These debt-austerity boom bust cycles happen no matter what money you use and are impossible to control. They happen because fundamentally, when you borrow something, you're not borrowing from someone else, you're borrowing from your future using them as a facilitator. You're transferring value back in time, which you then won't have in the future when you would've had it. But in the moment you do have it, you have more than you've created. The only way to stop them is to entirely end lending, and even outlawing it wouldn't stop it, there's no way to do so.
Discussion
I think the largest difference is the ability to fractionally lend can be divorced from the ability to custody.
If you have BTC on-chain you can be certain it is in your custody. Whereas in a bank, the custodian can default and lose what you thought you had.
Fractional lending will certainly continue to exist, but blow-ups can be more localized instead of systemic. Lending will become opt-in.
And even lending isn't really that big of an issue. The primary problem is that people think they can take their deposit out while it's being lent. And that's just not the case. if all lending occured through CDs where you could not get your money out that would be alright
And even lending isn't really that big of an issue. The primary problem is that people think they can take their deposit out while it's being lent. And that's just not the case. if all lending occured through CDs where you could not get your money out that would be alright
The issue with fiat money is the money itself is debt.
Debt exists in time.
So yes you’re correct you borrow against time, but the bond yield curve is really a measurement of how much money exists now vs the future. When the liabilities are now, and the assets are in the future, it’s a bust.
It’s not “impossible to avoid”, the answer is the money supply has to be an asset... and not debt
Well boom busts are impossible to avoid, because you can't stop people from lending to each other. But Keynesians think that by creating money during the bust they can smooth it out, which works but it causes even worse problems that accumulate as we can all see.
Fractional reserve lending exacerbates it a lot, because *everyone's* money is being lent out, whereas without it it would just be people that want to lend creating the cycle, you have to have capital earmarked for lending normally but when everyone's money is controlled by a bank that lends it out now you have all liquid capital contributing to the problem.
Different industries could experience drawdowns, but under a supply based economy (real money), there is no logical reason for unrelated industries to be connected. Capital flees one industry to go to another.
While as under fractional reserve banking, the money created leads to malinvestment, where they think there will be all of this return, but in fact, it’s due to the artificial credit boom.
Under the system Austrian economics proposes, people are not stopped from lending to each other. The primary difference being that those who are lending, know their funds are tied up and can not access them for a given period of time. This prevents them from thinking they can use these assets to pay down debt.
The yield curve inverts during a credit crunch, as more money is needed in the present than exists.
The assets are in the future, but the liabilities are due now.