You can value a house with the measure stick "dollar" or BTC, but that doesn't mean that the market cap of actually existing dollars include that value of course.

You can also measure the value of your house in apples or eggs or loaves of bread.  Anything that has a certain value, can be used as a "measure stick" for anything else that has value.  A currency is no exception to that.  This essentially comes about because of the transitivity of prices: if asset A is worth x times asset B (that is, if on the free market, you can trade A for x times B or vice versa), and if asset B is worth y times asset C (that is, if on the free market, you can trade B for y times C), then: asset A will be worth xy times asset C. 

Because if it weren't, by going in circles you could get an arbitrary amount of value (arbitrage).

Of course, this is assuming totally liquid markets, which in reality they aren't, so transitivity of prices is only approximatively true.
But that means that you can measure anything against anything else.

Mind you, because markets are dynamical, prices change all the time, exchange rates change all the time.  Transitivity is valid, but only if you take all prices (exchange rates) at the same moment.  Tomorrow, the values of the coefficients x and y will be different, but a priori, transitivity will still hold with these new values.

So a "measure stick" of value can be any asset. 

And now you see why using a measure stick doesn't mean anything for the market cap of the asset you use as a yard stick.

You could just as well measure the value of your house in eggs, but that doesn't mean that the market cap of all eggs in the world include all houses.

Do you think they will keep a few pet humans in cages for their fun, or whether they will use human round-up to get rid of those organic parasites crawling all over the planet ?

Or do you think there are a few needs of them that humans can still fulfill and that they will keep enough humans in slavery for that purpose ?  Human cattle ?  Some of our body parts maybe ?

Because in order for bitcoin to take their value, they should loose their value of course.

If bitcoin is to take the value of all M2 monetary mass in fiat, then all that fiat will loose its value (to bitcoin).  That's not entirely unthinkable (but almost so).  However, if bitcoin is going to take also the value of your house, then your house would have no value any more !

Money is of course always a subset of all assets, because its purpose is to exchange it against the other assets.  And many of these other assets have a lower "velocity" than money.  You don't trade your house every 6 months, do you ?  

If you'd consider the "market cap" of bitcoin equal to "all that has value", then nothing else would have value (and immediately, bitcoin, which has no other use than store of value, would loose it entirely, because it can only serve to be exchanged against something else).

That most or all fiat would loose its value to crypto currencies, I could eventually accept conceptually.  However, that all fiat would loose its value to BITCOIN, is unthinkable, simply because the number of fiat tranactions runs in the tens or even hundreds of thousands of transactions a second, and bitcoin is limited to 7 transactions per second.

If the dollar hyperinflates, yes, of course, in the same way that a satoshi is now already worth more than a Reichsmark.

However, if you mean: can a satoshi ever be worth more than what a dollar is worth NOW, then definitely no.

Because it would mean that the market cap of bitcoin would be 2 000 trillion $

Now, the current WORLD market cap of M2 money is estimated to be of the order of 50 trillion $.

This is the heart of the problem of public finance: you get personal advantage (re-election) if you spend other people's money (taxpayer money).  This is why politicians like so much the Keynesian deficit-spending idea (without taking the reverse of the Keynesian doctrine which is contraction when things go well)  Each time the one deciding is not the one paying, you will have abuse, corruption, and financial disaster in the long run.

The only way I can see public finance controlled, is with a strictly no-debt system: all expenses of the past year make up the bill, and are then, with a distribution key which is part of the political choice, billed to the taxpayers.  If you are then a politician distributing a lot of "gifts" to your electors, then they will find it on their taxpayer bill at the end of the year.

If you "invest" in billions of "social welfare", then at the end of the year there will be a line on the bill where you pay your tax contribution due to that welfare program.

I'm wondering, if we see bitcoin, or just any cryptocurrency based upon the blockchain principle, large, whether the volume of the chain is not going to be problematic.

