Bitcoin Forum

http://lewrockwell.com/orig12/robins-r1.1.1.html

The dollar or any other fiat currency is not based completely in debt neither. If they were they would have collapsed years ago.

The trick is that the central bank monetizes government debt which is roughtly equivalent to the government printing money.

Fiat money is, itself, debt.  The framers of the US Constitution referred to them as 'debt instruments' and banned their issuance in the Coinage Act.  They are obligations of the bank itself, backed up by the "Full Faith & Credit of the United States".  When you go work for a wage, the first thing that happens is that the employer is endebted to the employee.  The employer then pays the debt by transfering that obligation to the government, via the Federal Reserve bank.  They are not called "notes" without reason, just like a mortgage is a "note".

Yes, thats the bank side. I was pointing out that its not all that way (it would have collapse if it were).

Sadly they are all debt. The government does not loan from itself. It loans from the home market, the main participants of which are a cartel of banks with the lethal right to issue money from debt. There have already been calls to remove reserve requirements and allow the system to work legally as it does already practically. There are already countries where the reserve ratio is zero, I believe Australia is one.

As for collapsing, in the past 3 decades there have been 3 events so costly it has wiped out al profit from the banking industry for its entire history. Each time the government bailed it out at the expense of the people. You are 100% correct the system will collapse if it is all debt based. The model is very unstable.

Its not all debt.

Yes, there is the Primary Dealers system in the middle, but the Primary Dealers are government licensed institutions, so they know where their aliances are. The fact of the matter is that when the central banks buy government debt (and they do continuosly, but at alarming rate during this crisis) they are financing the government (even if they dont buy the debt directly to the governmetn, because by buying government debt they artificially increase the demand for government debt, thus decreasing its interest rates, allowing the government to issue more debt).

So no, wheteher the central bank can buy the government debt or through a Primary Dealers system, its not all debt.

The constant increases in the base money supply is simply to allow the constant growth of the fractional reserve banking system under current rules. It would collapse if it could not issue more debt continuously.

When the debt matures the government pays it back with interest, even if it was issued by the central bank. If the bank rolls it over, they simply extend the loan, but cause constant inflation. The banking industry permits this since the government is their collections agency. The government is however indebted to the banking industry and at its mercy, squandering the opportunities to break free.

So you are accepting my point. Not all money is debt in the present monetary system.

Btw, it is false that the government is the slave of the banking system in the present monetary system. Both bankers and politicians benefit from it. The bankers because it allows them to emit much more debt than they could in a free market and the politicians because they get to emit more government debt and allows the government to spend more than it could only through direct taxes. The ones being screewed are the rest of the citizens that pay all this through higher prices.

I do accept your point that it is not all our debt directly and some of it is allowed to be rolled over forever.

I live in South Africa and our previous reserve bank governor now works for Goldman Sachs. He and a whole bunch of others (one of whom is the current deputy governor of the reserve bank) were sent on free "economic training" by Goldman in the early 90s.

When Greece was about to default they turned their energies against everything except their debt. This is not the actions of a sovereign nation, this is the actions of an underling bowing to his betters. (No offence meant to Greece or Greeks, they are simply some of the first to be hit by the system's ultimate implications)

So with Goldman being able to issue South African currency (among many, many others) and buy up US debt and "sterilize" US currency, but the government of the US only being able to issue US debt and maybe US currency, who is at who's mercy?

I agree. I think the best thing that could happen to any nation is getting rid of the central bank.

Btw, the guy that will replace Trichet at the front of the European Central Bank is an italian that, surprise surprise!, is an ex-Goldman Sachs employee. ;) The funny part is that the germans wanted Axel Webber as head of the ECB. Webber is much more hawky than the itailian GS one. But Merkel, the german canciller, started talking with Webber about what they wanted from him, and he decided to quit from the ECB and returned to the Bundesbank. :D Merkel did not talk about the issue for weeks, and finally accepted the italian GS one, that is much more inflationary and will keep the european countries alive inside the system by printing money so they can keep returning the money to the banks instead of defaulting on it (although there might be some partial default because the debt is so big is just unpayable, the german banks are getting ready for this, with the help of the ECB of course...)

Fiat money does not have to be debt based, our current fiat money system however IS debt based because every dollar that exists came out of the federal reserve at interest.

If the government simply issued the money itself without the federal reserve middle man, they could just print it without having to pay interest on it. We basically rent our money supply from the fed. The government doesn't need to do this, it could just print the money instead of printing the damn bonds.

Bitcoin itself is a fiat currency (as it is backed by absolutely nothing except trust in the system), it is also not debt based. Two very important attributes.

The only thing bitcoin is missing in my opinion, is that the money supply should expand infinitely at around a fixed 2-3% rate a year as Milton Friedman suggested. Since banks will not be able to engage in such heavy fractional reserve banking with bitcoins (because it will be impossible to bailout a 10:1 ratio of loans), the interest rates for depositors in banks will be higher than the inflation rate, protecting the purchasing power.

