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Balance sheet operations of a cross-border settlement process with the use of XRP

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Unsecured debt is common in the US, we throw credit at people, through their mail slots in the door. Stacks of credit cards ready to go. Unsecured personal loan? No problem, up to $50,000 unsecured. 

Then we lower taxes and shut down the government--and the USD goes up. 

I think it's hard for a German to imagine that credit is nothing, when it is not a large part of people's lives here. Credit in Germany is difficult and painful.  

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52 minutes ago, tar said:

Not only, see Steuart (1767), «An Inquiry into the Principles of Political Oeconomy. Being an Essay on the Science of Domestic Policy in Free Nations», London: A. Millar & T. Cadell; re-print Düsseldorf: Verlag Wirtschaft und Finanzen, 1993, book IV, part 2, chapter 4, vol. 2, p. 150:

I don't think a bank license is issued on land holdings today, but I don't have data on this, and I'm not sure how to find it, it would likely be a small bank in outside the OECD, but that doesn't mean it's not possible. I think my point holds generally. During the times of agricultural economies in the West or elsewhere today these banks may be much more common. In this case, you are arguing the money supply is a function of your borders I suppose. 

 

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Assuming, a commercial bank enters a credit contract with no defined additional collateral from the debitor and then the debitor does not pay its obligations... guess, how long it takes before interest on arrears shall be payable and the bailiff knocks on his door :secret:

Lots of unsecured debt in the US, more than $1tn in households alone. The statute of limitations on collecting that debt in the US often makes defaults relatively easy. Compared to Germany, this is an extremely stark contrast. We have no equivalent of the small claims court in Germany with respect to speed and efficiency of enforcement.     

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Okay.

I do not really understand. Could it be that you are ignoring the different prices (risk factors and interest rates) of all those different property rights, claims and obligations and think they are the same? E.g. the mortgage is based on the valuation of someones real estate. The mortgage itself is nominally fixed, the real estate is not.

In fact, it is very real, since the mere threat of sanctions is enough for citizens to pay their taxes on time. Why else would they do it? Out of charity to the government?

I just meant to describe unbacked financial instruments based on other unbacked instruments, Repo < CDS (mortgage) < bank deposit < reserves < "primal tax liability". Everything is a contract, with no real assets involved (A CDS has no claim to the underlying property for example, afaik. This is a bit of a stretch, as there is a property somewhere. Maybe something like this.).  

Edited by Wandering_Dog

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7 hours ago, Wandering_Dog said:

I don't think a bank license is issued on land holdings today, but I don't have data on this, and I'm not sure how to find it, it would likely be a small bank in outside the OECD, but that doesn't mean it's not possible.

Steuart wrote it in the 18th century and did mean property, in general (and I would say: assets, in general).

7 hours ago, Wandering_Dog said:

Lots of unsecured debt in the US, more than $1tn in households alone. The statute of limitations on collecting that debt in the US often makes defaults relatively easy. Compared to Germany, this is an extremely stark contrast. We have no equivalent of the small claims court in Germany with respect to speed and efficiency of enforcement.     

Here and in the USA you usually need a credit score to get credit, at least. But credit cards are not as common here, indeed. We prefer debit cards and above that: cash (by the way, Japan also and I think it is not a coincidence as Japans law is based on the German civil code and we share the traumatization of the 2nd world war):

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Yet for many Germans, the convenience of electronic payment is beside the point. Rather, the use of cash has, to a surprising extent, become a proxy for profound concerns about trust, privacy, and the role of the state. Whereas in most countries the choice of how to organize purchases is basically a question of utility, in Germany it’s freighted with much deeper connotations. “Cash, to me, is an important public good by which you measure the transparency and legal order of a society, and also the respect for the individual and the private sphere,” says Max Otte, an economist in Cologne who leads Save Our Cash, a national campaign that opposes measures to restrict the use of physical currency. “ ‘Why do Germans like cash?’ is the wrong question,” he adds. Instead, Otte asks, “Why have others shifted to a cashless society so quickly?”

