The P2P lending sector is growing all the time with the main companies starting to increase custom and size. The rise of P2P lending is helping bring money and its nature into the wider consciousness. Alongside this sits other proposals for fully distributed money systems. Many of these revolve around traditional and tested complimentary currencies such as LETS, Time$ and other locally based systems.

One proposal is Ripple. It’s been around for a few years and there is some good information on the site including the initial paper from Ryan which I have posted up in the research section. There’s plenty of commentary around about it which is worth a look at. Essentially it proposes to replace bank created debt money with personally created credit through a fully distributed network based system. What is good about this proposal is that it takes the concept of local currency systems to its logical conclusion which is a globally based one with servers finding the right path to the appropriate relationship or network.

The most important part of this is identifying that most of what we think of as money is in fact simply an IOU. So why should banks create this? Well the main reason is trust. What Ripple proposes is the creation of that trust through networks, which as we know are already widely in use.

Jamesey proposes a further layer on top of this adding in microfinance structures and leveraging off the Paypal system.

We also have very well embedded and established credit card systems (Amex and Visa) who already have the distribution systems. So the trust system is going to be a key issue. Who is in your network? Who can you trust? I’d suggest and I hope that VortexDNA will play a role in helping this kind of global protocol to develop.

The main problem is the control of supply. One would like to think that a complex system, such as proposed, would regulate itself constantly adjusting to feedback. We know that the current system is close to imploding because of rampant money creation. So cculd it be any worse? Could governments participate also?

It’s open season and anything is possible.

At last an article which pans reverse mortgages. I’ve never been a fan of these instruments which are really another form of credit card debt but with a supposedly safe pay off at the end.

They are a brokers favourite with the usual trailing commissions compounding along. It’s another sub prime fiasco waiting to kick in as people realise their wealth has been eaten up and they now have nothing.

There are other ways of raising cash which include trading down or borrowing from family members with the property as security.

Avoid these schemes like the plague.

News comes of a huge class action suit brought in Canada by a litigator called John Dempsey. Following on from John Kutyn’s (a Canadian living in NZ) paper “the Nature of Money” it takes the next step of actually calling banks to account under the law.

It’s being held up in the courts but at some point the suit must be acknowledged and heard. Its a tough one for the judges as they are being asked to rule on one of the most accepted practices in society today, namely the equivalence of “digital money” and cash in the form of notes and coins.

With the relentless advance of Peer to Peer lending systems coming online and complimentary currencies in every country it is easy to see how a major change is underway. Sure the banks may not be too concerned now but we are seeing the beginnings of a major revolution in what we know as money.

As the Fed prepares for another rate cut, probably 25bps, possibly 50, markets are resilient in the face of what is still a horrendous credit meltdown. With Merrill Lynch reporting a monumental loss last week, it is clear that banks are still clearing away the debris of the last few months and the real impact may not be felt for some time.

Never mind the jokes (you can’t bail out anything with a siv)around the Super SIVs: the great $100bln bailout plan hatched by some genius to support the market. Similar to the rescue plan post LTCM crash, it basically involved the market coming in to buy its own distressed assets. Liquidity is the mantra but holding up the market is the reality.

Everything is under water so its a game of smoke and mirrors. As I’ve said before its a rational response to a difficult situation. The social impact of a complete financial crash is not something anyone wants to see but the longer we put off the necessary surgery the worse it will be.

The credit bubble of the last 15 years is over. The balloon has too many holes in it and its a waste of time pumping more air into it.  Satayjit Das, author of Traders, Guns and Money lays it all out in this paper. Its worth a read.

So the Fed arrived late at the party with a scything 50bp cut all round. But they left a cloud of uncertainty to block out the ray of sunshine.

Bernanke is not known for his pandering to the markets and inflation is still mentioned as a concern. So this move is part of the restoration of confidence in the US economy and global monetary system. The G7 central bankers and finance ministers will have been wired into each other this past month and since the Northern Rock meltdown probably on 24 hour call.

They all depend on each other now.

How the Asian central banks must be laughing given the dressing down they received during the 1998 crisis and how the G7 bankers and IMF threw the financial risk playbook at them.

So where does all this leave us. Well pretty much in the same place except we know that G7 will underwrite the financial system. This is good for big guys and bad for small ones (or foreigners!). Small guys can fail and be picked up for a song by the big fellas……nice bit of wealth transfer (anyone remember Long Term Capital or Barings?).

But fundamentally there is still pain to come. The fact that asset prices have been inflated way beyond realistic levels means at some point they must retreat and money must be destroyed as the money supply contracts.

No amount of paper shuffling can change that. Pumping out more money will help in the short term to keep institutions from falling over and the system functioning but it cannot prevent the inevitable.

The best we can hope for is a gentle downturn in asset prices. And of course lessons will be learnt….just like in 1794 and every 18 years since

The recent Bank of England action is completely necessary though wrong in terms of moral hazard. In order to understand why this is the case i exhort you to read John Tomlinson’s paper which is in the research section or here. In his paper  he explains how a bank works in terms of taking in deposits and lending out money. He dissects carefully the balance sheet of Barclays Bank and shows how solvency is merely a trick of the imagination.

Of course readers of this blog will already know that money is merely a ficition, one with a deep and dark history. As Trevor commented in the previous post, the general public relies on he integrity of the system and the honesty of those who operate it.

Can we have confidence in those people? I think not. Not because they are dishonest  but because they refuse to acknowledge a system that is unstabl, inequitable and ultimately inefficient.

Please read and ask questions, comment, spread the word and ponder.  What does your money mean? Do you really have any savings, wealth or assets? Don’t rely on the system to support you. It has failed regularly since the Bank of England was first formed and wil l continue to do so until some serious surgery has been performed.