Bitcoin Forum

I just created 100 pennies and I loaned them out to you + interest… How is it possible for you to pay me the 101 pennies you now legally owe me if only 100 pennies are in circulation?

you would have to borrow some.
WE all know how the FED works here.

It's simple and we all know all central banks fed etc woks on this.

opening a can of worms i see....

I expect by now, 50% of civilized citizen to know how money is just debt....

I would fake 1 penny

You think too positive, like 30% maybe if not less are educated about this, others just simply don't care.

I guess you had better stamp-out some more pennies! As the US Mint, they know how its done!

Paul Krugman is getting a hard-on reading that^

Well its the most asked question when it comes to our beloved fiat, but it should be possible to resolve that issue.
When u have 100 pennies, one would assume that they have some value, and since all values are inter-changable, i wouldnt have to give you 100 pennies, but lets say 100 pennies and a service
in value of that 1 remaining penny and therefore complete my obligation.
I know this still doesnt explain where one could aquire all 101 coin, but since its impossible from start, it makes perfect sence.

cheers

How about I pay you 100 and default on 1 :)

1. Invent governance, constitution and laws
2. Befriend elected government
3. Invent fractional reserve banking
4. Ask the government to print pennies whenever you fall short
5. profit

It's not possible until you create more pennies.

Is this supposed to get us thinking about the big bad evil banks? If so, your implication is misleading.

But they don't do it to enable banks to loan more money or to enable debtors to repay their debt...not explicitly

You can't borrow, you own all the pennies. No one else has any to loan you.

If you can create 100 pennies, then you can create 100 more.  I catch some fish and sell it to you until my investment is paid off. 

Were now both better off

100% of circulating money is debt.

this is an important point that the vast majority of people on the boards are missing: the economy is a production engine. People catch and sell fish or make shoes or TVs or teach college etc.
Nobody yet gets paid in Bitcoin and if they do it is pegged to a dollar amount, say $100 a day in BTC.
Until people start producing things other than bitcoin (or altcoins) in Bitcoin-denominated contracts, it will remain NOT money.

Bitcoin is an economy insofar as it can be exchanged for goods but then those sellers mainly exchange them back to dollars or whatever. Even if somebody accepted bitcoin and then spent them in turn for something else, that producer bought the inputs for those goods in dollars so his costs (his liabilities) are in dollars, not bitcoin. Even bitcoin miners have to pay electricity and internet costs in dollars, so their profitability is measured in dollars.

This is a hurdle bitcoin will have to hop over before it can be anything but a speculative asset, digital commodity, or simple payment system.

I also think it's interesting to understand the origin of interest. Before private property rights, say we live in a clan or a tribe or a feudal manor and we both produce grain. That is all we do. At the end of the year we combine our harvest and divide it accordingly. If I have a bad year that's ok because you might have a good year. All is well.

Introduce private property rights and now I own my farm and whatever I produce and you own yours as well. There now exists existential uncertainty that I could have a bad year and be worse off as a result - which didn't really exist before when everything was shared. So how do we mitigate this new risk? We produce and store a surplus of grain, so that given a bad year we can tap the surplus and be ok.

What happens if you have a particularly bad year and you deplete your surplus? You can come to me and ask to borrow some of my surplus. I will agree to this, but only with interest. Say I lend you 100 bushels, I require that back plus 10 more over the next few harvests. Why? Well it is not because I think you will default on your obligation. In these primitive times I could make you my bonded laborer or even have you killed. So what is it then that causes me to ask for interest on my loan to you? It is because if now I have a bad year, my surplus is smaller than it would have been if I hadn't given some to you. My existential risk has increased and that demands additional return to compensate.
Financial credit risk came along only later and this is simply a premium added above the base interest.

The obvious solution is to pay back on an installment plan.  Presumably the lender is seeking wealth, so he'll spend (or loan or whatever) some pennies back into circulation.  That way the borrower can purchase a penny on the market.  The word "circulation" means "movement".  If the lender expects to be paid back with the same 100 non-fungible pennies he created, plus one more that doesn't exist, he'll have a hard time finding a borrower to accept that deal and there will be no movement.

The less obvious solution is to punch the person asking the question.  They obviously think that this question illustrates some deep principle of the modern world, but all that it illustrates is that they were fooled by a trick question that shouldn't stump a 10 year old.

Oh, and Steve Keen did a lecture on this topic.  Check his website for the video.  He ran simulations of a closed economy with a fixed amount of money, and they ran just fine.  Debt with interest didn't wreck up the place or anything silly like that.

You want to take loan of 100 pennies? Ok the deal is, I'll give you a loan amounting to 100 pennies, but to seal the deal, you will only get 99 pennies but during payback, it's 100 pennies.

Lol, then u make 1 pennie profit.

haha smaragda, can't delete this post lol

why you so pissed off at me posting in your simcoin rant thread bro?


fair observation dude. guy like klee gets hacked and people help him and show sympathy, you get scammed (so you say) and you get BIG RED ANGRY at bystanders because nobody backs you up - why you think nobody support you bro? I've seen you help many people before, and you obviously aren't stupid, so why nobody care for you?

bad karma for your personal style - too much abuse, too much pointless macho antics from behind your PC - learn bro .. be nice ... don't delete posts, otherwise you look like a cry baby lol

Make a credit card for that kind of pennies.
From that point everybody's "money" will be only entries in a (your!!) database.

