4 ms·

Not an expert, but was having some thoughts. Let debt be a graph where the nodes are people (with ledgers) and the edges are all of the form "alice rents $x fr

Not an expert, but was having some thoughts. Let debt be a graph where the nodes are people (with ledgers) and the edges are all of the form "alice rents $x from bob for y% APR". Actions that resolve/relax graph are payments of the form "alice pays bob $z", that lead to all balances being 0. Let the edges decay to null when balance is 0, such that a 'resolved graph' is simply a list of nodes with no edges, meaning 'no one is in debt to anyone'. From this we can infer: 1. There is only one logical 'debt graph' in the world since they can (and do) all join. 2. The people running the graph do not want the graph to die, ever. 3. The profit of the debt business is proportional to transactions over time, which is proportional to edges of the debt graph. 4. They want to (add, prevent from decay) as many edges as possible. I somehow feel like I've caught my first, hazy glimpse of something important.

1attice 4y ago
This is actually a nascent PhD-level thesis. Follow this thread.
- nightmarish 4y ago
  What makes you say that? It seems to be a restructuring of a supply/demand curve along a lattice. (Ironic, given your name lol?) https://en.m.wikipedia.org/wiki/Total_order https://en.m.wikipedia.org/wiki/Total_order
fecaldog 4y ago
2. The people running the graph do not want the graph to die but want the edges to decay. Thanks for this, I am now also having some thoughts.
zomglings 4y ago
I also feel like having caught a hazy glimpse of something monumental. Thank you. A few thoughts to add: 1. Should individuals inherit edge weight from their employers/governments? What should this inheritance be like? If I have no debt but have very little in savings, and if my company has debt to some other company which they have to default on, leading to my getting laid off, I can still be affected by debt. 2. I do not think it is accurate to think if "the people running the graph". I think it's more accurate to state local laws such as: any node which has more outgoing weight than incoming weight (i.e. net lenders) wants to prevent edges from decaying as much as possible while simultaneously making their borrowers more financially stable. 3. Would it be possible to quantify each vertex's credit-worthiness from just the labels you mentioned on edges? Would we need to add any other weights to the edges? e.g. the lender's estimate of the borrower's credit-worthiness?
- webnrrd2k 4y ago
  I like the graph idea, but I might be missing some of what your saying... Although I think that it should be more than just people as nodes. Anything that can participate in the economy via signing contracts woukd be my first approximation. So, businesses, cities/states/nations, etc... Also, I think it's reasonable for individuals to inherit edge weights from their governments, as a way to model taxes, national debt, etc.
- javajosh 4y ago
  Thanks for that, but after thinking about it a bit I don't think I have much to offer. Perhaps if we were in a pub and I could understand where you're coming from. The thing about models is that they can be used in a lot of different ways, and can be pushed in many more ways. The model seems so trivial that it must be part of a 1000 other models if it is correct, or it must be well-known why this model fails. I imagine the quants rolled their eyes and didn't even bother responding, like how physics people do when laymen riff on quantum mechanics. (My ego would love it if this is novel, but my brain knows better.)
tazjin 4y ago
I think what makes this sound so profound is that the second point sounds like a shadowy, centralised cabal. In reality it's a lot of the participants in the graph, for various reasons.
d4nt 4y ago
Convert “$x” into “something Alice wants”. Alice doesn’t really want $x, she wants a new car, a house, a vacation, a new machine for her factory. Now “They want to (add, prevent from decay) as many edges as possible” becomes “They want to encourage different parties to lend each other things they want”.
- fmstack 4y ago
  hold up hold up. there's a key distinction between the two categories of things you list in your examples. The first three are items that are consumed to meet Alice's specific desires, with features that match these desires-- a specific car, a specific house, a specific vacation. Alice buys them because she wants to use them. In a sense Alice also buys physical capital to use them, but she's not using physical capital because of its specific qualities but instead because of the money the products it produces will fetch when sold on the market. Alice wants a vacation because she wants to go to Paris or New Zealand or whatever. Alice wants a machine part because she wants the money it will make her. Two very different categories of thing! I bring this up not exactly as a critique of your analysis, but instead because none of the discussion in this thread is particularly tethered to the process of production, and it's specifically the disruption to production that makes the SVB collapse troubling.
jcranmer 4y ago
