]

ty OP

[Trickery]

At last a post worth reading, my faith in this board as a resource is restored, thank you @KarmaCoverage

[Lamberth]

A great lecture with barely 3k views.. Google should really do better job in promoting science

[Pablo]

1 hour ago, Trickery said:

At last a post worth reading, my faith in this board as a resource is restored, thank you @KarmaCoverage

@KarmaCoverage always brings the good stuff (along with a few others hidden away in various corners of this amazing forum) - I've been tagging along for a while now...

[Wandering_Dog]

I met Mehrling in Budapest during the YSI conference. He's a nice guy. His book is "The New Lomard Street", a great read, and he has his course from Columbia available online through Coursera. Mehrling, Keen, Varoufakis, Lavoie, Mazzucato, and many more, all rock stars of our economic era. 

 

We should note they all have one thing in common: they are all Post Keynesians of one form or another.

Edited December 1, 2018 by Wandering_Dog

[tar]

Good to see that you researched Mehrling who I recommended you 5 months ago

If 5 hours are not enough, I also recommend this playlist containing 192 videos of Mehrling to understand the modern financial system

E.g., here he explains the essence of a market maker, which is a dealer (incl. own speculation risk) and not a broker (which has no own speculation risk) .

Regarding to a friend of ANEP, Mehrling's work is based on Morris Copeland's (1895 - 1989) "Flow of Funds" whose system is inferior to that of Wolfgang Stützel (1925 - 1987, suicide). As the ANEP model actually still is in progress (see below), Mehrling's work is one of the best explanations of the relationship of money and credit but he does not consider the differences of private and public law. E.g., the whole topic of financial risk and central banks not only as "lender of last resort" but now as "dealer of last resort" is a consequence of systematic overpromises (here you find again a connection between private and public law).

So, I am still looking forward for ANEPs approach:

Quote

A core insight up to this point has been that to understand capitalism from the ground up, we need to connect law – based upon and historically coming from roman law – to macroeconomics by way of business and national accounting, introduce intentional actors, and build a macroeconomic monetary circuit model with these elements.  We take major inspiration from earlier attempts to build a law-based theory of economics, including scottish 19th century economist Sir Henry Dunning MacLeod, the american institutionalist John R. Commons, the german social-legal school (Stammler, Berolzheimer, Diehl, Kaulla and others), Legal Institutionalism, Legal Theory of Finance, Tsujimura & Tsujimura’s Balance Sheet Economics, and, especially and in a fundamental way, from Wolfgang Stützel’s work.  The other tradition we build on is post-keynesian monetary economics, including Modern Monetary Theory (Randall Wray), Ownership Economics (Heinsohn & Steiger), Stock Flow Consistent Modelling (Godley & Lavoie), and the Money View (Perry Mehrling).

An interesting side note is that Mehrling attended an ANEP presentation linking his money view to legal institutionalism in 2016 - so I am full of hope that his model will be enhanced accordingly (Did you also attend, @Wandering_Dog?).

Furthermore and regarding your focus on clearing, I stumbled over Keynes ICU approach to decrease global imbalances which is detrimental for banks as they finance open imbalances and therefore were and are against such approaches. How the ICU was prevented is explained in "Back to which Bretton Woods? Liquidity and clearing as alternative principles for reforming international finance" here (p. 225-242) and in this presentation.

Edited December 1, 2018 by tar