Then you can transform their money debts into things with real value: gold, properties, real businesses.

I don't think that most people understand the implications of that 1 penny scarcity in terms of what it does to people. Debt is that first 100 pennies that needs to be returned but that extra penny is what starts putting injecting fear and desire FOR the money. NOT what that money will get you, but money itself.

If you want to understand why people who are multi-billionaires still want more money, then look at how interest affects desires at a macro level. If you want to understand why 4 million people went homeless when there was enough housing to provide shelter for everyone in the US, then again look at how interest affects our fears.

It's a pretty crazy system and I am so thankful that we have an alternative now. BITCOIN!

Zero chance of this. Most of my friends have zero idea what money is.  If 50% knew we would be in a civil war or all the bankers would be hung.  I'd say more like .5% knows.

what this guy is saying , i would have a really hard time beliving 50% knows.

party B just needs to loan Party A 50pennies for 2% interest ;)

welcome to the gang of the money printer... it's incredible how the people have been fooled in that... expect cia visit soon... they can't tolerate competition in the girl picking.

Cool, a leopard can't change its spots I guess lol

My point doesn't change anything, but it might explain why nobody is backing you up bro. It's probably NOT because they're ball-snipped cowards, more likely many are 'enjoying' your public displays of pain & frustration. Not nice, but probably true, and the reason is you've irritated a lot of people here. Not me though, I think you're OK, but I think I'm in the minority.

In a time of crisis you want/need friends & allies to help you.

This puzzle is intended to make a point, but it doesn't because the solution is so simple:

1. I return the 100 pennies to you.
2. I buy (or trade for) one penny from you.
3. I give you the one penny interest.

Here is another solution:

1. I loan the 100 pennies back to you + interest.
2. The loans are the same, so we agree to cancel them.


The point the OP is trying to make is that if money is debt, then interest cannot be paid if there is only enough money to repay the loans. According to the OP, the U.S. must go deeper into debt in order for there to be enough money to pay the interest, but that means yet more interest that cannot be paid.

Since all money is backed by debt, there seems to be a problem because if all debt is repaid, then there is no more money (to pay the interest, for example). Of course, there is no real problem (other than having no form of money), as I have pointed out the solutions above.

nice try. but there is no escape, it's evil.

nice try, but not good enough.

The interest is just compensation for the owner postponing his consumption (of the lent out stuff) or for postponing spending the money on consumption or investment.

You can lend out your car for a weekend to a friend, and let him top up the tank as compensation. There is no magic.

The problem of lending money is that the loan gets some money-like features, therefore extends the total amount of money and therefore the value of money, until it is cleared. (Paid back or written off).

You could imagine that if car loaning was easy and abundant, it would also extend the aggregate of car availability, reducing the value of cars.

I first give you back 50 pennies.  I now owe you still 51 pennies.  You spend those 50 pennies back in my place against GOODS AND SERVICES.  Now I have again 100 pennies, I owe you 51 pennies.  I pay them to you.  I still have 49 pennies, and my debt to you has been resolved.

The point is that one shouldn't confuse money quantity and money flux.  A debt implies a money FLUX.  That flux can be paid for with a smaller amount of existing money, on the idea that the money is spend more than once (the velocity of money is greater than 1).

This is what makes interest no more a problem than the production of goods and services.

What actually happened was that you obtained goods and services in return for a money flux.

Indeed, you could turn the false problem in an equivalent story where the idiocy is evident:

Suppose that there are only 100 pennies in circulation, and that there are goods and services sold for more than 100 pennies.  How could these goods and services ever be bought then ?  Won't the limited amount of money stall the economy ?

The answer is in fact the same: the amount of goods and services sold, is sold against money FLUXES.  The total amount of integrated money flux can be larger than the total amount of money in circulation.  The ratio is exactly the "velocity of money".

If there are only 2 pennies in circulation, we can nevertheless exchange 100 eggs (a penny each) against 50 apples (2 pennies each).

Indeed, I have 2 pennies.  I buy an apple from you.  Now you have 2 pennies.  You buy two eggs from me.  Now I have again 2 pennies and an apple, and you have 2 eggs.
Repeat: I buy again an apple from you.  You buy two eggs from me.  I buy an apple from you.  You buy two eggs from me.
Repeat still 47 times.

We have in total sold 100 eggs and 50 apples (worth 200 pennies) with only 2 pennies in circulation.  The velocity of money was 100.

Interest on a loan is paid in exactly the same way.



(the funny thing is that part of Keynesianism is based upon that same idiocy).

Money is a form of value. If only 100 pennies are in existence, there is a value captured equal to 100 pennies. By paying the interest you have to make new value or else your money is flawed.

you don't understand the word legal tender note. btw the poster said there was only 100 pennie. but you can extend it to full money supply + interest, where do come the interest? by the new freshly bills printed to the connected ones (first banks, then their trading parteners, then the rest) meaning that you lower on the chain.

