An equity-based monetary system

If and when bitcoin becomes the reserve currency of the world (which I think it will), we will have an equity-based monetary system instead of a debt-based monetary system, and this will be a very good thing.

Bitcoin is basically deflationary. There are only ever at most 21 million bitcoins in existence. Some people lose their bitcoins, and those bitcoins usually wind up lost forever. So the total supply of bitcoin is some amount less than 21 million, and it decreases slowly over time.

As there is economic progress, the value of each bitcoin (in terms of what it can buy) tends to go up. This is because while there are more goods, there are fewer bitcoins, so the ratio of goods in existence to bitcoin in existence goes up. Each bitcoin can buy more goods. This is a deflationary monetary system, and it’s a good thing, in spite of what some bad economists may say. The bad economists don’t like deflation because it discourages spending — if your money is going to be worth more in the future than it is today, then why would you spend it now instead of saving it for tomorrow? Of course, their whole view is predicated on the false idea that consumer spending drives the economy, but that’s a separate issue that will have to be dealt with at another time. For now, let’s examine the actual consequences of a deflationary monetary system:

  1. If you have bitcoin (capital), you are, relatively speaking, incentivized to save it rather than spend it.
  2. It’s relatively hard to pay back bitcoin-denominated loans, and it’s relatively risky to make such loans.
  3. The market rate of interest will vary widely by creditworthiness, but for most people, loans will be hard or impossible to get.
  4. Investment will tend to be in the form of equity rather than debt.
  5. This equity-based system will be more stable than the current debt-based system.
  6. Production, productivity, and the proportion of economic gains that goes to labor will be relatively high, leading to generalized economic prosperity, high social mobility, and relatively high wages.

This is a lot to cover, so hang onto your hat.

Continue reading “An equity-based monetary system”

Fractional reserve banking is obsolete

Once upon a time, money was physical. Maybe it was gold, maybe it was silver, or maybe it was paper notes. Regardless, it was physical. And that meant that there was value in keeping your money somewhere safe. Say, down at the vault.

The vault owner could charge you for keeping your physical money safe. Eventually, however, he learned to lend your money out and earn some interest. And you eventually learned to ask for a share of that interest.

There’s an issue here, which is that if he lends too much out, you might come asking for your money and he might not have it. Thus the notion of reserves — an amount of your money that the bank keeps on hand in case you come asking to withdraw. The reserve is fractional because he only keeps a fraction of your deposit amount on hand.

Keeping a fraction of deposits on hand kind of works, most of the time, but if depositors get spooked, say, and they all want their money at the same time, the system still breaks down. That’s why we have FDIC insurance in the US: the government steps in if there’s a run on a bank.

And they all lived happily ever after.

Stepping out of history now, we find ourselves in 2020 with a system that was designed around physical money that needed to be kept safe in a vault; and yet our money is anything but.

Money is a number in a computer now, with your name attached to it. It sounds so simple, but we keep up pretenses like it’s something else that needs to be safeguarded in a vault.

And we continue to perpetuate the unstable system of fractional reserve banking, when there’s no need. People could keep their money in the bank, and decide if and when they want to loan it out (say, as a CD) or invest it. There would be no need for FDIC insurance, and the financial system would be that much more stable.

Owning my own content

14 years ago, I started a blog (this one, in fact). At that time, it was kind of normal to blog about things. Life, opinions, whatever.

Nowadays, almost nobody does that anymore because social media. I left social media a few years ago, primarily because it’s a big waste of time. But also it started to occur to me that anything I say there can be used against me, and that if it’s unpopular enough or offends the wrong person, it’s even likely to be removed.

Outside of social media, there are hosted blogs, such as medium, but these suffer from the same issues — at the end of the day, your content can be censored because it displeases the platform’s moderators.

So now that I’m saying things again, it’s back to 14 years ago. That means my posts will not have access to social media network effect explosion potential. People will have to actually want to come here and read things. It also means I had to go through the work of getting this blog set up self-hosted, and I have to spend time and money to maintain that.

Yet, it also means that I get to say what I want. The content belongs to me. And readers know that I’m not censored.

In 2020, this is the right trade.

Things to say

It appears that I have things to say again.

It’s a conceit to think that my perspective is uniquely interesting. Yet, nobody is quite saying the things I think need saying, and publishing here gives me a reason to work things out in writing.

Welcome back, me.