 

7 hours ago, Wandering_Dog said:

I just meant to describe unbacked financial instruments based on other unbacked instruments, Repo < CDS (mortgage) < bank deposit < reserves < "primal tax liability". Everything is a contract, with no real assets involved (A CDS has no claim to the underlying property for example, afaik. This is a bit of a stretch, as there is a property somewhere. Maybe something like this.).  

Taxes are not a contract. They are an order. Real assets here are found in the property of the citizens regarding taxes, real estate regarding the mortgage, banks assets regarding its deposits/reserves. Aren't CDS used to "insure credit risks"?

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The cash issue in Germany is frustrating. They prefer cash, as you mentioned, but there's few cash machines, likely because you need a banking license to operate one. So you need cash, as electronic payment is less common, but the only place to acquire it is your bank, otherwise you pay large fees to a competitor for use of their atm.

On the one hand sure, cash is freedom, on the other its freedom for banks to generate tx fee income, and theres little way to change anything given the density of the civil code and how the political system struggles to change anything.

An order is based on some form of contract, such as that between the people and their gov, I would like to imagine. Is the Constitution a contract? It's a piece of paper at least. Not so much a real asset that I would use in a production process, say. 

CDS is a tradable instrument with a value inverse to some other instrument, as I understand it. So, if basedon unsecured debt I'd argue it qualifies the chain as 'nothing'. Edit: To be more specific, if I hold an unsecured bond asset, and you issue a CDS to me, the CDS is my asset your liability based on the price of bond I hold. When the bond price decreases 100% -> 90%, the asset price of the CDS increases from 0% to -> 10% and you have a liability to me to pay me that 10% of the bond price on a MTM basis I believe. Meanwhile, you have another asset equal to the PV of the fees I pay you to hold the CDS.  

So in effect a CDS is an expansion of a balance sheets (in terms of instruments) that inverts price changes--moves it from one balance sheet to another. There is a net increase in tradable instruments (which themselves can used for further expansion), a net increase in the structure of debt, and a net increase in fragility--demands certain cashflows or collateral flows as the underlying variable (credit creation) changes. 

@tar

Edited by Wandering_Dog

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3 hours ago, Wandering_Dog said:

The cash issue in Germany is frustrating. They prefer cash, as you mentioned, but there's few cash machines, likely because you need a banking license to operate one. So you need cash, as electronic payment is less common, but the only place to acquire it is your bank, otherwise you pay large fees to a competitor for use of their atm.

On the one hand sure, cash is freedom, on the other its freedom for banks to generate tx fee income, and theres little way to change anything given the density of the civil code and how the political system struggles to change anything.

The costs of the use of the ATMs depend on your commercial bank. For the most in Germany, its free for their customers and many commercial banks share the use of their ATMs to each others customers or even build an association (Sparkassen, Volksbanken/Raiffeisenbanken).

3 hours ago, Wandering_Dog said:

An order is based on some form of contract, such as that between the people and their gov, I would like to imagine. Is the Constitution a contract? It's a piece of paper at least. Not so much a real asset that I would use in a production process, say. 

This idea is from Rousseau: the Social Contract which he developed in contrast to Hobbes' Leviathan in order to overcome the rule of the nobility in the 18th century. It has not much to do with reality but helped to integrate contradictory principles into law:

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The paradox of seemingly contradictory principles of decentralized private law (freedom/equality, consent, market) and centralized public law (subordination, command, state) has, after an absolutist phase of state building (Bodin, Hobbes, Machiavelli), historically been mediated through the concepts of popular sovereignty (Rousseau), the rule of law (Montesquieu) and democratic government (taken from the ancient polis) as core ideas of western constitutional law.

Taxes are part of public law, which, unlike private law, is based on orders/commands.

