Fractional Reserve Banking and the creation of the Debtcoin

[myrkul]

Are BTC and FRB incompatible?

Well, It would be very difficult to do fractional reserve banking without some intermediary device, like a deposit slip, or a "debtcoin". Let's say, instead of incompatible, that fractional reserve banking is always visible in a bitcoin economy.

[ChicagoBob]

Are BTC and FRB incompatible?

Well, It would be very difficult to do fractional reserve banking without some intermediary device, like a deposit slip, or a "debtcoin". Let's say, instead of incompatible, that fractional reserve banking is always visible in a bitcoin economy.

Not only the banking, but also the results of that banking, the Debtcoins themselves. They would need to be clearly visible as a different thing, and I have to think they would be perceived as somewhat less valuable than the BTCs.  That's an assumption though, our derivative dollars are all mixed in with the "real" ones (using the term loosely) and they all seem to be worth the same because we can't tell the difference.

[myrkul]

Are BTC and FRB incompatible?

Well, It would be very difficult to do fractional reserve banking without some intermediary device, like a deposit slip, or a "debtcoin". Let's say, instead of incompatible, that fractional reserve banking is always visible in a bitcoin economy.

Not only the banking, but also the results of that banking, the Debtcoins themselves. They would need to be clearly visible as a different thing, and I have to think they would be perceived as somewhat less valuable than the BTCs.  That's an assumption though, our derivative dollars are all mixed in with the "real" ones (using the term loosely) and they all seem to be worth the same because we can't tell the difference.

Well, the individual value of a "debtcoin" would vary depending on who issued it, and the trust that recipients had in that issuing body to honor that debt. If it's widely felt that likely only half of the debtcoins would be honored, then that debtcoin would probably be valued at half a bitcoin. (prices expressed in debtcoin would be roughly twice that of those in bitcoin)

[ChicagoBob]

I think for these reasons it would be very difficult to set up a Fractional Reserve Bank dealing with Bitcoin deposits.

Are there any bankers reading this?

[crumbcake]

You did say capitalism, yes? Specifically, laissez-faire capitalism. In such a system, there is always demand for labor, both skilled and unskilled.

I'm sorry, the only reply which comes to mind is "WUT?" Point me to a commonly accepted definition of laissez-faire capitalism including the condition of [constant] demand for [all forms of] labor, 'till then -- you're ... fabricating as you go along??  Can't we get above that?

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

The term laissez-faire is used a total of three times in the "gilded Age" wiki article.  Nowhere in the article is [constant] demand for [all forms of] labor stated or implied.  
Here's a slightly more fitting wiki page, curiously titled Laissez-faire: http://en.wikipedia.org/wiki/Laissez-faire
Learn to wiki.

Tsk... I thought we were being civil? And wouldn't you say a real, historical example would make a more compelling case than a dry definition?

 

I see you respond point-by-point also, otherwise you would have read my answer below.  Have you read it?  Alrighty then.  Let's not bicker.
Though let's try to stick to responding on topic.  So here we go, back on track, all concise, to the point & offish, like this never happened.  So here we go:

Perhaps.  Though i'm not sure how that counters my point.  Again:  Show me a commonly accepted definition of laissez-faire capitalism including the condition of [constant] demand for [all forms of] labor.  Otherwise, stop positing bull.

This emerging industrial economy quickly expanded to meet the new market demands. From 1869 to 1879, the US economy grew at a rate of 6.8% for NNP (GDP minus capital depreciation) and 4.5% for NNP per capita. The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled. Real wages also increased greatly during the 1880s.

Growing economy means demand for labor.

Stop cherry-picking your conditions of "growing economy" and the rest of this dreck.  I'm not talking about your tracting of America's Gilded Age -- you can't imagine the situation i've outlined for you, and i'm willing to help you.  So your labor is not in demand.  Sorry.  Shop owners laugh when they see you.  They bring out their slops and make you beg for them.  How's it working out for you?  Are we colonizing Mars soon?

You feel you can start your own business from nothing, from dirt?

Lots of people have. Especially in the US, where laissez-faire was the rule.

Lots of people worshipped God while amassing millions in Soviet Union, would you say that the Soviet brand of Communism is the ideal system for nurturing religious freedom & individual prosperity?

