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jag216

Recession, Basel III and Xrp

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In the US, we have a tremendous amount of national debt. We're borrowing more to pay the interest on our debts. 

This devalues the currency. Venezuela specifically is a mess not only because of it's failed government and the administration and allocation of resources but also because of the sanctions placed on them by powerful nations, mainly US. How does the country with the largest oil reserves in the world crumble economically? 

I can't imagine the US ever ending up in that state, but you just never know. History has a way of repeating itself. The Great Depression was a terrible time for our country. 

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2 hours ago, jag216 said:

However, volume should spike considerably, and in tandem with announcements of tier 2-3 banks being distressed who are not on the system. This is the pattern on my radar.

could you elaborate on this?  specifically, can you describe what tier 1 and tier 2-3 banks are?

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I would still like to see regulation that will eventually allow for IFRS and GAAP to dictate how gains or losses on digital assets and or crypto are accounted for on an income statement and how it effects earnings. i.e. are they going to be included in Net Income or are they going to be, "below the line" and counted as Other Comprehensive Income (OCI)? Why does it matter? If gains or losses flow through to OCI, it does not count towards traditionally reported earnings (EPS), if G/L on digital assets/crypto are counted in OCI, they will show up in a report in addition to the traditional earnings report and any adjustments in the value of these holdings will affect the equity value of the company and therefore the share price and book value of a publicly traded entity.  Further, banks will still need to be able to hedge volatility within this space given that anything they hold that has required measurement dates will affect the amount of regulatory capital they have to keep on their balance sheet. Until this happens, the Nostro/Vostro issue could be neutralized by volatility (i.e. XRP frees up Nostro capital but negative price movement forces the company to keep more capital on their balance sheet to make up for the losses). Banks are thinking about this and need clarity on how to proceed! Once we get this, off to the races! 

Edited by XRPonTheIronThrone

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2 hours ago, Mr_Cambridge said:

In the US, we have a tremendous amount of national debt. We're borrowing more to pay the interest on our debts. 

This devalues the currency. Venezuela specifically is a mess not only because of it's failed government and the administration and allocation of resources but also because of the sanctions placed on them by powerful nations, mainly US. How does the country with the largest oil reserves in the world crumble economically? 

I can't imagine the US ever ending up in that state, but you just never know. History has a way of repeating itself. The Great Depression was a terrible time for our country. 

The US does have a tremendous amount of national debt. The debt to GDP ratio in the US is around 107%, though I'm not entirely sure that includes long-term debt such as social security and medicare. However, it is all relative to the rest of the world; in particular to specific countries who are economic challengers. China, for example, has a debt to GDP ratio near 300%. Japan: around 250%. It could be argued that Europe is in a worse mess than all the aforementioned.

Regarding Venezuela, they relied on oil to fund their corrupt, socialist policies. When OPEC declared a price war in oil against the US by glutting the market with product, the US became very efficient in extracting oil products through fracking (10 years ahead of most countries in the tech), and Venezuela collapsed from low prices. Now, the US is a net exporter of oil, enabling tremendous economic freedom from OPEC and the Middle East, especially since the US markets are diverse from oil, technologically mature and vast. It seems to me that the US is in a relatively strong position.

@jag216 I like your theory. Ultimately what I read from you is that xrp utility will not only help provide liquidity in a crisis (I agree), but also being forced to use the liquidity xrp will inevitably provide it will prove to its own market (banks and FI) under trial by fire that it is invaluable to survive and thrive. I really hope that before any potential downturn takes place the infrastructure is in place. Otherwise, it could be contagion as usual in the context of history.

Edited by VanGogh

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18 minutes ago, XRPonTheIronThrone said:

I would still like to see regulation that will eventually allow for IFRS and GAAP to dictate how gains or losses on digital assets and or crypto are accounted for on an income statement and how it affects earnings. i.e. are they going to be included in Net Income or are they going to be, "below the line" and counted as Other Comprehensive Income (OCI)? Why does it matter? If gains or losses flow through to OCI, it does not count towards traditionally reported earnings (EPS), if G/L on digital assets/crypto are counted in OCI, they will show up in a report in addition to the traditional earnings report and any adjustments in the value of these holdings will affect the equity value of the company and therefore the share price and book value of a publicly traded entity.  Further, banks will still need to be able to hedge volatility within this space given that anything they hold that has required measurement dates will affect the amount of regulatory capital they have to keep on their balance sheet. Until this happens, the Nostro/Vostro issue could be neutralized by volatility (i.e. XRP frees up Nostro capital but negative price movement forces the company to keep more capital on their balance sheet to make up for the losses). Banks are thinking about this and need clarity on how to proceed! Once we get this, off to the races! 

Interesting. Are you saying that this would be the case only for banks that hold digital assets? Or, are you saying that even in using xRapid, for example, the value change in the few seconds during transactions will need to be accounted for on their books as far as minimum amount of capital maintained via regulation? 

