Fractional Reserve Banking and the creation of the Debtcoin

[crumbcake]

You're trolling me?  Not much of a challenge  On the off-chance that you're serious, enjoy your life at the office -- i'll be on my 45-footer island-hopping in the caribbean somewhere.

With what?

You've loaned out all your money, and you won't get your profits for ten years. Assuming, of course, that they don't default.

With what?  With the monthly installments on my loan.  Unless you feel that's impossible unless i allow the entirety of the loan to be repaid before it's due.  Why not go back a page or two  and reread everything before your answer?   

[1714779330]

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[1714779330]

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[myrkul]

You're trolling me?  Not much of a challenge  On the off-chance that you're serious, enjoy your life at the office -- i'll be on my 45-footer island-hopping in the caribbean somewhere.

With what?

You've loaned out all your money, and you won't get your profits for ten years. Assuming, of course, that they don't default.

With what?  With the monthly installments on my loan.  Unless you feel that's impossible unless i allow the entirety of the loan to be repaid before it's due.  Why not go back a page or two  and reread everything before your answer?   

My mistake then, since I thought this meant that the whole lump sum would be out for the entire duration:

A.  Lend all the money, in one lump sum, to a single borrower for the duration of 10 years.

Now that you've clarified, of course I would prefer A. I don't like to work weekends. Even better would be
C. Lend all the money out to numerous people, and arrange their payment plans such that I have regular weekly income.

And wouldn't you know it, that's generally how lenders do it.

[crumbcake]

You're trolling me?  Not much of a challenge  On the off-chance that you're serious, enjoy your life at the office -- i'll be on my 45-footer island-hopping in the caribbean somewhere.

With what?

You've loaned out all your money, and you won't get your profits for ten years. Assuming, of course, that they don't default.

With what?  With the monthly installments on my loan.  Unless you feel that's impossible unless i allow the entirety of the loan to be repaid before it's due.  Why not go back a page or two  and reread everything before your answer?   

My mistake then, since I thought this meant that the whole lump sum would be out for the entire duration:

A.  Lend all the money, in one lump sum, to a single borrower for the duration of 10 years.

Now that you've clarified, of course I would prefer A. I don't like to work weekends. Even better would be
C. Lend all the money out to numerous people, and arrange their payment plans such that I have regular weekly income.

And wouldn't you know it, that's generally how lenders do it.

The A choice is identical to your C, a bit cleaner since risk is assumed to =0 in my example for the sake of simplicity.  The difference between A & B was intended to show that allowing loans to be repaid early creates excess work for the lender at best:  Not what i'd call "maximizing profit."  Anyhow, i think we've beat this dead horse into a putrid pulp, though it was fun doing it

[myrkul]

The A choice is identical to your C

No it isn't.
1. Even if you assume risk=0 (a poor assumption, if you're looking to model the real world), spreading it out allows weekly instead of monthly income. Easier to budget for.
2. Given that risk ≠ 0, it would be wise for me to spread that risk among as many people as possible.
3. Even if risk = 0 (again, a poor assumption) spreading it out allows for fluctuations due to one person paying off early. Since there are many others, my income is more or less steady, even if people do pay off early. In fact, this makes people paying off early into a good thing, because now all that capital is back in my account, ready to be loaned out again, and I still have the income from everyone else.

If I had only one borrower, his paying back early would indeed trigger a scramble to get that money back out and earning me income again. If, instead, I have dozens, one of them paying back early amounts to a nice bonus this week, and maybe a little less this time next month, assuming I can't get it loaned back out.

[myrkul]

As to Ireland, that video was the best reference I had. Let me see if I can find one.

Here's a newer video:
https://www.youtube.com/watch?feature=player_embedded&v=2R8oJsoliw0#!

[RenegadeMind]

It's a freakin' scam. It used to be kept in check when the reserve was a physically accountable and uninflatable commodity (gold), but since it is now "monetized government debt" being used as reserves, this scam just vomits all over itself.

We are quantitatively easing ourselves into total debt slavery.

Agreed.

The only problem is that those that try to argue otherwise always try to obfuscate the problem with some kind of nonsense.

One line of nonsense raised earlier is the "payment installment" argument. This only obfuscates the problem by miring it down into many transactions before the collapse of the system. It just doesn't matter though as compounded interest and fractional reserve *WILL* overtake the entire system at some point. It's only a matter of time before it happens. The "payment installment" simply delays the inevitable by another day.

You can look at it in terms of probabilities on a normal distribution curve and arbitrarily setting something like 7 standard deviations to the right as the point at which the system collapses. Eventually it will happen. It's just like playing roulette - eventually you'll get black come up 7 times in a row.