However and I want that to be clear, I know it ain't the best post but he will do, I am sure that the 1000 best hedgies, traders and others mps, would be almost the same on sea shell currency... (a few the losers would be unable to survive, but those don't trade, they just pimp and everyone know who are the real MPs).


frankly I understood it as a man on his island, a theoretical question, otherwise with your approach the answer is quite simple : money counterfeiting, expect a raid by the police, so you will never be able to create 100 penny.

Yeah most of my family and friends have barely heard the word fiat, let alone understand it. Much easier to embrace the lie...

I know. like ARBEIT MACHT FREI, most believed it. Maybe telling children about a man on the sky (FORBIDDEN BY ISLAM) or the XMAX gift givers, or what ever else, isn't a good idea. Furthermore I think most westerners live still a life where they don't need to ask too much question to survive (food stamp, ebt, social income etc), once it's gone will see... but it will be too late then, like entering the "showers" for cleansing... in a way it's true, rationalization is the worst enemy of honesty... but look for example as the Iraqi in irak1 when powel put them under their tombs, or the ukies now... hubris lies, it can work with your wifes because you can beat her if she doesn't agree... try to beat reality good luck.

Nice argument against non-inflationary currencies, which Bitcoin is hoping to become.
Let's try your problem, starting with this "sound money":
You have all of the gold in the world, and lend it to me @ .1% yearly interest.
"How is it possible for you me to pay me you etc., etc.?"

Steal it from someone else. Its a zero sum game (scam) where someone always loses.

head shot, monster kill, godlike :D. what's funny is those with phd in eco101 in the west don't get it. lol, but they get state dollars and they can fuck your daughters against her grad. they can't trade however, never have, never will.


wanna play negative sum game? I hope your "kinethy" is better than mine.

You have constructed scenarios in which it is impossible to pay the interest. My point is that those scenarios don't represent anything real. They do not exist in the real world. Your scenarios are moot.

I have offered a single, hypothetical scenario.  Just like OP.
You don't think OP has really issued 100 pennies, lent them to me at interest, and I was brokeass enough to take him up on it?  Or do you?

miscreant and ignorant, it's called rehypothecation, to infinity, they will pretend to have create more "fake papers" and tell you that you can pay them with a new loan, or a long term duration, anyway... enslavers of Mankind always perish, like the Men of past "fake" Pharaoh.  ONLY GOD IS THE GREATEST. THERE IS NO GOD BUT GOD.

please I think that we should all stop to feed the fed trolls, they have fucked enough in this world for us not waste more time, let's trade btc, let's improve liquidity, let's improve the ecosystem, let them die in their irrelevance.

Ok bro, good luck then!! I think your approach (angry abuse to bystanders) just makes you look like a pissed off delusional crazy guy, so not many people will take your claims seriously, but maybe I'm wrong. If your goal is to change opinions your approach obviously isn't working that well.

Now, can you 'welcome' me to your ignore list, and we'll both move on  ;D

Is the OP ever going to enlighten us with his answer?

You can't. You need to borrow more money from the printer and thus you have more debt, and thus have to borrow......well you get the picture.

What OP is trying to say is that fiat basically revolves around debt. There will never be enough money to pay back the loan so goes on a cycle of money printing to ensure there is always enough supply.

Maybe I'm wrong, but I'm not sure the OP was meant to be about credit. I'm thinking this was a question of money as debt.

Credit can exist and that's fine. The FED on the other hand creates the money and lends it into existence, which creates a debt. When they buy gov. bonds with this newly created currency they are swapping something that they can simply print out of thin air and then collecting interest on it. In reality the national debt can never be paid off because to do so would mean having to borrow more money. That's why the whole discussion of debt ceilings is a complete joke. The debt was never meant to be paid off because it wasn't actually money borrowed from somebody elses savings (except fot the bit owed to foreign governments)

And BTC is not created "out of thin air"?   And please don't start again with the old saw that BTC represents wasted electricity & digital thumb-twiddling.

nope , btc is created out of electricity and math my friend.

As I said, wasted electricity and digital thumb-twiddling.
Why not make my turds the new world currency?  I've been constantly pooping issuing them since birth (like Bitcoin), and many are currently irretrievably lost, for extra scarcity.  Like Bitcoin.

Unless you think me immortal, the total number of turds to be issued is limited, because math and science.  Further, unlike Bitcoin, my poop is tangible & has value beyond its monetary worth.

My turds also have only a nominal learning curve--easily understood by goldbugs and Bitcoiners.  Bonus!

Best of all, turds do not rely on the internet (which we all know is controlled by NSA/CSS & other Jews) or malware-infested smartphones (which will be all destroyed by the inevitable EMP).

Get in on the ground floor before the sheeple catch on, don't miss the moontrain, Bitcoiner!

ohhh they must hate math... you have no idea... they fucked us, now they will be forced to repay it all, will they keep their earthly life a little longer is the only q left.

-V-

It's ok grandpa, now take the meds and go to sleep.

Go ahead, hate on my turds.  Why is it you sheeple always attack that which you don't understand?
Have you even bothered to read the toilet paper?
Like Saturdshi Nakakamoto said, "first they laugh at you, then they ignore you, then... you buy my turd now, roundeye?"

http://s23.postimg.org/w4hmim04b/bit11.gif

This basically the question russia is going to answer for the US…. Got them tanks lined up… The whole velocity of money doesnt answer the debt based system. Even a gold based system has its problems, because if you have 1 oz of gold, and you loaned it out at 0% interest, I sell something for a profit, I will not be able to pay 100% of the loan… Ever and make a profit..

its a thorny problem.

