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Author Topic: Lending BTC is very risky  (Read 4575 times)
dissipate
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August 25, 2012, 10:01:31 PM
Last edit: September 12, 2012, 09:57:30 PM by dissipate
 #1

After giving it some thought, I realized that lending BTC is quite risky. It is risky because even under the assumption that a borrower is honest and would repay their debt if they could, a sudden rise in the price of BTC would make it difficult or impossible for borrowers to repay their debt. If you lend to an individual, they will simply default. If you invest in a pass through lending operation, what will happen is a number of investors will try to pull their BTC out. They will do this either because they want to take profits on the BTC itself, or they believe the borrowers will not be able to pay back their loans due to the rise in the price of BTC. The operator of the lending pass through will not be able to accommodate all of the payouts and may only recover some of the BTC from the borrowers.

Interestingly, however, lending BTC can sort of act as a hedge against a sudden BTC price drop. If the price of BTC drops, your borrowers will be able to more easily pay back the BTC plus the interest. So, while the value of your BTC holdings will go down, you will suffer fewer defaults in your lending operation.

Thoughts? Any flaws in my reasoning? Discuss.
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August 25, 2012, 10:04:08 PM
 #2

The responsible lendees would take out a Long position somehow...
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August 25, 2012, 11:27:28 PM
 #3

After giving it some thought, I realized that lending BTC is quite risky. It is risky because even under the assumption that a borrow is honest and would repay their debt if they could, a sudden rise in the price of BTC would make it difficult or impossible for borrowers to repay their debt. If you lend to an individual, they will simply default. If you invest in a pass through lending operation, what will happen is a number of investors will try to pull their BTC out. They will do this either because they want to take profits on the BTC itself, or they believe the borrowers will not be able to pay back their loans due to the rise in the price of BTC. The operator of the lending pass through will not be able to accommodate all of the payouts and may only recover some of the BTC from the borrowers.

Interestingly, however, lending BTC can sort of act as a hedge against a sudden BTC price drop. If the price of BTC drops, your borrowers will be able to more easily pay back the BTC plus the interest. So, while the value of your BTC holdings will go down, you will suffer fewer defaults in your lending operation.

Thoughts? Any flaws in my reasoning? Discuss.
The debtor can repay in part, which will still be at a profit for the creditor.
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August 26, 2012, 04:21:00 AM
 #4

The debtor can repay in part, which will still be at a profit for the creditor.

If I receive less than I've loaned out, I'm at a loss, regardless of the exchange rate. Perhaps I've misunderstood you.

you could break even on a lessor amount if the value increases :

loan out 100 coins

agreement of 120 coins  returned in 1 month

coin price incredibly doubles overnight

borrower can only  afford to return 60 coins you have still  profited since each coin  is worth double

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August 26, 2012, 04:35:56 AM
 #5

The debtor can repay in part, which will still be at a profit for the creditor.

If I receive less than I've loaned out, I'm at a loss, regardless of the exchange rate. Perhaps I've misunderstood you.

you could break even on a lessor amount if the value increases :

loan out 100 coins

agreement of 120 coins  returned in 1 month

coin price incredibly doubles overnight

borrower can only  afford to return 60 coins you have still  profited since each coin  is worth double

No, if fiat profit is what you are after, I would have been better off with my 100 coins. Loaning them has provided me with a loss.

you can still ask your debtor to fulfill the contract with 120 coins but if he says he cant afford to since the coins have doubled in price what you gonna do ?

the loaning business is just plain risky  , no matter what your loaning out
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August 26, 2012, 04:40:17 AM
 #6

The responsible lendees would take out a Long position somehow...

Imagine bullion dealers have to deal with such things daily. But how to do it with btc and not increase risk of that hedging failing at the same time?

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August 26, 2012, 05:04:12 AM
 #7

The debtor can repay in part, which will still be at a profit for the creditor.

If I receive less than I've loaned out, I'm at a loss, regardless of the exchange rate. Perhaps I've misunderstood you.

you could break even on a lessor amount if the value increases :

loan out 100 coins

agreement of 120 coins  returned in 1 month

coin price incredibly doubles overnight

borrower can only  afford to return 60 coins you have still  profited since each coin  is worth double

No, if fiat profit is what you are after, I would have been better off with my 100 coins. Loaning them has provided me with a loss.

you can still ask your debtor to fulfill the contract with 120 coins but if he says he cant afford to since the coins have doubled in price what you gonna do ?


You are going to lose (be less well off than if you hadn't loaned).

What if I get robbed and then win the lottery? Yay for robbery because I'm richer now?


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August 26, 2012, 05:53:17 AM
 #8

As Holliday said, you'd be better off just keeping your coins if you think the price is going to skyrocket instead of loaning (in terms of USD).

The question is, how certain are you it's going to do that?

A person might spread the risk around and do a bit of everything.
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August 26, 2012, 06:00:06 AM
 #9

I think it is more accurate to say that borrowing BTC is risky because it is likely that the BTC used to payback the loan will be more costly than the BTC that was loaned. The risk of default might increase, but the lender can reduce that risk.

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August 26, 2012, 09:51:22 AM
 #10

Thoughts? Any flaws in my reasoning? Discuss.
You are exactly correct.

There IS one good reason to invest though; a low-risk investment may be better than holding inflating fiat IF you fear a BTC price drop coming soon.

(like the bubble burst just recently)

Basically you could get 5% instead of -4% while waiting for the BTC drop you fear. Even if you are incorrect and buy back into BTC at a loss at least your loss is smaller by 9% per year.

Once BTC stabilizes in 2050 or something, invest away.

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August 27, 2012, 02:55:44 PM
 #11

Yes, lending BTC is currently very risky.  Price fluctuation makes the whole process very difficult.  But long term when the price stabilizes, lending in BTC won't be much different than any other fiat currency.  With fiat currencies, interest rates try to account for inflation.  If I give you $10 today, I want $12 tomorrow for taking on the risk of you not paying it back & to fight inflation.  Obviously with deflationary currencies, the situation is a little different.  If I give you 10 BTC today, I may only want 11 BTC back tomorrow because I realize 10 BTC today is worth more tomorrow, but I want a little extra for taking on the risk of you not paying me back.  There is still incentive in lending because I'm getting 1 BTC more tomorrow than I started with today.

In general, lending/investing is risky.  Someone may not pay you back or the stock market could crash.  Unfortunately, despite its riskiness, with fiat, you are forced to lend/invest to fight inflation.  I'm more willing to risk that $10 for $12 because it will be worth even less tomorrow.  Why should you have to be so risky with your hard earned money?  With bitcoin, you won't have to take that risk.  No longer will the average person have to worry about the stock market or save more than necessary just to counter inflation.


