If you like economy and bitcoin, you will enjoy the read.
†*****************
Ponzi and Growth
All euros, dollars, yuans, or francs in circulation come from debts. In the fiat system, money is entirely created from debts.
There wouldn’t be a single cent in circulation if all bank loans were repaid overnight. Truth be told, the coins and banknotes would remain. However, cash only represents a very small portion of the monetary supply, about 5%.
The fiat system operates on a fractional reserve basis. Meaning that money is created ex nihilo by banks. It is lended into existence. Money comes from loans (mostly mortgages) and is drained as out of the economy as repayments are made. Except the interest that rewards the bankers.
We are therefore continuously paying interest on the entire money supply. Because of this, we must continuously increase the money supply for everything to add up from an accounting perspective.
This mathematical imperative stems from the fact that “money doesn’t make money”, as the saying goes. The money needed to pay interest is never initially in circulation in the economy.
To put it even more clearly, if some people manage to repay debt AND interest, mathematically, others won’t even be able to repay the principal.
In short, the flow of new loans must exceed the flow of repayments for the system to hold together. Otherwise, some economic players would not be able to find enough money in the magma of the economy to honor their loans in full. Defaults would become an integral part of the system, which is not efficient.
This is how banks maintain a ponzi scheme…
[A ponzi scheme exacerbated by the fact that governments “roll over” their debt. Accumulating interest on interest is an exponential mathematical process (“compounding interest effect”)]
Is this good or bad? History teaches us that humanity always embraces the most efficient systems. However, this beautiful Ponzian mechanism now faces a stumbling block :
More and more energy and raw materials are needed to match this ever-increasing money supply, otherwise wages would no longer be able to keep up !
But we live on a finite planet…
Banking and Renaissance
The oldest bank still in operation is the Monte dei Paschi. This Italian bank was founded during the Renaissance, a pivotal era of civilization.
Cointribune
Bitcoin and endless inflation
The fiat system is a Ponzi scheme that, faced with the physical limits of growth, promises inflation as painful as it is conducive to bitcoin.
