Bitcoin Forum

Fiat currency was imposed upon the modern world on a global scale in 1971, when Nixon finally decoupled the dollar, the global reserve currency, from the price of gold.  Thus, it is a relatively novel experiment, and unlikely to prove stable in the long run.   Since the default of 1933, when debts payable in gold were invalidated,  the US dollar has lost roughly 19/20ths of its value.   This trend is likely to accelerate:  Exponential expansion in debt creates a strong constituency for hyperinflation.

Indeed, in the developed world today, money is debt.  Specifically, debt which accrues interest.  As every schoolchild should know, interest accumulates exponentially when it is compounded.  Sovereign debts have demonstrated compounding for decades, without meaningful surcease.  With substantial volatility, debt overall has increased exponentially since banks were granted control over monetary policy.

Although I would not wish to be tasked with managing such a system, it is conceivable that an exponentially expanding debt could be serviced by an exponentially expanding economy.  This would not be desirable, because all ownership would rapidly accrue to a small interest-receiving class, while the vast majority of the population, the interest-paying class, would be effectively enslaved.  Such regimes always end in blood.  Nonetheless, until social injustice forced the issue, the system would be balanced.  Not stable, mind you, but balanced.  However, exponential expansion of the physical economy requires exponential expansion of physical resource consumption, which is simply impossible, even in a short run, on the surface of a finite planet.

Therefore, resource restriction will destabilize the inherently unstable debt money system, even if brutal repression suffices to prevent popular uprising from overthrowing it.  Any other outcome is so improbable as to be discounted out of hand.  A failure of one of the 5 major sovereign powers (ECB, FRB, BOJ, BOC, BOE) is likely to rapidly spread to the remainder, and the bulk of fiat currency worldwide become worthless.  If this occurs during a window of opportunity, when the infrastructure is adequate, and before it is superceded or co-opted, the largest portion of the resulting vacuum will be taken up by bitcoin.

I solicit discussion of the estimated time for a forthcoming sovereign crisis, and its relation to that window of opportunity.  How can the instabilities of the debt system be usefully modeled?  What are the critical missing elements (scalability, usability, workflow integration) necessary to ready bitcoin for a role as global reserve currency, and how soon can they be ready?  Will bitcoin save civilization, or will the internal politics of software development make that impossible, and doom us - the survivors, at least - to neolithic population levels and lifestyles?

+1

What he said

No sign of hyperinflation in any advanced economy today.  Maybe come back in 10 years and check again. 

What's your definition of advanced economy?

http://4.bp.blogspot.com/_NUMcaQB3sfs/SKrDVuWBSsI/AAAAAAAABfI/oDIjh6e7ULA/s400/DSC02627.JPG

http://1.bp.blogspot.com/_YzCb9YWvHFE/Swwn_AsqzJI/AAAAAAAAAaU/nU2i7sGFv9A/s1600/Trillion%2BDollars%2BFront.jpg

Apparently a loaf of bread costs 47p.  Does that sound like hyperinflation to you?

http://www.dailymail.co.uk/news/article-2439907/David-Cameron-I-dont-buy-value-sliced-loaf--Ive-got-breadmaker.html

Yes, but isn't it true that when hyperinflation has happened in the past, it has been very quick and without warning?
Based on the articles I have read and the folks who are supposed to have done a good job in investigating such events, true hyperinflation will come almost overnight and almost no one will see it until it is too late.

I have not idea, just asking...

Yes lightning strikes happen quite quickly too. 

It is certainly true that there is not present hyperinflation, at large.  In fact, there are profound deflationary forces at work, and it is surprising to me personally that inflation is as large as it is.  I tip my hat to the global cabal of central banks, who, by coordinated global devaluation, have managed to achieve near price stability during a period of strong deflationary bias.  

It always feels like you're having a luxurious and speedy trip, as you speed along the autobahn at 180kph in your S class, the moment before you collide with the pillar.  That wonderful feeling of progress and comfort should not deter you from looking out the windshield to see what is in front of you.  Most of us can do nothing to influence the driver.  But now with bitcoin, we have been given rocket-powered ejection seats, and our lives are in our own hands once again.

