Topic: Interest rates in a deflationary currency - page 4. (Read 5553 times)

And who is best suited to determining the level of risk? The lender? Or a bureaucrat with no knowledge of the borrower at all? Legal definitions of usury are necessarily arbitrary price ceilings. And price ceilings, when they do anything, cause shortages.

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

Interest in itself is not usury (in most cultures, there are exceptions).  Usury is more generally accepted as earning interest higher than what is normal for the level of risk taken.

Your views color your perception of the world, Impaler. By looking at interest with a bias, you seek evermore complex "solutions" to a problem that isn't there.

You are like the early astronomers who, because a biased view that Earth was the center of the universe, had to concoct elaborate schemes to explain the motion of the planets, when a simpler, heliocentric model would explain it all, without planets having to do loop-die-loops in the sky.

Interest is not bad, it is not good, no more than the price of grain is good or bad. Interest is simply the price of money.

Again I do not claim to lack values, I do use the term usury as a pejorative and I like the company that I'm keeping on this side of the issue.  Accusing me of something I'm openly claiming and doing is not much of an accusation, your simply trying to divert attention from YOUR 'Austrian' values, they don't call it 'supply side' economics for nothing, Austrian theory puts savings first and gives it prime power to create everything else.  Saying that you have not put a value on that is like saying you believe a god has created the universe but you don't put any moral value on said god, it's just an absurd claim.

Your Austrian explanation for interest is subsumed by Gesell's theory because he looks INTO the money paradigm.  Austrian theory basically starts with hard money as a given then finds the obvious liquidity premium and under hard money you will inevitably get interest as a kind of waste byproduct of the mismatch of the two, with hard money as an axiom interest is an inevitable conclusion.  But Gesell shows that the same liquidity always exists and money can just be made to counter it rather then creating an unnecessary and unearned flow of funds called interest.  Now in all likelihood the rate of demurrage would need be be variable and market based to give a stable economic output, this is something we have thought about and may try as a future innovation if we can figure out how to structure the market (some kind of illiquid bond with no counter party probably).

You're projecting, my friend. Your use of the word "usury" indicates that you make a value judgment on interest, and because Austrian theory provides a valid explanation for why interest happens, you assume that we take the opposite position, and are defending interest. That's absurd. We are explaining it, as a natural part of the economy, the price of money. But because you view it as bad, we who do not agree with you must therefore view it as good. It's not bad, it's not good. It just is.

Now, the interest rate can tell us a great deal about the underlying economy, but only if it is left, like other prices, to float in the marketplace.

Anyone claiming that their ideology is value free is either ignorant or ashamed of the values it actually carries.  Nothing made by man is free of value judgments, especially economics.  You would have to be the most blindly obtuse person ever born to think that Marx-vs-Adam Smith or hard-vs-soft money or the Keynes-vs-Hayek debates are value-free, it is saturated with value judgments.  These are indeed some of the most pivotal value debates that have existed in the last century.

Yeah, he's getting a little mixed up. Personal finance is not national monetary policy. Personal finance, borrowing/saving dichotomy is no big thing. National monetary policy, borrowing/saving becomes a big thing.


You know, they charged interest on loans denominated in gold, too. "Debt money" is a relatively new concept.

You can't send robots to Mars by basing your endeavor on Ptolemaic model of the universe. You can't use decentralized, limited-supply currency based on archaic concepts of debt money and interest. With the help of Ripple, maybe.

This should not be such a scary thought. Finite, mathematically defined and scheduled supply of currency.

You need money - go earn it. You need something - spend it.

You want to sit on your ass and do nothing, while charging others the interest - go fuck yourself.

You don't want to spend your coins today on something you need, because you expect tomorrow you'll be able to buy more - fine, die an old, poor, sorry idiot with pockets full of coins and empty, shallow, wasted life.

The economy grows - the value of everybody's coins has increased. Perhaps people with archaic btains start spending less, hoping for even more increase in value. The economy shrinks - the value has decreased.  Archaic brains panic spend. It all self adjusts. Those who understand don't care - they live their lives, and use Bitcoin. Everybody in the same boat, plain and fair.

Politics would be another appropriate area for debating usury.  Most of the Austrians that he refers to are probably also libertarians, which would justify his confusion.

I could totally see libertarians arguing that saving is good (especially when the discussion involves government).

Such a change to the protocol would require a quorum of the community and could not be initiated without their agreement, that said it is possible
Such an example would be known as a Fork an example did occur recently
http://bitcoin.org/chainfork.html
https://en.bitcoin.it/wiki/Myths



It's still too soon to prove that the Keynesians were right in regards to that point, velocity is much higher than what it was even a year ago, and the currency and economy is still developing.
An increase in investment's has caused the currency to keep appreciating even as more units are being created.
Interest rates are high as the growth of the money supply is still 10% a year as explained in the chart.
This question will become more interesting once interest rates stabilize at lower rates.
Hoarding is rampant but increasingly less prevalent we can find proof of this is in bitcoin days destroyed and you can see that the currency is increasingly being spent as more time passes.
Furthermore it is stabalizing big block sales similar to what happened in GOX would have lowered the price by 70% a year ago and increasingly affects it less as more time passes
https://en.bitcoin.it/wiki/Bitcoin_Days_Destroyed
USD is not what bitcoin is backed behind it is in it's own right a globally convertible currency so considering this point incorrect.
Point about commerce being primarily Silk Road is outdated please update your references
https://en.bitcoin.it/wiki/Trade


