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Traktion

Digital Coin - Is It A Good Idea?

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http://www.digitalcoin.info/

This seems to be the digital currency discussed in the Money as Debt II video.

The idea of a reserve currency (EDIT: to clarify, not just the same old money handled by computers) which all other currencies float against seems like a good concept. Essentially, it would be taking on the role of an intermediary, in much the same way the USD is now and gold used to be. The benefit being that transactions can happen instantly, via the Internet, with a fixed value provided by scarcity.

Using serial numbers and a mechanism to validate the authenticity, it would be impossible to fake the coins. While any encryption can eventually be cracked, if they set it ludicrously strong, it would to all intents and purposes be uncrackable. Even if it was cracked, a mechanism to digitally "recall" the coins and use a new encryption key should be made possible and be much easier than doing the same with paper notes. Clearly, the system would have to be bullet proof, but assuming the system is well engineered, it could work very well.

The serial numbers would have to be listed somewhere (and in numerous places) to satisfy scrutiny that the supply was fixed too. Essentially, you should be able to query a database (distributed over numerous locations/countries for cross validation) over the validity of any digital coin you receive. This would usually be handled automatically via software, but it would be desirable to have a manual mechanism to allow any public auditing.

In some ways, a truly stable, fixed supply, digital coin would be better than gold. There would be no new discoveries (you can't mine digital coins) and they could be distributed evenly at inception (no country has any to start with, unlike gold), based on the current currency status (much like the Euro did). That's not to say gold couldn't be traded against them, but it would stop the unfair advantage gained by gold rich countries when considering a return to a gold standard.

It looks like a flexible system with all the advantages of gold (steady, limited supply), without the disadvantages (transit/storage/distribution issues). Of course it could be argued it has no inherent value of its own, but the value is come from the currencies which are exchanged for it (which are backed by labour/resources of a country).

Ultimately, countries could even trade with it as a global currency of sorts, but that would depend on whether it would be desirable or needed. As long as it is easy to transfer in/out of a digital coin account, with floating exchange rates, the system would not require this to function.

So, is it the NWO trying to own the world or is it a way to get around the bankers, with a new fairer global currency? What are peoples thoughts?

P.S. Check the video and the PDF. The 'perpetual coin' is the digital reserve style currency - this is the one I discuss above. The 'credit coin' seems to be another interesting idea of trading IOUs for your goods/services. I haven't had chance to consider the latter at length, but imo, we should welcome alternative monetary concepts.

EDIT: Added clarification that this isn't just sterling by the internet. This is a currency in its own right.

Edited by Traktion

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It is a slippery slope, when you get digital coins, some tills will start checking and validating ownership status, and before long you will need to perform a reownership step when paying or receiving coins/notes. Putting a chip in each coin/note is a step away from planting a chip in your arm in the form of a digital wallet/id card. Great for gov as it totally exposes the black market/people working/selling stuff/drugs without paying tax

Edited by moosetea

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I think that the technological utopia has become a massive dystopia. But people just can't stop themselves from getting trickier and trickier. the reality is, there will always be some fraud because it is human nature. Making fraud impossible is a dream. Making it undesireable and managing the levels is all you will ever do. The future is not futureproof, it is just one of any number of realities we want to creat. I would for one don't see how a digital coin would improve human existence. It would simply be another hurdle for an enterprizing thief to get around.

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It is a slippery slope, when you get digital coins, some tills will start checking and validating ownership status, and before long you will need to perform a reownership step when paying or receiving coins/notes. Putting a chip in each coin/note is a step away from planting a chip in your arm in the form of a digital wallet/id card. Great for gov as it totally exposes the black market/people working/selling stuff/drugs without paying tax

Interesting point. Then again, if they banned bank notes or started charging for them, people would turn to using their digital pounds anyway (credit/debit cards). How far away is that from where we currently are? They already know all they need to about us from our bank accounts, so in reality, would this be much different?

