Bitcoin Forum

In the years to come, if banks jump on the Bitcoin bandwagon and start offering Bitcoin deposit accounts, Bitcoin will become affected by Fractional Reserve Banking.

While I'm not entirely against FRB I am worried that, as a community and a society, we repeat the sames mistakes from ages past. In this case, believing that the coins deposited in our accounts are actually Bitcoins.

Both cash and gold require the existence of Banks in order to be transferred from one place of the world to another. This is the reason why, until now, almost everybody has and uses a bank account. With Bitcoin, though, being able to completely avoid this problem I don't need a bank account in order to receive money from China and I might not want to accept a Bank's debt.

It is important that the common man, or at least Bitcoin users, be aware that the dollars, euros or bitcoins they have in a bank account are not real dollars, euros or bitcoins, but just a promise of your bank to pay you back that amount when you need it. (While it uses the real currency for something else).

Why is this important?
Let's say the bank owes you $100 (ie. you have $100 in your account) and transfer that money to your friend's Bank account. You're not really transferring money but your debt. Instead of owing you one hundred dollars, the bank now owes your friend that amount.

As you might know, this increases the money supply allowing banks to create money out of thin air. This is only possible because virtually everybody accepts this debt thinking of it as actual dollars (or euros or bitcoins). In reality, as you can see, we are dealing with two completely different currencies: Actual bitcoins (M0) and a promise (M1).

With Bitcoin though, it is completely unnecessary that I accept such a promise in order to receive money from china. It is completely unnecesary that I even own a bank account. I can, at my own discretion, refuse to accept these promises and ask only for real Bitcoins. Even if I accepted this type of money with Bitcoin it would be feasible that I inmediately withdraw all my funds to a cold storage wallet leaving my account empty at almost all times.

For this reason, since we can easily avoid bitcoins created by fractional reserve banking, it might be necessary to call them something different. Call them Bank-bonds, Debtcoin or whatever but now we have the chance, as a community, to make a distiction between the two and start using different terms which, in the end, will increase public awareness.

This issue has been brought up before, nobody seems to understand or care very much for some reason. It's a hard problem maybe is why.
https://bitcointalk.org/index.php?topic=193837.0
https://bitcointalk.org/index.php?topic=200175.0

Fractional reserve banking means that you get more interest on your savings.  Its a good thing - not sure why you would want to go back to the Medieval period when it wasn't available.

Imagine, 20 million BTC are held in a bank offering 1% interest. They stay sitting for 6 years with compound interest, see the issue?

The reason interest had to exist in the first place, was to incentivize actually putting money into the banks, now the only reason to do it would be security. Additionally, if inflation didn't exist, I think people could learn to be happy with a 0% ROI in banks. With Bitcoin, it may even be reasonable for banks to charge anti-interest to accommodate the deflation that will arise. So long as the interest matches inflation, the system is fair, and you never lose purchasing power parity from your savings.

Got to disagree there.

Interest is the key driver or mechanism which gets money from the hands of savers who have spare money into the hands of producers who need it for expansion or more efficient production. Producers benefit society and living standards. This is the essence of capitalism.

Today the whole system has gone horribly wrong because borrowed money is being used for consumption (cars, holidays, houses), and reckless lenders (banks) are constantly bailed out by central banks. It is bankruptcy which is the cleansing process in capitalism releasing money from the banks back into society. Interest can work in an economy with an inflexible monetary base (Bitcoin).  In the example of a bank with 20 mil BTC offering 6%, it would soon go bankrupt, releasing BTC to the system and restoring normal conditions.

Central banks create moral hazard by manipulating interest rates, encouraging reckless lending (for consumption), excessive credit money, enabling excessive government funded by excessive debt, diverting funds from producers, stealth taxing savers, and thereby creating a system where eternal inflation is an essential feature.

With fractional reserve banking, the 21 million Bitcoin in existence would equate to 200 million or so Bitcoin certificates in circulation.  All banking is based on the assumption that if all depositors try to reclaim their deposits on the same day, the system collapses.  Bitcoin banking will be no different.

Fractional reserve lending means a lot of things. If the reserve type is bailout proof and idiot proof, then it can be a sustainable, useful thing. If the reserve type is something like "monetized government debt", then that's a joke. The system will devour itself like it is now. Gold obviously wasn't bailout proof. We fell off the gold standard by bailing out banks. I'm not sure crypto can be bailout proof, but maybe it can be by way of it's cryptographic nature.

Even if it is bailout proof, it probably can never be idiot proof. If you don't bail out an entity that is suffering a run on reserves due to stupidity or irresponsibility or whatever, they go broke, but yet it is still the note holders who suffer the most.

The links in my earlier post were calling for ideas on how to implement a decentralized note issuing mechanism, maybe with FRB if it can be bailout proof and idiot proof, but i can't see that's possible, but maybe it is, with the decentralized use of math to enforce various ratios.

I see what you are saying but I don't see why it matters.  Idiots are perfectly qualified to do business in the idiotic ways they have always done so.  You will be perfectly free to not do business with them.  In a free market, if the currency is Bitcoin, there will be fractional reserve banking.  You of course will be able to keep your Bitcoin in a usb stick under your mattress but the vast majority of people will use banks that pay interest.

Now, there is a contradiction in terms!!!  ::)

The idiots I'm talking about is the FR lenders themselves. If a community surrounding them are all using their notes, and the FR bank idiotically creates way too many notes and suffers a run and goes broke, all the note holders get screwed. You aren't "free to not do business with them" because the only way to achieve that is to never do any business with any of them ever, ie never use notes.

Note holders aren't ever "free" from this risk, even when they are perfectly free to choose whose notes they use. I agree that FR bankers will always be "free" to be idiots and go broke with note holders getting shafted.

However what about using cryptography and decentralized networks to somehow make a FR system bailout proof and idiot proof in order protect note users from this risk?

Again, assuming that everyone who uses the notes does so voluntarily, what's the problem?

