Topic: Fractional Reserve Banking and the creation of the Debtcoin - page 2. (Read 5493 times)

How is he gonna eat if he keeps all the money?

You really haven't heard of repaying loans in installments, have you?

Here's the way loans work. Let's say I give you 21 coins for a year at 1% yearly. At the end of the year, you'll owe me 21.21 coins. We have two options here: I could wait that whole year, and you pay me back in a lump sum, OR, each month you could come in and pay me 1.7675 coins. Either way, at the end of the year, you've paid me 21.21 coins.

There are several benefits to using an installment plan:
1. It's easier for the borrower to pay back smaller installments, so it's less likely that they will default (especially if there are only 21 coins in circulation in the first place)
2. It provides a constant stream of income from interest, instead of a lump sum at the end of the year.
3. I can loan out the principle again, even before your loan is fully paid off. For instance, if someone comes in, six months after you, and wants a 10 coin loan, I can do that, because you've paid me 10.605 coins.

Don't I know it!  My point exactly.  That's why i decided to show you just how to keep the great unwashed in perpetual debt.  If i had a bitcoin addy in my sig, i'd stick my hand out
*Of course in reality that trick wouldn't work, but this was one of those reductio ad absurdum cases   BTW, is it really true that most loans are repayable before they mature (if that's the right word)?  Seems to fly in the face of reason

Derp. Moneylenders gotta eat, too.

Hi again --
I think i get where we're parting ways:  You're not willing to maximize your profit (in your example above), either that, or you're simply not seeing your way clear to doing it.  I'll help you:

---and here's where things turn to shit for me---

Me: "Here's my final payment of 1.01 ... wait!  I got all your money back that i've spent, but I only have ... what is this?"
You:  "Huh, you idiot.  Of course you don't have 1.01 coins, you think I run a charity here?  A soup kitchen FFS?  You thought i was stoopit enough to circulate the money you've returned to me, and only profit one motherraping percent by loaning you all the money in the world?!  No, you brain-dead prole! I've kept the money, and now you have to borrow it from me at an ungodly rate, so that you can borrow it from me at a redoubled rate another year later.

 (you get the idea from here on out, my parcel repayments wouldn't address the fundamental problem if you played your cards right & didn't give me access to the money you've lent me.  If this seems too convoluted, i'll re-write)

That is the rules. I loan you 21 coins, and you pay me back 21.21.

It doesn't matter if you pay me in one lump sum, or over the course of 20 weeks. Except that you actually can pay me, if I let you make payments.

And you'll note, that in the real world, almost every loan is indeed paid back in installments. Especially the big ones.

Would you accept a loan that required you to make a lump sum payment of more currency than was actually in circulation?

You're only looking at half the picture. Of course it looks unbalanced.

Oh, come on.  Let's at least play by the rules   Sure you can come up with a scenario where it would be possible to make partial payments, restructure loans, renegotiate terms etc., etc. -- though it's not the scenario at hand, amirite?  Or are you trying to simply show that lending with premium is possible in a deflationary currency?  I can argue against that as well, but we'll have to use substantially more complex models & the arguments won't be slam dunks.  People are dedicating their entire careers to arguing the finer points & publishing reams of paper without even trying for definitive yes or no answers.  Sort of silly to try to resolve anything more complex than a few extreme case scenarios in a few posts, no?

Never heard of repaying loans in installments, have you?

"Here's my first payment of 1.01 coins. I'll have my next one next week."
"Excellent. Thank you. Only 20 more."
"Yup, see you next week!"



"Here's my final payment of 1.01 coins. Finally out of debt."
"Indeed. If you ever need another loan, you know where to come."

Note that at this point, you have paid me 21.21 coins, all told. Even though there are only 21 in circulation, total.