I think that the technological utopia has become a massive dystopia. But people just can't stop themselves from getting trickier and trickier. the reality is, there will always be some fraud because it is human nature. Making fraud impossible is a dream. Making it undesireable and managing the levels is all you will ever do. The future is not futureproof, it is just one of any number of realities we want to creat. I would for one don't see how a digital coin would improve human existence. It would simply be another hurdle for an enterprizing thief to get around.

I'm less bothered about the concept in terms of reducing fraud by the populous, but rather the banks. They wouldn't be able to print up these digital coins at a whim. Neither could the government. In this respect, it is just a constant store of wealth, which is not forever fighting against inflation. It could also have the effect of keeping the government more honest - it would be easy to see if sterling was slipping against the digital coin.

With the USD being printed at pace AND being used as a reserve currency, it gives every other country a raw deal. Having a mechanism to store wealth between/beyond borders is something we lost with the gold standard and is partly responsible to the problems in the global economy.

Being able to opt out of storing wealth in a local currency and storing it in a global currency could be rather empowering and enable easier international trading.

The issues really aren't about what, they are all about how.

Freedom is what is needed.

Can you be more specific? Freedom to choose a currency of any preference to trade in (and pay tax in)?

You are a man of many riddles! :)

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digital coin....or as CGNAO would say...the mark of the beast.

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Interesting point. Then again, if they banned bank notes or started charging for them, people would turn to using their digital pounds anyway (credit/debit cards). How far away is that from where we currently are? They already know all they need to about us from our bank accounts, so in reality, would this be much different?

I'm less bothered about the concept in terms of reducing fraud by the populous, but rather the banks. They wouldn't be able to print up these digital coins at a whim. Neither could the government. In this respect, it is just a constant store of wealth, which is not forever fighting against inflation. It could also have the effect of keeping the government more honest - it would be easy to see if sterling was slipping against the digital coin.

With the USD being printed at pace AND being used as a reserve currency, it gives every other country a raw deal. Having a mechanism to store wealth between/beyond borders is something we lost with the gold standard and is partly responsible to the problems in the global economy.

Being able to opt out of storing wealth in a local currency and storing it in a global currency could be rather empowering and enable easier international trading.

Can you be more specific? Freedom to choose a currency of any preference to trade in (and pay tax in)?

You are a man of many riddles! :)

Your thinking digital coins will slow lending, fatal flaw, you don't need physical coins, digital coins doesn't magically stop fiat lending, and you cant have 1 coin for each pound/currency that 'exists'

I can still write you a cheque or an IOU note (even if I am broke/don't have the money)

I can still get a loan from a bank spend it and go bankrupt/leave the country

I can still deliver goods to a customer, send an invoice and have to wait 63/60/90 days before a customer pays me.

A company owes employees a number of months expenses and it is holding back because it doesn't have the money as it just paid a tax bill

Money represents the trust that someone will be able to pay in future, and trust cannot be digitised

its all lending and it all bypasses the digital money, each of the above creates/prints 'new money' for a period of time, people believe the money is theres but they dont have actual ownership of it. I believe I have money in the bank, the bank tells me I have money but I don't have physical ownership of it. That money isn't in the Bank, other people are using it to buy dinner, pay expenses,and if we all went to get out money at the same time a very small percentage of people would be able to get it!

Where is the money? Most of it (at least 99%) doesn't exist and it never existed! People believe it exists, belief and trust is a very powerful concept....

Edited by moosetea

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Your thinking digital coins will slow lending, fatal flaw, you don't need physical coins, digital coins doesn't magically stop fiat lending, and you cant have 1 coin for each pound/currency that 'exists'

I can still write you a cheque or an IOU note (even if I am broke/don't have the money)

I can still get a loan from a bank spend it and go bankrupt/leave the country

I can still deliver goods to a customer, send an invoice and have to wait 63/60/90 days before a customer pays me.

A company owes employees a number of months expenses and it is holding back because it doesn't have the money as it just paid a tax bill

Money represents the trust that someone will be able to pay in future, and trust cannot be digitised

its all lending and it all bypasses the digital money, each of the above creates/prints 'new money' for a period of time, people believe the money is theres but they dont have actual ownership of it. I believe I have money in the bank, the bank tells me I have money but I don't have physical ownership of it. That money isn't in the Bank, other people are using it to buy dinner, pay expenses,and if we all went to get out money at the same time a very small percentage of people would be able to get it!