Higher usury-interest coupled with reserve (once gold-receipt) counterfeiting are actually the number one causes of inflation (devaluation or demeaning) of the Medium of Work-Resource Exchange "currency" (money). By this I mean undue profiteering (excess inflation) in excess of the goodly need of an economy and it's "currency" to "grow properly" (inflate properly and naturally in a well-regulated manner) based upon the ever-increasing (enlarging)  exportable value growths of the increasing values of all of the fruits of all it's also-growing workers (EP Export-Product) labours.

The reason the crime of interest usury originated was so that fraudulent gold-smiths could lend out counterfeited gold-reserve receipts, (first coin-tokens then paper receipt-notes) to people who had no gold deposited with them. They knew people didn't want the bother of the damned stuff and would never come back to claim any unless they were moving away, so figured why not rent out phoney ones as well as good ones? Their unfairly criminal (and costless) competition in the lending business inflated rates of usury, since real lenders could not accept risks reserve-counterfeithers could, and consolidating counterfeiters ended up repossessing everything..

The security of the Bitchain system makes this fraud impossible with a Bitcoin Funded Credit Swap OTC derivative-coin. Smiths cannot duplicate Bitcoin OTC derivatives to lend them out in a "reserve loan-counterfeiting" fashion. (unless idiot morons are allowed to mint or ever stupidly agree to accept physical Bitcoins that cannot be "confirmed") The Tory "Federal Reserve Printing Company" or "WB-IMF" Trotskyite reserve-counterfeithers could, however, "intervene" (price-fix or crash) the Bitcoin "penny stock" market, but if we always out-maneuver them to price the BTC at a mid-point between USD and Euro they would always lose and we all should always profit.

The fact that BTC are traded on hundreds of discreet markets also foils them, although dangerous preeminence of the vulnerable Mt Gox monopoly is a serious global-threat to our currencies safety.

In 48 BC the Pontifex Maximus, Julius Caesar outlawed private coin-smithing/usury and minted the first publicly owned for public profit public coin-currency, which could only be rented from the Republic. With it's profits domestic taxation became obsolete, and he was able to complete vast expensive public projects. As with Lincoln and JFK, this was why he was assassinated.

I guess there isn't a problem if we don't mind going through the entire local-bank-panic-so-merge-with-another-bank-over-and-over-again-until-it-becomes-a-behemoth-cartel-composed-of-very-few-members-that-hijacks-the-government-and-turns-everybody-into-debt-slaves cycle all over again

Lots of people borrow to their credit limit and rely on the repo man to provide them with motivation.  You could even argue that some countries like to borrow right up to their credit limits and then only start to work.  That's the way capitalism works - no amount of math will change that.  I appreciate that you'd like people not to behave that way but its the way things are.

Think about why they do that. Does the base inflationary system encourage savings, or borrowing? Would a base deflationary system encourage savings, or borrowing?

Step back from ideology a second. 

Is going to work fun compared to lying in bed watching TV?  For the vast majority, no. 

What's the rational thing to do? Lie in bed and idle as long as possible. 

What's to stop you idling forever?  Your credit limit. 

No social system will change the fact that most jobs suck.  Therefore, no social system will change the need for credit.

A so-called base-inflationary publicly owned and operated monetary token system is an absolute and critical necessity to all and any economic growth. It also provides the new excess liquidity (in accompaniment to exportable workforce productivity) necessary to loan it to new enterprises or to finance public projects without taxation. Then private lenders may also participate through their invested savings as well.

A privately owned for private profit inflationary, private monetary token debt-enslavement system requires regressive boardroom-socialist public taxation to pay off the enslaving lenders, and enslaves all new entrepreneurs and the state as well, to the fiat dictates of the secret insider trading monopolist boardroom-socialist (FED) high-preisthood tyrants who own, operate and monopolize all. Other private lenders cannot participate in lending because their costs of lending cannot compete with the monopoly counterfeiters.

A deflationary currency (like limited gold, platinum, palladium or antiques, fine arts or other rarity "Medium of Savings") when stupidly abused as a Medium of work-Resource Exchange "currency" that constantly becomes ever-rarer and ever-more valuable with any and all growth is a totalitarian Austrian fascist recipe for and sentence to eternal abject bonded debt enslavement to elite "winning" monopolist gold-pharaohs, ad infinatum.

So much fallacy...

I'm risking being chastised by myrkul because im going to dis on a free market, but i don't know how else to explain this.

I'm not talking about joe shmoe borrowing past their credit limit or even a government borrowing past its credit limit, although this debt slavery is fairly inevitible with free market FRB run amock through its full cycle.

I'm saying if you have a free market providing FRB services, which produces usable money in the form of notes and accounting entries on reserves, the vendors in this market who happen to be idiots or unlucky or victims will issue too many notes and suffer panics on reserves and therefore become absorbed or merged or bought by another FRB.

This process happens over and over and over and over until there are only a very few big players with all the reserves all pooled up in just a few places. They then cartelize. When a cartel in something as important as creating the money supply gets big enough, it starts influencing the government.

We've run the whole gamut with this already from Andrew Jackson days to 1913 when the cartel was made the official true monopoly in the form of the FED, continuing until now, where the government is pretty much a total tool of this cartel.

It happened in Europe in pretty much every country. It happened in the US. You can't deny it. It cannot not happen again if we start all over again with the same system.

If we can think of a way to distribute the proceeds and risks of FRB equitably, instead of letting it be private profit and dog eat dog for would be oligarchs and plutocrats, maybe it would turn out differently.

I agree.  But I believe that its worth trying to regulate businesses in order to control the social costs of stupid failures.  Its why I am a statist.  Private enterprise is an engine of wealth and as such we all love it.  But wealth is not the only goal of society.  Things like fairness and justice matter as well.

One question:

What would motivate a large bank to buy the debt of a smaller one? They might buy up the assets (brick and mortar buildings, etc), and certainly that might be used to pay back the remaining outstanding debts, but the out of business bank will not be "merged," it will sell off whatever it can, and then fade into history.

