Banks are fundamentally unnecessary and actually dangerous for bitcoin

[harm]

Perhaps that's what he meant. However, I believe this economic analysis is incorrect. You're saying that by keeping the money in the bank, and having the bank loan it out, that this was good for the economy. There was some positive contribution of wealth that would not have happened without loaning that money out. I believe this is wrong because the total quantity of money is irrelevant. You're not going to improve things by adding money into the system (and I'm well aware that Ben Bernanke disagrees, but he's wrong). So long as the money is sufficiently divisible, the sum total of it is an irrelevant quantity.

I agree with that. However, see my post above. If you don't loan your money out and someone else does, you will turn 100 bitcoins into 100 bitcoins while someone else turns 100 bitcoins into 108 bitcoins.

In practice, inflating a money supply does not increase the wealth. It merely redistributes the purchasing power of the money to the people who get the new money. It is a way of taking wealth from everyone who uses the money and giving it to the people who get the new money. It's equivalent to counterfeiting. For some reason, everyone understands that when a non-banker counterfeits a dollar, it is wrong. But when bankers do it, they think it is right and good, when in fact it is equally as bad.

You are entirely correct in the case of, say, a government printing money. However, this is not correct in the case of loans. The people who get the money pay it back with interest. They get purchasing power today (presumably when they need it more) in exchange for foregoing purchasing power in the future when they expect to need it less.

If people are willing to pay interest, it will typically be because they can make better use of the purchasing power today. Loans help people to efficiently time-shift consumption and production in cases where the most efficient pattern isn't produce-consume.

The obvious example is the guy who gets a job that pays 20% more than he's making, but he needs a car. He can't produce the value he needs to consume in the form of a car without the job. A loan allows how to consume the car now when he needs it, and produce the value of the car later when he will most likely be able to.

Certainly banks do some bad things and certainly people take bad loans. But the fundamental logic of banking and loans is completely sound.

There is nothing sound about fractional reserve banking. It is a giant scam, and probably the biggest mistake in the history of the legal system. It should be illegal. Or better, unregulated, so the market can force banks to keep high reserves.

Here's how banks counterfeit money. You deposit $100. The bank loans out $80 of your money to someone else. They put that money back in the bank. The bank now has $100 - all your money. But your checking account says $100, and the loanee's checking account says $80, for a total of $180. The bank has now effectively created--that is, counterfeited--$80 in new money. They gave this new money to themselves, and then loaned it out. Since their reserves are still over 20% (or whatever the present reserve requirement is), they keep doing this until they have stolen control over 80% of the money.

Banks declare themselves owner of most of the money, and charge a toll (interest) for using it. They are not providing a valuable service. They are trolls executing a giant scam that rips off everyone.

In response to your other points, I defer to cypherdoc.

If you expect to get interest from your bank, how should they pay you off, if they didn't lend it for interest? How else could one get a credit?

The interesting part in the fractional reserve banking is that with a reserve of 20% one bank after another can lend in total 4 times the inital money!
1. bank: $100 = $80 credit + $20 reserve
2. bank: $80 = $64 credit + 16 $reserve
3. bank: $64 = $51,2 credit + 12,8 $reserve
...
The Summ of money held as reserve by all banks equals the inital cash deposit, while 4 times that money is spend as credits.

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[JoelKatz]

Here's how banks counterfeit money. You deposit $100. The bank loans out $80 of your money to someone else. They put that money back in the bank. The bank now has $100 - all your money. But your checking account says $100, and the loanee's checking account says $80, for a total of $180. The bank has now effectively created--that is, counterfeited--$80 in new money. They gave this new money to themselves, and then loaned it out. Since their reserves are still over 20% (or whatever the present reserve requirement is), they keep doing this until they have stolen control over 80% of the money.

I'm curious about your reasoning and whether you actually believe it. Say I am short on cash right now, maybe I get paid next week and am hungry today. So I give someone an IOU for $20, payable to the bearer in two weeks, in exchange for $18. The $20 IOU is new money. Have I counterfeited, in your view?

The $100 in your checking account is an IOU, stating that the bank owes you $100. It is an IOU that the bank fully intends to repay, has made reasonable arrangements to ensure they can repay, and barring unusual circumstances, that they actually do repay. No fraud is involved. Nothing is claimed to be something that it is not.

[Astrohacker]

Here's how banks counterfeit money. You deposit $100. The bank loans out $80 of your money to someone else. They put that money back in the bank. The bank now has $100 - all your money. But your checking account says $100, and the loanee's checking account says $80, for a total of $180. The bank has now effectively created--that is, counterfeited--$80 in new money. They gave this new money to themselves, and then loaned it out. Since their reserves are still over 20% (or whatever the present reserve requirement is), they keep doing this until they have stolen control over 80% of the money.

I'm curious about your reasoning and whether you actually believe it. Say I am short on cash right now, maybe I get paid next week and am hungry today. So I give someone an IOU for $20, payable to the bearer in two weeks, in exchange for $18. The $20 IOU is new money. Have I counterfeited, in your view?

