Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal • Hacker News Board

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#151

Post by gridlockd » Thu, Jul 11, 2019, 5:13 PM UTC

benj111 wrote: post #138

gridlockd wrote: post #89

Earlier quoted context omitted.

A government bond issued in the countries own currency has no risk of default and is highly liquid. An ordinary loan such as a mortgage has poor liquidity and a high risk of default in case of turmoil.

"A government bond issued in the countries own currency has no risk of default" That is very far from correct. And I still don't think the risk differential is enough to make them 2 different things.

> That is very far from correct.

Fair enough, that was poorly phrased. For practical purposes, buyers of such bonds operate under the assumption that the country won't default on its debt, because it can always service it nominally by creating the money. Of course that has a risk of depreciation, but so does holding the currency itself.

> And I still don't think the risk differential is enough to make them 2 different things.

You don't think a junk bond, a mortgage and a government bond are different things? I never said that a government bond is not a loan. Of course it is a loan, but in terms of risk and (more importantly) liquidity these are all very different.

What asset has lower risk than a short-term government bond? If you know, tell the banks in Europe that are currently paying negative interest on German bonds all the way up to 10 years.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#152

Post by andirk » Thu, Jul 11, 2019, 5:16 PM UTC

conanbatt wrote: post #2

After 10 years of the crypto-crazies of bitcoin denouncing the power of central banks, a private company announces to do a version of a crypto-currency and is under fire from a central bank. Clearly they got something right.

I worked for a mobile gaming company who did mainly casino games with fake chips that you could buy, and they're now under investigation for violating gambling laws because their chips _acted like real money_ therefore the same laws apply.

Might be the same with crypto money where they'll be under the same laws as real money and trading.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#153

Post by bobthepanda » Thu, Jul 11, 2019, 5:30 PM UTC

abecedarius wrote: post #99

TheRealPomax wrote: post #6

My main concern about libra is that, by being strongly tied to real currencies, libra issuers (not just facebook, all of them) have effectively assumed the role of unsanctioned mints, with the ability to damage the stability of each currency because libra is not tied to the international exchange system: if you pay facebook, or anyone else, $10 and they convert that into libra, now they have $10 that they will absolu…

There's a difference that could be important: Libra is effectively a bank, and like other banks creates money, but the new money is not denominated in dollars, it's in Libra. If American banks create too many dollars, that's a problem for every American, since Americans up to now have been pretty much stuck with using dollars. If Libra mismanages their supply and reserves, the main effect will be on the market price…

> the main effect will be on the market price of Libra, right?

National central banks in the modern era have two functions: manage the money supply and make sure that the economy is running well. It's true that Libra would be the only direct impact, but then you have people who have debts in dollars and revenues in Libra, and if they can't pay back their dollar debts then their lenders are now short of dollars and can't pay back their obligations, and now we have a financial crisis.

Examples of this include 1997 in Asia: https://en.wikipedia.org/wiki/1997_Asian_financial_crisis

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#154

Post by benj111 » Thu, Jul 11, 2019, 6:05 PM UTC

gridlockd wrote: post #151

benj111 wrote: post #138

Earlier quoted context omitted.

"A government bond issued in the countries own currency has no risk of default" That is very far from correct. And I still don't think the risk differential is enough to make them 2 different things.

> That is very far from correct. Fair enough, that was poorly phrased. For practical purposes, buyers of such bonds operate under the assumption that the country won't default on its debt, because it can always service it nominally by creating the money. Of course that has a risk of depreciation, but so does holding the currency itself. > And I still don't think the risk differential is enough to make them 2 differen…

"because it can always service it nominally by creating the money"

The Eurozone would offer a counter example.

I suppose if a nation issued enough inflation linked bonds it could also get itself into trouble that way. In general though you're right, inflation is the big risk.

"You don't think a junk bond, a mortgage and a government bond are different things? "

That's actually the example I was thinking of.

I think they're both bonds. To take it back to your original comment, I don't think something stops being fractional reserve banking just because the money is put into low risk loans, its the same overall business model, paying out less in interest then you get in.

"What asset has lower risk than a short-term government bond?"

Good question, depends on the risk though. Theres a very high risk that you'll lose out to inflation in the long term, so there's a argument that stocks are safer in the long term. Bank deposits in my country are govt backed up to a certain amount and pay slightly more, so that's as safe as, and has a better chance of beating inflation.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#155

Post by ironic_comment » Thu, Jul 11, 2019, 8:18 PM UTC

seibelj wrote: post #117

ethbro wrote: post #115

Earlier quoted context omitted.

The problems with cryptocurrencies are precisely their lack of laws. Laws link the real world (a thing or action) to an intangible concept (a transaction or a contract). Without a guarantee of that link (ultimately, via force), you're left with joke monopoly money. And if you leverage the existing system to accomplish that link (e.g. via writing legally valid smart contracts), then you're again beholden to government…

Before cars there were horses, before computers there was graph paper. The benefits of crypto are so clear that outlawing it makes no sense. I can’t explain this to you because you choose not to understand it so it’s not worth arguing.

All of you Cryptonites say the same thing... "you choose to not understand...it's not worth arguing" I say, there never has been an issue moving money around. This is purely a solution looking for a problem to solve. Good luck sapping the world's energy supply to enrich the Winklevii.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#156

Post by ironic_comment » Thu, Jul 11, 2019, 8:23 PM UTC

nostrademons wrote: post #19

wil421 wrote: post #10

Earlier quoted context omitted.