You can have the money going through your hands over and over (you get to hold the coinz -- you were in the gutter last night, it's my turn today ), but if you believe in laissez-faire & invisible hand & all that,  and you're a competent businessman, I'll never be out of your debt. Here's how this goes:

A buggy pulled by a bony mare with her belly nearly touching the dirt road creeks to a stop next to an nondescript storefront.  The storefront window is plastered with faded travel ads from the inside, a year's worth of dead flies collecting between the flyers and the dusty glass.  The sign above the store, your store, reads simply "Loans."
Hat in hand & visibly uneasy, Young Man (that's ME!!!) climbs out of the buggy & ties off his horse to an empty bicycle rack.  He's dressed humbly, but his bearing shows impeccable breeding, lending his dashingly handsome face an air of aristocratic refinement.  He is hung like a horse.  Enough said.

Here's the part where i walk into your office & we seamlessly segue from third to first person narrative:

You shoot me a distracted glance from behind a huge Rococo desk, which seems particularly grotesque in an office otherwise furnished with badly-assembled Ikea.

--Yes?
--I'm here to repay my loan.
--Hmm?
--I have the 21 coi...
--Twenty one and twenty one centicoins, you mean?
--No, I brought 21, that's all there is
--But you owe me 21.21?
--I thought we could work out a deal.
--Deal?  Yesss.  I'm certain we can.  I've dealt with deadbeats before. [*looks up & at Young Man*]  I expect you'll be asking me for another loan?
--Yes, though this one will be a rather small one, and i've proven myself a good risk  
--Good risk?!  Good risk you say?!  You're a deadbeat with insufficient funds to repay your loan as promised, good risk!  A losy risk is what you'd be if we weren't in a hypothetical scenario where you can't default or steal from me and i must maximise my profits.  I'll make you a deal:  I'll loan you .21 coins at a rate of 100% per year, what have you to say to that?
--I'm stuck in this hypothetical scenario, i can only accept -- you hold all the chips
--Thought so.  I'm issuing you this loan, and putting it right back in my pocket.  Expect you crawling back here again in a year's time, mooching for another loan.  .42 coins that time, huh?  Huh?!  Now GTFO of my office!  

Please read this again:

I'm not sure why the Bitcoin Faithful feel they need to present Bitcoin as the universal panacea.  I'm hoping Bitcoin becomes a successful currency, but claiming that it's the Final Solution to money is silly.  The fools will be parted with it, hoarders will hoard it, tax dodgers will withhold it as taxes, and Christians will keep saying "Render unto Caesar the things that are Caesar's, and unto God the things that are God's" (well, a few, anyhow).

I'm not sure how the lending problem is solved in deflationary currency.  If there's a total of 21 coins in the entire system, and all of those coins are loaned at 1% yearly interest, at the end of the year the borrower is obligated to pay back 21.21 coins.  The borrower won't have 21.21 coins, no matter what he does -- only 21 coins exist.  This problem is trivial in fiat -- print moar!
Lending at 0% is  not a silly notion, and we don't have to reach for high morals to justify doing it.  Lending, even at 0 profit, does a few things i can see offhand:  It creates social bonds, insures stability & maintains the value of your currency (if you hold all the bitcoinz, they're worthless).  So i'm sure solutions exist, just not so much in this thread.

Sounds like a pyramid scheme to me. The rich (big lenders) get richer, and the poor get poorer by borrowing and paying interest on top of it. Eventually this will shift most of the BTC in the hands of a few, just like we see now with fiat money. I don't think FRB and charging interest is in our best interest if we want a sustainable economy and future.

It actually did, good job.

Will mine do?

Put simply, Moneylenders do not just hoard all the money that they get back. Yes, it's entirely possible for someone to borrow BTC20MM and end up owing BTC36MM. This does not mean that they will be unable to pay it, necessarily, just that there will have to be at least BTC15MM that goes through his hands (and back to the moneylender) twice. While he's paying his tremendous debt, the economy is chugging right along, and he's providing value to that economy in order to get the BTC that he owes.

I would like to hear an explanation for how interest can work in conjunction with an inflexible money supply. Given enough time, any percentage greater than zero being offered as interest would lead to more money being promised than is able to exist. If this happens, it may not mean the whole thing collapses right then and there, but it would mean that at some point in the future, somebody would be getting screwed.

As far as the part in italics goes, I just want to know how you envision this happening.

You mean this history?
http://en.wikipedia.org/wiki/Gilded_Age