Quote from: Bitcoiner on July 17, 2010, 03:53:50 PM

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.

Agreed.

Quote from: Bitcoiner on July 17, 2010, 03:53:50 PM

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).

You mention three things - a)A lender of last resort, b)taxation, c)Legal tender laws.

Pulling out the use of dollars and dropping in the use of bitcoins - what we're doing on this site - does not solve *any* of these three problems.

Lender of Last Resort: Debt based upon debt remains legal, since we're not changing the law. So a lender of last resort exists. No, it can't issue bitcoins, but it can "paper over" losses with very convincing, nearly-identical-seeming things.

B)Taxation - Are you claiming that using bitcoins eliminates taxation? Taxation is by definition graft perpetrated by the government. Its "You give us x% of your income in dollars, or we throw you in jail." If bitcoins become a smashing success....they'll be taxed. The government will say "Give us x% of your bitcoins, or enough dollars to make that much value at the exchange rate, or go to jail." Bitcoins do not eliminate taxes.

C)As mentioned above, nothing we're doing here changes the law. So legal tender laws still exist.

So, banks might not be as successful without those three things...but they still have them under a bitcoin economy without law changes. Maybe it can be decently argued that there would be no lender of last resort, but only if debt-backed loans are made illegal. As we're not doing that...all three points stand, and so the banking system stands.

Quote from: Bitcoiner on July 17, 2010, 03:53:50 PM

...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.

I agree with you here. However, as mentioned above, using bitcoins doesn't cut the US government's ability to tax you, their power to create legal tender laws, or their ability to make something which is close enough to a lender of last resort so that they can either fool people or throw in jail those who don't believe it is such a lender.

Quote from: Bitcoiner on July 17, 2010, 03:53:50 PM

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.

Do I really believe everyone would be fooled by the bank system under a bitcoin economy? Hell yes. They're fooled now. What was the initial reaction *on this forum* when I said that loans were not backed by paper dollars? "No, that's not true. If its an on-demand deposit, it is one hundred percent backed, one-hundred percent of the time. Otherwise its fraud." Not that people on this forum are fools - but if even the people here believe your bank balances are backed...what do your teachers, truck drivers, doctors....basically anyone who hasn't taken the time to study monetary policy, going to think? They're fooled. Not because they're less intelligent, but because they haven't invested the time and effort to figure out what a sham the system is. Of course, some are less intelligent, and still others are simply unwilling to believe that a banker can create an unlimited amount of money with keystrokes and not even a printing press. You should have seen the face of one member of my family who has devoted his life to building bank balances when I told him there was nothing - literally nothing - that backed his balance, and that a loan for five thousand dollars was literally five thousand dollars of new liquidity popped into existence without real dollars just by keying in "5000" on a spreadsheet. I might as well have said the Earth was flat. Now, those who are particularly wealthy have a vested interest in figuring out how the system works. You're right about that. They can and will figure it out, as will those of us interested in the mechanics of the system for whatever reason. However, other people just don't care as long as they can pay their bills, and bitcoins remove the only obvious difference between banks and cash to those who don't understand - the fact that cash is paper. You also say that we should educate people - this is valid, and we should try, but the government has a near-monopoly on education, and there's a reason they teach civics and "economics" without a single breath about monetary liquidity policy and the nature of loans.

Quote from: Bitcoiner on July 17, 2010, 03:53:50 PM

{Taxation and legal tender} 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.

Then we agree - bitcoins do not inherently remove the power of taxation and legal tender laws. I agree that they make things more difficult for the government...but digital things that make things more difficult for a government all have a habit of skipping town or getting attacked - Napster, Pirate Bay, Wikileaks, all the rest. No government will allow its tax base to atrophy by what is essentially the use of an untaxable resource. That would be a threat to its control, and governments love their control. However, my issue is not with whether we will be taxed. I don't have a problem with (justly done) taxes. Someone has to pay for the roads on which I drive to work and the men who ensure that the water in my tap isn't laced with lead. (Now, whether the current administrations do well at these jobs is another story, but I'm not an anarchist in theory). My issue is with the inflation that *will* exist in the bitcoin economy unless banks are either boycotted or made by force of law to back their loans. We're not changing the law here. If anything, we're a thorn in the government's eye, making the law *less* likely to change in our favor.

Quote from: Bitcoiner on July 17, 2010, 03:53:50 PM

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.

Agreed. However, unless the law is changed, "bitcoin credit" is what the economy will use. The only alternative is for everyone to refuse to honor it...which they won't do, because those who don't care to research the difference won't know the difference. If you're right, and I'm being pessimistic, and everyone would get wise to the difference, then a legal tender law would just be passed forcing us to honor backless credit with BTC in front of it instead of $....we can thank the financial sector lobby for that.

Quote from: Bitcoiner on July 17, 2010, 03:53:50 PM

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.

Honestly, I think that if it weren't for antitrust laws, we'd wake up tomorrow and Chase, HSBC, UBS, RBC, BoA, and WF would all have had a merger. However, I don't mean to imply that these bank corporations do not compete with one another now. What I mean is that un-backed credit from *any* bank forms the basis for additional un-backed credit from *whatever bank* gets the un-backed amount as deposit. Its not that each bank doesn't want all the money for itself, and to keep competitors in check or subservient. I mean that if Wells Fargo gives me a loan (fake magic spreadsheet money) and I pay you, and you go and deposit it with RBC, then RBC can make more loans fake loans, etc. Its not that they're all cooperating, but merely that the system is a closed loop (Think "system" as used in physics) which constantly inflates the numbers.