3 hours ago, Wandering_Dog said:

CDS is a tradable instrument with a value inverse to some other instrument, as I understand it. So, if basedon unsecured debt I'd argue it qualifies the chain as 'nothing'. Edit: To be more specific, if I hold an unsecured bond asset, and you issue a CDS to me, the CDS is my asset your liability based on the price of bond I hold. When the bond price decreases 100% -> 90%, the asset price of the CDS increases from 0% to -> 10% and you have a liability to me to pay me that 10% of the bond price on a MTM basis I believe. Meanwhile, you have another asset equal to the PV of the fees I pay you to hold the CDS.  

So in effect a CDS is an expansion of a balance sheets (in terms of instruments) that inverts price changes--moves it from one balance sheet to another. There is a net increase in tradable instruments (which themselves can used for further expansion), a net increase in the structure of debt, and a net increase in fragility--demands certain cashflows or collateral flows as the underlying variable (credit creation) changes. 

@tar

Thanks for clearing this up.

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8 hours ago, tar said:

This idea is from Rousseau: the Social Contract which he developed in contrast to Hobbes' Leviathan in order to overcome the rule of the nobility in the 18th century. It has not much to do with reality but helped to integrate contradictory principles into law:

Thanks for that. 

8 hours ago, tar said:

Taxes are part of public law, which, unlike private law, is based on orders/commands.

Ok, and, is an order a real asset?

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15 hours ago, Wandering_Dog said:

Thanks for that. 

Ok, and, is an order a real asset?

Because of its impact, it is extremely real. As an asset, however, it is not correctly accounted for and in my opinion, this is not really possible as theoretically, all assets within a jurisdiction are potential endangered of this taxing power while the political power depends on the general acceptance of those (new) taxes. They also depend on the economic development and on many, many other factors. Therefore, their realisation (realised tax revenues) changes from year to year and cannot really be fixed in nominal terms but only estimated.

Instead, the related government securities and its interest rates on the free market are used to derive the ability of a state to pay public debts (more precisely: to find a later creditor for further government securities, since public debts are usually prolonged).

More on that: https://de.wikipedia.org/wiki/Staatshaushalt#Staatsvermögen_und_Staatsschulden:

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Since the value of the net assets of a public debtor largely consists of non-marketable asset components, it is impossible to determine its net assets (already due to valuation). The determination of the residual amount of net assets is therefore only of secondary importance at the state level and must be assessed with caution.

... and https://de.wikipedia.org/wiki/Staatsvermögen:

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Since public economic entities only draw up public budgets in which government revenue and expenditure are recorded without exception, there is no balance sheet in which government assets and liabilities are recorded. [...] However, the state must establish itself as a legal entity and identify itself as a legal person under public law in order to be able to participate in legal transactions and to be the holder of property rights as an asset holder. [...]

Since § 80 (3) BHO requires a statement of assets and liabilities to be drawn up, in 2006 the Federal Ministry of Finance defined as follows: The term "assets of the Federal Government" is generally understood to mean the entirety of the tangible and monetary assets owned by the Federal Government, including rights and claims, with the exception of assets to be settled only in cash and in budget terms". In accordance with the "Administrative Regulations for Accounting and Reporting of the Assets and Liabilities of the Federal Government" (VV-ReVuS), German state assets include all state land, common-use real estate (federal motorways, federal roads, canals, shipping lanes; including bridges), federal operations, participations, receivables, securities and investments.

Eventually, each state budget is composed of the state revenues and expenditures as budget-effective state activities, see https://de.wikipedia.org/wiki/Haushaltsplan#Allgemeine_Grundsätze:

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Estimates of the business cycle and tax estimates are the main sources of budgetary plans. A budget generates only declaratory effects for the revenue it contains, because extra-budgetary legal norms (in particular tax laws or contracts) must be used as the collection standard.

For more detailed information we would probably need a constitutional lawyer and a public accountant.

