You are the one constantly talking about the market running out of loans, credit, investment or money.
"Demand for money" - what does that even mean... no SERIOUSLY; explain it to me, I don't get it.
I have never used nor implied any "running out" of loans etc. only that a deflationary currency makes loaning a dangerous affair for both parties. So, paradoxically, a deflationary currency might make for
high-interest and presumably short-term only loans. Not the type of loan you can do capital investment with--more akin to loan sharking.
I will, against all better judgment, assume that your question is genuine and your insulting strawman was a misunderstanding.
https://en.wikipedia.org/wiki/Demand_for_money - The demand for money is the desired holding of financial assets in the form of money: that is, cash or bank deposits.
where M
d is the nominal amount of money demanded, P is the price level, R is the nominal interest rate, Y is real output, and L(.) is real money demand.
L(R,Y) is called liquidity preference which is a Keynesian idea, but Austrians have time preference which can be substituted and the situation works out roughly the same.
Keeping a stable price level P means that whenever output is increased, the demand for money M
d will increase in the same fashion, or prices will not be stable--they will have to decrease. Because the money
supply is so restricted in bitcoin, this will generally be the case. When the central bank increases the supply of money, P rises
then M
d rises. They can't happen at the same time because the money supply is narrowly focused to private banks. This is where the "theft" comes in because the prices increase before any of us have any say in the matter or see any benefit to new money. When the supply of money can meet new demand quickly, prices do not decrease. When money is not given to sacrosanct institutions
first, but equitably across the economy, M
d and P can move at the same rate, if necessary (or L() can cancel it out).
Because distributing the new money equally is the same as moving the comma, think about it. Give everyone 10 times as much money and its exactly the same as moving the comma once to the left.
It is not, because you have forgotten the cost factor to mining. Miners are held in check by the potential of inflating prices by overproducing and making mining unprofitable. "Cash-hoarders" are held in check by miners because miners create new money that will presumably put to use, stifling deflation. If the demand for money gets too high, interest rates should increase as well, also prompting cash-hoarders to stop hoarding and invest at interest. It is a balance from all angles that can't be manipulated. There is also, at least in my proposal, a large chunk of the new money that goes straight to trade, which is why I chose my words carefully and said "equitably" instead of "equally". Trade is where new value is realized and it should be rewarded in kind.
It is really rather simple: if you pay a 0.01 fee on a transaction, the odds of you being awarded 1 coin for that transaction is made to be no less than 1 in 101. Transaction fees are required under this model, as they will eventually be under bitcoin.
Well Bitcoin needs those fees for a reason and not to control price levels or something.
The fees aren't there to control price levels.
Anyway if you pay 0.01 as fee and on average win the same all you are doing is subsidizing miners and allowing them to charger higher fees perpetually. This would either lead to a NEW wasteful banker-class or over consumption of CPU time.
The miners don't have anything to do with the fees. Mining isn't required at all. When the demand for money is in line with the supply, mining stops. No electricity usage at all.
0.1-0.5% is a horrible investment, no one should accept that.
Well there you go! There was some heated discussion a year or so ago on how deflation might somehow be prone to
negative interest rates. CD rates nowadays are around 1%. Admittedly, that is with central bank theft of interest rates, but even when they were not manipulating as much, the best, safe interest rate in a typical 2-3% inflationary economy is going to be 2-3%. Riskier investments can lead to around a solid 5%, but they tank when the economy as a whole tanks (see everybody's IRAs, 401ks, etc. over the last few years). If deflation is 3%, 3%
must be taken off of the interest rate. CDs can't pay you 1% if deflation is 3%, that would be a real 4% interest rate. Right now you're looking at -2% with inflation on a real return from a CD, how do we get from real -2% to real +4% just by using deflation? Magic? 6% better interest doesn't just come out of nowhere.
And this is assuming a nice, gradual, 3% year after year, with no one but the wealthy bitcoin holders who may or may not be manipulating the supply to keep that stability. If one year happens to be 6%, do you realize what that means to a business's profit margins? Bankruptcy. Many businesses run on very tight margins of only a few percent. An unexpected upswing in the deflation rate will simply bankrupt them. This is why economists are afraid of deflation.
I don't know if any economist has tried to define what a "good" (real) interest rate is in a stable economy, but it's gotta be somewhere in the range of 0.5-2%. If it goes higher than that, that's a sign that there isn't enough money to meet the demand for money, and economic progress will be retarded because businesses can't afford loans (which are going to be at a higher rate because of the bank's cut, of course). The higher the REAL interest rate, the worse it is for business. This is why the central bank tries to manipulate this situation by lowering interest rates to bring us out of a recession. The problem is, since the consumer level doesn't see any new money and is in fact penalized for this by reduced value in savings, there is less incentive to save and less purchasing power for a given amount of money. It doesn't fix the root of the problem and just puts everyone in greater debt. It is idiocy based on Keynes and it doesn't work.
