Interest-bearing money is insane, at any rate. Just bonkers, really. Forces you to have permanent inflation, just to keep from going broke.
Discussion
I don't find that insane. To me, it's ultimately a promise to defeat thermodynamics and reverse entropy someday in the distance of human achievement.
the hubris of fiat in a single note
Paying interest has no effect on the money supply. Defaulting on loans is what causes inflation. When the government takes loans, it never pays it back and this is why it causes inflation. Paying interest on loans only causes circulation because that is what banks use to cover operating costs.
Defaulting on loans in a debt-based currency shrinks the supply and therefore causes deflation.
You have it backwards
>>The essence of debt deflation is that when prices and wages fall with the price level, but the nominal size of debts and interest payments are fixed, then borrowers face increasing pressure on their ability to repay. This in turn leads to a leap in loan defaults, which in turn can cause bank insolvencies.
The commonly assumed danger of debt deflation is that it can lead to a deflationary spiral, as defaulted debts lead to write-downs by banks and other creditors, which constitute a reduction in the overall volume of money and credit in the economy, which spurs further price and debt deflation in a vicious cycle.<<
and this leads you to the topic of reserve assets
Debt deflation is from people paying off loans and this decreasea the money supply, so yes this causes deflation. Debt deflation isnt caused by defaults, its from people not taking more loans out and this is generally controlled by the interest rate.
The surge in consumer debt defaults causes the banks to tighten their lending standards and this slows monetary creation through lending and this is why they associate defaults with deflation, but in reality its an overall compression of credit through lending standards and through lowered consumption capacity because of the economic drawdown that causes the deflation. This is why government spending is rampant with calls for "infrastructure" to prevent price deflation which can lead to collapse of the commodity cartels pricing structures