The $100 in your checking account is an IOU, stating that the bank owes you $100. It is an IOU that the bank fully intends to repay, has made reasonable arrangements to ensure they can repay, and barring unusual circumstances, that they actually do repay. No fraud is involved. Nothing is claimed to be something that it is not.

Yes I actually believe it. For more information, read "The Mystery of Banking" by Murray Rothbard.

It's not fraud to loan someone your money and get an IOU in exchange. It's fraud to counterfeit money. You're right about your checking account being an IOU of sorts. Another way of looking at it is that banks have conned everyone into using their IOUs as money instead of dollars, and they own 80% of the IOUs, and charge a toll for using them. It's fraud because banks make you think their IOUs=dollars, when in fact they are definitely not equal because they are not backed 100% by dollars.

Further fraud is caused the Federal Reserve because they counterfeit new dollars, so today's dollar is not the same thing as yesterday's dollar. $(today) != $(yesterday). But the Fed lies to you and makes you think $(today)=$(yesterday) by calling both of them "dollars", hence the fraud. So banks are a fraud on top of a fraud.

[harm]

One simple question:
Why would I want to use bitcoins, when the current banking system ("double spending" through fractional reserve banking; creating money by accepting securities) seems to be not so bad? Obviously there are allways good economic reasons.

Is is only the anonymity and the decentralization?

Considering the previous post the bitcoin system does lack of the possibility to offer credits higher than the deposits as one cannot create money to give away even more credits, which the economy might need! --> slower growth??!

[JoelKatz]

It's fraud because banks make you think their IOUs=dollars, when in fact they are definitely not equal because they are not backed 100% by dollars.

So there are people who think they are 100% backed by dollars? Where can I find some of these people? And how do banks make people think this? Is it some form of mind control?

Further fraud is caused the Federal Reserve because they counterfeit new dollars, so today's dollar is not the same thing as yesterday's dollar. $(today) != $(yesterday). But the Fed lies to you and makes you think $(today)=$(yesterday) by calling both of them "dollars", hence the fraud. So banks are a fraud on top of a fraud.

Let's stick to fractional reserve banking first. I can only rebut one conspiracy theory at a time. (But yes, inflation caused by government expansion of the money supply does act like a tax on all wealth. But this is no secret.)

[Astrohacker]

One simple question:
Why would I want to use bitcoins, when the current banking system ("double spending" through fractional reserve banking; creating money by accepting securities) seems to be not so bad? Obviously there are allways good economic reasons.

Is is only the anonymity and the decentralization?

Considering the previous post the bitcoin system does lack of the possibility to offer credits higher than the deposits as one cannot create money to give away even more credits, which the economy might need! --> slower growth??!

Are you kidding? The present system is terrible. It allows the people who control the money supply to create new money and give it to themselves. This is one of the problems that bitcoin solves by limiting the supply to 21 million. Read all of my posts in this thread and read my article: http://astrohacker.com/ahc/central-banks-are-the-scam-not-bitcoin/

However, in practice this is not why most people will use bitcoin, since most people don't understand how screwed they are by this system. Instead, they will use bitcoin because there will be many services that only accept bitcoin, because those services will only be possible or practical with bitcoin. An example of this is anything that charges very small fees over the internet, which will work with bitcoin, because the fees are low, but not dollars or other fiat currencies, because the fees are too high.

[Astrohacker]

It's fraud because banks make you think their IOUs=dollars, when in fact they are definitely not equal because they are not backed 100% by dollars.

So there are people who think they are 100% backed by dollars? Where can I find some of these people? And how do banks make people think this? Is it some form of mind control?

Further fraud is caused the Federal Reserve because they counterfeit new dollars, so today's dollar is not the same thing as yesterday's dollar. $(today) != $(yesterday). But the Fed lies to you and makes you think $(today)=$(yesterday) by calling both of them "dollars", hence the fraud. So banks are a fraud on top of a fraud.

Let's stick to fractional reserve banking first. I can only rebut one conspiracy theory at a time. (But yes, inflation caused by government expansion of the money supply does act like a tax on all wealth. But this is no secret.)

You can find them anywhere since 99% of people do not understand how banking works.

[harm]

One simple question:
Why would I want to use bitcoins, when the current banking system ("double spending" through fractional reserve banking; creating money by accepting securities) seems to be not so bad? Obviously there are allways good economic reasons.

Is is only the anonymity and the decentralization?

Considering the previous post the bitcoin system does lack of the possibility to offer credits higher than the deposits as one cannot create money to give away even more credits, which the economy might need! --> slower growth??!

Are you kidding? The present system is terrible. It allows the people who control the money supply to create new money and give it to themselves. This is one of the problems that bitcoin solves by limiting the supply to 21 million. Read all of my posts in this thread and read my article: http://astrohacker.com/ahc/central-banks-are-the-scam-not-bitcoin/

However, in practice this is not why most people will use bitcoin, since most people don't understand how screwed they are by this system. Instead, they will use bitcoin because there will be many services that only accept bitcoin, because those services will only be possible or practical with bitcoin. An example of this is anything that charges very small fees over the internet, which will work with bitcoin, because the fees are low, but not dollars or other fiat currencies, because the fees are too high.