The only reason to limit the block size is to subsidize non-Bitcoin currencies
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August 27, 2012, 03:12:44 PM
 #12

The debtor can repay in part, which will still be at a profit for the creditor.

If I receive less than I've loaned out, I'm at a loss, regardless of the exchange rate. Perhaps I've misunderstood you.

you could break even on a lessor amount if the value increases :

loan out 100 coins

agreement of 120 coins  returned in 1 month

coin price incredibly doubles overnight

borrower can only  afford to return 60 coins you have still  profited since each coin  is worth double
No, if fiat profit is what you are after, I would have been better off with my 100 coins. Loaning them has provided me with a loss.
This is why I don't expect loans to be a very large part of a mature bitcoin economy. No lender would ever lend at a negative nominal rate so loans will be very expensive in a deflationary environment.

Consumption and investment will be funded via savings (capital formation) instead of debt.
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August 27, 2012, 03:17:57 PM
Last edit: August 27, 2012, 04:26:46 PM by DeathAndTaxes
 #13

This is why I don't expect loans to be a very large part of a mature bitcoin economy. No lender would ever lend at a negative nominal rate so loans will be very expensive in a deflationary environment.

Consumption and investment will be funded via savings (capital formation) instead of debt.

In a mature Bitcoin economy the rate of deflation will be very low.  While inflation/deflation is a component of interest rates it isn't the only component.

Take CC denominated in USD.  24% APR when the projected inflation over the period of repayment is ~3% annually.   Hypothetically if the USD neither deflated nor inflated and all risks were the same one would expect the market to reach equilibrium at ~21% APR on this CC loan.  

If a large & mature Bitcoin economy is deflating at say 1% per year then we would expect a 23% 20% interest rate on this same loan denominated in BTC.
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August 27, 2012, 03:41:53 PM
 #14

In a mature Bitcoin economy the rate of deflation will be very low.  While inflation/deflation is a component of interest rates it isn't the only component.
Deflation in a bitcoin economy will come from economic output growth and the  reduction in the supply of bitcoin (lost coins). This means probably at least 5% per year, or possibly more in times of strong economic growth.

In the current economy politically favored groups get to borrow at negative real interest rates. In an environment where this is not possible (due to inability to mint new bitcoins at will) and everybody had to borrow at positive real rates you'd see commercial loans going for rates that looked like consumer credit cards. Durable goods loans (homes, cars, etc) would be expensive and require significant down payments, if they were even available.

In that kind of environment nobody would be borrowing. Individuals and businesses would need to accumulate savings prior to making purchases/expansions, like they did prior to the last hundred years of debt financing.
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August 27, 2012, 04:16:58 PM
 #15

If a large & mature Bitcoin economy is deflating at say 1% per year then we would expect a 23% interest rate on this same loan denominated in BTC.
You mean 20% right?

21% - deflation of 1% = 20% (21 in real interest)

In that kind of environment nobody would be borrowing. Individuals and businesses would need to accumulate savings prior to making purchases/expansions, like they did prior to the last hundred years of debt financing.
But isn't that good?

Prices would drastically lower and people wouldn't be slaves to debt anymore.

It would become easier to sell your home, move and buy a new one.


In depressions of inflating BTC prices massive savings would fly away to solve the problem at hand until deflation and new saving returned.

Basically an automatic, but healthy form of Keynesianism that doesn't pervert markets into over consumption, war and throw-away economies.

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August 27, 2012, 04:20:20 PM
 #16

you'd see commercial loans going for rates that looked like consumer credit cards. Durable goods loans (homes, cars, etc) would be expensive and require significant down payments, if they were even available.

In that kind of environment nobody would be borrowing. Individuals and businesses would need to accumulate savings prior to making purchases/expansions, like they did prior to the last hundred years of debt financing.

It is tough to speculate about this.  But I mostly agree with you - lending rates will be a lot higher.  I reached the same conclusion with different reasons though.  I believe the main source of low rates is the middle class saving for retirement by investing in the stock market to fight inflation.  A deflationary currency eliminates this need.  Creating a huge hole that will cause rates to sky rocket.  But I can also see the reasoning in your logic.  Both of these combined will have a large affect on lending.  I wonder if deregulation & lower taxes will lower the demand for lending offsetting the lack of money to lend dampening the rate hike.  Either way, I personally think it is a good thing.

The only reason to limit the block size is to subsidize non-Bitcoin currencies
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August 27, 2012, 05:52:57 PM
 #17

But isn't that good?

Prices would drastically lower and people wouldn't be slaves to debt anymore.

It would become easier to sell your home, move and buy a new one.
It is good for everbody except for those that benefit from the current system, and those people who basically lost their life savings because they put it all into their house, based on the delusion that it was an investment instead of a durable good.
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August 27, 2012, 06:09:52 PM
 #18

I am having a website built for me where loans can be pegged to different currencies.

So you could loan out $200 worth of btc rather than 20btc.  Might make loaning more attractive.  Site should be up in a month or so, if my programmer doesn't have a stroke or something.
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August 27, 2012, 06:51:21 PM
Last edit: August 27, 2012, 07:13:35 PM by Etlase2
 #19

Individuals and businesses would need to accumulate savings prior to making purchases/expansions, like they did prior to the last hundred years of debt financing.

"The last hundred years" is not at all accurate. With the advent of FRB, financing exploded. This was 300 years ago. And there is certainly evidence to suggest that this is what truly brought about a middle and/or merchant class of people. Now, all this really means is that there was not enough money to bring about productivity in people who had production to offer. It is unfortunate that the some gains of this productivity are siphoned off to the wealthy, but it is the system that brought about some serious economic prosperity. The abuse of it, of course, has brought some very negative side effects though. In particular, there is likely groups of super wealthy that manipulate governments into controlling other governments into getting into debt and putting their people into debt and so on and so forth. Healthy, unmanipulated FRB is probably a good thing, but this is not what exists today.

The over-production/consumption that exists today is most likely due to the fact that our governments are in serious debt and the citizens are forced to repay this ridiculous, fictitious debt in the form of taxes or cut social services or what have you. So even though we are so productive, we have to continue to work ourselves literally to death so that the wealthy can eek out more profits.

A currency where investment is very risky due to the nature of the currency is never going to be significant. Especially one that is so ridiculously lopsided as bitcoin.

