The Debt Rabbit Hole… and XRP
Published: August 17th, 2025
*Opinion Piece*
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning” – Henry Ford
Prelude:
High yields and speculation based returns due to high volatility will come to an end… but only after the “switch is flipped” and the dust settles. Remember not too long ago when the Traditional Finance standard was to double your money every 6 – 7 years? Today multiples of that are printed in hours… and don’t get me wrong there is plenty of opportunity yet to be had.
Below I explain how the financial system is changing, the focus in the new financial system, the recklessness in policy regarding creation of “debt money”, and the differences in how the abundance of liquidity has been and will be driving rampant speculation in markets all showing where we came from, how we got here, and where we are going.
XRP Value Proposition Over Stable Coins
Stable coins CAN’T fulfill the role XRP was built for alone. In summation, the new international financial system powered by XRP will have both fixed values (low inflation masked by growth) and liquidity flexibility to cover liquidity needs.
Leaving a predominantly debt based system is precisely the reason why XRP even has a value proposition over stable coins themselves for international transactions.
Currently liquidity, as well as money supply, can expand and contract through issuance of new debt to manage the system broadly. (ranging from Quantitative easing/tightening on a larger scale to “personal” debt creation/destruction on a smaller scale i.e. a mortgage or a credit card) As we migrate back to fixed values and hard money we lose that ability to manage liquidity expectations. This is why stable coins aren’t suitable themselves for international transactions.
In comes XRP to become the intermediary between “local money” and “foreign money” or different stable coins native to different countries. XRP was designed to expand and contract depending on demand/volume of international transactions. i.e. if liquidity falls short, the price of XRP will rise to require less XRP to move the same amount of money.
XRP is the elasticity that a debt based system provides while being separate from money supply enabling values to stay fixed.
This is why $BTC was created… to be an interim test solution within the current financial system to carry “off book” value to prevent inflation from reaching markets. Don’t worry, XRP does it better. 😉
Before it was obvious to everyone, including and especially sovereign nations, that the dollar has become feeble compared to what it once was, every sovereign nations books served for this purpose. They needed to hold dollars on their books to participate in international markets and the USA needed to export inflation. It was a win win. (with the USA winning way more i might add)
How Debt “Money” Is Created
Although debt is created from “thin air”, it doesn’t mean its free. Every Dollar since inception, Federal Reserve Notes (Commercial Paper), was created in balance along with the debt to service it.
The idea here is that by the maturity date of the debt the money that was created from “thin air” will have been paid back in full plus interest not having any adverse effects in the economy… but a lot can happen between the creation of the debt to the maturity.
Treasury Bills, Notes and Bonds account for a sizable portion of the debt responsible for FRN (Federal Reserve Note) issuance, but issuance isn’t limited to just Treasury issued debt. These debts that account for FRN issuance could be mortgages, credit card spend, auto loans, personal loans etc. The one thing they all have in common is that they all involve a Promissory Note (Promise to pay), which secures the debt itself.
Banks and Financial Institutions have a monopoly on the Federal Reserve discount window (Where they exchange a promissory note or debt for Federal Credits or digital FRN’s), otherwise if you can sign your name on a piece of paper promising to pay back money you would have access to an infinite amount of FRN’s.
Most people misunderstand exactly how fractional reserve banking works. Banks cant just create 10X their reserves at will, or when someone wants to borrow it. Every time a FRN is created there needs to exist the equivalent in debt to be serviced to balance it out. Often, banks will exchange the debt instruments they have in reserves like Bonds or Mortgage Backed Securities for FRN’s when they need capital. Even more often, Banks will secure the Promissory Notes of individuals who need loans for whatever reason. These are ways Banks, through the Federal Reserve, create FRN’s and these created FRN’s have to adhere to Fractional Reserve banking in comparison to the reserves the Banks have on hand.