Money printing is only bad when they start to exceed the amount of products and services in the economy, and the newly printed money chases after the existing products and services in the market, instead of going to create new things such as useful infrastructure.

Printing money to create infrastructure that will be useful (NO BRIDGES TO NOWHERE): Good.
Printing money to recipients that will just use it to buy goods and services with the newly created money: Bad.

Bitcoin is an excellent project, it's not perfect, but it's far better than what we currently have.

We should not project the limitations of actual government issued currencies on to Bitcoin. Remeber that if currencies become part of the free market, and many free currencies can coexist, other free currencies will come along to fill the need for growth. The real problem is the monopoly of currency that the governments try to enforce. With free market currencies like Bitcoin and others to come, this is not a problem.

This is only bad if you are stuck with only one type of currency in your country. If the market has plenty of options to choose from, the market will select the best currencies, and ditch the bad ones. Worthless pieces of paper issued by corrupt organizations would be ditched quite fast in fact.

As explained and discussed above, not all the money in the present system is debt based.


The governments does not pay interest on the money it gets from its central bank. Yes the government pays interest on the bonds the central bank buys, but the central bank returns the benefits it gets to the government (including the interest it charges to the banks), so for all practical matter the government is not paying it.


This is exaclty what its already happening in the present system.


Bitcoin is not a fiat currency. Fiat means imposed by force, usually by the government.

If you define fiat as a currency not backed by anything, then gold and silver are also fiat, since they are not backed by anything. This definition does not make sense.


Milton Friedman was very wrong regarding monetary policy (he was right about other things). There is no reason why there should be a 2-3% inflation rate (why not 1%?, why not 5%?). There is absolutely no reason in monetary theory why it should be this way.


Do you realize that money does not have a direct relationship with the amount of products and services in the economy because prices change? What you mean is that you want some price index to remain relatively constant. There is no reason why this should be this way.

Also, do you realize that "to create new things such as useful infrastructure" money has to "chase after the existing products and services in the market"?


This is a fallacy. You are presuposing that the government without a price system can decide what is good and bad investments. There is a reason why there is a market and government central planning does not work.

Again both things create new infrastructure and chasing existing goods and services go together.


You can go and try to create an alternative, but there is a reason why the system your propose has never emerge from the civil society and the examples in history are all imposed by the governments using force. And btw, they have all hyperinflated creating big poverty.

Aaah, fix the system thinking, I remember it fondly :D

Have you ever wondered about prices, what they are and how on earth we come up with them. Prices are subjective human beings' way of determining how much effort something is worth to them. If you have to pay $100 for an item slightly better than a similar $90 item then you will be free to decide if the additional features are worth the effort you personally have in generating $10.

Governments spend money from people who worked for it without having had to work for it. This one simple fact makes building a bridge to somewhere completely impossible to them. I've worked for government and I can tell you now, the problem is not corruption, it is thinking that more controls, better controls, controls from smarter people, and controls control controls will ultimately fix a fundamental underlying flaw; government does not respond to the price mechanism, if they are ineffective, they can still fund themselves tomorrow at gunpoint.

Ludwig von Mises predicted the collapse of the Soviet Union on exactly this basis. Since they don't know what people are willing to work for, what people want on an individual level (which is what the price mechanism does) then they are doomed to misspend funds to the point of collapse.

Another problem is, who has the right to purchase assets with money injected via money creation, even if exactly 0% inflation (non-flation ???) is possible? Our elected officials? Bankers? And if we allow this privilege for someone how do we know they won't simply start buying up all manner of assets for themselves?

A better solution would be to let the benefits accrue to the existing market participants through price deflation.

Um, no.  Every fiat currency is debt based by definition because the paper note is an abstraction of value, not the value itself.  The paper notes represent an obligation of a third party, in most cases, of the entity that issued it.  Even warehouse receipts for gold bullion are debt, because those receipts represent an obligation of a third party to perform an act, namely exchange a specific weight in gold upon demand with said receipt.  Although a gold standard is certain a more reliable form of debt, only the physical trading of the gold itself does not represent a transfer of a debt.  Bitcoin is very much like gold (and silver) in this respect, as it doesn't represent a promise of value (gold standard) nor any other form of third party obligation (futures trading, fiat currencies the world over, and just about any other contract based form of trade, explicit or implicit), as bitcoin is the object of value.  This is one of the attributes that makes Bitcoin so revolutionary.   Even the Liberty Dollar was a debt whenever the paper notes were used, as the gold was stored in a vault and if you showed up there with the paper notes, Liberty Reserve LLC would have been obligated (under implicit contract) to provide all the gold those notes represented.

