What’s up today?

Very much agree! Great insight.

As always, you have to be looking at what the man behind the curtain is doing, rather than what they want you to believe.

I was initially skeptical of stable coins, as I didn’t trust the people managing them. As time goes on, I realise their potential more and more. What seemed to start as a way to avoid the banking on and off ramps (to exchanges) has morphed into an alternative, free access, fiat banking network.

On the journey to crypto everywhere, these stable coins offer an interim solution. They do lack transparency though and they seem rather tied to the private banking system. Perhaps that is the price to pay for what they offer and in the long term, fiat will become less relevant as crypto continues to blossom. After all, why limit ourselves to fiat and allow central bankers to control them? We can do better than that.

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Refreshingly balanced view on crypto by FT. Didn’t seem to have paywall for me.

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It adds to the clarity of your information filter for global news. When you see 'US declares sanctions on X", translate it in your head to “We have threatened your banking institutions with a database flag that will prevent them from settling at the NY Fed if they do business with you”

I don’t want to be right, but eventually I think it will be “Iran and Russia are using stablecoins/crypto to evade sanctions for egregious war crime Y therefore we need to ban Z”

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When you see 'US declares sanctions on X", translate it in your head to “We are out-thought, out-produced and failing to impress any more with our arrogant exceptionalism. Better resort to our bullying tactics and pretend we still retain some influence."

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Well that too. I expect the belligerence to increase as more ways to evade that previously iron control develop (Iran/Russia/China clearance system, stablecoins, etc.). The truth is is that the moon is waning on king Canute or that the emperor has few clothes (however you want to mix and mash your metaphors).

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Indeed.

Be careful when referring to the good king Knut. His real purpose on that much noted day at the seaside was to prove to his court and people that the Power of Kings was NOT unlimited and would they kindly stop expecting him to do the bloody impossible.

Possibly one of the earliest examples of utterly misunderstood expectation management?

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Do you get royalties on correct King Canute references? :sweat_smile:

I think explaining the correct story to everyone may be a bit like King Canute… oh, hold on… :rofl:

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No its just I get infuriated (as often about many things) but REALLY REALLY infuriated about the misunderstanding of England’s greatest Danish King. A psychologist may eventually find a reason for this, I can’t. I just know it bugs me irrationally.

OK - how may amateur psychologists are gong to rise to this bait?

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Yes, that is a problem.
It seems like people tend to watch a conspiracy video on Youtube about fractional reserve banking, value behind money with some dramatic music in the background, then they believe that it must be bad, a scam or a trick. Some people don’t seem to understand that there are logical explanations to why things work the way they work.

In general I get the feeling that minority groups that can shout loud about things they don’t know about gets a disproportionate influence through twitter and other social/forum platforms. It can be harmful and cause damage, they might also run errands for other nations 3 letter agencies wanting to divide a nations population.

After a certain years of logic and economic courses I got the feeling of being Neo in Matrix, I could see how the system worked, how things fit together, what affected what and so on. I know in general how finacial-, monetary-, organisational horisontal/vertical system works. But I’am very humble that monetary systems is very complex with an exponential scale of difficulty with many variables and that it takes alot of knowledge way beyond me to fully or to a very high degree understand how it all fits together.

To have a certain ratio of loaned versus real assets, the main reason is to cover risk, risk that a certain % of loans default, can’t be paid though bancruptcy or similar.

If you have not seen the movie “The Big Short” , it is avery good movie, have to re-watch soon.

True, but also at any given point in time new money/value can be created by example loans, that new money changes the economy, makes it grow nominal and/or real depending on which effects you include.

Example, someone buys a house with a loan, the seller get’s revenue from the sold house, starts a company which makes profit, pays sallaries, export goods, growing the total economy. What affects what and makes the economy grow can get very complicated very fast.

Wrong, you need to consider the difference between nominal and real value, real value increase does not exclude nominal value increase. New nominal value can affect real value, see example above.

Yes but the value of the currency is derived from the value creation by machines/humans/companies.

It don’t take value, it adds value to the total pool, the value added, it makes the economy grow and don’t affect my assets.
My assets are not affected by others taking loans if I have them on an bank-account which gives me interest that matches inflation. If the new money/loans makes assets price appreciate and I don’t own those assets, then I will lose by not geting the value from that increased price.

I have a bachelor in economics, you claim to have taken a few ecnomics courses and watch conspiracy videos on youtube, that is a big difference.

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Sure, but there is no cash reserve requirement anymore in most countries.

They don’t need cash deposits in order to extend credit. They need a healthy balance sheet, which is regulated via capital requirements and such, but they don’t need cash.

The term ‘loan’ means something quite different in banking to what the average person thinks it means. If I ask someone to lend me a tenner, they don’t print it off and draw up a credit note to track it. No, they give you the tenner and they are now a tenner short. They also expect it back again (or at least another tenner).