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August 27, 2012, 08:49:05 PM
 #20

The over-production/consumption that exists today is most likely due to the fact that our governments are in serious debt and the citizens are forced to repay this ridiculous, fictitious debt in the form of taxes or cut social services or what have you. So even though we are so productive, we have to continue to work ourselves literally to death so that the wealthy can eek out more profits.
The wealthy are certainly taking a signifigant cut but the vast majority of the stolen productivity is going to pensioners.

Those people, especially retired public sector workers, stand to lose the most if the government looses the ability to extract production from the working via the inflation tax.
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August 27, 2012, 09:08:26 PM
 #21

The over-production/consumption that exists today is most likely due to the fact that our governments are in serious debt and the citizens are forced to repay this ridiculous, fictitious debt in the form of taxes or cut social services or what have you. So even though we are so productive, we have to continue to work ourselves literally to death so that the wealthy can eek out more profits.
The wealthy are certainly taking a signifigant cut but the vast majority of the stolen productivity is going to pensioners.

Those people, especially retired public sector workers, stand to lose the most if the government looses the ability to extract production from the working via the inflation tax.
The wealthy are the only people who benefit from our current broken system. Pensioners are often forced to retire against their will, have most of their pensions stolen from them, and rarely if ever get pension hikes. Inflation hurts pensioners more than working people (who get pay rises).
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August 27, 2012, 09:20:49 PM
 #22

Pensioners are often forced to retire against their will, have most of their pensions stolen from them, and rarely if ever get pension hikes. Inflation hurts pensioners more than working people (who get pay rises).
At least in the US, many public sector workers get pensions that are indexed to inflation so they are insulated from all that. Not to mention that their health benefits are usually far more expensive than the monthly stipend they receive.
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August 27, 2012, 09:53:52 PM
 #23

And there is certainly evidence to suggest that this is what truly brought about a middle and/or merchant class of people. Now, all this really means is that there was not enough money to bring about productivity in people who had production to offer.....
I don't think you can say those are related just because they happened in kind of the same time period.

The dark ages weren't dark anyway, they still invented cool things.

Fossil fuel and the industrial age was the real kicker, not some new human point system.

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August 27, 2012, 09:58:44 PM
 #24

Pensioners are often forced to retire against their will, have most of their pensions stolen from them, and rarely if ever get pension hikes. Inflation hurts pensioners more than working people (who get pay rises).
At least in the US, many public sector workers get pensions that are indexed to inflation so they are insulated from all that. Not to mention that their health benefits are usually far more expensive than the monthly stipend they receive.

If those pensions are indexed to the CPI, they aren't insulated. It is well known that the CPI is very flawed and underrepresents the true inflation rate. For instance, food and gas are excluded from it. Who doesn't buy food or gas?
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August 28, 2012, 09:49:09 AM
 #25

I don't think you can say those are related just because they happened in kind of the same time period.

Really, why not? There just happened to be a huge expansion of productivity that just happened to coincide with FRB?

Quote
Fossil fuel and the industrial age was the real kicker, not some new human point system.

So the industrial age was just a side effect? It had nothing to do with easily available credit? If you want to believe that, that's fine. Here's some government sponsored debt to go with it.

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August 28, 2012, 10:32:53 AM
 #26

Really, why not? There just happened to be a huge expansion of productivity that just happened to coincide with FRB?
Well first of all correlation != (not equal) causation - that ESPECIALLY goes when we are talking a 300 year time period. Did inflation/fiat also cause Hitler, the atomic bomb and the moon landings?
Quite simply too much of a stretch.

Quote
So the industrial age was just a side effect? It had nothing to do with easily available credit? If you want to believe that, that's fine. Here's some government sponsored debt to go with it.
I believe the industrial age was the cause for easy credit NOT the other way around.

Now that we are 7 billion people and our natural and energy resources are at their peak and stretched thin this easy credit is starting to disappear in the ongoing financial crisis.

Keep in mind that money comes AFTER goods. It is JUST a point system. BTC may be a better point system, but even BTC has its limits - I doubt it will lead to world peace and a star trek like wealthy utopia.

The industrial revolution was simply a result of ongoing human progress.

The above fits perfectly with our reality, NOW lets look at YOUR theory:


To say the industrial age started the second debt came is wrong as debt existed before - it is even in several bible stories if I'm not mistaken.
Even the Romans tried government debt/fiat with coins containing less and less amounts of precious metals. It did NOT work well.

Further, today we have more government debt than ever before and things are looking bad whether you believe in peak resources/climate change or not.
If debt = expansion/progress why is it not working now?


Occam's razor: 300 years ago we had lots of potential ahead of us and loads of free stuff lying around in nature - now we DON'T. Boom; simple.

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August 28, 2012, 06:16:09 PM
 #27

Really, why not? There just happened to be a huge expansion of productivity that just happened to coincide with FRB?
Well first of all correlation != (not equal) causation - that ESPECIALLY goes when we are talking a 300 year time period. Did inflation/fiat also cause Hitler, the atomic bomb and the moon landings?
Quite simply too much of a stretch.

Quote
So the industrial age was just a side effect? It had nothing to do with easily available credit? If you want to believe that, that's fine. Here's some government sponsored debt to go with it.
I believe the industrial age was the cause for easy credit NOT the other way around.

Now that we are 7 billion people and our natural and energy resources are at their peak and stretched thin this easy credit is starting to disappear in the ongoing financial crisis.

Keep in mind that money comes AFTER goods. It is JUST a point system. BTC may be a better point system, but even BTC has its limits - I doubt it will lead to world peace and a star trek like wealthy utopia.

The industrial revolution was simply a result of ongoing human progress.

The above fits perfectly with our reality, NOW lets look at YOUR theory:


To say the industrial age started the second debt came is wrong as debt existed before - it is even in several bible stories if I'm not mistaken.
Even the Romans tried government debt/fiat with coins containing less and less amounts of precious metals. It did NOT work well.

Further, today we have more government debt than ever before and things are looking bad whether you believe in peak resources/climate change or not.
If debt = expansion/progress why is it not working now?


Occam's razor: 300 years ago we had lots of potential ahead of us and loads of free stuff lying around in nature - now we DON'T. Boom; simple.

There is still a lot of stuff lying around. And there is the made shit that surrounds me which I refer to the raw materials anyway. Then even if it really was gone, we've learned a lot and had some fun.

We're always getting better at reusing the processed stuff. As soon as the price of that ticks under getting the harder to reach raw materials that's what we'll do.