If we look at companies such as Visa, they processes several thousands of transactions per second.  Now let us assume that the minimum amount of data for a transaction is 100 bytes (send and receive address, and amount and some data) in a transaction-optimised set of cryptocurrencies.  Let us assume that 1000 transactions per second happen.  That means 100 KB per second on the block chain.  That is a data flux that is still reasonable to keep up with, but when accumulated, it is huge.  It is more than 8 GB per day.  The block chains of the cryptocurrencies taking these transactions would grow at a pace of 8 GB a day, which means 3.2 TB a year.

Of course, the burden can be distributed over different cryptos.  You only need to look at the block chain of the crypto you're interested in.  If there would be a few tens of cryptos around, sharing the burden, each chain would only grow with a few hundred GB a year.  But still.  These are big volumes, even in the future.

Aren't those things part of the basket of thing of which the price level should be stable ?
At what point do you decide that an asset is a currency, and shouldn't be included ?

Is the gold price in the basket ?
Is the platinum price in the basket ?
Is the iridium price in the basket ?
Is the copper price in the basket ?
Is the mortar price in the basket ?
Are housing prices in the basket ?

I'm trying to wrap my mind around the idea that a given currency, in competition with others, can have any meaning on "stable prices".  
Imagine that there are 3 of these currencies around: M0, N0, and P0.   They are trying to achieve stable price levels, all three of them.  But suppose now that on friday, half of the people holding M0, trade it for N0.   This should imply that on saturday, the amount of M0 halves, right ?  How do you do that ?  You halve the contents of all accounts ?  People possessing 50 M0 now only possess 25 M0 any more ?  It would also imply that on saturday, N0 has to increase with the same amount (depending of how much N0 was running around).  In fact, in as much as M0 and N0 both want to hold stable prices, the exchange rate between M0 and N0 should remain constant (let us say for simplicity, it should be 1).  
How do you handle that ?
If you desperately want to buy N0 with M0, and I have N0, how can you have me NOT fix a price above 1 ?
Ideally, if you want to exchange M0 for N0, every M0 that is given should be destroyed, and every N0 so obtained, should be created.  That is, N0 and M0 should be identical.   But we made the hypothesis that they aren't.  

Suppose that there is a period (like bitcoin has known) of decline of M0, that is, during a year, people flee M0 to buy N0.  I can understand that on the N0 side, there is a consensus to create coins, to keep the price stable.  But how are we going to destroy M0 ?  Does it mean that people holding M0 are going to see their accounts diminish automatically ?  That would induce them to flee M0 even more !  
Consider, on the other hand, the holders of N0.  They see all these former M0 holders come in.  This implies that N0 are created at a massive rate.  If they had been holding a supply-stable currency, then the increased demand for N0 would increase the value of their holdings, but by definition, with a price stable currency, the creation compensates that ideally.  Why do the N0 holders remain with N0, and do not go into a supply-stable currency that has the potential to rise ?

So my main question is:
if, when you have different price-stable currencies, one of them declines in popularity, the holdings of the people still holding money in it, decline too in order for it not to diminish in price ?

Because that's annoying.

Imagine I had 100 M0 coins, worth 500 apples in total.  Price level is 1 M0 coin = 5 apples ?
Suppose now that half of the people holding M0 coins want to switch to N0 coins on friday.  The large offer of M0 coins to sell would make the price of M0 coins fall, and my 100 M0 coins wouldn't be worth 500 apples any more if nothing happens.  With an M0 coin, you would only be able to buy 2.5 apples any more.
So what happens ?  Do all M0 accounts get divided by 2 to get the price of an M0 back to 5 apples ?
Do I only hold 50 M0 coins any more ?

But that would imply that my total buying power of my account in reality HAS decreased !  I could buy 500 apples with my account content, and now I can only buy 250 apples.  OK, each individual coin still has the value of 5 apples because of the monetary deflation, but I lost half of my savings !

So how does this work to keep the savings constant, if the market cap of M0 halves ?

If, from friday on saturday, people don't like M0 any more, and want N0, how do you keep the price level constant AND the savings constant of those people still holding M0 ?