To Tacticat's original point:

In the years to come, if banks jump on the Bitcoin bandwagon and start offering Bitcoin deposit accounts, Bitcoin will become affected by Fractional Reserve Banking.
...
For this reason, since we can easily avoid bitcoins created by fractional reserve banking, it might be necessary to call them something different. Call them Bank-bonds, Debtcoin or whatever but now we have the chance, as a community, to make a distinction between the two and start using different terms which, in the end, will increase public awareness.

Our thinking has been muddled by considering dollar denominated bank accounts including checking (M1) and even savings (usually M2) as really being dollars, equivalent to currency physically in circulation (M0).  The classical scenario of money creation is this: (the first four points work for both USD and BTC)

  1 - Three people in the economy: you, me and an FRB bank
  2 - I deposit 20 MBTC in the bank
  3 - The bank loans you 16 MBTC, retaining a 20% reserve
  4 - Now I own 20MBTC and you own 16 and there are 36MBTC out there now
  5 - But wait!  The 21 MBTC limit has been breached!

Obviously some of that 36B ain't bitcoins, it is certainly not part of M0.  But in the US we call them all dollars, and we relate the full 36M to inflation forecasting because all 36M of them are available to bid up the prices of goods & services.

But how would we be able, in a bitcoin setting, to tell the difference?  It would only be possible if what you get in step 3 up there is not really bitcoins, and that's where the Debtcoins [or whatever] come in.  Thus an FRB bank could NEVER lend bitcoins to anyone.

There would have to be a facility for sending, receiving, storing Debtcoins in Debtcoin wallets.  And if they're not fully worth a bitcoin, why would anybody take out a loan like that?

Are BTC and FRB incompatible?

That is exactly correct.

In order to make the ponzi scheme work, BTC needs a "fake BTC" or "DTC" (Debtcoins). The system cannot work with only BTC for the reasons above. Trying to argue that it can is simply denying the deterministic nature of the system and how it will collapse at some point.

Thus an FRB bank could NEVER lend bitcoins to anyone.

This is kind of true and kind of not...

Banks *could* create DTC and say that they have the same value as BTC and that they are fungibly interchangeable. This if of course pure nonsense, but would you expect anything else from bankster scammers?

And if they're not fully worth a bitcoin, why would anybody take out a loan like that?

I can't see why anyone would want DTC.

Are BTC and FRB incompatible?

Yes. But, I think your example of Debtcoins creates a kind of compatibility that allows for FRB, but with the inevitable collapse of the DTC at some point.

If there is no collapse of a fiat, it is only because the banks have managed to buy up EVERYTHING in the meantime, and nothing is owned by anyone except the banks. That scenario is the ONLY way to escape the inevitable collapse. i.e. EVERYONE is in so much debt that NOBODY is capable of producing enough wealth to keep up with the interest payments, let alone the principle.

[Stampbit]

How can i become a debtcoin slave today? I would like a card with 29.95% apr and a shiny metallic color so i know im valued.

[crumbcake]

The A choice is identical to your C

No it isn't.
1. Even if you assume risk=0 (a poor assumption, if you're looking to model the real world), spreading it out allows weekly instead of monthly income. Easier to budget for.
2. Given that risk ≠ 0, it would be wise for me to spread that risk among as many people as possible.
3. Even if risk = 0 (again, a poor assumption) spreading it out allows for fluctuations due to one person paying off early. Since there are many others, my income is more or less steady, even if people do pay off early. In fact, this makes people paying off early into a good thing, because now all that capital is back in my account, ready to be loaned out again, and I still have the income from everyone else.

If I had only one borrower, his paying back early would indeed trigger a scramble to get that money back out and earning me income again. If, instead, I have dozens, one of them paying back early amounts to a nice bonus this week, and maybe a little less this time next month, assuming I can't get it loaned back out.

Hi myrkul.
Not quite sure what your list intends to show, so i'll simply answer it point by point:

1.  Yes, zero risk is a terrible assumption.  My guess was that you, as the lender, would be the last to ask for risk.  But as you like, have at it.  And weekly payments to boot, if you find monthly installments difficult to budget  If you'd like even more realism (salaries for hired thugs, fire & life insurance), just ask!*
*Historically, moneylenders enjoyed a close & personal relationship with the communities they served, see:  [Angry Mob With Torches & Pitchforks]

2.  Of course.  See: [Angry Mob] above.


3.  No matter how you twist it, if loans are repaid early, there will be (time > 0) during which some of your money is not earning.  Not sure about the second sentence.  Some of your borrowers are now bringing you  gifts? [Angry Mob]?