And let's assume that that's exactly what happens: All the other banks suffer runs because they were stupid, and their assets are picked up by one big bank - or a cartel - that does a lot of business. Without the government to influence, what harm can they do?

The customer base. The surviving bank will acquire all the failed bank's customers. The customers aren't going anywhere. They're still going to need somewhere to put their gold, btc, grain, whatever the reserves are.



But in reality right now, there is a government.

But let's just say there isn't one.

Currently the government is this: It is a giant bedsheet with obama's mug painted on it covering a bunch of rhinoseruses that are a little too close to joe shmoe. The harm that these animals can do without a government is about the same as it is now, but without the bedsheet draped over them.

So, the successful banks should not be rewarded for their wise policies in not putting out too many notes?

Yes, but you postulated a free market system. ;)

Tell me, how exactly would a huge bank harm the public?

But if you could magically create a situation with no government like through armageddon or something, then a new "government" would arise and it would entity forcing a the security equilibrium achieved after at least a little bit of "squabbling".

The ones simply with the ability to put a stop to the squabbling is the "government". They would basically have a monopoly on the use of force. You would not have anything less than this, due to nature of human/animal hierarchical social structures.

This "government" entity is the kernel of the thing that would ultimately get hijacked by a money monopoly, unless it itself is a money monopoly, if there even is a money monopoly

I don't think so, if it ultimately means oppressing everybody.


The same way it does now

You do understand that the concept of a monopoly on force is only as old as Machiavelli?

Market law and rights protection would do a hell of a lot better job than a monopoly.

By influencing the government? What government?

Sorry, see my post #25 for my reply to these questions. I would say it is older than Machiavelli. Also i want to point out that there are other markets with their potential monopolies other than money creation that are powerful enough to influence "government", them being energy, food supply, water supply. They are the other rhinosceroses (sp?). You might could say government is a collection of all these including armed force. It can't ever be totally free due to animal social structure. I'm not a sociologist or a biologist, just my opinion.

You could say that, but you would be wrong.

https://mises.org/document/1092/Myth-of-National-Defense-The-Essays-on-the-Theory-and-History-of-Security-Production

But not de facto wrong. Groups had effective monopolies on force before machiavelli, he just merely observed the phenomenon and explained it, he didn't invent monopolies on force, is all i'm saying. I haven't read the link yet.

And just in case you won't believe Hoppe, here's a mainstream historian:

The Modern State, Routledge, second edition 2004, page 27 (http://psi424.cankaya.edu.tr/uploads/files/Pierson,%20The%20Modern%20State,%202nd%20ed.PDF)

Man, I want to believe him, hopefully he is correct.

However, if state is defined as simply the people who can successfully keep internal fighting and feuding down at an acceptable level, i could go for that. "State" concurrently being a synonym for "equilibrium" isn't a coincidence.

Now, can you imagine a "Market State?" One where the service of keeping internal fighting to a minimum is provided by competing businesses, instead of a violent monopoly?

Meh, i want to. I'm totally down with that action, but the word croneyism keeps popping up in my mind, or "cloak and dagger", or the mutual scratchings of backs. And "eliminating the competition", and "human nature".

We could do orders of magnitude better than now though, im not trying to pee on everything. Tools would help, like the decentralized crypto reserve note issuing tool i keep harping on about...

I can also imagine a Christian utopia (random pick, not starting a religious debate), the problem's the same as with your "Market State" -- one never existed, too many snags...  And as far as payoff goes, you know which one i'd choose. :D

Interestingly, human nature actually works in our favor, with the market. Ask Adam Smith and John Nash.

That's where you're wrong. The market has provided security before. Ireland. Iceland.

I'm not sure i see your point.  Are you saying Ireland and Iceland are currently what you would call a "Market State"?

No, I am not. You said that they had never existed, and I countered with two historical examples, which, for the record, both lasted longer than the current US slide into oblivion. (Iceland ~330 years, Ireland ~1000)

I'm still not sure what you're saying.  Could you tell me when?
Edit:  Perhaps i'm assuming too much & you are using "Market State" as a specific econo-political term & not in the general sense?  As used by Phillip Bobbitt??  Just point me in the right direction.

Google. It's your friend.
http://en.wikipedia.org/wiki/Icelandic_commonwealth
https://www.youtube.com/watch?feature=player_embedded&v=ZZi45Mf6jYY

Oh, and by the way:
http://en.wikipedia.org/wiki/Xeer

Doing just what you've suggested.  Give me a few mins (or more)

Though Google's pretty good as webfriends go, i'm still in the dark (skimmed through both wiki pages, haven't watched the video, though ... don't want to watch vids right now, perhaps an alternate source?)
Maybe i'm not looking for the right thing?  As i mentioned in an edit above, are you using "market state" in a highly specialized sense, as in technical jargon i'm not familiar with?  Please understand that i'm not being *intentionally* dense -- seriously don't get what you're saying.
EDIT:  Even tried the video link -- it's broken :(

I explained the term right after I used it:


As to Ireland, that video was the best reference I had. Let me see if I can find one.

Re-reading right now (had to run out & deal with some IRL things -- back now)
Quick note for now, regarding the bolded text ("The position was most commonly inherited, but it could also be bought or sold") -- You're not suggesting this unique to Icelandic Commonwealth, are you?

Here we go, this will do:
https://en.wikipedia.org/wiki/Early_Irish_law



Notice any similarities?
https://en.wikipedia.org/wiki/Anarcho-capitalism

Not at all, for it's quite similar to how ownership of a company is transferred now.

Oh, and to bring this vaguely back on-topic:

I think i'm getting the gist of what you're saying, in which case i think we're pretty much in agreement.  I assumed you meant something far more extreme, as in "a state bound purely through the workings of the free market system," but i see now that's not the case.  Many similar "market states," as you define them, have existed.  I assumed you were speaking of more recent examples, frankly -- let's say post-industrial revolution.  I'm not sure if i could see a similar "market states" succeeding today, though, for any appreciable length of time, before failing through some internal, or (much more likely) external causes.  
But that's a different argument.  Fun reads BTW, thanks.  Not a History buff, but fun reads nonetheless.