Double spend them and hope they do not notice :P

Not in the same sense that fiat is created, that's correct.

If Bitcoin didn't have a limit of 21 million and was always inflating at some rate determined by a privileged elite, then it would be the same as fiat.

Since it is limited (whether that is ultimately good or bad) at least it's predictable. Credit can still be issued in many forms on top of that, but at least the money supply is relatively scarce.

Even if you think some inflation in the money supply IS beneficial, at least with competing crypto currencies on a free market the people can determine where they want to hold their wealth.

What I can't fucking stand about the these arguments is that we don't really know who's "right" because the people in power have forced their preference on the rest of the world through monopolization of currency issuance. Who gives a shit if BTC is the be all and end all of money. The important thing is that cryptos will get out of the hands of the governments and the market will decide what is best!

There is another fundamental difference, and that is there is no seigniorage. The miners have costs that are approximately the same as the value of the coins they produce. In fiat, the seigniorage is approximately 100% (in case of debt issuance), which goes to the state and the friends of the state. So even (for a hypothetical different bitcoin) with a continuous inflation, there will be no transfer of value from old holders to receivers of new money. Both gains and losses in case of fluctuations in value, will be spread over all holders.

You seem to have missed my point, that being: both fiat and Bitcoin are created "out of thin air."  Caveat: fiat has an existent economy behind it, "stuff" backing it--armies, cows, cars, etc., etc.  Bitcoin, OTOH, does not.  It merely dilutes the currencies of existent economies, much like counterfeit money.

The 21mil BTC limit is neither here nor there, that can easily be changed with a hardfork.

Well, that sure was Satoshi's prediction, unfortunately it didn't quite work out that way, did it?

Isn't it ?

No. If mining cost approached BTC price, megamines would be an exercise in stupidity.  Why take risks with no reward potential?

Don't you think they are ?

Of course there will be a small margin of benefit, because otherwise you don't go into the business.  But if the margin is larger, then more people will go into the business, increase the difficulty, until the margin gets so small that it isn't worth doing any more.

If you think that major ASIC manufacturers & their backers are stupid, I got nothing.
If you feel that the same mining concerns that mined @1200/coin are getting the same profit margin while mining @230/coin, I got nothing.

As long as they have customers, they are not stupid !

After all, the risk is taken by the miners, not those that sell the equipment.... as long as they sell it of course :)

But it is not because you can take a 5% margin for your efforts that you are necessarily stupid.  You're just doing hard business like anyone else.

In every highly competitive market, there is a small margin to take.  If the margin is bigger, it attracts more competitors, and the margin goes down.  If the margin is too small, people leave the business, and the competition diminishes.  The only difference in mining is:
1) the total sum of business to take is finite and pre-determined (the market cannot grow)
2) the total sum will diminish over the years (the market will shrink !).
at least, concerning the block rewards.

The fees, that's something else: that's normal business that can grow.

Within a market, the margin is determined by your efficiency.  If you are highly efficient, you can obtain a decent margin, where your competitor who is less efficient is dying.  But given that the efficiency is essentially given by the ASIC manufacturers, and that there are not so many independent ones, the room for efficiency for individual miners is small - mainly the price of electrical power I guess.

I have no idea about the margins right now made by miners, but my feeling is that they are not terrible.

KNC, an ASIC manufacturer, mines.  It mined @1200, and is mining now.  If they're not terrible now, they must have been pretty awesome @1200.
Re. market feedback minimizing margin:  The feedback loop has ~6 months of lag.  Negative feedback loops with a time delay--that's what an oscillator is.

You would act like a central authority, what if u decide to loan all of your existing turds? How could we repay debts?

Also, turds are easy to counterfeit, difficoult to divide, to storage, to transfer, and prone to degradation over time.

But, Hey! We could use the blockchain technology to make a turd backed coin, so the turds can never move and only change their ownership...but... at this point, Do we really need turds? It's a waste of resource to storage all this turds instead of using them for power generation or to fertilizze camps , so.... I think bitcoin is still better.

No more than a blockchain is a central authority.  For a fee (think of it as the price of mining), I'll let you congregate in the sewer below my house & [fairly] fight it out amongst yourselves for bits of my valuable poop.


At this point, yes.  Poop as world currency is still in its nascent stages, these problems will all be eventually solved.  Just like Bitcoin's 7 transactions per second limit.  Have faith!


Lol, do you know what the proposed sidechains are?

1 BTC = always the same % of participation in the total of 21 million coins in the blockchain. This is unbreakable and what makes it the objective superior payment of the future, without no one being able to tweak that. Thats why massive suicides will ensue on the future after people realize they had a long time of cheap 1 BTC participations inside this monumental, mathematically perfect network.

Except hardfork :-\
*BTW, my poop is immuned to being hardforked u kno :)

I didn't know you were bullish :)

Because that's not how it works. There are far more "pennies" in circulation. It's true that debts exceed the money supply but that's not neccissarily a problem since each "penny" can be spent more than once. In fact, if I remember correctly, the velocity of money in the US (how often each unit of currency is spent in a year) is around 4.

