First part of his discussion is true - the fractional reserve banking system is a big scam, but the second part is a fallacy. The "debt pyramid" argument is false, for $200 in debt can indeed be paid back with $100 in money. One does not need to borrow again to pay back $200 with $100 in existence... one need only work enough to earn back the original currency and then pay the debt. Paying back the debt requires work and trade, but not necessarily more debt. Not sure why this fallacy is never challenged.
Agreed, but what happens when we run out of opportunities for labor? There are some that believe that the high unemployment rate in the US, and in other countries that were hard-hit by the global financial crisis, is permanent.The subsequent impact of high unemployment on the housing market was a good example of debt growing beyond the ability of labor-lacking borrowers to ever pay back.Now we're seeing reduced tax revenue due to there being less income to tax, and lower property taxes due to lower property valuations. What happens to municipal, state, and national debt at that point? And then what happens to the currency?
To Erik Voorhees.The "fallacy" is never challenged because it is not a fallacy. It is unfortunately true. When you repay principal on a bank "loan", the payment annihilates the IOU and the money ceases to exist. *You* (personally) might be able to pay back your principal+interest, but if the money supply (=total debt) does not increase at least as fast as the interest rate then *someone else* will inevitably default - regardless of how hard everybody works. The money is *not there* to be earned. I understand that this is not obvious and takes some effort to understand, but it is true. As Robert Hemphill - former Credit Manager of the Federal Reserve Bank of Atlanta has put it (in a rare display of honesty for a central bank(st)er):"If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible -- but there it is."---I encourage you to read "Web of debt" by Ellen Hodgson Brown - or at the very least watch the following highly thought provoking videos:Money as Debt 1:http://video.google.com/videoplay?docid=-2550156453790090544Money as Debt 2:http://www.youtube.com/watch?v=rCu3fpg83TYMoney masters (American history):http://www.youtube.com/watch?v=JXt1cayx0hsThe single best thing about bitcoin is that it is created *debt-free*. For this reason bitcoin can in principle remain functional even if we experience a shrinking global economy. No debt-based monetary system is even capable of surviving that.
Excellent response by Peter. It's spot on. One of the great features of Bitcoin is that it's not created out of debt. It does not have the requirement of someone having to take a new loan to pay the interest on someones existing loans. Which is a requirement for survival in our current economy.It doesn't matter if the person A works hard and is able to pay his loan without taking a new loan, in that case it's his employer that had to take the loan to pay for the employees loan via salary.This gets a bit complex at this point but the fact is that basically almost all money has interest attached to them which is not included in the money supply. It forces the economy to constantly grow and the only way it can grow is by taking more loans, again with interest, which only compounds the problem in the long term.This is why regardless of all the "growth" in recent decades, we have a similar amount of increased debt. That debt has gone nowhere. It's still there. And the interest payments associated with that debt are starting to get too large for the economy to handle anymore.With Bitcoin the situation could never get this extreme. It can handle degrowth much better, and to be really honest, we are most likely facing degrowth right now in any event. This is simple math, we don't have the resources or the energy to handle the growing needs (and wants) of Asian people and simultaneously sustain the same kind of wasting materialistic lifestyle in the Western world. This is an impossible equation unless we see revolutionary technological breakthroughs in the near future.So prepare for degrowth and prepare for an economic system that can handle it better. I'm not sure it's going to be Bitcoin but it most definitely ain't going to be a system like the one we're currently using in world economies. That system is doomed.
Peter - I think you're right! " It is unfortunately true. When you repay principal on a bank "loan", the payment annihilates the IOU and the money ceases to exist. "I did not consider this, which was foolish of me. Thank you for pointing it out.
I'm happy that we seem to agree. The problem is that very very few people understand this (the nature of money). To borrow a term from the occupy groups - "99%" do not understand the nature of money. This includes front line bank employes and even most economists. If people would only ask: where does money come from? - the world would be a better place.
You can learn more about the nature of the monetary system at www.zeitgeistmovie.com and a possible solution in the form of a resource based economy at www.thevenusproject.com.