Also, look onto it from the side of the N0 holders, before the M0 holders came for N0.  Why would these people who were holding N0, agree to turn out a lot of N0, so that the value of their savings *doesn't* increase in the face of all these newcomers to N0 ?
If the N0 holders are free to determine the quantity of N0 printed, why would they do a favor to the newcomers, and not ask them a higher price for their precious N0 ?
Of course, that's something that is nicer, if there is mining with proof of stake, and if you can get new coins proportionally to your stake.  You may indeed decide that if you were holding 100 N0 coins, that you have the right to create 50 more, which decreases the value of an individual N0 back to its stable price.  If normally, due to higher demand for N0, there was potentially a price increase of 50% of an N0 coin (7.5 apples instead of 5 apples), allowing everybody owning 100 N0 coins to make 50 new N0 coins makes this fall back to 5 apples, but you now hold 150 coins.
The question is, of course, if those N0 holders go back to M0 on money, how you go down again from 150 N0 coins to 100 N0 coins....

You could wonder what would be the reason for massive moves between N0 and M0, if these coins are both "price stable". There can be different reasons.  One would be the confidence that people have in these two coins.  Others could be that big players want to get the coins slightly off equilibrium to make margin profits.  They know that they don't risk any thing on the long run, as the long run exchange rate will always be 1, and they try to make a benefit on the lag on regulation, where the exchange rates differ from 1.
Yet another reason could be that there is an interesting buy in one of the coins with merchant, who only accepts, say, N0, and refuses M0.  Or still other reasons. 

They have to do with the Bogey man argument against deflation, namely that people would postpone consumption if they knew that prices are falling.  i-phones and personal computers indicate that this is simply not true.  People buy NOW, at higher prices, rather than wait for a year, to buy THE SAME thing at a lower price.

It is that last hypothesis that warns against "the deflationary spiral".  The argument is stupid, and is empirically shown to be wrong.

Of course, "i-phones lowering in price" is NOT the same as macro-economic deflation.  That's clear.  But that's not the argument to "show" how  a little deflation would induce a deflationary spiral.

That argument goes as follows, and is based upon hypothesis (H):

1) people are used to certain prices and wages
2) there is a mild deflation (say 2% a year)
3) people holding money, realize that if they wait to spend their money, they will be able to buy more with that money next year
4) ===>>>> (H) people will hold their money and spend next year
5) this increased hoarding of money makes the velocity of money go down
6) a lower velocity of money means still lower prices
7) the deflation increases: instead of 2% a year, we have now 4% per year
people realise that the prices will STILL be lower next year
9) =====>>>> (H) people will hoard even more
10) etc...

Given that the falling price of the i-phone 5 hasn't pushed people to postpone their buying of the i-phone 5, (H) is wrong.

In fact, you could tell the dual story against inflation:

1) people are used to certain prices and wages
3) there is mild inflation (say 2% a year)
3) people having money will know that things will be more expensive next year
4) they will spend everything right away !
5) this increased spending increases V
6) that increases prices even more
7) inflation increases: instead of 2% we now have 4%
people realize that the prices will still be higher next year
9) they spend even more right away
10) etcc...
HYPERINFLATION.

With light inflation of 2%, no hyperinflation is in sight.

With light deflation of 2%, no deflationary spiral is in sight.

Indeed, all the "QE" stuff boasted first by the FED and now by the ECB is just a trick to make people think that there will be soon an inflationary effect, to make people fleed away from simple bank accounts, into "more profitable" assets, which are then blown up.  That kind of bubble blowing is a national sports of central banks, because it makes their friends in the financial world rich on the back of normal people who are afraid for their savings.  They do the same with gold.

I wouldn't expect much effect (apart from the psychological) from the ECB QE.  It is more propaganda than anything else.  No real money will be brought in circulation, but some banksters are going to get somewhat richer.

Indeed ! 

Indeed.  It should be realized that if the state becomes more effective at fighting tax evasion, that corresponds economically to an increase in the effective fiscal pressure, even though the official rates didn't change.

