Quote from: NewLibertyStandard on July 17, 2010, 07:52:59 AM

Because it's so very easy to obtain authentic bitcoins, many merchants and employees will prefer to accept real bitcoins as opposed to a balance of bitcoins within a bank account. Many people would keep their checking and savings accounts on their own computers, backed up and encrypted in two or more physical locations. If I could store and transfer authentic dollars as easily as I can store and transfer bitcoins, I would empty out my checking and savings account tomorrow. The only reason I keep my money in the bank, is because it's more secure than in my house and it's easier to transfer than physical dollars. The interest rate in my savings account is just a bonus and not really important. The interest rate is very low because the balance is very liquid. I could go to my bank and empty out my savings and checking accounts with no fee. Term deposits on the other hand offer an interest rate that's higher than inflation, but it comes at the cost of liquidity. If I want real interest, I have to surrender many of the benefits of liquidity, such as the option to empty out my account and hit the road at a moment's notice. Imagine a bank that had a bitcoin checking account that is backed 100% by bitcoins but also offers 5 year bitcoin term deposits at a nice high interest rate. To make the illustration simpler, let's increase the early withdrawal fee to 50% of the deposited amount. The bank then lends out only 50% of the loan and pays interest based on the income that the bank is making on the loan/investment that they have made. So long as the bank is collecting its interest every month, that loan is backed 100% until just before the end of the 5 years. At the end of the 5 years, the bank has to collect their loan/investment and if they're able to do it, then they're still backed 100%. But if they can't, they either have to lie, tell the customer that they lost his money, or as would probably happen, get the money by taking out a long term loan from another customer/bank or by taking the money from their profits.

I agree with your logic, with the exception of two small points.

1)You and I and all the other tech-savvy individuals would prefer bitcoins to bitcoin-balances in banks. We know the difference. (By the way, natural deflation is a nice interest rate independent of a bank). However, your average Americans (or Brits, or Czechs, or whomever), would not see the difference. Their knowledgeable friends would say "use real bitcoins." The banks would say "Use our balances!" The banks, also, would have multi-million-dollar advertising budgets, and the ability to offer services (of what form, I don't know) to entice people to use their balances. I think I underestimate people's intelligence, and you probably overestimate it. Personally, I don't think the people of the world, as a collective, would know the difference. If history is any indication, they'd be easily swayed by the banks' advertising.

2)My point is this. If people use banks, and I think that they will for the above reason, it is presently legal for banks to back loans with nothing more than loans and thereby inflate the economy. Either the entire population boycots banks (which I don't think will happen - see above), or we have to have a change in the law. Therefore, using bitcoins as a currency is not inflation-proof without a change in the law or utter destruction of the banking industry. My point with this entire thread was simply to dispel the false notion that printing presses are to blame for inflation. Loans are the real culprit, with no need to waste paper, ink, and electricity on printing. Taking today's economy lifting out dollars and dropping in bitcoins and continuing on would have the same loan rules, and thus would have the same inflation, minus only the very small percentage that is due to printing presses.