I just created 100 pennies.. and loaned them out, you owe me 101 pennies…..

[johnyj]

At least we're past "it must be worth something if I paid money to get it."  Good.

>It is demand created competition, and competition in turn increased the cost.

Sorta.  There are different types of demand.  The demand here is speculative, meaning "I bet someone will pay me more for this thing later."
That's how all artificial scarcity schemes (see: BTCeanie BTCabies) work.

True, there are also speculative demand, but basically all the investment works similarly: "I buy some paint/wine/real estate/domain and bet someone will pay me more for this thing later" Bitcoin is the digital asset on internet, since it is scarce, the demand will drive up its price

And there are real demands like sending money oversea instantly, save for the long term, hedging against fiat money inflation etc...

[dinofelis]

You seem to have missed my point, that being: both fiat and Bitcoin are created "out of thin air."  Caveat: fiat has an existent economy behind it, "stuff" backing it--armies, cows, cars, etc., etc.  Bitcoin, OTOH, does not.  It merely dilutes the currencies of existent economies, much like counterfeit money.

ALL monetary assets are made of thin air, and dilute the market for other stores of value.

That is also true for gold, houses and so on.  These things have some intrinsic value, but the monetary part of their value is just as well "made of thin air" and is due to the "next fool" or "same fool" hypothesis.

By "intrinsic value" I understand the price on the hypothetical market where the demand consists solely out of direct or indirect consumption (using the good) and not out of any speculative part.  The usage value of gold is not zero, it is used in jewelry and in industry, but it is not very high.  Most of the gold price is made out of the monetary, speculative part that doesn't serve usage, and is made out of thin air if you want.   The day that everybody thinks that only people having "real use" will accept gold, gold looses its monetary part and becomes "usage gold".

The intrinsic value of a dollar bill is about that of bad-quality toilet paper.  It is its only "usage value" where you actually use the bills without betting on anyone accepting them for other things than wiping their ass.

The intrinsic value of a house is a higher fraction of the price: it would be the price you can buy a house in which you can live, but of which you know that you will never be able to sell it (for instance, because it will be destroyed, or the area is going to become an artificial lake or something).  The price you're willing to pay for a house, just to be able to live in it, but without the idea of getting anything when you will try to sell it, is the intrinsic value of a house.
Houses have partly a monetary value, that is based upon the expectation to be able to sell it for money.  But that fraction is smaller than for gold and for dollar bills.

Monetary value comes from the bet that someone will accept it, because that person makes the bet that someone else will accept it, who makes the bet that still someone else will accept it, etc.... for nothing more than that the next one will accept it.  You can call that "thin air".  Money is thin air.  Always.  It can be carried by something that has ALSO usage value, but that usage value has nothing to do with the thing being money in the first place.

[dinofelis]

At least we're past "it must be worth something if I paid money to get it."  Good.

That's nevertheless true (at least if the acquisition happens voluntary, and not under threat of violence).

The price someone is willing to pay for it is always lower than the value it has for him.  The value is always larger than the price (for the buyer).

If someone wants to give me a nice house against my poop, then my poop has at least the value of that nice house for that buyer.

Remember that value is a relationship between a subject and a commodity/asset/service.  It is not something that is solely a property of the commodity/asset/service.

Value is in the mind of the beholder.

If all people are dead, then nothing has value any more.

[dinofelis]

At least we're past "it must be worth something if I paid money to get it."  Good.

>It is demand created competition, and competition in turn increased the cost.

Sorta.  There are different types of demand.  The demand here is speculative, meaning "I bet someone will pay me more for this thing later."
That's how all artificial scarcity schemes (see: BTCeanie BTCabies) work.

The specific scheme where "I bet someone will pay me THE SAME for this thing later" is the definition of money if it is generally accepted and considered that way.

This bet is the thin air on which the concept of monetary asset is based.

[NotLambchop]

At least we're past "it must be worth something if I paid money to get it."  Good.

>It is demand created competition, and competition in turn increased the cost.

Sorta.  There are different types of demand.  The demand here is speculative, meaning "I bet someone will pay me more for this thing later."
That's how all artificial scarcity schemes (see: BTCeanie BTCabies) work.

The specific scheme where "I bet someone will pay me THE SAME for this thing later" is the definition of money if it is generally accepted and considered that way.

This bet is the thin air on which the concept of monetary asset is based.

Well, if Bitcoin expected to be worth "THE SAME" [i.e. nothing, as was its worth at inception], it has failed miserably.  By your definition of money, BTC is certainly a flop.
In the alternative, you only have to read a few posts on this forum to realise that most who've "invested" in Bitcoin did not do so with expectations of BTC price remaining "THE SAME."