Where is the money? Most of it (at least 99%) doesn't exist and it never existed! People believe it exists, belief and trust is a very powerful concept....

All that matters is that it's entirely voluntary and that all like things in fact are treated as equal in law.

All else is window dressing.

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All that matters is that it's entirely voluntary and that all like things in fact are treated as equal in law.

All else is window dressing.

Injin, you still confuse me. I never know if you agree or disagree with me! Most of the time I don't the entire meaning of your posts!

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Injin, you still confuse me. I never know if you agree or disagree with me! Most of the time I don't the entire meaning of your posts!

All I am saying is that as liong as we don;'t make "special" people with "special" powers, it'll be fine.

have £1,000,000 of your new digitial money to help avoid exploitation.

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Your thinking digital coins will slow lending, fatal flaw, you don't need physical coins, digital coins doesn't magically stop fiat lending, and you cant have 1 coin for each pound/currency that 'exists'

I can still write you a cheque or an IOU note (even if I am broke/don't have the money)

I can still get a loan from a bank spend it and go bankrupt/leave the country

I can still deliver goods to a customer, send an invoice and have to wait 63/60/90 days before a customer pays me.

A company owes employees a number of months expenses and it is holding back because it doesn't have the money as it just paid a tax bill

Money represents the trust that someone will be able to pay in future, and trust cannot be digitised

its all lending and it all bypasses the digital money, each of the above creates/prints 'new money' for a period of time, people believe the money is theres but they dont have actual ownership of it. I believe I have money in the bank, the bank tells me I have money but I don't have physical ownership of it. That money isn't in the Bank, other people are using it to buy dinner, pay expenses,and if we all went to get out money at the same time a very small percentage of people would be able to get it!

Where is the money? Most of it (at least 99%) doesn't exist and it never existed! People believe it exists, belief and trust is a very powerful concept....

You can't print the digital coin though - that's the point. As you correctly point out, the vast majority of money is just numbers in bank accounts, created by the bankers. While ever this sort of money is used as a reserve currency (ie. like the USD is currently), as I understand it, the USA can effectively devalue everyone's holdings. Not very fair, is it?

While I would like to see a fixed supply local currency in this country too, this is a step in the right direction. It is up to the rest of the world to downgrade our printed toilet paper should they mistrust it. Even we could mistrust it and demand to be paid in 'perpetual coin' instead of sterling - the more the currency is repudiated, the less power the bankers have to steal from us.

P.S. The point is less that it is digital, but more that it is of fixed supply. The digital part just makes it easy to hold/transfer and less likely to be fraudulently created.

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All I am saying is that as liong as we don;'t make "special" people with "special" powers, it'll be fine.

have £1,000,000 of your new digitial money to help avoid exploitation.

Ah, I thought that is what you meant and I agree.

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You can't print the digital coin though - that's the point. As you correctly point out, the vast majority of money is just numbers in bank accounts, created by the bankers. While ever this sort of money is used as a reserve currency (ie. like the USD is currently), as I understand it, the USA can effectively devalue everyone's holdings. Not very fair, is it?

While I would like to see a fixed supply local currency in this country too, this is a step in the right direction. It is up to the rest of the world to downgrade our printed toilet paper should they mistrust it. Even we could mistrust it and demand to be paid in 'perpetual coin' instead of sterling - the more the currency is repudiated, the less power the bankers have to steal from us.

P.S. The point is less that it is digital, but more that it is of fixed supply. The digital part just makes it easy to hold/transfer and less likely to be fraudulently created.

But you have to have the ability to print digital coins..

if you have 1 million coins in circulation

and have 400 million in the bank as numbers in computers

if 2 million people want to withdraw money you need to create an extra 1million coins. The qty of digital coins in circulation needs to change dynamically as people trust/mistrust the banks, and the 400million entire circulation constantly grows as people create money by lending/borrowing....

