Bitcoin Forum
December 07, 2016, 02:34:34 PM *
News: Latest stable version of Bitcoin Core: 0.13.1  [Torrent].
 
   Home   Help Search Donate Login Register  
Pages: « 1 2 3 [4] 5 6 »  All
  Print  
Author Topic: How come the bank failure destroy the wealth???  (Read 8338 times)
jtimon
Legendary
*
Offline Offline

Activity: 1246


View Profile WWW
October 19, 2011, 07:43:13 PM
 #61

Financial market is key in money redistribution, but the wealth are created by labor and the money are created by central bank

Without central bank create money at the first place, it will not be possible to have saving in money's form. From this point of view, if central bank already created money, then it can be used to invest without saving first

In fact you don't need a central bank or a the force of a state to have money. You can use gold, silver, salt, shells or any other commodity as long as there's an agreement (probably not explicit) within the users and it is scarce enough to be cash.
Everybody could print their own currency accepted only by the people who trust them and then exchange the currencies to be able to pay the person you want to pay (that's how ripple really works). People can just use credit like they have been doing probably most of our history as species.
Today, you can use a block chain to create the scarcity instead of relying in a commodity. Or you can make those exchanges between currencies/credit very complex and fast using computers.
The typical argument for central banks is to have stable prices. Lately the "liquidity argument" has become more popular.

Yes, demurrage have the same effect as inflation, why it is not implemented, might only be a psychology issue, people always want more instead of less, in a inflation environment, people just feel richer and be happier  Grin

Many people think demurrage is equivalent to deflation but I don't share that view. Their effect on interest rates is completely different.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
1481121274
Hero Member
*
Offline Offline

Posts: 1481121274

View Profile Personal Message (Offline)

Ignore
1481121274
Reply with quote  #2

1481121274
Report to moderator
1481121274
Hero Member
*
Offline Offline

Posts: 1481121274

View Profile Personal Message (Offline)

Ignore
1481121274
Reply with quote  #2

1481121274
Report to moderator
1481121274
Hero Member
*
Offline Offline

Posts: 1481121274

View Profile Personal Message (Offline)

Ignore
1481121274
Reply with quote  #2

1481121274
Report to moderator
Advertised sites are not endorsed by the Bitcoin Forum. They may be unsafe, untrustworthy, or illegal in your jurisdiction. Advertise here.
1481121274
Hero Member
*
Offline Offline

Posts: 1481121274

View Profile Personal Message (Offline)

Ignore
1481121274
Reply with quote  #2

1481121274
Report to moderator
1481121274
Hero Member
*
Offline Offline

Posts: 1481121274

View Profile Personal Message (Offline)

Ignore
1481121274
Reply with quote  #2

1481121274
Report to moderator
johnyj
Legendary
*
Offline Offline

Activity: 1806


Beyond Imagination


View Profile
October 20, 2011, 07:01:14 AM
 #62


In fact you don't need a central bank or a the force of a state to have money. You can use gold, silver, salt, shells or any other commodity as long as there's an agreement (probably not explicit) within the users and it is scarce enough to be cash.
Everybody could print their own currency accepted only by the people who trust them and then exchange the currencies to be able to pay the person you want to pay (that's how ripple really works). People can just use credit like they have been doing probably most of our history as species.
Today, you can use a block chain to create the scarcity instead of relying in a commodity. Or you can make those exchanges between currencies/credit very complex and fast using computers.
The typical argument for central banks is to have stable prices. Lately the "liquidity argument" has become more popular.

Here I have some observation: In the old time, miner produce gold to exchange other products, the labor involved can also be quite much, just the gold miner's product will be saved as a wealth because it almost never degrade. But in today's monetary system, producing money involves almost no real work, that is the difference, the paper/digital money's credit must be backed by an authority



Many people think demurrage is equivalent to deflation but I don't share that view. Their effect on interest rates is completely different.

Demurrage is equivalent to inflation: money's value drops and everything becomes more expensive.

jtimon
Legendary
*
Offline Offline

Activity: 1246


View Profile WWW
October 20, 2011, 08:45:03 AM
 #63


In fact you don't need a central bank or a the force of a state to have money. You can use gold, silver, salt, shells or any other commodity as long as there's an agreement (probably not explicit) within the users and it is scarce enough to be cash.
Everybody could print their own currency accepted only by the people who trust them and then exchange the currencies to be able to pay the person you want to pay (that's how ripple really works). People can just use credit like they have been doing probably most of our history as species.
Today, you can use a block chain to create the scarcity instead of relying in a commodity. Or you can make those exchanges between currencies/credit very complex and fast using computers.
The typical argument for central banks is to have stable prices. Lately the "liquidity argument" has become more popular.