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40 minutes ago, tar said:

Because of its impact, it is extremely real. As an asset, however, it is not correctly accounted for and in my opinion, this is not really possible as theoretically, all assets within a jurisdiction are potential endangered [because of, or by] this taxing power while the political power depends on the general acceptance of those (new) taxes. They also depend on the economic development and on many, many other factors. Therefore, their realisation (realised tax revenues) changes from year to year and cannot really be fixed in nominal terms but only estimated.

The Treasury has a "very real" asset on its balance sheet, which is defined as the "possibility of future taxes". If it is only possible, it is not real. Worse, if the gov overreaches and jeopardizes this balance regarding real assets and its tax power, the accounting system becomes irrelevant. And if the gov underachieves, the accounting system will likely become dominated by some other form of "money". 

In each case the concept of "real" is in fact only a "possibility", and the initial outlay from the Treasury which is purchased by the CB is based on a "real asset" not a real asset. It is "nothing" tar, only what we may make of it.

   

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54 minutes ago, tar said:

Since § 80 (3) BHO requires a statement of assets and liabilities to be drawn up, in 2006 the Federal Ministry of Finance defined as follows: The term "assets of the Federal Government" is generally understood to mean the entirety of the tangible and monetary assets owned by the Federal Government, including rights and claims, with the exception of assets to be settled only in cash and in budget terms".

So all financial assets--which the state creates from nothing. Germany doesn't have a sovereign currency, so I don't know why we are investigating Germany. Germany is a municipality in the EU with a fixed exchange rate and the theory we are describing, money from nothing, does not apply. Germany faces real constraints like any entity which cannot create money, and as a municipality it relies on taxes for income. 

 

Edited by Wandering_Dog

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28 minutes ago, Wandering_Dog said:

So all financial assets--which the state creates from nothing. Germany doesn't have a sovereign currency, so I don't know why we are investigating Germany. Germany is a municipality in the EU with a fixed exchange rate and the theory we are describing, money from nothing, does not apply.

Define "money" first or use a more appropriate term to make clear what you mean with "money from nothing".

Furthermore, the EU is not a state (it lacks of an European tax office, e.g.) but a political system.

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Germany faces real constraints like any entity which cannot create money, and as a municipality it relies on taxes for income.  

I am not sure on which nation you'd like to concentrate. There is one special role regarding the power of the USA that has been used to enforce the use of the US-Dollar on international oil contracts after Bretton Woods failed. That means they partly externalize their incomes (could be understood as some type of modern tribute system: the USA as imperium). Because of this special role I recommend to focus on non-imperial nations.

Edited by tar

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I understand the problem, we are describing 2 different systems of organizing a monetary economy. You are discussing Germany and the EU (non-monetary sovereigns) and I am discussing monetary sovereigns (US, UK, China, Russia, Canada, etc).  

 

The US CB does not need to abide by accounting convention because it is the sole issuer of USD, which is non-convertible.  

The German Government, NCB and Treasury, needs to abide by accounting convention because it is not the sole issuer of its currency.

 

EU states are not monetary sovereigns for several reasons, namely because the EU has no Treasury and the ECB is not a CB in full. Transactions between NCB balance sheets are not settled in reserves on the ECB balance sheet (as I simplified in the balance sheets shown in other threads). EU LOLR operations are (were) technically illegal according to EU law. The T2 system redirects NCB-created reserves through forced lending to cover net flows in or out of a given country rather than creating reserves. The EU NCBs are not equivalents to the FRB's in the US, as demonstrated with BREXIT, an EU state can leave the EU, which would force the system to accounting consistency if the leaver is a member of the Euro-currency-area. 

@tar

 

Edited by Wandering_Dog

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This thread makes my brain hurt and my brain processing power is gassed for the week to even attempt deciphering this from my civil engineering background . Look forward to a good read over the weekend and learn something new. Love xrpchat for the realistic info and intelligence it provides inbetween threads. Well done gents.

Edited by ManBearPig

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