Banks can use saver's money to give away as credits, but they can also create it:
Banks can create money by accepting mortgage and granting credits at the amount of the mortgage value.
Later the credit receiver pays back the money. This is not possible with bitcoins, but what is the problem anyway? Why is this bad?

[JoelKatz]

You can find them anywhere since 99% of people do not understand how banking works.

Ahh, nice goalpost shifting there. 99% of people don't understand how anything works. That doesn't make everything fraud. The question is whether there are people who think that when you deposit money in a checking account, the bank keeps your money in the vault for you and pays you interest either out of the goodness of their heart or by magic.

Remember, you said:

It's fraud because banks make you think their IOUs=dollars, when in fact they are definitely not equal because they are not backed 100% by dollars.

[cypherdoc]

Don't blame wasteful consumption on bankers.

you mean like Dick Fuld's $30K bidet?

or how 9/10 yachts in NY harbor are owned by bankers?  read  "Where are the Customers Yachts?" by Fred Schwed.

how bout all the mansions, hookers and blow owned by bankers.  cmon, have you looked at the recent wealth disparity stats?

[markm]

One simple question:
Why would I want to use bitcoins, when the current banking system ("double spending" through fractional reserve banking; creating money by accepting securities) seems to be not so bad? Obviously there are allways good economic reasons.

Is is only the anonymity and the decentralization?

Considering the previous post the bitcoin system does lack of the possibility to offer credits higher than the deposits as one cannot create money to give away even more credits, which the economy might need! --> slower growth??!

Are you kidding? The present system is terrible. It allows the people who control the money supply to create new money and give it to themselves. This is one of the problems that bitcoin solves by limiting the supply to 21 million. Read all of my posts in this thread and read my article: http://astrohacker.com/ahc/central-banks-are-the-scam-not-bitcoin/

However, in practice this is not why most people will use bitcoin, since most people don't understand how screwed they are by this system. Instead, they will use bitcoin because there will be many services that only accept bitcoin, because those services will only be possible or practical with bitcoin. An example of this is anything that charges very small fees over the internet, which will work with bitcoin, because the fees are low, but not dollars or other fiat currencies, because the fees are too high.

Actually, bitcoin creates an entire new 21 million bitcoins, and the software can be used again and again and again to create more and more newfangled coins. Devcoin creates 50,000 devcoins per block! Namecoins are being created even as I type! Groupcoins also are being created! Beertokens possibly have already been created. Gosh knows how many WEEDS there are. And so on.

So it is kind of disingenuous to praise bitcoin as a solution merely because the number of tokens it creates out of thin air are limited. They still came from no-where, and limiting them actually proposes to cause them to suck up more previously-existing tokens of other kinds than it might if it created more.

Of which was more created, monopoly money, totopoly money, mine-a-million money, transport tycoon money, world of warcraft gold or EVE ISKs? How much does it matter?

I am not down on bitcoin, nor its spinoffs such as devcoin and groupcoin and Martian BotCoins etc etc etc. But just aware that creating tokens from nothing is still creating tokens from nothing however much you argue the relative difficulty of the various nothings.

-MarkM-

[UniverseMan]

Remember, you said:

It's fraud because banks make you think their IOUs=dollars, when in fact they are definitely not equal because they are not backed 100% by dollars.

I am going to agree that this quote is the key to toppling your argument against loans here, Astrohacker. Fractional reserve banking doesn't create anything, it doesn't counterfeit money, it only redistributes money and debts. Banking is a closed system; take the sum over the money of every person with a loan and subtract the debt of every person with a savings account, and the total will be exactly as much as was brought in to begin with. Nothing was created, just moved.

The fact that you view their debts as dollars, or perhaps that you feel that's how they are presenting their debts, is not the fault of the banks. It's certainly not fraud, because they are quite up front about it, and fraud requires willful deception.

[Astrohacker]

Everything I have said is correct. You guys are confused and deluded by misinformation. Fractional reserve banking is so thoroughly mainstream that people will go to any lengths to defend them in spite of their being some of the most criminal institutions on the planet.

For a more thorough version of my "banks are a scam" argument, read "The Mystery of Banking" by Murray Rothbard. It is available for free at mises.org: http://mises.org/Books/mysteryofbanking.pdf

[kloinko1n]

[snip>

in an inflationary currency you mostly just give your money to someone who can invest it into something that doesnt lose value. so a big part of the profit you share is just avoiding inflation. in a deflationary or stable currency the interest rate has to be significantly lower and might not justify the risk of not getting your money back.

Given the current banking system, whether a currency is 'inflationary' or not depends on the original owners of the money: the savers.
If they bring it to the bank, they provide a lever to them against which they (the banks) can create money en deflate the currency that the saver brought to the bank.
If the saver does not bring his money to the bank, such a lever doesn't exist, and the money will not inflate (with two meanings).

So, saving money in a bank is like financial suicide if you ask me. Better keep it under your bed or so.

[blogospheroid]

Astrohacker,

Are you ok with bankers if the only lending out was done from term deposits and was completely maturity matched? i.e. 3 month loans made out from 3 month minimum term deposits and so on..

If you're ok with that, you and Joel don't have an argument at all.