Here I have some observation: In the old time, miner produce gold to exchange other products, the labor involved can also be quite much, just the gold miner's product will be saved as a wealth because it almost never degrade. But in today's monetary system, producing money involves almost no real work, that is the difference, the paper/digital money's credit must be backed by an authority

Money can be backed by good and services like LETS currencies are.

Many people think demurrage is equivalent to deflation but I don't share that view. Their effect on interest rates is completely different.

Demurrage is equivalent to inflation: money's value drops and everything becomes more expensive.

The difference is that demurrage reduces real interests and inflation doesn't. Inflation just increases nominal rates (through the inflation premium).

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
johnyj
Legendary
*
Offline Offline

Activity: 1806


Beyond Imagination


View Profile
October 20, 2011, 02:24:36 PM
 #64

Money can be backed by good and services like LETS currencies are.

Sure, but my point is that unlike gold, the money we are using today are not value itself, it has gained strange characters: Money were created only for loan out

To clearly show this, let's imagine an island with 2 people and one central bank, the market has 2 fish and 2 basket of fruits (the real saving), bank provide one-day loan with interest 0

Now A borrow 2 shells from bank and use these shells to buy 1 fish and 1 basket of fruits for 1 day's food, at the end of day, he captured 2 fish and sell to the market to get 2 shells, and return those 2 shells to bank

B did the same thing, he borrow 2 shells to support his life in the day, while he pickup 2 baskets of fruits and sell to market and get back 2 shells to return to the bank

Here, bank first created money, provided loan to society, and finally got it back. Without loan, A and B's business can not carry out. So, loan act as the driven power that pushes business activities forward

But if A borrowed 2 shells and B only borrowed 1 shell, then the market will have 1/2 fish and 1/2 fruits left, when A returned at the end of day with 2 fish, he will not be able to get 2 shells since market now have more fish than last day, the price of fish would drop due to oversupply of fish. B will not be able to sell all his products to market either due to the same reason

This means, if the whole society can not consume all the real saving, then they can't return the loan  Grin




The difference is that demurrage reduces real interests and inflation doesn't. Inflation just increases nominal rates (through the inflation premium).

Interest = general investment return, I think they are interchangeable. In a developed country, the general investment return will  be much lower than a developing country, even stay negative (means most of the investment will generate a loss)

jtimon
Legendary
*
Offline Offline

Activity: 1246


View Profile WWW
October 21, 2011, 09:28:19 AM
 #65

Money can be backed by good and services like LETS currencies are.

Sure, but my point is that unlike gold, the money we are using today are not value itself, it has gained strange characters: Money were created only for loan out

Please tell me you don't believe in so called "intrinsic value".

To clearly show this, let's imagine an island with 2 people and one central bank, the market has 2 fish and 2 basket of fruits, bank provide one-day loan with interest 0

Now A borrow 2 shells from bank and use these shells to buy 1 fish and 1 basket of fruits for 1 day's food, at the end of day, he captured 2 fish and sell to the market to get 2 shells, and return those 2 shells to bank

B did the same thing, he borrow 2 shells to support his life in the day, while he pickup 2 baskets of fruits and sell to market and get back 2 shells to return to the bank

Here, bank first created money, provided loan to society, and finally got it back. Without loan, A and B's business can not carry out. So, loan act as the driven power that pushes business activities forward

They could have used LETS or Ripple instead of the bank. They could have just used verbal IOUs.
Why are people accepting the IOUs from the bank (shells)? If you don't owe nothing to the bank and go to the bank with it. Do they give you something? 

But if A borrowed 2 shells and B only borrowed 1 shell, then the market will have 1/2 fish and 1/2 fruits left, when A returned at the end of day with 2 fish, he will not be able to get 2 shells since market now have more fish than last day, the price of fish would drop due to oversupply of fish. B will not be able to sell all his products to market either due to the same reason

This means, if the whole society can not get loan equally, then they can't return the loan  Grin

B could buy things after selling his products. There's no limit in circulation. If all the products are priced 1 shell, they can conduct all trades with a single shell.
But every time the shell changes hands, the owner has the opportunity to demand more than a product for the shell or all trade will stop. This is the real source of the basic interest.
All trade must pass through the money bridge and the bridge keeper can demand his fee. He says:
"The shell doesn't rot, I can wait all they until you decide you really need to sell your fish, and I say 1 fish is not enough for my shell, give me more".

The difference is that demurrage reduces real interests and inflation doesn't. Inflation just increases nominal rates (through the inflation premium).

