Bitcoin Forum

FED print money as will, but ultimately they try to achieve two goal: Price stability and low unemployment rate. It's very simple: If there are enough money out there, everyone will be easy to find a work, but if there are too much money out there, there will be inflation

BTC is fixed constant money supply, could it finally achieve these two goal? Or, it can achieve something that USD today are not able to achieve?

I think saving definitely is one of BTC's strength, but seems it can not help to improve the unemployment and price stability, it shines when the economy goes strong, but do not give much help when economy is weak

Any more idea?

Not exactly, you should watch this thread:
https://bitcointalk.org/index.php?topic=118681.0



Bitcoin price can and will get stability when it will be used in a larger scale.

OP I think you are mainly trolling here and that's why I don't really see a point in trying to explain it to you. Basically I think that it will take the actual empirical end result of this experiment to shut people like you up that's why all we need to answer your questions is time.

More like 'if' mirite????

I do not see debt as a problem, it is just a conversion on the value of time, but the commercial banks take too much benefit from FED's money, that is a problem. The official lending rate from FED is almost 0, but the lending rate from banks are still very high

USD value basically quite stable (less than 10% variance in one year), but the amount of USD supply almost increased 4 times during recent years. In same situation, if the amount of BTC supply kept unchanged, then the value of BTC would have to increase by 400%

Facts and reasoning, no personal attack please  ;)

The FED owns 60% of American's government debt.

The two are so different it isn't even worth debating about.

Well, for one, the US dollar is a liability. In the dollar's case, it's a liability of the Federal Reserve System. Euros are a liability of the ECB. Yen are liabilities of the Bank of Japan etc. You can actually see the liability-nature of the dollar by looking at the Fed's balance sheet:

http://www.federalreserve.gov/releases/h41/current/

Note that the Fed has got 1.136 trillion in outstanding currency liabilities.

Bitcoin, on the other hand, is not a liability of any institution.

This is very true, FED owns those printed money, if they do not own it, they can not use it to buy bonds and claim the ownership of those things

But they own these money not for any personal reason, they use these money to adjust the money flow of the whole society: When there is a shortage of money, they create more by buying assets; when there is too much money, they get the money back to their account buy selling assets

Of course in this process, commercial banks and institutions always get the benefit, FED's money do not translate into each people's income directly, but first increase the income for banks and then banks' big customer and so on...

- I go to the farmers' market. They take dollars, not bitcoins.
- I go to work. They give me dollars, not bitcoins.

Is that because they choose to, or because a government authority figure will put a gun in their face if they do not exclusive deal in FRNs?

I'd say neither. It's simply because Bitcoin is still extremely obscure - most people haven't heard about it, and even if they did, they haven't learned the technical aspects, or they got misinformed. Government is people, too.
Anyhow, the title of the thread was about differences  between dollar and bitcoin, and my post was answering that question from practical perspective.

So USD is a liability, but BTC is an asset. USD represents the future value that will be imparted to it, which is uncertain. BTC represents the past value that was put into it, which is certain since it is already past.

No, neither one is an asset.

Both are claims on future production, which may or may not occur, and which may or may not be honored.

The difference is that USD can be arbitrarily diluted and BTC can not.

As long as the USD and BTC have some positive value, they are both assets. You can put them on the asset side of your balance sheet, so to say.

The difference is that while you may hold BTC on the asset side of your balance sheet, this BTC doesn't appear on the liability side of anyone else's balance sheet. When you hold USD on the asset side of your balance sheet, a corresponding entry appears on the liability side of someone else's balance sheet.

Specifically, if you hold paper USD, it appears on the liability side of the Fed's balance sheet. If you hold a USD bank deposit, it appears on the liability side of a private bank's balance sheet.

Good point. Are most of world's government currencies today like USD in this way? Any important exceptions?

I think they more or less all are, yes. There are a few places like Switzerland where a partial gold backing of the central bank's paper is required; I recall the Swiss People's Party proposing that the required ratio be shortened from 1:6 to 1:5, in other words, the Swiss National Bank would have to hold reserves in physical gold equal in value to one fifth of the market price of issued francs.

That's the problem with government currencies. Even if they promise to restrict the quantity via backing they can break that promise at any time, and the holder has no recourse.

To be more clear, how could BTC reduce the unemployment?

IMO, if enough money flow into BTC market, it will create many mining business and BTC investment companies, just like mortgage backed securities, there will be many people find work around it, the price rise continuously, and finally FED has to tighten the monetary policy to stop it from building a bubble

It allows people to operate businesses that would otherwise not be profitable or permitted due to government-enforced economic oppression.

However, it really doesn't matter what the number is on the liability side of the Fed's balance sheet (as long as it doesn't go to 0).

You could invent a Bitcoin Reserve and pretend that every bitcoin mined is a liability on the Bitcoin Reserve's balance sheet. It would be exactly the same thing (except that the Bitcoin Reserve's liabilities are limited to 21 million).

