Topic: Bitcoin is a Zero-Sum Game - Long-term interest bearing instruments viable? - page 6. (Read 14623 times)

Oh enough with the bullshit. You are wrong. You either have no concept whatsoever of how the economy works, or you are just purposely turning on the blinders so that you can find some rationalization for bitcoin's economy. "LOL THERE'S NO NEED FOR LENDING LOL LET'S KEEP SOCIETY AS IMMOBILE AS POSSIBLE!" What you want is feudalism. AIN'T GONNA HAPPEN. The economy would grind to a total halt without lending. Lending is beneficial to both parties; people have money that is idle and want to increase it, other people have ideas to create or expand the economy and need money. You. Are. Wrong. Totally. Absolutely. Wrong.


I am trying to make a basis in reality whereas you want to pretend that there will be 3%+ interest rates in a deflationary economy. Yes, inflation encourages investment, and likely over-investment, but you are trying to argue that there will be at least "enough" investment to encourage growth by assuming that there will be a positive nominal interest rate that can be had for low risk in a deflationary economy. Except that there are big issues with that that you want to ignore.


Uhh, I did no such thing. "Real growth in the economy as a whole when businesses borrow money makes businesses prone to go bankrupt. In real terms, loans get harder and harder to pay back." I am assuming real growth causes deflation, thus making it harder to pay back loans. Where is the contradiction? Oh, doesn't exist. The problem is that deflation will stunt growth, and yes, there may be no deflation at all because nobody wants to risk borrowing bitcoins and thus no growth. The point I was trying to make.

You clearly have never done any real investing or business. You can never expect to earn a higher profit that the average market. Index funds will for instance on average give you a higher profit than trying to pick a managed fund, and only because the costs are lower.

You just don't get how investing works. You don't fund something you expect not to return a profit, but often it won't. The interest rate will usually be somewhat lower than the expected average profit, but picking a number that always works is not possible.

"Resources" can't just be moved around like that. Motorola can't close down the mobile business, get the invested money refunded, and put them into Apple.

No, I didn't. Not even close.

You are still ignoring the point. The argument is that 2 million invested at a 5% return is better for society than 1 million invested at 5% and 1 million at 2%. The function of an interest rate is to make the former situation possible in cases where the capital is in the hands of the investor with the lesser return.

So 0% would be optimal? How else would those investments of ininitesimal profitability make any funding?

My answer is that the function of interest is to allocate resources from lesser investments to better investments.


You can change the numbers however you like to make them seem more realistic to you. The principle remains the same with any rates. If I had the capability to make 0.1% and you made 0.2% we would still both be better of if I lent you my funds at an interest of something in between. As would society

Because your answer was a straw man. You said it was better to not take the risk when my argument was about already risk-adjusted returns.

No, it's the reason why your rationalization that you can just keep putting more money into the best businesses instead of starting something that has a high risk of not beat the average profitability is wrong.

You're a true genious, why didn't anyone think of that when the money were pouring in for Microsoft in the nineties? Anyone could just have started another software company and taken half the market and profits!

The interest rate has no purpose of it's own, it's just the price markets put on money.

And 10% would be even better, but coming up with artificial numbers that would be completely wrong if you translate them into the real economy proves nothing.

Anyone would take a free bonus on a deflationary currency, but as people are starting to realize in the lending sections of this forum, there is no such thing.

I already answered this, so I don't know why you're just repeating it.

But I'm not the one who is making the assumptions. The rates I've chosen in my examples are just for illustrative purposes. I'm saying that the principle stays the same regardless of what the actual rates end up being. You are the one that are making a lot of assumptions of which rates are viable and not, while my position doesn't rest on any such assumption. The underlaying principle stays the same at 20%, 3% or 0.1%.

The contradiction here is that you assume deflation and no growth at the same time. But with a constant money supply, (price) deflation is the direct consequence of economic growth (an increase in the supply of goods and services). You can't assume deflation and not implicitly assume that the economy actually is growing.

