True, you're right to stress that central banks can create money through QE. However, this is not the usual way money is created in most countries. I don't have the exact figures but the vast majority of the money existing as bank deposits (in the UK, bank deposits represent 97% of the money in circulation) is created by commercial banks when providing loans.
In brief, the monetary base increases (money is created) when loans are made and decreases (money is destroyed) when these loans are paid back. For more details, you can have a look at this paper on the process of money creation - published by the Bank of England.
If only the banking and monetary system would limit itself to the normal practices of fractional reserve lending... As it is, what the Fed refers to as non-traditional "tools" has caused its balance sheet to balloon from $800B to $4T since 2008. At present most of this currency is in hibernation as excess reserves in zombie banks that are being kept on life support with ZIRP and NIRP (zero/negative interest rate policies). It has also inflated asset bubbles in the markets for bonds and stocks. The currency inflation hasn't yet showed up in rising prices for consumer goods and commodities, but this could end badly. As you correctly point out, the only way to burn the currency is to retire the debt, but doing so is deflationary and kills growth. The only way out for central banks is inflation, which allows current debts to be extinguished with worthless currency.
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You're right, it appears that inflation is the only way out central banks have. That's where alternative currencies could play a major role and where the different components of the story would start coming together.
On one side, we are going to see progressive drops in the value of major currencies. On the other side, we are going to see an increasing number of alternative currencies gaining both in value and reliability. So the use of non-traditional monetary interventions, by decreasing the value of standard currencies, could lead to increased reliance on alternative currencies and ultimately to the obsolescence of credit-based currencies.
That would be a smooth and natural transition towards what economists from different streams of thought have been calling for since the early 1900s, from Irving Fisher (separation of the monetary and credit functions of the banking system) to Friedrich Hayek (denationalized and competing currencies). A working paper published by the IMF a few years ago shows that some of these ideas are receiving interest in institutional arenas, which is an encouraging start.
I am still looking for a rigorous analysis of the Steemit monetary system and its sustainability. Do you know of any thread or anyone who has delved into the details and would be able to shed some light on the apparent Ponzi nature of the system? Thanks a lot!
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@andrarchy has some ideas and did some interesting videos. The system is still being tweaked, so I would call it still experimental. There are 3 currencies in the system roughly analogous to debt (liquid STEEM), equity (STEEM POWER) and a derivative product with a loose peg to USD. To me, the most interesting observation so far is that even if the theory is sound, the system needs to explicitly account for the psychological implications of inflation rate. I believe that's what the hard fork revisions are addressing.
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