Nothing is going anywhere, it's just changing form and it just takes smarts to deal with it well.

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August 28, 2012, 06:49:02 PM
 #28

We're always getting better at reusing the processed stuff. As soon as the price of that ticks under getting the harder to reach raw materials that's what we'll do.
I'm not saying we are doomed, just that the easy boom times are gone.

I was simply pointing out that if inflation and debt have been a constant while we have had both ups and downs then inflation cannot be the cause of expansion - in fact, data suggests it has little or NO relation.
Additionally there is a whole LIST on wiki with hyper inflation countries, MANY western ones too. Most of these cases where not good for the economy or mankind.

In other words Bitcoin may have largely no effect on the economy or a good effect compared to inflation. Until the BTC economy dies on its own instead of growing inexplicably to economists I will not worry.

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August 28, 2012, 08:04:55 PM
 #29

Well first of all correlation != (not equal) causation - that ESPECIALLY goes when we are talking a 300 year time period. Did inflation/fiat also cause Hitler, the atomic bomb and the moon landings?
Quite simply too much of a stretch.

How am I supposed to take you seriously when you use Hitler as an example? There is certainly a correlation with the expansion of the money supply and the rise of the middle class and the industrial age. It is not definitive causation, no, but it is a significant correlation and can't be simply swept aside. And why does fiat need to be thrown into the mix? There was no fiat, this is gold-backed currency we're talking about here.

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I believe the industrial age was the cause for easy credit NOT the other way around.

Good for you. It doesn't really make sense that productivity increased then the money supply magically increased as an effect, but believe what you want.

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Keep in mind that money comes AFTER goods.

No, it doesn't. New money is not created because there is new productivity. It creates more demand for money, sure, and banks took advantage by using FRB. If they hadn't, all sorts of new production would have likely been halted due to lack of investment.

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To say the industrial age started the second debt came is wrong as debt existed before - it is even in several bible stories if I'm not mistaken.

But that's not what I said, so why make this argument.

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Even the Romans tried government debt/fiat with coins containing less and less amounts of precious metals. It did NOT work well.

Wait, so you're saying the greatest empire in human history didn't work well? Damn, you need a history lesson son. Yes it eventually broke down because of the dilution of the currency by individual cities and such, but the empire lasted for a very long, and very prosperous time using a fiat-like system. So did the British empire with tally sticks. Of course, abuse a good thing and it's going to bite you in the ass. The tally sticks were only issued by the king so they were never abused in the way the Romans did, but the Bank of England put the kibosh on them.

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If debt = expansion/progress why is it not working now?

Again you are putting words in my mouth. Abels claimed that "100 years ago" businesses and people saved up before they did something, which, as a rule, is patently untrue. We have been functioning in a debt-based production society that is similar to today for hundreds of years. And it's not like I didn't give a good reason why it isn't working now:

"The over-production/consumption that exists today is most likely due to the fact that our governments are in serious debt and the citizens are forced to repay this ridiculous, fictitious debt in the form of taxes or cut social services or what have you. So even though we are so productive, we have to continue to work ourselves literally to death so that the wealthy can eek out more profits."

I am 110% against central banking, but central banking is not FRB, they are two different concepts.

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

"From these two premises, the neoclassical model makes three important predictions. First, increasing capital relative to labor creates economic growth, since people can be more productive given more capital."

Now there's no guarantee that this is correct, but this is economics where nobody really knows anything for sure. What we do know for sure is that your opinion is just an opinion, and so is mine. To compare my opinion to bringing about the rise of Hitler is ridiculous and only makes you look desperate to win an argument on the internet.

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August 28, 2012, 10:58:20 PM
 #30

How am I supposed to take you seriously when you use Hitler as an example?
Unfortunately me mentioning something does not make you right.
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There is certainly a correlation with the expansion of the money supply and the rise of the middle class and the industrial age.

It is not definitive causation, no, but it is a significant correlation and can't be simply swept aside. And why does fiat need to be thrown into the mix? There was no fiat, this is gold-backed currency we're talking about here.
Just as there is a correlation between the expansion of debt and a billion other things. Its a null argument and NOT significant.

Why is a correlation "significant" when its over a 300 year time period where there could be a million other explanations?

Fiat is equal to debt, its a piece of paper with a promise = debt.


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I believe the industrial age was the cause for easy credit NOT the other way around.
Good for you. It doesn't really make sense that productivity increased then the money supply magically increased as an effect, but believe what you want.
Actually it makes perfect sense:
1. Increase in goods.
2. Increase in productivity.
3. More credit is created, but due to more goods you don't get hyper inflation.
3. Due to increased productivity more ventures are successful and people as result more readily give loans.

This is the reverse:
1. More credit is created.
2. More businesses get funded and products bought.
3. However productivity can not increase drastically in short time and supply falls short.
4. More businesses can sell, but their costs quickly go up as well due to resource/productivity constraints.
5. Hyper inflation or debt liquidation occurs.

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Keep in mind that money comes AFTER goods.
No, it doesn't. New money is not created because there is new productivity. It creates more demand for money, sure, and banks took advantage by using FRB. If they hadn't, all sorts of new production would have likely been halted due to lack of investment.
More money only means higher prices.

What matters is not the money investment, but what fraction of ALL humans work on something productive. More money will not necessarily change this "productive fraction/percentage" in the right direction.

However with an increase in productivity due to tech or simply more humans you can have more money without inflation. Hence money creation FOLLOWS production.

If you really believe money creates wealth then why isn't every government printing like crazy with everyone living in utopia? Because your theory is WRONG.


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To say the industrial age started the second debt came is wrong as debt existed before - it is even in several bible stories if I'm not mistaken.
But that's not what I said, so why make this argument.
Fine "debt expansion" - that has ALSO happened before.


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Wait, so you're saying the greatest empire in human history didn't work well? Damn, you need a history lesson son.
No you do, they failed once they tried to create money to solve their problems. YOUR EXACT PROPOSAL!

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If debt = expansion/progress why is it not working now?
Again you are putting words in my mouth. Abels claimed that "100 years ago" businesses and people saved up before they did something, which, as a rule, is patently untrue.
You are being obtuse; obviously SOMEONE borrowed, but overall there was less fiat/debt and more savings-investment.

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"The over-production/consumption that exists today is most likely due to the fact that our governments are in serious debt and the citizens are forced to repay this ridiculous, fictitious debt in the form of taxes or cut social services or what have you. So even though we are so productive, we have to continue to work ourselves literally to death so that the wealthy can eek out more profits."
That only explains the crisis in US and other authoritarian regimes. Why is the rest of the world having a financial crisis? Why is China slowing down?
They invest and invest and invest.