Interest = general investment return, I think they are interchangeable. In a developed country, the general investment return will  be much lower than a developing country, even stay negative (means most of the investment will generate a loss)
[/quote]

This is like saying: Price in the market = costs of production.
Prices drive production and not the other way around.
In the same way, interest drive investments but not the other way around.
By competition, investments returns would drop slowly to zero, but there's a minimum interest that the money holder can exact from the necessity of money in trade, not only in investments.
That's what makes capital yields different from other profits. The basic interest protects them by stopping further investment when the minimum yield (not zero, but the basic interest) is reached.
In a developed country, capital yields are closer to the basic interest because there's more capital (and different capitals of the same type compete between them for the yields).
When there's no investment that can be done and get a yield at least as high as the basic interest, investment stops.
Time will destroy the capital that's already there and allow new "profitable enough" investments. Usually countries prefer to go to war, that destroys capital much faster.

But what we're discussing is that:

nominal interest = inflation premium + real interest = inflation premium + basic interest + risk premium

Expocoin (inflationary bitcoin) would just increase the inflation premium, so it would increase nominal interest but would keep real interest untouched.
Freicoin (bitcoin with demurrage) would reduce the basic interest and therefore the real and nominal interests.

So no, inflation and demurrage are not equivalent. Do you disagree in how each one affects interest?
What's your prediction for interests with bitcoin, expocoin and freicoin?

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
johnyj
Legendary
*
Offline Offline

Activity: 1806


Beyond Imagination


View Profile
October 21, 2011, 11:09:17 AM
 #66


They could have used LETS or Ripple instead of the bank. They could have just used verbal IOUs.
Why are people accepting the IOUs from the bank (shells)? If you don't owe nothing to the bank and go to the bank with it. Do they give you something? 

B could buy things after selling his products. There's no limit in circulation. If all the products are priced 1 shell, they can conduct all trades with a single shell.
But every time the shell changes hands, the owner has the opportunity to demand more than a product for the shell or all trade will stop. This is the real source of the basic interest.
All trade must pass through the money bridge and the bridge keeper can demand his fee. He says:
"The shell doesn't rot, I can wait all they until you decide you really need to sell your fish, and I say 1 fish is not enough for my shell, give me more".


I don't fully understand your point, maybe you could give some example to make me understand better

The reason I'm using an island model with only 2 person and one market, is to show the real money flow and product consumption clearly. For example, like you suggested, if the market demand more shell for the fish, it will only affect fish price, not the total amount of shell supply (which is loaned out by central bank) or total amount of fish, we will see the effect immediately

Let's say the fish price has dropped to 0.5 shell, then both A and B's 2 shells loan will give them the possibility to buy 2 fish and 2 baskets of fruits each, but since market only have 2 fish and 2 basket of fruits at the beginning of the day, they will have to make a choice: Either consume less and keep the money or competing for the products and lift the price. But no matter what action they take, the total amount of shell is not changed, the total amount of real wealth(fish and fruits) is not changed

This brings out a question: If the total amount of shell is not changed, how could anyone have any profit at all? In order to have net profit (in money's form) for EVERYONE, the money supply must be continously increasing, otherwise it's only a zero sum game


sadpandatech
Hero Member
*****
Offline Offline

Activity: 504



View Profile
October 22, 2011, 09:35:15 PM
 #67

Well it's like when bitcoins were at 30$ and now they are at 5$, you didn't lose any bitcoins but you are poorer.

As for banks it's also "socialize the losses and privatize the profits"

 hehe, as for banks;
 

If you're not excited by the idea of being an early adopter 'now', then you should come back in three or four years and either tell us "Told you it'd never work!" or join what should, by then, be a much more stable and easier-to-use system. - GA
It is being worked on by smart people. -DamienBlack
sukiho
Full Member
***
Offline Offline

Activity: 180


View Profile
October 23, 2011, 05:44:28 AM
 #68

havent read all this but the US and other countries have been at war for ten years, all that money and labor goes to nothing, when tax payers money that could be used to build up productive business and assets goes into building missiles that cost millions of dollars and are then sent into a wedding party on the other side of the planet to cause more loss of assets it has to have an effect. sure some of that money gets siphoned off into other pockets but most of it goes up in smoke
johnyj
Legendary
*
Offline Offline

Activity: 1806


Beyond Imagination


View Profile
October 24, 2011, 12:50:55 PM
 #69

havent read all this but the US and other countries have been at war for ten years, all that money and labor goes to nothing, when tax payers money that could be used to build up productive business and assets goes into building missiles that cost millions of dollars and are then sent into a wedding party on the other side of the planet to cause more loss of assets it has to have an effect. sure some of that money gets siphoned off into other pockets but most of it goes up in smoke

