theonewhowaskazu (OP)
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November 03, 2013, 08:37:16 PM |
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As you probably know, currently all money carries an interest rate.
Either about 2.5% on base currency (Of which a normal person gets 0% for owning Federal Reserve Notes). Or about 4% on bank currency (m2) (Of which a normal person gets 1% for depositing into a bank). I'm assuming there is roughly 2 times as much bank currency as there is base currency, so the average rate debt is building up is about 3.5%.
There is no way that 3.5% can be repaid in full, all at the same time, because that 3.5% is accruing on all money in the entire system. If people just waited until the same time to pay back their debts (say January 1st), even if the entire money supply were destroyed, 3.5% of people would have to default.
There are two ways of avoiding this, one which is often talked about here, the other one, not so much. The first is to borrow yet more money. The second, is to pay some of your debts, and then earn some of that money back from your debtor, and then pay back the rest of your debts.
That's where money velocity comes in. You see, I've discovered that basically the entire monetary system right now is based around making currency move as slowly as possible. Instead, we have to take credit - which bears yet more interest - on top of that money - to get that money to move fast. This piles yet another bunch of interest on top of the 3.5% that normal US Dollars are accumulating.
See, when you go buy something, you don't just buy it. You purchase it with a credit card. Those interest rates are orders of magnitude higher than the 3.5%, its more like 12%. If you want to send money oversees, you can't just send it, you're going to have to pay Western Union to send it, and if you want it today? That's a bigger fee - that's really just more interest (to get your money earlier, you're paying money). All of the money used in this manner has TWO interest rates on it, first, the interest rate of the normal money, 3.5%, and then another interest rate, to advance it to the person you're paying, 12%. The banks allow this money to move fast, because they compensate the speed with more interest.
On the other hand, money earning the first interest rate moves slow, or at the very least, there are choke points where it really matters. The government gets their payday once a year. Sales tax and income tax, for example, are withheld from you throughout the entire year - you're not circulating that money, its stuck, with a velocity of 0 - yet the government is still paying interest on that money, until finally come tax time where they collect it. The Federal Reserve only turns over its profit - really the money the government has been paying them in interest - back to the government at a specific time of year. Laws try to get us to stick some of our money into IRAS, 401Ks, or into offshore bank accounts, where its velocity is also 0, where interest just accumulates, some for us, more for the banks. To extract some money from these accounts? It literally takes months, I've tried it, plus there are huge tax implications which say "don't do it now, do it later."
All because the banks don't want you to pay off some debts, then earn some of that money back from your debtor, then pay off the rest. They want, due to the slowness of money, when you pay off your debtor, somebody else had to rack up even more, else you wouldn't be able to pay it back in time.
Just one more reason Bitcoin is different.
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