What is the Lender exactly in your scenario? Is he able to "print money" (or in more general terms, create value from thin air)? Because your calculations make me think he is.

Technically, in today's world, there exists a privilege/license to essentially create money-from-nothing. It has its origins, long ago, in the form of 'receipts' which could redeem gold at goldsmiths. The method has evolved into the form that it is today, however, money can no longer redeem gold.

Did you adjust for the inflation caused by injecting additional money into the system?...

"Inflation" and "Price-Inflation" must be treated/thought of separately.

Currently, DEflation is the primary driving force behind Price-Inflation. As debt (including interest) is paid off, more money needs to be 'injected' into the economy to replace the money, returning to the original Lender, which is used to repay debt.

This 'new' money, being injected, via loans, into the economy is known as 'inflation', however, it artificially creates 'de'flation simultaneously because of the >100% debt that is immediately attached to it.

There is a time delay. Without that delay, every market dependent on money would crash instantly. It would fail before it could start. But because of the delay, the name for these inevitable failures are referred to as a 'recession'/'depression'/'crisis'. In actuality, these are "delays" of deflation that are beginning to shorten too quickly. This is a problem rarely talked about openly (the reasons for which are controversial).

...Or do you have a theory on how to prevent that effect

"Supply and Demand" naturally determines the price of resources, goods and services. 'Money' is an excellent means of making trade as efficient as possible. Money (currently) is continuously 'devalued' over time because of deflation. Deflation can be just as disruptive as hyper-inflation.

When deflation is greater than inflation, it affects everything from its point of origin outwards in a negative way.

the rich becoming richer and the poor becoming poorer...

There will always be some who are richer and some who are poorer. I attribute that to multi-generational planning.

My interest 'here' is only to achieve economic stability. To ease economic woes. To promote automation without displacing people financially.

we're a debt-based economy.

our current financial system needs to go.

A "debt-based economy" would seem like a very tough sell (from my POV), but the majority of the public have been sold on this very bad idea. We are far beyond the opportunity for a fresh start since the system is now so entrenched. It's a difficult 'spell' to break. The only solution is renegotiation.

There's a solution to the dollar/loan/interest problem. Incidentially, just yesterday, I've been offered a great opportunity to get early access to a new crypto currency. Something like bitcoin, only less shady, less nerdy, more respectable, and suitable for the mass market. You can invest as much as you like, but even as little as $100 and turn these into $1000 in short time. But the best thing is, you have a currency that is free of the troubles of dollars, isn't that great? To add to the good stuff, they will do splits regularly, and at every split your amount of money doubles. So, I suggest you put all your money into that. (You might be inclined to believe that I'm joking, but no... that's really what I've been offered.)

Sarcasm? Or talking about a real offer you received, but being Sarcastic about it?

If not, can you elaborate more on how this thing should work? Because:

1) All we can go by currently is that you mentioned "Bitcoin"... if it should work anything like bitcoin did to "turn 100$ into 1000$", you better don't waste your time and money on it. It worked with bitcoin because it was new. It worked for people who got in early, invested big (into mining rigs and/or actual bitcoins) and stayed in right up to before the whole bubble bursted. That might happen again to some lesser degree with other cryptocurrencies... but don't rely on it.

2) I would never, ever, EVER invest a single dollar into something I don't understand to some degree myself, and expect to make profit with it. I am no big fan of Warren Buffet, but this quote of his, "Never invest in what you don't understand" makes so much sense to me. A lot of people would have prevented huge losses if they would have taken the time to analyze their investments.

3) If somebody tells you he can turn your 100$ into 102$ I will totally believe that. If he wants to turn it into 120$, I will ask about the risk. Still totally possible. If he wants to turn it into 200$ I would start to ask more questions. That starts to sound fishy.

Now, as to the 1000% increase....

Actually there are other crypto currencies that have seen a huge spike (350%) since the start of this year. This is mainly due to the huge demand by banks, financial institutions and VC backers to get on the potential Blockchain 2.0 and Blockchain 3.0 gravy train.
Still I agree with you anything that seems to be too good to be true probably isn't and even though I'm currently developing Blockchain technology and see all kinds of crazy jumps in made up crypto currencies I haven't risked a penny on any of them myself.

Sarcasm? Or talking about a real offer you received, but being Sarcastic about it?

Yes. No. Yes. Both.