Fiat means "by decree", debt based means backed by a debt instrument. It is a bit of a stretch to refer to a receipt for gold as "debt based" when the money is not secured against "debt as in a loan"

Nonsense.  Debt based means that the paper is an abstraction of some third party's obligation to perform, otherwise known as a "debt".

I absolutely support a free market of currencies, bitcoin doesn't have to be the only one. Perhaps another one can pop up using the same technology as bitcoin with different parameters some day.

The market will determine who's the winner in the long run.


Only the coins which are issued by the US Treasury are not debt based.



If that's the way it worked, then there would not be a national debt.

Why do you think they need to raise the debt ceiling in order to borrow more money from the fed?

The fed itself has said that if every debt was paid off that was owed to the fed, there would be no more money in our monetary system.


Perhaps you should do a little research on the term Fiat.

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


...


For purposes of simplification, we are relying on faith in the system.


I used to think the same, that Milton Friedman was wrong about monetary policy.

The trouble with no inflation is eventually over periods of several generations, the wealth will be consolidated among the few, inflation will make that harder, and with higher savings rate, it resolves the issue with loss of purchasing power.

Once the few have most of the currency they can use it to pretty much enslave the masses. They can make credit cheap, putting everyone in debt, and then make credit expensive, forcing everyone into default.

Boom and bust.

But in order to do that, you need to have control of enough currency.


Yes, but the new things that are created either will increase production, or money can chase after those new things. For example if the government prints $250,000 out of thin air, and uses the money to build a house, something now exists that didn't exist before (the house), and the money in the financial system can chase after the house itself.

In other words, the money isn't being used just to blow it on non-capital goods.

If the government prints $250,000 to build 10x $25,000 tractors, and then those tractors are used to increase farm production, you have more money in the system, but there are also more products.

No doubt about it, printing money is a dangerous tool that can be used to cause incredible damage to the economy, but there are correct instances where it can be used to benefit.

If they use it to build 10 tractors that just sit and rust, it's bad.
If they use it to build a house that just sits empty and falls apart, it's bad.

It's a tool. It can be used for good, and it can be used for bad.


This isn't central planning, nor is it the abolishment of the price system (which for some reason you think it is).


Because the quantity of the money was not controlled. It hyperinflates because the government goes out of control. A fixed-inflation bitcoin currency won't have the problem of a government going out of control with creation of currency units.

It does not matter what the money is, all that matters is who controls the quantity.


A fiat currency is any paper money system that the government issues.
A debt based currency is a form of money that is borrowed at interest, when it enters into the money supply.

Let's create a monetary system similiar to what exists today.

We're all stranded on an Island, you are the government, and I am the central bank.

The people want places to sleep in, so they all vote to spend $10,000 that will be used to pay people to build huts. You then create $10,000 of government bonds that pay 10% interest. I buy those bonds for $10,000 and now you spend that $10,000 into the local economy. The money is spent in all areas of the local economy, such as collecting food, wood, leaves, etc.

A medium of exchange has been established for the local population.

However, the government now owes me $11,000 in one year. How are you going to pay it without getting into even more debt? You can't.

And the sick thing of it all is, instead of printing $10,000 of bonds, you could have just printed $10,000 and told me to go screw myself.

By the way, all online video games with economies, have debt free fiat currencies. EVE-Online is a prime example. The game companies have no reason to manipulate the game currency like real life banksters do.

Please read again what I said.


Wikipedia? There is no intrinsic or absolute value. Value is subjective. According to that definition all money is fiat. It makes no sense.



Not this stupid fallacy again... Why do people believe this nonsense. Let me explain again:

This "theory" is based on the idea that wealthy people save their wealth in money, therefore if there is inflation they will see their savings eroded. The problem is that in the real world the weatlhy people dont save in money. They basically invest, even with diverse degree of leverage. Therefore inflation benefits them because their assets go up in price, while the wages of the workers go down in value (because they get actualized late). So basically inflation is what concentrates the wealth in a few hands and fucks the poor.

By the way, you can check this empirically as well. Since the 70's there has been more inflation and the gap between rich and poor has increased. During the 2008 deflationary crash the gap diminished. Its because the wealthy save in assets not in money!!!

So please, can we stop this nonsense? Who the fuck is promoting this lie? Its evil, it says that the workers benefit from what its hurting them. Whoever is promoting and teached you that idea is pure evil.


Yes there is a debt problem, but that is not how it happens. The excessive debt happens because the government regulates the banking system allowing the banks to overextend credit. The debt in the present system is not based on savings, its based on the government money monpolly and the banking cartel it creates.


Yes, and that happens because the government imposes a money monopolly.


Do you realize that all bubbles tend to happen in capital intensive sectors? How do you explain that?


I dont see how this is important. The government could tax and build the tractors. The real important issue is if the tractors are neeed or not. Financing them through direct taxes or through the inflation tax has some implications but at the end of the day the big issue is wheteher the tractors are needed or the resources are better spent somewhere else.

