I think this may not be correct. I don't think there is anything inherent in fiat money that requires continual inflation. The reason we have intentionally built-in steady inflation in our U.S. economy is that continuously compounded inflation acts as stimulus to an economy constructed on credit. Credit at fixed interest in an inflationary economy results in debt being repaid with dollars that continuously decline in buying power compared to the buying power borrowed. But this is not an inherent characteristic of fiat money. Significant deflation, on the other hand, is a boon to those with capital and without debt, but a disaster to an economy that ruins on credit. The Achilles heel of the U.S. economy is a failure to tax. When we fail to tax appropriately, the long term effect is a piling up of money at the upper end of the personal economics spectrum. (This is a natural consequence of the return on capital being greater than the economic growth rate. cf Piketty, "Capitol in the 21st Centuary") The Reagan administration, which reduced the top marginal rate in one fell swoop from 70% to ~28%, was the progenitor of our current U.S. situation where a very few people control nearly 100% of the nations private sector wealth. In the natural course of time these few people, barring exceptionally strong democratic institutions and courts, will use their wealth to buy control of the government. Once their control is sufficient, a total breakdown of taxing should be expected simply because we all instinctively abhor taxes, and it would seem no one abhors taxes more than the wealthiest among us. To maintain economic and therefore societal stability, both adequate deficits and adequate taxing must be present. Deficits are the source of all private sector money. Taxes remove money from the private sector if there is too much. Tax revenue is not necessary for spending however. Today, the U.S. prints all its deficits, it no longer "borrows". To control inflation, when the rate of adding money to the private sector via deficits can not be absorbed by sufficient GDP growth, bonds are used to side track the excess deficits, whereas taxes would remove the excess without incurring future interest liability.. (Bonds are not a part of M2; they do not contribute to inflation.) The principal of U.S. government bonds has already been printed before the bonds are issued, the interest has not. Whereas taxing high incomes in many brackets up to a quite high upper marginal rate, as the U.S. used to do before the Reagan era, would slow both our acquisition of interest liability and, indirectly, our plunge into deepening plutocracy. Currently, we prefer the higher deficits that result from low marginal tax rates and then sidetrack into bonds the excess money that comes from these high deficits. This is working for now, but how long can we maintain this? I have made no mention of spending cuts or budget surpluses. The first reduces the growth rate of private sector money and comes with considerable political baggage; and both spending cuts and running surpluses can throw the economy into recession if not judiciously managed. Steps toward adequate taxation are perennially proposed but seem impossible to enact. Movement in that direction would seem to require gaining more control over our natural instincts. The most effective tool for doing this is education. It seems to me that in a democratic society where virtually all adult citizens enjoy suffrage, a breakdown in education is likely to lead to political and economic chaos, as a poorly educated populace can not be counted on to vote wisely.
And poorly educated politicians can not be counted on to govern wisely. And a poor selection of quality politicians can be counted on for poor outcomes.
Are you kidding me? New money always needs to be created to pay back old loans. The fractional reserve banking system makes this so. If banks don't create new money, there isn't enough to pay back old loans. Now the government has to step in and create it. This is also precisely why the Fed targets a 2% inflation rate. The economy needs this to keep the ponzi scheme going. Problem now is new loans aren't being created fast enough because banks don't want to take the risk, no matter how much you reduce their reserve requirements. When everyone has taken on too much debt, and debt is necessary to keep the machine going, there is nothing but collapse left.
Won't the same happen with bitcoin? If you have a fixed supply and any kind of credit system, where does the money come from to pay the interest? If there are only 21 million bitcoin, and you lend it at 1% interest where does the bitcoin come from to pay the interest?
