Bitcoin Forum

It will be interesting to see what the ECB is going to do about this. http://www.theautomaticearth.com/Finance/deflation-arrives-in-the-eurozone.html
Is this the beginning of the end? I wonder if by the end of 2013 if the lines in the second graph will cross as the ECB ramps up bond buying programs? There are only a hand full of people who know just how dangerous deflation will be.... The New great depression will be the worst ever.

If deflation is so bad, then how horrible would a bitcoin based economy be?

Spoken like someone who has no idea how the global economy is structured. Deflation is fine if money was real and not debt based. Deflation destroys money and causes a negative feedback loop that feeds on itself causing the collapses of the worlds major economies.   :)

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

Milton freedom and Ann Schwartz correctly identified the causes of the great depression. It was a contraction of the money supply (deflation) or debt supply how ever you want to look at it.

Considering that they are printing money faster than any time in history, how would we be experiencing deflation?

Not bad at all, because you can vote with your wallet and get out of it if you choose.

With state fiat monopoly deflation there is no escape and they exacerbate it by criminalising gold and alternate currencies in such situations. In order to support the failing system they lock everybody in to "share equally" in the misery of the elites who are losing their wealth and status.

This is a great question. The reason that we will experience deflation is that no matter how much money they print if the can't get governments or individuals to take out loans the credit supply will deflate. All of the printed money stays in bank vaults as excess reserves. This is what is happening in america right now too. The world is a wash in debt, we are the greatest debtor nation the world has ever seen. So despite historically low interest rates for a historically long period of time the economy has not recovered and will not recover until the there is a debt liquidation. The only way for economies to grow is to add debt, the total debt must always grow, but it looks like we have reached the limits of credit expansion. This is the reason that the FED has engaged in QE. If they let the debt contract we will fall into a new great depression. The only way to cut the trillion dollar deficits is for the private sector to increase its debt. Our economy is on government life support, If they stop spending it will collapse      

That is exactly what I have done. I just wish I had a bigger wallet. :)

It is hard to know what people mean by "print money".  If you mean physically printing money then there is no physical way our current system could print money or destroy money fast enough to keep up with the changes in volume of money supply created by debt.  The money supply in the United States based solely on debt is just that much larger than the sum total of physical bills and coins.  This is caused by the notion that individual A takes out a loan for $10,000.  That is money created by debt.  They use that money to pay a contractor to work on their house.  That money goes to a bank B.  Bank B may now use that money (that was originally debt) and can loan $90,000 to someone else based on this new money so they create debt based on someone's debt.  The actual supply of printed money is a tiny fraction of the money supply created by debt.

If by print money you just mean borrow from the fed and pay out in "stimulus" then that is a different story.  Maybe the stimulus needs to be a loan with negative interest.  That would keep inflation going.

I dont know who you are directing this comment to, If me. Ya when I say print money that is just to keep things simple. They dont print they just add digits on balance sheets. The important aspect is money isn't "printed" into existence it is borrowed into existence

Because an increase in money supply does not equal inflation.  You need to factor in the velocity of money, amongst other things.

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Two possibilities, which may or may not be happening:

1) The money being printed is only going into a few bank accounts and is not trickling down into the economy.  A guy with 12 figures in the bank suddenly gets 15 figures, it's not going to change his spending habits much. 

2) Debts are being defaulted on also very quickly, meaning that there is actually not as much monetary inflation as you think. 

Another upward pressure for the value of the dollar is people loosing confidence in other currencies.

These have been mentioned in the press lately: Japanese yen, Korean won, Taiwan dollar and the Australian dollar.

I would not speak of "deflation" unless I see lower costs of life (which are nowhere to be seen).

Anyway after the "problem" (great depression 2.0), get ready for their "solutions" (starting with more funny money directly from the governments, so that they will be able to keep the peasants under control):

- Shock: Powerful British Money Man Calls for Central Bank Currency to Be Handed Out to 'the People' -From The Daily Bell, FEBRUARY 13, 2013
http://webabuser.blogspot.com/2013/02/shock-powerful-british-money-man-calls.html (http://webabuser.blogspot.com/2013/02/shock-powerful-british-money-man-calls.html)

- Financial Drone Attack! From Bill Bonner's Diary, Thursday, 14 February 2013
http://webabuser.blogspot.com/2013/02/financial-drone-attack.html (http://webabuser.blogspot.com/2013/02/financial-drone-attack.html)

It doesnt matter if money is debt based or not. If I sell a car for dollar or bitcoins, in both cases the money serves as a delayed trade, allowing me to trade the value of the car for something else later. As such you could say bitcoins represent debt just as well. The real difference is that fiat money can be created based on debt, bitcoins can not.  And whats happening now? Not enough credit (ie money) is being created and thats a serious problem for the economy. How exactly do you think bitcoin would solve this?

