Quote from: steelhouse on September 15, 2011, 03:57:52 AM

Where you are wrong: You don't consider hoarding and savings as an investment too.

Savings can be investments or not. But if you save by hoarding, that's not an investment.

Quote from: steelhouse on September 15, 2011, 03:57:52 AM

So say you have an economy with 3% deflation? Do you still want to buy things? As long as you want to buy things there is an economy!

I'm not saying that commerce will completely stop, just that investments would be reduced. Investments would stop if the deflation becomes higher than the interest rate.

Quote from: steelhouse on September 15, 2011, 03:57:52 AM

So someone has an idea they can either offer an interest rate above the 3% deflation or find shareholders. A 1% loan is really a 4% return, 1% for the loan and 3% for the deflation.

Exactly, that's what I'm saying. Investments need to outperform interest + deflation, which is harder than only outperforming interest.

Quote from: steelhouse on September 15, 2011, 03:57:52 AM

The reality is there would be no debt anywhere in the economy, which is good for the economy.

Are you serious? Having no debts at all (having no financial market) is good for the economy?

Quote from: steelhouse on September 15, 2011, 03:57:52 AM

Many businesses hold debt, not because they need the money, but they want to hedge against inflation. They can deduct the interest from taxes. Thus rather than repay debt, they extend their debt so they don't have to maintain as much cash.

I'm not advocating for tax measures that encourage people to get indebted. This seems wrong to me.

Quote from: steelhouse on September 15, 2011, 03:57:52 AM

2. Where do you think money will be optimally invested by a banker giving loans to business or by a stockholder buying equity in a firm?

They're supposed to be equally profitable.

Quote from: steelhouse on September 15, 2011, 03:57:52 AM

Since 1802, the stock market has returned $600,000 after inflation for every dollar invested.

209 years to multiply your investment for 600,000 ?
Let's find the approximate interest..

1.0658 ^ 209 = 608449.62

So it's approximately a 6.58% interest rate. Are dividends that high? The stock market is probably a bubble.

Quote from: steelhouse on September 15, 2011, 03:57:52 AM

Bonds have returned about $1000. However, cash in a bank account has return nothing and is presently earning negative. Yes, there would be far less loans, but the businesses don't deserve them and bankers don't deserve to receive the interest off them. They earn money by using other peoples money at low interest and making loans at higher rates to earn a spread. I don't have the numbers but if you do the math it will show as a disaster to people who put deposits in banks.

True. However, you have to think about why interest rates are low at the same time there's inflation. That would not happen with an inflationary chain currency because the money is not loaned into existence (or created through monetizing debt). When you do that, the investors that get the inflation loans won't bid in the real financial market, resulting in less demand for the real savings. The inflation funds are confused with savings funds and the interest rate goes down.
On the other hand, if inflation were predictable, constant, and put in the hands of miners (that provide a valuable service), the inflation would be taken into account in nominal interest rates as "inflation premium". Because people can dodge inflation losses by investing in real capital and the borrower and lender know it.
Inflation should increase the interest rate, it doesn't today because of the way it is created.
But I don't advocate for inflation. I don't want to rise nominal interest, I want to lower real interest in a sustainable way (not exponentially growing debt nor inflation).

Quote from: steelhouse on September 15, 2011, 03:57:52 AM

It would be much better to have a deflationary currency it allows savers to earn yield on their savings without using banks. Thus, when the 85 year old senior citizen wakes up one day they don't see their money gone, stolen by the ravages of inflation.

With a deflationary currency, the old senior would have multiplied his savings by 1.03 ^ 60 = 5.8916031 in 60 years only by keeping them under the bed. Assuming that a 3% deflation is sustainable for 60 years which is not. Deflation is either caused by economic cycles or growth. And deflation destroys growth until the deflation itself disappears.
But my question is, what is the old man doing for the rest of society to deserve that return?
How are we better off by him removing the medium of exchange from circulation? The cash also protects him against uncertainty.
Shouldn't he pay for that insurance?
And cash is an abstract commodity, it is cash because the rest of society accept it as such. So the "producers" of money are in a sense the acceptors/users of the currency, because they're the cause for the concrete currency to be money. If they decide that bitcoin is not money anymore, it isn't.
Instead of paying he's effectively charging to the rest of society 3% for every year he enjoys the cash pile insurance.