Oddbean

Charging interest will always be attractive to those making the loan, as far as I can see. The difference is that under a sound money standard, paying interest on unproductive debt becomes completely untenable. This is partially a result of misunderstanding what money is. Debt as money is a terrible perversion of the concept of money as a ledger of deferred consumption. A sound money economy makes a lot more sense once you start thinking of money as equity, rather than debt and fiat. If you had to take out a loan of Exxon shares and repay it in Exxon shares + more Exxon shares, the bar for profitable use of debt goes up. https://open.substack.com/pub/f0xr/p/money-as-equity?r=3i492j&utm_campaign=post&utm_medium=web

This was what I don't get about the "we just keep using debt" argument. Let's say you live in Podunk, Missouri, and the town is split by a river with a ferry. The people of the town get fed up with the ferry and decide they want a bridge, but it'll cost 50 Bitcoin. No one person has that much and nobody outside the town wants the bridge, so a group of them decide to ground a Bridge Building Society and they pool their money (40 Bitcoin) and get some discounts on building materials from the local carpenter and stonemason (3 Bitcoin worth) and some volunteers to help with the construction (7 Bitcoin worth). In return, they grant themselves and their immediate families and supporters/volunteers the right to use the bridge free of tolls for 20 years and those who contributed money are to receive whatever toll-money is netted at the end of the year, for 20 years. To speed up receipt of tolls, they quickly build a wooden bridge and start collecting, while the steel/stone bridge is being built slowly over 5 years. My argument was that the tolls probably wouldn't return the full 40 Bitcoin, within any reasonable amount of time, and that the Bitcoin payers would be fine with that because they get to use the bridge. But I was told that they would just borrow the 40 Bitcoin and pay 10% interest for them and then pay the 40 Bitcoin back with interest after 5 years, which would be 60 Bitcoin. And those Bitcoin each contain more potential purchasing power than the originally invested ones because 6 years have passed. And I think most people would just rather keep riding the ferry. 🤷‍♀️ The tolls already didn't cover the 40 Bitcoin investment because it's a bridge out in the swamp and not over Chesapeake Bay, and now you've added 20 Bitcoin on top. I can't get an explanation for where the 20+ Bitcoin come from. Most large loans have no explanation for where the interest comes from, under fiat, and that seems even less plausibel under Bitcoin. People who want a bridge will just pay for a bridge.

And here's the thing I really don't get: The loan is only worth it to the person taking out the loan, if he can earn 60 BTC in today's money from the tolls. If it's been 6 years and deflation in consumer prices was 10% per year, then you have to actually pay back the equivalent of 80 back-then BTC. Who in the world would take that loan? That is madness. And, now, imagine deflation is over 10%... What am I missing here?

The project might not be a good allocation of resources. Under a sound money standard, that becomes obvious quickly. If it can't produce enough profit from tolls to repay the loan, it's a poor use of resources. The market is telling you that people value something else more than they value the bridge. Maybe adding a second ferry to reduce the wait time is a better allocation of resources? We've been brainwashed by fiat economics to see any infrastructure or any business that "makes money" as productive. Without the ability to finance those things through inflation by issuing debt, only projects that provide a lot of real value will be able to get financing. Anything else will have to be paid up front, by someone who values the project for other than purely economic reasons.

That was my point, but it got shot down. I was like, maybe renovating a church building won't net money, but the people in the church would still be willing to pay for it because they want to be in a building where the roof doesn't leak. Maybe the town wants to have a nice bridge, for the prestige and to drive more traffic to the town, so that they make money indirectly. A lot of the stuff people currently get loans to do wouldn't net enough money to make lending profitable, but people could keep doing them. You can see that on here. We all keep sinking hard money into the development, but nobody is willing to go into debt for it, even under fiat, because you can't make money off of Nostr. But we want to build it all, anyway, so we just swallow the cost and hope for the best. Imagine if the developers all had to repay the Bitcoin to OpenSats, with interest. 🤢

