Maybe Morgen E. peck is a pretty nice guy[gal]. [S]He probably is a great fella[lass] (unlike me) since [s]he is getting published by IEEE so much. But [s]he’s a clueless goof who doesn’t have the slightest clue what [s]he is reporting about. It’s like reading coverage on nuclear power from Joan Rivers, hearing her exclaim about how Blue Cheese will be such a great power source. (Yes, I know that’s an insult to Joan Rivers, who wouldn’t take anybody seriously who suggested friends and relatives were good credit risks.)
Mr.[Ms] Peck quite clearly doesn’t know what banking is. That is proven by this quote from his article:
When Fugger built Ripplepay in 2005 and 2006, “the goal was to create a system of debt money without artificially imposed scarcity,” he says in an e-mail. What that meant in practice was giving individuals the power to operate as their own banks, with the ability to issue credit.
That can only be true if the issuer of credit is doing so within a system in which the receiver of the loan deposits it into a bank, which in turn loans it out. You see, banks provide a unique function. They take in deposits and loan most of the money out. That is how money is created by banks. This is different from extension of credit by a private party. (Yes, banks now can borrow from the discount window at the Federal Reserve to cover themselves if they haven’t got enough deposits – but that doesn’t matter for our purposes here.)
What Mr. Morgen E. Peck is discussing in the Ripple article is not empowering individuals to act as a bank. It is acting as an unsecured creditor. It is, at best, giving real goods (like a merchant) without a lien on the goods, to a creditor, in return for a promise to pay. That is a form of money creation, but can only span the distance of one pair of parties.
That form of single-transaction money creation is already exploited to the hilt by businesses. It is called float in finance. For instance, a car manufacturer will send merchandise to dealers who then have a fairly long period of time to pay them. The dealer gets free merchandise to sell, and the more times they can turn their merchandise within their float period, the larger a wad of cash they build up. Expanding businesses make huge amounts of money this way – literally billions. Apple Computer is a master of paying its suppliers late and collecting early. Retail sales lives by float.
Mr.[Ms.] Peck is confusing that with a system in which unsecured parties agree to accept each other’s IOUs as an alternative currency. So is the designer of Ripple. Ooh, boy. So another clueless software nerd didn’t bother to study anything before setting out on his elfin quest. Too bad.
Nor does the article ever discuss interest on the extension of credit. Oopsie! No motivation for anyone to loan except altruism. Oh, well. Nobody except the sucker is going to do that.
But what the article makes clear is that the Ripple system doesn’t do that. The Ripple system simply empowers individuals to put themselves on the hook for someone else’s money-lending transaction(s) outside the banking system. Money-lending, also known as loan-sharking, is the worst loan anybody can possibly make. Read up on why here and here. And that means that Ripple is simply a system for creating ruin in people’s lives. That’s the reality.