Indeed, that's the whole point that kills that recurring story about "asking interest implies the need for printing continuously money".

Change the 100 pennies to 100 trillion pennies, same principle applies

Velocity of money has nothing to do with money creation. You move a dollar one million times between your left pocket and your right pocket, and voila you are now a millionaire  ;D

Bitcoin is like gold, you must pay real resources to get it. Fiat money is a trick, central banks pay nothing to get it. Fiat's backing is based on a consensus, so does bitcoin, bitcoin can be backed by armies, cows, cars, etc... as long as that consensus is reached

Just because something costs money to obtain doesn't make it valuable.
If I charge you $4000 for a $2000 computer I've spent a week beating to a pulp with a sledgehammer, you didn't get a great deal.  Even though a week of my time is worth $2000, and the computer did cost me $2000.  I didn't create value, I have *destroyed it*.

Just like you spending $2000 on thumb-twiddling machines & burning $2000 of electricity doesn't create $4000 of value, it merely *destroys* it.
http://s21.postimg.org/9xvput7fb/silver_spoon_by_90sigma_small.gif

You mixed the cause and the result: It is demand created competition, and competition in turn increased the cost. In 2009 it cost almost nothing to get bitcoin since there was no serious demand

Fiat money on the other hand is a monopole system, no matter how high the demand is, there is no open competition to produce fiat money, thus the production cost will always be zero

At least we're past "it must be worth something if I paid money to get it."  Good.

>It is demand created competition, and competition in turn increased the cost.

Sorta.  There are different types of demand.  The demand here is speculative, meaning "I bet someone will pay me more for this thing later."
That's how all artificial scarcity schemes (see: BTCeanie BTCabies) work.

I provide a service or sell a merchandise to someone (maybe a bank) who creates one penny to pay me then I can pay you back 101 pennies.

True, there are also speculative demand, but basically all the investment works similarly: "I buy some paint/wine/real estate/domain and bet someone will pay me more for this thing later" Bitcoin is the digital asset on internet, since it is scarce, the demand will drive up its price

And there are real demands like sending money oversea instantly, save for the long term, hedging against fiat money inflation etc...

ALL monetary assets are made of thin air, and dilute the market for other stores of value.

That is also true for gold, houses and so on.  These things have some intrinsic value, but the monetary part of their value is just as well "made of thin air" and is due to the "next fool" or "same fool" hypothesis.

By "intrinsic value" I understand the price on the hypothetical market where the demand consists solely out of direct or indirect consumption (using the good) and not out of any speculative part.  The usage value of gold is not zero, it is used in jewelry and in industry, but it is not very high.  Most of the gold price is made out of the monetary, speculative part that doesn't serve usage, and is made out of thin air if you want.   The day that everybody thinks that only people having "real use" will accept gold, gold looses its monetary part and becomes "usage gold".

The intrinsic value of a dollar bill is about that of bad-quality toilet paper.  It is its only "usage value" where you actually use the bills without betting on anyone accepting them for other things than wiping their ass.

The intrinsic value of a house is a higher fraction of the price: it would be the price you can buy a house in which you can live, but of which you know that you will never be able to sell it (for instance, because it will be destroyed, or the area is going to become an artificial lake or something).  The price you're willing to pay for a house, just to be able to live in it, but without the idea of getting anything when you will try to sell it, is the intrinsic value of a house.
Houses have partly a monetary value, that is based upon the expectation to be able to sell it for money.  But that fraction is smaller than for gold and for dollar bills.

Monetary value comes from the bet that someone will accept it, because that person makes the bet that someone else will accept it, who makes the bet that still someone else will accept it, etc.... for nothing more than that the next one will accept it.  You can call that "thin air".  Money is thin air.  Always.  It can be carried by something that has ALSO usage value, but that usage value has nothing to do with the thing being money in the first place.

That's nevertheless true (at least if the acquisition happens voluntary, and not under threat of violence).

The price someone is willing to pay for it is always lower than the value it has for him.  The value is always larger than the price (for the buyer).

If someone wants to give me a nice house against my poop, then my poop has at least the value of that nice house for that buyer.

Remember that value is a relationship between a subject and a commodity/asset/service.  It is not something that is solely a property of the commodity/asset/service.

Value is in the mind of the beholder.

If all people are dead, then nothing has value any more.

The specific scheme where "I bet someone will pay me THE SAME for this thing later" is the definition of money if it is generally accepted and considered that way.

This bet is the thin air on which the concept of monetary asset is based.

Well, if Bitcoin expected to be worth "THE SAME" [i.e. nothing, as was its worth at inception], it has failed miserably.  By your definition of money, BTC is certainly a flop.
In the alternative, you only have to read a few posts on this forum to realise that most who've "invested" in Bitcoin did not do so with expectations of BTC price remaining "THE SAME."

One of the greatest tools of mass debt enslavement is obfuscation/subterfuge. It can appear to be subtle, but over time the results can be enormous. At one time the word "money" meant gold, silver, & copper. These are finite resources with natural checks on the rate of inflation as it takes time & effort to extract them from the earth.

