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> Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, and they just reported that as their value in cash. It's like recursive valuation. Wh

> Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, and they just reported that as their value in cash. It's like recursive valuation. While I think real world finance is on much more stable ground than crypto, I thought it'll be funny to point out that many of the world's central banks back their liabilities (the currency they issue) with own government's bonds. Luckily, the bonds are denominated in the same currency. There is no chance of the central bank going broke, as long as they hold the bonds to maturity.

igorkraw 4y ago
I wrote a whole post because I misread your first line as "while some people think" and set out to "tell people on the internet they are wrong", but since we seem to actually agree with another, I'll post the below as an agreeing addendum to make the point just how much more stable real economics and finance are than crypto BS. And also because I wrote it already. --- This is not "luckily", it's by design, and there's a couple of other key differences as well. 1.Modern central banking implements an artificial separation between government and CB (an imperfect one), that attempts to make this less recursive... 2. ...but the key difference here is that the value of the dollar ultimately derives from the fact you need to pay US taxes with it. If you want to do business in the US, you need to get some USD to pay taxes in which are then used to keep the US a place to do business in. It is exactly the same model as FTT except that instead of paying "taxes" to trade on one of many market places, the US is a giant nonfungible place, with lots of difficult to move assets and people, serving a fucknormous circular economy with a staggering amount of real world consumption - i.e., a place you want to or have to do business in even if there's shock... 3. ...and has a monopoly on the violence (in the form of laws, courts, police and military) that actually enables the notions private property that enables this all. If the US government collapses your dollars are worthless whether they are backed by a bond or not. 4. Finally, neither the CB nor the government are up for sale or needs to generate profits or shareholder value. All they need to care about is continuing the system in a way that its constituents want (I'm not specifying the aggregation method, oligarchs are still constituents) So overall, and with the fact that this is a system which has been iterated on for hundreds of years(thousands if you count legal code), yeah, it's a lot more stable
- greiskul 4y ago
  Exactly. People that say that the value of fiat money is fake, never think about taxes. You want to own a house? The government mandates that you acquire and give them a certain amount of US dollars. Even if you did every single transaction in your life with other assets, paying for stuff with gold and chickens, at the end of the day, the tax man will come for you, and the tax man only takes dollars.
  - codetrotter 4y ago
    I want to pay my taxes in BTC or ETH. I remain hopeful that one day I will be able to. Until then, fiat taxes it is.
    - pooper 4y ago
      I lost faith in cryptocurrency pretty early on because of the idea that it costs money to send or receive money. My ideal of a currency is it should be free of cost or almost free of cost to send or receive money. There was another post here about a thought experiment where someone asked if I had eight billion dollars, how can I send a dollar to every person on earth? Well, right now you can't because it costs too much to send or receive money. I don't have a solution but the fact that eth is full of "gas" people who want USD, makes me think it is no different from the Bitcoin crowd regardless of the pos switch. Or to quote the wolf of wall street, the people who own Bitcoin and Ethereum networks still take home cold hard cash. Don't fall for their BS. Bitcoin or eth doesn't pay for your mining rigs or your electricity.
      - lupire 4y ago
        Yeah I'd like everything to be free. But nothing created by people is.
        pooper 4y ago
        Well if you want high transaction fees then it will never replace cash. Enjoy your make believe speculative asset. I want none of it.
bjornsing 4y ago
If my understanding is correct the Swedish central bank, Riksbanken (which happens to be the oldest in the world), has said that whey do not want to hold their QE assets to maturity and that they are essentially bankrupt. They will be bailed out by the tax payers of course.
- lottin 4y ago
  You're probably understanding it wrong. Central banks have little or no debt, and they can "print" reserves at no cost. Reserves is the stuff they pay their debts off with. As a result it's virtually impossible for a central bank to go bankrupt.
  - bjornsing 4y ago
    I think your understanding is a bit off. Sure, central banks can “print” money by buying stuff. But they still have a balance sheet. If the stuff they buy falls in value and they sell it for less then they incur a loss. If they lose more money than the equity on their balance sheet then they will have negative equity. Theoretically a central bank can keep operating with negative equity, but it doesn’t look good. The Swedish central bank probably won’t. It will ask for a tax payer bailout instead.
    - lottin 4y ago
      I think my understanding of central banking is quite correct. They don't incur a loss because the money they paid those assets with came out of nowhere. If you buy a car with $1000 that you printed with your money printer, and then sell the car for $800, you're still making a profit.
      - loftil 4y ago
        No, your understanding isn't quite correct. Many western central banks hold long dated bonds on their balance sheet which they are marking down due to increasing interest rates. Different central banks are dealing with this differently. In the US they are writing IOU s that essentially mean future surpluses will be used to pay back negative equity. The UK Treasury recently wired the BoE a large sum for much the same reason. Essentially, the bonds which were profitable during decreasing interest rates and resulted in central banks paying treasuries are now moving the opposite way.
lottin 4y ago
This is incorrect. Currency issued by a central bank is not a real liability, since its issuance does not entail a future payment obligation. It's a liability only for accounting purposes. The government bonds on a central bank's balance sheet are used to conduct (or the result of) open market operations. They aren't "backing" anything.
- landemva 4y ago
  In USA, Treasury issues currency and coin. Private organization named Federal Reserve has special privilege to manipulate interest rates through various means.
deleted 4y ago
[deleted]
vkou 4y ago
Unlike FTX, central banks have the power to create money out of thin air, while the governments that operate them have the power to create demand for money out of thin air, through taxation. Governments thus, control both the demand for, and the supply of money.
- lupire 4y ago
  > governments that operate them have the power to create demand for money out of thin air, through taxation. This is Modern Monetary Theory, but government never actually uses that power. Instead, they use "open market operations" on securities to manipulate money supply, and taxation for very roughly balancing spending.
bernawil 4y ago
Anything that prints its own money can be "like a central bank". If FTX had all its assets AND liabilities denominated in FTT they'd be like a strong one. But their assets are in their token and their liabilities are in real money so they're weak one. We've just seen the exchange rate of the FT-peso/USD go to nothing.