Inflation is simply a rise of prices over time, which is generally the result of the devaluing of a currency. This is a function of supply and demand. Given the fact that the supply of bitcoins is fixed at a certain amount, unlike fiat money, the only way for inflation to get out of control is for demand to disappear. Temporary inflation is possible with a rapid adoption of Fractional Reserve Banking but will stabilize once a substantial number of the 21 million "hard" bitcoins are stored as reserves by banks.
Given the fact that Bitcoin is a distributed system of currency, if demand were to decrease to almost nothing, the currency would be doomed anyway.
The key point here is that Bitcoin as a currency can't be inflated by any single person or entity, like a government, as there's no way to increase supply past a certain amount.
Indeed, the most likely scenario, as Bitcoin becomes more popular and demand increases, is for the currency to increase in value, or deflate, until demand stabilizes.
To surmise would not say the Austrians are out of this argument by far yet.

This.

Economics is value-free.  Borrowers are not "bad" and savers are not "good".  If you want to argue about "usury", do it in the religious section.

It's not about inflative or deflative, it's about honest money (generated by today's work) or debt money (generated by future's work, e.g. debt)

Using a honest money, the economy do not necessary need to expand, only when there is a demand. All the investment is using saved money, no debt

Using a debt money, the economy must expand at an exponential rate, all the investment is borrowed from future, that's not sustainable on the physical planet ( might be sustainable in a virtual world)

Bitcoin can also become inflative if all the miners agree to a protocol change, for example, supply increase 3% per year. But even so, it is still very different from fiat money, since fiat money is created without any work, and by only one single entity, and the ownership of those created fiat money belongs to FED

Just like gold mining, create money should be no different than any other type of work. When it is too easy to create money, more people will quit the job and to create money, so that money created by each person will be reduced due to higher competition

And BTC basically proves the Austrians wrong, the velocity of BTC is terribly low, the interest rates are high, investment is low (the only investment is in more mining equipment) and hoarding is rampant.  If not for the fact that BTC is using USD as a unit of account for virtually every transaction and it's commerce base is largely black-market activity benefiting from the pseudo-anonymous nature of the coin their would be virtually no commerce what so ever.

govt. bonds are not risk free, there is tail risk

I never said I wasn't, it's myrkul who needs to defend this absurd claim that the rest of 'you' and 'Austrians' broadly are not operating out of a moralistic framework that rationalizes usury by defining the lender as morally virtuous and the borrower as morally flawed.

Well on this thread you're the one banging on the pulpit.

Throwing in a few cents,

The real Question is more, how equity increases in bitcoin will affect the currency over deflationary effects although I agree that deflation through lost wallets is a big question mark in bitcoin over time And will definitely affect interest rates
Also may settle an Austrian Economics Vs Keynesian Economic question once and for all (Can Dream XD)
As long as we live though bitcoin will be inflationary
https://en.bitcoin.it/wiki/Controlled_supply


Using the graph chart we can illustrate that
Block   Reward Era    BTC/block    Year    Start BTC    BTC Added    End BTC    BTC Increase    End BTC % of Limit
0   1   50.00   2009   0   2625000   2625000   infinite   12.500%
52500   1   50.00   2010   2625000   2625000   5250000   100.00%   25.000%
105000   1   50.00   2011   5250000   2625000   7875000   50.00%   37.500%
157500   1   50.00   2012   7875000   2625000   10500000   33.33%   50.000%
210000   2   25.00   2013   10500000   1312500   11812500   12.50%   56.250%
262500   2   25.00   2014   11812500   1312500   13125000   11.11%   62.500%
315000   2   25.00   2015   13125000   1312500   14437500   10.00%   68.750%
367500   2   25.00   2016   14437500   1312500   15750000   9.09%   75.000%
420000   3   12.50   2017   15750000   656250   16406250   4.17%   78.125%
472500   3   12.50   2018   16406250   656250   17062500   4.00%   81.250%
525000   3   12.50   2019   17062500   656250   17718750   3.85%   84.375%
577500   3   12.50   2020   17718750   656250   18375000   3.70%   87.500%
630000   4   6.25   2021   18375000   328125   18703125   1.79%   89.063%
682500   4   6.25   2022   18703125   328125   19031250   1.75%   90.625%
735000   4   6.25   2023   19031250   328125   19359375   1.72%   92.188%
787500   4   6.25   2024   19359375   328125   19687500   1.69%   93.750%

Because the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used. Keynesian economists argue that deflation is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs. The Austrian school of thought counters this criticism, claiming that as deflation occurs in all stages of production, entrepreneurs who invest benefit from it. As a result, profit ratios tend to stay the same and only their magnitudes change. In other words, in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits. Price deflation encourages an increase in hoarding — hence savings — which in turn tends to lower interest rates and increase the incentive for entrepreneurs to invest in projects of longer term.

If there is deflation, the cost of interest will be bigger as time passes.
Risk-free loans are backed up by the gov which is considered with the lowest possibility to default.
The gov will repay the old loans by issuing new loans.
In the time of inflation, the cost new loans will be lower if the normial interest rates are the same between old loans and new loans. In the time of deflation, the cost will be higher.

PS: When you thinking about the United States fiscal cliff, you will find the gov's credit is not so good. Without the back up of inflation, I have strong doubt that the gov can pay back the loans in time. Which means, there will be no risk-free loans.