Bitcoins are being created at the rate of 3600 per day and they appear to be fulfilling a particular niche demand for money rather well, is that not a solution?

Alternate crypto-currencies are also being created if there are further demands for money also.

The economies of the world have many other serious problems, in addition to lack of credit issuance.

Sure its a solution. A pretty nifty one too for a lot of things, but a magical fix for our economy, or even a viable replacement to fiat currency, it aint. Economies need credit, and a deflationary currency just doesnt allow that. The current block production rate will slow and eventually grind to a halt. How do you expect to be able to pay back a loan plus interest when its denominated in something that grows in value faster than the economy? Who is going to lend you bitcoins over 20 years to buy a house or build a factory ? Do you think the economy will boom when everyone just sits on their asses and their bitcoins?

There is a reason we invented paper money on top of gold in the middle ages; economies needed credit then, we need it now. Having money thats created and destroyed based on debt is actually a good idea. Imagining we could replace it with bitcoins or gold  is like reinventing the automobile by spanning a carriage behind a horse.

Diminishing prices due to a debt crisis I can understand. Sure it will be met with new debt.

Why the debt? Seems to me the economy would me much more stable if the money, if they think it is needed, were outright printed, and the bank reserve requirement high and the money multiplier low.

The new money outright printed could be used to fund the government deficit and given to cronies just like now. Is it a strategy to conceal the printing?

All money is and always has been an IOU. When you buy a car with bitcoin you are not leveraged you actually have the bitcoin. When you take out a car loan you are paying with something you dont have and that doesn't exist until you borrow it into existence. You cant borrow bitcoins into existence. So yes all money is a debt (I prefer a promise) but our fiat system is debt based on a promise. That in and of it's self is not a problem. The problem arises when a loan is taken out the money springs into existence out of thin air, but only the principle is created. The interest due on the principle is never created. This creates a system where total debt must always rise, but there are limits to the expansion of debt. I believe we have reached that limit. So yes it does matter if it is debt based or not.   

Yet you are surrounded by ample evidence in the current era to the contrary. The debt-based monetary system has led to the obviously unsustainable position that all economic output, global GDP is now being consumed up by interest payments on outstanding debt, it is baked in to the mathematics of compounding interest. Probably not worth following this discussion much further if you are going to deny facts.

Paper debt money and other promises-of-payment money really, truly are competitive ... as long as it operates as a monopoly is what you are really saying isn't it? E.g digital money backed by gold (crypto-gold) or commodity baskets and etc hasn't even been allowed to compete, yet. Raising obfuscations like horses and carriage technological analogies is conveniently ignoring legal tender laws and other market-distorting regulations that outlawed competing monetary technologies and innovations since the late 1800's.

Bitcoin is far in advance of any monetary product on the market today technologically, as a requirement for it to operate in such a highly anti-competitive environment, and that is why it is kicking asses, taking names and enabling digital black markets. The stupid, lazy, greedy people involved in monetary technologies, central bankers and their foot soldiers in mega banks, financial institutions and economic academia, could never come up with something as sophisticated as bitcoin in a 1000 years, yet cryptographers hacked it together in a couple of years as a side project.

Diss it as much as you like from haughty economic academic standpoints. Fact is we made it work and it is a reality, all you seem to have are theories of why it shouldn't work.

You mean the debt as a number expressed in an inflationary currency?  thats not a problem (and its not even true *) and there is no limit because the actual value of the debt, if adjusted for inflation,  doesnt have to keep rising.  It will only rise as long as the economy grows. Besides, we can create fiat money without interest. Or at least governments used to be able to do that. If you want to advocate for that, you can have reasonable arguments either way, but abolishing fiat money for something that can not adjust itself to economic realities is just silly.

* the interest can be paid back with actual economic growth without the money ever being created.