[solarion]

One of the greatest tools of mass debt enslavement is obfuscation/subterfuge. It can appear to be subtle, but over time the results can be enormous. At one time the word "money" meant gold, silver, & copper. These are finite resources with natural checks on the rate of inflation as it takes time & effort to extract them from the earth.

By linking gold & silver to certificates redeemable for gold and silver, authorities found a way to create more notes than the rate of extraction of natural resources from the earth would otherwise have allowed. IOW they counterfeited gold and silver, but one thing more that was accomplished was to set the groundwork for the masses to begin to see worthless cotton notes as synonymous with gold & silver. When the redeemability of these certificates is removed and the force of government is applied to ensure adoption of these worthless notes as an exchange medium for real goods and services, then the transformation of currency into "money" is complete. Money is a stable store of value over time. Currency =/= money.

The next step is to persuade the masses to accept credit as currency and to refer to that as "money". This is accomplished by allowing the convertibility of credit into currency. At this point the definition of the terms credit, currency, & money are almost completely eradicated. If you randomly ask someone how much "money" they have they'll likely recite their credit balance at a local legalized counterfeiting operation...otherwise known as a bank. There are only $1.34 trillion usd circulating globally. The rest of the "money" supply is credit masquerading as "money"(currency).

Due to the evolution of "money" it's now easier than at any other point in history to steal wealth through inflation. It's been a slow grinding process that has accomplished this mass enslavement.

Gold, Silver, Paper, Credit
Gold, Paper, Credit
Paper, Credit
Credit

    

[NotLambchop]

^A d00d whose eyes were opened after watching "Money As Debt" on YouTube?
With a twinge of anti-government paranoia?
And inflated notions of own intelligence vis-a-vis "the masses"?
In MY BITCOINTALK?!!1!

[johnyj]

^A d00d whose eyes were opened after watching "Money As Debt" on YouTube?
With a twinge of anti-government paranoia?
And inflated notions of own intelligence vis-a-vis "the masses"?
In MY BITCOINTALK?!!1!

In fact, "money as debt" serials only described part of the banking system which is similar to an exchange, it focused on checkbook money that is created inside banking networks, without discussing the source of all base money creation. Without base money, the credit money can not be created limitlessly, due to reserve requirement

"Money as debt II" explained that interest income can be spent by banks back into society, thus make the whole money circulation sustainable. But that is still small details in the banking network, has nothing to do with base money creation

Actually the OP's question is about base money creation, it is a fundamental challenge that most of the professors in economy school have no idea about

[NotLambchop]

...
Actually the OP's question is about base money creation, it is a fundamental challenge that most of the professors in economy school have no idea about

Good thing you brainiacs are here to educate them.

[solarion]

I have the above ^d00d ignored and have for a long time as I'm sure many do. He/she's posts are consistently of poor quality imo and usually address a poster rather than the actual topic at hand.

Actually the OP's question is about base money creation, it is a fundamental challenge that most of the professors in economy school have no idea about

I didn't necessarily take the OP's post to mean base "money". Given the references to pennies(physical currency issued by the US Treasury) I took the post to mean commercial bank "money" rather than vault cash or commercial bank reserve credits on deposit at the fed.

At any rate the OP asks an important question that makes clear the fundamental problem with debt based currency systems. There's not enough "money" in existence to extinguish all debt at any given time. The system relies on debt greater than previous debt to sustain itself in perpetuity which is an impossibility. The laws of big numbers ensures that eventually debt("money") will be extinguished either by repayment or default at a rate that will overtake credit("money") creation and a deflationary spiral will result. This is where the US and numerous other economies have been for some time with the federal reserve and government creating program after program designed to encourage credit creation. Moral hazards such as zirp, QEx, housing initiatives, cash for clunkers, student loan take overs, PPACA, etc are all designed to punish savers, reward borrowers, transfer wealth, and/or encourage further credit creation. Like all debt based fiat currencies throughout history the US "dollar" is overdue to fail...again. These programs are being used to sustain a collapsing economic system largely at the expense of savers and young Americans.        

[Razick]

I just created 100 pennies and I loaned them out to you + interest… How is it possible for you to pay me the 101 pennies you now legally owe me if only 100 pennies are in circulation?

Because that's not how it works. There are far more "pennies" in circulation. It's true that debts exceed the money supply but that's not neccissarily a problem since each "penny" can be spent more than once. In fact, if I remember correctly, the velocity of money in the US (how often each unit of currency is spent in a year) is around 4.

Change the 100 pennies to 100 trillion pennies, same principle applies

Velocity of money has nothing to do with money creation. You move a dollar one million times between your left pocket and your right pocket, and voila you are now a millionaire  

You are missing the point which is that money doesn't have to be held permanently to pay debts. In the same year, I can borrow $100 to buy food, and the company that I bought the food from can put that money in the bank to fund more loans. The borrower of that money can in turn buy a product from my employer, the employer can pay me with the profit and I can use that money to pay my debt.

