How does it matter what you choose to think when the bank lent out your money and now can't pay you back?
The point is that you regard loaned money to be just an illusion. No I don't? I said the loaned money is the actual money. The money held in demand deposits is an illusion. I don't know how much more clearly I can say this. However, my example shows that: - While the system is working, neither loaned nor originally deposited money are illusions.
- When the system stops working, both loaned and originally deposited money are illusions.
What? No it doesn't. Your example shows that while the system is working the loaned money is real and the deposited money is an illusion and when it doesn't the deposited money reveals itself as an illusion but the loaned money still exists and continues to exist. Are you telling me that the U$ 1.000,00 I deposited into my bank and never borrowed from anyone are an illusion? |
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How does it matter what you choose to think when the bank lent out your money and now can't pay you back?
The point is that you regard loaned money to be just an illusion. However, my example shows that: - While the system is working, neither loaned nor originally deposited money are illusions.
- When the system stops working, both loaned and originally deposited money are illusions.
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Think of money as an accounting system. What is an asset on my balance sheet, could be a liability on someone else's, or an asset of a company thats owns my company. Does the asset exist 1, 2 or 3 times? Is it the same? Its a meaningless discussion. Money is fungible, and its just accounting of debt.
For money to account for debt, it must exist independently of the debt it accounts for. Otherwise, what you have is just debt accounting for itself, which is (now truly) meaningless. |
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I make a deposit of U$ 1.000,00. Then, my (so to speak) bank loans one of your debtors (if any) the U$ 900,00 in excess reserves created by my deposit. Finally, that guy pays you his debt with a bank transfer of the borrowed U$ 900,00. Now imagine a voice telling you that the U$ 900,00 you just received in payment are just an illusion. Is that voice really yours?
Um? the illusion is that you have $1000 available to you in your demand deposit bank account, not that I didn't receive $900.  Unsurprisingly, I would choose to think precisely the opposite. Then, we would sort it out with a little fight. We are about to see something similar in a global scale. |
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[...] it is the same money and the same money only, thinking about it any other way is an illusion. How can you tell? Well if all demand depositors at a bank came to withdraw their balance all at once the bank couldn't pay them back.
It's no different if you gave me some money to keep safe and I told you I'm going to loan out some of it and give you a share of the interest but because I have many clients like you I can give you back everything should you really need it - unless I can't.
And that's exactly what demand deposit contracts say. Hence why FRB isn't a fraud (something I used to believe it was until I really thought about it). The problem is that because how FRB works today, with FDIC and the FED there to repay the depositors should a bank run happen and a bank can't get enough short term loans from other banks, it leaves people under the illusion that the money they store in a demand deposit account is always in it's entirety available to be spent at any moment and this affects their behavior. They now instead of knowing that they may not have that money available to them and spend accordingly, they spend as if their balance is guaranteed whenever. This is the only reason why all the balances combined that have been created out of the same money can be counted towards an increase in the money supply - purely because people behave like it - and not because an actual increase in money supply happened.
In a market regulated strictly by consumption i.e. in a free market where there is no FDIC and FED, these risk would be much more apparent and people would spend accordingly and this illusion that they have their entire money available to them would get destroyed. Well I don't there would be no increase in the perception of how much money depositors have available but I'm certain it would orders of magnitude less than today and thus booms and buts fueled by an increase in people's illusion of how much money they have available for spending would be significantly smaller and shorter eventually leading to decent stability assuming this system would keep it's form for a long period of time.
I make a deposit of U$ 1.000,00. Then, my (so to speak) bank loans one of your debtors (if any) the U$ 900,00 in excess reserves created by my deposit. Finally, that guy pays you his debt with a bank transfer of the borrowed U$ 900,00. Now imagine a voice telling you that the U$ 900,00 you just received in payment are just an illusion. Is that voice really yours? |
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From the text: Large parts of this thesis are based on the teachings of the Austrian economic school. There are several reasons for this. As for the subjective ones, it is the school I am familiar with the most, and that I nd myself in most agreement with. I disagree with Austrian monetary theory: I propose a new theory of exchange value that resembles the Marxian variety despite no longer being Marxian. |
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It isn't "the same money" vs "not that same original money", rather the amount of money has increased and you still own most of it.
A loan must be the same old money from which it is a loan, otherwise it is no longer a loan. |
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Let us analyze what happens if we Google Representational Monetary Identity.
All 4 results lead directly to you. I hope this discussion will improve that. < No offense, this is just my opinion >
Does the world need a new phrase "Representational Monetary Identity" to help describe a tired old problem, FRB?
IMO, no. I'm not offended, although "representational monetary identity" is a concept, not just a phrase---a concept intended to explain fractional-reserve banking, and not only to describe it. You think we do, and good luck with your project...
Yes, I think we do. We must understand a problem before we can solve it. |
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OK. This question has intrigued me too. As when I first learned about bitcoin I just assumed that FRB would work. The problem for me now is I just can't see any money-multiplier effect possible.
