[{"_1":2,"_3":-5,"_4":-5},"loaderData",{"_5":6},"actionData","errors","routes/hashtag",{"_7":8,"_9":10,"_11":12},"articles",[13,14],"authors",{},"tag","supply",{"_15":61,"_17":62,"_19":63,"_21":22,"_23":64,"_25":65,"_27":66},{"_15":16,"_17":18,"_19":20,"_21":22,"_23":24,"_25":26,"_27":28},"content","When hard money becomes standard, fractional reserve lending will simply not be possible. This will have a major impact on lending for large assets like real estate, financeable assets (automobiles, industrial equipment, etc.), and business loans. First, let us consider what happens to a community when fractional reserve banking (FRB here on) is introduced:\n\nA town exists with a stable supply of currency to begin, assuming imports and exports balance to make things easy. People for the most part live, work, and spend inside this community. Banks lend money to build homes, grow businesses, etc. Normal stuff. Then, currency backing is abolished and FRB becomes standard; what happens?\n\n1. Banks lend money to build homes, grow businesses, etc., and keep cash reserves equal to their deposits. They back every dollar with a hard asset like precious metals.\n2. Currency backing goes away and now can be borrowed without a complete reserve.\n3. One bank starts lending at half interest rate and they lock up $1 for every $3 they lend, thus enabling them to lend more currency for lower interest (customer happy) and earn 1.5x more interest on their reserves (depositors happy).\n4. Because other banks start following suit, people are able to borrow more and thus buy more at an increased price. Additionally, the banks in which the borrowed currency is deposited lend out those dollars too, multiplying the currency supply. Eventually, FRB results in a 4x increase to currency supply.\n5. Increased supply for borrowed currency reduces its value, especially against those things for which the loans are made.\n6. The price of other goods versus the currency rise to equilibrate the new supply-demand dynamic.\n7. Wages did not increase proportionately because they are not paid with significantly borrowed currency (except for big business loans).\n8. Assets for which dollars are lent are disproportionately and artificially favored in the new economy.\n9. Currency is funneled into these artificially favored investments, and those who learn the game profit extraordinarily.\n10. Short term gain caused long term suffering.\n\nNow, this was a 1:3 FRB, but in today's USA FRB is at 1:9. There are up to 10x as many dollars in circulation than actually exist officially in the system.\n\nThis is simply not possible in Bitcoin, because the funds would actually have to leave lender A to go to borrower B and would no longer be considered in circulation on A's books. The depositors for A would see the funds leave and object (not your keys, etc.). In essence, what would end up happening is an escrow account in which A actually owns the asset, and B would incrementally purchase the asset from A. In this sense, lending will still occur, but not FRB. It is simply not possible to effectively create a world in which 210M-BTC exists, even virtually.\n\nOne way in which this may work for larger peers is A opens a lightning channel to B and pays C through it. A would effectively be purchasing the asset through B from C, and B would then repay A through the channel. This does require the borrower to have sufficient outgoing liquidity, which could be achieved in a custodial B with unequal peers, that is A≃B≃C, but A≫b≪C, so b uses B custodially.\n\nThis causes an equalizing effect to investments and consumptive products, such as food. Shelter would no longer be an \"investment\" strategy for the upper-middle class and above, but rather something achievable by the average person yet again.\n\nNow, let's consider the radical effect on a society which loses its ability to lend in fractional reserve. The first major effect would be a sharp loss in \"price\" of many assets (those mentioned at the beginning of this article), and secondarily the loss of many professions which rely on those assets being easily and cheaply financeable.\n\nThe effect will not be immediate, but quite dramatic after a short delay. This pain will be short lived, likely on the scale of a couple years, because the value of the rapidly deflated currency would sharply increase against real assets to meet the decreased supply. The demand would slowly rebound if confidence in the reverted banking system was not destroyed, a real possibility. Many other societies experienced one or more changes to accepted currency, and we can look to their histories as to what might happen.\n\nWhat may be more realistic is a rival state issued currency which cannot be lent with a fractional reserve. As a phase-out method, it is possible to incrementally increase the minimum reserve current 1:9 to 1:6, then to 1:3, 1:2, 2:3, etc. until the fraction reserved is 1:1 over the course of several years.\n\n1. FRB is standard, and the circulating supply is multiple times greater than what was minted by the central bank.\n2. The voting population begins to reject FRB, the society reestablishes a backed currency as a replacement (thinking the Texan digital gold project).\n3. The backed currency slowly gains usage.\n4. Path #1: the unbacked currency collapses before being phased out, and many people experience marked loss.
