InterArmaEnimSil , I believe our main point of contention is on how powerful the banking system in a free market will be vis a vis the customers. You appear to believe that the banks will be just as successful at practicing --in what we both agree is a fraudulent manner -- fractional reserve banking, without a lender of last resort (The federal reserve) and without a monopoly (taxation and legal tender laws). I don't agree with this, mainly because the current system would already be bankrupt without taxation and legal tender laws,and would also have collapsed long ago without a central lender of last resort with the power to manipulate the money supply at will.
Sure, there is a small statistical chance that everyone becomes fools, but do you really believe it? You are not fooled, are you? Do you think everyone is less intelligent than you or less able to see, particularly those people who have amassed a large sum of wealth and therefore have a lot to lose? Part of this is related to education; if people are ignorant, educate them. Part of this is also related to a sense of loss; the more you have to lose, the more you will educate yourself, guaranteed. Some people might not have a sense of self-survival, but most people do.
I'll go over a few points below:
This is a different problem altogether. Did you read my Agorism link?
Such laws will only be effective to the degree they can have force in the digital world. This is not to say they will be without effect altogether; this is a real problem that the Bitcoin network will have to face should it become popular.
Its true that banks are a lender of last resort. But my guess is, in a bitcoin economy, if someone wants to buy say, a house, they're going to have to go to a lender of last resort. ...
I think we're using different definitions of the term "lender of last resort". To me, a "lender of last resort" implies a sort of bank with basically unlimited pockets that can always lend to any other bank on request. Such a feat is possible with fiat currency, and perhaps possible with Bitcoin credit, but impossible with actual Bitcoins.
There is an implication within your posts that the banks are somehow a "collective" and form a homogeneous whole. I don't think we should treat the system in this way. Every bank will be a customer of another bank for some amount, and out of their own interest of survival they will scrutinize the other bank's operations a lot more closely than the "average joe" might. The worst case of your scenario can only happen should one bank somehow gain a monopoly in the Bitcoin world, but there is no artificial force preventing other banks from springing up, nor is there an artificial force people to accept this bank's rules and dictates.
Funny you should say that. They attract *millions* of depositors. Do you not have a single bank account? I have several. This 10% rule (close to that amount, at least) is how *all US banks* operate today. They attract depositors - there's no way to deny it. However, you're right that fiat has no value without the decree that it must. We can wholeheartedly agree on that.
Decree = value No decree, it would be the end of days as far as the fiat banking system is concerned.
How can you fraction something and still have 100% available at all times?
[/quote]
The on-demand deposits would be available at all times. The time deposits would not be, by design.
I don't know that this is untrue. In an honest banking system, people must give up liquidity in other for others to gain it. There is inflation if you sum the amount of credits + real bitcoins and consider this the money supply, but what effect does this have on the general level of prices? I would argue it only affects prices to the degree that the banking system is dishonest, because the money in circulation should remain stable.
There is no need to change the law.
The banking system is not homogeneous, and we don't need anywhere near 21,000,000 bitcoins to attack the banking system.
All we need is a few players with some degree of wealth, and with some intelligence. Take for example, a wealthy Bitcoiner who has 100,000 BTCs in Bank A and 100,000 BTCs in Bank B.
Bank A has total deposits of 500,000 BTCs. So does Bank B.
Bank A is honest and keeps 100% of on-demand as reserves. Bank B only keeps 10%.
Our wealthy Bitcoiner gets suspicious of both of these banks for some reason and withdraws.
Bank A's capital is down to 400,000, nothing bad happens.
Bank B busts because it only has 50,000 BTCs to give him.
Bank B can try to borrow money from other banks, but there is a limit to what they will be willing to lend.