The amount of debt, income and expenditure in an economy is not limited to the amount of currency in circulation. If there are only 100 pennies in circulation, that doesn't necessarily mean that a debt of $10 is going to default.

[Q7]

At least we're past "it must be worth something if I paid money to get it."  Good.

That's nevertheless true (at least if the acquisition happens voluntary, and not under threat of violence).

The price someone is willing to pay for it is always lower than the value it has for him.  The value is always larger than the price (for the buyer).

If someone wants to give me a nice house against my poop, then my poop has at least the value of that nice house for that buyer.

Remember that value is a relationship between a subject and a commodity/asset/service.  It is not something that is solely a property of the commodity/asset/service.

Value is in the mind of the beholder.

If all people are dead, then nothing has value any more.

Bitcoin here basically has value because it has the backing of the community and essentially amongst us, we have agreed to pay a certain price for bitcoin or in another way to say it, the price we are willing to accept to part with the coins. I do agree that mining may not essentially give it a value, even though there is a certain cost attached to it to come up with a coin, so basically like I said, the value of bitcoin is really an amount agreeable between both parties.

[johnyj]

Change the 100 pennies to 100 trillion pennies, same principle applies

Velocity of money has nothing to do with money creation. You move a dollar one million times between your left pocket and your right pocket, and voila you are now a millionaire  

You are missing the point which is that money doesn't have to be held permanently to pay debts. In the same year, I can borrow $100 to buy food, and the company that I bought the food from can put that money in the bank to fund more loans. The borrower of that money can in turn buy a product from my employer, the employer can pay me with the profit and I can use that money to pay my debt.

The amount of debt, income and expenditure in an economy is not limited to the amount of currency in circulation. If there are only 100 pennies in circulation, that doesn't necessarily mean that a debt of $10 is going to default.

Let's make some real calculation: Each month, you borrow $100 to buy food, and those $100 goes to the food company as income, and food company put $100 to bank, and bank loan out $90 (10% reserve requirement) to another borrower, he spend all $90 to buy products from your employer, your employer have $90 income, and he is so generous and gives you all $90 as salary. So, how could you payback your $100 loan with $90 salary at the end of the month?

This is an ideal situation that there is no friction and cost during the cycle, and it has not involved interest yet, just a simple trace of your $100 loan. You can see that you will never be able to make the ends meet. Similarly, the society as a whole can not earn more money than it spent, unless the money supply increases constantly, and money supply can only be increased by adding more debt nowadays

[odolvlobo]

Let's make some real calculation: Each month, you borrow $100 to buy food, and those $100 goes to the food company as income, and food company put $100 to bank, and bank loan out $90 (10% reserve requirement) to another borrower, he spend all $90 to buy products from your employer, your employer have $90 income, and he is so generous and gives you all $90 as salary. So, how could you payback your $100 loan with $90 salary at the end of the month?

The reason these examples are stupid is that they assume that one person holds all the money in the world and that value can only be traded using that money. Of course, neither of those assumptions are ever true.

[Erdogan]

Change the 100 pennies to 100 trillion pennies, same principle applies

Velocity of money has nothing to do with money creation. You move a dollar one million times between your left pocket and your right pocket, and voila you are now a millionaire  

You are missing the point which is that money doesn't have to be held permanently to pay debts. In the same year, I can borrow $100 to buy food, and the company that I bought the food from can put that money in the bank to fund more loans. The borrower of that money can in turn buy a product from my employer, the employer can pay me with the profit and I can use that money to pay my debt.

The amount of debt, income and expenditure in an economy is not limited to the amount of currency in circulation. If there are only 100 pennies in circulation, that doesn't necessarily mean that a debt of $10 is going to default.

Let's make some real calculation: Each month, you borrow $100 to buy food, and those $100 goes to the food company as income, and food company put $100 to bank, and bank loan out $90 (10% reserve requirement) to another borrower, he spend all $90 to buy products from your employer, your employer have $90 income, and he is so generous and gives you all $90 as salary. So, how could you payback your $100 loan with $90 salary at the end of the month?

This is an ideal situation that there is no friction and cost during the cycle, and it has not involved interest yet, just a simple trace of your $100 loan. You can see that you will never be able to make the ends meet. Similarly, the society as a whole can not earn more money than it spent, unless the money supply increases constantly, and money supply can only be increased by adding more debt nowadays

The assumption that there is not enough money to pay back the loans (due to interest or whatever) is stupid. In the fractional reserve example above, and in the more realistic scenario of today with practically no reserves at all, and in the case where the central bank edits its own account balance to provide reserves, there is always a lender for each dollar loaned. Someone always have the counterparty of each dollar loaned. The assumption is just wrong. This is not the same as it is problem free to in fact pay back or require a loan to be paid back; either it is paid back or defaulted on, it will have grave consequences for the participants, the total money volume, and the productive capability of the economy. Of course it is a problem, use the 2008 crisis as an example. Still, you can not say that there is not enough money around to pay back the interest, that is a total misunderstanding of what interest is.

