<p>There are two meanings to "deficit financing":</p>

<ol>
<li>Funding something by minting new currency.</li>
<li>Funding something by borrowing.</li>
</ol>

<p>Obviously, you can't change how fast you mint Bitcoins. Perhaps that's what he meant. <a href="https://en.wikipedia.org/wiki/Reichsmark#Great_Depression" rel="nofollow">It tends to not be very useful, though.</a></p>

<p>However, it's very possible to have debts denominated in Bitcoin, just as you can have debts denominated in silver or gold. In the <a href="http://en.wikipedia.org/wiki/France_in_the_Seven_Years%27_War" rel="nofollow">Seven Year's War</a>, which lasted from 1754 to 1763, France ran up quite a lot of debt, and they didn't need any of your fancy financial institutions to do it.</p>

CC BY-SA 3.0
2013-07-24T16:10:04.617Z
2013-07-24T16:10:04.617Z
Nick ODell
<p>Central banks buy (government-backed) debt and issue currency (paper or electronic money/credits) in exchange.  The government then spends these newly issued paper or electronic credits and because the inflationary effect of the currency being introduced isn't yet felt the government gets full purchasing power.</p>
<p>If the population refuses to use this currency in favor of an alternative to that currency, then the inflationary effect of the issuance of the additional debt occurs sooner and there is a loss of purchasing power that can be proportionate to the amount of funds issued.  For example, if issuing $1T a year causes a $1T loss in purchasing power for the government's spending then there is no net gain from issuing the $1T in the first place.   It only works if the inflationary impact is absorbed by those users of that currency.</p>
<p>That's why countries impose currency and capital controls to try to force its population to use the government currency instead of investing in certain liquid assets or in sending their wealth abroad.</p>

CC BY-SA 4.0
2013-08-01T01:08:14.793Z
2024-04-01T18:13:59.670Z
2024-04-01T18:13:59.670Z
Stephen Gornick
<p>At a recent NYC Bitcoin meetup, a morally-pacifist, outspoken supporter of Bitcoin said that </p>

<blockquote>
  <p>"Bitcoin would prevent the deficit financing of wars" </p>
</blockquote>

<p>...alluding to his perceived notion that a Bitcoin economy would prevent wars from being funded and started.</p>

<ul>
<li><p>Is this a prevailing thought in the Bitcoin community?   </p></li>
<li><p><a href="http://www.logicalfallacies.info/" rel="nofollow">What way of thinking</a> makes this statement appear true?</p></li>
<li><p>What aspects of this quote has merit?</p></li>
</ul>

<economic-theory><community>
In what ways could Bitcoin prevent "deficit financing of wars"?
makerofthings7
# In what ways could Bitcoin prevent "deficit financing of wars"?

(Asked by: username_0 on 2013-07-24)

At a recent NYC Bitcoin meetup, a morally-pacifist, outspoken supporter of Bitcoin said that

> "Bitcoin would prevent the deficit financing of wars"

...alluding to his perceived notion that a Bitcoin economy would prevent wars from being funded and started.

* Is this a prevailing thought in the Bitcoin community?
* [What way of thinking](http://www.logicalfallacies.info/) makes this statement appear true?
* What aspects of this quote has merit?

**Tags:** economic-theory, community


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## 2 answers

### Answer by username_1 on 2013-07-24. Score: 1

There are two meanings to "deficit financing":

1. Funding something by minting new currency.
2. Funding something by borrowing.

Obviously, you can't change how fast you mint Bitcoins. Perhaps that's what he meant. [It tends to not be very useful, though.](https://en.wikipedia.org/wiki/Reichsmark#Great_Depression)

However, it's very possible to have debts denominated in Bitcoin, just as you can have debts denominated in silver or gold. In the [Seven Year's War](http://en.wikipedia.org/wiki/France_in_the_Seven_Years%27_War), which lasted from 1754 to 1763, France ran up quite a lot of debt, and they didn't need any of your fancy financial institutions to do it.


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### Answer by username_2 on 2013-08-01. Score: 1

Central banks buy (government-backed) debt and issue currency (paper or electronic money/credits) in exchange. The government then spends these newly issued paper or electronic credits and because the inflationary effect of the currency being introduced isn't yet felt the government gets full purchasing power.

If the population refuses to use this currency in favor of an alternative to that currency, then the inflationary effect of the issuance of the additional debt occurs sooner and there is a loss of purchasing power that can be proportionate to the amount of funds issued. For example, if issuing $1T a year causes a $1T loss in purchasing power for the government's spending then there is no net gain from issuing the $1T in the first place. It only works if the inflationary impact is absorbed by those users of that currency.

That's why countries impose currency and capital controls to try to force its population to use the government currency instead of investing in certain liquid assets or in sending their wealth abroad.


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