This is a valid point, if the final products were trashed, then we can say the wealth are destroyed

From another point of view, I buy some fireworks just to burn it, I have already paid for it, no matter the fireworks are fired today or after 1 year, the production part of the economy activity is already finished

It's always very difficult to save the real wealth since they have a short lifespan, while money never get destroyed equally easy, since money are getting more and more, the size of production and consumption must also grow, even unnecessarily

jtimon
Legendary
*
Offline Offline

Activity: 1246


View Profile WWW
October 24, 2011, 05:46:07 PM
 #70


They could have used LETS or Ripple instead of the bank. They could have just used verbal IOUs.
Why are people accepting the IOUs from the bank (shells)? If you don't owe nothing to the bank and go to the bank with it. Do they give you something? 

B could buy things after selling his products. There's no limit in circulation. If all the products are priced 1 shell, they can conduct all trades with a single shell.
But every time the shell changes hands, the owner has the opportunity to demand more than a product for the shell or all trade will stop. This is the real source of the basic interest.
All trade must pass through the money bridge and the bridge keeper can demand his fee. He says:
"The shell doesn't rot, I can wait all they until you decide you really need to sell your fish, and I say 1 fish is not enough for my shell, give me more".


I don't fully understand your point, maybe you could give some example to make me understand better

The reason I'm using an island model with only 2 person and one market, is to show the real money flow and product consumption clearly. For example, like you suggested, if the market demand more shell for the fish, it will only affect fish price, not the total amount of shell supply (which is loaned out by central bank) or total amount of fish, we will see the effect immediately

Let's make your example simpler. Let's remove your abstract markets.
There's only 3 people A, B, C with 3 products a, b, c.
Each one produces 3 of them, consumes one unit himself and sell the other for 1 shell.
Say A has the shel first. He buys 1 b from B.
balances:
A: 2 a, 1 b
B: 1 b, 1 S
C: 2 c

More trades...
A: 2 a, 1 b
B: 1 b, 1c
C: 1 c, 1 S
--------------
A: 1 a, 1 b, 1 S
B: 1 b, 1 c
C: 1 a, 1 c
--------------
A: 1 a, 1 b, 1 c
B: 1 b, 1 c
C: 1 a, 1 S
--------------
A: 1 a, 1 b, 1 c
B: 1 c, 1 S
C: 1 a, 1 b
--------------
A: 1 b, 1 c, 1 S
B: 1 c, 1 a
C: 1 a, 1 b
--------------

See? All the trades can be made with just 1 shell if the shell moves enough.
There's no need for a change in prices.

Let's say the fish price has dropped to 0.5 shell, then both A and B's 2 shells loan will give them the possibility to buy 2 fish and 2 baskets of fruits each, but since market only have 2 fish and 2 basket of fruits at the beginning of the day, they will have to make a choice: Either consume less and keep the money or competing for the products and lift the price. But no matter what action they take, the total amount of shell is not changed, the total amount of real wealth(fish and fruits) is not changed

This brings out a question: If the total amount of shell is not changed, how could anyone have any profit at all? In order to have net profit (in money's form) for EVERYONE, the money supply must be continously increasing, otherwise it's only a zero sum game

Why do we need a profit "in form of money". You mean nominal profit but not real profit?
I don't get it, we want more goods and services not bigger numbers in our accounts.
Printing money doesn't make us richer.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
johnyj
Legendary
*
Offline Offline

Activity: 1806


Beyond Imagination


View Profile
October 25, 2011, 07:00:24 AM
 #71


Why do we need a profit "in form of money". You mean nominal profit but not real profit?
I don't get it, we want more goods and services not bigger numbers in our accounts.
Printing money doesn't make us richer.


Exactly, I still remember that original comic book about island economy, if people could use number of fish as a counter for the wealth, most of the economy activities are much simpler and easy to understand, the productivity/consumption power can be translated into number of fish produced/consumed per day/year

But that situation does not exist in the real world, and fish can not be stored for a long time, so do most of the wealth. Money were introduced to facilitate the trading, but due to it has many different characters, economy activities have changed: People are using money as a benchmark for value, people store money as wealth, bank loan out money to support business activities... All these getting more complicated after gold has been replaced by paper/digital money

And I think that is the reason of financial crisis: Money covered lots of real economy activities and gave people lots of illusions, but since it also has lots of benefits, we should know how it works, and that is not very easy if you are not a central banker thus have a good overview




Etlase2
Hero Member
*****
Offline Offline

Activity: 798


View Profile
October 25, 2011, 08:48:09 AM
 #72

nominal interest = inflation premium + real interest = inflation premium + basic interest + risk premium

Expocoin (inflationary bitcoin) would just increase the inflation premium, so it would increase nominal interest but would keep real interest untouched.
Freicoin (bitcoin with demurrage) would reduce the basic interest and therefore the real and nominal interests.