I was giving it a strict reading, something like "historically, fiefdoms could be inherited, won or bought."  Did you intend to model social constructs on business models or vice versa?
Yes, it would be silly to disagree -- the further back in history we go, the more of exactly what you've just described we see, both elegant & hideous examples.  Anarcho-capitalism could mean so many things -- from free-market utopia to the ugliest examples of predatory laissez-faire capitalism. :)

"predatory laissez-faire capitalism?"

One of those words doesn't belong. Pick any one. But the three of them together, it makes no sense.

"Work for me, or your children starve."

"Fuck you, He'll pay me more."
or
"Fuck you, I'll start my own business."
or
"Fuck you, I'll grow a garden."

FRB will not work on bitcoin. Due to the limited supply, the value of bitcoin will continuously rise, no one dare to borrow bitcoin to do business, most of businesses can not generate a return which is higher than the price appreciation of bitcoin. If they really want to borrow, they will borrow inflative fiat money at first place

Just look at those guys who provided bitcoin lending business before in the marketplace board, see how that ended up

You are joking.  You honestly can't imagine a scenario where there is no one to "pay you more," or for that matter, pay you at all?
You feel you can start your own business from nothing, from dirt?
You'll grow a garden on whose land, exactly?

Please, for the sake of appearances, pretend that you're not speaking to an idiot.  What you've just written couldn't possibly fly in your neck of the woods ... or does it?

Again, if i sound incredulous, it's not affected.  I honestly doubt you expected me to fall for such a farcical ruse, so what are you plannin' here?  

Edit:  Have you ever grown a garden?  I know, i love fresh cukes & onion chives too, and there's more 'maters than you can shake a stick at when they get ripe in the fall.  Very sweat-of-ye-brow-sy.  Now, ever tried to feed yourself on that alone?  Are you frickin' kidding me?!

Really?  You should check out COD (coin of the day) on the alt forum.  COD's supply is limited too, and it's cheaper than BTC.  You should invest -- the only way's up!!

You did say capitalism, yes? Specifically, laissez-faire capitalism. In such a system, there is always demand for labor, both skilled and unskilled.
Lots of people have. Especially in the US, where laissez-faire was the rule.
My own, of course. You did say this was laissez-faire capitalism, did you not? That means I can own land.
I'll try. You're not making it easy.

I'm sorry, the only reply which comes to mind is "WUT?" Point me to a commonly accepted definition of laissez-faire capitalism including the condition of [constant] demand for [all forms of] labor, 'till then -- you're ... fabricating as you go along??  Can't we get above that?
Lots of people worshipped God while amassing millions in Soviet Union, would you say that the Soviet brand of Communism is the ideal system for nurturing religious freedom & individual prosperity?

Of course you *can*, but it just so happens that you *don't*.  My scenario, I said so.  Now what?


Thus far i've refrained from what the D&D set would call ad baculum arguments, taking pains to be self-abasing if there was any question of my attacking you.  
If you can't stay civil in this debate, fuck you.  Bon?
Edit:  Formatting.  Gotta learn to bracket.

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

I'm sorry, but what the hell does that have to do with anything?

I live somewhere don't I? If nothing else, there's always the window garden. And the roof of my apartment building.

Bon. I'm quite civil, so long as you are.

The term laissez-faire is used a total of three times in the "gilded Age" wiki article.  Nowhere in the article is [constant] demand for [all forms of] labor stated or implied.  
Here's a slightly more fitting wiki page, curiously titled Laissez-faire: http://en.wikipedia.org/wiki/Laissez-faire
Learn to wiki.

 

About as much as your absurd anecdotes about self-made men in laissez-faire US, that of the golden age.  

Yes you do live somewhere.  You're a gutter bum.  No window garden for you.  My scenario.  I said so.  Now what, gutter garden?  Maybe start a joy-through-work commune behind the dumpster?


Allrighty.  Was doing this a point at a time, i type slow.  A fresh start?

Edit:  If code editors didn't match brackets... FORMATTING!!!

Tsk... I thought we were being civil? And wouldn't you say a real, historical example would make a more compelling case than a dry definition?

Growing economy means demand for labor. ;)

Again with the incivility... You asked if I thought I could start from scratch, and people have. Past examples indicate future potential.

I begin to sense some hostility. Well, I can play this game, too. If I live in the gutter, then my wife clearly has left me, taking our children with her, to live with her mother. So, no children to worry about.

To Tacticat's original point:


Our thinking has been muddled by considering dollar denominated bank accounts including checking (M1) and even savings (usually M2) as really being dollars, equivalent to currency physically in circulation (M0).  The classical scenario of money creation is this: (the first four points work for both USD and BTC)

  1 - Three people in the economy: you, me and an FRB bank
  2 - I deposit 20 MBTC in the bank
  3 - The bank loans you 16 MBTC, retaining a 20% reserve
  4 - Now I own 20MBTC and you own 16 and there are 36MBTC out there now
  5 - But wait!  The 21 MBTC limit has been breached!

Obviously some of that 36B ain't bitcoins, it is certainly not part of M0.  But in the US we call them all dollars, and we relate the full 36M to inflation forecasting because all 36M of them are available to bid up the prices of goods & services.

But how would we be able, in a bitcoin setting, to tell the difference?  It would only be possible if what you get in step 3 up there is not really bitcoins, and that's where the Debtcoins [or whatever] come in.  Thus an FRB bank could NEVER lend bitcoins to anyone.

There would have to be a facility for sending, receiving, storing Debtcoins in Debtcoin wallets.  And if they're not fully worth a bitcoin, why would anybody take out a loan like that?

Are BTC and FRB incompatible?

Well, It would be very difficult to do fractional reserve banking without some intermediary device, like a deposit slip, or a "debtcoin". Let's say, instead of incompatible, that fractional reserve banking is always visible in a bitcoin economy.

