The problem is a line of trust does not work in practice. A trusts B. B trusts C. C trusts D. D trusts E. E trusts F. F defaults.
You ask B, and B tries to contact C. After a few days, B finally got in touch with C, and C looks for D who moved to France a few months ago.
That's not how trust works in Ripple. The trust line only exists for the instant the payment is made. Otherwise, each extension of trust is independent of every other one.
If you trust B, presumably it's because you entered into an agreement with B such that they have an obligation to settle their debts with you. What interaction they have or don't have with C is none of your business. Either B makes good or they don't. If they don't, then they are betraying your trust. Nothing C, D, E, or F does has anything to do with it.
It's like if I send you a check for $50, you deposit it in your bank, and then your bank goes out of business without paying you. It's not my problem. I only chose to trust *my* bank. Once you take the $50 as payment, how you settle with those you chose to trust is your issue. (When you set trust, you are essentially setting what you are willing to accept as payment.)
Owed money doesnt equal the exact amount. Collecting is hard and just because someone owes doesnt mean they will pay on time or all at once.
Because of issues like this, we're not relying on the community/social credit angle. I think long term it has tremendous potential and may even change the way people think about money, but there are a lot of hurdles keeping us from getting there.
So if this is the case...why not just use the current monetary system? Same setup basically. Based on debt and trust of the government that the paper they print their name on is worth what they say it can buy (i.e. $5 dollars worth etc.).
I see no advantages with ripple other than more smoke and mirrors and another opportunity for the originators to either get shut down by a government entity or run with the funds given its centralized nature.