You seem to think that just because the money was printed the resources appear out of nowhere and it does not affect.


Can you point one example in history when money printing was not abused?


Again, history is not on your side.


It is. You are not letting the price system work. Certainly is not stalist communism, but it does affect the price system and distorts it. It is central planning.


Then go and try it please.

It does not matter what the money is, all that matter is that nobody controls the quantity.

As opposed to keeping their money outside of the monetary system and riding the natural interest rate of deflation over time. The one positive attribute about inflation is it that it keeps money in the economy, because if you take it out, you lose purchasing power over time.


I used to think the same exact thing.

http://www.youtube.com/watch?v=swkq2E8mswI


Tally sticks.

But just because money printing was abused, doesn't mean it was done by the government issuing it.

Colonial script was so effective that the bankers had to have England outlaw it (which resulted in a depression), they also passed the STAMP Act as well. This was one of the leading causes of the American Revolution that the bankers have erased from history.

And continental was massively counterfeited by the British, leading to the very popular term "Not worth a continental."

As long as they just issue enough to enable it to be used as a medium of exchange, it works just fine.

You only get into trouble when they expand the money supply too fast. A rate of inflation that is programmatically enforced and cannot be manipulated up or down by governments is immune from this problem.


The money would not be spent from the dictates of a single central planner, but by the votes of the REPRESENTATIVE government. Central planning is typically where a single entity dictates whats going to happen whether the people want it or not, and there is no recourse. A central planner cannot lose his job by the will of the people.

It is of no comparison to soviet style central planning.


If a group of people eventually control a majority of the bitcoins, and no new bitcoins are created, they will be able to manipulate the money supply. It may take a hundred years, but it will eventually happen.

Just like the gold standard was manipulated in history. Cheap credit, lots of debt, tighten credit, rinse and repeat.

Bitcoin can resolve the manipulation problem with the proper attributes. Over time the bankers will eventually get control of enough bitcoins to manipulate the currency.

Please show me a time in history where they have not gained control of the money supply.

LOL!  Even that was abused!  The king declared tally sticks ursury and had them outlawed after forcing all of the goldsmiths in London to accept them in trade for gold so that he could pay for his war with France.  And since they were now illegal, no one could come to the treasury and claim their gold deposits.  They were then burned so that there wouldn't ever be any chance that the goldsmiths might come back in the future and be able to make a credible claim.  This is actually were we get the phrase, "he got the short end of the stick" because the tally sticks were created by taking a common stick, etching on both ends, breaking it in half, and then the treasury kept the long end while the (mostly unwilling) goldsmith was left with the short end as a receipt.

Ok, you follow the nutjob. That movie is pure nonsense and the peole who follow him become ilogical. I have dealt with the few of you enough to know there will be no logical discussion. For example, you are admiting that your early point about inflation distributing the wealth was not true, but then keep defending inflation because supposedly it keeps money in the economy and that magically creates new resources. And you dont care that it hursts the people who earn a wage! Anyway, good luck.

Its funny how governments always use inflation to pay for wars and yet some keep defending it. It will be use for good, it will be used for good. They are sold a dream and loose the habitility of thinking critically.

Well the implications of the difference are enormous.

http://www.csper.org/renaissance-20.html

Ah, so someone you disagree with = nutjob.

That's pretty sad.

Please tell me, how do you solve the manipulation problem then, where the wealth is eventually concentrated among the few, they make credit cheap so that everyone is put into debt with them, they then make credit expensive (while everyone still has outstanding debt), and then forclose on everything that was created?

How do you pay for a $11,000 debt if only $10,000 exists in the monetary system? You'll be forced into default with the bankers.

Also, why do you think the bankers had to confiscate all of the gold in the 30's? Too much gold was in the hands of the average joe and they had to consolidate it. They didn't need to confiscate the gold for all of the new deal programs, they could have just abolished the gold standard then and printed the money to pay for those programs (which were a sham).

Once the foreigners figured out the scam in the 70's they finally ended the convertability. 'Temporarily' of course.  ::)


I'll stand corrected then and fall back to the colonial script example that the British had to outlaw.

But it seems pretty much every monetary system in history has been abused, either by the issuer or by governments wanting to destabalize other governments.

Don't think bitcoin will be an exception to this rule, this has been going on for thousands of years.


You can't fund a war on 3% inflation.

Where do you come up with this stuff!?  It's comic gold!


The US Constitution outlaws it as well.  The British outlawed it in the colonies because the colonial bankers were cutting into their game.  Now it's outlawed in the states so that state banks cannot cut into the federal game.  It's still a game, as in the "don't bet against the house or you will lose, but don't refuse to bet either or you'll die" sense.


Perhaps not.  There is that risk.  But the potential upside far outweighs the risks, IMHO.  One thing that is certain, do nothing and we will continue to get what we have been getting.