> 2. The people running the graph do not want the graph to die, ever. The problem with formulating it like this is it makes readers think that the set of people is a small-ish set of globalists or capitalists (or insert conspiratorial "others" as appropriate). But the set is far from small: basically anyone who ever wants to acquire debt for any reason (most common reasons include "attend college", "buy a car", or "buy a house"), or anyone who wants to profit from lending money to people, which is a fancy way of saying anyone who wants to invest money (such as buying stocks or bonds).
- ethbr0 4y ago
  If we're modeling the flow of value (in the more abstract), then holders of most currencies on the planet have real value constantly flowing away from them... by virtue of inflation. Or in a larger macro sense, positive central bank interest rates create a requirement for everyone to acquire some debt in order to counterbalance the drag.
nightmarish 4y ago
Proposition 2 is flawed: some people DO want the graph to die.
- javajosh 4y ago
  Yes, it strikes me as perverse that if your business is debt, then a debt-free world is a very bad world. It's perverse in the same way it is perverse for a doctor to be sad when fewer people get sick. So, I empathize. Be that as it may, I don't see fewer people getting sick or wanting debt, so I think the point is somewhat moot. It is troubling that the debt industry will attempt to increase the total debt in the world however it can. This is like a doctor attempting to increase the total sickness in the world - which is evil (not a word I use lightly, btw). But to say that either debt or medical industries should 'die' because perverse incentives exist seems wrong to me.
  - hgomersall 4y ago
    To a large extent it reflects liquidity demands. When governments are falling over themselves to profess "fiscal responsibility" the liquidity demands are met through private banking.
inawarminister 4y ago
There's a concept in Anthropology/Primitive Economics called "Gift Economy" where participants in a community gifted each other help, goods, food, and rely on being gifted back similar things in higher/lower proportions sometimes in the near future. If I'm not mistaken, Debt: the First 5000 Years and the Dawn of Everything books examined this. Your graph is a formalization of such relationship, no?
acjohnson55 4y ago
Your model feels trueish to me, but I think the analogy is actually overcomplicating it. The basic nature of finance is that some people have money they don't immediately need and others have needs they can afford over time but not upfront. It's basically a layer on top of money in general, which is a way of decentralizing value production. Instead of pairwise trades, money serves as credit for value creation, recognized by 3rd parties. The people running the graph are everyone with excess money or the ability to acquire it. Basically, everyone but the poor.
syntheweave 4y ago
Yep, this is indeed what is going on, and relates to concepts like "capitalism motivating nationalism, imperialism and colonialism" - it's the large scale expansion of the debt graph. It's something you can pull off profitably temporarily by coordinating your nation towards a stronger state bureaucracy, aggressive trade policies, industrialization, and destabilization or dehumanization of rivals. When we speak of "this is good for the nation", what's really at stake, materially speaking, is this kind of Machiavellian machination of debt, tempered only by whether it can be justified in terms of national myth, dominant ideology, party politics, etc. It produces a grand, generational historical narrative, but it's also a form of pyramid scheme and guaranteed to run out of runway at some point when the graph, rather than expanding, finds ways to get by with different trade flows that ignore the center - and each time that happens, you get a massive economic crisis, elites vying for power and drumming up scapegoats to avoid heat, but also waves of material change(different lifestyles and work arrangements). So there is downside to debt in that it can reinforce hierarchies, but also upsides in that the network itself is acting to transfer useful information about material needs. All things that, having becoming so much more digitally connected in the last 30 years, we can probably revise again to become more abstracted.
seanhunter 4y ago
1. This doesn't actually mean anything. It's true by your definition. 2. There is noone running the graph 3. This is true of all econonomic activity in a free market economic model. The assumption underlying market capitalism is that on net rational actors will only perform transactions which add value to them. Therefore the profit of the system is proportional to transactions over time which is proportional to the edges of the "financial transaction" graph. Debt is not required for this observation to be true - it's intrinsic to the model or the transactions won't occur. 4. There is no "they" other than "all the participants in the financial system". On net everyone participating in the financial system is doing so for their own benefit and therefore are invested in keeping the system running.
kayamon 4y ago
This system will settle on a solution if there is no net total creation of money in the world. As long as new money is allowed to enter this system, edges will keep appearing to protect it.