Thats nonsense. Interest rates and thus payments are lower than ever. Clearly we have a different problem. in fact we have many problems, not in the least dwindling oil supplies and an overcrowded planet that can not sustain this many humans, but if you think these problems will be magically solved by ditching our monetary system completely and replacing it with the electronic variant of what we had in the bronze age, then you are an idiot.


In some practical aspects yes, but the principle of a currency based on a rare commodity is no different than what we have had for millennia.

Okay, name-calling tells me that is the end of the debate ... and you just run out of arguments I gather. So PUPPET who is pulling your strings I wonder? Are you against monetary freedom also like the other facists trolls that are showing up here lately?

.... bitcoin is no different than what has been around for millenia,  uh-huh, oh yeah, right, gotcha.

Monetary Freedom, welcome it into your socialist enclave today!

No really, can you show us where "global GDP is being consumed up by interest payments on outstanding debt?"

Does this mean economies need counterfeiting?  I'll loan you my car for an hour is that credit?  The bitcoin loan markets springing up are they credit? 

Of course not.


Its certainly not tradeable credit, since I assume you wouldnt allow me to trade your car for something else that I want, but I guess you could look at it as a form of credit yes. Just one were we use trust instead of money. If I dont return your car, you will expect something in return, wont you? Like money.


Yep, and thats working wonderfully isnt it.

BTW, for all the die hard libertarians. Keep in mind fractional reserve banking was not invented by the government. It was invented by the market.

I suspect he watched "money as debt" on youtube.
Its an interesting movie, but highly deceptive. Among other issues, they forget to mention at least one key aspect of our monetary system;  while its true interest money is not created like debt money is, its equally true that interest money is not destroyed when a debt is repaid, whereas the debt money is. And that is what balances the equation. All debts, including interest debts can theoretically be repaid. Of course, without debt, there would be no money and no trade (trade is what creates debt after all), so its not exactly desirable, but theoretically at least, possible. Money is just an accounting system to manage debt/trade.

So tell me, how is bitcoin fundamentally different than using gold or shells or feathers? Its just an electronic variant thats more practical in many ways, but in essence, its no different. They are just limited supply commodities that can be used as IOUs.. OTOH, fiat money is fundamentally different, it can be created and destroyed based on credit needs. you dont have to stop trading or resort to hand to hand barter just because you ran out of the commodity to represent the value of those trades.

Just imagine we would stop creating and destroying money. Banks and central banks will no longer create any currency, stop buying and selling government debt, banks only lend money that they actually have. Suddenly it looks a whole lot more like bitcoin doesnt it? It will do wonders for the economy!

Reread that paragraph, then scratch my head.

When money/debt is destroyed, and not replenished with fresh debt, that is deflation. So its built right in the financial system.  However you are correct that its not a good thing for the economy when money becomes increasingly scarce. With fiat money, in those cases governments at least have the option to create new money. So I struggle to see how bitcoin is an improvement over this.


Im glad you agree.


Thats because you are assuming a problem were there isnt one.


As wages, or other spending by the bank, dividends to shareholders, or crucially, as interest on bank deposito's.  I guess "money as debt" forgot that little detail too?


Which is a problem, why? And how does bitcoin solve it?

When money/debt is destroyed, and not replenished with fresh debt, that is deflation. So its built right in the financial system.  However you are correct that its not a good thing for the economy when money becomes increasingly scarce. With fiat money, in those cases governments at least have the option to create new money. So I struggle to see how bitcoin is an improvement over this.

Maybe I should have said that defaltion is possible but leads to depression. It creates a situation where less and less money is in circulation. Read Milton freedmen and Anna Schwarts on the causes of the great depression. Read Richard Duncan The new great depression, read Steve Keen economics debunked.
 
Ask japan about the limits of debt expansion.

The problem of double lending increases the gap between principle which is created and interest which is not. The two pools in money as debt with P and P+1 is correct but for more complicated reason than presented. 

http://www.youtube.com/watch?v=iquemUNNYY8
http://www.youtube.com/watch?v=THelXGcKQd0

Ill leave the money as debt stuff for what it is, its been put in perspective and debunked too much already for me to waste time on.

But do tell me this: how does bitcoin, with its purely deflationary nature, solve any of this, rather than exacerbate it?