First, you can actually.  And second, you really believe that 3% is what you have actually been getting?

No, a nutjob is a nutjob. There is people I disagree with who are not nutjobs. Bill Still is a nutjob. I am still ashamed that I believed tThe Money Masters when I saw it. Im glad I decided to learn more about central banking and started reading history books about it so I could learn what really happened and the lies that are on his videos. Believe it or not I understand the feelign of enlightment you get after watching those videos. I went through the same. The problem is that its false, and if you read some history books you would realize.


I already asnwered to this. Its amazing the capacity of this videos of making people incapable of logical thinking. Let me quote myself:


The debt in the present system does NOT come from savings. Please take a moment to understand this. It comes from the banks enjoying the monopoly on credit that the government has granted them. Please read and try to use the logical part of your brain. Forget about the stupid dream the charlatan has sold you and use your rationallity.


Another fallacy promoted by the nutjob. You could pay a debt of $11.000 with only $10.000 in the money supply because money circulates. Lack of money is not why credit crunches happen. You are learning stupid ideas from the nutjob.


Well, you are making some sense here, but its not that simple. First, the gold was not confiscated by the bankers, Roosevelt did it. Second, he could not remove the gold standard because it would have created big distrust towards the dollar and heavy price inflation. Back then the gold standard was not a free market system, but a government regulated gold standard, usually called the gold-exchange, and the politicans and the finantial elites were beneifting from it so they wanted to keep it. But in reality as you say it was all a sham because they end up devaluating the dollar so they could keep printing.

I'm waiting for you to prove me wrong instead of just shouting "comic gold".


Because of the experience of hyperinflation of their paper currencies, which was caused by the British counterfeiting.


It's an absolute certainty, it will just take generations for it to happen. Don't think that the bankers will sit idle why they lose their power. Monetary policy is the single biggest cause of wars.


I agree. I dont think bitcoin will be the only game in town. The free market tends to foster lots of competition, and the people will choose their currency instead of it being forced upon them by government.

I think we can both agree that this is a good thing.


First, not efficiently, and especially if your enemy is using a larger amount of inflation (fabricating a boom) in order to beat you.
Second, of course not. They are lying about inflation by removing things from the consumer price index.

Programming code on the other hand, doesn't lie.

Finally, you don't have to get hostile with me, we're pretty much on the same side we just have minor differences in things that could be considered technicalities. I worry about a centralized entity getting control of enough bitcoins down the road to be able to manipulate the economy. I don't plan to make a bitcoin alternative, but I'm certain someone else will with different attributes.

The free market will decide it's fate, and we can both agree that this is a good thing.

By the way, what would have the outcome been during the civil war, if Lincoln didn't inflate the currency with the Greenbacks?

I guess you forgot that the politicians pretty much own Washington? Roosevelt confiscated the gold because the bankers told him too. Just like Woodrow Wilson created the Federal Reserve in the first place, because the bankers told him too.

It wasn't to benefit the people, that's for sure.


Fractional reserve banking can still exist with Bitcoins, the only difference is bailouts of 10:1 overextensions of credit would be impossible.

Fractional reserve banking IMO, should absolutely be outlawed and one of the primary things Bitcoins has going for it is that it puts it in check, you can still engage in it, but if you go too far and you fail, you'll be hung.

Again, we're all pretty much on the same side, we all hate the monopoly on the money supply, we all hate the federal reserve, we all seem to hate fractional reserve banking. We all love seem to love free markets.

I'm not calling you name, idiot, dumbass, clueless, etc, and I'd appreciate it if you (and the other guy) would not call me names. Attack the statements, not the person.

Thanks.

Please read a real history book.


Who knows? maybe the southern states would have get independent as its their right under the constitution of the USA. Maybe the slaves would have been freed like in Europe by paying the slave owners, which would have been cheaper than the war and would have avoided a lot of deaths.

Btw, why The Money Masters does not explain how Lincoln passed the National Banks Act at the end of the civil war which centrallized the credit around teh big banks of New York? Because it does not bode well with the nutjob wanting to promote Lincoln as an anti-banker and insinuating his death was because he opposed the bankers, when in reality Lincoln gave them control of the credit.

If you love the freemarket you can't hate fractional reserve banking.

It's same as hating motorcycles, because cars are safer.  :D

I like both fractional, and conservative banking, so long as the bank is open about it. Fractional reserve is nothing worse than an investment fund that leverages their captial by xx:1 which enables to give you higher interest on your deposit at increased risk of a bank collapse.

Sources would be welcome you know.


Sources please.

Also, do not confuse me with a Lincoln fan, I believe that the states absolutely have a right to secede from the union if the federal government violates the contract that they are bound to.


Fractional reserve banking is fraud. If you were to engage in it in any other commodity you could be sent to jail. It's one thing if a bank is open about it and people know the risks of depositing their money there, but as of right now it's done in secret. Everyone that has money in a demand deposit account thinks that the bank actually has that money with their name on it sitting in a vault somewhere, when they don't.