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3 minutes ago, VanGogh said:

Interesting. Are you saying that this would be the case only for banks that hold digital assets? Or, are you saying that even in using xRapid, for example, the value change in the few seconds during transactions will need to be accounted for on their books as far as minimum amount of capital maintained via regulation? 

Yes, this would be the case for banks holding digital assets. Using xRapid, in my eyes would alleviate this issue since the bank would be doing the fiat to XRP conversion through a market maker (who would be holding XRP) to use xRapid. I do believe once there is clarity and hedging is easier, public banks will have to entertain the notion of freeing up Nostro capital. All it takes is one to do so and show a positive effect on earnings. From there, competing managements will be scrutinized by shareholders for not doing so if it proves to be accretive to share holders.

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3 minutes ago, XRPonTheIronThrone said:

Yes, this would be the case for banks holding digital assets. Using xRapid, in my eyes would alleviate this issue since the bank would be doing the fiat to XRP conversion through a market maker (who would be holding XRP) to use xRapid. I do believe once there is clarity and hedging is easier, public banks will have to entertain the notion of freeing up Nostro capital. All it takes is one to do so and show a positive effect on earnings. From there, competing managements will be scrutinized by shareholders for not doing so if it proves to be accretive to share holders.

Given the low price of xrp and all digital assets at the moment it seems like a worthy investment for banks to buy and hold now. This would solve the problem for early adopters.  It's those who buy and hold xrp when it's over $100 that will have to worry. Hopefully, however, freeing up Nostro Vostro will free up the money to make that work.

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49 minutes ago, XRPonTheIronThrone said:

Yes, this would be the case for banks holding digital assets. Using xRapid, in my eyes would alleviate this issue since the bank would be doing the fiat to XRP conversion through a market maker (who would be holding XRP) to use xRapid. I do believe once there is clarity and hedging is easier, public banks will have to entertain the notion of freeing up Nostro capital. All it takes is one to do so and show a positive effect on earnings. From there, competing managements will be scrutinized by shareholders for not doing so if it proves to be accretive to share holders.

Yeah, the way I see it there will be an unwinding of nostro/vostro in order to bolster domestic reserves - which is made possible through utilization of XRP held by external facilities (market makers) - but I do think that as XRP slowly increases in value banks will see the potential attraction of managing their own internal XRP reserves - particularly if the liquidity and technology prove themselves to be as resilient as claimed. I think there will a be a period of unwinding nostro/vostro followed by a realization that market makers are making a significant profit as XRP increases in value and at some point banks and regulator may determine guidelines for acceptable exposure to XRP in their old held assets.

Not a fast process at all, but if we are strategically approaching the debt-backed fiat unwinding and hoping to do so on a global scale and in a way that hopes to avoid catastrophic system failure I see this as a pathway forward through the malaise.

It is always important to remember that in a debt-backed currency economy the size our of debt is a lagging indicator of a populations' desire to spend. If there is no national debt, there is no money in this system - which is one of many reasons why currencies backed by hard assets provide security when the collapse of debt contracts magically reduces money supply.

It is important to understand that debt forgiveness and bankruptcy reduce the money supply when you have a debt-based currency. It is a strange paradox, but when there are no debts left to pay in the US, there is no more money to spend. Once you understand this concept, you can see why the foreclosure and bankruptcy connected to the failure of housing markets all over the world resulted in the cascading effects of dried up credit and liquidity. This perverse logic fed the practice of the US Treasury issuing bonds at auctions no one was attending and then buying those bonds back and using the funds to prop up failing mortgage backed securities as part of the quantitative easing program.

They needed to inject money into circulation to allow banks to generate enough good quality promises to pay, and then they could hike interest rates back up to claw back that capital influx before the capital reentered the markets and caused high inflation. I am somewhat inspired by action being taken by banks around the world to unwind this system a bit and re-calibrate the value of money to be based on something that is not tied to a promise to pay - which seems to always be fraught with bad actors and perverse incentives on both sides of the desk.

Debt on its own is not a universally bad thing - but basing a currency's value solely on the redeemable value of debt contracts is a pretty bad idea. I hope the world can pull off its revaluation/reset without tremendous amounts of suffering.

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1 hour ago, VanGogh said:

The US does have a tremendous amount of national debt. The debt to GDP ratio in the US is around 107%, though I'm not entirely sure that includes long-term debt such as social security and medicare. However, it is all relative to the rest of the world; in particular to specific countries who are economic challengers. China, for example, has a debt to GDP ratio near 300%. Japan: around 250%. It could be argued that Europe is in a worse mess than all the aforementioned.

Regarding Venezuela, they relied on oil to fund their corrupt, socialist policies. When OPEC declared a price war in oil against the US by glutting the market with product, the US became very efficient in extracting oil products through fracking (10 years ahead of most countries in the tech), and Venezuela collapsed from low prices. Now, the US is a net exporter of oil, enabling tremendous economic freedom from OPEC and the Middle East, especially since the US markets are diverse from oil, technologically mature and vast. It seems to me that the US is in a relatively strong position.

