Topic: The debt based Economy - page 3. (Read 671 times)

Disagree. Bitcoin as a replacement of the current economical system is only a fictionary scenario. How do you really imagine the economy'd work in a completely decentralized manner? In a way where money can't be seized and the gov has 0 control over it? Banks won't let this happen, so would any other centralized institution or the rich. It'd be a big failure.

Even in the future, debt would not go away. It's not possible. If we move away from paper money and go all digital, there would still be need for debt because it's a fundamental part of the continual building of the economy. There will always be people looking to keep excess cash and wanting to earn returns on such fund while at the same time, there will always be businesses that needs capital for expansion so even if personal debt is discouraged, what of corporate debt in other to build the economy.

It sounds like a good idea for utopian financial system, how can it be realized?

The fact that only debt motivates people to work and to create unique products. Imagine a runner because they like to exercise and a runner because a lion is chasing in the back. Who will be faster?
Out of 100 borrowers, 30 may not be able to repay their debt. But surely the other 30 will find a way to get back the property they lost from the lender. That is the driving force of growth.
For the vision of a country, I think that debt is not bad, but bad debt, unable to pay off debt is bad. To deal with bad debts countries print cash and dilute them throughout the entire economic system and balance everything as a result of the value of goods going up, everyone's income going up. I think that balancing the scale of the economy needs a great state adjustment. They need to control most of the country's economy and reduce the influence of multinationals.

Since the issue of printing money surfaced in my country, there is another line of scholarship that has received attention, namely post Keynesian economic theory known as MMT (modern monetary theory) initiated by Michael Hudson.

For this group money printing can be done not by way of debt but through several instruments, namely:

- Print money based on multi-layered projects, so real, productive and independent projects that become collateral in the settlement of money.

- Printing money using a sovereign wealth fund, state assets in the form of valuable minerals that have not been mined, are used as collateral to produce and mine these valuable minerals.

If using the MMT instrument, a country does not depend on the dollar, does not depend on the IMF, does not depend on debt and does not depend on the Chinese OBOR project which incidentally is the practice of MMT also on a cross-country scale. With MMT a country's economy can be sovereign.

Every country has its own debt history and it will never fade away because it will continue to grow over time. If there’s no debt then that country must able to support their needs on their own and its really hard to fund your projects. The barter can be a good alternative just like the old days but i think it will not work on this era, cash debt is everything now.

I think we are confusing concepts here, lending has always existed regardless of the form of money being used, and when it comes to private enterprise is completely natural to ask for loans to develop an invention, that is not really where the problem lays.

The problem with the current system is fiat money, while in theory fiat money could work as long as governments did not abused their power to print as much of it as they want this trust has always been betrayed by governments around the world, then when things finally get out of control they try to limit your ability to use your money as you want until the fiat currency collapses or it has to be backed by something like gold.

So we have two options, one is to go to the old and tested gold standard, you could still ask for loans under such system with the difference you will have to pay with gold backed assets or directly with gold, the next option is to look forward to the future and use bitcoin, this is untested and most likely will not be the preferred option of politicians in the case they have to take that voice but it is there regardless.

Ok! Nice question! Being an Economics enthusiast, I have surely given thought to that in past. I have come up with a revolutionary although quite complicated idea. I have named it 'Weighted Layer Classification of Money'.

So under current Debt based economy, money can be generated out of thin air due to the working of 'money multiplier'. By keeping X amount in reserves, banks can further lend the money they received as deposits. This process continues till (1/reserve rate) rounds. In the end, if reserve rate is 10%, for every $100 there will be 100 * (1/10%) = $1000 money in the economy. It leads to inflation, fall in PPP, ever-increasing debts, high rates of interests and many other problems.

Under Weighted Layer Classification of Money, I suggest to have 3 to 5 layers of money. So rather than having one currency in the economy, I suggest to have 3 to 5 different currencies in the economy.

Under 3-Weighted Layers Classification,
-there will be one prime currency, let say, Dollar. The value of this currency will be floating.
-then there will be first secondary currency, let say Follar. The value of this currency will be fixed to 0.80 * Dollar.
-then there will be second secondary currency, let say Gollar. The value of this currency will be fixed to 0.60 * Dollar.

Banks can accept deposits in any of the three currencies. However, lending structure will be as following:

For every 1 Dollar received as deposit, bank can only lend 1 Follar.
For every 1 Follar received as deposit, bank can only lend 1 Gollar.
Banks cannot further lend the Gollars received as deposit.

