Why Bitcoin is ultimately doomed to fail (not today or tomorrow)

[deisik]

You don't multiply reserves, you multiply money given out as loans.

Where do you get that idea from?

Okay, what is your understanding of money multiplication?

https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/banking-and-money/v/banking-4--multiplier-effect-and-the-money-supply

As you may have noticed I asked about your understanding

I'd love to hear your explanation in your own words (core principle, 2-3 sentences). I've seen it so many times when people provided links and couldn't explain coherently what was written there. In fact, I expected that you wouldn't try to explain it yourself, lol...

If we're going to start demanding answers of each other, then you'll note that I asked first, and you haven't answered my question yet.

Your question is largely meaningless ("Where do you get that idea from?"). I got it from the textbook. Now your turn to tell your understanding of what money multiplication is (I gave my understanding before)...

[deisik]

And how reserves which banks can't loan are positively relevant here (i.e. contributing to it)?

That question doesn't make sense.

Are you suggesting that it's possible to run a bank, and accept demand deposits, without keeping any reserves?

This is irrelevant to the question asked. Once again, how do reserves contribute to money multiplication?

Without reserves there would be no deposits, so there would be no money multiplication.

And yes, there is no miracle in running a bank without keeping any reserves at all (and at the same time accepting demand deposits), provided the bank has access to cheap interbank loans. This is rather a technical question, and I have to repeat it is not relevant in the context...

Access to cheap interbank loans is useless when someone comes into the bank to present a check or make a withdraw, and you don't have any money to give them. Who's going to deposit their money there?

You forget about internet banking (or rather remote banking) where you use other banks' ATMs to get or put cash. I am using one if you're curious. I still have to repeat that you pick at petty details...

[deisik]

You don't multiply reserves, you multiply money given out as loans.

Where do you get that idea from?

Okay, what is your understanding of money multiplication?

https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/banking-and-money/v/banking-4--multiplier-effect-and-the-money-supply

As you may have noticed I asked about your understanding

I'd love to hear your explanation in your own words (core principle, 2-3 sentences). I've seen it so many times when people provided links and couldn't explain coherently what was written there. In fact, I expected that you wouldn't try to explain it yourself, lol...

If we're going to start demanding answers of each other, then you'll note that I asked first, and you haven't answered my question yet.

Your question is meaningless ("Where do you get that idea from?"). I got it from the textbook

That answer's very helpful, though. Which textbook? If I can get a copy from my library, I can read the section of the textbook you're talking about and maybe understand what it is you're saying.

It stands on my bookshelf but it can hardly help you since it is not in English. It is called something like "Money. Credit. Banks.". This textbook is for universities

[deisik]

[This was added later.]

Now your turn to tell your understanding of what money multiplication is (I gave my understanding before)...

I think the link I gave explained it better than I can, but basically the issue is that M1 includes both physical money and checking balances (a couple other things too but they can be left out for this simple explanation). When banks do not hold 100% reserves for their checking balances but instead lend out checking deposits they've received, this is called fractional reserve banking. This causes M1 to be bigger than M0, which is called money multiplication. What happens is that A puts money into her checking account and then the bank lends it to B. B usually either deposits the money or spends it, and generally someone down the line deposits the money, usually most or all of it. In the case where the banks all hold reserves of 1/X, and all of the non-bank participants spend or deposit their money, the result is a geometric series, which approaches a limit where M1 adds up to X times that of M0. X is called the money multiplier. In practice the money multiplier is always less than X, and potentially can be significantly less than X if non-bank participants hold significant assets in cash. If banks keep too little in reserves this can cause insolvency and bank failures and runs on the bank and recessions, which in turn can cause non-bank participants to lose trust in the banks and hold their assets in cash.

This is, of course, a greatly oversimplified model of what happens in practice. I hope you don't expect me to write a whole textbook on the topic.

You actually paraphrase what is written in Wikipedia about money multiplication in general and money multiplier in particular. This correctly describes the mechanics, but lacks telling the principle behind it. It is fun that whenever people tell what you just did (or just quote Wikipedia), they still can't explain how "money is created out of thin air", lol...

[deisik]

It stands on my bookshelf but it can hardly help you since it is not in English. It is called something like "Money. Credit. Banks.". This textbook is for universities

Does it list an author or authors? Editors? Can you give me enough information to look it up? Maybe I won't be able to read it, but I can at least try to find something which refers to it so I can get an idea of what type of theories it's teaching.

That said, just the fact that the book is not in English is useful to know. Maybe the problem is that you're not translating things right when you explain it in English. This definitely explains why a lot of your sentences don't make sense (like when you were referring to the process of fractional reserve banking as "money multiplier"). In English we refer to it as fractional reserve banking, and the money multiplier is just a number which represents a ratio such as that between M1 and M0.