Traditional hedges include gold and real estate.  Bitcoin is certainly very promising as another defensive asset class.

It has been said that being right prematurely is the same as being wrong.

I'm hoping that this thread can elicit views which shed some sort of light on the question of when the inherent instabilities of the current regime will diverge.  Above I mooted the hyperinflationary scenario, but a deflationary scenario is also looming:  A whitepaper from the SF FRB suggests on the basis of correlated demographics that the S&P P/E will trend towards 8.4 ca. the year 2024.   Today's Well's Fargo mortgage origination numbers, and the recent workforce participation rate numbers could conceivably be taken as a jump in that direction.  It is precisely to avert such outcomes that the central banks have sat on the print button for the past 5 years.

Given the importance placed on job security, not to mention head-neck-body integrity, by bankers and politicos, it seems likely to me that a major goal will be preventing market nominal valuations from declining, while P/Es are contracting.  This would be deflationary in the sense of being correlated with declining economic activity, even while it would be inflationary in the proper sense, the sense of corresponding to an increase in nominal money supply.  Precisely that combination tends to result in a hyperinflation.  The last time it seemed as likely to occur as it does in recent years was during the early 1970s, when the gold window closed, and "stagflation" predominated.  The intensification of the Cold War and the draconian rate measures of Paul Volcker were sufficient, in tandem, to shake the U.S. out of that valley of despair, but today -- given sovereign debt levels -- can anyone realistically imagine a central bank allowing rates in excess of 20%?  Die Volckerie will not ride into this gotterdamerung, I fear.


  

One of the indicators of divergence might be backwardation in monetary metals.  Certainly this case has been bandied about extensively.  GOFO rates are interesting in this regard.  The failure of Germany's efforts to repatriate its gold is interesting.  The various efforts to bilateralize trade, in RMB and in oil, are interesting.

I remember when the Bear Stearns CFO suddenly quit in 2007.  If you read that event correctly, the subsequent failure of the bank was not a big surprise.  What rats would leave this sinking ship, and on what mooring lines?  Having a good list of these would be almost as good as having a drop-dead date.

Thanks for the rhetoric, aminorex.  You've really got the cogs spinning in my head this morning.

I'm fond of the notion that the best defense is a good offense.

At first glance these do indeed seem like effective hedges against inflation, yet when you add capital gains tax to the mix, some of the wind is taken from the sails.

I question the effectiveness of gold as a hedge against inflation.  For the past few decades it has been more of a hedge against negative real interest rates.  But anything so easily manipulated by unaligned interests does not feel very hedgey to me.  Base metals seem more hedgey.  Lead certainly, but Zinc and Steel as well.  Kyle "Nickels" Bass famously took an asymmetric tail hedge by buying $1mm in nickels, US 0.05 coins made with nickel. 

But an inflation hedge and a hyperinflation hedge are two very different creatures.

I am eager to learn what they have ground out.

Its a great opening post but I don't think bitcoins will fill that void. There is a flaw in bitcoins which is that the blockchain is increasing exponentially in size . So far it doesn't look like a problem but with compounding it will become a problem, that is certain and might hit sooner than we think. How it is going to be handled is not yet established! At the moment 14G is already a hassle, it takes days to sync with the blockchain. What when it is 14Terrabytes ? This will be too big for peer to peer decentralisation. More and more specialised bitcoin nodes will be needed or to put another way more and more centralisation of the bitcoin network. I'm on the bitcoin bandwagon for now as the profit potential is still there but this concern has bugged me for a while. I've yet to see a response that makes sense.  If I put a tinfoil hat on I might even think this has been a design feature that centralisation will eventually be required.

Who cares when your mortgage is reduced to pennies (in real terms). And we all know that bitcoin is also subject to capital gains tax.

If serious inflation arrives you will know about it.  If the price of gasoline suddenly doubles then pay attention.  If the price of bread doubles pay attention.  If the price of computers (measured in flops) doubles then run around screaming.