I'm glad you asked. I also wondered this, and Jeff Booth has the answer in his book, Price of Tomorrow. You see, the world is actually deflationary. We see this in some things, but mostly not because government steals all the productivity. Think about how 200 years ago a farmer could only feed his family, but today, that same farmer can feed a whole village. The price of food should be going down. In fact, everything should be going down in price because of technology. This is the actual natural order. When the farmer bought a tractor vs. using a horse, how much extra food does this allow him to plant? He can then sell is cheaper, and still make more money. We do this as well with the things we buy. We go for the best bargain, so companies are always trying to find ways to make it cheaper. Walmart is a perfect example, and Amazon is the king. Our purchasing decisions push towards deflation, but in the end, this isn't what we see. So why aren't prices going down? Its because the government is stealing all of this productivity. The money system ensures that the value of our currency keeps going down, and government sucks up whatever productivity there is. 50 years ago, a guy with a simple job could own a house and support his family. These days, 2 working adults can't even afford one kid. And why is this if technology has given us access to so many more things for a fraction of the cost? Think of how much your phone does for you. People used to spend $100 on fancy calculators for school that you no longer need. Heck, you don't even need to go to school anymore to learn a subject. Forget paying $70 for a textbook... the digital version that all the kids use these days is so much cheaper. By using fiat, you are fighting the natural order. Its like pushing water uphill. Everyone screams that deflation is bad, but only because of the current system that we have which requires money to lose value and to keep creating more of it, all as the debt grows. It collapses one day underneath the burden of all the debt, and I bet its this decade.
I can't disagree but that still doesn't answer the question of where the interest will come from. And I can't help thinking the term Government Efficiency is an oxymoron. To me it's just creating another bureaucracy that will have no accountability to the tax payers.
The interest will be a function of what the market can support. If governments don't set interest rates, then its up to the market to set whatever price the market can handle. Maybe the manufacturer will be forced to sell items on instalment plans. Jeff has another quote (oh.. and he is a fellow Canadian!), "Abundance in money creates scarcity everywhere else, and scarcity in money creates abundance everywhere else". So I imagine the company really wants the sale, they will either charge very little interest, or just instalment plan. Don't forget, I think it was around the time after WWII, you needed at least 50% of the down-payment for a house. Would it be so horrible if people couldn't mortgage their entire life away for 30-40 years? You end up paying 5 times what your house costs in interest fees, and this goes to the bank, for doing nothing. The banking industry along with the government are all parasites. Its coming to an end. As for government efficiency, I think they almost need to be careful with how much they cut. All that money they waste is after-all income for someone else. If 20% of the government budget is cut, unemployment shoots up, and the economy grids to a halt. Eventually this trickles down to the people in form of lower taxes and less inflation, likely downright deflation, but it will take a while. The first shock of any government cuts will actually be devastating in my opinion. Ask a drug user. The first few days of withdrawal are I think the worst. This is why the standard practise I think is to first get the druggie hooked on a different drug that is less addictive, and then ween them off of that. There is no good way to turn the boat around at this stage and every road leads to a collapse for someone (other than bitcoiners!)
What ever the interest is with a fixed supply of bitcoin you cannot have credit. If you have only 21 million bitcoin and can't manufacture anymore where is the interest going to come from? With fiat the money supply is increased. If you lend me 10 bitcoin at 10% you would get 11 bitcoin back. My question is where does the 1 bitcoin I pay in interest come from if there is no more being mined? Unless you are willing to only get 10 back because bitcoin has increased in value in the time I had it. A deflationary coin. Goods will decrease in value as bitcoin increases. But it would be a hard sell to get workers to take a cut in the number of bitcoins they are payed. All sorts of hurdles ahead of us.
You already answered your own question. Bitcoin will go up in value is the first point. And the second point is that workers will be willing to accept less Bitcoin for same work if all of their other costs are going down. When you think about what is happening demographically in the whole world, birth rates are drastically down. Eventually there will be an oversupply of everything like housing. I truly believe that the deflationary collapse is coming after the hyperinflation of Fiat currency breaks the whole system.
Furthermore, the idea of interest is only relevant because of a currency that is designed to lose value. Lynn Alden says it best in that bitcoin doesn't need yield because it's guaranteed to go up. Fiat is what needs yield, and the system always ensures that what every yield you can get is likely going to be less than the cost of inflation anyway.