Path #2: the unbacked currency becomes fully phased out as the backed currency gains prominence.\n5. The supply-demand dynamic in the lack of cheap borrowed money causes a rebalance in the economy between assets that were formerly purchased with borrowed money and those not.\n6. Wages and borrowed money equalize, and those even in the lower earning brackets begin to thrive once more.\n\nThe one issue I see with this scenario is that the average businessperson is addicted to cheap borrowed money, and it is unlikely that they will voluntarily give up their advantage, as this would require a level of virtue not common in today's world. Until the day in which fractional reserves are unacceptable, investors will favor the unbacked currencies. It seems the only option is a currency collapse and replacement with hard money.","created_at",1693505587,"id","89cff3ec728c65d912033512a9669ee2ee5f0e86af46ade15db7c7aa30eaccca","kind",30023,"pubkey","9a4acdeb978565e27490dca65c83e9f65745eaec1d9a0405a52d198c1489913b","sig","38d8352f11c11f74e2b9c34455a474f770dde4ea0079060bf2f723e532bd234b48d39ab8d249714c066718dcc41f8ef5ed569dbf16d83a1c2db1f082738e2a47","tags",[29,30,31,32,33,34,35,36,37,38,39,40,41],[59,60],[57,58],[55,56],[53,54],[46,52],[46,51],[46,50],[46,49],[46,12],[46,48],[46,47],[44,45],[42,43],"a","34550:c47c24c8f4000a83f5efcd2f7eadaeafb8f95437027df3354fd1c01d7f852583:bitcoin","image","https://cdn.nostr.build/p/AvlL.jpg","t","revolution","demand","economics","fractional reserves","banking","bitcoin","published_at","1693500165","summary","Fractional reserve banking causes a supply-demand imbalance, whereas Bitcoin equalizes people versus banks and big business.","title","Fractional Reserves Vs. Bitcoin","d","1693499222860","**Bit late this quarter, but here now for the latest release on the most irreducible form of money, the monetary base. Data comes from the top 50 currencies in the world, their countries of which represent 96% of global GDP and 84% of global population (not very fair, right there). Gold and silver is analogous to this money supply. As is the stock of bitcoins.**\n\n**This is quarterly release #26, for 2024 Q3.**\n\nIf you have followed [my work](https://www.porkopolis.io/) before, then you know that the constant hymn I've sung while speaking publicly about Bitcoin is that the only, economically comparable money supply in the fiat world to 21 million bitcoins is what economists call the \"monetary base,\" or \"base money.\" This is a corporeal money supply that has existed across all of modern economic and central banking epochs. For an apples-to-apples, ontological comparison with Bitcoin, look no further then Base money.\n\n## **So what is it?**\n\nIt is *central bank money*, comprised of two supplies:\n\n1. **Physical currency**: Notes and coins, or “cash;”\n2. **Bank reserves**: The “Master account” that each commercial bank holds with its central bank.\n\nNow, why do I refer to this as, \"Central bank money?\" This is because, unlike all other money supplies in the fiduciary banking world (like M1/M2/M3), the Monetary base is the sole and ultimate money supply controlled by the central bank. It is, literally, the *printing press*.\n\nWhat follows won't be a lesson in reserve ratios or monetary economics. The point is that you simply understand that ***there is*** a money supply that central banks solely control, and of course (of course!) this is what Bitcoin's 21 million are up against.\n\nThe monetary base is to the core of the entire fiat financial system, as 21 million bitcoins are to the core of the Bitcoin protocol.\n\nOne is open and permissionless, and one is not.\n\nBy the way, the monetary base is essentially (though not entirely) analogous to the *total liabilities* of a central bank, so we can (basically) say that the monetary base is the \"balance sheet\" of each central bank.\n\n**On cash**. Quick notes on the above. Certainly you understand what \"cash\" is, and it is indeed an instrument that has been fully monopolized by each central bank in each nation around the world--only they can print it. Even though it is true that banks in more free banking societies in the past could freely print and strike notes and coins, the central bank (or state) monopoly has been around for a long time. Kublai Khan was the first to do it 750 years ago.\n\n**On bank reserves**. Don't stress your brain on this too much, but this is the main \"settlement money\" that banks use between each other, when they want to settle their debts. It is digital now (Fedwire in US, CHAPS in UK), but it doesn't technically have to be, and of course before modern technology took over even a few decades ago, it was not.\n\nThese two stacks of retail and wholesale cash, stacks of *central bank money*, are what makes up the **Monetary base**. This is the *printing press*. Only this compares to 21 million bitcoins.\n\nAnd gold, and silver by the way.\n\nFinal note, central bank digital currencies, or CBDCs, which are simply LARPing on Bitcoin's success, are indeed created by central banks, and they are indeed classified as Base money. They are going to be a \"third rail.\" They are thankfully incredibly small, pilot projects today. We will see how far democracies will be tested, as autocracies no doubt will mainstream them; but for now, consider them, at least economically, to be inconsequential to the update below.\n\nWith that review out of the way, onward to Q2 update for 2024.\n\n## **Bitcoin is the 6th largest money in the world.**\n\nIn February 2024, it surpassed the monetary base of the United Kingdom, that is its value was larger than the Bank of England's balance sheet, and it remains so to this day.\n\nAs of 30 September 2024, it is only the balance sheets of the big four central banks that are larger than Bitcoin. They are:\n\n1. **Federal Reserve (dollar)**: $5.59 trillion\n2. **People's Bank of China (yuan)**: $5.40 trillion equivalent\n3. **European Central Bank (euro)**: $5.28 trillion equivalent\n4. **Bank of Japan (yen)**: $4.69 trillion equivalent\n\nIf we remove gold from the equation (we shouldn't), then Bitcoin could be considered the 5th largest money in the world.\n\nHowever, the all-important monetary metal throughout history that even a child knows about--gold--is still king at around **$16.5 trillion in value**, or 6.1 billion ounces worldwide. Note, this does not include gold lost/recycled through industry; in that case, it is estimated that about 6.9 billion ounces of gold have been mined throughout humanity.\n\n