But futures indexes are piss poor predictors of the future (otherwise we would all be rich).  You can sit and draw lines on charts all day long and it means bugger all in the real world.  

If you really care about this write code that scrapes real time pricing data off websites for basic commodities and do your own real time inflation index.  Work with real data in real time not bullshit from gold bugs.  If you are good enough at it you can front run the Fed inflation figures and make your fortune that way.

Further to my above post I suggest that if you are already wealthy from bitcoins, it would be appropriate to convert a portion of that bitcoin gains to hard assets, eg gold or silver which by any stretch is looking remarkably cheap at the moment. Bitcoins may yet have another bubble or two, and rise to even greater heights however in the end it will either be an unwanted unwieldy currency or it will be the money of the new world order and have morphed into a centralised network.

In the UK gold and silver sovereign coins are not subject to capital gains tax however silver does have VAT tax when you buy it! Which is the way the powers that be try to stop investors buying silver.

Maybe not quite exponentially, but close, 3x during the last year versus 5x in 2012. At this rate it's going to be unusable in a couple of years, without major changes.
Those changes may have to decrease security, making the network somewhat vulnerable. It's probably a difficult problem to solve, and it's looming closer.

It has been suggested that bitcoin is useful for large transfers and reserve use, while alts and layered apps fulfill petty transactional use.  This would be analogous to the historical use of bimetal exchange.  I personally don't like that outcome.  It leads to political abuse and gaming, and is inefficient in many ways.  Certainly alts and layered apps will exist, but a great deal of the appeal of BTC is as a universal exchange vehicle.  Unless it adapts to fulfull those requirements, it will either be obsoleted by an alt or layered protocol which does, or we will fail to have a universal exchange medium.  I prefer a world in which bitcoin is dominant, in part because of personal stake, but also because I want my life simplified, not complicated, by crypto.

I would hope that the core devs would be motivated by stake alone to make BTC dominant.  That would strictly require either a fundamental change in the implementation or a fundamental innovation in layered protocols.  A centralized app is worse than nothing.  Of course the layered apps may not come from the core devs, but fundamental changes in the implementation would have to go that route.

Is anyone aware of an initiative to produce a layered protocol to deal with scalability problems?

There is no reason why Bitcoin QT (or it's replacement) has to download anything more than say the past 100,000 blocks. Prior blocks could be stores on supernodes which still do not have to be centralised.

Problem solved.

unfortunately not quite.  implementation remains, and the transactions per block issue is fundamental, protocol forking.

fiat failures are not necessarily a good thing if they result in wars and acquisitions, see my thread on what i think would be an end-of-bitcoin historical event

https://bitcointalk.org/index.php?topic=413236.0;topicseen

doesn't the political pathway fork at "fiat failure" and "world war"?

do you think the U.S. thus far is at least neutral if not slightly positive to Bitcoin because of the potential for fiat failure protection without war?  do you think this may have been one of the goals of bitcoin in the first place?

do you also think China is slightly below neutral because the pieces were aligning for reserve currency status transition to the yuen with military collaboration underway if/when the hard political fork draws closer?

serious questions.

I think China turned negative because they don't want a bunch of millionaires who are not beholden to the princelings.

I think the Senate hearings were favorable because the foundation did a great PR offensive, and because no one wants to be the guy who killed the Internet (electric light, wheel, fire, polio vaccine, whatever) in commitee.

In the long-run neither will matter.

There is an interesting podcast of Econtalk that is focused on hyperinflation.

http://www.econtalk.org/archives/2012/10/hanke_on_hyperi.html

Summary of podcast:
"Steve Hanke of Johns Hopkins and the Cato Institute talks with EconTalk host Russ Roberts about hyperinflation and the U.S. fiscal situation. Hanke argues that despite the seemingly aggressive policies of the Federal Reserve over the last four years, there is currently little or no risk of serious inflation in the United States. His argument is that broad measures of the money supply lag well below their trend level. While high-powered reserves have indeed expanded dramatically, they have not increased sufficiently to offset reductions in bank money, in part because of requirements imposed by Basel III. So, the overall money supply, broadly defined, has fallen. Hanke does argue that the current fiscal path of the United States poses a serious threat to economic stability. The conversation closes with a discussion of hyperinflation in Iran--its causes and what might eventually happen as a result."