By linking gold & silver to certificates redeemable for gold and silver, authorities found a way to create more notes than the rate of extraction of natural resources from the earth would otherwise have allowed. IOW they counterfeited gold and silver, but one thing more that was accomplished was to set the groundwork for the masses to begin to see worthless cotton notes as synonymous with gold & silver. When the redeemability of these certificates is removed and the force of government is applied to ensure adoption of these worthless notes as an exchange medium for real goods and services, then the transformation of currency into "money" is complete. Money is a stable store of value over time. Currency =/= money.

The next step is to persuade the masses to accept credit as currency and to refer to that as "money". This is accomplished by allowing the convertibility of credit into currency. At this point the definition of the terms credit, currency, & money are almost completely eradicated. If you randomly ask someone how much "money" they have they'll likely recite their credit balance at a local legalized counterfeiting operation...otherwise known as a bank. There are only $1.34 trillion usd circulating globally. The rest of the "money" supply is credit masquerading as "money"(currency).

Due to the evolution of "money" it's now easier than at any other point in history to steal wealth through inflation. It's been a slow grinding process that has accomplished this mass enslavement.

Gold, Silver, Paper, Credit
Gold, Paper, Credit
Paper, Credit
Credit

    

^A d00d whose eyes were opened after watching "Money As Debt" on YouTube?
With a twinge of anti-government paranoia?
And inflated notions of own intelligence vis-a-vis "the masses"?
In MY BITCOINTALK?!!1!

In fact, "money as debt" serials only described part of the banking system which is similar to an exchange, it focused on checkbook money that is created inside banking networks, without discussing the source of all base money creation. Without base money, the credit money can not be created limitlessly, due to reserve requirement

"Money as debt II" explained that interest income can be spent by banks back into society, thus make the whole money circulation sustainable. But that is still small details in the banking network, has nothing to do with base money creation

Actually the OP's question is about base money creation, it is a fundamental challenge that most of the professors in economy school have no idea about

Good thing you brainiacs are here to educate them.

I have the above ^d00d ignored and have for a long time as I'm sure many do. He/she's posts are consistently of poor quality imo and usually address a poster rather than the actual topic at hand.


I didn't necessarily take the OP's post to mean base "money". Given the references to pennies(physical currency issued by the US Treasury) I took the post to mean commercial bank "money" rather than vault cash or commercial bank reserve credits on deposit at the fed.

At any rate the OP asks an important question that makes clear the fundamental problem with debt based currency systems. There's not enough "money" in existence to extinguish all debt at any given time. The system relies on debt greater than previous debt to sustain itself in perpetuity which is an impossibility. The laws of big numbers ensures that eventually debt("money") will be extinguished either by repayment or default at a rate that will overtake credit("money") creation and a deflationary spiral will result. This is where the US and numerous other economies have been for some time with the federal reserve and government creating program after program designed to encourage credit creation. Moral hazards such as zirp, QEx, housing initiatives, cash for clunkers, student loan take overs, PPACA, etc are all designed to punish savers, reward borrowers, transfer wealth, and/or encourage further credit creation. Like all debt based fiat currencies throughout history the US "dollar" is overdue to fail...again. These programs are being used to sustain a collapsing economic system largely at the expense of savers and young Americans.        

You are missing the point which is that money doesn't have to be held permanently to pay debts. In the same year, I can borrow $100 to buy food, and the company that I bought the food from can put that money in the bank to fund more loans. The borrower of that money can in turn buy a product from my employer, the employer can pay me with the profit and I can use that money to pay my debt.

The amount of debt, income and expenditure in an economy is not limited to the amount of currency in circulation. If there are only 100 pennies in circulation, that doesn't necessarily mean that a debt of $10 is going to default.

Bitcoin here basically has value because it has the backing of the community and essentially amongst us, we have agreed to pay a certain price for bitcoin or in another way to say it, the price we are willing to accept to part with the coins. I do agree that mining may not essentially give it a value, even though there is a certain cost attached to it to come up with a coin, so basically like I said, the value of bitcoin is really an amount agreeable between both parties.

Let's make some real calculation: Each month, you borrow $100 to buy food, and those $100 goes to the food company as income, and food company put $100 to bank, and bank loan out $90 (10% reserve requirement) to another borrower, he spend all $90 to buy products from your employer, your employer have $90 income, and he is so generous and gives you all $90 as salary. So, how could you payback your $100 loan with $90 salary at the end of the month?

This is an ideal situation that there is no friction and cost during the cycle, and it has not involved interest yet, just a simple trace of your $100 loan. You can see that you will never be able to make the ends meet. Similarly, the society as a whole can not earn more money than it spent, unless the money supply increases constantly, and money supply can only be increased by adding more debt nowadays

The reason these examples are stupid is that they assume that one person holds all the money in the world and that value can only be traded using that money. Of course, neither of those assumptions are ever true.

The assumption that there is not enough money to pay back the loans (due to interest or whatever) is stupid. In the fractional reserve example above, and in the more realistic scenario of today with practically no reserves at all, and in the case where the central bank edits its own account balance to provide reserves, there is always a lender for each dollar loaned. Someone always have the counterparty of each dollar loaned. The assumption is just wrong. This is not the same as it is problem free to in fact pay back or require a loan to be paid back; either it is paid back or defaulted on, it will have grave consequences for the participants, the total money volume, and the productive capability of the economy. Of course it is a problem, use the 2008 crisis as an example. Still, you can not say that there is not enough money around to pay back the interest, that is a total misunderstanding of what interest is.