Fraud isn't part of the free market.

Ok, you are right. But I did not insult you. The thing is that I believed the nutjob because his movies are very well done and seem very real to someone not educated enough in economic and economic history. He sells you a dream and then become uncritical to him becose you get addicted to that dream. I felt so ashamed when I started reading economic history books that I just cant understand if the guy is very dishonest and has an agenda or he is really a complete nutjob. Its confusing people with stupid ideas and stopping real change.

I've been in the same position with the gold standard. I failed to see that the bankers have most of the gold locked up and could manipulate the new government forced gold standard at will, I'm not married to an ideology like most people are.

Knowledge is a process, it doesn't do anybody any good to just call other people stupid and then not really explain why, which is why I hate generic comments such as "Wow Comic genius! HHHAAAHA U ARE EH STOOPID"

When something becomes bloody obvious to me I'll correct my facts.

I'm interested in those history books you were mentioning.

Probably much the same.  Like most major wars, the Civil War was a conflict decided by economics, not tactics.  Inflation is, economicly speaking, just another tax as far as funding wars go.  It's just that it's a particularly regressive form of taxation.  The North won because they had the industrial base to support a war of attrition and enough unemployed young men to throw at it, not because they had a morally superior mission.

It isn't a fraud....

The bank finds an idiot to lend them 70 times their capital (in our crazy world thats the government because who else would be that stupid), the bank then invests that money and gains much better return on equity. Or as it happens every 10 years or so, the bank loses on that investment and goes down under.

The bank doesn't steal anything. The fractional reserve ratio is on their balance sheet which they post to public every quarter, something every depositor and shareholder can see.

The problem is, when a big enough bank fails the government intervenes, and decides to save a mismanged bank, you get the bill. < this is fraud.

Except that they don't go under.  Therein lies the fraud.  It's called, "moral hazard" because they know in advance that the government will save their asses if they get into trouble at the taxpayers' expense, and thus it is an immoral business to engage in.

The problem is that this is not true. The bankers adquired control of the money supply through government intervention. Some times the government intervention meant imposing some kind of gold standard (never a free market gold standard, and btw I dont support the gold standard). In the free market the bankers never managed to control the physical gold. They used all kind of regulations to control the money supply, sometimes under the name of godl standard.

The problem with the idea of "gold standard" is that it can refer to may systems who are completely different from each other, just because they have some kind of relation to gold. But, f.e. Bretton Woods, a "gold standard", is more similar to the present system, than to a gold based free banking system, that could be called a gold standard too. In reality, "gold standard" means nothing and everything because each person refers to a different thing by it.

I can agree with that pretty much 100%.


It embezzles it. Demand deposits are used as collateral for nearly ten times the amount in loans. $1,000 in deposits becomes collateral for $10,000.


Perhaps this would be a good video to make.

Go to every local bank, and ask to speak to the bank manager.

You just have one very simple question. Lie and saying you're doing it as some sort of college research thing.

Ask them on camera, to tell you what "Fractional Reserve Banking" is.

Nine times out of ten, the manager does not know what it is, and in some cases has never even heard the term before.

Therefore, to expect that the average joe will understand that banks do this when bank managers don't even know, is pretty laughable.

With bitcoins, fractional reserve banking probably doesn't even need to be outlawed though, since a bailout is pretty much absolutely impossible.

The money supply is too tight.

It seems i didn't get my point across.... The fraud is as i said in the government saving the bank, the bank simply utilizes the level of political corruption our system of government enables and we are stupid enough to support it (not all of us, not me, but the majority of the people think its a brilliant idea).

Let me explain how a fractional reserve bank would work in a freemarket then.

The bank finds an idiot to lend them 70 times their capital (likely that would be hard to get unless they'd pay extremely high interest), the bank then invests that money and gains much better return on equity. Or as it happens every 10 years or so, the bank loses on that investment and goes down under.
If the bank goes down under, depositors, bondholders and shareholders can take over the bank (voluntarily bail it out) or they can declare it bancrupt.

To emphasize my point here, so  i don't get misunderstood again. The fraud enabler is the government, the banks just like any other for profit business utilizes all regulations, law and lobbying (corruption) methods to maximize their profit and minimize their risk, the system we have today unfortunately encourages this.

1:10, they even operate at 1:70, the reserve ratio of Citigroup just before they collapsed was between 1:35 to 1:70. But the banks use different names for it, when you ask about fractional reserve what you really are asking for is leverage or gearing ratio, and that's why the bank may not know what you're talking about if you ask them about it with a non-financial language.