One of the interesting tidbits I picked up from this podcast is that there are, by his count, 57 examples of hyperinflation throughout history, defined as a rate of price increase that exceeds 50% in one month. (I'm not sure how long it has to stay above that threshhold to count.)

http://i42.tinypic.com/2r5bus8.png


Where will we look to determine the rate of inflation or hyper-inflation? What are the signs? The first sign is deflation. The economy slows and money must be injected to maintain momentum. The graph above is a pretty good indicator that we're doing that, and like aminorex said before, it's pretty impressive that it's been done in such a way as to maintain a relatively stable rate of inflation, from the consumer point of view.

The price of gold and other commodities. Going down? Surely we can't be in a period of inflation. This could either be a reflection of the deflation we're in (per above chart) or manipulation, depending on which theory you subscribe to. Either one has the same conclusion, I think.

Hyperinflation will kick in when the economy recovers it's momentum, i.e., if QE actually starts "working" and this glut of wealth "trickles down" to consumers. You can see how this would happen quickly, and uncontrollably, as the money has already been in the system for some time, therefore there won't be any "warning signs" for the average Joe to begin hedging.

I have been struggling to understand how and why the broader measures of the money supply have been more or less constant despite the dramatic increase in monetary base shown in the figure. According to the econtalk podcast with Steve Hanks, it has something to do with Basel III which (by my cursory knowledge of the subject) increased capital reserve requirements on banks. So, if I understand correctly, and I'm not sure I do, it means that the 2 Trillion USD printed (metaphorically speaking, since most of it is held electronically) since 2007 just sits there and does nothing other than satisfy Basel III requirements.

What I don't understand is why the powers-that-be would implement the above strategy. From their perspective, what's the point of printing money and then requiring it to sit there doing nothing in bank vaults? I think I'm missing something key. But I am thinking that if inflation got started, then banks would want to convert all those excess USD into some other asset, which would stimulate inflation, which would make them want to dump their USD even faster, and suddenly you have massive inflation coming out of nowhere and catching everybody (except the architects of the system) by surprise. It creates in my mind the image of a slingshot that is getting poised to go off.

But like I said, I think I am missing something. Why would the powers that be set this system up? The first reason that comes to my mind is that it's a big payoff to the banks, who surely spread the money around to their friends. But if this is the story, then my question becomes: why now?

I'm with you on not fully understanding the goals or methods being implemented. My guess is that we were treating a symptom of a problem instead of the problem. We reached a point where banks were going to be insolvent, leading to financial collapse. What's the solution to this? Get more money in those banks! I don't think this addresses the real problem at all, and actually creates a bigger monster.

There is no significant inflation because the money distribution is extremely unbalanced: FED printed 4x more money but did not cause 4x rise in everything's price, simply because banks hold majority of those money and save them back at FED as reserve

Banks get themselves 100 dollars and spend only 1 dollar to make sure there is no inflation. Their first priority is to keep the inflation in check, not helping the economy. The amount of money in circulation purely depends on a few people's action, they become extremely rich after financial crisis, but a few of them spending a couple of million dollars buying luxury things won't help the economy at all

Same thing could happen in bitcoin, if majority of miners hold their coin, they will create heavy deflation and raise the exchange rate of bitcoin, if they start to spend, they will increase the money in circulation. Although there are lots of miners decide the money in circulation, their action can be highly identical in a crisis

I found this blogpost that more or less agrees with what you said. Also more or less agrees with my post (#30).
http://theecoptimist.wordpress.com/2012/05/08/money-multipliers-and-basel-iii-liquidity-rules/


One of my main concerns about bitcoin in the long term is volatility; as a bitcoin bull, the short term volatility does not concern me, because I see it as just a necessary growing pain; but what about the long term? What will cause the purchasing power of one bitcoin to stabilize eventually? IMHO colored coins (or some variant, like mastercoin perhaps?) may be the answer to this problem. If the global banking system were to suffer a meltdown like hyperinflation of the USD or something along those lines, I sure as hell hope that a colored coin infrastructure is solidly in place before that happens.