Sure it has. By who paul krugman?

http://paulgrignon.netfirms.com/MoneyasDebt/Analysis_of_Banking.html

The wrongest claim in this thread is, IMHO, that "the economy need credit [to grow]".
No, the economy do not need credit but saving.
Only when the economy allow people to save in the long term, the economy can grow in the long term.
What is saving? Is production not used immediately but stored to be used later for deferred consumption or investment.

If I have no saving I live insecure of the tomorrow.
This can be described from the simplest Robinson Crouse  economy to the most complex.
If I'm on an island alone and naked, I must gather food to live.
If I need to gather food for 6 hours (by hands), I could invest two more hours to harvest the materials to build a basket and another two hours to build the basket.
In this way my productivity is increased. Now I can transport food instead of eating it immediately.
I have used two hours I had saved for leisure and rest.
With this investment, I now are able to gather berries and keep them for later consumption. Now I'm able to save berries and not only time.
With the basket I'm able to keep the berries I gather and build a reserve of berries large enough to eat for a day without gathering.
If I use two hours more every day to gather more berries (eight hours instead of six) in three days I can stay a full day without gathering.
This "free day" I could rest or I could dedicate it to build a stick to help me gather 50% more berries in the same time (because I'm able to beat branches I was not able to reach without a stick).
Now I need three hours instead of six to gather what I need to eat in a day.

WHo gave me credit to increase my island economy? No one.
But I was able to save. And saving I was able to invest.

Doesnt the fact that i could deduct from your arguments that you got your "knowledge" from that cartoon, ring any alarm bells? Am I a psychic or could it be that I have heard and debunked this all too often already? Its always the same source.

Now I dont want to ridicule these movies too much, they are nifty cartoons and on some aspects they even explain some basic economical principles rather well, so its not all lies, but Paul Grignon does not understand our financial system, or if he does, he is doing a decent job deceiving you. I am tired of setting the record straight, the info is out there, educate yourself.

As for Paul Krugman, he may not always be right, and you can ridicule him all you want,  but its kinda ironic given that he is a nobel prize winning economist, rather than  a hippy artschool dropout cartoonist who's word on monetary policy you are taking for gospel instead:
http://paulgrignon.netfirms.com/MoonfireStudio/PAGES/info.htm

I knew this guy was sucking Paul krugmans dick. Neoclassical economist are retards who dont understand the role banks play in expanding the money supply. That is why Steve Keen handed him is ass in their debate.

http://www.youtube.com/watch?v=iWEq27Ai6ZU

Im not sucking anything and Im not even aware Krugman ever commented on these cartoons, did he? You brought him up, I didnt.
Perhaps unlike you,  I like to think for myself rather than being spoon fed disinformation by anyone.
But since you brought up Krugman, Im just pointing out he has at least a tiny bit more credibility then your hillbilly cartoonist. Maybe next time you can point me to a simpsons clip to prove your point.

BTW, ROFL to that link. You call it a debate, but Krugman isnt even on it. And that guy that was on there, had already received a thorough trashing by some other guy who's clip you linked earlier. Seems like you cant make up your mind who to believe, i guess anyone is  credible as long as he rants against NCE. Even though no two of your hero's seem to agree on much amongst themselves. Why dont you try understanding the issues and make up your own mind?

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I don`t think I or any of us will see that come true  >:(

The Elites will make sure that bitcoin will be seen as

nothing more than a geeks new tech toy ;)

Do not understand why you say "interest money is not destroyed when a debt is repaid" that "balance the equation", it looks like exactly the problem, interest money is not created by need to be repaid, so it has to be from the principle from some other debt. (Unless banks spend the interest ahead of the interest repaid, and that is how I see could balance the equation and which itself is awkward, since you spend ahead of getting paid, so bank itself is taking debt, which comes back to creating more debt to satisfying old debt).

Assume i take out a loan to start a business. The interest on the loan represents a portion of the profits I expect to make from the loan. The interest money isnt created when i take the loan, but neither is it destroyed when I pay back the loan. Instead it will just be transferred from my customers to me and then back to the bank, its shareholders or deposito holders where it will remain even after my debt money is destroyed. The net result is no new debt whatsoever, just a transfer of existing money/debt from my customers to the people who bankrolled my enterprise.

Here you are just thinking you as a individual, not the whole system, the customer's money is also someone's debt (principle)

So ? money=debt and trade obviously results in debt changing hands. What on earth is wrong with that? If i buy your car with fiat money, it also means you get someone else's debt. Is that somehow bad? I could also give you nothing and owe you, so you would have my debt. Its the same thing.

