Bingo, somebody talking sense.

There are LOTS of people that work in banks, that are void of the knowledge required to be useful in the future that is coming. Alot of them, don't even understand how computers work, how would you expect somebody as impotent as that to grasp the full potential of something as beautiful as bitcoin?

They are stupid, and whether or not they are aware of their own stupidity doesn't really matter, because in the end, people like that are the ones which will be phased out in the global economic future, and rightfully so because there are too many idiots living and breathing in this world which DO NOT BELONG.

No. Unemployment is not the result of the free market, it is solely a result of red tape to disallow work, and government intrusion into markets. With free markets, it is just as easy to sell your work (get a job) as it is to sell tomatoes, that is, you get a better price for a better product, but you will be able to sell it all. Young people of today may not believe this, but it has been the case in the past. That is how students could travel, split your summer vacation in two, work in one half, travel in the other. There was never a question of how to find work. This was around here (unspecified) in the seventies.

You are confused, probably by the negative connotations of the words speculation and hoarding. So let me use other words.

Setting usable stuff aside, because your foresight tells you that the stuff will be more needed in the future, is investment. It carries a risk (the future could unfold otherwise) and it costs money (the price of the stuff). If you do this investment, you reserve some of the stuff in the now, when the need is not so vital, to release it in the future, when it is scarce. This way you create value. At the same time, the price of the stuff now will increase as a result of your demand, directing more investments into producing the stuff.

Consumption is not good in itself, that depends on the preferences of the consumers, that is, everybody. Using central planning, confiscation and force to extend consumption now, is destruction of value. I can not understand why people with all senses in behold can echo the nonsense from the statists.

There are simplifications, but I essentially write the first few chapters of Keynes' Treatise on Money.  So maybe he didn't understand banking either.

Of course, but that is sufficient.  The reserves and the imposed fractional ratio determine how much money a bank can create.  You should maybe read the first chapters of the Treatise on Money by Keynes again ?

Simply said, if I'm bank A, and you're bank B, we can write loans to each other as much as we like, and those loans become created money.  If there's no legal limit, two banks can create an infinite amount of money, by lending to each other.  The reason being that the "debt certificate" that bank A holds of bank B, is considered an asset of bank A, and the "debt certificate" that bank B holds of bank A, is considered an asset of bank B.  As such, by lending themselves, say, each, $ 100 000.- they have created two times $100 000.- of assets one another.  Their balances are in check: they have each an "asset" (the other bank's debt) of $ 100 000.-, and they have each a debt of $ 100 000.- (as a bank account they opened for the other bank with $100 000.- on it).  They can even ask interest.  There's a cash flow due, and there's a cash flow coming in.

Now that they have their balances in check, and they have money (that is, the bank account in the other bank with $100 000 on it), they can lend it out to, say, someone needing a mortgage.  They then ask that person 3% interest on it.  If bank A lends out its freshly created $100 000,- to Joe, who wants to buy a house, by writing him a cheque on the other banks' account and then Joe has to give them $ 3000.- a year.

So on Monday, Bank A didn't have a dime.  On Tuesday, Banks A and B do their money-creating swap.  On Wednesday, bank A loans its money to Joe.  Now, bank A has an income of $3000.- a year.  Its balance is still in check.  It has no dime, but it has a debt to bank B of $ 100 000.- and it has a mortgage contract worth $100 000.- with Joe.  Its balance is in check.
Bank B will do the same.

On Thursday, the directors of bank A and B meet in a bar, and decide to start over next Monday....
As such, they generate each an income of about $ 3000.,- a week, as long as they find mortgage customers...

They can do the same with a mutual loan of $ 1000 000.- or even $ 1000 000 000.- or ....
But in reality, they can't because there's a legal limit: their reserves.  It was Keynes' (correct) argument to require a reserve and a reserve ratio by law, to avoid the "runaway" of banks creating money.

Suppose that the reserve ratio is 5%, and bank A and bank B manage to have $ 1000 000.- each as a reserve deposit.  That means that they can now play that game until they have about $ 20 000 000.- of customer bank accounts (of the other bank, say ;-) ) and lending out $ 20 000 000.-

They cannot "go party" with $ 20 000 000.- because they have to have their balances in check.  It is not that they can SPEND that money. But they can LOAN that money, and invest it and they don't need a high return on it.  If their reserve COSTS them, say, 1%, and they can obtain even 0.5% on the $ 20 000 000.- they work with, then they make sheer benefit even though they invest badly.

Indeed, the 1% on their reserve costs them only $ 10 000, and the 0.5% on the $ 20 000 000 brings them $100 0000 !

So IF you can obtain reserves, you can create money.  And if you can create money, you obtain the interest on it "for free".  You cannot spend the money itself, but you can spend the interest, which you do get for free.

When banks get into problems is when they screw up so badly that they LOSE money, and that they loose their $ 20 000 000.-

The trick of "pumping money" with banks is to use the reserve fraction ratio as a leverage on the interest: if you get $ 1000.- more reserves, you can play with 20 000 or so.  So you only need to generate a return on those 20 000 that is 20 times smaller than the cost of your 1000 in order to break even.  If you become greedy, and you start doing risky things with those 20 000, then you might be very rich, or you might be in deep shit if it goes wrong.  

