What would happen to Bitcoin if the World Echnomy went over to Bitcoins

[myrkul]

I don't know much about this. Is it money created from central bank deposits or is it really banks creating money out of thin air? So the money don't not exist in the bank system at all until they create it and this is deemed as legal?

The vast majority of money is created when the fed writes a check to the Gov't to extend their loan (billions at a time).

Then a similar situation happens with banks. It's not nearly so bad as the video makes it out to be, but yeah, it's a pretty hairy system.

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[cypherdoc]

...the financial industry who has first access to the free money and who controls the printing press.

Is it really reasonable to think of it this way?
Sure - the financial institutions lend out 'money' which has just been created - but they have to pay it back to the reserve system. (effectively destroying it)
They get to charge a higher interest rate than the reserve in order to fund their operations - but the principal (the money that was just 'created' by entering it into the system at loan-initiation) has to be repaid.

So.. they make money (interest difference) on lending out money that wasn't theirs - but this because they are entrusted with the job of ensuring that the new 'debt money' is going to an entity who will do work in the economy to produce that value (plus some).

They take a risk and have costs in doing their checks on the entity taking out the loan. Seems fair enough no?

As much as I think the financial industry is a flawed and dangerous beast at the moment..  I still don't see how this is 'free money' or 'controlling the printing press'.

it is reasonable to think of it this way.

when the Fed increases its balance sheet from $800 billion prior to the crisis to over $2.8 trillion today, the difference represents "printed" money which went directly to the banks in exchange for the toxic loans.  the Fed told us they were "lending" this newly printed money to the banks until the loan values recovered.  well they never have and if you look at their balance sheet, you can see that the "loan" has mysteriously changed into a "buy" evidence being the Repurchase Agreements being zero and the Securities Held Outright having ballooned.  we the taxpayer are now responsible for paying off this bad debt.

the other half of this same ripoff is evidenced by the "Excess Reserves" which is at about $16 trillion now held by the banks that they were supposed to lend out to the real economy.  well they never have b/c they know the avg American can't pay it back b/c of the economy being in the sh*tter and the fact they can earn 0.25% by just leaving the money at the Fed.

[foggyb]

If bitcoin replaced the worlds currency, a lot of people would be screwed as they have no computers

Smartphones

Not needed. Regular prepaid cheapo dumb mobiles will work just fine.

 The *end-user* wouldn't need to have the full wallet functionality on his dumb phone, just as long as the carrier does somehow. A

Could this mean that Bitcoin might survive and even thrive in spite of a major global disaster?

Assuming an expansive cellular network is built up rapidly following the event.

[MatthewLM]

I don't know much about this. Is it money created from central bank deposits or is it really banks creating money out of thin air? So the money don't not exist in the bank system at all until they create it and this is deemed as legal?

The vast majority of money is created when the fed writes a check to the Gov't to extend their loan (billions at a time).

Then a similar situation happens with banks. It's not nearly so bad as the video makes it out to be, but yeah, it's a pretty hairy system.

Can you direct me to something which explains this in full? I've only been aware of commercial banks lending out deposits and not creating new money.

[spruce]

Can you direct me to something which explains this in full? I've only been aware of commercial banks lending out deposits and not creating new money.

Google creating new money.

[MatthewLM]

I'm still missing the part where it says "commercial bank creates brand spanking new fiat money", rather than "commercial bank increases deposits by allowing borrowers to borrow existing deposits and then deposit these and so on".

When you view the money balance on your bank account, it is not money there for withdrawal at any time, under any circumstances, it is which money owed to you which is not there for withdrawal at any time, under any circumstances.

[myrkul]

I'm still missing the part where it says "commercial bank creates brand spanking new fiat money", rather than "commercial bank increases deposits by allowing borrowers to borrow existing deposits and then deposit these and so on".

When you view the money balance on your bank account, it is not money there for withdrawal at any time, under any circumstances, it is which money owed to you which is not there for withdrawal at any time, under any circumstances.

Under a 10% reserve banking system, let's say you deposit $100. The bank is allowed, legally, to loan out $1000. That extra $900 is created out of nothing.

[MatthewLM]

That isn't money, that is debt, which is financed from the excess reserves which exist as money.

Keeping to the US as an example, If the money supply counted all the dollars in existence, how can a commercial bank increase those dollars? They can't, can they?

[myrkul]

That isn't money, that is debt, which is financed from the excess reserves which exist as money.