Obviously this isnt a problem, but our youtube cartoon believer was misled in to thinking that with each loan additional debt (interest) was created that could never be paid back and therefore fiat money is like a pyramid scheme that has to collapse some time. Its nonsense. The only reason all debt cant be paid back is because we would no longer have either trade or money, but that doesnt mean the books arent in balance, because they are.

I still don't understand how the 5% interest can be paid back without a default, if only the principal (100) of the loan was initially created (to take a simple example).

http://www.dailykos.com/story/2012/06/11/1098890/-Krugman-vs-Keen-Rhetoric-vs-Reality    There is no contradiction between anything I have posted no one has given steve a trashing. They cant he is correct.  You are the one who needs to educate themselves you are mistaken and dont understand the issue.

That is totally not the point, the point is the system could not balance itself at any moment( here balance denote clearance of unsettled obligations) ( not the balance in the sense that if I owe you ¥5, then you own ¥5 credit and I have ¥5debt as you described). So at any moment new debt is created- people think only when new loan is issued then there is new debt - NO, it is increasing at every second- since the interest is accrued.even you may not require to pay now, your debt balance increased.

And system do collapse, actually many many times - in lieu of 2008, it is the US government take more debt to balance the equation. The mountainous debt is the result of anti-collapsing measures employed by United States.

  @Puppet     If you really want to understand the issue read chapter 4 (The Quantity Theory of Credit) of Richard Duncan's The New Depression

Okay.. To prove my point, lets assume there are only two people on the planet, the banker and me. And only 1 gold dollar exists as reserve money at the bank.
I loan 1 dollar from the bank and owe 10 dollar interest on top.
So I owe the bank the 1 gold dollar that exists and another 10  interest money that doesnt exist. Impossible? Hardly
I buy clay from the banker for the 1 dollar.
With the clay I make a dozen pots.
I sell half of those pots  to the bank for 10 dollar. The bank doesnt have 10 dollar either, so buys it on credit.
The bank only has 1 dollar, so the bank does a 1 dollar payment to me for its debt to me for the pots.
I return the 1 dollar to the bank to repay my loan.
Bank does another 1 dollar payment to me for the pots, I return the 1 dollar for my interest debt.
Rince repeat 10x until neither the bank nor I have any debt.

In the end the bank has its dollar back, we both paid our debts, I have some spare clay and we both have some clay pots.
No on defaulted.

So if Richard Duncan is your hero, why did you link to an interview (that you called debate) with Keene to supposedly prove Krugman wrong? Dont you realize Duncan also ridiculed Keene's theory in the very clip you linked earlier. This is your link:
http://www.youtube.com/watch?v=iquemUNNYY8
Fast forward to 23:15
So who should we believe then?

BTW, I tend to agree with most of what I heard of Duncan so far. But are you really sure you do to? I havent read his book, but in the interview you linked he proposed to get out of the current mess by massive government spending in energy and infrastructure. Is that what you believe too? because its pretty much what krugman is advocating for as well.
And where  exactly is he agreeing with your youtube cartoon or suggesting we should move away from fractional reserve banking?

Duncan and Keen both see the problem and have differing suggestions oh how to fix it. I don't agree with either of them, both are just trying to prop up the old failed system. In your above example yes it is possible to pay back a loan when the payments on principle are made back available to the debtor as wages, but that is not what happens in real life.
In the movie "money as debt" they say that the problem is the P< P+I which is not exactly correct because as you point out you can pay back P+I with the same dollars. If you read the rebuttal by that "hillbilly economist" he talks about that and I would like to point out that hillbilly correctly identifies the underlying problem in the global economy where your Nobel prize winner is clueless. Keen focuses on the aspect of leveraged speculation as the main culprit and Duncan focus is on the Quantity theory of money and trade deficits but all three recognize that our monetary system relies on ever expanding debt.         

So you are saying I should really read Duncan's books  because he truly understands the issue, but I shouldnt read too far and at some point  completely disregard what he says or suggests as solution  (which is basically the same solution  just about any living nobel laureate in economy favors, including Krugman)  and instead we should apply some vague, radical solution proposed by an artschool dropout cartoonist who clearly does not understand the issue? 

really?