You seem to be implying that the entire industry can cartelize to keep things going, but there are several arguments against that:
http://mises.org/LIBERAL/CH2SEC7.ASP
http://mises.org/media/3686
Sorry, I didn't have the time to write a more eloquent reply, but I think that is our remaining point of contention: How successful the banks will be at fooling the people. Please also read the threads about fractional reserve banking:
http://mises.org/Community/forums/t/6197.aspx
http://mises.org/Community/forums/p/17430/339679.aspx#339679
http://mises.org/Community/forums/p/8938/273181.aspx#273181
P.S. No worries about the misquoting! Quoting can be a pain in the ass in these types of forums. I just got a bit confused, cause I thought I had written those quotes and then I wasn't so sure anymore
Sure, there is a small statistical chance that everyone becomes fools, but do you really believe it? You are not fooled, are you? Do you think everyone is less intelligent than you or less able to see, particularly those people who have amassed a large sum of wealth and therefore have a lot to lose? Part of this is related to education; if people are ignorant, educate them. Part of this is also related to a sense of loss; the more you have to lose, the more you will educate yourself, guaranteed. Some people might not have a sense of self-survival, but most people do.
I'll go over a few points below:
Except with Bitcoins, there is no force to keep people captive to a system that they know is ripping them off and no monetary pumping to paper over losses. No taxes, no legal tender laws. Anything operating in the Bitcoin economy survives (and fails) on its own merits alone.
Why not? ... Also, as US law stands, taxes must be paid on *dollar equivalent wealth.* Get some stock benefits as part of your paycheck? If they are theoretically convertible to dollar value, then you must pay taxes on them. Generate bitcoins? If you fail to report the income of the exchange-rate dollar amount of these coins, you *are committing tax evasion in the United States.* There are tax laws. The government might not track you down, might not prosecute you, might not even know, but the crime is being committed, whether you're caught or not. Also, what's to prevent such "captive" laws as you mention from taking hold, as they surely will once (if) bitcoins take off?This is a different problem altogether. Did you read my Agorism link?
Such laws will only be effective to the degree they can have force in the digital world. This is not to say they will be without effect altogether; this is a real problem that the Bitcoin network will have to face should it become popular.So we both agree that the laws suck. However, these laws are just arbitrary points that have nothing to do with market forces and the banking system only survives because there is a lender of last resort. Such a lender of last resort cannot exist in a hard money system such as Bitcoin.
Its true that banks are a lender of last resort. But my guess is, in a bitcoin economy, if someone wants to buy say, a house, they're going to have to go to a lender of last resort. ...
I think we're using different definitions of the term "lender of last resort". To me, a "lender of last resort" implies a sort of bank with basically unlimited pockets that can always lend to any other bank on request. Such a feat is possible with fiat currency, and perhaps possible with Bitcoin credit, but impossible with actual Bitcoins.
There is an implication within your posts that the banks are somehow a "collective" and form a homogeneous whole. I don't think we should treat the system in this way. Every bank will be a customer of another bank for some amount, and out of their own interest of survival they will scrutinize the other bank's operations a lot more closely than the "average joe" might. The worst case of your scenario can only happen should one bank somehow gain a monopoly in the Bitcoin world, but there is no artificial force preventing other banks from springing up, nor is there an artificial force people to accept this bank's rules and dictates.
Fraud should be illegal, yes. If a bank says "Hey, we only keep 10% of your money on hand, so it might not be there when you want it!", then it is no longer fraud, but good luck attracting depositors
Again, if it were not for legal tender rules and taxation, fiat currency would have a value of 0 with the kind of system we have in place today.
Again, if it were not for legal tender rules and taxation, fiat currency would have a value of 0 with the kind of system we have in place today.
Funny you should say that. They attract *millions* of depositors. Do you not have a single bank account? I have several. This 10% rule (close to that amount, at least) is how *all US banks* operate today. They attract depositors - there's no way to deny it. However, you're right that fiat has no value without the decree that it must. We can wholeheartedly agree on that.
Decree = value
No decree, it would be the end of days as far as the fiat banking system is concerned.To summarize, I think we both agree on the mechanics of the banking system. Where we disagree is if everyone can be fooled under a Bitcoin banking system. I don't think they can. Even if 999 average joes with 50 BTCs each are fooled, all you need is ONE guy with a hundred thousand BTCs to keep the entire banking system in line.
Now, this is a nice thought. If the banks got careless, and a consortium of people could accumulate 21,000,001 bitcoins total across all their bank accounts, then they could call the bluff of the entire system. That's certainly possible under bitcoins, and impossible under the dollar system. Of course, the public would probably believe those individuals to be "hackers" or frauds, rather than accept that their entire banking system was a joke.This isn't to say fractional reserve banking won't happen, but it will balance at the point where the supply & demand for money balance out. I fully expect that it will take the form of on-demand deposits which are 100% reserved and time deposits which can be fractionated.