But, again, you're assuming that, if the people who drive over the road won't pay high tolls, then it's a poor use of resources. But the people building the bridge do not think it's a poor use of resources, that's why they want to pay themselves, to have it built. Using resources well doesn't always require someone else's willingness to pay me money to do something. Nobody has to be willing to lend me Money to eat a sandwich and I don't need to charge people to watch me eat it, for it to be worth eating. I'm hungry. I want a sandwich. I lose the money on the sandwich, but that is okay because I'd rather lose the money on a sandwich than stay hungry or eat plain bread. Do I need to prove that a house or a car is worthy of a loan? No, I can just save up money and spend it, building a house or driving a car. Once you look around, you will see that most things that currently receive loans will no longer receive them. Or so I thought. 🤷‍♀️

Even a lot of businesses only exist because the person who owns them or the people who financially back it want it to exist. There is no expectation that the business will turn a profit, often just that the running costs are covered. People just want to have a nice gathering place in the town, a small grocer in the village, a relay everyone can write to, or a school canteen with healthy food for the children.

Under the current system, the interest for loans comes from new loans. That's why M2 only goes up to the right, and any pause collapses the entire financial system. That's a consequence of the debt/fiat system based on the fraud of usury, where banks charge interest to loan out money they don't have. Imagining a Bitcoin standard is tough right now, because we're in a brief blip with Bitcoin rapidly appreciating in value as in gets monetized. Eventually that process slows down and stops. At that point Bitcoin deflates at the rate of economic growth. That's a lot slower than the current value appreciation. At that point loans become possible, as long as it's for a genuinely productive use that beats the overall rate of economic growth. Loans don't go away, but massive misallocation of capital does.

The only thing I could imagine that meets that limitation in Podunk is to take out a loan to build only a very cheap wooden bridge, and then try to squeeze the drivers for high tolls, to pay back the loan before it collapses.

Yeah I think a bridge in some little town that only gets local traffic is exactly the kind of unproductive investment a sound money standard will kill. Imagine how that project gets built today. Massive debt issuance by the state, or taxes on people who will never use the bridge. I see the fact that these projects under a Bitcoin standard either don't happen, or get fronted by a wealthy local benefactor, as a really good thing. I don't want my taxes and the inflation of my savings building bridges in Podunk Missouri. Let's use that to build SMR's or desalination plants or something really worthwhile.

Well, my original example assumed that there was no state and no taxes. Only private enterprise and only Bitcoin. I was trying to prove that people might still build bridges and roads in smaller towns, even if there was no "third party" to pay for them and even if there wasn't enough traffic over the bridge to pay for the bridge. Bridges to small towns are hugely beneficial to those towns, so the people in those towns will just have to pony up the dough and pay for it, themselves, or deal with having no bridge. But it was like, just take out a loan. Why would I take out a loan for something like that? I'd pay double for it, in the end, and be tied to the debt. But the counterargument is that, otherwise, people willing to be benefactors of a bridge would own the bridge, through the building society. So, rich people would pay for many/most of the public infrastructure and businesses, and everyone else would depend upon their largess. Whereas, if one person could just go get a loan from a bank, he would be the person owning the bridge in the end, after all, it was his idea. And then everyone in the town would bleed tolls out of the nose or take the ferry or build a second "town bridge". But the bridge probably still remains unprofitable, so the benefactor is now the rich financier lending for mysterious reasons, rather than the rich building society people who just wanted a bridge to drive over themselves, and there is a builder trying to pay back 100 BTC for a bridge (no more discounts and volunteers, after all). How is that better?

Something like, get a 10 year fiat loan for 125% of the bridge cost. The extra 25% goes into Bitcoin. Tolls pay the fiat loan payments. At some point before the ten years, the Bitcoin is worth enough to pay off the loan early. I haven’t done the math but that’s one strategy, in principle.

I don’t personally agree with the premise of hyperbitcoinization, because I don’t think it’s necessary. I expect a world where people save long term in Bitcoin, medium term in the best stablecoin denomination (dollars, at present), and spend and borrow short term in local fiat. Happily, local fiats will be far harder than at present, because Bitcoin brings such rigor and competition to fiat currencies. My .02.

That may be, but adding different currencies into the mix negates the premise that the loan will be in Bitcoin and that such loans will be (or not be) attractive. Which is the discussion. As soon as you have an inflationary or even stable currency to get credit it, everyone will use that and take the loan.