\n\n*Update #26 Executive Summary*\n\nSilver, for what it's worth, is still a big \"monetary\" metal; though it is true, much more silver is gobbled up in industry compared to gold. There are about 31 billion ounces of non-industrial silver floating around the world (most of it in jewelry and silverware form) that is valued in today's prices at nearly $1 trillion. Bitcoin bigger.\n\n## **State of the Print: $27.0 trillion.**\n\nIf we add up the Big Four central banks already mentioned above (again, Bitcoin being larger than the Bank of England's monetary base), as well as the next 46 central banks, we get to a total, USD equivalent value of **$27.0 trillion in base money across the world**.\n\nI**f we consider $27.0 trillion as the Big Boss of central bank money, then Bitcoin at $1.25 trillion network value (September, quarter-end figure!) indeed has some way to go.** But as we can see from the last month leading up to this publishing, that can change quickly. We have just surpassed $100 thousand per bitcoin, which **brings the network value to $2 trillion**. We can also imagine how the Pareto distribution occurs even in money, if Bitcoin after only 15 years is already larger than every central bank money in the world except for four of them. Wild to ponder.\n\n## **Supply inflation: 12.7% per year.**\n\nIt is also true that for two years they have been trying to \"normalize\" their balance sheets after the 2020-22 Covid madness, stimulus, and money printing. Of course, they have been trying all along to normalize since the 2008 global finance crisis (GFC), but I digress.\n\nWhen I first started my website, I vowed never to use such a non-corporeal thing as CPI to discuss how much things cost. A \"general increase in the level of consumer prices,\" or CPI, as measured by planning boards around the world, is not a real thing. It may be calculated by people with the best of intentions, but it has been manipulated and volumes have been written about it. I don't use it.\n\nI have always defined inflation as the classical economists did: Inflation is an increase in the \"stock\" of money. If we know the all-time stock of euros printed by the European Central Bank now, and we know the all-time stock of euros printed by the ECB 12 months ago, then it is very easy to calculate the annual inflation of the euro. Not only is it easy, but *it is real*. It is corporeal. **Watch what they do**, not what they say.\n\nI have been tracking this since 2018, and though this figure has evolved slightly (mostly increasing from massive COVID stimulus of 2020-2021, the high-signal, important to remember figure of all-time compound annual growth (CAGR) of the global base money supply since 1969 is 12.7%. That is **12.7% compounded, per year**. It is a doubling time of **5.8 years**.\n\n