A more direct approach would be to envisage that one party issuing USD as 'debt' has a big claim on the asset side of the balance sheet, while the holders of USD have a big liability on the liabilities side of the balance sheet (but spread out over millions of balance sheets).

BTC is no one's debt.

It reduces the cost, increases the speed, and increases the potential user base of payments, especially international.  The efficiency savings allow businesses to hire more people, and the speed/availability allows the business to reach markets it may otherwise not have access to.  This access allows the business to grow, or even exist.

Please give an example of a business that can only be profitable using BTC as payment method?

Silk Road? :)

Good, so BTC is suitable for annonymous payment, while the payer want to hide the identity.  Is that going to reduce the unemployment and control the inflation?

I have another thought: It could be regarded as a digital asset which is very secure and can hedge against inflation, since it is not issued by any government, the risk of default is zero. But first the exchange should be well regulated and accepted by pension funds

And if lot of people put their savings into BTC, it will reduce the unemployment (they dare to spend more since their retirement is secured now), and inflation will be low (Fed does not need to print more money to stimulate spending)

The risk of default may be 0, but the risk that there is a flaw that will reder bitcoins worthless is non-zero. There is also the risk that people will stop using bitcoins, which would drive down the value, which to the hoder works out to about the same thing as a default.

As a high end investment target, people will not use BTC at all, it will only be operated by institutions. Buying and selling them in the exchange is their daily work, and why people buy? Since it hedges against inflation, better than a USD saving account

I believe the demand for saving is endless, no one will complain if they die with several millions of saving in their account, with extra amount of saving, people will live a very different life: secure and happy every day

Yes. You actually own bitcoin. You never really own a dollar.

But why wouldn't individuals invest directly in bitcoins? Getting bitcoins is easier than (or at least as easy as) investing in an institutional account.  Large institutional investors might want to buy some bitocins as a hedge against inflation, but that doesn't stop individuals from doing the same thing. The beauty of bitcoins is that it serves so many roles at the same time. Bitcoins can be used by large investors, small savers, day traders, people transferring money across the globe (to do large investments in other countries, or as a way to send small amounts to family members) or by people buying things online, or by people donating money anonymously, or for micropayments. The more people use bitcoin, the stronger it becomes, and the better it serves for all the other functions. For instance, as more people use bitcoin as savings, the price will go up, and the total market cap will go up, which will make it easier to use bitcoins for larger transfers.

You need to be very confident about your computer knowledge before you do all this alone by yourself

When the sum of money becomes larger than salary, it need to be managed against potential loss, people start to rely on institutional services. Even if you stashed 10000 BTC in your offline wallet, you will feel unsecure

You can't really invest in bitcoins since bitcoins don't generate bitcoins. You can speculate and you can park funds.

You could be investing in bitcoin if the way you put money in helps to grow the bitcoin economy or make bitcoin better.

True.

BTC wins :)

That's what I'm banking on.

This is a valid concern, I think at the end it is still people that is backing anything, but when BTC get enough acceptance, there will be many more computer scientists/security experts/network experts continuously analyze it and give recommendations to improve it

BTC has a very important political neutral position, it is purely backed by science

No I would not.  Knowledge is power, and when it is decentralized, it is freely available ("freely" meaning free of tyrannical control, as opposed to "freely" as in "without cost".  I pay for my rigs (and their proceeds) mostly in frustration (it's a sort of deranged enjoyable frustration).

EDIT:  But I have come to realize, many people are not so blessed with extra time for researching this compendium of knowledge the Internet. And even if they did, who's to say they'd feel comfortable with copying and pasting long strings of seemingly random characters?  I understand, many people just are not computer savvy, even if they are moderately computer-literate.  And that's the main thing about Bitcoin right now -- Currently, it is not enough to be merely computer-literate in order to fully control and secure one's own BTC; one must be at least computer-savvy for this.   I think in order for it to expand and fulfill its intended ideals, Bitcoin should evolve to reach out to those that are merely computer-literate, but still have a desire for fiscal liberty and demand for BTC.
As for those that are computer-literate and are indifferent, disinterested, or otherwise to Bitcoin -- THOSE are the people that all these Libertarians are alluding to with maximum disdain.  The less psychotic Libertarians, anyway...

Look at it like this:  Is there anyone selling services to help people set up their email accounts?  Probably not many of those in existence today.  Similarly, professional for-profit money management services will be an equally goofy concept in the future (perhaps not for the elderly).

You WILL if one BTC exchange value is $1000, by that price, a team will brake into your house with a gun pointing to you to get that string  ;D ;D If they succeed, no trace to chase them, it is almost a risk free robbery. Actually this could be a problem preventing BTC from going main stream

And to the computer part, either a web based online account or a managed pension fund, normal people can not go higher than this degree of complexity

How will this band of robbers know who owns the bitcoins? will they just randomly pick houses, break in , and demand money? What is to stop these people from doing this now, but instead of a bitcoin password demanding cash, jewelry, everything else? I think it would be harder to guess who has bitcoins lying around on their home computer, so to me it seems safer to stash money away as bitcoins than to keep other kinds of wealth.