LENSA.GIF

The graph above is from the BOE website and shows that amount of pounds in the UK system increases by between 10 and 20% per year. This new money isn't caused by coins being created! Coins and notes make up a very small percentage of money. between 10 and 20% more money is created each year by being borrowed money into existence.

IOU notes

Cheques

Companies Paying for goods and services after delivary

Mortgages

Loans

People owing each other money

If you cant create any more coins, what do you suggest you do when the bank/country runs out of coins?

Edited by moosetea

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But you have to have the ability to print digital coins..

if you have 1 million coins in circulation

and have 400 million in the bank as numbers in computers

if 2 million people want to withdraw money you need to create an extra 1million coins. The qty of digital coins in circulation needs to change dynamically as people trust/mistrust the banks....

No you don't - you just need to force the banks not to create 2 million coins when they only have 1 million. Why should they be allowed to do otherwise?

Regardless, no bank would have the ability to create the perpetual coin*. If they create loads of credit, which inflates the money supply, the perpetual coin would likely gain value - you could by less perpetual coins with you bank credit money. It would work in much the same way as trading with gold (or e-gold or whatever if preferred).

*NOTE: when I refer to a digital coin, I mean like the perpetual coin - a currency in its own right - not digital coins, created at a whim by the banks.

EDIT - typo

Edited by Traktion

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No you don't - you just need to force the banks not to create 2 million coins when they only have 1 million. Why should they be allowed to do otherwise?

Regardless, no bank would have the ability to create the perpetual coin*. If they create loads of credit, which inflates the money supply, the perpetual coin would likely gain value - you could by less perpetual coins with you bank credit money. It would work in much the same way as trading with gold (or e-gold or whatever if preferred).

*NOTE: when I refer to a digital coin, I mean like the perpetual coin - a currency in its own right - not digital coins, created at a whim by the banks.

EDIT - typo

ahhh I see a totally new currency that cant be created or destroyed

Ok Imagine, you create a physical coin for each m4 credit that currently exists. 1 coin for each pound/value of currency accross the world. People will still lend money create cheques, make loans, pay with credit and 'money supply' will continue to creep up and there will have more m4 money than physical supply. When this happens there will be a very large tipping point and you will get a massive global bank run like the ones you saw when we were still on a gold standard. Everyone will try and get the physical stuff. The people who got there first will get the coins, the ones who get there last will have nothing, the people who were last will die as it will be impossible to declare yourself bankrupt, a nice option could be debtors prison? Eventually trust is restored and the same thing repeats. During this time global population continues to rise so you have a long term deflationary spiral (just like in the middle ages when the pope banned usury). This means the rich get very very very rich and the poor get very very poor.

In synopsis, if you freeze physical money supply:

you will get massive booms and busts

You will get a long term deflationary spiral

Death/Another dark age

The problem is even with physical money 1=1, anyone can create debt money that has no backing! If I'm a baker (makes bread for a living) I can promise to pay someone for wheat and pay in 3 months time... that is new debt money with no backing.

Edited by moosetea

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Interesting point. Then again, if they banned bank notes or started charging for them, people would turn to using their digital pounds anyway (credit/debit cards). How far away is that from where we currently are? They already know all they need to about us from our bank accounts, so in reality, would this be much different?

I'm less bothered about the concept in terms of reducing fraud by the populous, but rather the banks. They wouldn't be able to print up these digital coins at a whim. Neither could the government. In this respect, it is just a constant store of wealth, which is not forever fighting against inflation. It could also have the effect of keeping the government more honest - it would be easy to see if sterling was slipping against the digital coin.

With the USD being printed at pace AND being used as a reserve currency, it gives every other country a raw deal. Having a mechanism to store wealth between/beyond borders is something we lost with the gold standard and is partly responsible to the problems in the global economy.

Being able to opt out of storing wealth in a local currency and storing it in a global currency could be rather empowering and enable easier international trading.

Can you be more specific? Freedom to choose a currency of any preference to trade in (and pay tax in)?

You are a man of many riddles! :)

I think the concept of digital currency opens the door to further opportunities for bankster and government theft, not less.