Ok, lets assume that 7 billion people holds all the fiat money in the world and value can be traded using those money. Did that change the way how it works? Putting billions of semi-conductor components into a CPU does not change the basic electrics theory that you can prove in a flashlight

There is not enough money to pay back the loan, money supply must increase exponentially to make the system running, it is a fact, not theory

http://photo.mystisland.org/m0.png

Yes, you just redefined a stupid thery to be a fact, without supplying any new info, logic, arguments or anything. Good luck to you.

We can't deny that essentially we are living in a world of debt and it is debt that until now keeps everything from going into deflationary depression. It's like a bubble waiting to pop and we just keep on the money printing in order to ensure there is enough supply of money. Right now there is no clear answer to the debt problem because it has been a norm for so long and basically not only the people but the nation as a whole have been living beyond their means. Not to imply in a negative way but I'll be surprised if the current bubble can sustain itself for another decade or so. 

This is correct, but not for the reason suggested above, "that there is not enough money". It is like  Rudolf Havenstein of the Reichsbank in the Weimar republic has woken from the dead.

The money nowadays, world over, consists of base money (notes and coins) and different types of debt which have degrees of moneyness, for simplicity's sake we can call all debt money. The base money and the debt together make up the aggregate money volume, the size of which affects the demand for holding money and therefore the value. The problem with this is that the debt can be extinguished when the loans are paid back or written off, (In paranthesis, the money system managers do not like writing it off, and that is why you see bad loans parked in bad banks instead, never to be paid back, but never to be written off) and wreaking havoc in the economy.

It would be much better to have base money, and only a minimum volume of debt. So why do not the keynesians print base money to produce their beloved inflation, and instead create debt? The reason is that the masters want to hide the money creation from their voters. This is a conspiracy theory which also happens to be a conspiracy fact. (The greatest conspiracy theory is the one that suggests that conspiracies do not exist). To hide the money creation they use to secure their continued power, they are willing to risk the stability of the global economy.





 

Yes, because now I can produce something of value and exchange that for money that can be used to pay back the loan (and the interest).

Brilliant.  Well-said.

It wouldn't be better for everyone. Returning to a debt free currency issued by the treasury(Lincoln greenbacks, Kennedy notes) would be bad for the fed, congress, & commercial banks for instance.

Bitcoiners:  Wrong about semiconductors, flashlights, electricities, moneys, and just about everything else since 2009^TM.

And it would also bring back freedom, and personal sovereignty. Or, maybe it is the other way around, in the genreral market, the desire for freedom will bring back sound money.

If you can do that, the rest 699999999 people will also be able to do that, and every one of them will need more money than they had originally borrowed to do that, that still does not make the ends meet

The only way to make your ends meet is someone else going default. With this system running continuously, there will be more and more people going default, thus banks collect one dollar interest from you while lose one dollar from that defaulted guy, the result is still not able to sustain long term wise, since banks also need interest income to operate

Actually OP's question is simplified, the loans are all long term loans, and they overlaping each other

First year banks make $100 loan, second year banks make another $100 loan, but the repay of the those loans might last until 10 years later. After 10 years, the first loan is paid back, but by that time there are magnitudes more money out there due to loans from third year/forth year and so on...

It is this large amount of money supply out there makes people think that there are enough money to pay back the loan. But OP is correct, every one of these loan has to be paid back by more than originally borrowed, but since they never happen in a same time frame, people seldom have a liquidity problem, but long term wise this makes a sure destinity of exponentially increasing debt

Growth is the key for sustainability of this scheme, if you can continuously issue larger and larger loans every year to pay back the original loan and interest, you can play forever. But if there is no growth, thus no demand for larger and larger loans, then the system will collapse

Captain ZIRP to the rescue! ...still not enough to bring the zombie economy back to life. Bring on the negative interest rates!

Damn you savers...damn you!

If I borrow $1000 and repay the loan at $100 per month for a year, I don't need $1200. I need $100.

Indeed, it is crazy how this blatant error is so long-lived.

The ONLY situation in which "1) 100 pennies are created  2) these 100 pennies are lend out 3) one has to pay 101 pennies back in total"
would create a problem, is when the original lender is not going to spend a single penny of the partial paying back for goods and services.  But if that original lender is not interested in obtaining any goods or services, then why ask an interest (or even, why want the 100 pennies back in the first place) if it is for not buying anything with it ?

The reason why anybody is going to lend pennies and ask interest, and want the money (plus interest) back, is bacause they want to get goods and services for it !  If you do not want goods and services, you're not interested in having money either.  You could just as well GIVE AWAY the 100 pennies.  And you're certainly not interested in getting any interest on it.  You only want your money back plus interest, because you want to SPEND it.

Well, if, during payback, the creditor spends AT LEAST the amount of interest that is due by the debtor, then there is no problem for the debtor to pay back the whole amount plus interest, without extra money creation.

