Ok fine out with the chart as to why this argument that people will still be able to borrow money is insane.
Since the actual value is relative let's use an easy example.
40,000 units on a 30 year note at 5% interest if the value of money stayed steady.
In the end costs the borrower without any additional fees in units the same value as the first year,
77,301.68 units
Current inflation on average is 5% for the US $ so let's assume 5% deflation for the counter example.
40,000 units on a 30 year note at 5% interest if the value of money deflated by 5% a year.
In the end costs the borrower without any additional fees in units the same value as the first year,
171,192.35 units
40,000 units on a 30 year note at 0% interest if the value of money deflated by 5% a year.
In the end costs the borrower without any additional fees in units the same value as the first year,
88,584.91 units
That's not even as good as a 5% loan under no inflation and that is pretty much as good as it gets. If a person can save money at no risk why would they loan it at a negative interest rate. A 0% rate is still more expensive in value than the 5% loan in a non-changing economy.
So how can a family pay for medical care in an emergency? If they borrow the money you can see how even an interest free loan is worse than a 5% mortgage with their income decreasing at a regular pace if they wouldn't normally get a 5% wage increase in an inflation economy.
How would you react if your employer where negotiating the percentage of your annual pay cut? Don't worry you can still buy more loaves of bread just not as many as if you had that great wage you had 5 years ago.
Topic: Negative interest loans is foolishness. - page 2. (Read 4186 times)
This critique is um, shall we say...retarded? lender's won't lend? of course they will, just at the hughest possible marginal interest rates that credit-worthy borrowers will accept. To the degree this punishes borrowers (bad thing) it rewards savers and capital formation (good thing). The argument betrays a fundamental misunderstanding of finance. It's as if you are worried that you will go hungry if you only cut your pizza into eight slices rather than twelve.
Lenders take into account the expected rate of inflation. If BTC appreciate, then you can lend at a lower nominal rate and get the same real return as a higher rate in an inflating currency. Lending rates are also determined by how risky the loan is. if you are judged not to be a reliable borrower, then expect to pay more. if you don't like it, shop for a loan elsewhere. If you can't find another lender with a better deal, then obviously you're not as good of a credit risk as you think you are. competition between lenders drives rates down to reasonable lenders and competition between borrowers drives them up. this is basic supply and demand economics. Griping about it makes as much sense as complaining that gravity is too strong.
Lenders take into account the expected rate of inflation. If BTC appreciate, then you can lend at a lower nominal rate and get the same real return as a higher rate in an inflating currency. Lending rates are also determined by how risky the loan is. if you are judged not to be a reliable borrower, then expect to pay more. if you don't like it, shop for a loan elsewhere. If you can't find another lender with a better deal, then obviously you're not as good of a credit risk as you think you are. competition between lenders drives rates down to reasonable lenders and competition between borrowers drives them up. this is basic supply and demand economics. Griping about it makes as much sense as complaining that gravity is too strong.
What I'm saying is other people argue that it doesn't matter if the farmer makes less for his produce than it cost him to buy. As long as his money has the same value.
It does matter if he needs to borrow money to purchase the seeds.
So if he borrows 20 Bit coins to plant the seeds and makes 15 Bit coins for his harvest he still owes 20 Bit Coins plus interest, which is much more value now than it was when he borrowed the money.
Let me put this another way. If people argue that you can still give me a 30 year loan with compound interest at 5% interest, think about how much more punitive that is in a deflationary economy.
If I borrow 60,000 Bit Coins to buy a house, then I am paying back the loan for a house that is decreasing in price with a job that pays less money year after year.
If you need me to be clearer I'll make a chart for the 30 year loan showing the value.
It does matter if he needs to borrow money to purchase the seeds.
So if he borrows 20 Bit coins to plant the seeds and makes 15 Bit coins for his harvest he still owes 20 Bit Coins plus interest, which is much more value now than it was when he borrowed the money.
Let me put this another way. If people argue that you can still give me a 30 year loan with compound interest at 5% interest, think about how much more punitive that is in a deflationary economy.
If I borrow 60,000 Bit Coins to buy a house, then I am paying back the loan for a house that is decreasing in price with a job that pays less money year after year.
If you need me to be clearer I'll make a chart for the 30 year loan showing the value.