You are basically correct that the crisis is caused by bad investments and by an exploiting elite.
These bad investments cause productivity to fall (Iraq etc.).

With less productivity, ventures fail and banks fail - debt contracts.

Now if you were correct in money/debt/fiat expansion creating ANYTHING, then WHY is the order in reverse? Why are we seeing productivity drops from an idiot consumerist society and THEN money contraction?

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Now there's no guarantee that this is correct, but this is economics where nobody really knows anything for sure. What we do know for sure is that your opinion is just an opinion, and so is mine..
I just pointed to evidence of CAUSATION.

The best you have is vagueness of when debt is good/bad and MAYBE some correlation the last 300 years - you haven't even established when you think this expansion began and when the money expansion began - I can date my data:

?-1990 productivity steadily rises along with money supply. ~1990-2007 all is pretty good with money markets, but the market is obviously wasting human effort and resources on too big houses, hummers and wars while paying no heed to resource depletion or climate change - a contraction of productivity.
THEN in 2008 money markets crash and have been since.

Again: WHY is the order the reverse if money comes before trade?

Please explain that. Then tell me where my theory doesn't match up with reality just ONCE. Just point out one measly example of where more productivity lead to less money/debt in the world total and I throw away my theory.

Also please agree with the statements in bold or I will consider you an economist/troll and ignore you.

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August 29, 2012, 01:00:11 AM
 #31

Fiat is equal to debt, its a piece of paper with a promise = debt.

What matters is not the money investment, but what fraction of ALL humans work on something productive.

?-1990 productivity steadily rises along with money supply. ~1990-2007 all is pretty good with money markets, but the market is obviously wasting human effort and resources on too big houses, hummers and wars while paying no heed to resource depletion or climate change - a contraction of productivity.

Your logic is sound.

Reading through your post elevated a thought in my mind. Originally when money was precious metal backed, paper money was a debt of something specific, say silver, owed by the bank to Jack. Jack could give that paper to Jill as payment for a handjob, who would then be owed the silver from the bank instead, claimable whenever, or she can give it to the chemist for some hand cream.

Fiat money made it such that the bank owed nothing to Jack, and instead became a currency creation device which only gave its currency out and got currency back. Jack now has to ask the bank for money for a handjob, to which the bank agrees to then creates a contract for Jack to give them the money back + interest, and adds the money to Jill's account. This is more fundamental a shift than I had previously realized...and something I think most people haven't come to commonly understand yet. It's a stroke of utter genius by the banks. Now they get to decide what to grow in the economy, by issuing loans only to ventures / purchases they want to see more of (eg Australian/Canadian housing bubble, at the expense of business (in Australia at least)).

Previously the banks were subject to people's whims, but now people are subject to the bank's whims. Perhaps it may have been a form of self-protection against mass hysteria, but there is clearly a control shift. This observation is not an argument against fiat, just interesting.

As for the debate you two are having, I personally think the capture and reinvestment of interest is what's causing financial meltdown. There is a glut of production in the world, but those with the positive cash balance don't need anything, and those without are competing for the scraps left over to pay down their own currency debts to banks. Paying people to "dig ditches" is attacking the problem from the wrong direction, imo. It will temporarily ease the cashflow squeeze, sure, but a more lasting fix would come from ceasing the reinvestment of interest. I don't mean stop all interest...I mean once an entity has earned interest on a loan / investment, it's duty is to spend all of the interest - the principle can stay where it was.

Reinvesting interest means the economy will never have the opportunity to pay down a particular debt except by issuing more debt. The longer this goes on (compounded interest), the faster money will have to be created to keep the wheels spinning. Since money can only be created through debt, the prediction is obvious - exponentially climbing debt, and a lower standard of living for most people. Imo, currency is too important a concept to be "hogged" by either the banks or the people, and having all investments(savings) in the form of dividend investments, with some sort of time limit to consume the interest paid, would mean that anyone who borrows money for a purpose has a better chance of being able to pay down the debt. There is no longer a need for exponentially increasing debt.

This will undoubtedly lead to more frivolous purchases, but the economy will keep moving. Also, I think this idea might only need be applied to banks. Since they're the ones issuing debt, and decide what happens to the interest they collect on the loans they created - whether they add it to their capital reserves or purchase consumables - the problem can mostly be resolved here. I'm sure they're reinvesting it to grow larger, but it's at the expense of society's ability to pay them back. In small doses it might be fine, but when everyone's doing it, it doesn't leave a very healthy economy, and essentially enslaves the population.
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August 29, 2012, 04:17:32 AM
 #32

Unfortunately me mentioning something does not make you right.
I know you are but what am I?

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Just as there is a correlation between the expansion of debt and a billion other things. Its a null argument and NOT significant.

Why is a correlation "significant" when its over a 300 year time period where there could be a million other explanations?
Because the quick expansion of the money supply and the start of the industrial revolution happened around the same time. Paper money worked because of the scarcity of gold, not in spite of it.

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Fiat is equal to debt, its a piece of paper with a promise = debt.
That's great and all, but FRB is still not fiat, and one does not necessarily have anything to do with the other, so I don't know why you bring this up again.

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Actually it makes perfect sense:
1. Increase in goods.
2. Increase in productivity.
3. More credit is created, but due to more goods you don't get hyper inflation.

...
More money only means higher prices.
Make up your mind, please.

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What matters is not the money investment, but what fraction of ALL humans work on something productive.
Right, and the easiest way to lubricate the greatest and most productive fraction of people is to have enough money to go around. What happens when there isn't enough money to go around can easily be seen by the credit crisis that led to the great depression. Prior to monetary expansion, society worked because most people lived in a feudal or other pre-industrial society. Lots of gold to go around, even in the form of paper, allowed for much easier economic expansion and international trade and various other benefits.

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If you really believe money creates wealth then why isn't every government printing like crazy with everyone living in utopia? Because your theory is WRONG.
Heyo, another strawman alert. I have never said nor believed that money creates wealth. The easy flow of money, however, can very easily bring out the most productivity in the greatest number of people.

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No you do, they failed once they tried to create money to solve their problems. YOUR EXACT PROPOSAL!
Heyo, another strawman alert, and a lack of historical understanding alert. The Romans created fiat-like money very early on and also price fixed and this worked well for hundreds of years before the collapse of the currency. It only failed because of improper control of the money supply. Kind of like the situation we find ourselves in with central banks.

