It has nothing to do with how many bitcoins you have, except that you have an excess.  In a static economy, with no inflation and a fixed quantity and value of money, with everybody consuming what they earn, how can anyone find extra cash to pay off interest?  May I make one more example please?  If I'm still unable to explain myself, then we'll have to agree to disagree.  Here goes.  Let's imagine a $1000 economy, with no inflation.  Some people (say 50 people) eventually manage to make enough profit to be able to lend out $10 at 10% interest over one year.  Well, after a year has passed the loans mature, the 50 borrowers need to find an extra $1 each.  Some of them will have been wise, and will have made a profit on the initial capital, and won't have a problem - they might well be money-lenders themselves next year.  However, others weren't so successful, but let's imagine that they came out even - they can pay back the $10, but not the interest.  These people now have to sell something personal - their house, their car, their soul, whatever - something outside their business plan (which has already failed), in order to raise that $1, until eventually they're living under a bridge and have nothing left to sell.  At this point, some lenders don't receive the $1 interest due.  This eventually becomes such a big problem that the money issuer has to do something - all the lenders live in mansions and they still want more, and all the indebted borrowers live under bridges and revolution threatens - so he prints more money, gives the poor people government jobs, who then pay the overdue interest and go back home to live in their houses.  But then the currency devalues.  On the other hand, if more money is not printed, then Joe who lives under the bridge where mushrooms grow, starts to barter with Pat who lives under the bridge where the fishing is good - simply because neither have any more $.  And so that's the first crack in the $1000 economy.

Wait a minute, I just thought of a simpler example.  Imagine an isolated, inhabited island with potatoes for currency, with just enough potatoes for everyone to eat and none left over, and the land already producing at its maximum; on the 1st of january all contracts for the year are signed (e.g. the barber cuts hair all year long for 1 potato per person) and payment is effected as potatoes are harvested.  Now suppose some guy has a bigger stick than everyone else and so gains control of a larger share of potatoes and lends out the excess at interest.  The only way to pay him off is for someone to go hungry.

On the contrary, hoarding reduces the supply, and increases the value.  Look at short sellers, they flood the market with some commodity, and so devalue the commodity.  Hoarding, on the other hand, does the opposite.  If I expect dollars to be very valuable in the future, it is convenient for me to keep them, and this is a positive-feedback loop: the dollars I have withdrawn from circulation will contribute to the increase in value of the dollars.  The Chinese, Japanese etc governments are hoarding lot$ and lot$ of $$$.  That keeps the value high, not low.  If they sold all their dollars tomorrow, it would almost certainly collapse.

Interest and inflation are bedfellows.  Each begets the other.  Let's suppose I wanted to be nice to my friend, and lend him $100 at zero interest and let's say this could buy 100kg of potatoes.  Well, after one year when he pays me back, those same $100 will only buy roughly 95kg of potatoes.  I've not only done him a favour, I've actually paid him 5kg of potatoes for the pleasure of lending him money.  If I really want a zero balance between us, I'd have to charge him 5% interest.


I agree that in the long run a monopoly certainly needs coercion, but I don't see why it must be state coercion.  It would be enough for one tobacco-grower to poison another tobacco-grower's plants.  No government necessary.


I'm glad we at least agree that a tight commodity supply increases value and vice-versa   Now think that currency is really just another commodity which simplifies trade, no less subject to the laws of supply and demand.