Not only the banking, but also the results of that banking, the Debtcoins themselves. They would need to be clearly visible as a different thing, and I have to think they would be perceived as somewhat less valuable than the BTCs.  That's an assumption though, our derivative dollars are all mixed in with the "real" ones (using the term loosely) and they all seem to be worth the same because we can't tell the difference.

Well, the individual value of a "debtcoin" would vary depending on who issued it, and the trust that recipients had in that issuing body to honor that debt. If it's widely felt that likely only half of the debtcoins would be honored, then that debtcoin would probably be valued at half a bitcoin. (prices expressed in debtcoin would be roughly twice that of those in bitcoin)

I think for these reasons it would be very difficult to set up a Fractional Reserve Bank dealing with Bitcoin deposits.

Are there any bankers reading this?

 

I see you respond point-by-point also, otherwise you would have read my answer below.  Have you read it?  Alrighty then.  Let's not bicker.
Though let's try to stick to responding on topic.  So here we go, back on track, all concise, to the point & offish, like this never happened.  So here we go:

Perhaps.  Though i'm not sure how that counters my point.  Again:  Show me a commonly accepted definition of laissez-faire capitalism including the condition of [constant] demand for [all forms of] labor.  Otherwise, stop positing bull.


Stop cherry-picking your conditions of "growing economy" and the rest of this dreck.  I'm not talking about your tracting of America's Gilded Age -- you can't imagine the situation i've outlined for you, and i'm willing to help you.  So your labor is not in demand.  Sorry.  Shop owners laugh when they see you.  They bring out their slops and make you beg for them.  How's it working out for you?  Are we colonizing Mars soon?


And i agree.  There will certainly be self-made millionaires in your world.  They won't be as common as 3-headed freaks, but they'll exist.  Though one is certainly a fool if one bucks the odds and banks on becoming one.  Are you banking on it? ??? :D


Wait, how many times can you begin to sense hostility?  I'm beginning to sense retention difficulties...  Anyhow, to answer your question:  
No.  Your wife died.  Rather not say how, but you're ok -- still got those darlin' mouths to feed.
Now what?  How's Atlas doin' ??? :D

Then why does the person in this post want me to work for him?

Chin up!  You're not totally worthless!  You're no worse than the shmuck next to you, the one *competing for the job i'll offer one of you*.  See, there's still work to be done, but i'm going to let free enterprise decide which one of you does it, and which one starves. You workin' or walkin?

Edit:  I know you're a good guy in real life, you know what gave that away?  You said that you'd "grow a garden" instead of having to work for shit wages.  That just floored me.  You obviously have no first-hand knowledge about gardens, work, or fear.  Not even the faintest inkling that unbridled greed & power is not certain to bring about a world of Joy & Plenty for all.  You'll be ok.

Walking, because you're not the only person hiring. Bye!

Pleasant dreams, ease off on that pipe. :D
PS:  That guy you think is going to hire you?  Just phoned him.  He tells me there's a schmuck just like you who told him "you're not the only one hiring" and is draggin' his sorry ass over my way.  I told him about you.  We're both frickin' LULZING!!! :D :D :D :D :D

I think I know what the problem is. You're basing your assumptions on our current, shitty economy, aren't ya?

I'm basing my assumptions on worst-case degenerative scenario, 'coz if history has taught us anything, it's to expect exactly that.

edit:  Good night.  Falling asleep.

You mean this history?
http://en.wikipedia.org/wiki/Gilded_Age

I would like to hear an explanation for how interest can work in conjunction with an inflexible money supply. Given enough time, any percentage greater than zero being offered as interest would lead to more money being promised than is able to exist. If this happens, it may not mean the whole thing collapses right then and there, but it would mean that at some point in the future, somebody would be getting screwed.

As far as the part in italics goes, I just want to know how you envision this happening.

Will mine do?

Put simply, Moneylenders do not just hoard all the money that they get back. Yes, it's entirely possible for someone to borrow BTC20MM and end up owing BTC36MM. This does not mean that they will be unable to pay it, necessarily, just that there will have to be at least BTC15MM that goes through his hands (and back to the moneylender) twice. While he's paying his tremendous debt, the economy is chugging right along, and he's providing value to that economy in order to get the BTC that he owes.

It actually did, good job.

Sounds like a pyramid scheme to me. The rich (big lenders) get richer, and the poor get poorer by borrowing and paying interest on top of it. Eventually this will shift most of the BTC in the hands of a few, just like we see now with fiat money. I don't think FRB and charging interest is in our best interest if we want a sustainable economy and future.

I'm not sure why the Bitcoin Faithful feel they need to present Bitcoin as the universal panacea.  I'm hoping Bitcoin becomes a successful currency, but claiming that it's the Final Solution to money is silly.  The fools will be parted with it, hoarders will hoard it, tax dodgers will withhold it as taxes, and Christians will keep saying "Render unto Caesar the things that are Caesar's, and unto God the things that are God's" (well, a few, anyhow).

I'm not sure how the lending problem is solved in deflationary currency.  If there's a total of 21 coins in the entire system, and all of those coins are loaned at 1% yearly interest, at the end of the year the borrower is obligated to pay back 21.21 coins.  The borrower won't have 21.21 coins, no matter what he does -- only 21 coins exist.  This problem is trivial in fiat -- print moar!
Lending at 0% is  not a silly notion, and we don't have to reach for high morals to justify doing it.  Lending, even at 0 profit, does a few things i can see offhand:  It creates social bonds, insures stability & maintains the value of your currency (if you hold all the bitcoinz, they're worthless).  So i'm sure solutions exist, just not so much in this thread.

Please read this again:

You can have the money going through your hands over and over (you get to hold the coinz -- you were in the gutter last night, it's my turn today :) ), but if you believe in laissez-faire & invisible hand & all that,  and you're a competent businessman, I'll never be out of your debt. Here's how this goes:

A buggy pulled by a bony mare with her belly nearly touching the dirt road creeks to a stop next to an nondescript storefront.  The storefront window is plastered with faded travel ads from the inside, a year's worth of dead flies collecting between the flyers and the dusty glass.  The sign above the store, your store, reads simply "Loans."
Hat in hand & visibly uneasy, Young Man (that's ME!!!) climbs out of the buggy & ties off his horse to an empty bicycle rack.  He's dressed humbly, but his bearing shows impeccable breeding, lending his dashingly handsome face an air of aristocratic refinement.  He is hung like a horse.  Enough said.