Maybe people won't need to take as many loans when savings actually mean something. Maybe people won't buy houses that they can't use or afford. Maybe they will buy more efficient vehicles instead of having 3 brand new SUVs in every garage. Maybe the farmer will be able to afford seeds from his profits that he saved from last year. Maybe the economy won't work the same way when the money is real and credit isn't easy. Maybe goods and services will cost much less. Maybe people will learn to save when their savings might go up in value on its own. Maybe we won't have to pay as much in taxes to bail out banks and corporations that are too big to fail. Maybe people will learn fiscal responsibility. Maybe we wont see as many malinvestments. Maybe people will loan at zero interest just to improve their community. Maybe they will loan at zero interest and get a share of the project. Maybe people will have to convince lenders that their idea is worth more than the next guys idea and we will have fewer high quality projects instead of more low quality projects. Maybe you can create a block chain with properties you like and let it compete with the current block chain?
You should not borrow if your productivity is less than the average actor in the economy. If you do you will pay the difference; your lender will pay if you default.
What I'm saying is other people argue that it doesn't matter if the farmer makes less for his produce than it cost him to buy. As long as his money has the same value.
It does matter if he needs to borrow money to purchase the seeds.
So if he borrows 20 Bit coins to plant the seeds and makes 15 Bit coins for his harvest he still owes 20 Bit Coins plus interest, which is much more value now than it was when he borrowed the money.
Let me put this another way. If people argue that you can still give me a 30 year loan with compound interest at 5% interest, think about how much more punitive that is in a deflationary economy.
If I borrow 60,000 Bit Coins to buy a house, then I am paying back the loan for a house that is decreasing in price with a job that pays less money year after year.
If you need me to be clearer I'll make a chart for the 30 year loan showing the value.
It does matter if he needs to borrow money to purchase the seeds.
So if he borrows 20 Bit coins to plant the seeds and makes 15 Bit coins for his harvest he still owes 20 Bit Coins plus interest, which is much more value now than it was when he borrowed the money.
Let me put this another way. If people argue that you can still give me a 30 year loan with compound interest at 5% interest, think about how much more punitive that is in a deflationary economy.
If I borrow 60,000 Bit Coins to buy a house, then I am paying back the loan for a house that is decreasing in price with a job that pays less money year after year.
If you need me to be clearer I'll make a chart for the 30 year loan showing the value.
Who then is going to loan a stable value for the purchase of a decreasing value only to be paid back less value than he would have if he hadn't made the loan.
I'm afraid I don't follow. If I loan out 10,000 BTC for one year at 10% annual interest compounded annually, then the buyer will pay me back 11,000 BTC after the year is up.
The non-inflationary nature of BTC means that the future Bitcoins will probably be worth more then than current Bitcoins are worth now. Let's say the value of BTC in USD goes up 5% per year. So a year from now, after the borrower pays, I will have 11,000 BTC, which is worth 11,550 in present-day BTC.
If I hadn't made the loan, my 10,000 BTC would be worth 5% more in a year (i.e., they'd be worth 10,500 BTC).
Where in this process am I being paid back less than if I hadn't made the loan?
He's using arbitrary weights to argue that the increased circulation will increase the value of the loan even if the currency unit decreases.
It won't. And it's purely based on rhetorical analysis (technical fundamentalism) and "psychological economics".
It's a game of musical chairs for people who aren't gambling to begin with. HELL NO.
This is a better option: https://forum.bitcoin.org/index.php?topic=10538.0.
Who then is going to loan a stable value for the purchase of a decreasing value only to be paid back less value than he would have if he hadn't made the loan.
I'm afraid I don't follow. If I loan out 10,000 BTC for one year at 10% annual interest compounded annually, then the buyer will pay me back 11,000 BTC after the year is up.
The non-inflationary nature of BTC means that the future Bitcoins will probably be worth more then than current Bitcoins are worth now. Let's say the value of BTC in USD goes up 5% per year. So a year from now, after the borrower pays, I will have 11,000 BTC, which is worth 11,550 in present-day BTC.
If I hadn't made the loan, my 10,000 BTC would be worth 5% more in a year (i.e., they'd be worth 10,500 BTC).
Where in this process am I being paid back less than if I hadn't made the loan?
I understand that if you add enough decimal places the amount of usable units becomes infinite.