I've seen you use this equation before, and I have to ask why inflation premium is in it twice. And I have to ask why you assume basic interest would be lowered because of the cost of money--the main argument against demurrage is that this is an assumption that will likely prove to not be true. Basic interest may need to be higher than you assume for banks to recover lost funds that they did not loan out. Alternatively, too many bad loans are given out because of the cost of money, and the risk premium is higher as a result. Things do not work in a vacuum just because you add demurrage.

And as I pointed out to you previously, your expocoin description is terribly inaccurate. Any inflation-based coin is likely to increase the money supply at an ever-reducing rate of inflation. It certainly doesn't make sense otherwise, and it would function (almost) identically to bitcoin for a very long period of time.

Quote
Printing money doesn't make us richer.

Ignoring how banks work doesn't make us richer either.

jtimon
Legendary
*
Offline Offline

Activity: 1246


View Profile WWW
October 25, 2011, 01:22:51 PM
 #73


Why do we need a profit "in form of money". You mean nominal profit but not real profit?
I don't get it, we want more goods and services not bigger numbers in our accounts.
Printing money doesn't make us richer.


Exactly, I still remember that original comic book about island economy, if people could use number of fish as a counter for the wealth, most of the economy activities are much simpler and easy to understand, the productivity/consumption power can be translated into number of fish produced/consumed per day/year

But that situation does not exist in the real world, and fish can not be stored for a long time, so do most of the wealth. Money were introduced to facilitate the trading, but due to it has many different characters, economy activities have changed: People are using money as a benchmark for value, people store money as wealth, bank loan out money to support business activities... All these getting more complicated after gold has been replaced by paper/digital money

And I think that is the reason of financial crisis: Money covered lots of real economy activities and gave people lots of illusions, but since it also has lots of benefits, we should know how it works, and that is not very easy if you are not a central banker thus have a good overview


Yes, it is much simpler with fish. And I think that comic is a great reasoning exercise. But commodity money (say gold) already changes how the financial market works. Just because what you have said. Fish rots but gold doesn't.
Here's my island story:

https://bitcointalk.org/index.php?topic=28497.msg392389#msg392389


2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
jtimon
Legendary
*
Offline Offline

Activity: 1246


View Profile WWW
October 25, 2011, 01:39:02 PM
 #74

nominal interest = inflation premium + real interest = inflation premium + basic interest + risk premium

Expocoin (inflationary bitcoin) would just increase the inflation premium, so it would increase nominal interest but would keep real interest untouched.
Freicoin (bitcoin with demurrage) would reduce the basic interest and therefore the real and nominal interests.

I've seen you use this equation before, and I have to ask why inflation premium is in it twice.
There's two equations there:

1) nominal interest = inflation premium + real interest
2) real interest = basic interest + risk premium

I just wanted to put them in a single row.

And I have to ask why you assume basic interest would be lowered because of the cost of money--the main argument against demurrage is that this is an assumption that will likely prove to not be true.

Because it encourages lenders to loan even at a lower interest. Because money holders can't sit on their money for free.

Basic interest may need to be higher than you assume for banks to recover lost funds that they did not loan out. Alternatively, too many bad loans are given out because of the cost of money, and the risk premium is higher as a result. Things do not work in a vacuum just because you add demurrage.

Lost funds that they don't loan out? You mean they don't loan ten times, don't you? Remember fractional reserve.
But anyway, if banks didn't had fractional reserve, a percentage of the interest (or maybe just fees) must go to them in exchange of the service they provide. They can give a certain interest to their lenders and don't inform them accurately about the risk of the investment (as they did) but that's fraud. If they say to their clients "the loan is at 5 nominal interest with zero risk" but in reality the loan is at 1% interest + 4% risk premium, that doesn't rises the interest, they're just lying.
I don't claim that things will work in a vacuum, just that's how I like to simplify things for a better reasoning. I know there's no robinson island.
What I claim about demurrage is that it will lower the basic interest.

And as I pointed out to you previously, your expocoin description is terribly inaccurate. Any inflation-based coin is likely to increase the money supply at an ever-reducing rate of inflation. It certainly doesn't make sense otherwise, and it would function (almost) identically to bitcoin for a very long period of time.

