We should not project the limitations of actual government issued currencies on to Bitcoin. Remeber that if currencies become part of the free market, and many free currencies can coexist, other free currencies will come along to fill the need for growth. The real problem is the monopoly of currency that the governments try to enforce. With free market currencies like Bitcoin and others to come, this is not a problem.
I absolutely support a free market of currencies, bitcoin doesn't have to be the only one. Perhaps another one can pop up using the same technology as bitcoin with different parameters some day.
The market will determine who's the winner in the long run.
As explained and discussed above, not all the money in the present system is debt based.
Only the coins which are issued by the US Treasury are not debt based.
The governments does not pay interest on the money it gets from its central bank. Yes the government pays interest on the bonds the central bank buys, but the central bank returns the benefits it gets to the government (including the interest it charges to the banks), so for all practical matter the government is not paying it.
This is exaclty what its already happening in the present system.
If that's the way it worked, then there would not be a national debt.
Why do you think they need to raise the debt ceiling in order to borrow more money from the fed?
The fed itself has said that if every debt was paid off that was owed to the fed, there would be no more money in our monetary system.
Bitcoin is not a fiat currency. Fiat means imposed by force, usually by the government
Perhaps you should do a little research on the term Fiat.http://en.wikipedia.org/wiki/Fiat_money
The term fiat money has been defined variously as:
* any money declared by a government to be legal tender.
* state-issued money which is neither legally convertible to any other thing, nor fixed in value in terms of any objective standard.
* money without intrinsic value.
fiat money is based solely on faith in the government issuing the money.
For purposes of simplification, we are relying on faith in the system.
Milton Friedman was very wrong regarding monetary policy (he was right about other things). There is no reason why there should be a 2-3% inflation rate (why not 1%?, why not 5%?). There is absolutely no reason in monetary theory why it should be this way.
I used to think the same, that Milton Friedman was wrong about monetary policy.
The trouble with no inflation is eventually over periods of several generations, the wealth will be consolidated among the few, inflation will make that harder, and with higher savings rate, it resolves the issue with loss of purchasing power.
Once the few have most of the currency they can use it to pretty much enslave the masses. They can make credit cheap, putting everyone in debt, and then make credit expensive, forcing everyone into default.
Boom and bust.
But in order to do that, you need to have control of enough currency.
Also, do you realize that "to create new things such as useful infrastructure" money has to "chase after the existing products and services in the market"?
Yes, but the new things that are created either will increase production, or money can chase after those new things. For example if the government prints $250,000 out of thin air, and uses the money to build a house, something now exists that didn't exist before (the house), and the money in the financial system can chase after the house itself.
In other words, the money isn't being used just to blow it on non-capital goods.
If the government prints $250,000 to build 10x $25,000 tractors, and then those tractors are used to increase farm production, you have more money in the system, but there are also more products.
No doubt about it, printing money is a dangerous tool that can be used to cause incredible damage to the economy, but there are correct instances where it can be used to benefit.
If they use it to build 10 tractors that just sit and rust, it's bad.
If they use it to build a house that just sits empty and falls apart, it's bad.
It's a tool. It can be used for good, and it can be used for bad.
This is a fallacy. You are presuposing that the government without a price system can decide what is good and bad investments. There is a reason why there is a market and government central planning does not work.
This isn't central planning, nor is it the abolishment of the price system (which for some reason you think it is).
You can go and try to create an alternative, but there is a reason why the system your propose has never emerge from the civil society and the examples in history are all imposed by the governments using force. And btw, they have all hyperinflated creating big poverty.
Because the quantity of the money was not controlled. It hyperinflates because the government goes out of control. A fixed-inflation bitcoin currency won't have the problem of a government going out of control with creation of currency units.
It does not matter what the money is, all that matters is who controls the quantity.
Um, no. Every fiat currency is debt based by definition because the paper note is an abstraction of value, not the value itself.
A fiat currency is any paper money system that the government issues.
A debt based currency is a form of money that is borrowed at interest, when it enters into the money supply.
Let's create a monetary system similiar to what exists today.
We're all stranded on an Island, you are the government, and I am the central bank.
The people want places to sleep in, so they all vote to spend $10,000 that will be used to pay people to build huts. You then create $10,000 of government bonds that pay 10% interest. I buy those bonds for $10,000 and now you spend that $10,000 into the local economy. The money is spent in all areas of the local economy, such as collecting food, wood, leaves, etc.
A medium of exchange has been established for the local population.
However, the government now owes me $11,000 in one year. How are you going to pay it without getting into even more debt? You can't.
And the sick thing of it all is, instead of printing $10,000 of bonds, you could have just printed $10,000 and told me to go screw myself.
By the way, all online video games with economies, have debt free fiat currencies. EVE-Online is a prime example. The game companies have no reason to manipulate the game currency like real life banksters do.