Banks don’t do lending in any traditional sense. Of course, you need a banking license and must follow the banking rules. It is regulated and so forth and many claim it is a great system. However, they still don’t loan depositor money out. People think they do, but they don’t.

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After the financial crisis 2008, Sweden told the banks to increase their reserves to be more resilient to future crisis. Other countries might have other risk profile accepting the risk of a possible nation default scenario.

I know most about Sweden. Quote from the Swedish “Financial Inspection” department

“Finansinspektionen (Swedish Financial Supervisory Authority – FI) considers that a leverage ratio requirement may serve an important function for preserving financial stability in Sweden as a back-stop that sets a floor for how low the capital requirement can fall in relation to the banks’ gross assets.”

“As the risk weights are far too low, the increase in such assets will not be matched by a sufficient increase in the capital requirement to cover the real risk; major risks can thereby accumulate within the financial system. One example of such a problem is the large number of central government bonds that certain European banks hold from countries with rather low credit-worthiness and consequently relatively low credit ratings.”

The first required reading for discussion on money creation should be money creation in the modern economy by the Bank of England.

TLDR:

  • Banks can create deposits out of thin air (vs. their balance sheet).
  • They do this when (e.g. a mortgage) the future money claims they can get exceed their funding costs (currently close to 0, thanks to central banking)

It’s not really a fault of private banks that they do this, Every creation is (or should be) balanced by an equal subtraction in the future multiplied by some risk factor. The central bank merely sets the decision threshold (de facto, for now, by buying bonds with printed money), and an interest rate of 0 simply means that “we should act as if there is no difference between future money and now money”. The scrapping of the reserve requirement for fractional lending (a term which I no longer use because of the inaccurate mental picture it draws) is basically saying “you don’t actually need to possess the base money anymore, rather multiply your assets by these factors, divide by your liability, and the number needs to be above this X (or we’ll snoop), other than that just make sure your checks clear”. If the future is really the same as today (0% interest) then a house should cost infinity because you can add up an infinite amount of theoretical rent checks and borrow (create money out of thin air if you have good friends) against them now (not far off what is happening at present).

Now yes, personally, there are claims on future money that I suspect to be worth less than their stated value. But it is really the central bank saying that “the future is the same value as today” that brings in the systemic problem. It leads directly to “well then, lets buy everything with printed money, we’ll fudge the values to be able to print as much as we can and avoid inspection, and sell it back at a premium. Doesn’t matter how long it takes, because time is free now”.

IMHO one of the most enlightening graphs is to look at GDP (read aggregate demand) minus credit creation (delta total debt), minus interest payments. This shows the amount of demand (economy) that is actual buying and selling of goods and services that is not dependent on increasing total debt, e.g. Minsky’s “actual demand”. Even more telling is how this figure relates to debt (i.e. organic economy vs debt). It is terrifying and shows how far we have to fall.

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That “Printed Money” are called Bank Reserves and it is not actually money in the sense most people assume. It is a very limited form of token that only exists for inter-bank account keeping and as can be checked with basic accounting, can never actually reach the real economy. Which is why trillions (or in Japans case, literally Quadrillians) of bank reserves - not money - in never ending “Quantitative” Easings over the decades with little inflationary impact or sustainable recovery. As you succinctly point out @dask Central Banks do not print real usable money, the decentralised network of worldwide banks do. It is called the Eurodollar system and it operates in the shadows, requires vast amounts of pristine collateral in the form of TBills/Treasuries (driving negative interest rates) to back their balance sheet constructs, and is vast in size far bigger than the US economy or any piddly “stimulus” any US/EU governments dribble out in an attempt to kick start it back up again… and that is just the start of the rabbit hole.

CBDCs as proposed are just another form of ill conceived bank liability, not true no-liability digital money. Further demonstrating that central banks do not understand money because they do not create usable money and have not done so for nearly a century. The decentralised worldwide banking system does however and so the geopolitical threat to their limping along gravy train for increasing fewer people at the top.

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I imagined this about you, does it make you happy?

Stupidity in general makes me unhappy. Wilful (and often very convenient) stupidity makes me very angry.

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Evaded the question, but so be it.
Was just curious, if it doesn’t make you happy, why bother with it.

Edit, see you replying so won’t change the text, maybe evaded was wrong word, certainly not a plain answer though.

I misunderstood your question.
You are implying I get pleasure from being angry?

Wrong. 100% wrong. But it gives me great pleasure to tell you to GTF.

Edit: just seen your answer. No I wasnt evading.

Not implying, no, but questioning to see, certainly.

Edit.
Go to food
Give three feathers.

You lost me.

If we don’t ask we don’t know, no need to get nasty.