Here is the link. My edition has another cover, but the editor is the same, so this one (judging by the year) should overall be the same book that I have...

[deisik]

[This was added later.]

Now your turn to tell your understanding of what money multiplication is (I gave my understanding before)...

I think the link I gave explained it better than I can, but basically the issue is that M1 includes both physical money and checking balances (a couple other things too but they can be left out for this simple explanation). When banks do not hold 100% reserves for their checking balances but instead lend out checking deposits they've received, this is called fractional reserve banking. This causes M1 to be bigger than M0, which is called money multiplication. What happens is that A puts money into her checking account and then the bank lends it to B. B usually either deposits the money or spends it, and generally someone down the line deposits the money, usually most or all of it. In the case where the banks all hold reserves of 1/X, and all of the non-bank participants spend or deposit their money, the result is a geometric series, which approaches a limit where M1 adds up to X times that of M0. X is called the money multiplier. In practice the money multiplier is always less than X, and potentially can be significantly less than X if non-bank participants hold significant assets in cash. If banks keep too little in reserves this can cause insolvency and bank failures and runs on the bank and recessions, which in turn can cause non-bank participants to lose trust in the banks and hold their assets in cash.

This is, of course, a greatly oversimplified model of what happens in practice. I hope you don't expect me to write a whole textbook on the topic.

You actually paraphrase what is written in Wikipedia about money multiplication in general and money multiplier in particular.

I guess Wikipedia actually got something right for a change.

I didn't plagiarize my answer from Wikipedia, if that's what you're suggesting.

This correctly describes the mechanics, but lacks telling the principle behind it. It is fun that whenever people tell what you just did (or just quote Wikipedia), they still can't explain how "money is created out of thin air", lol...

As I've said before, "money is created out of thin air" is a metaphor. Probably a quite inappropriate metaphor to use when discussing things with someone whose native language is not English, and may not fully appreciate the nuances of the idiom.

As far as "the principle behind it", I'm not really sure what you're getting at.

I've read your description of money multiplication. But I still don't understand it, i.e. what makes that factor X to be considered as money multiplier (that what I would call the principle behind the mechanics)...

[deisik]

I guess Wikipedia actually got something right for a change.

I didn't plagiarize my answer from Wikipedia, if that's what you're suggesting.

I didn't mean to say you copied it from Wikipedia. But if you open the corresponding article there, you will see that it tells almost the same...

[deisik]

Here is the link. My edition has another cover, but the editor is the same, so this one (judging by the year) should overall be the same book that I have...

Yeah, I suspect we're mostly just having translation issues. I'll try to be more aware of this in the future. Hopefully you will as well.

I don't think so, lol. If you think that I will take this, then you are just wrong. This simply won't work as you planned it...

[deisik]

I guess Wikipedia actually got something right for a change.

I didn't plagiarize my answer from Wikipedia, if that's what you're suggesting.

I didn't mean to say you copied it from Wikipedia. But if you open the corresponding article there, you will see that it tells almost the same...

And if you open up a typical Economics textbook used at the college/university level in the United States, you'll probably see something similar as well.

If it's all wrong, I'd be interested in hearing about that.

I didn't say it is all wrong, lol. You seem to either intentionally misinterpret my words or just not read closely enough my posts. In fact, I said it correctly describes the mechanics, but doesn't explain why this multiplier is money multiplier in the first place (i.e. the principle of money multiplication)...

[deisik]

I have already explained (for the justice sake, it was not me who first voiced this explanation here) earlier in the thread, somewhere within a couple of previous pages. I think, as a frequenter of this thread, you won't lose a chance to read the thread from the moment the question of money multiplication came up here...

[deisik]

Here is the link. My edition has another cover, but the editor is the same, so this one (judging by the year) should overall be the same book that I have...

Yeah, I suspect we're mostly just having translation issues. I'll try to be more aware of this in the future. Hopefully you will as well.

I don't think so, lol. If you think that I will take this, then you are just wrong. This simply won't work as you planned it...

By "If you think that I will take this" do you mean "If you think that I will stand for this"?

Are you denying that you're not very good at writing in English? Do you deny that many of your sentences are grammatically incorrect?

Show me the code examples, I'm really curious. So as not to clutter the thread, you may want to do this privately (it is a bit off-topic even for me, lol). And no, I don't take it personal, never mind...

[deisik]

Here is the link. My edition has another cover, but the editor is the same, so this one (judging by the year) should overall be the same book that I have...

Yeah, I suspect we're mostly just having translation issues. I'll try to be more aware of this in the future. Hopefully you will as well.

I don't think so, lol. If you think that I will take this, then you are just wrong. This simply won't work as you planned it...

By "If you think that I will take this" do you mean "If you think that I will stand for this"?

Lol, I meant that I wouldn't take your words seriously...