How can you fraction something and still have 100% available at all times?
[/quote]
The on-demand deposits would be available at all times. The time deposits would not be, by design.
By the way, I'm not sure if I screwed up the quote lines...I've been copying and pasting them to make my partial quotes, so my apologies if someone's name is mis-credited.
The issue is not that Bitcoins are or aren't more stable than dollars - They are. Their creation is independent of the government, they have a fixed amount, etc. My point is that inflation will occur in a bitcoin economy. The website states that it wouldn't, but this is simply untrue unless you change the law.
The issue is not that Bitcoins are or aren't more stable than dollars - They are. Their creation is independent of the government, they have a fixed amount, etc. My point is that inflation will occur in a bitcoin economy. The website states that it wouldn't, but this is simply untrue unless you change the law.
I don't know that this is untrue. In an honest banking system, people must give up liquidity in other for others to gain it. There is inflation if you sum the amount of credits + real bitcoins and consider this the money supply, but what effect does this have on the general level of prices? I would argue it only affects prices to the degree that the banking system is dishonest, because the money in circulation should remain stable.
The *only* way to prevent inflation is to tell banks "You must back your loans in bitcoins. You cannot loan out balances which are not backed by bitcoins that you have on file." This, however, requires the government to step in and mandate that the banks used bitcoin-backing for their loans. Not only will this not happen, because the government would then be unable to spend like there's no tomorrow, but it would make bitcoins a government-endorsed, and almost certainly government-regulated currency...and we all know what fun government-regulated currencies are.
In short, just because you cannot print additional bitcoins does not mean that the economy will not be inflated. To prevent backless-bank-loan-inflation, the law would have to be changed. The implication that a bitcoin economy would be free from inflation should be removed from the website. If the lead programmer or whomever maintains the site chooses to replace it with "inflation free given a change in monetary policy law," that's fine, but bitcoins do not prevent inflation, because inflation comes, at least the great majority of it, from loans rather than actual printing of cash.
In short, just because you cannot print additional bitcoins does not mean that the economy will not be inflated. To prevent backless-bank-loan-inflation, the law would have to be changed. The implication that a bitcoin economy would be free from inflation should be removed from the website. If the lead programmer or whomever maintains the site chooses to replace it with "inflation free given a change in monetary policy law," that's fine, but bitcoins do not prevent inflation, because inflation comes, at least the great majority of it, from loans rather than actual printing of cash.
There is no need to change the law.
The banking system is not homogeneous, and we don't need anywhere near 21,000,000 bitcoins to attack the banking system.
All we need is a few players with some degree of wealth, and with some intelligence. Take for example, a wealthy Bitcoiner who has 100,000 BTCs in Bank A and 100,000 BTCs in Bank B.
Bank A has total deposits of 500,000 BTCs. So does Bank B.
Bank A is honest and keeps 100% of on-demand as reserves. Bank B only keeps 10%.
Our wealthy Bitcoiner gets suspicious of both of these banks for some reason and withdraws.
Bank A's capital is down to 400,000, nothing bad happens.
Bank B busts because it only has 50,000 BTCs to give him.
Bank B can try to borrow money from other banks, but there is a limit to what they will be willing to lend.
You seem to be implying that the entire industry can cartelize to keep things going, but there are several arguments against that:
http://mises.org/LIBERAL/CH2SEC7.ASP
http://mises.org/media/3686
Sorry, I didn't have the time to write a more eloquent reply, but I think that is our remaining point of contention: How successful the banks will be at fooling the people. Please also read the threads about fractional reserve banking:
http://mises.org/Community/forums/t/6197.aspx
http://mises.org/Community/forums/p/17430/339679.aspx#339679
http://mises.org/Community/forums/p/8938/273181.aspx#273181
P.S. No worries about the misquoting! Quoting can be a pain in the ass in these types of forums. I just got a bit confused, cause I thought I had written those quotes and then I wasn't so sure anymore