Quote from: Bitcoiner on July 17, 2010, 03:53:50 PM

Decree = value

No decree, it would be the end of days as far as the fiat banking system is concerned.

Actually, faith=value. Decree without faith gives you Greece right now. So, with no decree, if people didn't understand, then they would still think the dollars had value. The original bankers worked in gold. They just hid from everyone the fact that not all the depositors' gold was available. No decree existed then, but the system worked. Then, when people began to *trust* the banks (faith comes in here) the banks wrote out checques (scrip) which *claimed* to give the bearer the right of ownership over gold in a vault. However, the bankers soon got the idea that they could just write these scrips, in which people had faith, for gold that didn't even exist. That was the root of the modern backless system. Does it crash if people get wise? Yes. Do people necessarily figure out that they're being scammed? Nope. If they had figured it out here and now, we'd have riots on our hands. Instead we have "loan modification programs" and everyone's happy. Besides, even if people figure out what's happened, the scammers are either dead, having lived lives of luxury at others' expense, or they've taken up a private island in the Pacific and no one can get to them.

Quote from: Bitcoiner on July 17, 2010, 03:53:50 PM

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.

You're right that in an honest banking system, your claims hold. However, what is it about adoption of bitcions that makes the banks honest? We still have the exact same laws...just with bitcoins...no change in what the banks *can* do, no change in the fact that legal tender laws *force* us to accept their credit as money....no change in the system.

As far as the amount of money in circulation - Can you buy things with a credit card? Then its in circulation. A debit card? Then its in circulation. Cash? Then its in circulation. Cash is backed. (Only by paper, but in a bitcoin system, cash would be backed by bitcoins). Debit cards might be *partially* backed. Credit is not. However, this un-backed credit has the power to move goods and services in the real world. Therefore, it is in circulation, and part of the money supply, and because it is, the money supply is inflated. Thus, if banks can issue bitcoin-credit loans, and people accept these loans, then these backless credit loans are in circulation, and the money is inflated. The amount of cash is not inflated, but cash is only a portion of the money supply.

There is no need to change the law.

...

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.
[/quote]

This scenario is valid. The problem is that Bank B, in this case, is not only dishonest, but stupid. They allowed one investor to accumulate more wealth than they kept on reserve. No bank would do this - they have statisticians with Poisson distribution graphs that will tell them that if they do this, they will go bust. Bank B, if they had one investor with 100,000BTC, would keep 100,000 on reserve (and then some). Why? The chance of that one person at some point (say once in a span of thirty years) finding a better bank and moving the money is very, very high. However, they know the number of coins they have to keep onhand to have only a 1/1000 of 1% chance of having a run...all the others, they will lend out unless legally required to do so. Is this a change from today's system? Yes. Does it eliminate inflation? No.

Quote from: Bitcoiner on July 17, 2010, 03:53:50 PM

You seem to be implying that the entire industry can cartelize to keep things going...

I don't mean that the banks are a cartel, but a closed system (see above). In reality, though, lets say bitcoins became popular. In fact, they become so popular that they replace dollars. Essentially, take today's economy, swipe out the dollars, and replace them all with bitcoins. One of the following threads will then occur without a forced change in the law, which the use of bitcoins does not necessitate.

1) People remain fooled by the bank system. They, as a whole, don't know the difference between bank balances and bitcoins, and they use a combination of both, relying mostly on bank balances, as with today, because of the promises of interest, the use of debit cards, and the advertising budgets of the financial sector, along with whatever other reasons. Banks continue to give backless loans, inflating the money supply by typing numbers into their spreadsheets, and then these numbers, assumed to be bitcoins by the population, move goods. Inflation happens.

2) People get wise to the backless fractional scheme, and refuse to accept bank credit because it causes inflation. However, backless-bitcoin-bank-credit is legal tender, like backless-dollar-bank-credit is today. So the people go "I know this bank credit is worth nothing, and I won't accept it, but I want to get rid of it. Its legal tender, so I'll use it to pay my bills!" They try to use it. The people they owe for electricity or gas or food say, "That's worth nothing, and we know it." The payer takes them to court, and the court decrees, "Bitcoin-Bank-Credit is legal tender. Legal tender was offered and not accepted, so the debt is null and void." People don't get paid, services shut down, anarchy. Inflation? No...but ISPs and electricity companies have their accounts being declared null and void, so they shut down...so bitcoins are at an end.

3)Say that people don't try to screw others over by paying their bills in useless credit. The banks certainly will . The end result is still a massive wave of businesses not getting paid and the end of organized services such as power and Internet access as we know them today, putting an end to bitcoins.

The root of this is the legal tender law. Whether dollars or bitcoins are the legal tender, backless credit denominated in those amounts are still legal tender. Meaning that it is literally impossible to reject these inflationary forms of payment and have the courts enforce that you receive what you are owed. Thus, to end inflation, a repeal of legal tender laws or a repeal of the right of banks to issue backless credit is a necessity. In all other circumstances, the result is inflation or anarchy. Bitcoin use does not change these laws, therefore, either the current system, or no system, remains in force.

All of these are monetary policy issues. My only complaint is that the website seems to imply that widespread use of bitcoins fixes them. It doesn't. Only abandonment of the current system, which requires abolition of legal tender laws, then either a boycott of the banks or abolition of the right to issue backless credit, solves them. Bitcoins are better than dollars, yes, but they do not solve these problems.