[deisik]

I guess Wikipedia actually got something right for a change.

I didn't plagiarize my answer from Wikipedia, if that's what you're suggesting.

I didn't mean to say you copied it from Wikipedia. But if you open the corresponding article there, you will see that it tells almost the same...

And if you open up a typical Economics textbook used at the college/university level in the United States, you'll probably see something similar as well.

If it's all wrong, I'd be interested in hearing about that.

I didn't say it is all wrong, lol.

And I didn't say you said so.

You seem to either intentionally misinterpret my words or just not read closely enough my posts.

I assure you that my misinterpretation of your words is completely unintentional. I'm trying to read your posts more carefully. But it's often better for me to just ask questions.

In fact, I said it correctly describes the mechanics, but doesn't explain why this multiplier is money multiplier in the first place (i.e. the principle of money multiplication)...

There seems to be a missing word in that sentence between "is" and "money". Is the missing word "the" or "a" (or something else)?

I don't think so. The emphasis is on money here, i.e. what makes this multiplier somehow related to multiplying money. So the word money itself serves as a specifier here. I think the use of other specifiers is redundant here (though not prohibited)...

[deisik]

In any case, "money multiplier" is not "the principle of money multiplication". I'm not sure what is even meant by the term "the principle of money multiplication". Googling "the principle of money multiplication" gives me two hits. That's certainly not a phrase that's commonly used.

Googling "the principle of money" gives me about 63,400 results, whereas "the principle of multiplication" yields about 6,130,000 results, lol. The search for the phrase "money multiplication" produces only about 21,000 results. Apparently, money multiplication and the principle behind it are certainly not what people discuss on a daily basis, double lol...

[deisik]

Are you denying that you're not very good at writing in English? Do you deny that many of your sentences are grammatically incorrect?

Show me the code examples, I'm really curious.

<...>

I read half of your post, and yes, in one place I evidently lost an auxiliary verb, lol. Should I read the rest?

Edit: I read the other half. I can agree only on one grammatical mistake which I already admitted above (and fixed that)...

[deisik]

In fact, I said it correctly describes the mechanics, but doesn't explain why this multiplier is money multiplier in the first place (i.e. the principle of money multiplication)...

There seems to be a missing word in that sentence between "is" and "money". Is the missing word "the" or "a" (or something else)?

I don't think so.

Do you think that "This multiplier is money multiplier." is a proper English sentence?

I think you should better quote the whole sentence. And yes, I think it is correct. You may personally not love it (and this for sure isn't a surprise to me, lol), but I don't see what you refer to here...

[deisik]

So the word money itself serves as a specifier here. I think the use of other specifiers is redundant here (though not prohibited)...

Interesting. I've definitely noticed that Russian speakers tend to frequently drop articles ("in Soviet Russia, car drives you"), but I've never before heard an explanation for why.

In any event, in English, articles are used to specify whether the noun is definite or indefinite. The word "money" doesn't do this.

Lol, but the word money itself is primarily used without any specifier (save for very specific cases indeed)...

[deisik]

You won't take my words seriously?

I want you to take my words seriously. I just don't want you to take them as an insult.

Oh, I'm so sorry for that... But as I said before, it takes a lot to see me hurt, though it doesn't take that much to write somebody off as not being serious, lol

[deisik]

So the word money itself serves as a specifier here. I think the use of other specifiers is redundant here (though not prohibited)...

Interesting. I've definitely noticed that Russian speakers tend to frequently drop articles ("in Soviet Russia, car drives you"), but I've never before heard an explanation for why.

In any event, in English, articles are used to specify whether the noun is definite or indefinite. The word "money" doesn't do this.

Lol, but the word money itself is primarily used without any specifier (save for very specific cases indeed)...

When "money" is used as a noun, it is usually plural, in which case you don't need an article. But in this case "money" is being used as an adjective, and the noun, "multiplier", is singular.

You probably meant to say singular, right? For example, money is scarce. When we talk about moneys (or use an indefinite article with the word, i.e. a money), we actually mean currencies or money systems...

[deisik]

Are you denying that you're not very good at writing in English? Do you deny that many of your sentences are grammatically incorrect?

Show me the code examples, I'm really curious.

<...>

I read half of your post, and yes, in one place I evidently lost an auxiliary verb, lol. Should I read the rest?

Edit: I read the other half. I can agree only on one grammatical mistake which I already admitted above (and fixed that)...

Most of the mistakes are missing articles, but, for example, here are two which misuse the present simple passive tense:

"And this is what called money multiplication, i.e. creating mutually extinguishing assets and liabilities"
("what called money multiplication" should be "what is called money multiplication")

I have already admitted losing an auxiliary verb there (and fixed that in the original post). Another example is also my fault (also fixed that now). I don't always reread my posts after submitting them (or before, lol), so these mistakes are quite possible...