1attice 4y ago

This is actually a nascent PhD-level thesis. Follow this thread.

nightmarish 4y ago
What makes you say that? It seems to be a restructuring of a supply/demand curve along a lattice. (Ironic, given your name lol?) https://en.m.wikipedia.org/wiki/Total_order https://en.m.wikipedia.org/wiki/Total_order

fecaldog 4y ago

2. The people running the graph do not want the graph to die but want the edges to decay. Thanks for this, I am now also having some thoughts.

zomglings 4y ago

I also feel like having caught a hazy glimpse of something monumental. Thank you. A few thoughts to add: 1. Should individuals inherit edge weight from their employers/governments? What should this inheritance be like? If I have no debt but have very little in savings, and if my company has debt to some other company which they have to default on, leading to my getting laid off, I can still be affected by debt. 2. I do not think it is accurate to think if "the people running the graph". I think it's more accurate to state local laws such as: any node which has more outgoing weight than incoming weight (i.e. net lenders) wants to prevent edges from decaying as much as possible while simultaneously making their borrowers more financially stable. 3. Would it be possible to quantify each vertex's credit-worthiness from just the labels you mentioned on edges? Would we need to add any other weights to the edges? e.g. the lender's estimate of the borrower's credit-worthiness?

webnrrd2k 4y ago
I like the graph idea, but I might be missing some of what your saying... Although I think that it should be more than just people as nodes. Anything that can participate in the economy via signing contracts woukd be my first approximation. So, businesses, cities/states/nations, etc... Also, I think it's reasonable for individuals to inherit edge weights from their governments, as a way to model taxes, national debt, etc.
javajosh 4y ago
Thanks for that, but after thinking about it a bit I don't think I have much to offer. Perhaps if we were in a pub and I could understand where you're coming from. The thing about models is that they can be used in a lot of different ways, and can be pushed in many more ways. The model seems so trivial that it must be part of a 1000 other models if it is correct, or it must be well-known why this model fails. I imagine the quants rolled their eyes and didn't even bother responding, like how physics people do when laymen riff on quantum mechanics. (My ego would love it if this is novel, but my brain knows better.)

tazjin 4y ago

I think what makes this sound so profound is that the second point sounds like a shadowy, centralised cabal. In reality it's a lot of the participants in the graph, for various reasons.

d4nt 4y ago

Convert “$x” into “something Alice wants”. Alice doesn’t really want $x, she wants a new car, a house, a vacation, a new machine for her factory. Now “They want to (add, prevent from decay) as many edges as possible” becomes “They want to encourage different parties to lend each other things they want”.

fmstack 4y ago
hold up hold up. there's a key distinction between the two categories of things you list in your examples. The first three are items that are consumed to meet Alice's specific desires, with features that match these desires-- a specific car, a specific house, a specific vacation. Alice buys them because she wants to use them. In a sense Alice also buys physical capital to use them, but she's not using physical capital because of its specific qualities but instead because of the money the products it produces will fetch when sold on the market. Alice wants a vacation because she wants to go to Paris or New Zealand or whatever. Alice wants a machine part because she wants the money it will make her. Two very different categories of thing! I bring this up not exactly as a critique of your analysis, but instead because none of the discussion in this thread is particularly tethered to the process of production, and it's specifically the disruption to production that makes the SVB collapse troubling.