When it approaches its long-term fundamental value it will stabilize.  For now, the price is orders of magnitude too low, and the risk factors dominate discounting.  When waves of fear or greed hit the user base, price fluctuates dramatically because the discounting factors are moving so much.  As these factors converge and stabilize the price will rapidly stabilize.  I think what I am saying is trivial, in that it is essentially tautological, given classical no-arb assumptions, but it is simulatenously very hopeful, i.e. it indicates a very favorable future outcome.  When you invest on the side of tautologies, you usually do well.  I'm also implying that the risk factors of public imagination are not very realistic.  Why would this be?   I suspect it is because P2P and ECDSA, open-source and mining incentives, all are not well-understood by the public.  The safety factors which design introduces are lost on them.

How is that?
One of my college courses exposed me to the philosophy of Alfred Jules Ayer. One of the take-home messages was that a tautology is true or false based on how we define the words we are using, eg "a unicorn has a horn" is tautologically true because that's how we define the word unicorn. Unfortunately, a tautology tells us nothing about the real world, like whether unicorns do or do not exist outside our imaginations. The danger is that we sometimes allow ourselves to forget this fact, and we end up using a tautology to let us see what we want to see, even when it is an illusion.

When you say this:
I think: that is a tautology because by definition, the "long term fundamental value" is the value where it stabilizes. But how do we know whether the bitcoin "long-term fundamental value" will be observed in reality -- or will remain as elusive as a unicorn?

If I were to wager on Tail in the next toss, it would be an indifferent investment at 1:1 odds.
If I were to wager on whether (P->Q) -> (~Q->~P), at any odds, it would be a good investment.


The long-term fundamental value is determined by PQ=MV, Fisher's quantity theory of money.  A minimum feasible long-term value of PQ > 500bn USD2014.  There may be elusive unicorns out there somewhere, but they are well north of 5000.  Probably north of 50,000.  Possibly north of 500,000.

The issue with Basel III is actually very simple.

The Fed issued a godawful amount of $USD which now has to sit in banks, not to trigger inflation or deflation, but in order to stabilize the banks.

The increased reserve requirement is effective in propping up banks, even if the money backing it up is just an illusion.  

I'm going to just use hypothetical numbers here instead of the ones that the Fed actually used, but this is how it works.  

Let's say banks are doddling along with a 20% reserve requirement, cheerfully lending out five times as much money as they actually hold.  And the doctrine is, "you can't suddenly inflate the money supply.  That would lead to hyperinflation.  Imagine every atom of your body, radiating outward at the speed of light!  That would be BAD!

Then something happens (like the financial industry crashing) that makes it utterly clear that 20% is not enough of a reserve requirement.  Banks that actually did hold 20% reserves are struggling to keep from going under as 17%, 18%, and 19% of their loans suddenly go into default.  It's a crisis of Biblical proportions!  And what about this guy over here who caused the crisis?  It's true sir, this man has no dick.

Guys at the Fed decide that it's really only safe for bankers to loan out 3 times as much money as they hold, so the reserve requirement ought to be raised from 20% to 33%.  But if the banks suddenly have to make it up on their current reserves, then we are all DEAD, because they are struggling to survive by spending down a 20% reserve to meet their obligations.  To deal with that you'd have to suddenly and dramatically raise the money supply!  And that would be BAD!  In order to even get back to 20% within some reasonable time, the bankers are having to raise interest rates on mortgage holders by some obscene amount like going from 8% to 23% on long-term mortgages.  If they were trying to get to a 33% target, they'd have to raise their interest rates on mortgage holders to something even more obscene like 50% or 60%, and then we would all be dead.  Panic in the streets, rains of blood, dogs and cats living together,  -- it's the end times!!  