It's a real offer I've been made yesterday. Of course it's not something I'd put one cent in, it has all the classic signs of a scam: Unexpected call from an old acquaintance, you know, just checking how you're doing... so, 5 minutes of how-do-you-do, and then dive into making big profit with a super new thing. No big money needed (but can do 100k if you want, too), almost no risk, huge gains (like, 10x), and soon there be a split doubling money (so act quick). No thank you :lol:

But like I said (and here be the sarcasm): That's the solution to the dollar problem. No more problems with dollars after you've put your dollars in that one!

Not like I deem any virtual currency anything less than a scam anyway, and real currencies aren't much better. They are, a little, but not much. On a real currency, you have the (worthless) promise of your government that the bill's value equals goods equivalent to what's written on the bill, and you have their word that they have gold reserves and such which cover 0.001% of all the bills that they have printed. But at least, that's (marginally) better than nothing.

With a virtual currency, you pay real money in return for what's basically just an ordinary binary number (well it's not really ordinary, but you get what I'm saying). All you get in return for your real money is an idea, and the chance of not being the last fool in this huge snowball system. Which is just what it is, really... a snowball system. It works fine as long as people keep feeding real money into it, and if you jump off the train early enough, you are lucky. Only just if you miss jumping off, it's not nearly as great.

How on Earth is anyone supposed to get their money back if they've converted it into crypto-currency without selling it to someone else for official currency?

How on Earth is anyone supposed to get their money back if they've converted it into crypto-currency without selling it to someone else for official currency?

All currencies have value because of that. Printing money deflates the value of existing money, but in the case of real currency this is seldom a problem because of several reasons. Money gets lost and destroyed causing inflation of value for the rest, but also more people are being born over time so there is a need for more money per person. Over eons humans have learned that a slightly depreciating value of currency tends to work best, a slow but steady inflation works well to keep economies going.

As long as printing more money is done in a controlled fashion based on economic reasons of growth rather than because the government wants to issue more money to prop itself up, it works reasonably well. We don't know if cryptocurrency's slow "mining" rate will hold out in the long term, or if groups will jump between cryptocurrencies the same way traders on the currency market move from one nation's currency to another, abandoning weaker currencies to move to stronger ones.

Too much inflation and the value drops too fast, money is worthless over commodities. Bread goes from $1.00 to $50 to $100 and people riot in the streets. Other commodities replace currency, and quickly society drops back to a barter economy. The problem of mutual needs come back up (we both need to trade but values are not equivalent) so currencies get re-introduced.

Too little inflation, or deflation, and money gets hoarded over commodities so trade slows or halts. People will hold off buying bread and other goods out of speculation that the money will be far more valuable in the longer term. Fewer people are willing to trade the more-valuable currency, so again people move toward barter of goods that are less valuable.

A little bit of inflation means people won't hang on to currency, preferring goods and commodities, ensuring goods keep flowing. You don't want too much currency for too long so you invest it, buy goods with it, spend for bigger purchases of goods more likely to retain value. But you also want some currency on hand because it enables all the other transactions.

I think cryptocurrencies are able to work in basically the same way all other historical currencies have work. They have value as long as other people are willing to agree they have value. As long as people are willing to take the currency in exchange for goods and services, or vice-versa, the currency works. It doesn't matter if the currency says Dollars, Euros, Yen, or Bitcoin, they have value only as long as society says they have value for exchange.

How on Earth is anyone supposed to get their money back if they've converted it into crypto-currency without selling it to someone else for official currency?

That's just the problem, you always need another fool who is willing to give you the same amount (or preferrably more!) of real money. Which is why it's a scam.

Nope. Say that to Bitcoin preacher Mark keiser

I hope this example clarifies (please bare with the oversimplification):

Lender $0
Non-Lender $0

The Lender "credits" the Non-Lender with $100, but the Lender expects $110 in return.

In this deal, the Lender is overvaluing its contribution and the Non-Lender is undervaluing its contribution.

You probably want to scream at the Non-Lender not to accept those terms. (too bad the Non-Lender cannot hear your counsel)

Any amount above zero returned to the Lender is profit, since it started with nothing.

The Non-Lender is stuck in an endless cycle of being 10% in debt.

-

Suppose the Lender only asked for an equal amount in return, 100%, again this only benefits the Lender. The Non-Lender, believing that it is unable to create credit of its own, will always be beholden unto the Lender.

-

Suppose the Lender only asked for 99% in return. Now money can stay in this economy and The Lender has made a $99 profit instead of a $110 profit. The Non-Lender has made a profit of $1.