"As I wrote a few days ago, Citi’s true leverage ratio (after backing out goodwill and intangibles from capital and adding back off-balance sheet liabilities and commitments) is somewhere between 35:1 and 70:1. "
- Quote from here: http://blogs.reuters.com/rolfe-winkler/2008/11/20/citi-weighs-options/

And anyone with basic mathematical and some accounting understanding can read the current leverage (or fractional reserve) ratio on the bank they have deposits in today, now if average joe isn't able to do it he/she is logically a disabled person and should not have the right to vote in democratic elections (in elections for violence against other citizens).


Exactly! :)

Demanding a currency with 3% inflation while also advocating a complete free market in currency is contradictory.  Why would an individual choose to store their wealth in a depreciating (in value) asset when the opposite is readily available?  The market would choose BTC over any constantly inflating currency unless forced to do otherwise.  Then, Gresham's Law would drive BTC out of circulation wherever said force was applied.

Do you know what a free market is? A free market is a market where anyone can participate in it without the permission of the government. If you have a cryptocurrency that inflates that is put out there by a non-government entity, and then people decide to use that cryptocurrency all on their own, that's definitely free market.


The savings rates would exceed the inflation. Inflation is just one possible method to make it more difficult for the few to be able to put a stranglehold on the masses. Since if they remove their money from the monetary system (by not using it and not loaning it out), they lose money.

The inflation wouldn't be subject to government lies, manipulation, etc. It would be enforced by the program.

You want to prevent a situation where a currency becomes manipulated by the few, and then the people have to create a whole new currency from scratch, because if that happens it will threaten bitcoins.

I'm thinking extremely long term, over a hundred years, by the way.

Perhaps there are other ways to solve this problem too, I'm just thinking of one possible solution.

I should have used the word "moot" instead of "contradictory".  All other factors being the same, the market will naturally choose a currency that retains or increases in purchasing power over one that loses it, no matter how slight.  Your proposed 3% inflation currency would lose out to BTC.

And over the long term if enough deflationary currency is held by a few, and they are able to single handedly create booms and busts by simply loosening and tightening credit at predetermined intervals (functioning as a cartel), bitcoins could become vulnerable to a new medium of exchange taking over (thanks to a free market), due to the manipulation.

It's not a problem now, and it won't be for a long time, but it will eventually be a problem. The few will eventually control the currency one way or another and then manipulate it.

By the way, when they reduce the currency creation down to 25 bitcoins per block, the inflation of the bitcoin currency (for that year), will be at around 20% if my math is correct.

Your math is as bad as your economics.  When the block reward drops from 50 to 25, the inflation rate will drop from 12.5% APR to 6.25% APR and continue to decline from there.

How will "the few" amass all the BTC?  If they simply hold on to them, yes, they will appreciate in purchasing power but so will all other BTC, and "the few" won't be adding any more into their balances.  They will need to put their BTC out into circulation, through loans / investments, in order to attempt to increase their holdings.  The cartels you fear require violent intervention in the market, like government, in order to happen and sustain themselves.  Luckily, Bitcoin's decentralized, non-physical nature is highly resistant to such attempts.

Nice, more insults instead of pointing out the math. Did you see me say "If my math is correct", that means I'm admitting that I could have a mistake. If I have a mistake, you're better off pointing it out instead of being a smart ass about it.

So, please show me the math.


They don't need the government.

They just loan them out their bitcoins, possibly engaging in fractional reserve lending (but on a smaller scale and only to those who are extremely credit worthy), over time they will accumulate more and more coins, and this process repeats itself over very long periods of time. Eventually they'll have enough of them to basically control the money supplys inflation and deflation.

If they keep 40-50% of the bitcoins out of the market for a long time, there will be a price level set based on 40-50% of the bitcoins in the hands of someone that is not using the money other than it sitting in someones wallet.

When they flood the system with new loans, you will have a cycle of inflation as now there is more money in the system, the price index will rise, etc etc.
When they make credit expensive again, there will be a cycle of deflation.
Whoever can't pay off the loan will have all of the physical assets forclosed on (collateral for the loans), and the bankers can rent out the property to further accumulate more coins.

So for example pretend I have 10.5 million bitcoins out of the 21 million bitcoins, I keep my bitcoins in my wallet and I never, ever spend them or use them on anything. The price level in the economy remains exactly the same as if the bitcoin project only had 10.5 million bitcoins in the economy.

Now what happens if I loan out all 10.5 million bitcoins into the economy after the price level has stablized? Remember I'm not increasing the amount of products, only the amount of currency units.

The price level is going to rise to the new level.

And what happens when I don't renew any of the loans as they are paid back?

The price level will go back to the previous level, oh yeah, and as long as I'm careful of who I loan money too, I will have more coins than what I started with because of the interest I charged.

Now to do it all over again. If I want to create a boom, I just make credit cheap. If I want to make a bust, I just make credit expensive and not renew loans.

Over generations my entity would be able to control the majority of the money supply.

Show me a time in history, where the bankers did not gain control of a particular currency. If bitcoins gains real traction, you're kidding yourself if you don't think it's going to happen.