In FRB 90% of a deposit from person X at Bank A can become a loan to person Y at bank A.
Person Y can then deposit his borrowed money at Bank B. So there are now two deposit accounts with the "same" fiat money. With bitcoin, when a loan is made to person Y the bitcoins follow him to Bank B. Bank A no longer has the bitcoins.
Now you might say that Bank A can pretend to still have the bitcoins just as it would "pretend" to still have the fiat in the form a loan account in a fiat system. However, the latter case works as the FRB system is backed by central banks who can print fiat to supply to Bank A if depositor X wants his money back while the loan to person Y is still outstanding.
In a bitcoin system the central bank would not be able to print bitcoin and would have to source it, from tax revenues perhaps. This is the inflexible part of the BTC monetary base.
When you say that bitcoins cannot replicate because they are an "inflexible" monetary base, you are saying they cannot replicate because they cannot replicate. To understand why they cannot replicate you must first understand why today's money can. |
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You deposit $1000 and the bank loans out $500 (for example) to make a profit.
If you want to withdraw your full $1000 before the bank has "the same" money, then they have to give you someone else's (not the same) money to cover the other half.
This Fractional Reserve Banking works fine until too many people want their money all at once...
...or until inflation destroys the currency, or until the country defaults. Yet the question remains unanswered: how is it possible that the money from a deposit becomes a loan that is both the same and not the same as the originally deposited money? I offer an answer to that question at http://omniequivalence.com/fractional-reserve-banking/ and http://omniequivalence.com/representational-monetary-identity/. |
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This is a bitcoin forum so I am pointing out that bitcoin makes FRB obsolete, which makes this question moot.
FRB enables the duplication of currency (within reserve limits which prove to be a mirage because of central banking which is the achilles heel of fiat systems).
If you cannot answer how is the replication of money possible, then how can you know that Bitcoin makes it impossible? (What you call "duplication" I prefer to call "replication" because the exact multiple depends on the reserve requirements.) |
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The simplest answer is that bitcoin cannot be debased by Fractional Reserve Banking.
This was not the question. The question was how can the money loaned from a bank account be both the same and not the same as the money from which it is a loan. |
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Let us analyze what happens in commercial banking (from http://omniequivalence.com/fractional-reserve-banking/ and http://omniequivalence.com/representational-monetary-identity/): First, we have a deposit. Then, we have a loan of up to a fraction (of 90%) of this deposit. Finally, the borrower can deposit the borrowed money into another bank account, in the same bank or not. Suddenly, the trillion dollar question emerges: is the borrowed money in these two bank accounts the same? - On the one hand, the answer is yes: all borrowed money came from the original deposit---so it is that same original money.
- On the other hand, the answer is no: all money deposited into the borrower's account possibly stays in the original depositor's account---so it is not that same original money.
How can that be? |
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I've been paying pretty close attention for a little over a year now. Until recently I kinda just watched and waited while hustling a few coins to pay for my lunch.
Just curious: what made you change your attitude?  I didn't change my attitude at all. I'm still hustling a few coins to pay for my lunch. Cashing out. The recent even is I signed up for an account on the forums. And I got a spiffy back injury so I have more time to do things like read this forum while I recover. Silent Hill is on the TV and I'm going to have to re-watch it cause the various high-level bitcoin dramas are more interesting than the horror flick. I think I just woke up in a shitty state and felt a need to vent about history repeating. I would rather be sailing. I'm sure you would rather I be sailing also? Why don't you just go sailing, then? |
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I've been paying pretty close attention for a little over a year now. Until recently I kinda just watched and waited while hustling a few coins to pay for my lunch.
Just curious: what made you change your attitude? |
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The supporters of Bitcoin would say centralization is to blame, since it allows the manipulation of the monetary system in favor of the wealthy. However, since most gold monetary systems were also centralized, how could centralization explain fiat monetary systems, especially debt-based ones? Clearly, centralization is not enough to explain our current monetary system.