@jag216 I like your theory. Ultimately what I read from you is that xrp utility will not only help provide liquidity in a crisis (I agree), but also being forced to use the liquidity xrp will inevitably provide it will prove to its own market (banks and FI) under trial by fire that it is invaluable to survive and thrive. I really hope that before any potential downturn takes place the infrastructure is in place. Otherwise, it could be contagion as usual in the context of history.

I think your explanation was excellent. I do feel however that the US has a debt that could cripple generations to come if not much sooner. China has less debt and a much larger population. They are also lenders. 

I think you're correct. Our national debt doesn't include social security, Medicare and student loan debt just to name a few. There are others. We're in deep 5hi+ if things don't change.

I think digital assets will be a hedge. 

As far as Venezuela, I won't even go down that rabbit hole. Terrible situation there. It used to be very prosperous. What a shame. 

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17 minutes ago, Mr_Cambridge said:

I think your explanation was excellent. I do feel however that the US has a debt that could cripple generations to come if not much sooner. China has less debt and a much larger population. They are also lenders. 

I think you're correct. Our national debt doesn't include social security, Medicare and student loan debt just to name a few. There are others. We're in deep 5hi+ if things don't change.

I think digital assets will be a hedge. 

As far as Venezuela, I won't even go down that rabbit hole. Terrible situation there. It used to be very prosperous. What a shame. 

Not to diverge from the topic too much, but one thing I would add that could certainly add to the economic storm clouds, is that there is also a potential demographics challenge ahead in many countries. In the US generation X is small following the large Boomer generation, but the Millennial generation is pretty large in number. Though the Millennials do not yet have great wealth, the very tech we are here for could change that, and they are more interested in it than any other generation. 

China, Russia, Japan and Europe have a greater problem on their hands. Looking at China: Their problem is in part because of their long-held single-child policy (since eased to two, I think) not only do they now have a much smaller generation following an aging population, but it's a generation heavily weighted by males. First, what a challenge to take care of that aging generation. On top of that, imagine trying drum up enough prosperity, food, energy, etc. to keep a population that size (around 1.3 billion) from despair and rebellion. It is the reason China is reaching far into developing, foreign countries to build infrastructure and then enabling themselves to influence policy in those countries now tied to them in debt. Within China, keeping their population busy building factories to nowhere and ghost cities in order to keep citizens busy and out of trouble is their version of printing money.

Ultimately, every country is somewhat on the edge for multiple reasons. I'm not smart enough to know how the demographics will evolve, and in regards to money if this is the end of Keynesian economics or if digital assets will simply move us into a new, world-wide evolution of it. In the end, I agree with jag216:

1 hour ago, jag216 said:

I hope the world can pull off its revaluation/reset without tremendous amounts of suffering.

. . . and I hope there is no war involved.

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Great insights @VanGogh! I also hope there is no war involved or any human suffering. 

I'm hoping this tech will help improve lives, whether B2B, P2P etc. 

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1 hour ago, Mr_Cambridge said:

Great insights @VanGogh! I also hope there is no war involved or any human suffering. 

I'm hoping this tech will help improve lives, whether B2B, P2P etc. 

There will certainly be revolution in many developing countries - hopefully more industrial than political.

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13 hours ago, VanGogh said:

. . . and I hope there is no war involved.

Unfortunately war tends to wipe the slate clean to some extent, allowing the whole process to start again and it's also the easiest path.....be afraid.

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@jag216 I'm not following your argument here. 

Regarding B3 capital requirements, systemically large banks are not constrained by capital requirements. An example of this is the Barclays-Qatari loan-for-shares agreement in 2008. As a systemically large bank has the legal authority to manipulate its own balance sheet as it sees fit--a bank which creates assets is bound by its ability to convince a borrower to purchase bank shares, which can generate infinite equity, this is just one example of the non-constraint of so-called capital 'requirements'. 

Edit: You have argued that as the USD supply contracts, banks will repatriate USD_reserves from the Foreign CB Fed Reserve account because of inflation in a foreign country? Can you elaborate on this point, given that you are fundamentally describing deflation, which is the basis for the contagion in the first place?

Furthermore, you have suggested banks will behave in the following way: either as their assets contract, or their access to USD_reserves in the wholesale market is restricted, that these banks will purchase a non-regulated, speculative, volatile asset of fixed supply as a store of value during a deflation, is that correct? Why would banks make such a choice?

Finally, you suggest that a fixed quantity supply settlement system, such as the gold standard, is superior to an elastic supply settlement system, despite the fact that the elastic supply system was the solution to problems associated with the gold standard. Can you elaborate on how fixed supply settlement systems are superior to elastic supply systems?

Edited by Wandering_Dog

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