I'm sorry, but what the hell does that have to do with anything?

 
About as much as your absurd anecdotes about self-made men in laissez-faire US, that of the golden age.  

Again with the incivility... You asked if I thought I could start from scratch, and people have. Past examples indicate future potential.

And i agree.  There will certainly be self-made millionaires in your world.  They won't be as common as 3-headed freaks, but they'll exist.  Though one is certainly a fool if one bucks the odds and banks on becoming one.  Are you banking on it?

You'll grow a garden on whose land, exactly?

My own, of course. You did say this was laissez-faire capitalism, did you not? That means I can own land.

Of course you *can*, but it just so happens that you *don't*.  My scenario, I said so.  Now what?

I live somewhere don't I? If nothing else, there's always the window garden. And the roof of my apartment building.

Yes you do live somewhere.  You're a gutter bum.  No window garden for you.  My scenario.  I said so.  Now what, gutter garden?  Maybe start a joy-through-work commune behind the dumpster?

I begin to sense some hostility. Well, I can play this game, too. If I live in the gutter, then my wife clearly has left me, taking our children with her, to live with her mother. So, no children to worry about.

Wait, how many times can you begin to sense hostility?  I'm beginning to sense retention difficulties...  Anyhow, to answer your question:  
No.  Your wife died.  Rather not say how, but you're ok -- still got those darlin' mouths to feed.
Now what?  How's Atlas doin'

[myrkul]

So your labor is not in demand.

Then why does the person in this post want me to work for him?

"Work for me, or your children starve."

[crumbcake]

So your labor is not in demand.

Then why does the person in this post want me to work for him?

"Work for me, or your children starve."

Chin up!  You're not totally worthless!  You're no worse than the shmuck next to you, the one *competing for the job i'll offer one of you*.  See, there's still work to be done, but i'm going to let free enterprise decide which one of you does it, and which one starves. You workin' or walkin?

Edit:  I know you're a good guy in real life, you know what gave that away?  You said that you'd "grow a garden" instead of having to work for shit wages.  That just floored me.  You obviously have no first-hand knowledge about gardens, work, or fear.  Not even the faintest inkling that unbridled greed & power is not certain to bring about a world of Joy & Plenty for all.  You'll be ok.

[myrkul]

So your labor is not in demand.

Then why does the person in this post want me to work for him?

"Work for me, or your children starve."

Chin up!  You're not totally worthless!  You're no worse than the shmuck next to you, the one *competing for the job i'll offer one of you*.  See, there's still work to be done, but i'm going to let free enterprise decide which one of you does it, and which one starves. You workin' or walkin?

Walking, because you're not the only person hiring. Bye!

[crumbcake]

So your labor is not in demand.

Then why does the person in this post want me to work for him?

"Work for me, or your children starve."

Chin up!  You're not totally worthless!  You're no worse than the shmuck next to you, the one *competing for the job i'll offer one of you*.  See, there's still work to be done, but i'm going to let free enterprise decide which one of you does it, and which one starves. You workin' or walkin?

Walking, because you're not the only person hiring. Bye!

Pleasant dreams, ease off on that pipe.
PS:  That guy you think is going to hire you?  Just phoned him.  He tells me there's a schmuck just like you who told him "you're not the only one hiring" and is draggin' his sorry ass over my way.  I told him about you.  We're both frickin' LULZING!!!

[myrkul]

So your labor is not in demand.

Then why does the person in this post want me to work for him?

"Work for me, or your children starve."

Chin up!  You're not totally worthless!  You're no worse than the shmuck next to you, the one *competing for the job i'll offer one of you*.  See, there's still work to be done, but i'm going to let free enterprise decide which one of you does it, and which one starves. You workin' or walkin?

Walking, because you're not the only person hiring. Bye!

Pleasant dreams, ease of on that pipe.

I think I know what the problem is. You're basing your assumptions on our current, shitty economy, aren't ya?

[crumbcake]

So your labor is not in demand.

Then why does the person in this post want me to work for him?

"Work for me, or your children starve."

Chin up!  You're not totally worthless!  You're no worse than the shmuck next to you, the one *competing for the job i'll offer one of you*.  See, there's still work to be done, but i'm going to let free enterprise decide which one of you does it, and which one starves. You workin' or walkin?