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That only explains the crisis in US and other authoritarian regimes. Why is the rest of the world having a financial crisis? Why is China slowing down?
Really? Last time I checked, almost every single country in the world except for about 3 or 4 use a central bank-controlled currency. And in each of those countries, there is no currency competition so banks are free to fuck up however they please and there is little that the population can do about it except suffer.

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Now if you were correct in money/debt/fiat expansion creating ANYTHING, then WHY is the order in reverse? Why are we seeing productivity drops from an idiot consumerist society and THEN money contraction?
Because we over-produce due to the fact that we are enslaved by government/central bank debt. I already said this but you choose to ignore what doesn't suit you. I'm not going to argue about the slowing of the velocity of money due to credit crises because that is a different subject and one that I haven't touched, but you are using as some kind of false-logic argument.

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?-1990 productivity steadily rises along with money supply. ~1990-2007 all is pretty good with money markets, but the market is obviously wasting human effort and resources on too big houses, hummers and wars while paying no heed to resource depletion or climate change - a contraction of productivity.
THEN in 2008 money markets crash and have been since.

Again: WHY is the order the reverse if money comes before trade?
I argued that an expansion of money allows for an expansion of productivity (to a point), something also argued by neoclassical economists. There are other factors at play in a credit crisis and a contraction of productivity, namely money supply manipulation by central banks or the super wealthy and so on. There is more to money than just "fiat" or "not fiat".

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Just point out one measly example of where more productivity lead to less money/debt in the world total and I throw away my theory.
I don't know why you're asking this or what this has to do with the argument I've made. If I claim that A causes B, that does not mean that I claim that not A causes not B or some other such crap.

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Also please agree with the statements in bold or I will consider you an economist/troll and ignore you.
Woohoo, an "agree with me or I deem you a troll" ultimatum. Very mature.

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August 29, 2012, 09:41:30 AM
 #33

Quote
Actually it makes perfect sense:
1. Increase in goods.
2. Increase in productivity.
3. More credit is created, but due to more goods you don't get hyper inflation.

...
More money only means higher prices.
Make up your mind, please.
Dude how can you NOT know that more goods means lower prices? So if there are more goods AND more money prices will stay stable... that is like the MOST basic economics theorem/common sense of all time - you didn't quote a cleverly found contradiction, what I said there makes perfect sense...

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What matters is not the money investment, but what fraction of ALL humans work on something productive.
Right, and the easiest way to lubricate the greatest and most productive fraction of people is to have enough money to go around.
Money is not oil for engine, its a point system for resource allocation.

Making more money/debt/flow (= points) could easily give priority to NON-productive activities. Again like today in the US with governments giving priority to themselves through inflation/flow resulting in drops in productivity.

Flow=inflation=debt=money.


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Heyo, another strawman alert. I have never said nor believed that money creates wealth. The easy flow of money,
I am not trying to make strawman arguments I just can follow your train of thought since you keep changing your definitions and when your theory applies.

How is more money not the same as flow? What if two people pass bills back and forth, that's a lot of flow?

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The Romans created fiat-like money very early on and also price fixed and this worked well for hundreds of years before the collapse of the currency. It only failed because of improper control of the money supply. Kind of like the situation we find ourselves in with central banks.
I'm sure the Romans had different things going for them.

But the pattern of their fall fits my theory: First they became decadent and wasteful. Then they collapsed and people were forced into slavery to pay their taxes - presumably after some merchants going bankrupt. A contraction of money supply.

I have never once read in history books that: "The Roman bank started to issue fewer coins, markets froze and they crashed". No it's always "decadence -> collapse" with lubrication being irrelevant.

It does not fit yours because they had lots of coins at hand, money "lubrication" was not absent.

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Really? Last time I checked, almost every single country in the world except for about 3 or 4 use a central bank-controlled currency.
Yeah but to a large degree they are NOT fucking up in every other country and there is STILL financial problems.

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Because we over-produce due to the fact that we are enslaved by government/central bank debt.
And that enslavement happens because of a fresh flow of money. Which completely clashes with your theory of flow = good.

Quite clearly evidence shows that some flows are BAD, not good. That more money flow in the wrong direction can lead to drops in productivity due to market manipulation.
Which again suggests that we would be better off without any such flow.


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?-1990 productivity steadily rises along with money supply. ~1990-2007 all is pretty good with money markets, but the market is obviously wasting human effort and resources on too big houses, hummers and wars while paying no heed to resource depletion or climate change - a contraction of productivity.
THEN in 2008 money markets crash and have been since.

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There is more to money than just "fiat" or "not fiat".
Not really; there are tangible goods of intrinsic value and there are promises and point systems = money = fiat = debt.

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Just point out one measly example of where more productivity lead to less money/debt in the world total and I throw away my theory.
I don't know why you're asking this or what this has to do with the argument I've made. If I claim that A causes B, that does not mean that I claim that not A causes not B or some other such crap.
In science - NOT economics (neoclassical or otherwise) - if you can find ONE deviation from a theory then it is regarded as entirely and completely false.
There are no "exceptions" or "to some degree...".

I have found several situations your theory does not explain, you can't name one for mine.

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Also please agree with the statements in bold or I will consider you an economist/troll and ignore you.
Woohoo, an "agree with me or I deem you a troll" ultimatum. Very mature.
I didn't ask you to agree with me, just the statements in bold. Who is making strawman arguments NOW?

I can't argue with a man that thinks the sky is green and the world flat.

Fiat is equal to debt, its a piece of paper with a promise = debt.

What matters is not the money investment, but what fraction of ALL humans work on something productive.

?-1990 productivity steadily rises along with money supply. ~1990-2007 all is pretty good with money markets, but the market is obviously wasting human effort and resources on too big houses, hummers and wars while paying no heed to resource depletion or climate change - a contraction of productivity.

Your logic is sound.
Hah you used my own words better than I could. Nicely done.

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Perhaps it may have been a form of self-protection against mass hysteria, but there is clearly a control shift. This observation is not an argument against fiat, just interesting.
Yes. If banks had been smarter it could have been a good control shift.

Well we tried that and it did not work - I suggest we give power back to investors and governments that are usually at some point held accountable for their actions.
Bitcoin is perfect for that.


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Imo, currency is too important a concept to be "hogged" by either the banks or the people, and having all investments(savings) in the form of dividend investments, with some sort of time limit to consume the interest paid, would mean that anyone who borrows money for a purpose has a better chance of being able to pay down the debt.
I am assuming you mean "stocks" with dividend investments?