Interest on Borrowings will be charged in same layer. So if bank lent loan in Follars, it can only charge interest in Follars.
Interest on Deposits will be paid in one-below layer. So if bank accepted deposits in Dollars, it has to pay interest in Follars except for Gollars.

Using this system, there will be a weighted control on how much money can be generated in economy plus borrowing activities can still be performed in economy. We cannot create zero-debt economy because debt is also a backbone of the economy. In the absence of debt structure, many ventures won't able to get launched which will seriously affect economy.

Actually, this is an overview of the model I proposed to a DeFi project which contacted me for a suggestion of a system for their lending/borrowing functionality. I thought this could be a good fit to this thread so I posted here. However, there is lot more technicality involved which I think is out of this thread's scope so I won't discuss.

An alternative to the debt based economy is the system where has inherent value, such as a gold standard. I don't think that Bitcoin backed money is possible.

OP, VERY GOOD question, but I believe NO ONE in the forum is qualified enough to answer such a simple, but "heavy", question.

The question is so profound, the Austrians, the Keynesians, and all other schools of thought in Economics don't have the "one definite answer".

The question is not if we need a new system , the question is how do we handle this system ?

The fact is Debt based economy can flourish well but only in the case where the governance is meticulous and well educated. Unfortunately the government fails to provide well thought laws and conditions, we can even take the case of US , people are well aware of the fact that dollar is currently a bubble and the value will go down in the future. There are countries whose main investment is USD , now they will fall down with them too.

What we need is : Good Governance, Educated and well balanced so that they are able to take accurate decisions unswayed by personal opinions.

- decentralized economy can be very well integrated
- Government needs to curb the corruption , they can just use the blockchain technology and take care of every transaction that there is

They can either switch it or improve it , improvement is easier and can be done in matter of days .

Question is: Will they do it?

Let's go back in the past and just do barter. You pay what you have in exchange for the things that you are about to get food, water and other necessities. It's real-life trading of goods and services you have for another goods and services that you want.

But, I still can see that debt could start out with that kind of economy. Changing the system will require you tremendous resources and power. There's no coming back and this kind of economy will remain.

Debt is the economic equivalent to leverage with investments or gambling. Higher economic debt is correlated with greater potential profit in finance. This is the reason behind investment banks preferring debt based economies. In theory the debt portion of the economy allows them to make bigger leveraged debt based investments, which in theory, allow for bigger profits and paydays.

It comes at greater risk, reduced economic and financial stability. The results of playing with leveraged debt based assets can be disastrous as we've witnessed with debt bubbles associated with the "subprime mortgage" collapse of 2008.

People trend towards discussing systemic faults or benefits present in paradigms like debt based economies in an effort to comprehend and explain events. Human nature is defined in terms of wanting to simplify and generalize one thing being intrinsically superior to something else in a world of black and white.

I think culture plays a big role that is neglected. Business culture and general pop culture are not static constants. They shift and change over time.

Well, here you are again trying to come up with a Bicycle.
Do you think you are no different from people who once decided to use gold/precious stones as a measure of value? No, you are different. Ancient people understood why they needed gold and saw a direct need to optimize the purchase and sale process.
Now , what's wrong with the debt economy? Well, do not take out loans yourself, do not use a credit card and live exclusively on your own funds. Have you ever done business bigger than a local ice cream shop? If so, you should understand that it is impossible to conduct business exclusively on own money (only if you are not a super-successful company that has come up with a totally popular innovation). It is very difficult to take money out of your pocket to upgrade the material base or expand production - that is why there are loans.
And so in everything.
So this kind of reasoning is rather just a concussion of the air as for me which has no real prerequisites.

I don't see a problem with debt and economics going hand in hand. You will never be able to make it big when you don't have a lot of money, fundraising has created unicorn startups like Google, Facebook and Microsoft now.
We've always had bad debt and good debt, and if we were to use it for good business to increase sales, that would be too great. Also, don't touch the bad debt that our economy is always growing.

In the future it might be better if the money is not from debt. Money may come from services performed, such as miners, who confirm every transaction and get the reward. and all of that is not controlled because of decentralization.

The other way is Bitcoin(the future) and gold(the past).
Back in the past,when gold was actual money,precious metals like gold and silver had to be mined,which means that certain resources had to be invested in order to "produce money".Bitcoin works the same way,you have to invest resources(capital,labor,electricity)in order to mine Bitcoins.You give value to get value.
With paper fiat money,you don't give value to get value.They are just printed,and you have to trust the government and pretend that those debt money have value.

So if we change the system that money will be not Born from the debt?
What will be other way then?
And how it will be controlled how much money is given away to people to use it.


This Question is specially for those who is against this debt based economy?