Keeping to the US as an example, If the money supply counted all the dollars in existence, how can a commercial bank increase those dollars? They can't, can they?

In the US (and everywhere else with a central bank, which is... everywhere), Debt is money. Even the money created by the FED (Itself a private bank, not a government agency in any form of the word - it's as federal as FedEx) is debt, debt that the US government has taken on.

[MatthewLM]

Can a bank loan out more than it has in loanable assets with out creating these assets out of thin air?

[myrkul]

Can a bank loan out more than it has in loanable assets with out creating these assets out of thin air?

https://secure.wikimedia.org/wikipedia/en/wiki/Fractional_reserve_banking

[ttk2]

To all those rapping on sociability, your right, Bitcoin could not handle the transaction volume of the entire world if we changed overnight, but that does not mean it can not. The Bitcoin protocol is fully capable of scaling to that level if you give the devs a couple of years to code for it. Most of the problems already have solutions that simply need to be implemented. And while that implementation may take a while it is far from impossible.

[MatthewLM]

Can a bank loan out more than it has in loanable assets with out creating these assets out of thin air?

https://secure.wikimedia.org/wikipedia/en/wiki/Fractional_reserve_banking

Quote the part which explains what you are going on about.

Is the so called "money creation" from commercial banks the same creation of new money from thin air the same type as from the central bank?

[joulesbeef]

the other half of this same ripoff is evidenced by the "Excess Reserves" which is at about $16 trillion now held by the banks that they were supposed to lend out to the real economy.

One of the many straws that broke the economies back was SEC chairman Cox getting rid of the reserve requirements for banks which before then was set at 15 to 1. This had two effects, it allowed the banks to leverage themselves to the hilt, it also made it harder for interbanking business, as before you knew the bank you were dealing with was pretty much using the 15 to 1 limit, when it went away, you had no clue if they had reserves or not.

Now they are building back up reserves to prevent this from happening again.

You can bitch about them not lending, but you really cant complain about reserve requiments because the lack of reserve requirments is why they had to be bailed out.

[myrkul]

Can a bank loan out more than it has in loanable assets with out creating these assets out of thin air?

https://secure.wikimedia.org/wikipedia/en/wiki/Fractional_reserve_banking

Quote the part which explains what you are going on about.

Is the so called "money creation" from commercial banks the same creation of new money from thin air the same type as from the central bank?

The nature of modern banking is such that the cash reserves at the bank available to repay demand deposits need only be a fraction of the demand deposits owed to depositors. In most legal systems, a demand deposit at a bank (e.g. a checking or savings account) is considered a loan to the bank (instead of a bailment) repayable on demand, that the bank can use to finance its investments in loans and interest bearing securities. Banks make a profit based on the difference between the interest they charge on the loans they make, and the interest they pay to their depositors. Since a bank lends out most of the money deposited, keeping only a fraction of the total as reserves, it necessarily has less money than the account balances of its depositors.

Bolded section is the most important. If you add the account balances up, and include the money that is loaned out, you end up with a total much greater than total deposits. Effectively, they have created money. It's not, however, directly the same as the thin-air creation of the Federal Reserve.

[MatthewLM]

Bank balances are not money. I do not consider my bank balance to be money, I do not consider my debts to be money.

Bank account balances are what the bank owes to me. Wether or not they have it, is another question.

It comes down to what you define as money. I do not consider today's fraction reserve banking to be creating money our of thin air. It does however increase loanable funds, places risk on depositor's wealth and places more money in circulation.

[myrkul]

Bank balances are not money. I do not consider my bank balance to be money, I do not consider my debts to be money.

Bank account balances are what the bank owes to me. Wether or not they have it, is another question.

It comes down to what you define as money. I do not consider today's fraction reserve banking to be creating money our of thin air. It does however increase loanable funds, places risk on depositor's wealth and places more money in circulation.

Reconcile these two statements.

[MatthewLM]

So, if I put my money into a savings account, according to you, I am decreasing the supply of money?

As you see, it depends on what you mean by money. If money is saved, is it no longer money?

[myrkul]

So, if I put my money into a savings account, according to you, I am decreasing the supply of money?

No, it would seem that's what you're claiming.

[MatthewLM]

You say more money in circulation is more money full stop, no?

I should note, I am not defending fractional reserve or anything, it's not at all good that fractional reserve dominates the banking landscape.