\n\n***Growth rate of the monetary base***\n\nIt is highly valuable to understand that, *ceteris paribus*, if the demand for cash balances does not keep up with this monetary supply increase, then prices will rise. This erodes purchasing power. I do not attempt to measure the demand for cash balances in this research. Regardless, 12.7% is a useful figure to understand.\n\n## **Let's compare.**\n\nFor the rest of this report, I want to do something different and simply spend some time looking at the compound annual growth rates of various corporeal things around the world, in order that we can compare those to the growth of the fiat monetary base, and Bitcoin.\n\nRemember, most things in the financial and economic world grow exponentially. This simply means that they grow *constantly*. The financial term here is compound growth, or compound interest. This rate of growth can indeed change year to year (interest rates can go up, or down), but over the years we can observe a strong trend, and that is what I want to summarize here for you.\n\n## **Population.**\n\nThe world has grown exponentially at **1.7% per year** over the last 75 years. However, despite all the overpopulation myths you've probably heard, this rate of growth is actually falling, well below trend, and we only grow at **0.9% per year** at the moment.\n\n

\n\n## **GDP.**\n\nThe United States has grown its economy at 5.2% compounded per year since the founding of the republic. We are at the higher end of this trend right now, $28.8 trillion output per year, growing at **5.3% per year**. As this is exponential growth, if I put it on log scale, it will become a straight line.\n\n

\n\n## **Stocks.**\n\nStocks grow exponentially as well, don't let anyone tell you otherwise. The growth rate is **7.3% per year** for the S&P 500, the main US index that tracks more than 80% of total market caps. Showing this one on linear scale on the left-hand axis, just so you can see how it typically scales.\n\n

\n\n## **Stocks. With Dividends.**\n\n*If you reinvest those dividends* into the same stock market, you'll earn more. The all-time compound annual growth increases by 2% higher to **9.3% per year** for the S&P. Also displaying this one on linear scale.\n\n

\n\n## **Bonds.**\n\nBonds are supposedly safer than stocks (bondholders get paid back first), and more cash flowing. If you look at the longest running bond index in the US, it grows at **7.1% per year**, compounded. Notice how, in a rising interest rate environment (which we are at the moment), bonds will suffer, if viewing the price (or index, as in this case, using the Bloomberg Aggregate Bond Index). This has kept the bond market returns at the lower end of the range, since the global financial crisis in 2008.\n\n

\n\n## **Base Money.**\n\nAs we've discussed, base money grows across the world at a weighted average of **12.7% compounded per year**. However, this trendline analysis looks at it differently than my headline figure. It simply looks at the USD value of the global monetary base (again, **$27.0 trillion**), and draws an exponential trendline on that USD equivalent growth for 50+ years. In other words, this is going to be *after all currency fluctuations* have played themselves out.\n\nDo you think the growth rate here will be higher or lower? Actually, it is lower, at **10.3% per year**. But there is a big asterisk here, in that the series is not consistent across time. I typically just display it for visual effect. As more and more central bank balance sheets were added to this analysis across the 1970s and 1980s, it is not technically rigorous to run an exponential trendline analysis across these totals. **Better to use my headline figure of 12.7% CAGR.** Again, the 12.7% figure is rigorously calculated, measuring the native growth rate of each monetary base across every month recorded, then weighting that across every other monetary base in that monthly basket, then averaging all months for an all-time figure, and then raising that all-time monthly weighted average to the power of 12.\n\nWhat is interesting, however, is that the 10.3% derived CAGR using the exponential regression below is *lower* than my native headline figure of 12.7% . Remember, the 10.3% exponential regression **does not** account for all the new money supplies coming in during the 1970s and 1980s (which should push the regression slope higher as new supplies are added), *and* it is after all currency fluctuations have been factored in, to arrive at a USD equivalent. The lower 10.3% CAGR can only mean that central bank balance sheets actually lose value against the US-dollar *faster* than they can print!\n\n