You can see it like this: if in a toy economy, the official tax rate is 20%, but everybody is cheating by a factor of 2, then the effective fiscal pressure is only 10% (it is what is effectively lost by economic agents for consumption and investment to the state).  If the state now does a crack down on all cheaters, and after that, people are not cheating any more, then the fiscal pressure now equals the official fiscal pressure, that is, 20%.  The effective fiscal pressure went up a factor of 2, and people really have less to consume and to invest, even though on paper, our country didn't change a iota to its tax rates.

Of course one is interdependent on the actions of others, we do not live each on our individual island in the Pacific Ocean.  But we are not "macro economically influenced".  That has no meaning to me.  We are influenced by the actions of others, and the global dynamical properties of how all these interactions happen, is called macro-economics.   But this is just a coarse-eyed, globalised view of the emerging dynamics that occurs from the micro-economic decisions. 


My answer to that would be: I don't care about higher or lower production of others.  What I want is that I can satisfy most my own needs and those of the people I care about.  In some cases, I might desire lower production and higher levels of poverty elsewhere, if that results in better satisfaction of my own needs.

For instance, I might prefer a very poor Africa so that there is a lot of famine, so that when I go on Safari there, the population density is low and there is a lot of wild nature to see.   Or I might be a politician wanting people to have a lot of problems, so that they are much more sensitive to my propaganda and I might win the elections.

But the Africans living there may have a totally other opinion on that, and might on the contrary want to have high production locally, and maybe poverty in the Western world, so that they don't have to deal with all these tourists.  And the poor people that would be my target of propaganda might not like their situation of poverty.

So, no, I have no particular opinion on whether "production" should be high or low.  I want my own desires to be satisfied.  Sometimes specific macro-economic variables might be an indication to that personal satisfaction, but it would be very indirect.


My point is indeed that actually, monetary manipulation only makes sense if there is a kind of monopoly on money.  If there are several different free moneys competing for the different functions of money, all this is moot.

How are you going to manipulate M for the price setting, if there are many different moneys which can be exchanged with eachother ?


Absolutely not.  That must have been a misunderstanding.  I think one should not have any preference for any macro economic variable.

The only reason why I'm in favor of fixed-supply M, is that there is no handle on it so that it can be corrupted.  My idea is that a regulator is always potentially corrupt.  If there's nothing to regulate, there's nothing to corrupt.

Ok, let me try to express myself somewhat better.  Of course everybody is entitled to have his own micro-economic agenda.  That's after all, what freedom and a free market is about !  Of course you should decide your own destiny, and take your own action for what you think is going to achieve your own destiny.

But my point is that your own destiny is micro-economic.  You shouldn't have macro-economic indicators in your own destiny.  Now, that' is somewhat contradictory, because if you are supposed to be free to set your own destiny, I'm not supposed to tell you what should be or shouldn't be that destiny of course :-)  This is probably the contradiction you want to point out to me.

So yes, individually, you are free to act as pleases yourself to manipulate a macro-economic indicator, in the same way as you are free to act to manipulate any market.  But you see, I put this on the same level.  Market manipulators who want to pump and dump are also attaching their own destiny to a (smaller) macro-economic indicator: the price in a certain market.  As I'm for total economic freedom, I'm against forbidding market manipulation such as pump and dump.  But it is in my opinion not something that should be systemically encouraged or so.  The "American Institute for Pump and Dump" doesn't sound like a good idea, although, in the name of individual freedom, I wouldn't want to put a pump-and-dumper in jail.
In the same way, I think that wanting to influence a global macro-economic indicator on purpose falls in the same category.  In the name of freedom, I don't want to put people who set a goal for manipulating ("regulating") any macro economic variable, in jail, but I think it is not a good idea to institutionalise such very indirect economic action.

I think that macro-economic indicators are not to be taken as goals.  I think that "setting indicators" is of the same kind of stupidity as "setting prices", "setting exchange rates" or the like.  But again, in the name of freedom, I wouldn't want to have any action taken against people setting themselves as a goal to do exactly that, as long as they try to do it with their own private means.  But to institutionalise this with state monopoly and privilege is to me the same as institutionalising the setting of the price of bread: a big, big mistake.  In the name of freedom, people are free to make mistakes.  But please, let us not institutionalise it (as has been done about everywhere in the world).