What you're describing is timecoin. But I mean a coin with constant monetary inflation, say 5%.
And constant monetary inflation is exactly an exponentially growing monetary base.
The nominal reward has to increase with every block so that the proportional reward can be kept constant.

Quote
Printing money doesn't make us richer.

Ignoring how banks work doesn't make us richer either.

Agreed.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
Etlase2
Hero Member
*****
Offline Offline

Activity: 798


View Profile
October 25, 2011, 02:50:40 PM
 #75

There's two equations there:

1) nominal interest = inflation premium + real interest
2) real interest = basic interest + risk premium

I just wanted to put them in a single row.

You do it in a confusing way though. There's no need for the second inflation premium.

Nominal Interest Rate = Inflation + Real Interest (Basic Interest + Risk)

Quote
Because it encourages lenders to loan even at a lower interest. Because money holders can't sit on their money for free.

They loan at a lower interest, you pay the fee. Where is the difference? Again, as I pointed out before, demurrage does not mean there is no inflation. It depends on the currency in question. Assuming a standard fiat currency, you get:

Real Cost of Borrowing = Demurrage + Nominal Interest (Inflation + Basic + Risk)

There isn't going to be a fixed supply of money in the real world, so it is hard to simply say "this is how it will work." Inflation will certainly be lower, but only because demurrage will make up for it. Basic might be lower, but then risk must be higher as you must loan the money or risk paying demurrage.

The affect this has on the economy is hard to predict, but odds are it would be more beneficial to the middle/lower class than the rich. Which, I believe, in turn would still benefit the upper middle class and such. The superrich would be likely lose, but they lose anyway when the divide is so great that we enter a recession yet again because the middle/lower class has no wealth.

It is a way of money that would probably be less apt to fall into the business cycle, but that does not mean the cost of borrowing money goes down.

Quote
What I claim about demurrage is that it will lower the basic interest.

Quote
Freicoin (bitcoin with demurrage) would reduce the basic interest and therefore the real and nominal interests.

If the risk premium is higher, real and nominal interest is not lower. Cost of borrowing is likely completely unchanged. I couldn't even speculate how this would affect fractional reserve.

Quote
What you're describing is timecoin. But I mean a coin with constant monetary inflation, say 5%.

When someone talks about "inflatacoin" they are referring to a bitcoin-like system where the monetary base does not stop producing. This is not a 5% inflation of the money supply every year. I don't think anyone has seriously ever suggested that. Even if the award increases by 5% every year, that is still nowhere near inflating the money supply by 5% every year. In fact, I think it would work reasonably well as an alternative.

johnyj
Legendary
*
Offline Offline

Activity: 1806


Beyond Imagination


View Profile
October 26, 2011, 07:01:40 AM
 #76


Yes, it is much simpler with fish. And I think that comic is a great reasoning exercise. But commodity money (say gold) already changes how the financial market works. Just because what you have said. Fish rots but gold doesn't.
Here's my island story:

https://bitcointalk.org/index.php?topic=28497.msg392389#msg392389


Just read your island story, there are many islands in your model, I'm still confused, can't you have en island with only 2 Crusoe  Cheesy

I am always confused about an essential problem regarding money:
--------------------------------------------------------------------------------------
How do wealth increase connected to money supply increase, and through which channel the newly created wealth connected to newly created money?
--------------------------------------------------------------------------------------

In an island with only 2 people, if A produce more and more fish everyday, how could he trade for more money, if the market does not have enough money, or the market can not sell all of his fish to A and B?

In both case, the fish price will drop, that is a deflation scenario which central banks always try to avoid. So there must be a way to let newly created money to match the newly created fish, in order to keep the price stability

(But on the other hand, normally we say that market should adjust the price based on demand and supply, that is also a big trouble here!)

When I design my island model in early years, I always suppose that new money is provided into market to facilitate the trading, but now I realized market is only an exchange place, the new money must enter the market by other means, e.g. in loan's form




jtimon
Legendary
*
Offline Offline

Activity: 1246


View Profile WWW
October 26, 2011, 09:03:31 AM
 #77

Quote
Because it encourages lenders to loan even at a lower interest. Because money holders can't sit on their money for free.

They loan at a lower interest, you pay the fee. Where is the difference? Again, as I pointed out before, demurrage does not mean there is no inflation. It depends on the currency in question. Assuming a standard fiat currency, you get:

Real Cost of Borrowing = Demurrage + Nominal Interest (Inflation + Basic + Risk)

If the borrower just invest the money when he gets it, he won't pay demurrage.
What's the point of borrowing to sit on the money while paying interest?