Dont get me wrong; our current system is not without its flaws. But its like democracy, its the worst possible solution except for everything else we have tried so far. And we've definitely tried using scarce commodities as currency. In case you missed it, the free market deemed it unsuitable and invented fractional reserve banking to make it more suitable for commerce.

To solve a problem you must first understand it. You are saying our society has too much debt. Debt as a person is usually a bad thing, but its completely different from collective debt of a society.  A society owes itself that debt, and that  is just as big a problem as me writing myself a check for 1 trillion dollar. Guess what, it isnt a problem, its just a number. Money is debt, and the opposite is usually also true. One person's debt is another person's wealth. Are you saying we have too much wealth?

So if its not collective debt, then what is the real problem? What most economists agree on, including everyone quoted in this thread, not too mention myself, is that (too) cheap credit has led to overinvestment resulting in production overcapacity. This capacity is created based on debt, and much of that debt may have to be defaulted on,  which is why was some say “we have too much (bad) debt";  what they really should say is we have industrial (/agricultural and other) over capacity, or if you prefer, not enough demand.  Unlike the trillion dollar check to myself, over capacity truly is a problem, because empty factories  cost money and resources and that goes to waste and will cause default and unemployment when they cant be used.

So how do we solve it? On one hand, you have the teaparty and libertarians who say we should just unwind the debt, close the factories, default on the loans, become unemployed and suffer until it gets better.

Some of that may be unavoidable, but I think thats silly as a strategy. I think its even silly to say we have overcapacity once you realize we have a significant portion of our own population that owns virtually nothing and more than a billion people living in abject poverty. How can we have too much steel and cement production when millions in our country are homeless? Too much food production while millions die of starvation?  How can it be that our economy would be so inefficient that we would have to close house building companies and lay off construction workers and pay them for unemployment while at the same time,  so many people are homeless?

IMO the real cause of our current industrial overcapacity is not so much that we had cheap credit, its the increasing under capacity of too many people to pay for these goods and services. Its not like they dont want it. The word no one here wants to use: we have too much inequality. We have this within our own countries, were the rich can only consume so much and the poor cant afford enough to keep the factories humming, and we have this across borders, you can only export so much to a country which is bankrupt and who's citizens earn $50 per month on average.  So when you say "we have too much debt", my response is that a society cant have too much debt to itself, but our debt is far too concentrated.

We have already tried getting everyone deeper in to debt with virtually free credit, in an attempt to stimulate demand and keep our factories open-   and that is the real reason, not our fractional reserve  system, but that we didnt want to tackle the root problem and instead deliberately inflated the credit bubble, making the rich richer, and the poor poorer. Free credit will help for a bit, allowing the poor to buy stuff and thus to keep factories open , but of course doesnt solve the real issue as unlike societies, individuals (and nations, if its to other nations) can get and did get  too deep in to debt. And thats what we have too much of now: too many people carrying the debt which is owned by too few.

In that context, this is a chart worth looking at:

http://thecurrentmoment.files.wordpress.com/2011/12/top1_ps12.png

Note how major crisises (aside from the oil crises which made everyone suffer "equally") in the last century correspond pretty well with when inequality reached  its peak, and we had the golden years when it was at its lowest.  Its my conviction inequality isnt a result of financial crisis, its a root cause of it. And its completely logical that its so. How can car manufacturers flourish when most people can no longer afford  a new car? If you are in the business of selling cars, imagine how you would prefer to see wealth distributed among your customers. Would you prefer to sell one or two  $1M cars to Warren Buffet, or would you prefer his fortune was spread out over 50000 potential customer that could then all afford a new midrange car?

Once you understand that, then you can begin to think about policies to fix it. Rather than closing perfectly fine and competitive factories, rather than keeping educated, capable and willing workers at home unemployed, we should focus on ways to create demand to make use of the investments and assets we already have anyway. Not demand from free credit, but we have a massive potential for new demand from the poor if only we could make them a tiny bit less poor.  Now there is no easy fix, particularly not for inequality across borders, and  Im not suggesting we just hand money to the poor just because Im a bleeding heart Samaritan, but from a purely economic POV it makes complete sense to try and lift people out of poverty and in to the middle class so that our human capital, our workforce, our  production capacity, and the money invested in it can actually be used much more efficiently, rather than just defaulting on our debts, closing the factories, increase unemployment and cause a downward spiral until we hit some bottom.