igorkraw 4y ago

I wrote a whole post because I misread your first line as "while some people think" and set out to "tell people on the internet they are wrong", but since we seem to actually agree with another, I'll post the below as an agreeing addendum to make the point just how much more stable real economics and finance are than crypto BS. And also because I wrote it already. --- This is not "luckily", it's by design, and there's a couple of other key differences as well. 1.Modern central banking implements an artificial separation between government and CB (an imperfect one), that attempts to make this less recursive... 2. ...but the key difference here is that the value of the dollar ultimately derives from the fact you need to pay US taxes with it. If you want to do business in the US, you need to get some USD to pay taxes in which are then used to keep the US a place to do business in. It is exactly the same model as FTT except that instead of paying "taxes" to trade on one of many market places, the US is a giant nonfungible place, with lots of difficult to move assets and people, serving a fucknormous circular economy with a staggering amount of real world consumption - i.e., a place you want to or have to do business in even if there's shock... 3. ...and has a monopoly on the violence (in the form of laws, courts, police and military) that actually enables the notions private property that enables this all. If the US government collapses your dollars are worthless whether they are backed by a bond or not. 4. Finally, neither the CB nor the government are up for sale or needs to generate profits or shareholder value. All they need to care about is continuing the system in a way that its constituents want (I'm not specifying the aggregation method, oligarchs are still constituents) So overall, and with the fact that this is a system which has been iterated on for hundreds of years(thousands if you count legal code), yeah, it's a lot more stable