Here's the part where i walk into your office & we seamlessly segue from third to first person narrative:

You shoot me a distracted glance from behind a huge Rococo desk, which seems particularly grotesque in an office otherwise furnished with badly-assembled Ikea.

--Yes?
--I'm here to repay my loan.
--Hmm?
--I have the 21 coi...
--Twenty one and twenty one centicoins, you mean?
--No, I brought 21, that's all there is :-[
--But you owe me 21.21?
--I thought we could work out a deal. ???
--Deal?  Yesss.  I'm certain we can.  I've dealt with deadbeats before. [*looks up & at Young Man*]  I expect you'll be asking me for another loan? >:(
--Yes, though this one will be a rather small one, and i've proven myself a good risk  :-\
--Good risk?!  Good risk you say?!  You're a deadbeat with insufficient funds to repay your loan as promised, good risk!  A losy risk is what you'd be if we weren't in a hypothetical scenario where you can't default or steal from me and i must maximise my profits.  I'll make you a deal:  I'll loan you .21 coins at a rate of 100% per year, what have you to say to that? >:(
--I'm stuck in this hypothetical scenario, i can only accept -- you hold all the chips :'(
--Thought so.  I'm issuing you this loan, and putting it right back in my pocket.  Expect you crawling back here again in a year's time, mooching for another loan.  .42 coins that time, huh?  Huh?!  Now GTFO of my office!  

Never heard of repaying loans in installments, have you?

"Here's my first payment of 1.01 coins. I'll have my next one next week."
"Excellent. Thank you. Only 20 more."
"Yup, see you next week!"

http://images.wikia.com/spongebob/images/8/89/Later.jpg

"Here's my final payment of 1.01 coins. Finally out of debt."
"Indeed. If you ever need another loan, you know where to come."

Note that at this point, you have paid me 21.21 coins, all told. Even though there are only 21 in circulation, total.

Oh, come on.  Let's at least play by the rules :(  Sure you can come up with a scenario where it would be possible to make partial payments, restructure loans, renegotiate terms etc., etc. -- though it's not the scenario at hand, amirite?  Or are you trying to simply show that lending with premium is possible in a deflationary currency?  I can argue against that as well, but we'll have to use substantially more complex models & the arguments won't be slam dunks.  People are dedicating their entire careers to arguing the finer points & publishing reams of paper without even trying for definitive yes or no answers.  Sort of silly to try to resolve anything more complex than a few extreme case scenarios in a few posts, no?

You're only looking at half the picture. Of course it looks unbalanced. ;)

That is the rules. I loan you 21 coins, and you pay me back 21.21.

It doesn't matter if you pay me in one lump sum, or over the course of 20 weeks. Except that you actually can pay me, if I let you make payments.

And you'll note, that in the real world, almost every loan is indeed paid back in installments. Especially the big ones.

Would you accept a loan that required you to make a lump sum payment of more currency than was actually in circulation?

Hi again --
I think i get where we're parting ways:  You're not willing to maximize your profit (in your example above), either that, or you're simply not seeing your way clear to doing it.  I'll help you:

---and here's where things turn to shit for me---

Me: "Here's my final payment of 1.01 ... wait!  I got all your money back that i've spent, but I only have ... what is this?"
You:  "Huh, you idiot.  Of course you don't have 1.01 coins, you think I run a charity here?  A soup kitchen FFS?  You thought i was stoopit enough to circulate the money you've returned to me, and only profit one motherraping percent by loaning you all the money in the world?!  No, you brain-dead prole! I've kept the money, and now you have to borrow it from me at an ungodly rate, so that you can borrow it from me at a redoubled rate another year later.

 (you get the idea from here on out, my parcel repayments wouldn't address the fundamental problem if you played your cards right & didn't give me access to the money you've lent me.  If this seems too convoluted, i'll re-write)

Derp. Moneylenders gotta eat, too.

Don't I know it!  My point exactly.  That's why i decided to show you just how to keep the great unwashed in perpetual debt.  If i had a bitcoin addy in my sig, i'd stick my hand out :D
*Of course in reality that trick wouldn't work, but this was one of those reductio ad absurdum cases :D  BTW, is it really true that most loans are repayable before they mature (if that's the right word)?  Seems to fly in the face of reason ???

How is he gonna eat if he keeps all the money?

You really haven't heard of repaying loans in installments, have you?

Here's the way loans work. Let's say I give you 21 coins for a year at 1% yearly. At the end of the year, you'll owe me 21.21 coins. We have two options here: I could wait that whole year, and you pay me back in a lump sum, OR, each month you could come in and pay me 1.7675 coins. Either way, at the end of the year, you've paid me 21.21 coins.

There are several benefits to using an installment plan:
1. It's easier for the borrower to pay back smaller installments, so it's less likely that they will default (especially if there are only 21 coins in circulation in the first place)
2. It provides a constant stream of income from interest, instead of a lump sum at the end of the year.
3. I can loan out the principle again, even before your loan is fully paid off. For instance, if someone comes in, six months after you, and wants a 10 coin loan, I can do that, because you've paid me 10.605 coins.

I swear, we must be talking in different languages >:(  How did he eat when he had all the money?  And how was it that the borrower wanted to borrow all the money (To what end?  The Lender has *all* the money, so the money is *worthless* ???
You're a regular on a forum loosely related to finance, you are capable of abstract thought -- that pretty much guarantees that  you're not a stranger to hypothetical models & strictly defined problems.  So when someone asked you "If train A left the station at t= ...," you wouldn't think of asking "Ummm, so when does the conductor get to have caek?  It is delicious caek, he must eat it!" would you?  Of course not.  Silly, not a part of the problem.
To the alternative: I've known money lenders who owned property along with money.  Some of them more property than i own.