I agree there; it is a fundamentally better arrangement where no one gets thrown into jail if the venture fails.

Basically co-ownership and sharing dividends would make for a better economic model I think.

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This will undoubtedly lead to more frivolous purchases, but the economy will keep moving.
What do you mean by this?

If people invest in stocks, start-ups and the like where interest is paid, but not by guarantee. Why does that make us more frivolous?
Wouldn't that prompt banks to better evaluate the soundness of a "loan" before giving it?

Imagine I want a house closer to work:
Today I borrow money on the house. If the house value drops I go to jail and the bank may tank.

With a dividend investment model I promise by contract to pay dividends on what I save by moving closer to work.
Now if the house value drops nothing happens to any of us!
If I loose my job that is bad, but I don't go to jail on top of it and I get to keep the house. THEN if I find a job again I start to pay dividends again.

How vast a difference is that? In this world the bank would have to estimate rationally whether me moving closer to a town is rational or frivolous.
If that town desperately needs workforce they say yes, otherwise they suggest a different town.

I think this would lead to a more efficient market.

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August 29, 2012, 02:36:33 PM
Last edit: August 29, 2012, 03:51:41 PM by Etlase2
 #34

Quite clearly evidence shows that some flows are BAD, not good. That more money flow in the wrong direction can lead to drops in productivity due to market manipulation.
Which again suggests that we would be better off without any such flow.
Not all A is bad, implies some A must be neutral or good
Therefore, A should never happen Huh

A, if misallocated, leads to drops in productivity
Therefore, instead of fixing A's misallocation, A should never happen Huh

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In science - NOT economics (neoclassical or otherwise) - if you can find ONE deviation from a theory then it is regarded as entirely and completely false.
There are no "exceptions" or "to some degree...".
Oh man, you better call up every economist in the history of time and tell them how you have solved economics.

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I have found several situations your theory does not explain, you can't name one for mine.
No, you have made assumptions about what causes what with rudimentary logic and claims of your infallibility coupled with fallacious arguments.

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I didn't ask you to agree with me, just the statements in bold. Who is making strawman arguments NOW?
You, as you have throughout your arguments. "I know you are but what am I" doesn't work as an argument past fourth grade. Quote anything I've said in this thread where I've used a legitimate strawman and I will send you 100 BTC.

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I can't argue with a man that thinks the sky is green and the world flat.
Whoops, there you go again.

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August 29, 2012, 05:15:42 PM
Last edit: August 29, 2012, 05:29:58 PM by Realpra
 #35

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A, if misallocated, leads to drops in productivity
Therefore, instead of fixing A's misallocation, A should never happen
Yes.

If fake money flows from inflation simply do not occur this will happen:
1. Governments have to argue for their taxes, they can't just steal with inflation while claiming the taxes are "low"-> leading to a more educated people/nation.
2. Banks investing in bubbles will default instead of being bailed out -> Leading to fewer stupid banks and fewer wasteful bubbles on average.
3. Governments going to war for little to no reason will be bankrupt and will be forced to stop -> ending death and violence in MANY cases.

All of this will be given to us by Bitcoin and Satoshi in time.

Since I realized the potential of Bitcoin I have been blessing my stars, not because I got to get in early and maybe will become wealthy, but because of what it will do to the world.

Bitcoin will make even the last adopter rich.

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In science - NOT economics (neoclassical or otherwise) - if you can find ONE deviation from a theory then it is regarded as entirely and completely false.
There are no "exceptions" or "to some degree...".
Oh man, you better call up every economist in the history of time and tell them how you have solved economics.
Maybe I will after calling all the astrologers in the world first, unfortunately I think, I will be unable to get reception with the economists; since they have their heads stuck so far up their own asses that evidence doesn't count in their field.


Anyway I have shown counter examples that you have then denied, but not explained and you have attacked me instead of providing counter examples to my theory in return.

We are basically just arguing to see who is "right"/more bored now, so I will just stop.

As for rudimentary logic; I am also amazed its so fucking hard for you and the politicians to understand common sense that I need to write it down and spell it out for you.

Bye, go buy some "cheap" pirate bonds.

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August 29, 2012, 06:31:41 PM
 #36

The responsible lendees would take out a Long position somehow...

Imagine bullion dealers have to deal with such things daily. But how to do it with btc and not increase risk of that hedging failing at the same time?

quoted for truth -

I hold a lot of physical bullion. And it can both ways - I sell 20 ounces, wait till payment clears, and then when I box them up for shipment, I am sending out a couple hundred $ more in value.

It burns a little, but it also evens out tho - I would argue dips and rises are kind of hand in hand - for each rise I had to swallow, some dips happen between purchase and ship date, making it ok.
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August 29, 2012, 09:06:19 PM
 #37

All of this will be given to us by Bitcoin and Satoshi in time.

Since I realized the potential of Bitcoin I have been blessing my stars, not because I got to get in early and maybe will become wealthy, but because of what it will do to the world.
Quelle surprise, someone with nothing to lose and everything to gain by rabidly defending bitcoin, with a dash of sycophancy thrown in.

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August 29, 2012, 09:37:27 PM
 #38

Quelle surprise, someone with nothing to lose and everything to gain by rabidly defending bitcoin, with a dash of sycophancy thrown in.
Bitcoin could crash tomorrow and I wouldn't really be touched by it at all - it's not even my biggest investment.

I don't believe BTC will rise or fall depending on what I say either lol. Guess some are more full of themselves than others.

As for "nothing to loose" that should go to the millions that will starve and riot this year because of the failed US harvest. But of course since money is wealth they could just eat Rwandan franc right? Maybe invest some money flows in some food that just simply isn't there?

lolololol

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August 29, 2012, 11:05:03 PM
 #39

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Imo, currency is too important a concept to be "hogged" by either the banks or the people, and having all investments(savings) in the form of dividend investments, with some sort of time limit to consume the interest paid, would mean that anyone who borrows money for a purpose has a better chance of being able to pay down the debt.
I am assuming you mean "stocks" with dividend investments?

I agree there; it is a fundamentally better arrangement where no one gets thrown into jail if the venture fails.

Basically co-ownership and sharing dividends would make for a better economic model I think.

Yeah the stock model with dividends would be the most appropriate. Saving cash for compounded interest purposes is the accelerator of debt. Businesses still have to fight for the dollars to pay their outstanding loans in the normal competitive way, and they can still go bankrupt.