[johnyj]

Let's make some real calculation: Each month, you borrow $100 to buy food, and those $100 goes to the food company as income, and food company put $100 to bank, and bank loan out $90 (10% reserve requirement) to another borrower, he spend all $90 to buy products from your employer, your employer have $90 income, and he is so generous and gives you all $90 as salary. So, how could you payback your $100 loan with $90 salary at the end of the month?

The reason these examples are stupid is that they assume that one person holds all the money in the world and that value can only be traded using that money. Of course, neither of those assumptions are ever true.

Ok, lets assume that 7 billion people holds all the fiat money in the world and value can be traded using those money. Did that change the way how it works? Putting billions of semi-conductor components into a CPU does not change the basic electrics theory that you can prove in a flashlight

[johnyj]

The assumption that there is not enough money to pay back the loans (due to interest or whatever) is stupid. In the fractional reserve example above, and in the more realistic scenario of today with practically no reserves at all, and in the case where the central bank edits its own account balance to provide reserves, there is always a lender for each dollar loaned. Someone always have the counterparty of each dollar loaned. The assumption is just wrong. This is not the same as it is problem free to in fact pay back or require a loan to be paid back; either it is paid back or defaulted on, it will have grave consequences for the participants, the total money volume, and the productive capability of the economy. Of course it is a problem, use the 2008 crisis as an example. Still, you can not say that there is not enough money around to pay back the interest, that is a total misunderstanding of what interest is.

There is not enough money to pay back the loan, money supply must increase exponentially to make the system running, it is a fact, not theory

[Erdogan]

The assumption that there is not enough money to pay back the loans (due to interest or whatever) is stupid. In the fractional reserve example above, and in the more realistic scenario of today with practically no reserves at all, and in the case where the central bank edits its own account balance to provide reserves, there is always a lender for each dollar loaned. Someone always have the counterparty of each dollar loaned. The assumption is just wrong. This is not the same as it is problem free to in fact pay back or require a loan to be paid back; either it is paid back or defaulted on, it will have grave consequences for the participants, the total money volume, and the productive capability of the economy. Of course it is a problem, use the 2008 crisis as an example. Still, you can not say that there is not enough money around to pay back the interest, that is a total misunderstanding of what interest is.

There is not enough money to pay back the loan, money supply must increase exponentially to make the system running, it is a fact, not theory

Yes, you just redefined a stupid thery to be a fact, without supplying any new info, logic, arguments or anything. Good luck to you.

[Q7]

We can't deny that essentially we are living in a world of debt and it is debt that until now keeps everything from going into deflationary depression. It's like a bubble waiting to pop and we just keep on the money printing in order to ensure there is enough supply of money. Right now there is no clear answer to the debt problem because it has been a norm for so long and basically not only the people but the nation as a whole have been living beyond their means. Not to imply in a negative way but I'll be surprised if the current bubble can sustain itself for another decade or so. 

[Erdogan]

We can't deny that essentially we are living in a world of debt and it is debt that until now keeps everything from going into deflationary depression. It's like a bubble waiting to pop and we just keep on the money printing in order to ensure there is enough supply of money. Right now there is no clear answer to the debt problem because it has been a norm for so long and basically not only the people but the nation as a whole have been living beyond their means. Not to imply in a negative way but I'll be surprised if the current bubble can sustain itself for another decade or so. 

This is correct, but not for the reason suggested above, "that there is not enough money". It is like  Rudolf Havenstein of the Reichsbank in the Weimar republic has woken from the dead.

The money nowadays, world over, consists of base money (notes and coins) and different types of debt which have degrees of moneyness, for simplicity's sake we can call all debt money. The base money and the debt together make up the aggregate money volume, the size of which affects the demand for holding money and therefore the value. The problem with this is that the debt can be extinguished when the loans are paid back or written off, (In paranthesis, the money system managers do not like writing it off, and that is why you see bad loans parked in bad banks instead, never to be paid back, but never to be written off) and wreaking havoc in the economy.

It would be much better to have base money, and only a minimum volume of debt. So why do not the keynesians print base money to produce their beloved inflation, and instead create debt? The reason is that the masters want to hide the money creation from their voters. This is a conspiracy theory which also happens to be a conspiracy fact. (The greatest conspiracy theory is the one that suggests that conspiracies do not exist). To hide the money creation they use to secure their continued power, they are willing to risk the stability of the global economy.