Then someone comes up with a ray of hope in the darkest hour, and says ....  hey, Quantitative Easing!  The new reserve requirement will turn the financial sector of our economy into a "giant sucking noise" that takes a hell of  a lot of money out of the economy, but what if we just give out about that same amount of money?  People will spend it once or twice, then it'll wind up getting sucked into the giant black hole we've just created in our banking sector, and if we add the money to the economy at about the same rate that it gets sucked up by the giant black hole, then we can do it without creating (too much of) a liquidity crisis!  Why, we might not even have a revolution!  But hey, wouldn't that be .... you know, BAD? Well, There's a chance -- a very small chance -- we might survive.  Oh, I love this plan! This is a great idea!!

And so the Fed set out to do this thing.  They've been adding money to the economy at about the same rate that the banks have been required to suck it out of the economy.  Now it's a couple years later, the reserve requirements have been raised and, mostly, met, and the amount of money actually in circulation has stayed roughly the same.  The banks are now holding 33% instead of 20%, they've even managed to recover the reserves that they had to spend down in the crisis, if another 20%-threatening crisis occurs they'll be able to withstand it, and the public has been largely unaffected because money has entered the economy through QE just about as fast as it has gotten sucked out of the economy by banks that would otherwise collapse.

It's -- actually not that bad a plan.  What it comes down to is that in order to raise the amount held in bank reserves from 20% to 33%, the 'actual'  money supply had to increase from 1/5 to 1/3 of the 'circulating' money supply - meaning, from $3 on every circulating $15 to $5 on every circulating $15, so 40% of the 'actual' money supply at the end is 'new' money that didn't exist before.  Throw in another 15% or so to allow the banks to recover from the hole they were in with respect to their 20% margin obligations at the start of the crisis, and you have a picture that looks pretty much like the picture today.

Now comes the next and possibly even more difficult trick.  Now that the goal of stabilizing banks and raising the reserve requirements so they stay a bit more stable is more or less met?  Now they have to ... stop.  If they can manage this one last trick, then hats off to them because, well, frankly there's no other way we could have come through that mess starting from where, through ignorance and incompetence, they started.  If the new reserve requirement is met, then maintained, and they can judge exactly the right moment to stop printing so goddamn much new money, then we won't have hyperinflation because all that new money will stay in the banks and won't enter circulation.

Excess reserves are reserves in excess of requirements.  The fed pays interest on these reserves, to favored money-center banks.  Some of these are primary dealers, which bid on treasuries at auction.  The fed also purchases treasuries from primary dealers.  In this way, the primary dealers get a spread on treasuries which end up owned by the fed.  The interest and the spread are subsidies in effect paid by diluted currency holders to the money-center banks and primary dealers.  The excess reserves being literally in excess of requirements, the banks can stop holding them on deposit, and lend them into the economy, with a fractional multiplier.  If they don't, it's because they don't see a risk-adjusted benefit in doing so.

The stated policy mechanism for withdrawing excess liquidity, should it arise, is reverse repo.   They ran some reverse repos a few months back to test the mechanism.  No one has ever attempted to remove trillions of USD in liquidity via reverse repo, and it is rational to consider the risks involved in such an untested enterprise at such vast financial scale to be very large.

Swap lines with European banks are used to shore up those banks as well.

Public knowledge of the monetary operations of the fed outside of the open market programs is very poor.  Hence the Congressional campaign to "audit the Fed".
They keep lots of secrets.  Some of these are probably hiding malfeasance, given the history of government secrecy and human nature.  That malfeasance is probably quite grand in scale, given the patterns seen elsewhere (such as the plane loads full of pallets of $100 bills that went missing in Iraq) and the scale at which the Fed operates.

The Fed suffers from enormous political risk.

I too would wager that A = A. But who's wagerin' against it?

Thanks for that. Does all of this new money not also come with huge interest obligations? Assuming the "plan" worked flawlessly, how is this new interest to be paid going forward, assuming everything else went back to normal? Wouldn't that require more money, and more debt all on its own? (setting aside the impossible task of tapering).

