The problem with stablecoins is that someone has to monitor the backing assets. If you accept payment in the form of a stablecoin, you have believe that the stablecoin issuer has the resources to let you redeem your stablecoin for cash or metal or Saudi light crude. In other words, the issuer is a good old fashioned bank from back when banks could issue currency as long as they were able to redeem it in specie. Not every bank could.
Back then, before accepting a large bill you'd check the Banknote Reporter to verify that the issuer was solvent. I suppose someone will set up a web site you can use to verify stablecoin issuer reputations, and the odds are good that if stablecoins catch on the government is going to have to step in and guarantee them and, if it is going to guarantee them, to regulate them. There's lots of money to be made, so it's no surprise that stablecoin has its backers.
Since the primary use cases for bitcoin are speculation, often fraudulent, paying ransoms, generally criminal, or facilitating criminal transactions, always criminal, it isn't clear why anyone would invest. The insiders are going to make money, but if you aren't a big player getting in early, then odds are you are like one of those zombies in The Matrix.
«the primary use cases for bitcoin are speculation, often fraudulent, paying ransoms, generally criminal, or facilitating criminal transactions»
Speculation is by far the dominant use, and the other uses are also facilitated by cash etc.
J. K. Galbraith, "The Great Crash 1929", page 48
“The purpose is to accomodate speculators and facilitate speculation. But the purposes cannot be admitted. If Wall Street confessed this purpose, many thousands of moral men and women would have no choice but to condemn it for nurturing an evil thing and calling for reform. Margin trading must be defended not on the grounds that it efficiently and ingeniously assists the speculator, but that it encourages the extra trading which changes a thin and anemic market into a thick and healthy one.”
J. K. Galbraith, "The Great Crash 1929", page 188
“Savings must also be plentiful. Speculation, however it may rely on borrowed funds, must be nourished in part by those who participate. If savings are growing rapidly, people will place a lower marginal value on their accumulation; they will be willing to risk some of it against the prospect of a greatly enhanced return. Speculation, accordingly, is most likely to break out after a substantial period of prosperity, rather than in the early phases of a recovery from depression. Macaulay noted that between the Restoration and the Glorious Revolution Englishmen were at a loss to know what to do with their savings and that the "natural effect of this state of things was that a crowd of projectors, ingenious and absurd, honest and knavish, employed themselves in devising new schemes for the employment of redundant capital.". Bagehot and others have attributed the South Sea Bubble to roughly the same causes.”
As to “Speculation, accordingly, is most likely to break out after a substantial period of prosperity” that idea was developed well by Hyman Minsky in his fairly cybernetic model of the financial economy. https://digitalcommons.bard.edu/hm_archive/144/
So I am quite unclear as to the evidence of the assets backing all the claims on Circle's USDC. Is it really the word of a single auditor partially owned by a private equity firm? I might suggest there is potential for shenanigans here.
I'm not sure about the 'heroic' NYT editors. I couldn't make head or tail of what you were going on about there, and I've been a financial journalist most of my life. Now clear having read your and Henry's Substacks. Do they have a rule against clear, simple analogies like the ones you use here?
Great comment here and in the NYTimes ... tho my clicking went in the opposite direction. I only look at the NYTimes or WaPo these days when someone I follow on substack cites something published in the Times/WaPo.
BTW: The Unaccountability Machine is fantastic — I just got a printed copy. Amusingly I could get the audiobook version earlier but, sad to say, in this case the message is the medium. I need to stop and think and re-read what I've read. It's very well written but conceptually thick.
I like the technical aspects, but the general tone (that things "evolved" spontaneously as "why big systems make terrible decisions" and the rewriting of "POSIWID" in that sense) seem otherworldly to me (perhaps very worldly as to protecting the author's further career), for example the section "Viability over maximisation" in the last chapter seems to me incompatible with having seen how the sausage is really made (the author surely did plus he mentions the chilean coup).
The author blames mostly Milton Friedman for the "spontaneous" changes but I would rather agree with another observer that the the more significant author was Michael Jensen (who has since changed opinion) for providing an ideological excuse for quite intentional changes of policy, and I very much recommend as companion to "The unaccountability machine" the book "Wall Street: How it works and for whom" by Doug Henwood. The very important "for whom" question is already in the title.
