Topic: Bitcoin major fail - doesn't allow credit creation (aka deflationary currency) - page 11. (Read 22242 times)

In reality, I do not want those $1000 principle and $100 back quickly, I want borrower to pay very little principle and interest $100 to me every year, so that I can spend those $100 as I wish, and the borrower will work to earn back that $100 I spend, and pay back interest to me next year, etc...

In this way, the actual interest income will be more than $1000 for a long term loan, but there will never be $2000 existed at any given moment in the system

He asked it to make you rethink your perspectives.  Your understanding of the role of credit is somewhat skewed.  Not really wrong, but disconnected.  It's not credit or liquidity that leads to the outcome that you seem to believe above, it's reallocation of real capital that can occur using credit as a tool.  This is not a certain outcome, as it's subject to the errors of investment and adds another; namely the possibility of mis-allocation of capital.  If you want to understand why bitcoin is the way it is, one must understand Austrian Economic theory.  If Austrian Economic theory is wrong, Bitcoin will fail.  If Austrian Economic theory is correct (or more accurate than other theories) Bitcoin will persist and likely continue to grow.  Even that isn't certain.

The real issue arises when the money loaned is magiced out of nowhere. If I have $100, loan you that, get $110 back, that's one thing. If I don't have $100 but magic it from nowhere, lend it to you, get $110 back, I have obtained $10 for nothing. That is what the government/federal reserve is up to at the moment and it's a problem.

I am aware that the lender will spend some money back into the economy which might end up in the borrower's bank account as profit. Assuming 20 mil BTC is the total amount of BTC in existence, in your example, the lender will have to buy 10 mil BTC worth of good and services from that country so that in the end, the lender gets 30 mil BTCs as 20 mil in coins + 10 mil in the form of good and services. Right?

Well, I'm not sure that is the perception that many people have when making a loan. If you give a loan for $1000 with 10% interest, you expect to get $1100 after a (long) period of time, not to get $1000 + a $100 voucher worth of goods and services. I'm not saying that we shouldn't go back to the "voucher" system when money are backed by good and services, maybe that would be one of the fixes ...


Because it will help production companies to create more/better goods and services that are required by a growing population and/or more competitive business landscape. Already sparred on the subject. Are you asking this because you think growth is bad?

Will take a look.

why?

One easy to ignor aspect: Although there are only 100$ in existence, they can change hands many times, each time it changes hands, some goods change hand and get consumed (MV=PY)

Same when talking about fractional reserve banking: "With 10% reserve requirement, 100$ could create 1000$ loan after many times of deposit and loan process"

This 1000$ is very misleading, it is just a count of the same money multiple times in different time, the total available money at any given moment is always 100$

+1

I'm not a big fan of Steve's political views either, but his dynamic approach to economics is fucking fantastic.

While you can disagree with his proposed solutions for the debt-crisis, that does not take away his awesome work in explaining the current system of 'lending before reserves' and similar topics. I can be thousands of persons, combined in one single physical body. Let's approach Keen's work the same way - on its merits.

Steve Keen is an embarrassment.  He is a joke.  He wants the government to give a debt jubilee to deadbeats in debt.

Fractional reserve lending is nothing more than a fancy name of stealing your money.  Get your money out of the bank asap.

Sorry, but you are just totally wrong.  You are using a static view, which won't work.  In the real world, the lender will spend at least one dollar back into circulation in order to capture the value that they earned through the loan, and when they do, the borrower can acquire it and make the final repayment.  If the lender fails to do this, then the dollars don't generally circulate, and they will have no value, which would make the loan pointless in the first place.

For people seriously interested in this subject, Steve Keen has done a lot of work on dynamic nonlinear economics.  Read some of his papers and watch some of his videos.  He'll fix you right up if you pay attention.  At least a couple of his videos cover this topic in great detail.  He shows that it is very possible to have a functioning economy (including a loan market with interest) with a fixed amount of currency.

Unless you are a jeweler, gold and silver aren't really capital in this sense.  They are money, which can be used to buy the capital.

Your belief that there is a problem is based on the assumption that 100% the BTC is hoarded and nobody spends it. Then there would be no ability to pay interest because there would be no way to acquire more BTC. That might happen in a hyper-deflation scenario, but it wouldn't happen normally.

These examples should prove that there is no problem.
On a small scale, I can loan you 2 BTC, and you use it to earn 4 BTC, and pay me back 3 BTC.
On a large scale, I could loan a company 2 million BTC, it manufactures products and makes 4 million BTC, and it pays me back 3 million BTC.
On a larger scale, I could loan a country 20 million BTC (over time), it uses it to fund Social Security, and it pays me back 30 million BTC (over time). Of course, in this case both parties would have to spend their BTC, or there would be a problem.

If credit implies interest, then, it's a flaw in itself.  If interest are charged, the fund for paying back those interest just dont exist.  Eg : There is only 100 $ all around the world, and it's mine.  Someone borrow me that 100$, and I charge 1% interest.  This borrower would never be able to give me the 100$ + interest, because there is only 100 $ in existence.. 
That's why bankruptcy are built-in in this "credit/interest/fract-banking" system..

That built-in need for bankruptcy (interest) is a major cause of the faillure of the actual monetary system world-wide.

Perso, I dont wish to create a feature in Bitcoin that renders bankruptcy inevitable.

was my 2 satoshi

+1

Capital corresponding to ready-to-spend goods/services, and it normally depreciate slowly(Any kind of captial lose value over time, factory, machine, stocked goods etc...)

Capital in gold/silver's form do not depreciate, so they are generally regarded as a better medium for capital, then there is less risk that ready-to-spend goods/services will depreciate, since they will be produced when gold/silver is paid to producer. But there is a risk of inflation when lot's of gold and silver enter the market at the same time

Loan corresponding to future goods/services, it does not depreciate, so generally loan is a higher quality asset, cost of ownership is almost 0, if the default risk can be contained

Yeah, it's kind of a rediculous statement, considering interest predates fractional-reserve lending and 'flexible' monetary systems by 4000 years.

I'm not sure why you have to magic up money to pay the interest either. Could there be no interest charging loans in a gold-only economy?

I'm just curious, why exactly do you think loans can ever only be made if interest can be charged? Do you not think loans could have a different kind of a price?

This exactly, way better than I could put it.  What is capital? It is resources and efficient ways to use those resources (tech). If people get access to resources and/or develop ways to utilize their resources more efficiently then the result is growth, which leads to credit. Any other source of credit creation is just wealth transfer, which may lead to more efficient resource utilization or it may not.

Just FYI, fractional reserve was invented for gold.  Goldsmiths created the practice by issuing more warehouse receipts (bearer certificates) for gold in their warehouses than they actually held in gold, and those receipts (certificates) were already circulating as money because they were much more convenient than actually fetching and hauling gold around.

In practice, this is pretty safe, since most people won't want their gold all at once.  Keeping healthy reserves will reduce the chances of being unable to meet a withdrawal request (a bank run) to whatever level is deemed appropriate by the bank.

The real innovation of the Federal Reserve system is that the Fed is able to create dollars out of thin air and can lend them to member banks instantly, making bank runs entirely impossible.  This really just passed the danger up the chain though, leading to the closing of the gold window when France (and friends) attempted to redeem lots of dollars for gold.

In the bitcoin world, fractional reserve is still totally possible.  It is just risky.  A bank that does it faces the very real chance of not being able to make a bitcoin transaction to back up a depositor request.  Banks can mitigate this risk to some extent with pooling and interbank lending agreements, but that exposes the pool to a much lower chance of a much worse event, and it will be impossible to eliminate the risk entirely.