Creditor invents 100 pennies and lends them to debtor (debtor promises to pay back 101 pennies over 10 years).

first year: debtor pays back 10 pennies
second year: debtor pays back 10 pennies

if from these 20 pennies that the creditor now holds, he SPENDS a single penny, that penny can be earned by the debtor.

In that case, the debtor (holding 80 pennies, and earning the one that the creditor has spend) can now pay off the entire loan plus interest. 

The important thing is that the creditor, in all of this, has spend 1 penny to buy goods and services.  That's needed.  That's all that is needed.

@dinofelis

So if I get you:

1) OP's scenario is not possible. This is just common sense. Simple arithmetic, you cannot give back the non-existent part (additional penny).
2) But, nevertheless, this game can go on in perpetuity and indeed never touch this non-possible case of paying back everything, if the following conditions are met:

- Continual creation of additional debt which itself is possible only if growth (demand for loans) is continual.
- Loans are made with different maturities

?

No, there is no need, for creation of additional debt or growth or whatever.

Is this so difficult to understand ?

What is needed for a finite money supply that is nevertheless lend out with interest, to be sustainable, is simply ONE SINGLE CONDITION:
that the lender (who is entitled to receiving the interest) SPENDS at least the amount of interest on goods and services.

That's all.

If I print 100 pennies, I lend them to you, and I ask 101 pennies back next year, that's obviously not going to work if you have to pay this back IN ONE SINGLE GO.

But if I print 100 pennies, I lend them to you, and I ask 50 pennies back in 6 months from now, and I ask 51 pennies back in one year (totalling 101 pennies back), then this is very well possible on ONE SINGLE CONDITION:
that between 6 months and 1 year from now, I BUY something from you  worth (at least) 1 penny (the interest).

It goes like this:

a) I print 100 pennies, I have them now.

b) on the first of january, I give them to you.  Now I have 0, and you have 100 pennies.

c) on the first of july, you give me 50 pennies.  I now have 50 pennies, and you have 50 pennies.

d) on the 3rd october, I buy an apple from you, against a penny.  I now have 49 pennies, and you have 51 pennies.

e) on december 31st, you give me 51 pennies to liquidate your loan.  I now have 100 pennies again, and you have nothing.

f) if you want to, we can start over next year.


The important point in this game is that I GOT AN APPLE FOR NOTHING while we were shifting pennies.

This is why I'm in this game for a start: I want to get free apples.  So I WILL spend some of the pennies you give back to me.  Otherwise this doesn't serve me any purpose.  If I print money, I want to enjoy goods and services for it.  (I'm the state, right !....)

You see that at no point, I had to print an extra penny, we had to have growth or whatever.  At no point, you had to subscribe to another loan.  You only had to produce an apple, and give it to me for free (against a penny, which was the interest you had to pay me, which I got out of nothing because I printed the pennies for nothing).

You didn't get an Apple for nothing.  It takes work to print pennies like it takes work to grow apples. 

That's a good view, split the payment into smaller time frame will solve the liquidity problem, and increased money velocity will reduce the demand for amount of money. But that is another topic, I don't think OP's question is about dividing the loan into smaller batches

If you look at smallest time frame, for example overnight lending on interbank market, in 1 day 100 pennie might generate 0.01 interest, and since there is no lower time frame that you can go, and banks must get new money to pay the interest, that will drain the money supply and eventually lead to a liquidity problem that can only be solved by printing new money

Charts EUR LIBOR interest rates - maturity 1 day
http://www.global-rates.com/images/charts/gr-libor-chart-6-1.jpg

In fact I don't think banks really spend a lot of their interest income, otherwise the economy has recovered long ago. For them it is all about getting more and more money, what they are interested is to expand their balance sheet as large as possible

That's messed up man.  Someone in internet land thinks I owe them money.  I'm not going to be able to sleep now.  Thanks a lot!

Printing a $100 bill takes much less resources than anything you can buy with $100, right ;)

Only bitcoin takes about as much resources to "make" them than what you can buy with it, if the mining cost approaches the block reward.

No, this is an old, wrong, and recurring story that debt-based money with interest can only exist with infinite printing, because "you have to pay more back than has been printed/lend out".


Of course not, because short-term lending is not the ONLY source of money. 
If it were the sole source of money, then you would be right, but it isn't.  If the same "printer" also lends out on longer terms, and spends, on these longer terms, more than the interest just due on these longer terms, the spendings of the money lender (the CB) can cover paying the short term interests too.

This kind of story confuses always the quantity of money, and the fluxes of money.  Loans, and interests, are FLUXES of money.  The velocity of money allows you to have a total flux of money which is larger than the amount of money. (it is the ratio).


They do spend it, for instance on salaries of their employees, and on dividends of their share holders ; on golden parachutes of their CEOs and on all the goods and services they buy for their functioning.

Just take a look at the FED's balance sheet, the interest income normally is re-invested to buy more bonds, means they lend out most of the interest income

From a banker's point of view, it is very unusual to spend large amount of income on goods and services, since the banking mind is to accumulate and grow the portfolio, most of their spending is on buying more debts and assets, operational cost is minimum comparing with the size of their loan. You can judge this from the fact that banks can always afford the most expensive salary and computer hardware (means they have much more income than those expenses)