It would allow banks to offer negative interest rates without the holders of the currency simply being able to take their money out of the banks and storing it at home.

Coupled with manipulation of the CPI/RPI index it would give the government another bite at peoples savings (as if taxation, inflation and QE wasn't enough)

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It is a slippery slope, when you get digital coins, some tills will start checking and validating ownership status

That all depends on how you choose to implement them. Cryptographically it is possible to implement totally anonymous, secure digital money. But then it all depends on the implementation choosen.

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That all depends on how you choose to implement them. Cryptographically it is possible to implement totally anonymous, secure digital money. But then it all depends on the implementation choosen.

i have a 1p piece.

its entirely unique.

no computers needed.

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i have a 1p piece.

its entirely unique.

no computers needed.

true, but if I live in manchester and you live in newcastle, and we want to trade, then there will be a steep transaction cost in you delivering your copper plated zink disk to me.

Or we could just let the banks handle that transaction, and skim what they will.

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ahhh I see a totally new currency that cant be created or destroyed

Ok Imagine, you create a physical coin for each m4 credit that currently exists. 1 coin for each pound/value of currency accross the world. People will still lend money create cheques, make loans, pay with credit and 'money supply' will continue to creep up and there will have more m4 money than physical supply. When this happens there will be a very large tipping point and you will get a massive global bank run like the ones you saw when we were still on a gold standard. Everyone will try and get the physical stuff. The people who got there first will get the coins, the ones who get there last will have nothing, the people who were last will die as it will be impossible to declare yourself bankrupt, a nice option could be debtors prison? Eventually trust is restored and the same thing repeats. During this time global population continues to rise so you have a long term deflationary spiral (just like in the middle ages when the pope banned usury). This means the rich get very very very rich and the poor get very very poor.

In synopsis, if you freeze physical money supply:

you will get massive booms and busts

You will get a long term deflationary spiral

Death/Another dark age

The problem is even with physical money 1=1, anyone can create debt money that has no backing! If I'm a baker (makes bread for a living) I can promise to pay someone for wheat and pay in 3 months time... that is new debt money with no backing.

Limiting credit to the sharing out of a fixed amount of money is less likely to cause booms/busts, not more likely. Where would all the money come from to fuel the boom and cause the resulting bust?

What is wrong with deflation? May I refer you to here (really good article, tbh) for an argument on why deflation is good? Do we bemoan computers getting cheaper? Do we bemoan reliable cars getting cheaper? Has progressively cheaper air travel made our lives worse? To argue that deflation as bad and therefore bankers mush rob from us to keep us well seems daft to me.

You have also described all that is bad about credit money - this is the bad guy, not a stable, honest currency. If there are enough fools buying into an inflated currency, rather than one based on wealth, then those still using it when the music stops are the unlucky ones. If we had the choice to use a stable currency as the main store of our wealth, why would we leave it in one which can be manipulated by others?

To put it another way, why should we have to trust the banker's gambles? If we all took our money out of sterling and into a perpetual coin, the solution would present itself - the bankers would have lost their power and our money would hold it's value regardless of their actions. Sure, you may lose value in your perpetual coinage if the market is fooled by bank paper, but at least you have safety and stability in the store of your wealth over the long term.

For your baker problem, that is what the 'credit coin' is supposed to help facilitate. It could also be argued that full reserve banking or a community stock exchange could also offer credit. If there is a chance they won't get the money back, the interest rate would have to reflect the risk though. If the risk didn't pay off, the investor (ie. the person who gave the bank permission to lend it out) would lose their money and the baker would have trouble getting credit again.

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Where would all the money come from to fuel the boom and cause the resulting bust?

Money can always be created, through borrowing and lending

You put 100 quid in a bank

the bank lends out 90 quid

Someone spends the 90 quid

The person who got the 90 quid puts it into the bank

People believe there is 90 quid extra money/more liquidity, although some people are in debt, but there is still only 100 quid of physical stuff... rinse and repeat... the physical coins isn't creating m4 money, borrowing and lending effectively creates the belief that money exists, and people use this money as if it is real. If I write you an IOU note, I have just created money that doesn't exist...

