After you boys kiss and make friends (or babies) can you please explain to me how a devaluation peg and gold drop can be simultaneously orchestrated. Can one be a logical function of the other (like selling/shorting gold priced in CHF) or are they two distinct and perhaps doubly costly operations?

I believe it was a breach of contract. Each transaction was signed by the sender with the unsigned understanding that those transactions would be signed and reversed upon request. But I think Hightax's point is that bitcoins literally (even digitally) are nothing. I don't think we have adequate physical metaphors for them. It'll be interesting how this case defines the community verified signature of an assertion.

Alice sends an IOU to Bob, verified by the peanut gallery
Bob gets the IOU stolen by Eve, also verified by the peanut gallery
Alice requests IOU back from Bob
But Bob can't get that transaction verified by the peanut gallery.
I'd say the peanut gallery is complicit in Eve's crime and conspire against Alice (or Bob).

(or some other absurd interpretations)

Thank you. I had been trying to line that up myself. For simplicity, suppose the SNB tanked gold, what would have been the most direct method? (secured shorts denominated in EUR which they intended to buy with CHF; sold their gold positions in CHF)

Beautifully written and intriguing.

Why are you stuck on interest rates? Until a company pays off its creditors, it has not been proven successful. A company that beats the inflation rate is successful in nominal terms, but has not necessarily profited in real terms (increase purchasing power). Inflation creates the incentive to invest in companies that are not profitable in real terms because doing so is better than doing nothing. While this creates jobs in the near term, it is detrimental to real growth. Inflation is a major contributor to the business cycle - bubbles and contraction.

There were scandals in the past in which citizens sold their votes on ebay, but both transaction parties were easily traced. Such a market with bitcoin would be less easily traced and halted, would generate (negative) exposure to bitcoin, and most likely benefit web-popular candidates like Ron Paul. Of course this is illegal and can not be condoned.

This is a failure of realpolitik. It would be great if government was based on rationality, analysis, principals, and integrity. But unfortunately, that is not how democracy works.

..and that it's deflationary.

Decentralized doesn't mean anything to half the geeks and nothing to rest of the population.

It's a great piece. In fact, I think it's quite accurate.

An institution would not, nor would the population be compelled to invest for fear of losing purchasing power. An inflationary environment forces a rational actor to chose best of two evils if no better alternative is available. Whereas in a deflationary environment, doing nothing is a rational action if no better options are available.

In an inflationary environment, one has less incentive to invest in his neighbor with no terms, puts a bigger premium on generosity. The only loans are institutional (banks) rather than interpersonal in the community. In fact, in an inflationary environment, few people even have savings to lend. In a deflationary environment people would require fewer loans and would have an easier time obtaining them from neighbors if they did require/desire a loan.


In Real terms (inflation adjusted), yes. A company only needs to beat the inflation rate, but it does not need to create purchasing power. This is obvious in a hyperinflating economy, but less obvious in 2% inflation.

At least we agree on most points, just argue with an as yet untested axiom. As I understand it, from the assertion that deflation reduces or eliminates spending, you conclude that companies make little or no profit, and thus can not hire nor retain employees.

I assert that 0% inflation is ideal, that a slight negative inflation is superior to slight positive inflation, and that any extreme is detrimental to the economy. Deflation only reduces but does not eliminate spending and limits investment to projects that create real value. In a flat or deflationary environment, consumers will purchase goods that they need and want, not for fear of value loss. Savers will invest in projects that serve their principals or can be expected to outperform the inherent deflation.

While it is true that many companies that might have been successful would not start, but many more companies that would not have been particularly successful in either environment but would have wasted capital in the inflationary environment would not start in the deflationary environment. It seems Darwinian to me. An inflationary environment reduces the quality of the gene pool. Just as a hyperinflationary environment would reward the worst companies and consumers, a hyperdeflationary environment would kill off the whole population. But a slight and stable deflation would produce vibrant creative destruction, companies fit to survive, and individuals with savings for a rainy day.



I was concerned that you confused depression and credit contraction after the collapse of an inflationary period with a stable deflationary environment. The incentive to spend your money on goods you need will never go away. We are discussing the function of an individual's conflict between value stored in currency versus the price of goods that he wants. For a particular good, there is no difference between price inflation due to the good becoming more valuable or because the currency becomes less valuable (or deflation, less, more). Granted, there are other competing products (if I like vanilla just as much as chocolate, I will purchase the cheapest), but at some point a consumer will purchase a given product at a particular price despite the expected change in value or price. The question is how much does the change inhibit or persuade the consumption?

I believe Keynes and Monetarist agree that the velocity of money increases directly and proportionally as a function of price inflation in the long run (and here and now given stable rates). I see no reason not to extrapolate that backwards and linearly into deflation.

Would that be the same Iceland, whose mayor Jon Gnarr of the capital, Reykjavik, paraded in drag?




Oh and Iceland != Greenland, though they are close and both were colonies under the Danish King.