There isn't going to be a fixed supply of money in the real world, so it is hard to simply say "this is how it will work."
I just say how I think it would work, you can always have an alternative prediction so we can discuss. Yes the world is complicated, but that's not a reason to make our reasoning confusing.

Inflation will certainly be lower, but only because demurrage will make up for it.
There will be no monetary inflation in freicoin. Where is the price inflation coming from?

Basic might be lower, but then risk must be higher as you must loan the money or risk paying demurrage.

Why the risk must be higher? Are you saying that there won't be enough 0% yield safe investments for all the lenders to avoid demurrage?

Quote
What you're describing is timecoin. But I mean a coin with constant monetary inflation, say 5%.

When someone talks about "inflatacoin" they are referring to a bitcoin-like system where the monetary base does not stop producing. This is not a 5% inflation of the money supply every year. I don't think anyone has seriously ever suggested that. Even if the award increases by 5% every year, that is still nowhere near inflating the money supply by 5% every year. In fact, I think it would work reasonably well as an alternative.

This inflatacoin was first named timecoin. But expoCoin (or kingCoin) is bitcoin with a constant inflation rate, with an exponentially growing supply.
https://bitcointalk.org/index.php?topic=7500
https://bitcointalk.org/index.php?topic=2792.msg110548#msg110548
https://bitcointalk.org/index.php?topic=2971.0
https://bitcointalk.org/index.php?topic=2792.0

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
jtimon
Legendary
*
Offline Offline

Activity: 1246


View Profile WWW
October 26, 2011, 09:16:14 AM
 #78


Yes, it is much simpler with fish. And I think that comic is a great reasoning exercise. But commodity money (say gold) already changes how the financial market works. Just because what you have said. Fish rots but gold doesn't.
Here's my island story:

https://bitcointalk.org/index.php?topic=28497.msg392389#msg392389


Just read your island story, there are many islands in your model, I'm still confused, can't you have en island with only 2 Crusoe  Cheesy

There's no point on having money if there's only two people. They would just use IOUs.

I am always confused about an essential problem regarding money:
--------------------------------------------------------------------------------------
How do wealth increase connected to money supply increase, and through which channel the newly created wealth connected to newly created money?
--------------------------------------------------------------------------------------

In an island with only 2 people, if A produce more and more fish everyday, how could he trade for more money, if the market does not have enough money, or the market can not sell all of his fish to A and B?

In both case, the fish price will drop, that is a deflation scenario which central banks always try to avoid. So there must be a way to let newly created money to match the newly created fish, in order to keep the price stability

There's no problem with deflation if there's not a financial market. There's no problem with the price of fish dropping.
The problem is when there's interest and capital yields and the price of the capitals drops.
See the island story above mine.
https://bitcointalk.org/index.php?topic=28497.msg388939#msg388939

(But on the other hand, normally we say that market should adjust the price based on demand and supply, that is also a big trouble here!)

When I design my island model in early years, I always suppose that new money is provided into market to facilitate the trading, but now I realized market is only an exchange place, the new money must enter the market by other means, e.g. in loan's form

I recommend you reading about mutual credit. Time banking and LETS to understand the basic concept and Ripple to get the general model.
With those systems money is created when needed. With Ripple, you don't need a central authority.
You think that central banks are needed to achieve price stability, but that's not true.
With a reference currency (not issued nor backed, non existent) to denominate LETS/Ripple IOUs you can have stable prices.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
Etlase2
Hero Member
*****
Offline Offline

Activity: 798


View Profile
October 26, 2011, 10:03:52 AM
 #79

If the borrower just invest the money when he gets it, he won't pay demurrage.
What's the point of borrowing to sit on the money while paying interest?

At some point, somewhere, somebody is paying demurrage. You can only pass the hot potato so many times before the buzzer goes off. No one is going to take your demurrage currency at face value today when the payment is due tomorrow.

Quote
I just say how I think it would work, you can always have an alternative prediction so we can discuss. Yes the world is complicated, but that's not a reason to make our reasoning confusing.

Limiting the scope of your thinking is asking for economic failure.

Quote
There will be no monetary inflation in freicoin. Where is the price inflation coming from?

Where is the inflation coming from in your equation? I'm only using what you used.

Quote
Why the risk must be higher? Are you saying that there won't be enough 0% yield safe investments for all the lenders to avoid demurrage?

How is this any different from a 2% yield (or whatever inflation is supposed to be) safe investment in an inflationary economy? There's no difference, just like I've said.