«the rewriting of "POSIWID" in that sense) seem otherworldly to me [...] for example the section "Viability over maximisation"»
For example this bit stands out because it is so comical:
“The only reason we might think that the purpose of an oil company is to destroy human life on the planet Earth is POSIWID - that's what they do. They do this because they have to. [...] The ‘profit motive’ isn't something that can be ascribed to corporations — they don’t have motives.”
I'm not very worried about financial stability, even though I think crypto is a crock and stablecoins will just make matters worse. I just don't think that the victims of crypto are going to be big enough to care about. Iow, the chumps will be Mom and Pop: doctors and dentists. There won't be any sweet naive German banks buying multiple billions of structured securities. The victims will be too small to rescue, just as they are in the world of pump-and-dump securities.
«It’s reliable; you can let it into your financial system without worrying too much about what you’re in for. What do I mean by this? Well, you know that the Federal Reserve will provide dollar liquidity all over the world, and has set up swap lines with central banks to do so.»
That is the opposite of reliable: any country entering the dollar system will give control of their monetary policy (and much of their fiscal policy) to the USA government and elites, and the bailouts ("provide dollar liquidity all over the world") are entirely at the discretion of the USA government.
«Every offshore dollar is a deposit in a bank, and you get to give or refuse permission for that bank to do business in your own jurisdiction.»
And if you refuse the permission to trade dollars the USA government will sanction you and/or color-revolution you. Perhaps I should have written above "any country giving control of their monetary policy (and much of their fiscal policy) to the USA government and elites will also be required to enter the dollar system".
«This is very unlike a system of “people emailing each other magic numbers”, which is IMO a reasonable description of distributed ledger technology from the point of view of a financial regulator.»
Same as SWIFT, which is a messaging/e-mail system. The only technical difference between dollar ledger/temple money and bitcoin ledger/temple money is that the serial numbers on the "banknotes" are part of a finite mathematical set (the solutions to a particular diofantine equation) in the bitcoin case. But (and it is related) the practical difference is that the ledger for the entire dollar temple money system is kept by the Fed under the USA government control, and is theoretically "distributed" for Bitcoin.
Isn't your argument the same as that for financial securities and counterparty risk? Isn't that why we had the 2008 financial meltdown? Would a revived Glass-Steagall Act that separates not just banking and risk investments, but also Stablecoin crypto, work to protect the system?
The problem with stablecoins is that someone has to monitor the backing assets. If you accept payment in the form of a stablecoin, you have believe that the stablecoin issuer has the resources to let you redeem your stablecoin for cash or metal or Saudi light crude. In other words, the issuer is a good old fashioned bank from back when banks could issue currency as long as they were able to redeem it in specie. Not every bank could.
Back then, before accepting a large bill you'd check the Banknote Reporter to verify that the issuer was solvent. I suppose someone will set up a web site you can use to verify stablecoin issuer reputations, and the odds are good that if stablecoins catch on the government is going to have to step in and guarantee them and, if it is going to guarantee them, to regulate them. There's lots of money to be made, so it's no surprise that stablecoin has its backers.
Since the primary use cases for bitcoin are speculation, often fraudulent, paying ransoms, generally criminal, or facilitating criminal transactions, always criminal, it isn't clear why anyone would invest. The insiders are going to make money, but if you aren't a big player getting in early, then odds are you are like one of those zombies in The Matrix.
«the primary use cases for bitcoin are speculation, often fraudulent, paying ransoms, generally criminal, or facilitating criminal transactions»
Speculation is by far the dominant use, and the other uses are also facilitated by cash etc.
J. K. Galbraith, "The Great Crash 1929", page 48
“The purpose is to accomodate speculators and facilitate speculation. But the purposes cannot be admitted. If Wall Street confessed this purpose, many thousands of moral men and women would have no choice but to condemn it for nurturing an evil thing and calling for reform. Margin trading must be defended not on the grounds that it efficiently and ingeniously assists the speculator, but that it encourages the extra trading which changes a thin and anemic market into a thick and healthy one.”
J. K. Galbraith, "The Great Crash 1929", page 188
“Savings must also be plentiful. Speculation, however it may rely on borrowed funds, must be nourished in part by those who participate. If savings are growing rapidly, people will place a lower marginal value on their accumulation; they will be willing to risk some of it against the prospect of a greatly enhanced return. Speculation, accordingly, is most likely to break out after a substantial period of prosperity, rather than in the early phases of a recovery from depression. Macaulay noted that between the Restoration and the Glorious Revolution Englishmen were at a loss to know what to do with their savings and that the "natural effect of this state of things was that a crowd of projectors, ingenious and absurd, honest and knavish, employed themselves in devising new schemes for the employment of redundant capital.". Bagehot and others have attributed the South Sea Bubble to roughly the same causes.”