>someone else will come up with a cryptocurrency that's actually useful You named 8 different digital coins. Why aren’t any of them useful? Why do we need other ones?

It's like any other startup: building a product that's useful enough to get widespread adoption requires nailing a lot of different details. You leave one critical feature off and you don't get adoption. You get all of them right and the product takes off on a hypergrowth curve. It's like how Reddit took off once they added comments, or AirBnB took off once they started taking professional-quality photos. It's not th…

The blockchain has revolutionized the way people talk about... the blockchain.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#157

Post by gridlockd » Thu, Jul 11, 2019, 8:53 PM UTC

viraptor wrote: post #127

gridlockd wrote: post #113

Earlier quoted context omitted.

First of all, Facebook isn't doing fractional reserve. Secondly, banking regulation does nothing to mitigate the risk of fractional reserve banking. Your average bank holds maybe 10% of deposits, the rest is loans way into the future. No such bank can survive a bank run. What does mitigate the risk (for the average bank customers) is the government insurance for bank deposits. A government can always print the money…

> Facebook isn't doing fractional reserve I think a better description would be: Facebook says that right now they're not planning to do fractional reserve. There's nothing holding them to this promise. There's also no control that their partners in Libra will keep it. It may well be the same situation as tether (or worse).

> There's nothing holding them to this promise.

There may be, the exact terms aren't clear yet. Of course the terms might just say "you have no rights whatsoever". The market will price those terms in.

> It may well be the same situation as tether (or worse).

I don't think that's a good argument against Libra. Tether is still trading around 1.00$, despite its reserves being at best 74%. The market is pricing the risk of ending up as bagholder as next to nothing.

Nobody is arguing that holding large amounts of Libra as a "store of value" is a wise thing to do. Neither is storing large amounts of cash under your bed.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#158

Post by gridlockd » Thu, Jul 11, 2019, 9:31 PM UTC

benj111 wrote: post #154

gridlockd wrote: post #151

Earlier quoted context omitted.

> That is very far from correct. Fair enough, that was poorly phrased. For practical purposes, buyers of such bonds operate under the assumption that the country won't default on its debt, because it can always service it nominally by creating the money. Of course that has a risk of depreciation, but so does holding the currency itself. > And I still don't think the risk differential is enough to make them 2 differen…

"because it can always service it nominally by creating the money" The Eurozone would offer a counter example. I suppose if a nation issued enough inflation linked bonds it could also get itself into trouble that way. In general though you're right, inflation is the big risk. "You don't think a junk bond, a mortgage and a government bond are different things? " That's actually the example I was thinking of. I think t…

> The Eurozone would offer a counter example.

The Eurozone is special case, because the Euro is not any countries "own" currency. I'm not an expert on the modalities, but as far as I'm aware Euro member states can print their own money, but that would of course cause conflict with other members. In any event, the ECB did avoid defaults of its member states.

> I don't think something stops being fractional reserve banking just because the money is put into low risk loans, its the same overall business model, paying out less in interest then you get in.

Fair enough, we're having an argument over semantics. To be precise, what Facebook is doing is neither banking nor fractional reserve banking and I'm really just looking to draw a parallel here.

As far as actual banks and their reserve requirements are concerned, domestic bonds may well be "as good as cash", but it depends on the particular monetary policy. Whether that's good policy is debatable of course.

> Good question, depends on the risk though. Theres a very high risk that you'll lose out to inflation in the long term, so there's a argument that stocks are safer in the long term. Bank deposits in my country are govt backed up to a certain amount and pay slightly more, so that's as safe as, and has a better chance of beating inflation.

It's not a "good question", it's a rhetorical question. The answer is none, especially not stock. Bank deposits don't count, as they're limited. Imagine you're a bank yourself and you need minimize your risk exposure.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#159

Post by ethbro » Thu, Jul 11, 2019, 9:57 PM UTC

sedeki wrote: post #143

ethbro wrote: post #115

Earlier quoted context omitted.

The problems with cryptocurrencies are precisely their lack of laws. Laws link the real world (a thing or action) to an intangible concept (a transaction or a contract). Without a guarantee of that link (ultimately, via force), you're left with joke monopoly money. And if you leverage the existing system to accomplish that link (e.g. via writing legally valid smart contracts), then you're again beholden to government…

How does the situation in Zimbabwe or Venezuela fit into your argument? Seriously.

I'd say that all governments and central banks are not equally competent.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#160

Post by abecedarius » Thu, Jul 11, 2019, 10:26 PM UTC

bobthepanda wrote: post #153

abecedarius wrote: post #99

Earlier quoted context omitted.

There's a difference that could be important: Libra is effectively a bank, and like other banks creates money, but the new money is not denominated in dollars, it's in Libra. If American banks create too many dollars, that's a problem for every American, since Americans up to now have been pretty much stuck with using dollars. If Libra mismanages their supply and reserves, the main effect will be on the market price…

> the main effect will be on the market price of Libra, right? National central banks in the modern era have two functions: manage the money supply and make sure that the economy is running well. It's true that Libra would be the only direct impact, but then you have people who have debts in dollars and revenues in Libra, and if they can't pay back their dollar debts then their lenders are now short of dollars and ca…

Thanks. I'm skeptical that this management of the economy on net makes it go smoother -- I can't understand what they're doing even as well as they do without far more study, but I can e.g. notice that respected economists were seriously starting to think the "great moderation" had been achieved by the years just before 2008. (Not just hindsight bias, since I was reading them at the time.)

But yeah, that point of view is a lot more mainstream and could well be more right.