The big irony is that a deflation rate of 3% actually implicitly assumes economic growth that is higher than what we have today. And this should somehow convince people that deflation is bad?

Another implicit assumption (and common misconception) seem to be that price deflation (and inflation) is completely neutral. It's not. When you understand the cause of it you understand that it affects different goods to different extents. We could have an economy with a relatively constant supply of food (no growth) and big increase in the supply of mobile phones (massive growth). Ceterus paribis, this would cause the price of mobile phones to decrease drastically from the increased supply while the price of food remain roughly the same. Nothing hinders investments in the food industry here if they see a profitable avenue, even if the economy as an aggregate is deflating.

Businesses don't inherently need loans to function. A profitable business can fund expansion via its profits and avoid getting into this trap in the first place.

Right now businesses take loans for a lot of reasons, not the least of which is that government and fed policies heavily subsidize lending and have turned the entire financial system into a giant ponzi scheme.

The problems you are describing would be real if a businesses in a Bitcoin-based economy behaved like they do in a dollar economy. It's false to assume that the way things work now is the way things will always work after a paragidm shift.

But we can't assume whatever rates we want. It seems so simple to throw out figures like "this business earns 5%" or whatever, but the reality is not so simple in nominal terms.

If deflation acts faster than the interest rate, businesses are prone to go bankrupt, and you are prone to make more money by hoarding. Real growth in the economy as a whole when businesses borrow money makes businesses prone to go bankrupt. In real terms, loans get harder and harder to pay back.

Front-heavy loans don't do businesses any favors. They need time to go through the stages of production. The amount of super-credit-worthy people/businesses is not infinite, and it will be very difficult for banks to find people that are low-risk in a deflationary economy. Risk-adjusted means you just aren't going to find any decent positive returns, regardless of what numbers you plug in that don't fit in reality. You might be looking at 0.1% instead of 0.5%. Is 0.1% worth the risk of your non-FDIC backed bank going bankrupt? Is 0.5% even? 140 years to double your nominal investment?

God forbid the deflation rate go above the "expected" 3% or whatever making it even harder for businesses to pay back their loans and making it more likely that you lose all your money rather than just some of the real value of your money in the case of higher-than-expected inflation.

The choice to invest or not to invest is certainly determined by nominal rates, not real rates. It doesn't matter if you have a real positive return if you lose nominally since you always have the option to do nothing at all. So whenever I don't specifically say something else I'm talking nominally.

But you can assume whatever rates you want. 0.5% risk-adjusted returns is certainly better than 0% risk-adjusted returns as well. The principle stays the same regardless of the rate. A 0.5% interest rate would reallocate resources from sub-0.5% returning investments to above-0.5% returning investments, and make all investments tend towards the 0.5% range as competition for the higher returns increases.

whoa whoa whoa, aren't we discussing real returns here? Because if deflation is assumed to be 3%, I assume interest rates are actually 0.5%. This I think was what Spike was also referring to with interest @ 2% is worse than deflation @ 3%. There is not going to be anywhere NEAR 3.5% in a 3% deflation economy. Fuck, you'd be hard pressed get that in an inflationary economy!

It seems like you are just rationalizing now.

The money could obviously just as well be lent to a competitor to Microsoft if they won't borrow. The point still stands. Anytime we have a difference in profits between entities or sectors of the economy it constitutes a misallocation of resources. Even if one entity is unwilling to eliminate this misallocation interest rates is a tool to do so, and it should be used when possible. If you artificially lower the interest rate you destroy this tool. If the interest rate is lowered to 1% my 2% investment becomes a better option than lending to another company's 10% investement.

I don't think you even have a clear picture of what you think the interest rate should do. Is a 0% interest rate optimal since it's the only rate that allows investments with 0.000000000001% returns? What's the purpose of interest rates according to you?

You said it wasn't an alternative, which it certainly is. Getting an interest rate of 3.5% percent (lending) is certainly better than getting an interest rate of 0% (hoarding), regardless of how the purchasing power changes. And if someone against all odds would refuse that 3.5% interest rate on a loan he would most likely not invest his money for 2% either. So the unlikely worst case scenario stays the same while the more likely scenario means higher returns for all investors and society.