Walking, because you're not the only person hiring. Bye!

Pleasant dreams, ease of on that pipe.

I think I know what the problem is. You're basing your assumptions on our current, shitty economy, aren't ya?

I'm basing my assumptions on worst-case degenerative scenario, 'coz if history has taught us anything, it's to expect exactly that.

edit:  Good night.  Falling asleep.

[myrkul]

I'm basing my assumptions on worst-case degenerative scenario, 'coz if history has taught us anything, it's to expect exactly that.

You mean this history?
http://en.wikipedia.org/wiki/Gilded_Age

[Le Happy Merchant]

Interest can work in an economy with an inflexible monetary base (Bitcoin).  In the example of a bank with 20 mil BTC offering 6%, it would soon go bankrupt, releasing BTC to the system and restoring normal conditions.

I would like to hear an explanation for how interest can work in conjunction with an inflexible money supply. Given enough time, any percentage greater than zero being offered as interest would lead to more money being promised than is able to exist. If this happens, it may not mean the whole thing collapses right then and there, but it would mean that at some point in the future, somebody would be getting screwed.

As far as the part in italics goes, I just want to know how you envision this happening.

[myrkul]

I would like to hear an explanation for how interest can work in conjunction with an inflexible money supply.

Will mine do?

Put simply, Moneylenders do not just hoard all the money that they get back. Yes, it's entirely possible for someone to borrow BTC20MM and end up owing BTC36MM. This does not mean that they will be unable to pay it, necessarily, just that there will have to be at least BTC15MM that goes through his hands (and back to the moneylender) twice. While he's paying his tremendous debt, the economy is chugging right along, and he's providing value to that economy in order to get the BTC that he owes.

[Le Happy Merchant]

Will mine do?

It actually did, good job.

[Miz4r]

I would like to hear an explanation for how interest can work in conjunction with an inflexible money supply.

Will mine do?

Put simply, Moneylenders do not just hoard all the money that they get back. Yes, it's entirely possible for someone to borrow BTC20MM and end up owing BTC36MM. This does not mean that they will be unable to pay it, necessarily, just that there will have to be at least BTC15MM that goes through his hands (and back to the moneylender) twice. While he's paying his tremendous debt, the economy is chugging right along, and he's providing value to that economy in order to get the BTC that he owes.

Sounds like a pyramid scheme to me. The rich (big lenders) get richer, and the poor get poorer by borrowing and paying interest on top of it. Eventually this will shift most of the BTC in the hands of a few, just like we see now with fiat money. I don't think FRB and charging interest is in our best interest if we want a sustainable economy and future.

[crumbcake]

I would like to hear an explanation for how interest can work in conjunction with an inflexible money supply.

Will mine do?

Put simply, Moneylenders do not just hoard all the money that they get back. Yes, it's entirely possible for someone to borrow BTC20MM and end up owing BTC36MM. This does not mean that they will be unable to pay it, necessarily, just that there will have to be at least BTC15MM that goes through his hands (and back to the moneylender) twice. While he's paying his tremendous debt, the economy is chugging right along, and he's providing value to that economy in order to get the BTC that he owes.

Sounds like a pyramid scheme to me. The rich (big lenders) get richer, and the poor get poorer by borrowing and paying interest on top of it. Eventually this will shift most of the BTC in the hands of a few, just like we see now with fiat money. I don't think FRB and charging interest is in our best interest if we want a sustainable economy and future.

I'm not sure why the Bitcoin Faithful feel they need to present Bitcoin as the universal panacea.  I'm hoping Bitcoin becomes a successful currency, but claiming that it's the Final Solution to money is silly.  The fools will be parted with it, hoarders will hoard it, tax dodgers will withhold it as taxes, and Christians will keep saying "Render unto Caesar the things that are Caesar's, and unto God the things that are God's" (well, a few, anyhow).