[Ekaros]

DTC, acctually it might be workable system, if majority wanted to keep status quo... Just have your bank account and bank services and they are happy to use virtual money between each other... The issues only come when more money leaves the system than there is...

[myrkul]

The A choice is identical to your C

No it isn't.
1. Even if you assume risk=0 (a poor assumption, if you're looking to model the real world), spreading it out allows weekly instead of monthly income. Easier to budget for.
2. Given that risk ≠ 0, it would be wise for me to spread that risk among as many people as possible.
3. Even if risk = 0 (again, a poor assumption) spreading it out allows for fluctuations due to one person paying off early. Since there are many others, my income is more or less steady, even if people do pay off early. In fact, this makes people paying off early into a good thing, because now all that capital is back in my account, ready to be loaned out again, and I still have the income from everyone else.

If I had only one borrower, his paying back early would indeed trigger a scramble to get that money back out and earning me income again. If, instead, I have dozens, one of them paying back early amounts to a nice bonus this week, and maybe a little less this time next month, assuming I can't get it loaned back out.

Hi myrkul.
Not quite sure what your list intends to show, so i'll simply answer it point by point:

1.  Yes, zero risk is a terrible assumption.  My guess was that you, as the lender, would be the last to ask for risk.  But as you like, have at it.  And weekly payments to boot, if you find monthly installments difficult to budget  If you'd like even more realism (salaries for hired thugs, fire & life insurance), just ask!*
*Historically, moneylenders enjoyed a close & personal relationship with the communities they served, see:  [Angry Mob With Torches & Pitchforks]

2.  Of course.  See: [Angry Mob] above.


3.  No matter how you twist it, if loans are repaid early, there will be (time > 0) during which some of your money is not earning.  Not sure about the second sentence.  Some of your borrowers are now bringing you  gifts? [Angry Mob]?

If I have >4 borrowers, I can arrange their monthly payments so that I get weekly income. That way, I don't have all my money coming in on the same day every month.
Given that risk >0, it would be wise to make sure that the risk of all my money being defaulted on is as low as possible. Thus, as many people as possible.
And yes, If people pay early, there will be some time where some of my money isn't earning. But again, the more people I have loaned to, the less that will be when it happens. And, if they're paying the loan off early, they're bringing in more than I had planned for. Thus, the "bonus."

[townf]

First let me say that for true adoption as a medium of exchange there are at least these things that the masses will ultimately require from their money:
1. A higher degree of anonymity than a public blockchain/NSA/ISP/criminal botnet data mining combo can give them
2. Instant transactions
3. Reversibility of transactions
4. Something that doesn't always require an internet connection and electronic gizmos to actually buy something

The only thing that can satisfy all these requirements in one fell swoop is notes and accounting entries of these notes being used as money to transact with.

A note is simply a receipt for some amount of crypto in the blockchain. This is being referred to in this thread as a "debtcoin", but it does not represent debt.

I agree that the issuers of these notes can and will create debt with these notes though, through fractional reserve lending.

Realistically, this is unavoidable. Nothing can prevent them from doing this. The power to do this is inherently married to the act of storing reserves.

The extent to which this can be done is proportional to the average amount of the outstanding receipts in ratio to reserves.

The reserve today is monetized government debt. This is not a thing. This is a dysfunctional, hideous reserve and in no way keeps the system from shitting all over itself and dispossessing everybody of all wealth in the meantime.

If the reserve is an accountable, noncreatable-out-of-nothing thing, then the system constrains the amount of receipts in the economy that actually represent debt. Interest rates will be controlled by market forces and not by an elite group of cronies.

FRB on government debt reserves versus FRB on something like gold or crypto cannot be compared with each other.

If a banker creates too many receipts for an "honest" or "sound" reserve, they will run out of reserves and go broke. This is of course statistically unavoidable with dumbasses and crooks and intrigue, which leads to problems. The various results are:
1. The bank goes broke leaving the ones who didn't make it to the bank before the completion of a panic holding a bunch of worthless receipts.
2. The value of all the receipts is diluted.
3. The bank is rescued and acquired by another bank. This result, when played out repeatedly, ultimately leads to giant banks and cartels of banks.

All of the above happened with gold until we finally got stuck with the FED. Furthermore, after the FED was created, the banks kept screwing up and getting bailed out until we totally fell off the gold reserve standard, leaving us with a non-system.

I'm not sure if crypto reserves can be superior to gold in these regards. Can its cryptographic nature make it bailout proof? Can the public nature of the blockchain be used to make honesty in FRB mandatory? Can we use math to create a constantly decentralized, competitive, honest, workable, and equitable system for issuing the receipts we need for an actually useful medium of exchange?

Hopefully we can think one up and implement it before the current banksters decide to to start issuing notes on crypto.