\n\nNote, I am showing this one in linear scale. The trendline projects out to **$83 trillion** by December 2033. The current global supply of base money ($27 trillion) is about $6.5 trillion less than the current trendline ($33.5 trillion).\n\n## **Silver.**\n\nThis is total ounces ever mined. They trend upward at **1.4% per year**.\n\n

\n\n## **Gold.**\n\nThis is total ounces ever mined. Gold trends upward at **1.7% per year**. Faster than silver. Surprised? Notice the R-squared (goodness of fit) for both silver and gold production increase.\n\n

\n\n## **Bitcoin.**\n\nBitcoins grow according to a basic logarithmic curve. Trying to draw percentiles is pointless here, and even measuring a trendline is relatively pointless, as everyone knows the bitcoins prescribed into the future, per the protocol. Better to just quote the trailing 12-month growth figure, and it is **1.5% per year** and falling, as of quarter end Sep-2024. Less than gold.\n\n

\n\n## **Silver price.**\n\nSince 1971 it's trended at 3.4% per year. Silver bug?\n\n

\n\n## **Gold price.**\n\nSince 1971 it's trended at 5.1% per year. Gold bug?\n\n

\n\n## **Bitcoin price.**\n\nNow, we have finally arrived at something that grows differently than exponential. [As I've observed since 2018](https://x.com/1basemoney/status/1079740420438011905), Bitcoin grows according to a power trend. Did you notice that the prior exponential trends displayed themselves as straight lines on log scale? Well, with Bitcoin, the power trendline gradually falls across time, but the growth is still well larger than anything we've covered thus far.\n\nWhy? It's being adopted, of course.\n\nBitcoin's power trendline has grown **167% per year** since Bitcoin Pizza Day in 2010. Note that this is something akin to a \"Lifetime Achievement\" figure, and it will continue to fall every day. Over the prior 12 months ending 30 September 2024, Bitcoin grew **134.6% over the year**. Well higher now at $100k. The compound growth of the power trend today is **44% per year**. By 2030 it will fall to \"only\" **36% per year**.\n\n

\n\nOh yes, and it is free (as in speech), open, and permissionless money.\n\n## **To summarize.**\n\nThat was a lot of data across a lot of charts. I've compiled it all in a helpful table here for you to review at any time. This is the monetary and major asset world at third quarter end, 2024:\n\n

\n\n## **Base money concluded**\n\nThe following table gives you a complete summary of the fiat currencies, gold, silver, and Bitcoin figures used in this analysis, for this quarter. Please print it out if you like, it is meant to be a helpful, in-depth companion when fiat friends come asking.\n\n

\n\nThank you for reading! If you enjoyed, please consider zapping, and you can also donate to my [BTCPay](https://donations.cryptovoices.com/) on [my website](https://www.porkopolis.io/) if you'd like to help keep this research going.",1733841234,"b66c369a8a370a9e0f24ca7d820a2fa6bb6c5c01522d927b1498a4d0e85ac0cc","eaef5965fe27824f566ce3eb54f37149ee28e4d88b578678ea020b57511d6b79","32b4fc6d4c25e5e6033624452974d6e43004f7de89a1816c9a6a2fe60ccd3ef94a33f72b9cdbc14b9d9a135a974ead992633d49bba50da0cba073704bfdbf61d",[67,68,69,70,71,72,73,74,75,76,77,78,79,80,81,82,83,84,85,86,87,88,89,90],[57,111],[55,110],[44,109],[46,52],[46,108],[46,107],[46,106],[46,105],[46,104],[46,103],[46,102],[46,101],[46,100],[46,99],[46,98],[46,49],[46,97],[46,96],[46,95],[46,94],[46,12],[53,93],[46,92],[59,91],"Base-Money-Update-wu2u8c","26","1733841234","inflation","scarcity","security","finance","global","gdp","population","bonds","stocks","silver","gold","sound money","monetary base","base money","money","https://blossom.primal.net/06ca34d372f5cc614577c7a6e2d75813b87a495dbbc506b16f1b3c54a45752cd.png","2024 Q3, Release #26","Base Money Update"]