I'm not sure how the lending problem is solved in deflationary currency.  If there's a total of 21 coins in the entire system, and all of those coins are loaned at 1% yearly interest, at the end of the year the borrower is obligated to pay back 21.21 coins.  The borrower won't have 21.21 coins, no matter what he does -- only 21 coins exist.  This problem is trivial in fiat -- print moar!
Lending at 0% is  not a silly notion, and we don't have to reach for high morals to justify doing it.  Lending, even at 0 profit, does a few things i can see offhand:  It creates social bonds, insures stability & maintains the value of your currency (if you hold all the bitcoinz, they're worthless).  So i'm sure solutions exist, just not so much in this thread.

[myrkul]

The borrower won't have 21.21 coins, no matter what he does -- only 21 coins exist.  This problem is trivial in fiat -- print moar!

Please read this again:

Put simply, Moneylenders do not just hoard all the money that they get back. Yes, it's entirely possible for someone to borrow BTC20MM and end up owing BTC36MM. This does not mean that they will be unable to pay it, necessarily, just that there will have to be at least BTC15MM that goes through his hands (and back to the moneylender) twice. While he's paying his tremendous debt, the economy is chugging right along, and he's providing value to that economy in order to get the BTC that he owes.

[crumbcake]

The borrower won't have 21.21 coins, no matter what he does -- only 21 coins exist.  This problem is trivial in fiat -- print moar!

Please read this again:

Put simply, Moneylenders do not just hoard all the money that they get back. Yes, it's entirely possible for someone to borrow BTC20MM and end up owing BTC36MM. This does not mean that they will be unable to pay it, necessarily, just that there will have to be at least BTC15MM that goes through his hands (and back to the moneylender) twice. While he's paying his tremendous debt, the economy is chugging right along, and he's providing value to that economy in order to get the BTC that he owes.

You can have the money going through your hands over and over (you get to hold the coinz -- you were in the gutter last night, it's my turn today ), but if you believe in laissez-faire & invisible hand & all that,  and you're a competent businessman, I'll never be out of your debt. Here's how this goes:

A buggy pulled by a bony mare with her belly nearly touching the dirt road creeks to a stop next to an nondescript storefront.  The storefront window is plastered with faded travel ads from the inside, a year's worth of dead flies collecting between the flyers and the dusty glass.  The sign above the store, your store, reads simply "Loans."
Hat in hand & visibly uneasy, Young Man (that's ME!!!) climbs out of the buggy & ties off his horse to an empty bicycle rack.  He's dressed humbly, but his bearing shows impeccable breeding, lending his dashingly handsome face an air of aristocratic refinement.  He is hung like a horse.  Enough said.

Here's the part where i walk into your office & we seamlessly segue from third to first person narrative:

You shoot me a distracted glance from behind a huge Rococo desk, which seems particularly grotesque in an office otherwise furnished with badly-assembled Ikea.

--Yes?
--I'm here to repay my loan.
--Hmm?
--I have the 21 coi...
--Twenty one and twenty one centicoins, you mean?
--No, I brought 21, that's all there is
--But you owe me 21.21?
--I thought we could work out a deal.
--Deal?  Yesss.  I'm certain we can.  I've dealt with deadbeats before. [*looks up & at Young Man*]  I expect you'll be asking me for another loan?
--Yes, though this one will be a rather small one, and i've proven myself a good risk  
--Good risk?!  Good risk you say?!  You're a deadbeat with insufficient funds to repay your loan as promised, good risk!  A losy risk is what you'd be if we weren't in a hypothetical scenario where you can't default or steal from me and i must maximise my profits.  I'll make you a deal:  I'll loan you .21 coins at a rate of 100% per year, what have you to say to that?
--I'm stuck in this hypothetical scenario, i can only accept -- you hold all the chips
--Thought so.  I'm issuing you this loan, and putting it right back in my pocket.  Expect you crawling back here again in a year's time, mooching for another loan.  .42 coins that time, huh?  Huh?!  Now GTFO of my office!  

[myrkul]

Never heard of repaying loans in installments, have you?

"Here's my first payment of 1.01 coins. I'll have my next one next week."
"Excellent. Thank you. Only 20 more."
"Yup, see you next week!"



"Here's my final payment of 1.01 coins. Finally out of debt."
"Indeed. If you ever need another loan, you know where to come."

Note that at this point, you have paid me 21.21 coins, all told. Even though there are only 21 in circulation, total.