There must be conditions defined by Basel III under which the banks could actually spend those reserves. After all -- if they were NEVER allowed to spend it, then it wouldn't be a stabilizing force, would it? Imagine if the US government in its war on poverty required everyone to put at least $100,000 into a "rainy day" savings account, even giving it to you if you didn't already have it -- but NEVER EVER allowed anyone's balance to drop below $100,000. If such were the case, those $100,000 may as well not even exist. There would have to be "emergency" conditions under which your balance could drop below $100,000 for it to serve its purpose.

So the question arises: under what circumstances would the banks end up spending some or all (well, a significant amount, not necessarily all) of their reserve USD? and what are the odds of that happening?

When they need to buy bitcoin, and it is already started

The strange thing is: Although USD cost almost nothing to make, people are willing to give up their asset in exchange for dollar, just because other peoples also accept dollar as payment medium. So eventually bankers own everything valuable on the planet using their printer, this process is going slowly but steadily

I don't see any reason for a complete fiat collapse anytime soon (barring complete mismanagement by the central banks or some "unknown unknown"). Though, I'm not exactly sure how nations without monetary sovereignty (Euro nations) will handle their public debt. The U.S.'s debt:GDP ratio has been higher than it is now (after WWII). Ideally, not all the benefits of economic growth go solely to the small, interest accruing class (those who received the investments or loans would have received greater benefit than the interest paid, else they wouldn't have taken the investment/loan). Public debt doesn't have to grow exponentially. It can be paid down, and/or inflated to be insignificant over decades. Debt has just grown exponentially recently because it could be (exponentially expanding economy and population growth). The problem of always needing economic growth to function is a feature (or bug?) of capitalism itself.

Yep.  In a financial meltdown where there is a crisis in the money supply and a widespread run on banks, they will be allowed to spend it to stay afloat.  I think it requires an act of congress or some kind of disaster declaration to authorize.  But once they spend below the new reserve requirement, they have a limited time to get back above the reserve requirement or they lose their license to do financial services work.

That does not apply to "excess reserves" however.  If they are reserved by anything other than market forces, it is a "gentleman's agreement".

I wish you were my teacher, be it economy or english lessons.

I like this post. What other indicators need watching?
I do feel that the end game is imminent though.

I'd watch for some catastrophic event taking millions of lives. It would take something of a planetary caliber to reboot the planet-wide financial ponzi, and I doubt that people responsible would hesitate much.

Do you really think that debt will not grow exponentially if they try to inflate it to be "insignificant"?  Why not take out a loan if the debt will be insignificant in the future?  Also, your assumption that the loan recipient benefits from the loan is certainly not true for all loans.  Businesses go belly up all the time and leave bad debts.  Students loans debt is at an all time high and most of the people I know who only have bachelors degrees are working in retail of food service, making minimum payments that should have their loans paid off about 1 week before they die.  Look at 2008.  How many of those loans were not paid back because the homes they were spent on lost half their value?  And what happened to the interest accruing class in 2008?  They got bailed out by their buddies while they were kicking people out of their houses, only to let the houses sit vacant or be torn down.

Capitalism is private ownership and private responsibility.  We don't have such a system in the US.  We have private ownership of profits and socialized losses.  Until the interest accruing class is forced to take responsibility for their mistakes, our debt problems can only grow.

No one will lend to you at that point.  


The purpose of politics, taken on a dollar-weighted basis, is to insure that they do not.  

As an aside:  Reserves do show up in the circulating economy.  The reserves imposed on a bank by external forces free up other capital which would otherwise be held in actual reserve.  That capital is used for flow trading, market making, and speculation, one way or another.

Cryddit... can I give you a bitcoin tip? That was an amazing explanation... thank you so much.

Heh.  Never thought I'd get a tip for making "Ghostbusters" jokes. But sure, I never turn down money!

1C7hWrfhyv31BZA13B16pTXCuWRM1uT6Ny

Thanks for appreciating it.