Even if you assume that those assets keep up with inflation the problem is that only protects your savings, it doesn’t protect your wages. Most people are wage earners who only receive pay increases in line with CPI not real inflation and hence in real terms their wages go down over time meaning they can buy fewer and fewer assets. If Bitcoin replaces fiat and people eventually get paid in Bitcoin (or some currency backed by Bitcoin) their wages will be maintained and stop going down in real terms.
Money Creation and Central Banking
- Thread starter Read_Lives_of_Saints
- Start date
Bitcoin cannot simultaneously function as a currency/money and as an asset/store of value. It theoretically can function as the latter, but as a deflationary asset with a built-in production limit of 21 million, it is inadequate for serving the monetary needs of a modern economy. There is no reasonable mechanism for lending and borrowing Bitcoin, and further, the 21 million cap means that any sort of lending at interest is impossible in a Bitcoin monetary system, because the fixed supply necessitates that the interest accrued on the loan must be directly taken out of the fixed supply of Bitcoin.
You all like to decry the nature of fiat as being "backed by nothing" or "money created out of thin air", but these criticisms are shallow. The operation of fiat is actually quite elegant and sophisticated, because in practice fiat currencies actually end up being backed by labor and investment. When loans are issued (meaning, when new money is created) they are issued with some productive economic purpose in mind, and the borrower must engage in some sort of productive economic activity in order to repay both the loan and the interest due. This economic activity, in broad sum across the entire economy, is the foundation of real wealth creation. And this is why fiat is so effective at growing economies versus hard money, and why every economy in the world uses fiat and not gold (or Bitcoin) as a currency.
This is simply not possible in a Bitcoin system because borrowing and interest repayment is impossible. In a theoretical Bitcoin monetary system, all wealth would very quickly flow toward those who already hold the most Bitcoin and lend it out. Because of Bitcoin's fixed supply, all excess Bitcoin would necessarily be sucked up to pay the interest demanded by the lenders. It's simply not a workable monetary system.
The main problem with fiat and fractional reserve, or any other medium, is the cheating. Any system that was honest and transparent, and created by half-way competent people, like the way ours is supposed to work, would be fine and would sort its kinks out in a short time.
The problem is the chicanery and the ability of those who can side-step the rules, like the lead-up to the 2008 financial crisis with exotic and absurd financial instruments, and the reaction to it, essentially unrestrained money printing well outside any FRB limitations.
But there's no way around that any more than there is a way to create utopia on earth. Whoever is in a position to make or break the rules of the monetary system and get away with it will do so, no matter if it's bitcoin or physical gold.
We'll predictably discover the corruptibility of bitcoin and, just as discovering the side-effects of a new "wonder drug" dispels the notion that, within a certain period of time, disease will be eliminated, we'll be reminded that it never will, nor will money remain honest.
Better to store up your treasure in Heaven.
The problem is the chicanery and the ability of those who can side-step the rules, like the lead-up to the 2008 financial crisis with exotic and absurd financial instruments, and the reaction to it, essentially unrestrained money printing well outside any FRB limitations.
But there's no way around that any more than there is a way to create utopia on earth. Whoever is in a position to make or break the rules of the monetary system and get away with it will do so, no matter if it's bitcoin or physical gold.
We'll predictably discover the corruptibility of bitcoin and, just as discovering the side-effects of a new "wonder drug" dispels the notion that, within a certain period of time, disease will be eliminated, we'll be reminded that it never will, nor will money remain honest.
Better to store up your treasure in Heaven.