^ yerp.  Until we get into "ghost-hacking" territory as seen in things like Ghost in the Shell, I would consider BTC + brainwallet a fairly safe haven for savings.

I think that if BTC is treated well and developed/secured accordingly, the only thing left would be the exchanges.  MT Gox obviously isn't very safe, having been hacked.  There needs to be more focus, integration, and attention put on the BTC marketplaces such as bitmit.  Silk Road is a good example of what BTC is capable of, but some of the stupidity I've seen associated with it doesn't give it a good name. 

I'm not putting any part of BTC down, but it's not working 'with' me so far.  First I found out I needed a dedicated rig, then ASICs came out, it's very unstable in terms of security/stability.  There is a lot of work going into it code wise, but every story I read about hacked/cracked wallets makes me cringe.  I can't stand the dark side of this hobby, it's way too dark.  What's so wrong with makeing a whir box that makes fake/hobby money?

FTFY

Hey man, I sure hope that meant 'fixed that for you' =)

unless you never touch exchanges

I don't think bitcoin can be considered very secure at the moment, but I think you have a valid point that in the future, if bitcoin has grown and has shown itself to be secure, people might consider it a very safe way to keep their savings.  Due to the inherent inflation-protection, this would indeed reduce fear of loss of purchasing power in economically bad times (such as exists among several economically interested people today).  This could indeed lead to lower volatility in spending behavior, as this would probably be less correlated with the economic cycle. 


You mention unemployment a lot, and the effect monetary policy has on this. 
First of all, I think it is important to realize that employment rates don't necessarily say a lot.  I am not talking about differences in U3 or U6 or whatever. Just that it is actually quite easy to have 0% unemployment.  The question is if the jobs created are productive or meaningful jobs.  It would be very easy for a goverment to decree that everyone who doesn't have a job will now get paid for the job of "stone-smasher", consisting of finding stones and smashing them to little pieces with a hammer...  There would be no unemployment, but obviously living conditions would go down as many people go about smashing stones, while necessary products and services are being underproduced or under-offered.  This might sound ridiculous, but although I am not sure if this is historically correct, I believe a similar situation existed in many communistic countries, where there would be a lot of unnecessary functions created to get full employment (I have heard accounts of small shop having many employees, most of them just sitting around, from time to time working the register or putting some foods in a bag, then sitting around some more).

Now, with inflationary monetary policy and low interest rates, lending is encouraged.  This reduces the threshold for companies to be profitable, so certain companies that would not be profitable if they had to pay a lot of interest on their loan can now start up after all.  As they need employees, unemployment will be reduced.  However, high inflation risk and low lending rates also enhances the risk of malinvestment, in which bad companies get money that is put to work unproductively, which is destructive for the economy.  Therefore, boom conditions will often lead to recessions.  My guess is that in a BTC economy, if the deflation isn't too strong, overall economical growth will be somewhat lower, but there will be less booms and busts, so the system should be more stable.

What does using exchanges have to do with anything?

Why do you guys keep calling bitcoin a currency? It is not a currency.
Bitcoin is a secure, cheap and relatively fast way to transfer any currency (in theory) from point A to point B.  As I have mentioned multiple times before, calling BTC a 'new internet currency' or currency at all, is probably the biggest PR fck-up so far. :) 
Merchants do not want new shiny "internets currency" and all the technobabble. They need a break from getting ripped of by banks and "new currency" is a pair of words that sound like "more water!?" do a drowning man.

BTC is a way to transfer EUR/USD/etc. from you to merchant or to anyone else. Yes, the BTC-FIAT is real PITA but hopefully this gets better or becomes unneeded.

You want BTC to be noticed more? Talk about it as a replacement to bank transfers, VISA, MC, AMEX and those silly paper things you guys still use over there ;)

My point is, comparing BTC to currency is a bit pointless. Comparing it to money transfer mechanisms like VISA or flaky Paypal make way more sense.

We probably do that because it IS a currency.  You do not transfer USD or euros.... 
I agree that for the moment, for merchants, it is way more interesting to immediately reconvert the bitcoins to traditional currencies again, to avoid exchange rate risks.  The more bitcoin is used, the more attractive this will become as liquidity improves ('bid-ask' spreads go down), exchange fees and payment processor fees will get more competitive etc. .

But in the end, bitcoin is a currency, and is being bought by some as a store of value, so don't call it just a new paypal.

Bitcoin is many things, and to each person it will serve a different purpose. You are right, we should spend more time talking about how it is a better way to transfer money than the status quo. But it is also a way to save value for later, and people can use it as a currency if they want. Bitcoin is so new and different it is hard to fit it into one category.