It will.

(7200 BTC per day * 7 days * 52 weeks) / (210000 * 50)
(2620800) / (10500000) = .2496 = 24.96%

I royally screwed that one up.  I apologize.  So dropping the block reward in half would drop the % APR to about 12.5%.  So was I off by a year?

(3600 BTC per day * 7 days * 52 weeks) / ((210000 * 50) + ( 52416 * 25))
(1310400) / (10500000 + 1310400)
(1310400) / (11810400) = 0.11095305832147937411095305832148 = 11.09%

Apparently not.

That's the number I got but it looks like I accidentally used the number 50 instead of 25 when doing the calculation. So my around 20% figure was for the wrong year as well.


I accept. Just please don't throw insults around, it will just create a hostile community and you don't want that. I don't mind being proven wrong, but I do mind being insulted.

Nobody knows everything and if I see you (or anyone else for the matter), say something blatantly wrong or stupid I'm just going to point out the flaws, I'm not going to call them a moron or an idiot or a nutjob.

Try teaching a class of students a subject and every time they make a mistake you call them an idiot. It's not gonna work out so well.

Remember, economics is not a class you can master in college, to think otherwise is the pretense of knowledge. (I stole this from a music video)


The only thing is the network is growing at a faster rate than the difficulty it appears, so the real creation is higher than whats on paper.

We'll focus on this since your argument seems to hinge heavily on this premise.  How are "they" going to set up a fractional reserve system for Bitcoin?  It was easy to do for gold since gold certificates were so much easier to carry around than the commodity itself.  That's not the case with a digital currency.  So, how do you think the market will value bank certificates promising Bitcoin?  If you guessed a lot lower than the actual Bitcoin it promises, if at all, then you're on the right track.

OK, now that we've dealt with BTC FRB, that means these evil bankers will need to loan out authentic BTC, which means it will be in circulation, which means they aren't being hoarded.  Also, it means that interest rates are reflecting the market's actual time preference and economic growth is based on actual savings.  All these are good for the economy.  Bubbles will still happen but on a much smaller and shorter scale than they do now.  Manipulation like you speak of could only happen on relatively short time periods as the market would quickly adjust.

Staking your argument on the prediction that "somehow" governments will get control of BTC due to historical precedent is a logical fallacy.  Go back a few hundred years and one could have argued that chattel slavery would always exist because it always had in the past.  Go back even further and one could have argued that separation of labor would never work because it never had in the past.  Things are the way they are until the paradigm shifts.  Bitcoin, or something similar, could very well be one of those shifts.

The same way they do it today, you deposit bitcoins into their bank instead of having them in your wallet. You have bitcoins sent to your bank account instead of your personal wallet (it would eventually happen anyway), the bank becomes responsible if they get hacked or lose the money (just like it is today), so it would be served to the masses as a solution for having bitcoins stolen from personal computers. The masses will most likely do this.

If a thief steals $250,000 in cash from you, you're hosed.
If a bank gets robbed and a thief steals your $250,000, just 5 minutes after you deposited it at the bank, the bank is hosed.

As more and more people make deposits, they'll have a base reserve that they can use to make loans against. When they make a loan they don't just send you the full amount to your bitcoin wallet, but keep it in their deposit accounts so that you only use what you actually need at a particular time.

Just like in the real world when people borrow $50,000, they don't withdraw it all as cash and go walking down the street with it in a big money bag. That would be foolish.

The reserves would have to be much higher than today because, a bailout is not possible of 10:1 lending, but they can still engage in the practice nonetheless and if they are careful of who they extend credit to and charge the correct interest rates, it'll work just fine and be profitable.


This is only during a period when they make credit cheap, once they make credit expensive and stop renewing loans, the money exits circulation and the price level will eventually adjust downward.

For example, lets say during a economic boom, they fully extend their 10.5 million coins into the economy, the price level doubles as a result, someone buys a house and now has a mortgage at the new price level.

After a few years they as the loans are paid off they don't make new loans, the money supply starts to shrink as a result of the coins exiting circulation and over the period. The price level slowly starts to drop and it will eventually be a lower price level than it was previously (because the 10.5 million coins + whatever they collected interest - defaults), say their total profits was 1 million bitcoins, so they now have 11.5 million bitcoins, bringing the remaining bitcoins to 9.5 million available.

The actual price level then reflects the same as if there are 9.5 million bitcoins, but there will still be a significant amount of loans that reflect the price level at 21 million bitcoins.

Loans remain for the original amounts even though the price level drops, this basically increases the principle of those loans, on top of any interest charged.


Currency is a whole different ballgame, mankind has been enslaved by monetary systems since the beginning of civiliation. The government doesn't need to get control of bitcoin, just the private banksters.

The government isn't in control of the US Dollar right now anyway, the privately owned Federal Reserve is.