To make matters even worse, Banks are selling these promissory notes after they exchange them for Federal Reserve credits to secure the collateral for whatever the loan was for. They sell at face value to the principal of which the loan was for i.e. 100% of the value of the loan. This means that banks hold more reserves and thus have the cap space to lend more not to mention all the incentive in the world to create more money out of “thin air”. They are the prime beneficiary of such.
Let’s rewind really quick:
In a Gold backed monetary system debt still existed. It’s simple, Tom can borrow money from Joe and promise to pay Joe back 5% interest or a 5% premium for the duration of the year. This can look like Tom borrowing $100 from Joe and a year later paying Joe back $105. The only difference in a Gold Backed system vs today is that the “promise to pay” or todays “Promissory Note” isn’t worth the equivalent of the loan value in “new money”. In a Gold backed system a third party may have been interested in purchasing the debt (payment stream) from Joe. Lets say its half way through the year (duration of the loan). Fair value may have been offering Joe $102.50 for the debt in hopes to recoup the $2.50 profit.
In todays system, financial institutions are “double spending” in terms of collecting value of promissory notes. First from the Federal Reserve discount window in Fed credits, second in cash value by selling the debt stream to a willing third party buyer. The point is, in a hard money system money cant be created out of thin air so it easier to be responsible with regard to creating debt. If todays methods of debt creation sound irresponsible, it’s because they are… Are a time bomb that WILL explode if nothing is done about it.
Resume:
Money is being created hand over fist. Now just think about it… if you had access to the Federal Reserve discount window like I mentioned above, would you ever have any intentions of paying the prior debt off without taking out new debt to pay it? or would you just continuously pull out more debt when you need the money and when you need to pay the prior debt? Now what do you think these financial institutions are doing?
The Banks and Financial Institutions are in the opposite position of us, they have access to the Federal Reserve discount window but cant create promissory notes. As less promissory notes get created because people can’t qualify/afford to take out any more debt, the tie around the Bankers necks gets tighter.
How It All Ties Together
Traditionally the financial system experiences boom and bust cycles, but this time sharp deleveraging is just not an option as the “everything bubble” will leave an irreparable trail of carnage worse than anything anyone alive today has ever seen.
Que in Stable Coins and XRP. They are going to facilitate what I mentioned above:
“The idea here is that by the maturity date of the debt the money that was created from “thin air” will have been paid back in full not having any adverse effects in the economy.”
This concept will be supplemented through added liquidity, fostering growth, and of course time. This will result in a slow and sustainable deleveraging that will begin to be masked by growth once the dust settles.
Banks, or whatever financial entity survives of them, are going to LOVE stable coins. Dollars held as reserves will be able to be duplicated as stable coins on the blockchain. Imagine the Gold Standard of 100+ years ago, Gold is held as reserves and duplicates of value as notes can be issued of equal value. Stable coins will work similarly creating more opportunity for the issuers of such. This will cause a tidal wave of liquidity in the system.
Once stable coins really hit the scene it wont be long before asset backing begins to move towards fixed values of exchange.
Expansion of liquidity when needed through XRP while having fixed values of exchange will literally exist through XRP, thus where will that inflation go?… the majority probably right where it came from, on the XRPL. This means that as international finance needs more liquidity, the liquidity is created through increase of XRP price.
The XRPL today is merely seeing small drips of liquidity. Meme coins today are running solely off of the small drips of liquidity on the XRPL and speculation that more liquidity is coming. When the tidal wave comes the effects of speculation and liquidity pools rebalancing will have tremendous effects on market caps.
After the tidal wave, the market will start to get “smarter”. Meme coins are forward looking based on hype and the tidal wave to come is the hype. Once its here and the market has realized its effects, aimless speculation investments will lose investors as they turn to smart, provable and sustainable investments. The more transparent the market can be, the more mature it will become. Currently the XRPL has the ability to be completely transparent but functionally, many operators are not. One day it will be safer than traditional finance today.
Fixed values of exchange / hard money -> lower passive investment yields available -> Community benefitting projects / businesses become more attractive to passive investors.