As to “Speculation, accordingly, is most likely to break out after a substantial period of prosperity” that idea was developed well by Hyman Minsky in his fairly cybernetic model of the financial economy. https://digitalcommons.bard.edu/hm_archive/144/
So I am quite unclear as to the evidence of the assets backing all the claims on Circle's USDC. Is it really the word of a single auditor partially owned by a private equity firm? I might suggest there is potential for shenanigans here.
I'm not sure about the 'heroic' NYT editors. I couldn't make head or tail of what you were going on about there, and I've been a financial journalist most of my life. Now clear having read your and Henry's Substacks. Do they have a rule against clear, simple analogies like the ones you use here?
Great comment here and in the NYTimes ... tho my clicking went in the opposite direction. I only look at the NYTimes or WaPo these days when someone I follow on substack cites something published in the Times/WaPo.
BTW: The Unaccountability Machine is fantastic — I just got a printed copy. Amusingly I could get the audiobook version earlier but, sad to say, in this case the message is the medium. I need to stop and think and re-read what I've read. It's very well written but conceptually thick.
«It's very well written but conceptually thick.»
I like the technical aspects, but the general tone (that things "evolved" spontaneously as "why big systems make terrible decisions" and the rewriting of "POSIWID" in that sense) seem otherworldly to me (perhaps very worldly as to protecting the author's further career), for example the section "Viability over maximisation" in the last chapter seems to me incompatible with having seen how the sausage is really made (the author surely did plus he mentions the chilean coup).
The author blames mostly Milton Friedman for the "spontaneous" changes but I would rather agree with another observer that the the more significant author was Michael Jensen (who has since changed opinion) for providing an ideological excuse for quite intentional changes of policy, and I very much recommend as companion to "The unaccountability machine" the book "Wall Street: How it works and for whom" by Doug Henwood. The very important "for whom" question is already in the title.
«the rewriting of "POSIWID" in that sense) seem otherworldly to me [...] for example the section "Viability over maximisation"»
For example this bit stands out because it is so comical:
“The only reason we might think that the purpose of an oil company is to destroy human life on the planet Earth is POSIWID - that's what they do. They do this because they have to. [...] The ‘profit motive’ isn't something that can be ascribed to corporations — they don’t have motives.”
Spot on
I'm not very worried about financial stability, even though I think crypto is a crock and stablecoins will just make matters worse. I just don't think that the victims of crypto are going to be big enough to care about. Iow, the chumps will be Mom and Pop: doctors and dentists. There won't be any sweet naive German banks buying multiple billions of structured securities. The victims will be too small to rescue, just as they are in the world of pump-and-dump securities.
Now money laundering--THAT's another story.
«It’s reliable; you can let it into your financial system without worrying too much about what you’re in for. What do I mean by this? Well, you know that the Federal Reserve will provide dollar liquidity all over the world, and has set up swap lines with central banks to do so.»
That is the opposite of reliable: any country entering the dollar system will give control of their monetary policy (and much of their fiscal policy) to the USA government and elites, and the bailouts ("provide dollar liquidity all over the world") are entirely at the discretion of the USA government.
«Every offshore dollar is a deposit in a bank, and you get to give or refuse permission for that bank to do business in your own jurisdiction.»
And if you refuse the permission to trade dollars the USA government will sanction you and/or color-revolution you. Perhaps I should have written above "any country giving control of their monetary policy (and much of their fiscal policy) to the USA government and elites will also be required to enter the dollar system".
«This is very unlike a system of “people emailing each other magic numbers”, which is IMO a reasonable description of distributed ledger technology from the point of view of a financial regulator.»
Same as SWIFT, which is a messaging/e-mail system. The only technical difference between dollar ledger/temple money and bitcoin ledger/temple money is that the serial numbers on the "banknotes" are part of a finite mathematical set (the solutions to a particular diofantine equation) in the bitcoin case. But (and it is related) the practical difference is that the ledger for the entire dollar temple money system is kept by the Fed under the USA government control, and is theoretically "distributed" for Bitcoin.
Isn't your argument the same as that for financial securities and counterparty risk? Isn't that why we had the 2008 financial meltdown? Would a revived Glass-Steagall Act that separates not just banking and risk investments, but also Stablecoin crypto, work to protect the system?