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This will undoubtedly lead to more frivolous purchases, but the economy will keep moving.
What do you mean by this?

If people invest in stocks, start-ups and the like where interest is paid, but not by guarantee. Why does that make us more frivolous?
Wouldn't that prompt banks to better evaluate the soundness of a "loan" before giving it?

Imagine I want a house closer to work:
Today I borrow money on the house. If the house value drops I go to jail and the bank may tank.

With a dividend investment model I promise by contract to pay dividends on what I save by moving closer to work.
Now if the house value drops nothing happens to any of us!
If I loose my job that is bad, but I don't go to jail on top of it and I get to keep the house. THEN if I find a job again I start to pay dividends again.

How vast a difference is that? In this world the bank would have to estimate rationally whether me moving closer to a town is rational or frivolous.
If that town desperately needs workforce they say yes, otherwise they suggest a different town.

I think this would lead to a more efficient market.

I believe that would lead to a more efficient market also, although without repercussions there is guaranteed to be more scamming - I don't know if the advantages would outweigh the social costs there. eg if you actually just wanted to live closer to the beach, where your work is near, and once you move you lose your job and don't seek another, living off previous investments, there is a social cost to this. Modern banks will definitely want the loans repaid + interest to accept any other model, or relinquish control in the current one. The honor system is unreliable.

By frivolous, I meant that the dividend interest that you get from your investments needs to be spent on consumption fairly quickly (within a year?). Although on second thought I guess it won't really cause *more* frivolous spending, and even if it did, it shouldn't matter. If a person's "must spend" money is expiring soon and they have to choose whether to just let it expire or buy a banana costume they might buy the banana costume...just based on getting something rather than nothing, but at least it is keeping banana costume makers in business. The realistic chances are they've probably already spent it by now anyway. I suppose this money would be a bit like options. Once a person spends that money on a consumable, that money is converted to normal revenue which is used to pay costs / debt / further dividends (option money).

I was talking about a slight modification to the current system rather than a complete overhaul (just yet): it makes a distinction that earned money through salary is fundamentally different to earned money through investment. Earned money through salary can be spent or saved, and this is the money that can be used to invest in new profit-seeking ventures. The profits from such ventures, returned to you as an investor, must however be used on consumption - the remainder of unspent money can be taken by the tax man or something for someone else or all of you to consume. You can replace the govt with particular charities if you prefer, in this scenario, but the principle is that investment profits should be re-injected into the economy, if we want to slow down the acceleration of debt.
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August 30, 2012, 11:19:34 AM
 #40

I believe that would lead to a more efficient market also, although without repercussions there is guaranteed to be more scamming.... The honor system is unreliable.
Good point. Still overall you hear a lot more stories about people taking multiple loans on the same house than you do stories about bad companies selling stock.

Also its not just honor; there is a contract saying some of your earnings/savings must be paid as dividends.

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By frivolous, I meant that the dividend interest that you get from your investments needs to be spent on consumption fairly quickly (within a year?).
Ahh so you are talking about a system of forced dividend spending.

I guess your rationale is increasing consumption/economy kinda like inflation does, but without the government interference?

That is actually pretty good, but what if:

1. Some tech will become viable in 2 years.
2. The world is in trouble.
3. The market wants to save its real resources until the new tech has been developed.

With forced spending you would be fueling some wasteful bubble even though the market knows it should save for a few years until the next really good idea appears.

Dunno guess my example is a bit convoluted.

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September 02, 2012, 10:09:23 AM
 #41

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By frivolous, I meant that the dividend interest that you get from your investments needs to be spent on consumption fairly quickly (within a year?).
Ahh so you are talking about a system of forced dividend spending.

I guess your rationale is increasing consumption/economy kinda like inflation does, but without the government interference?

That is actually pretty good, but what if:

1. Some tech will become viable in 2 years.
2. The world is in trouble.
3. The market wants to save its real resources until the new tech has been developed.

With forced spending you would be fueling some wasteful bubble even though the market knows it should save for a few years until the next really good idea appears.

Yes forced dividend spending, which would work with or without a central government. The focus is on removing the noose of compound interest. The system would not force the spending of salary earnings - this can be accounted by either using two currencies (one for salary eg btc, one for dividend interest eg fiat) although that may prove clumsy, or one currency and checked during "accounting" time.

For example, if a person earns $50k from salary, and $20k from investments, they should be able to show $20k worth of "consumption spending" for that year...the $50k can be saved, invested or spent as they wish (or taxed first if in a govt system). If they only spent $15k in consumption of the $20k earned from dividends, the $5k left over can either be paid in tax or given to charity / someone else who can consume it. I don't imagine many people would let that money go to charity/tax, so it will most likely go into actual consumption, but those who simply earn a lot more than they can consume will end up giving up rights to that "excess" income for the sake of allowing the economy to function. This would actually help the standard of living. The high income still get first pick of the economy, and once they've had their fill the rest can divide what's left, so to speak. Retirement would also depend on asset building via savings from salaried work.

The inflation system has a very good reason for existing, from a business perspective. It's just not good from a saver's perspective. Savers make a big sacrifice by saving - they work, and choose to enjoy less than their counterparts (usually) to either buy something significant, or fund something productive ala business investment. Once investments start growing, however, things can become significantly easier, and it's tempting to re-invest dividend income into further investments. This is exactly what accelerates the removal of consumable money floating around, and the debt spiral can either be stopped, or at least slowed down, by this forced consumption.

I don't really see this interfering with the market in the scenario you presented. If resources are known to be valuable in 2 years time, they would likely have already been purchased or priced out of normal plebeian reach by the speculative market...unless I'm missing something in the question. Capital for new ventures can still be borrowed. When a company makes a consumption sale (someone buys to use without the intention of selling for a profit), that income can come from either someone's savings or their dividend income, and both count as normal revenue for the company; this is then split according to company needs to pay expenses / debts, and then net profit is split between investors, and counts as their individual dividend income which they must spend. If a company wishes to expand, it would be best to raise further funds from existing investors "salary incomes", or from a bank, than reinvesting this profit. Companies storing cash "for the win" hurt the economy just as much as anyone else, and this money should be flushed out for use by the economy - in a central government system, I would have to do the maths to confirm but on the surface I think low tax rates would be the go.

The important thing to mention about your scenario, is that speculation is not consumption spending. If it's bought to later sell at a profit, it was not bought for consumption, and so must then have been purchased with savings or a new bank loan. The important resources will still be "their true value", but it won't unnecessarily impact the existing economy's ability to manage it's existing debt.
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