-

Lender $0
Business A $0
Business B $0

The Lender will "credit" all businesses with $100 and expect a 110% return. Business A may do work for Business B for $10 and become debt free. Business B will need an extension of credit or go bankrupt. Business A may decide to also become a 'lender' at this point, borrowing from the Lender to loan money to Business B, forcing Business B to endless borrow from one lender to pay the other, not realizing that the total amount of money is actually all being borrowed from the original/central Lender.

Instead, if the Lender only demanded 99% in return, the Lender would make a $198 profit and money can stay in the economy.

--

I hope this gives you some idea as to what is taking place in the economy today and the potential benefits that could take place.

Under-100% repayment "inflation" loans would include limits, so as not to be abused.

@frob you made some good points and raised a few axioms.

Too much inflation and the value drops too fast, money is worthless over commodities. Bread goes from $1.00 to $50 to $100 and people riot in the streets.

Known as hyper-inflation, people tend to line-up rather than resort to riot during hyper-inflation.

People will hold off buying bread and other goods out of speculation that the money will be far more valuable in the longer term. Fewer people are willing to trade the more-valuable currency, so again people move toward barter of goods that are less valuable.

What will people eat if they don't buy food because they're speculating their money will increase in value later and what assets in their possession would they be willing to barter?

People save money, that doesn't mean they'll stop spending on basics.

I think cryptocurrencies are able to work in basically the same way all other historical currencies have work. They have value as long as other people are willing to agree they have value. As long as people are willing to take the currency in exchange for goods and services, or vice-versa, the currency works. It doesn't matter if the currency says Dollars, Euros, Yen, or Bitcoin, they have value only as long as society says they have value for exchange.

Can you pay your taxes with crypto-currency?

How on Earth is anyone supposed to get their money back if they've converted it into crypto-currency without selling it to someone else for official currency?

That's just the problem, you always need another fool who is willing to give you the same amount (or preferrably more!) of real money. Which is why it's a scam.

Nope. Say that to Bitcoin preacher Max Keiser

[BR gets on the phone to Max Keiser...]
BR: "Hello? Yes, I was wondering about crypto-currency--"
BR: "Oh, it's called MaxCoin, you say?"
BR: "Well, how can I pass up a deal like that?"

This appears to ignore the fact that wealth is different from money, and wealth can be created. Consider the example of an individual who borrows a couple of thousand dollars, buys a computer and then writes some amazing software. They can then sell the software to others, which has the potential to make enough profit to cover the loan plus interest, and perhaps start making additional profit on top. If I "borrow" 100$ and my lender expects only 99$ in return, I can make 1$ for free by repaying immediately. Why work or start a business? I should just keep getting loans...

Yes, 'wealth' can be created too. Profit is a good thing, it's unpayable debt that is problematic. As far repaying immediately and repeating the exploit is concerned, conditions/restrictions would need to set in place. One such example, that is actually being used today is "early repayment fees".

Two key things that the future of economics is going to have to address, ideally sooner rather than later, or the world is going to be in for a really rough time:

1. Capital Isolation/concentration. If more and more economic power continues to concentrate in the hands of a select few at the top... Well that might 'seem like a good idea' to those at the top at the time, but it isn't exactly a good thing for anyone in the long run. (See French Revolution.)

2. Automation based employment crash. We are decades away from a near complete collapse in multiple industries for any amount of viable employment for humans. Humans make too many mistakes, are too easily distracted, are too easily corrupted... Factories? Why bother hiring humans who need training, breaks, will whine and complain if you expect them to keep doing the same task for days on end, and are far slower and less precise than robotic counterparts? "Well, who will maintain the robots?" Well, more robots, obviously. Factory and transportation jobs aren't going to be around forever. Neither are mining and other resource gathering jobs, nor construction...

As we get more and more very viable and reliable fully automated production, then we're really going to run into the question of "Why are we using humans for any of these tasks, because the humans suck at them."

Office jobs aren't immune to this either, and more and more desk job tasks are moving to computers as it is. Server hosted AI based call centres can handle hundred of times the call volume, and there is no worry about the terrible audio quality because all the phones are picking up the hundred other workers in the same room...

Eventually we hit the economic-automation crunch: Production and labour from humans becomes so inefficient as to make employing humans completely unviable compared to alternatives, but unemployment skyrockets to the point that there is no longer a viable consumer base... Humanity had best sit down and take a long hard look at the entire concept of 'money' and 'jobs', as they both become shockingly obsolete once we trip over that point.