Hi,
I have searched the forums and haven't found a satisfactory discussion, please correct me if I'm wrong.
Question:How do banks get more coins to pay interest rates if no new money is produced?
Further explanation:
Let's say we have 21M bitcoins and a free-market economy based on them. Everyone has some of those bitcoins and are exchanging them with each other for services and goods. Now, if I am a bank, how do I get more money to pay my lenders? I understand that the things you can buy with your coins grows overtime, but how do you get more money itself? If everyone lends to everyone (like kind of what happens today), then we would want the number of coins to grow, or someone would not be able to get enough to pay back, despite being able to purchase more stuff (his intrinsic wealth growing). On a further note, even a 1% interest would be actually compounded by the deflationary trend, making it quite lucrative. Is it possible that negative or zero interest would be lucrative (just to keep your money safe?)
Perhaps my questions are simplistic, but then again so is my knowledge in economics.
Thanks for reading
Borrowers earn coins by providing goods and services to the lenders, which is paid from the interest received. This happens until the debt is fully repaid or partially canceled.
Note that a short squeeze can be applied onto the borrower if the lender keeps hold of the interest. The result is that the borrower must scramble to make a repayment or default, in a secured or unsecured way.