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0 sats \ 1 reply \ @lightcoin 18 Apr 2023 \ parent \ on: Bitcoin Loan VS Bitcoin-backed Loans: Pros & Cons bitcoin
"How the economic machine works" by Ray Dalio explains how credit increases prices
In the most relevant part of the video, Dalio says: "When the amount of spending and incomes grow faster than the production of goods, prices rise. When prices rise, this is called 'inflation.'"
However, he doesn't mention that in a free market economy, rising prices sends a signal to suppliers to produce more, which generally brings prices down. The real cause of long term inflation is govt printing of money, which artificially increases the supply of money causing its devaluation. Dalio does talk about this in the video, which was well explained but I begin to take issue with the analysis with regards to how it relates to BTC-backed loans. Dalio is describing a debt based economy that is "juiced up" on fake money printed by the govt. This has little relation to a BTC based economy with fully collateralized credit.
Dalio also says: "Debt is bad when it finances overconsumption that can't be paid back. However it is good when it efficiently allocates resources and produces income."
On this, I agree!
A read of Ludwig Von Mises "Human Action" or "Money and Credit" could do you good.
I have read both!
but the lender of a Bitcoin backed loan does not want or hope to obtain Bitcoin and would actually be disappointed if the loan liquidated causing the lender to sell it off for what they actually want (fiat).
With smart contracts the collateral is automatically sold off and the lender automatically receives whatever asset the debt was denominated in (usually a stablecoin of some sort).
This is essentially the same problem that the asset backed security known as a mortgage ran into in 2008. Sure if people don't pay their mortgage, the bank gets the house, but the bank doesn't want the house, they want dollars and so have to sell it on the open market for dollars driving down the price of housing.
What happened in 2008 was a correction, and corrections are generally healthy (bringing overly zealous speculators back to reality). The main problems with this correction were that first, the bubble was created by loose monetary policy set by govt and govt intervention in the housing market, and second, the govt stifled the correction through its bailouts and QE infinity which pumped the bubble right back up and set us up for another disaster that we're still living through today.
I'll warn you now, that I am staunchly against credit creation in spite of its normalization in the modern economy. My reasoning for running to Bitcoin is to escape the fucked up system of usury.
Ok. We'll have to agree to disagree. I use and promote BTC to escape fiat and starve the State. I have no problem with free market credit. It is a useful tool in my own toolbelt, and I see other people clearly benefiting from its responsible use as well.
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21 sats \ 0 replies \ @nerd2ninja 18 Apr 2023
Sorry to sidetrack from the direct response to each point, but out of curiosity, what are your thoughts on these (oversimplified rap battles). I know I know an entertaining way to drive the discussion rather than academic but I don't know sometimes you need a mental break during these posts lol
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