It's logical to assume that when you create more of something, you dilute the value of what's already in existence. That's exactly what has happened to the US dollar since the 2008 financial crisis hit.

Because of fiat inflation.  I'm convinced that 80% of the "useless" and very lucrative part of the financial sector resides in the inflation driven fiat currency.  The financial sector has the MONOPOLY in obtaining fresh fiat money from the CB, and hence obtains its seigniorage (indirectly).

In an inflationary situation, hoarding money is losing value.  So you are FORCED to put your money on a savings account, even to try to keep its value.  This forces you to give your money to a bank, not even to gain in value, but just trying to KEEP the value.  Now, that bank then gets A LOT OF MONEY at its disposition to do a lot of stuff with, like gambling, investing in doubtful things, and hence blowing bubbles.  Moreover those banks also get the fresh money from the central bank at lower rates than it writes out loans take a lot of value for nothing, but you are obliged to pass through them.  You can't borrow directly from the central bank as they can.  They have a privilege.  

THAT's why they exist.  

As I said, not entirely, because there ARE useful financial services, but not at the scale of the financial sector.  MOST of the financial sector exists because of fiat inflation --- which is why they are scared to death of deflation.

Obtaining credit doesn't mean that you need a huge financial sector.  After all, obtaining credit is a market, between those wanting to offer credit, and those wanting to obtain it.  In principle, it is sufficient to bring together both parties.  It is a bit like e-bay.  There is a business opportunity to bring together creditors and debtors, but it doesn't have to be as big as the banking sector.


I don't know where you get that.  In a mildly deflationary environment, nominal interests on loans are much lower than in a mildly inflationary environment.  That was my whole point.

What do you prefer ?
A $200 000 loan in a 2% inflationary environment at 5% interest, or a $200 000 loan in a 2% deflationary environment at 1% interest ?

Banks works exactly like centralized bitcoin exchanges, they store customer money and play until they go broke, and ask for bailout by tax payer (unfortunately they can not claim to be hacked like a bitcoin exchange). Centralized bitcoin exchanges are not necessary, we have OTC market and localbitcoins, you can do person to person trade

In old time, a major reason that banks are needed is security, people need bank's vault to provide some protection for their saved money

https://bitcointalk.org/index.php?topic=1010511.0

"Banks are not just unnecessary... they are harmful"  

But banks don't like this, if no one is borrowing from banks, how could they make a live? If there is no new money creation, the banks will die

In a deflative environment, holding money itself is a good investment, so almost no one will take loan, the interest of loan will be negative to attract borrowers. Even now some central banks are setting interest to negative to encourage borrowing.

And, in a highly automated society like today, you don't need more technological progress, so no new investment is needed, keep the existing running is enough to give everyone a decent life with early retirement, which is the ultimate goal of technology advance

The argument for deflation has always been that the holders of cash should be able to claim a fixed fraction of economic output even if that output grows.

With a fixed number of Bitcoins each coin represents 1/21millionths of the whole economy and as the economy grows the holder of 1 Bitcoin still has claim to 1/21millionths of the larger economy. If a home is dropping in value (priced in bitcoin) then this just means it represents a smaller and smaller fraction of the total economy. So maybe it should fall in price in terms of Bitcoin. Same Bitcoin balance buys more.

Some think that's wrong.

This other side of the argument is that a holder of 1 Bitcoin should be able to buy a fixed amount of goods. A crate of apples for example. If the economy grows by 10% and the fraction of value of the total economy that the crate of apples represents falls 10% then so be it. He is still able to buy the crate with his Bitcoin. The economy as a whole requires more Bitcoin over time to account for the extra 10% for this stability in purchasing power to happen.

If one wants his own purchasing power to rise with the economy he should loan his money (and take risk) under an agreement that accounts for inflation, positive or negative. He should not expect to hoard his cash under a mattress and get more goods for them in the future.

In the end we can all agree that instability in Inflation/Deflation is bad. However, absolute inflation vs. zero inflation or deflation, even if stable, is really a choice between a fixed value for your unit of money in the future vs. a fixed fraction of economic output for your money as the economy grows.

It is a huge parasite on the economy, yes.  Their true added value is essentially zilch, and they can appropriate them a lot of production, through seigniorage that goes with monetary inflation.

Yes, apple postponed the production of his first i-phone until there was demand for it.  Then they piled up a million of i-phone 2 in their warehouse.

"a little inflation is good" for the financial sector.  That's all.

Could you please explain that to tee-rex who thinks that the amount of money blocked in the production process (that is, between the moment you need to spend it, and the moment you get to sell your production) has no cost.

It just means that one business is less profitable than another, that's all. As long as profit earned is above inflation (mind this), the business is sustainable in the long run. Which will never be the case if it continuously suffers losses due to deflation, whatever interest rates might then be. I don't really understand why you are trying to argue against this simple fact.

IRS that's because you spent a low amount, and they don't care about those amount, but they actually know about it