jcranmer 4y ago

> 2. The people running the graph do not want the graph to die, ever. The problem with formulating it like this is it makes readers think that the set of people is a small-ish set of globalists or capitalists (or insert conspiratorial "others" as appropriate). But the set is far from small: basically anyone who ever wants to acquire debt for any reason (most common reasons include "attend college", "buy a car", or "buy a house"), or anyone who wants to profit from lending money to people, which is a fancy way of saying anyone who wants to invest money (such as buying stocks or bonds).

ethbr0 4y ago
If we're modeling the flow of value (in the more abstract), then holders of most currencies on the planet have real value constantly flowing away from them... by virtue of inflation. Or in a larger macro sense, positive central bank interest rates create a requirement for everyone to acquire some debt in order to counterbalance the drag.

nightmarish 4y ago

Proposition 2 is flawed: some people DO want the graph to die.

javajosh 4y ago
Yes, it strikes me as perverse that if your business is debt, then a debt-free world is a very bad world. It's perverse in the same way it is perverse for a doctor to be sad when fewer people get sick. So, I empathize. Be that as it may, I don't see fewer people getting sick or wanting debt, so I think the point is somewhat moot. It is troubling that the debt industry will attempt to increase the total debt in the world however it can. This is like a doctor attempting to increase the total sickness in the world - which is evil (not a word I use lightly, btw). But to say that either debt or medical industries should 'die' because perverse incentives exist seems wrong to me.
- hgomersall 4y ago
  To a large extent it reflects liquidity demands. When governments are falling over themselves to profess "fiscal responsibility" the liquidity demands are met through private banking.

inawarminister 4y ago

There's a concept in Anthropology/Primitive Economics called "Gift Economy" where participants in a community gifted each other help, goods, food, and rely on being gifted back similar things in higher/lower proportions sometimes in the near future. If I'm not mistaken, Debt: the First 5000 Years and the Dawn of Everything books examined this. Your graph is a formalization of such relationship, no?

acjohnson55 4y ago

Your model feels trueish to me, but I think the analogy is actually overcomplicating it. The basic nature of finance is that some people have money they don't immediately need and others have needs they can afford over time but not upfront. It's basically a layer on top of money in general, which is a way of decentralizing value production. Instead of pairwise trades, money serves as credit for value creation, recognized by 3rd parties. The people running the graph are everyone with excess money or the ability to acquire it. Basically, everyone but the poor.

syntheweave 4y ago

Yep, this is indeed what is going on, and relates to concepts like "capitalism motivating nationalism, imperialism and colonialism" - it's the large scale expansion of the debt graph. It's something you can pull off profitably temporarily by coordinating your nation towards a stronger state bureaucracy, aggressive trade policies, industrialization, and destabilization or dehumanization of rivals. When we speak of "this is good for the nation", what's really at stake, materially speaking, is this kind of Machiavellian machination of debt, tempered only by whether it can be justified in terms of national myth, dominant ideology, party politics, etc. It produces a grand, generational historical narrative, but it's also a form of pyramid scheme and guaranteed to run out of runway at some point when the graph, rather than expanding, finds ways to get by with different trade flows that ignore the center - and each time that happens, you get a massive economic crisis, elites vying for power and drumming up scapegoats to avoid heat, but also waves of material change(different lifestyles and work arrangements). So there is downside to debt in that it can reinforce hierarchies, but also upsides in that the network itself is acting to transfer useful information about material needs. All things that, having becoming so much more digitally connected in the last 30 years, we can probably revise again to become more abstracted.

seanhunter 4y ago

1. This doesn't actually mean anything. It's true by your definition. 2. There is noone running the graph 3. This is true of all econonomic activity in a free market economic model. The assumption underlying market capitalism is that on net rational actors will only perform transactions which add value to them. Therefore the profit of the system is proportional to transactions over time which is proportional to the edges of the "financial transaction" graph. Debt is not required for this observation to be true - it's intrinsic to the model or the transactions won't occur. 4. There is no "they" other than "all the participants in the financial system". On net everyone participating in the financial system is doing so for their own benefit and therefore are invested in keeping the system running.

kayamon 4y ago

This system will settle on a solution if there is no net total creation of money in the world. As long as new money is allowed to enter this system, edges will keep appearing to protect it.