Greenland is the least densely populated nation on Earth, with 0.026 people per km2 (or 40 km2 for each inhabitant), its quite easy to find entire valleys or mountains where no one has visited in years, perhaps ever. Western Sahara, by comparison is crowded, with a couple people on each sandy km.

Nee, maar ek het jou pragtige land besoek.

Overspending is both the cause and symptom of hyperinflation. Let me quote myself, if I may:




Are you claiming that many companies that are only successful because they lose less than the inflation rate is superior to fewer companies that are actually creating value irrespective of the inflation rate? Just curious, do you believe that arbitrary government spending on select large projects, financed through tax or debt, helps the economy as a whole? Do you believe that War as a whole boosts an economy because it eliminates unemployment? Do you believe inflation is necessarily inversely related to unemployment thus making stagflation impossible? Do you believe that electronics companies are bad for the economy because their product prices deflate 50% annually?

The problem with the SkepsiDyne example above is that the books are recorded in multiple currencies with volatile conversion. If a single currency was used/possible or stable inflation/deflation rates priced in, there would be no issue.

I believe the Japanese economic adventure has been a prelude to the global economy, not any one nation.


But now we're talking about a new (or ancient) economic model, where not one but multiple competing currencies exist in any given economy. I suppose in such a brave new world, a fiat currency distributed by a central bank could be expected to maintain price stability, both theory and in practice. Otherwise, it would lose market share. I could imagine a bitcoin-like currency with a single central miner signing key, with instantaneous transaction verification.


AAPL dropped from $35 to $10 in 2000 and was pretty stagnant until 2004 and climbed to what I believe will be its peak this year at $400 for a ten year 40-fold return. Gold hovered around $280 for several years before 2002 and climbed to $1900, for less than 7-fold return. Bitcoin did not exist in 2000 until 2009 and was priced at $0.06 in 2010 and is $6 today, for a 100-fold return, in only one year.

What I find fascinating about comparing this bubble/plateau cycle with October and March, is that the May-June bubble was three times longer in duration and I expect that the plateau will be three times longer as well. The trade volumes were 100 times greater. It's also worth noting that the April-July parabolic rise was almost ten times greater than Oct-November, which makes the comparison quite easy to eyeball and estimate. A drop to $3 is not impossible, though if my time-scaled voodoo is predictive, then I also expect a parabolic beyond $100 by Easter.

Thank you! Inflation encourages invest and spending out of fear. A losing project is a safer investment as long as it is losing less than the inflation rate. But in a deflationary economy, only a remarkable project is investment worthy. Does this mean less investment? Yes. Does it mean less value or growth? No.

My point with hyperinflation is to note that between the wars, during the Weimar Deutsches Reich (a period I have studied from my armchair), the German citizens were spending their daily incomes in entirety, and while the stock market performed remarkably well (when priced in marks) for several years, the entire economy was destroyed, priced in gold, pounds, or dollars.

While the economy of the war losers is an extreme example, it is also my personal observation that countries with highest inflation rates are poorest. Japan is the only significantly deflationary economy I've visited and it seemed to function fairly well in comparison.


Monetarily no, but price deflation is possible whenever demand outperforms supply. Bitcoin is not just another value storage currency, it is a superior value exchange protocol. It brilliantly answers the question to which gold suffers: "but how do you spend it?"

If it's inherent value is fully realized, but it turns out that deflation is a problem, then any nation could fork, mine, and then require taxes are paid in its own sovereign bit-eque-coin.

Gold has been appreciating 50% this and roughly 20% each of the last ten years. Why has anyone invested in the stock market this past decade? Oh, that's right, some companies still innovate and make a profit.

If an economy is consuming (but not producing/investing/saving). When governments monetize their debt from over spending, people start to calculate inflation into their prices, incomes, and buy and hoard goods for fear they will be more expensive tomorrow. The spending and printing are both feedback into the same loop. 2% inflation targets are assumed to be 'happy mediums' between deflationary and inflationary spirals.


Hyperinflation does indeed translate into more spending! Yes, if people can flee physically or monetarily, they will, but the majority do not for quite sometime. When everyone does, the currency is no longer hyperinflating, it is dead.

But, I agree, I have mixed cause and effect (though, the effect feeds back as a cause, hence hyper-). If spending is matched by production, then this is legitimate growth. If on the other hand, spending is leveraged, the economy is owned externally.

Overspending on a national level is another way of saying "fleeing the currency en masse", also known as a trade deficit.

You do know what causes hyperinflation right?

A 0% interest loan in a 5% deflationary economy is equivalent to a 7% loan in a modern fiat 'stable' 2% inflationary economy. The difference is that members of the inflationary economy are encouraged compelled to spend, whereas a deflationary economy encourages savings. That is not to say that people will save 100% nor spend 100% in either environment, but during great inflationary times, spending becomes rampant (velocity) until the economy loses all value.