Again, I feel like we're from different worlds (and this is completely possible, it's the nature of the tubez).  I didn't ask if it was possible or common for loans to be repaid in parcels, i know that's common.  My question was "is it really true that most loans are repayable before they mature (if that's the right word)?"  In other words, why would a lender, who is in the business of lending money, allow me to repay a loan I borrowed for 10 years in just 1 month?  He would have to find another person to borrow it, et cetera, et cetera, et cetera -- having to repeat each month the process he could have done once if I was to keep the loan for 10 years?  Do you see how even in real situations turning long time loans into short time loans will make the moneylenders *really* work for their $$$?

Don't ask me, it's your hypothetical. You're the one that postulated the absurd situation of one man having all the money in an economy, and another borrowing it all.

If you're paying him back with the agreed upon rate of interest, why shouldn't he? He's getting his money back, plus profit. And there is always demand for more capital.

The value of a hypothetical scenario is not its realism, but its ability to highlight the flaws in a particular line of reasoning.  


This is a bit frustrating.  You're a moneylender.  Your business consists of lending a sum of money, N, at 10% yearly interest.  You can:
A.  Lend all the money, in one lump sum, to a single borrower for the duration of 10 years.
B.  Lend all the money, in one lump sum, in the morning of every day of the year, including weekends and holidays, and have that money returned to you the following evening.  Since you're an excellent businessman, you successfully re-lend the money each consecutive morning, and succeed in generating the same 10% yearly interest.  Minus your time and expenses.

Would you chose A or B, everything else being equal?  (In your business model, 10% ROI is the pinnacle of success -- you're not looking for greater profits @ higher risks)

In which case, we've successfully highlighted the flaw in your reasoning: that no one person will ever hold all the money in an economy.

Definitely B. I like to buy groceries more than once every 10 years.

Here is the crux of the situation you guys are talking about (i think):

To make it easy to see what is going on let us create a situation that, while outwardly ridiculous, nonetheless accurately illustrates what really happens. It's ridiculousness just makes it more obvious.

Let us pretend that there is $0 (zero) dollars in the economy (that's the ridiculous part). Person A goes to a bank and borrows $1,000. Now there is $1,000 in the economy.

The bank says, "Person A, you owe the bank $1,100 with the $100 interest"

The system is already obviously some kind of scheme because $1,100 doesn't exist, only $1,000 exists. It's hard to see this today, since there are trillions of dollars in the economy. That is why I started at $0, but let's continue with this example.

Person B goes to the bank and borrows $1,000. The bank says, "Person B, you owe the bank $1,100 with the $100 interest"

Person A then has a garage sale where he sells Person B $100 worth of junk. Person A can now pay his loan back.

The bank takes the $1,100 Person A paid back, extinguishes $1,000 and puts $100 in its pocket.

Person B can't pay his $1,100 obligation until Person C borrows some money and gives Person B some, but then Person C is short of his obligation.

But then Person D....

And then Person E.....

And then Person F....

And then Person G....

It's a freakin' scam. It used to be kept in check when the reserve was a physically accountable and uninflatable commodity (gold), but since it is now "monetized government debt" being used as reserves, this scam just vomits all over itself.

We are quantitatively easing ourselves into total debt slavery.

See, no. That's fractional reserve banking in an elastic currency. We're talking about an inelastic currency, like BTC.

To actually perform FRB you need an instrument like a note that can be redeemed for the BTC. These notes are elastic

Indeed there are.

But you can lend, even at interest, in an inelastic currency, without practicing fractional reserve. And that's what we're taking about.

Ah i see. Carry on!

You're trolling me?  Not much of a challenge :D  On the off-chance that you're serious, enjoy your life at the office -- i'll be on my 45-footer island-hopping in the caribbean somewhere.

And, as a customary end to end an interwebz debate (Great men think alike ??? (one word changed for readability) :D :D):

"Truly, this earth is a trophy cup for the industrious man. And this rightly so, in the service of natural selection. He who does not possess the force to secure his wealth in this world, and, if necessary, to enlarge it, does not deserve to possess the necessities of life. He must step aside and allow stronger peoples to pass him by."

With what?

You've loaned out all your money, and you won't get your profits for ten years. Assuming, of course, that they don't default.

When you are doing full reserve lending as opposed to fractional, the interest rates are completely determined by the market. The lender has no control over it. Not sure how that ties in with some of yourall's crazy examples. If you lend out all the money in the world, the interest rate by then would effectively be infinity. I just kind of skimmed yourall's conversation, just saying.

Which is the other side of the picture I was talking about, earlier. Interest is the "market price" of money.

Yeah, that's why the example is ridiculous, but I ran with it anyway.

With what?  With the monthly installments on my loan.  Unless you feel that's impossible unless i allow the entirety of the loan to be repaid before it's due.  Why not go back a page or two  and reread everything before your answer?   :'(

My mistake then, since I thought this meant that the whole lump sum would be out for the entire duration:

Now that you've clarified, of course I would prefer A. I don't like to work weekends. Even better would be
C. Lend all the money out to numerous people, and arrange their payment plans such that I have regular weekly income.

And wouldn't you know it, that's generally how lenders do it.

The A choice is identical to your C, a bit cleaner since risk is assumed to =0 in my example for the sake of simplicity.  The difference between A & B was intended to show that allowing loans to be repaid early creates excess work for the lender at best:  Not what i'd call "maximizing profit."  Anyhow, i think we've beat this dead horse into a putrid pulp, though it was fun doing it :D

No it isn't.
1. Even if you assume risk=0 (a poor assumption, if you're looking to model the real world), spreading it out allows weekly instead of monthly income. Easier to budget for.
2. Given that risk ≠ 0, it would be wise for me to spread that risk among as many people as possible.
3. Even if risk = 0 (again, a poor assumption) spreading it out allows for fluctuations due to one person paying off early. Since there are many others, my income is more or less steady, even if people do pay off early. In fact, this makes people paying off early into a good thing, because now all that capital is back in my account, ready to be loaned out again, and I still have the income from everyone else.