greiskul 4y ago
Exactly. People that say that the value of fiat money is fake, never think about taxes. You want to own a house? The government mandates that you acquire and give them a certain amount of US dollars. Even if you did every single transaction in your life with other assets, paying for stuff with gold and chickens, at the end of the day, the tax man will come for you, and the tax man only takes dollars.
- codetrotter 4y ago
  I want to pay my taxes in BTC or ETH. I remain hopeful that one day I will be able to. Until then, fiat taxes it is.
  - pooper 4y ago
    I lost faith in cryptocurrency pretty early on because of the idea that it costs money to send or receive money. My ideal of a currency is it should be free of cost or almost free of cost to send or receive money. There was another post here about a thought experiment where someone asked if I had eight billion dollars, how can I send a dollar to every person on earth? Well, right now you can't because it costs too much to send or receive money. I don't have a solution but the fact that eth is full of "gas" people who want USD, makes me think it is no different from the Bitcoin crowd regardless of the pos switch. Or to quote the wolf of wall street, the people who own Bitcoin and Ethereum networks still take home cold hard cash. Don't fall for their BS. Bitcoin or eth doesn't pay for your mining rigs or your electricity.
    - lupire 4y ago
      Yeah I'd like everything to be free. But nothing created by people is.
      - pooper 4y ago
        Well if you want high transaction fees then it will never replace cash. Enjoy your make believe speculative asset. I want none of it.

bjornsing 4y ago

If my understanding is correct the Swedish central bank, Riksbanken (which happens to be the oldest in the world), has said that whey do not want to hold their QE assets to maturity and that they are essentially bankrupt. They will be bailed out by the tax payers of course.

lottin 4y ago
You're probably understanding it wrong. Central banks have little or no debt, and they can "print" reserves at no cost. Reserves is the stuff they pay their debts off with. As a result it's virtually impossible for a central bank to go bankrupt.
- bjornsing 4y ago
  I think your understanding is a bit off. Sure, central banks can “print” money by buying stuff. But they still have a balance sheet. If the stuff they buy falls in value and they sell it for less then they incur a loss. If they lose more money than the equity on their balance sheet then they will have negative equity. Theoretically a central bank can keep operating with negative equity, but it doesn’t look good. The Swedish central bank probably won’t. It will ask for a tax payer bailout instead.
  - lottin 4y ago
    I think my understanding of central banking is quite correct. They don't incur a loss because the money they paid those assets with came out of nowhere. If you buy a car with $1000 that you printed with your money printer, and then sell the car for $800, you're still making a profit.
    - loftil 4y ago
      No, your understanding isn't quite correct. Many western central banks hold long dated bonds on their balance sheet which they are marking down due to increasing interest rates. Different central banks are dealing with this differently. In the US they are writing IOU s that essentially mean future surpluses will be used to pay back negative equity. The UK Treasury recently wired the BoE a large sum for much the same reason. Essentially, the bonds which were profitable during decreasing interest rates and resulted in central banks paying treasuries are now moving the opposite way.

lottin 4y ago

This is incorrect. Currency issued by a central bank is not a real liability, since its issuance does not entail a future payment obligation. It's a liability only for accounting purposes. The government bonds on a central bank's balance sheet are used to conduct (or the result of) open market operations. They aren't "backing" anything.

landemva 4y ago
In USA, Treasury issues currency and coin. Private organization named Federal Reserve has special privilege to manipulate interest rates through various means.

deleted 4y ago

[deleted]

vkou 4y ago

Unlike FTX, central banks have the power to create money out of thin air, while the governments that operate them have the power to create demand for money out of thin air, through taxation. Governments thus, control both the demand for, and the supply of money.

lupire 4y ago
> governments that operate them have the power to create demand for money out of thin air, through taxation. This is Modern Monetary Theory, but government never actually uses that power. Instead, they use "open market operations" on securities to manipulate money supply, and taxation for very roughly balancing spending.

bernawil 4y ago

Anything that prints its own money can be "like a central bank". If FTX had all its assets AND liabilities denominated in FTT they'd be like a strong one. But their assets are in their token and their liabilities are in real money so they're weak one. We've just seen the exchange rate of the FT-peso/USD go to nothing.