I agree with you deflation sounds like a good idea but from 1300 for 200 years we tried it when the pope banned usary (stopping the money creation system above). What happened was the pope and the rich who had most of the money spent less money each year than was lost by deflation. ie

Man A has 1 million pounds to start with and no income he, spends 100 pound each year, in 40 years time 1 million pounds is now worth 40 million pounds, Rich man is much richer..

Man B has no savings earns 100 pound each year and cannot afford to save because of massive rents imposed by man C, Man A probably cannot get a mortgage due to deflation and massive rent costs. In 40 years Man B earns 2.5 pounds a year, Man B is even poorer.

During the years when the pope banned borrowing money the landed got very very rich and the population got very very poor. Having a fixed money system reduces social mobility and keeps the rich rich

Edited by moosetea

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true, but if I live in manchester and you live in newcastle, and we want to trade, then there will be a steep transaction cost in you delivering your copper plated zink disk to me.

Or we could just let the banks handle that transaction, and skim what they will.

nonsense, you can have my disk when you deliver your goods to me in person.

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Limiting credit to the sharing out of a fixed amount of money is less likely to cause booms/busts, not more likely. Where would all the money come from to fuel the boom and cause the resulting bust?

What is wrong with deflation? May I refer you to here (really good article, tbh) for an argument on why deflation is good? Do we bemoan computers getting cheaper? Do we bemoan reliable cars getting cheaper? Has progressively cheaper air travel made our lives worse? To argue that deflation as bad and therefore bankers mush rob from us to keep us well seems daft to me.

You have also described all that is bad about credit money - this is the bad guy, not a stable, honest currency. If there are enough fools buying into an inflated currency, rather than one based on wealth, then those still using it when the music stops are the unlucky ones. If we had the choice to use a stable currency as the main store of our wealth, why would we leave it in one which can be manipulated by others?

To put it another way, why should we have to trust the banker's gambles? If we all took our money out of sterling and into a perpetual coin, the solution would present itself - the bankers would have lost their power and our money would hold it's value regardless of their actions. Sure, you may lose value in your perpetual coinage if the market is fooled by bank paper, but at least you have safety and stability in the store of your wealth over the long term.

For your baker problem, that is what the 'credit coin' is supposed to help facilitate. It could also be argued that full reserve banking or a community stock exchange could also offer credit. If there is a chance they won't get the money back, the interest rate would have to reflect the risk though. If the risk didn't pay off, the investor (ie. the person who gave the bank permission to lend it out) would lose their money and the baker would have trouble getting credit again.

+ 1 re deflation.

A few concerns I would have about this central digital 'coin'.

What organisation owns it?

Who owns the organisation?

Do they profit by 'lending' the coin to support fiat currencies?

Can they expand or subtract the quantity of the 'coin' with the beating heart of economic growth?

If money is a function of production (as that is what it is traded for) how can you create money out of thin air and not call it theft of someone's production?

Will they expand the supply as an emergency measure when times get tough - and will they have the guts to contract it again and stifle recovery?

Will we have 'benign' inflation so that money is stolen from savers and given to debtors?

Will data be hacked, stolen and money go missing from one country's pocket to another?

Can I opt out?

If the system gets corrupted and governments are in collusion, how do I vote out and get rid of this monetary system?

Will my children and grand-children become slaves?

Why can't we back a currency with things that people desire (gold, oil, land, silver, whatever) rather than trust and a computer?

Can anyone not see that a global fiat currency is not the answer to a crisis caused by national fiat currencies?

Am I alone and shouting in the dark?

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Money can always be created, through borrowing and lending

You put 100 quid in a bank

the bank lends out 90 quid

Someone spends the 90 quid

The person who got the 90 quid puts it into the bank

People believe there is 90 quid extra money/more liquidity, although some people are in debt, but there is still only 100 quid of physical stuff... rinse and repeat... the physical coins isn't creating m4 money, borrowing and lending effectively creates the belief that money exists, and people use this money as if it is real. If I write you an IOU note, I have just created money that doesn't exist...