In short: replacing fiat currency with some inflexible commodity currency isnt a solution and artificially low interest rates and a resulting credit bubble arent the root problem,  it was a flawed attempt to overcome the discrepancy between production capacity and demand, which is the root problem. The only real lasting solution is to reduce inequality and shift more of the tax burden from the poor to the rich so we can better leverage our already existing capacity to create wealth, rather than destroying it through bankruptcies and unemployment. I know raising taxes, even if its on the rich is a  hugely "popular"  thing to say here, but in the long run, Im convinced its even in the (collective) interest of the rich, and its definitely in the interest of society at large. If Warren Buffet asks to be taxed more heavily, Im sure he knows well enough why.

I am pretty bored of this post about now. I never said to implement any of the policy suggestions put forth. I say let it all collapse, the sooner the better in my opinion. The Answer to the money question is to return the money power to the people. The only reason it ever left was because of the feedback issue. As civilization grew people no longer knew the reputation of counter parties to trade, so institutions fulfilled that role. We now have a method of preserving and accessing reputation. So financial institutions are no longer needed the sooner people realize that the better.     

You point is well understood and there isn't anything you said above is incorrect, but if you re-think about your example, you will notice
First, there is credit creation step: " The bank doesn't have 10 dollar either, so buys it on credit", and I will point out the way you describe is NOT what modern financial system do: during the whole steps that you are returning your loans and bank's step by step payment to pots , you didn't charge interest, When you create debt, you didn't make a token asset to represent it and use that token asset to earn more, but if it were modern financial system created the credit, they would debt bank 9 dollars and credit bank 9 dollars, then bank pay you using 10 dollars to get pot and you deposit that 10 dollars. so at the end of your trade, in modern financial system sense, you have 10 dollars and now can pay debt, next you are left with 1 dollar debt, the bank left with 9 dollar principle debt + Interest debt  + plus 1 dollar asset (that you own him) + plus on dollar cash 10 = Interest Debt. On net, you guys need to borrow another round to make the game going .
second, why should they do what you described? they can do it totally another way:the bank do not buy your pots, they just wait, till you payment time comes and you default or you borrow more from them, this time, loan is collateralize by your pots, if you can not pay, oops, give the pot back to them and now you still owe them. It is you who need money to pay the bank by obligation, they do not have obligation to buy,only option to buy.  You were assuming financial system counter-parties are cooperative, they are not.
Third: Here when you say one dollar (gold dollar), it is more like federal reserve fund, mondern financial system use all bank debt as money.(credit)

So the "Puppet" wants more taxes to fix up all the problems caused by too much debt (which isn't really a problem cause we all just owe it to ourselves anyway).

Gee, I guess I didn't see that one coming from the name-caller economeister extraordinaire. More govt. spending, more taxes, more indebtedness, more money printing, more bankster bailouts, you really are truly a Puppet of epic proportions ... it's simple really. "Communism isn't so bad, just trust us."

Utterly, completely shameless and corrupted in thought. Keep going though, I want to see how red your underwear really is, as you are hoisted royally on your own petard.

Government debt should not be confused with personal debt. When govt has debt that usually means the people are profiting.

I tried keeping it as simple as possible. But if you prefer,you could  sell the pots for 5 dollar and charge 5 dollar interest. Doesnt change anything does it?


Doh. Yeah if I only have 1 potential customer on the planet because we are only a planet of 2, its rather likely my company will go bust if that sole customer decides not to buy my goods. Good point. I was just proving how interest gets repaid without being created with the loan. Interest just results in a transfer of debt or ultimately goods, it doesnt create some death spiral towards infinite debt.. And contrary to my example,  that transfer wont justbe  to the bank as much as it will be to deposito and share holders. After all banks are competing private companies.


See 1. Makes no difference. But with no central bank, its hard to see were the bank would get its first credit money from on my imaginary planet.

Yawn, how predictable and predictably void of arguments. Here is a question for you though; back in the 50s and 60s, did we live in a communist state? Or did we have a reasonably well working capitalist one? If you agree on the latter, you might want to look up tax rates from back then and compare it with what we have now. And since Im sure you are allergic to big government, pay close attention: its not even the overall height of the taxes that matters, overall taxes were arguably lower back then, its the distribution.

