Topic: Bitcoin major fail - doesn't allow credit creation (aka deflationary currency) - page 9. (Read 22242 times)

You've got it backwards.  The borrower gets actual real bitcoins.  It is the depositor that gets the IOU.

Ah, ther is the rub.  You don't see it.  I most certainly do.  Investment banking is different than what you are used to.  That said, what if WalMart or Amazon started a bitcoin fractional bank?  Certaily some would distrust either of them, others would respect the honestly.

Except that the bank can't lend out bitcoins, but only something that can be redeemed for bitcoins. Would you accept a piece of paper that says: "can be redeemed for 1 Bitcoin at the first international bank of bitcoin at any time" instead of 1 Bitcoin?

I wouldn't.

The circumstance that made fractional reserve banking possible historically was the fact that such "receipt money" was already being used for other reasons (gold too hard to store, carry around, cumbersome to transact, divide up)

With bitcoin, how would this happen? Transaction, storage cost and ease of handling of the "base metal" (bitcoin) is already very low and its divisibility high.

Does anyone feel the urge or need to bring his bitcoins to the goldsmith for safekeeping?

Again: I'm not saying it's impossible: I'm just saying I don't see any chain of developments that would make it happen.

It makes them higher than what you're used to, that does not make such risk "high".  A bitcoin bank that fractionally loans out twice as much as it keeps in reserves can crediblely do so, so long as it's open and up front abou it's methods and long term CD's are it's primary method of raising capital (or some other not-on-demand deposit system).

Almost certainly.  There have always been interest in investment loans.


You're guessing, and poorly.  Keep thinking and you might get there on your own.

Exactly. If loans can still theoretically be made and fractional reserve banking and interest can still be part of the loaning process, the fact that there is no last lender and the fact that it is a well know fact that there is a known total maximum amount of coins make banks run risks very high.

I still have a question on loans as a way of generating credit. Will there be an interest in BTC loans? I know interest can be regarded as a measure of risk and as a measure of inflation protection. With a deflationary currency, how would interest be calculated? I.e. - this project has low risk of 4% and BTC appreciates on average 5% per year ... therefore your loan interest will be -1%?!

Completely true. My point is simply that the return on a house loan is not dependent on the future price of the house.

The return on lending the money for a home depend on the FUTURE income of the borrower. In a society that computer and machine continuously replace people and all the low tech work outsourced to other country, how could you make sure the future income is secured for the home buyer? That FUTURE is not one or two months, it is 20 years or more, who can see that far?

True, no last lender means they have a bankrun risk, so that they should treat each loan much more carefully. This is by design

award for most concise analysis!

I don't think so, because: BTC Banks cannot borrow Bitcoin from a central bank to buy more time.

As stated before, if there were a market for such instruments they could be done with bitcoin. If you wanted you could even do exotic things like credit default swaps. But who would want such crap.?

Not true. Your home is not an investment (unless you are a dullard). Your home is the place where you live. You can choose to rent or buy. The return on lending the money for a home does not depend on the value of the property but on the income of the borrower. When I was paying the mortgage on my house, the value could have dropped hugely yet I would have continued to pay. It's the idiots who borrow (and the idiots who lend) more than can afford to be paid back that are the problem.

If only everybody could be convinced of this conclusion we would have finally caught up to what von Mises figured out in 1920.

http://en.wikipedia.org/wiki/Economic_calculation_problem

IMO, Fractional Reserve Banking just works like insurance: 99.99% of the time the saving account will not get a withdraw before the contracted deposit time ends. Since these money are dead money before the deposit period ends, banks try to get some use of it by loaning them out, there is nothing wrong

The problem is that they loan these money out to buy a house, instead of investing in some future projects that could possibly generate some return

The return of buying a house is purely dependant on the house value, it is more like a speculation, it is not sustainable. The investment on future projects are more carefully considered by some experienced entrepreneur and are more likely to generate some return

Another problem is that currently there are really less and less investment opportunities, buying a house becomes an outstanding investment opportunity

Loaning out money to people to buy a house is a big deal, it quickly depleted the savings in the bank, and when house price falls, these loans will generate loss, banks have high risk of going bankrupt, currently they could only depend on FED buying their mortgage backed serurities to keep their life, but this situation will not improve until the savings in bank return to normal. During the next 10 years, there will be more and more savings deposit mature, and there will be less saving go into bank, banks have to borrow money from central bank to buy more time

All these has nothing to do with fiat or BTC, in a BTC bank, FRB could also happen, exactly the same

haha! noted.

It should be noted that I've successfully turned it from a conversation about Zeitgeist Communism into a conversation about Free-market Economics.

Entitle the new thread "Moot Points You Should Never Start a Topic About Here because They Have Already Been Debunked Ad Nauseum"

I think this thread should at this point be merged with the "Resource Based Economy" thread

Nah. That would never work. We need to let the machine elves make all our decisions for us.

..wrong thread?

...hmm, something like a market economy based on sound money?