Money can only always be created because we allow the banks to create it. If you tell the banks they can only loan if A. they have someone's savings to loan from and B. They have permission by the saver to lend some/all of it out (at a risk of losing it).

Fractional reserve banking is not the only way banking can operate. It is just the strange and unfair system we have ended up with.

I agree with you deflation sounds like a good idea but from 1300 for 200 years we tried it when the pope banned usary (stopping the money creation system above). What happened was the pope and the rich who had most of the money spent less money each year than was lost by deflation. ie

Man A has 1 million pounds to start with and no income he, spends 100 pound each year, in 40 years time 1 million pounds is now worth 40 million pounds, Rich man is much richer..

Man B has no savings earns 100 pound each year and cannot afford to save because of massive rents imposed by man C, Man A probably cannot get a mortgage due to deflation and massive rent costs. In 40 years Man B earns 2.5 pounds a year, Man B is even poorer.

During the years when the pope banned borrowing money the landed got very very rich and the population got very very poor. Having a fixed money system reduces social mobility and keeps the rich rich

Assuming this is the case, is it any difference from the banks taking the majority of our wealth instead? We now have incredibly wealthy money masters, gifted with the ability to create money.

However, in the above example, I am not proposing banning usury - just usury on credit created by private banks. People are free to invest in others' toil in exchange for interest or a share of the profits. As long as those investing realise that there is a risk that they could lose their money, should the investment be a bad one, then there is no problem.

For example, if I have £100 and you want to borrow it from me to buy ingredients for your bread, I may do so if you promise to pay me £110 back. I know there is a risk that you may burn the bread and/or not be able to sell the bread. This is the risk I am taking by lending you the money, but if you know you will make £160 back on the bread and assure me you are capable of this, I am likely to take the chance - £110 is better than £100 for me. From your £60, I get £10 of your profit and you get the remaining £50 of profit.

All is well - we have both made some money and both taken a chance. If you had not made the money back, I would have lost my investment and I would be unlikely to lend you any more money. As you now have £50, you may choose to either borrow another £50 for your ingredients, which I could do on the same terms as before, but charge £55. The same baking occurs, the bread is sold for £160 and all is good. I get paid my £55 (woo! £115 from £100 investment!) and you get to keep your other £105.

Now, you have enough for your own ingredients and there is no need for any borrowing. You buy your own at £100 again, sell it for £160 and are now making surplus money - you have £60 free after buying your ingredients! You are in a position to enjoy life a little more or help another company out with your new investment power.

Was any money new credit created in the example? Did lending still occur and was the deal fruitful for both parties? Sure, it could have gone the other way and I could have lost my investment - that's the gamble. Neither party wants the deal to fail, so both work hard to make it work. The chances are, I only invested a small amount of my wealth too, so I didn't risk all on the deal.

Does this support the rich getting richer? I wouldn't say so. People will always want to gamble to increase their wealth. Some will be wise, some will be unwise. A wise investor will always make more money than someone who just sits on his wealth, but of course the choice to sit risk free on one's wealth, should be their right.

As long people give permission for banks (or investment managers/brokers etc) to gamble with their money there is no problem. The problem occurs when banks take gambles, when both the bank and the government guarantee the return. Some banking should be a store of wealth (a money warehouse, if you will) while others should be investment/speculative types, where there are no guarantees on returns (they could be positive or negative - ie. you could lose or gain money).

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i have a 1p piece.

its entirely unique.

no computers needed.

but it is not worth what it was, not in reality.

we had gold coins. We had sterling silver coins which were debased in 1920 to 50% silver. In 1947 all silver was removed and we just had shiny coins. Until 1992 your 1p coin was made of bronze, 97% copper, but is now copper plated steel.

The romans debased their currency into collapse and we have removed all real value from ours. When it comes to removing copper from coins because we can't afford it then there is an issue.

Paper notes have replaced much coinage, cheques and plastic began to replace cash - computers/chips replacing plastic seems to be the next stage.

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