And it was certainly obvious enough that the risks of both my 2% investment and your 5% investment where equal, which would make the loan just as risky. but I'll make it even clearer for you.

If I make a 2% risk-adjusted return on my business and you make a 5% risk-adjusted return on your investment I'm hogging resources that you are more capable of using. I should quit my business and lend you my capital at a 3.5% risk-adjusted interest instead so you can expand.

Not to mention the risk goes up year after year whereas the opposite is the case in an inflationary economy. Or otherwise the loan has to be very front-loaded, in which case there is very little benefit to taking a loan at all.

Microsoft is usually above average, but more money would not give nearly the same profit margin, and maybe even a loss. This is the case with mosts mature businesses.

I don't know why you think I've said it's impossible. It's just not necessary to lend the money to anyone to get the profit, so it's better to not lending them away and that way avoid the risk of not getting them back.

If you are above average you should want to expand. Then you do need more capital, and capital is limited. Capital I have is capital you can't have. Resources I use are resources you can't use.

Also, I gave a response to your edit in a edit of my own. I'll put it here as well so you don't miss it.

So please explain why the above loan of 3.5% is impossible. If we don't know eachother it could happen through a bank that gives me a 3.4% return and charges you 3.6%. I gain since my return increases, you gain since capital is freed up for you to expand, society gains since capital is more optimally allocated, and the bank gains since it makes this optimization possible.

But then this is not the issue. I don't need your money for my 5% business, and you don't need to lend them to me to profit from the deflation my production causes. The only effect of you stopping production is that you earn slightly more, but because I did some business directly or indirectly with you, I will earn slightly less, and nobody will benefit from the production you used to have. Total production is reduced, society loses.

Not really. If you build a green circle widget factory, those resources can no longer be used to build a yellow square widget factory.  That investment should be disincentivized by losing money.  And you're right, not everyone can do better than average.  Investors who continually make below-average investments will lose money.  But that's a good thing, because they've shown that they're not very good at allocating capital.  And they can always just save their money, which is effectively a can't-lose (low risk but relatively low reward) investment in the overall economy.  

How is that even relevant to my question? Of course everyone can't be better than average. But all investments should tend towards the average. If we have a difference in profits we have a suboptimal use of capital for society. If I make 2% in my business and you make 5% I'm hogging resources that you are more capable of using. I should quit my business and lend you my capital for 3.5% instead so you can expand. We both gain. Society gains.

My edit to your edit:
So please explain why the above loan of 3.5% is impossible. If we don't know eachother it could happen through a bank that gives me a 3.4% return and charges you 3.6%. I gain since my return increases, you gain since capital is freed up for you to expand, society gains since capital is more optimally allocated, and the bank gains since it makes this optimization possible.

Well, unfortunately it is, for the reasons I explained.

Because it's not. As soon as your money value is no longer in the currency, the deflation does not protect you from loss.

Yeah its not entirely fair, but on average the economy as a whole would be self correcting.

Some might benefit unjustly, but the economy would be less wasteful than today and would still invest in viable things.

We deflationists never said it was going to be the perfect market, just no "death spirals". Perfect money would likely be money with constant value, but there is no way to achieve that. Sure you could "move the comma" for all bitcoins, but it wouldn't do anything.

As I see it inflation is a tax on the productive while deflation is a reward to producers that then save - that saves natural resources.
Deflation can't be a tax on investors because they can simply hold their money or invest in something better.

If an investor makes a mistake in an deflationary economy and makes 2% instead of the target 3%, he is still 2% richer in real terms. Why not see deflation as a buffer?

Sorry, I thought it was common knowledge. The problem with this is, it's not possible for everybody to do better than average. Also, the alternative is not to lend money to others, but to just keep them in the safe or whatever.

Do you really think it's optimal that we have below average investments when the money could simply be lent to the above average investors at an interest rate somewhere between their respective returns?