I understand as the population grows and more users are purchasing more goods that the value of the pool of Bit Coins rises as the pool of products rises despite the quantity of Bit Coins remaining the same. This means prices in Bit Coins would decrease as the relative value of the Bit Coin rises.
This means that the growth in the value of savings in Bit Coins equals the value of deflation. While the value of earnings and property remains constant due to supply and demand.
Making a loan is taking a risk that the person will not pay you back counteracted by the reward of a profit for the loan. A person loaning money will loan it for the most reward he can within his acceptable level of risk. A person borrowing money will borrow money for the lowest he can get. This is called supply and demand.
In the inflationary situation of the US Dollar, I take a loan out to purchase a house I pay back a greater number of units of currency with less valuable currency that is projected for me to pay back the value of the home(the rate of inflation) plus some reward for the risk taken by the lender(interest and fees).
On the other side of the desk if the lender does not loan out his money he will be losing value over time(The holder of dollars is punished for doing so). So he chooses to risk his money so his money will buy the same or more when he needs to use it. This is the same formula the makes fractional reserve profitable for the banks.
Bit Coin makes people with money not want to loan it out. If I am going to lose value if I hold onto it I will take a risk to maintain or grow my money. If my money grows in value I am not tempted to loan it out.
If I can hold onto my money and it grows in value naturally without risk, then any action I take with risk will require a greater profit. that means a lender is never going to make a loan for "negative interest" because he could just hold onto his money and get better returns for less risk. This means that the amount repaid in units would never be less than the amount in units of the loan. This means that you would be paying back the loan in Bit Coins worth more than the Bit Coins you borrowed. It also means your home cannot stand as collateral for the loan as the homes value remains the same while the value of the Bit Coin increases. So your home mortgage if there is not inflation in the housing market is the same as a car loan today relative to a deflating currency (underwater from day one).
Who then is going to loan a stable value for the purchase of a decreasing value only to be paid back less value than he would have if he hadn't made the loan.
This will also decrease entrepreneurship without a large profit margin as the return on investment must be larger than the rate of deflation to justify the risk taken by the venture and the difficulty of obtaining more start up capital.
I understand as the population grows and more users are purchasing more goods that the value of the pool of Bit Coins rises as the pool of products rises despite the quantity of Bit Coins remaining the same. This means prices in Bit Coins would decrease as the relative value of the Bit Coin rises.
This means that the growth in the value of savings in Bit Coins equals the value of deflation. While the value of earnings and property remains constant due to supply and demand.
Making a loan is taking a risk that the person will not pay you back counteracted by the reward of a profit for the loan. A person loaning money will loan it for the most reward he can within his acceptable level of risk. A person borrowing money will borrow money for the lowest he can get. This is called supply and demand.
In the inflationary situation of the US Dollar, I take a loan out to purchase a house I pay back a greater number of units of currency with less valuable currency that is projected for me to pay back the value of the home(the rate of inflation) plus some reward for the risk taken by the lender(interest and fees).
On the other side of the desk if the lender does not loan out his money he will be losing value over time(The holder of dollars is punished for doing so). So he chooses to risk his money so his money will buy the same or more when he needs to use it. This is the same formula the makes fractional reserve profitable for the banks.
Bit Coin makes people with money not want to loan it out. If I am going to lose value if I hold onto it I will take a risk to maintain or grow my money. If my money grows in value I am not tempted to loan it out.
If I can hold onto my money and it grows in value naturally without risk, then any action I take with risk will require a greater profit. that means a lender is never going to make a loan for "negative interest" because he could just hold onto his money and get better returns for less risk. This means that the amount repaid in units would never be less than the amount in units of the loan. This means that you would be paying back the loan in Bit Coins worth more than the Bit Coins you borrowed. It also means your home cannot stand as collateral for the loan as the homes value remains the same while the value of the Bit Coin increases. So your home mortgage if there is not inflation in the housing market is the same as a car loan today relative to a deflating currency (underwater from day one).
Who then is going to loan a stable value for the purchase of a decreasing value only to be paid back less value than he would have if he hadn't made the loan.
This will also decrease entrepreneurship without a large profit margin as the return on investment must be larger than the rate of deflation to justify the risk taken by the venture and the difficulty of obtaining more start up capital.
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