First, what do you mean that 'mos gold monetary systems were also centralized' ? Are you talking about gold and silver certificates which were then later not redeemable in gold and silver? Centralization was a necessary step to wean the public off of gold and silver money and move to a more centralized system of purely fiat money. (It's also not just a matter of centralization, it's how much power over the money supply the centralized authority has.) It was an extremely gradual process from the gold standard of the 1800s, to the increasing use of gold certificates, to the introduction of Federal Reserve Notes, to the confiscation of privately held gold in 1933 (but dollars were still redeemable in gold by foreign governments), to the removal of silver from the coinage in 1965, to the point where dollars were no longer redeemable for gold in any way in 1971. Each step gave more power to the Fed to create money at will. Basically, I'm not sure what your question is. Centralization was necessary for the government/Fed to get more power to create money - why do you think this says anything about the merits of a gold standard? What I am saying is that commodity money in general (and gold money in particular) leads to fractional reserve banking, which leads to central banking, no matter how gradually. As I am also saying that Bitcoin is essentially different. |
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Fractional reserve banking consists in creating new money from loans, and Bitcoin does not allow anyone to create new Bitcoins at will. Therefore, implementing fractional-reserve banking with Bitcois would involve creating another monetary system in which Bitcoin would be just a monetary unit, and no longer a monetary system. Finally, although the two monetary systems could eventually coexist, they would remain distinct: there is no such thing as fractional-reserve banking within the Bitcoin monetary system. Fractional reserve is an enormously popular topic in circles of jerks everywhere. The web page you link to is probably helpful for someone although one might conclude from it that the differences in the two viewpoints are mostly semantics around the definition of money supply. IMO, the Keynesian model seems much more in contact with behavioral reality, it's based on observations of what people have actually done for thousands of years, practices predating Keynesian ideas like actively managing the money supply through lending. The Austrian school strikes me as one of these prescriptive ideologies like Soviet-style Marxism that establishes a "rational" model ( by some definition ) and then tells us it should be how the world is made to work because of the internal "correctness" of the model. In any case, bank lending is not the only way that leverage can be used to create money. For example, margin lending can have the same effect. Such lending does exist in the Bitcoin world at the exchange site Bitcoinica. The hedging that inevitably is done by keepers of large concentrations of money ( e.g. Mt. Gox ) almost certainly involves the use of leverage. One way or the other, all lending can create more money in circulation, not just the evil deeds of fiendish central banks Except with mining, you cannot "create more money" with Bitcoin, period. To leverage your position in Bitcoins, Bitcoinica has to already have those additional Bitcoins: it cannot create them, like commercial banks do by loaning deposit money. |
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Fractional reserve banking consists in creating new money from loans, and Bitcoin does not allow anyone to create new Bitcoins at will. Therefore, implementing fractional-reserve banking with Bitcois would involve creating another monetary system in which Bitcoin would be just a monetary unit, and no longer a monetary system. Finally, although the two monetary systems could eventually coexist, they would remain distinct: there is no such thing as fractional-reserve banking within the Bitcoin monetary system. |
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Have you ever wondered why gold have been and ceased to be money so many times in history? Many talk about returning to gold, but if gold was that much better than fiat money, then why has fiat money recurrently replaced it? The supporters of Bitcoin would say centralization is to blame, since it allows the manipulation of the monetary system in favor of the wealthy. However, since most gold monetary systems were also centralized, how could centralization explain fiat monetary systems, especially debt-based ones? Clearly, centralization is not enough to explain our current monetary system.
Gold wasn't lost as money because of "centralization." It was lost as money because governments desire the ability to debase the national currency for deficit spending. Upon a gold standard, the ability of governments to spend beyond their taxable means is limited. Upon a fiat standard, the ability of governments to spend beyond their taxable means is far less limited, for they can merely print some portion of the deficit (and the public, taught in government schools their whole lives, never learns about the insidious inflation tax they endure). Put simply - the gold standard tends to be abandoned by governments because it restricts their ability to spend. It limits their power, so they find ways and excuses to get rid of it. Of course the motivation for debt money includes the "ability to spend," although this only hides a deeper motivation: the massive transfer of wealth resulting from a continuous creation of new money always born in the hands of the same few people. Although it may seem that governments have an inherent desire for deficit spending, the gold standard was abandoned mostly during war periods, and those wars were motivated by private interests rather than by public ones. The key point is that gold was the historical basis for fractional reserve banking, which in turn was the historical basis for central banking: gold makes no distinction between money itself (the actual equivalent of all possible equivalents) and its representation (the commodity, gold), so it not only allows but naturally favors and even requires fractional reserve banking (just remember how fractional reserve banking evolved from gold keeping). Bitcoin, on the contrary, has the distinction between money as an abstraction (a private key) and its representation (the corresponding public key) as an essential, defining feature, which is as much an essential difference from gold as one can be. |
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The post is not correct because people have already tried to create bitcoin representatives already. You are seeing people trying to create bitcoin banks to solve bitcoin's problems in the wrong way. Bitcoin doesn't need any banks from what I've learned but it needs improvements in the software to solve particular problems.
And gold can be used a trustworthy physical currency. I do believe bitcoin can be used to facilitate a new digital financial system.
It is conceivable that in the future bitcoin could also become a method for trading digital contracts as well but that would be back to the derivatives. The bitcoin system or a similar one could be used to trade contracts that relate to something such as gold but I don't know how digitally signed contracts could work exactly and how current legal systems would deal with them.
A "bitgold" would have problems and advantages I suppose.
There is no problem in creating representations of Bitcoin, provided that such representations are complete (physical coins with an embedded private key are a good example of a complete bitcoin representation). By complete representations I mean representations that replicate the dual nature of Bitcoin as both a private key and its public representation, thus preserving the fundamental distinction between them. |
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