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So one of his arguments is as follows: A) Debt necessarily creates a society with certain undesirable characteristics. B) Our monetary system is based on the

by morsch 14y ago

So one of his arguments is as follows: A) Debt necessarily creates a society with certain undesirable characteristics. B) Our monetary system is based on the creation of debt, as new money is created exactly when someone borrows, ie. gets into debt. C) Bitcoin does not involve debt when it created; when you "create" BTC, no debt is involved. Of course you do devaluate the entire currency when you create additional BTC, but the same is true when M2 is increased in fractional-reserve banking. Did I get the argument right? I'm sure many people disagree with A (which I have only paraphrased very broadly since it seems hopeless to represent it in a few sentences here). B seems to be a widespread characterization of fractional reserve banking, and fairly accurate to me (but all of this bewilders me) -- is it controversial? C seems interesting; although of course this raises the question whether there aren't other alternatives that could replace/complement our monetary system (and he does discuss some in an article he links to).

troyastorino 14y ago
I'm somewhat confused about B. The monetary base is indeed expanded through the issuance of debt in fractional reserve banking, but when the Fed pursues expansionary monetary policies to keep the interest rates low doesn't that increase the money supply without the creation of debt? Or is the effect on the money supply of the expansionary policies of centrals bank small in comparison to the effect of leverage ratios of fractional reserve banks?
- Tycho 14y ago
  I think one of the main methods of monetary expansionists policies is inducing the major banks to engage in 'more fractional' fractional banking.
nhaehnle 14y ago
I think you got the argument right. I personally don't find it very convincing, because of two things: 1. If Bitcoin ever became significantly widespread, people will start making debt contracts denominated in Bitcoin. It is merely the underlying base that is different, but debt will still exist. 2. For a monetarily sovereign state, government debt is very different from private debt. Private actors can be forced by having debt, monetarily sovereign governments cannot. In my view, it is the responsibility of the government to take on enough debt to make it possible for citizens to be debt-free. It is true that, under current institutional arrangements, the interest paid on government debt is effectively a transfer payment to the owners of that debt (the treasury bonds), which tends to be a transfer from poor to rich, which I view as undesirable. This is easily fixed by changing the institutional arrangements slightly. Essentially, the government simply has to use the central bank for funding to drive down its interest rate.

by morsch 14y ago

troyastorino 14y ago

I'm somewhat confused about B. The monetary base is indeed expanded through the issuance of debt in fractional reserve banking, but when the Fed pursues expansionary monetary policies to keep the interest rates low doesn't that increase the money supply without the creation of debt? Or is the effect on the money supply of the expansionary policies of centrals bank small in comparison to the effect of leverage ratios of fractional reserve banks?

Tycho 14y ago
I think one of the main methods of monetary expansionists policies is inducing the major banks to engage in 'more fractional' fractional banking.

nhaehnle 14y ago

I think you got the argument right. I personally don't find it very convincing, because of two things: 1. If Bitcoin ever became significantly widespread, people will start making debt contracts denominated in Bitcoin. It is merely the underlying base that is different, but debt will still exist. 2. For a monetarily sovereign state, government debt is very different from private debt. Private actors can be forced by having debt, monetarily sovereign governments cannot. In my view, it is the responsibility of the government to take on enough debt to make it possible for citizens to be debt-free. It is true that, under current institutional arrangements, the interest paid on government debt is effectively a transfer payment to the owners of that debt (the treasury bonds), which tends to be a transfer from poor to rich, which I view as undesirable. This is easily fixed by changing the institutional arrangements slightly. Essentially, the government simply has to use the central bank for funding to drive down its interest rate.