If I had only one borrower, his paying back early would indeed trigger a scramble to get that money back out and earning me income again. If, instead, I have dozens, one of them paying back early amounts to a nice bonus this week, and maybe a little less this time next month, assuming I can't get it loaned back out.

Here's a newer video:
https://www.youtube.com/watch?feature=player_embedded&v=2R8oJsoliw0#!

Agreed.

The only problem is that those that try to argue otherwise always try to obfuscate the problem with some kind of nonsense.

One line of nonsense raised earlier is the "payment installment" argument. This only obfuscates the problem by miring it down into many transactions before the collapse of the system. It just doesn't matter though as compounded interest and fractional reserve *WILL* overtake the entire system at some point. It's only a matter of time before it happens. The "payment installment" simply delays the inevitable by another day.

You can look at it in terms of probabilities on a normal distribution curve and arbitrarily setting something like 7 standard deviations to the right as the point at which the system collapses. Eventually it will happen. It's just like playing roulette - eventually you'll get black come up 7 times in a row.


That is exactly correct.

In order to make the ponzi scheme work, BTC needs a "fake BTC" or "DTC" (Debtcoins). The system cannot work with only BTC for the reasons above. Trying to argue that it can is simply denying the deterministic nature of the system and how it will collapse at some point.


This is kind of true and kind of not...

Banks *could* create DTC and say that they have the same value as BTC and that they are fungibly interchangeable. This if of course pure nonsense, but would you expect anything else from bankster scammers?


I can't see why anyone would want DTC.


Yes. But, I think your example of Debtcoins creates a kind of compatibility that allows for FRB, but with the inevitable collapse of the DTC at some point.

If there is no collapse of a fiat, it is only because the banks have managed to buy up EVERYTHING in the meantime, and nothing is owned by anyone except the banks. That scenario is the ONLY way to escape the inevitable collapse. i.e. EVERYONE is in so much debt that NOBODY is capable of producing enough wealth to keep up with the interest payments, let alone the principle.

How can i become a debtcoin slave today? I would like a card with 29.95% apr and a shiny metallic color so i know im valued.

Hi myrkul.
Not quite sure what your list intends to show, so i'll simply answer it point by point:

1.  Yes, zero risk is a terrible assumption.  My guess was that you, as the lender, would be the last to ask for risk.  But as you like, have at it.  And weekly payments to boot, if you find monthly installments difficult to budget :D  If you'd like even more realism (salaries for hired thugs, fire & life insurance), just ask!*
*Historically, moneylenders enjoyed a close & personal relationship with the communities they served, see:  [Angry Mob With Torches & Pitchforks]

2.  Of course.  See: [Angry Mob] above.


3.  No matter how you twist it, if loans are repaid early, there will be (time > 0) during which some of your money is not earning.  Not sure about the second sentence.  Some of your borrowers are now bringing you  gifts? [Angry Mob]? :D

DTC, acctually it might be workable system, if majority wanted to keep status quo... Just have your bank account and bank services and they are happy to use virtual money between each other... The issues only come when more money leaves the system than there is...

If I have >4 borrowers, I can arrange their monthly payments so that I get weekly income. That way, I don't have all my money coming in on the same day every month.
Given that risk >0, it would be wise to make sure that the risk of all my money being defaulted on is as low as possible. Thus, as many people as possible.
And yes, If people pay early, there will be some time where some of my money isn't earning. But again, the more people I have loaned to, the less that will be when it happens. And, if they're paying the loan off early, they're bringing in more than I had planned for. Thus, the "bonus."

First let me say that for true adoption as a medium of exchange there are at least these things that the masses will ultimately require from their money:
1. A higher degree of anonymity than a public blockchain/NSA/ISP/criminal botnet data mining combo can give them
2. Instant transactions
3. Reversibility of transactions
4. Something that doesn't always require an internet connection and electronic gizmos to actually buy something

The only thing that can satisfy all these requirements in one fell swoop is notes and accounting entries of these notes being used as money to transact with.

A note is simply a receipt for some amount of crypto in the blockchain. This is being referred to in this thread as a "debtcoin", but it does not represent debt.

I agree that the issuers of these notes can and will create debt with these notes though, through fractional reserve lending.

Realistically, this is unavoidable. Nothing can prevent them from doing this. The power to do this is inherently married to the act of storing reserves.

The extent to which this can be done is proportional to the average amount of the outstanding receipts in ratio to reserves.

The reserve today is monetized government debt. This is not a thing. This is a dysfunctional, hideous reserve and in no way keeps the system from shitting all over itself and dispossessing everybody of all wealth in the meantime.

If the reserve is an accountable, noncreatable-out-of-nothing thing, then the system constrains the amount of receipts in the economy that actually represent debt. Interest rates will be controlled by market forces and not by an elite group of cronies.

FRB on government debt reserves versus FRB on something like gold or crypto cannot be compared with each other.

If a banker creates too many receipts for an "honest" or "sound" reserve, they will run out of reserves and go broke. This is of course statistically unavoidable with dumbasses and crooks and intrigue, which leads to problems. The various results are:
1. The bank goes broke leaving the ones who didn't make it to the bank before the completion of a panic holding a bunch of worthless receipts.
2. The value of all the receipts is diluted.
3. The bank is rescued and acquired by another bank. This result, when played out repeatedly, ultimately leads to giant banks and cartels of banks.

All of the above happened with gold until we finally got stuck with the FED. Furthermore, after the FED was created, the banks kept screwing up and getting bailed out until we totally fell off the gold reserve standard, leaving us with a non-system.

I'm not sure if crypto reserves can be superior to gold in these regards. Can its cryptographic nature make it bailout proof? Can the public nature of the blockchain be used to make honesty in FRB mandatory? Can we use math to create a constantly decentralized, competitive, honest, workable, and equitable system for issuing the receipts we need for an actually useful medium of exchange?

Hopefully we can think one up and implement it before the current banksters decide to to start issuing notes on crypto.