BTW, if you had actually understood what I wrote, you would have noticed Im absolutely not advocating printing of money and giving it to the banks.  Printing of money is not a  solution by itself, though its defensible if used appropriately; but giving it to wallstreet accomplishes the exact opposite of what we need as its a transfer of wealth from the poor to the rich and is likely to cause even more excess capacity.  Im also not saying we need more government spending, you can argue that either way, what I am saying is we need to change how government collects its taxes and spends its money. That is far more important than how much it collects or how much it spends.

And then there is the (also predictable) communist stuff. Which is funny, because you have more in common with a communist than I have. Like most communist, libertarians  use moral arguments to defend an economic system thats demonstrably less efficient.

The communist will use the moral argument that all humans are equal and have equal rights to justify collectivism and then delude himself in to thinking its also a more efficient economic model. The libertarian will make the same mistake, just using the moral argument of individual freedom and property rights to justify any amount of economic inequality even if it results in inefficient distribution of capital or ultimately gets to the point where it turns in to financial slavery.

Im not an ideologue, i am not driven by the morality of wealth or poverty. If you want to argue morality of property rights versus poverty and starvation, then be my guest,  but realize two things:

1) I dont give a hoot either way. I have a degree in economics not moral philosophy so Im driven by pragmatism to strive towards a more efficient economy. If reaching that goal requires a large inequality and what a communist would consider gross economic injustice, then i have no problems with that. No more then i object to redistributing wealth and do what libertarians would consider theft if im convinced it would result in greater economic prosperity.

2) dont make the same mistake as communists by confusing your morality with economics.

[/quote]
We are discussing Principle and Interest effect here and you are saying charge interest or not doesn't change anything???? It is the whole difference, the interest you do not charged is acutally charged in real world and once your described cycle is done, there is unsettled obligations that need another round borrowing to go on. And borrowing going on and on is my point.

+100 bump bump bummp

This my favorite   "A society owes itself that debt"      "We owe it to ourselves" lacks a fundamental understanding of the definition of we, they, you, and I.

I understand this discussion may be going over your head sublime, here is some study material thats perhaps more appropriate for you:
https://www.youtube.com/watch?v=5iRXZrFDFCA

Let me know if you have any questions.


Of course it doesnt work like that in the real world. When was the last time you bought clay from a banker?
You said you didnt understand how interest debt could be paid off if the money is never created. I told you how with a silly example, its because interest money doesnt get destroyed like debt money,  so the interest debt is repaid by transferring existing debt or actual wealth (which doesnt get destroyed with the loan either). Its completely logical and nothing like the spooky ever growing cartoon debt monster thats keeping sublime up at night.

Of course it doesn't work like that in the real world. When was the last time you bought clay from a banker?
You said you didn't understand how interest debt could be paid off if the money is never created. I told you how with a silly example, its because interest money doesn't get destroyed like debt money,  so the interest debt is repaid by transferring existing debt or actual wealth (which doesn't get destroyed with the loan either). Its completely logical and nothing like the spooky ever growing cartoon debt monster that keeping sublime up at night.

[/quote]

At no where I say "didn't understand how interest debt could be paid off if the money is never created",

This is what I said: (see bold sentence)
Quote"
Do not understand why you say "interest money is not destroyed when a debt is repaid" that "balance the equation", it looks like exactly the problem, interest money is not created but need to be repaid, so it has to be from the principle from some other debt. (Unless banks spend the interest ahead of the interest repaid, and that is how I see could balance the equation and which itself is awkward, since you spend ahead of getting paid, so bank itself is taking debt, which comes back to creating more debt to satisfying old debt)
. End quote

And you example is exactly doing "banks spend the interest ahead of the interest repaid", and that process itself is creating debt - but you didn't count it as debt. You also creating debt when " banks buy on credit". So in your example, interest is paid by creating new debt, just you didn't charge the new interest in the new debt, and banks spend their interest. (That is why Federal Reserve and US Gov is shouting "spend!spend!spend!" )


The whole P+I>P discussion is because banks do not spend all their interest in non capital behavior but use interest as new principle to earn more to create more "wealth", and that is now sustainable for ever. Probably those online propaganda didn't clearly understand this or omit this statement.

The only thing that stopped the great depression was WW2 not the death of the gold standard and infinite growth as required by capitalism is mathematically impossible. The piper will have to be paid either by this generation or the next.