Quote
This inflatacoin was first named timecoin. But expoCoin (or kingCoin) is bitcoin with a constant inflation rate, with an exponentially growing supply.
https://bitcointalk.org/index.php?topic=7500
https://bitcointalk.org/index.php?topic=2792.msg110548#msg110548
https://bitcointalk.org/index.php?topic=2971.0
https://bitcointalk.org/index.php?topic=2792.0

You argue about expocoin and link a bunch of threads to timecoin. I was just pointing out (again) that nobody has seriously suggested expocoin, and it's a deceptive argument to use to support Freicoin as being better.

Demurrage is not the same as deflation, you seem to be conflating the two points and arguing for whatever economic outcome suits supporting Freicoin depending on which way you look.

Demurrage + fixed supply of money may very well be better than standard fiat currency. But most of the properties you argue already come from a fixed supply of money. Demurrage merely spreads the wealth back around in the same way inflation does in a non-fixed supply (except for the fact that governments give money out to preferred borrowers first, but this is a property of governments, not cryptocurrencies).

jtimon
Legendary
*
Offline Offline

Activity: 1246


View Profile WWW
October 26, 2011, 10:42:21 AM
 #80

If the borrower just invest the money when he gets it, he won't pay demurrage.
What's the point of borrowing to sit on the money while paying interest?

At some point, somewhere, somebody is paying demurrage. You can only pass the hot potato so many times before the buzzer goes off. No one is going to take your demurrage currency at face value today when the payment is due tomorrow.

Someone will pay the demurrage, but probably not the borrower. My point is that it makes no sense to include demurrage in the costs of borrowing like you did.
Not sure I understand your last sentence.

Quote
I just say how I think it would work, you can always have an alternative prediction so we can discuss. Yes the world is complicated, but that's not a reason to make our reasoning confusing.

Limiting the scope of your thinking is asking for economic failure.
This tells me nothing. Please, just say what you think I'm ignoring.

Quote
There will be no monetary inflation in freicoin. Where is the price inflation coming from?

Where is the inflation coming from in your equation? I'm only using what you used.

Oh, the formula was for all the systems. But if you expect deflation for bitcoin in the long term, you should expect deflation for freicoin too.
Only this time deflation won't hurt the financial market so badly because of demurrage.

Quote
Why the risk must be higher? Are you saying that there won't be enough 0% yield safe investments for all the lenders to avoid demurrage?

How is this any different from a 2% yield (or whatever inflation is supposed to be) safe investment in an inflationary economy? There's no difference, just like I've said.

From the lender perspective, there's no difference between 5% interest with 5% inflation and 0% interest with 5% demurrage.
But that's with a basic interest at 0%. I claim that this cannot happen without demurrage.
I still don't get why the risk must be higher with demurrage.

Quote
This inflatacoin was first named timecoin. But expoCoin (or kingCoin) is bitcoin with a constant inflation rate, with an exponentially growing supply.
https://bitcointalk.org/index.php?topic=7500
https://bitcointalk.org/index.php?topic=2792.msg110548#msg110548
https://bitcointalk.org/index.php?topic=2971.0
https://bitcointalk.org/index.php?topic=2792.0

You argue about expocoin and link a bunch of threads to timecoin. I was just pointing out (again) that nobody has seriously suggested expocoin, and it's a deceptive argument to use to support Freicoin as being better.
Look some people claim that expocoin would be equivalent to freicoin. No one claims that timecoin would be equivalent to freicoin.
I try to explain why expocoin wouldn't be equivalent to freicoin from the financial perspective.
Here's the first mention I read of expocoin. Sorry for giving you too many links.
https://bitcointalk.org/index.php?topic=2792.msg110548#msg110548

Demurrage is not the same as deflation, you seem to be conflating the two points and arguing for whatever economic outcome suits supporting Freicoin depending on which way you look.
Of course demurrage is not the same as deflation. My point is that demurrage is not equivalent to inflation neither.
But you can have demurrage + deflation or demurrage + inflation. I usually compare constant demurrage with stable prices vs constant inflation.

Demurrage + fixed supply of money may very well be better than standard fiat currency. But most of the properties you argue already come from a fixed supply of money. Demurrage merely spreads the wealth back around in the same way inflation does in a non-fixed supply (except for the fact that governments give money out to preferred borrowers first, but this is a property of governments, not cryptocurrencies).

The question is if freicoin it's better than bitcoin and expocoin.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
Pages: « 1 2 3 [4] 5 6 »  All
  Print  
 
Jump to:  

Sponsored by , a Bitcoin-accepting VPN.
Powered by MySQL Powered by PHP Powered by SMF 1.1.19 | SMF © 2006-2009, Simple Machines Valid XHTML 1.0! Valid CSS!