If you ask me something like "do you want to achieve maximum S" or something, then I have no answer to the question, in the same way as I don't have an answer to the question "do you want to achieve minimum petrol price".  The petrol price has to be the price that the market decides, and not what I want as a pet desire.  Of course, individually, when taking petrol at the petrol station, I would prefer the petrol to be cheap !  :-)  But I think that trying to manipulate things to have a low petrol price, or worse, SETTING the petrol price, is a Bad Thing to do.  The petrol price has to be determined by offer and demand in the short run, and this petrol price, whether high or low, will guide investors to do things.  It is not up to me to decide what SHOULD be the petrol price, whether it should be high or low.  It should be what the market decides it to be.
In the same way, I shouldn't decide what S ought to be.  S should be decided by the market, and I shouldn't have any personal preference for S.  Any collective policy that actively tries to steer S or whatever other macro-economic parameter is to me an interference with the free market, on the same level as wanting to impose specific prices.

And the general price level is for me also such an indicator that shouldn't be actively manipulated, but that should be the result of market forces.  Now, if you have a private "money" in which private people, with their private means, try to stabilise the price, that's their good right (as it is, in my opinion, their good right to manipulate any indicator).  As long as it is with their private means.

The point is that he cannot spend these coins without giving up the secret of his identity.  No matter what he does in order to spend those coins against something else, the one receiving the payment would of course know who is his customer, to provide the goods or services.

Everybody knows that if you receive a payment in bitcoin that comes from the 37th block on the chain, it is Satoshi him/herself who is paying you, right.

Even putting those coins in a coinjoin style laundry would be extremely difficult without being traced.  Of course he could use Tor, but Tor is not entirely sure either.  So many people are eager now to find out who she is, that it would be way way too risky to ever sign a transaction on those coins.

Also, the effect would be devastating on bitcoin: if Satoshi sold his/her coins, what does that give as a signal about the future of bitcoin ?  Any movement on those coins will be seen immediately.

If Satoshi wanted to let know that these coins are not redeemable, then there would be other ways to do so.  The simplest would be to send them to a script that simply states OP_RETURN.

That begs the question of course !  You need a lot of money, because there is a lot of money !
If the money supply is fixed, then prices would drop if there was more production.  So these big houses would cost a lot less nominally in a fixed supply regime than in a fixed-price regime, and hence the demand for debt would be much less too.

Debt is not excluded in a constant-supply system of course !

In fact, the possibility or not to borrow and to invest (for instance, in big houses) is determined by the money market, which fixes the interest rate.   That interest rate will be an incentive to store value, and as such, it will determine also V and hence the price level.

If people really want a big house, and a loan for it, they will offer a large interest to borrow the money.  That will induce others not to spend, but to save money, and to lend it to those borrowers.  That, in its turn, will lower V, as people consume less (save more), and that will make prices fall.  As such, nominal interest rates can lower, because deflation increases.  At a certain point, borrowing money is not interesting any more as compared to hoarding.  At that point a new equilibrium is reached.

So everything started with the desire to build larger houses and the willingness to pay higher interests on it.


Absolutely not.


There is no preference to have.  People decide whether they want bursting or bubbling.  There shouldn't be an imposed policy to counter one or the other.  Human action should be free to express itself.

This is the main reason to have a supprely-stable currency: there is no policy involved !
From the moment there is a policy that can have a monetary regulation, there will be a misuse of that policy: by ignorance, for popularity, or for whatever other agenda.
Only a supply-stable currency, or one with a supply graved in stone can resist misuse and manipulation.  From the moment that there are monopolized and privileged deciders, it will be abused, it will be mismangled.


Except when they happen, and then it is the fault of an individual, and not of the possibility that it could be mismangled :-)
But you're right that "inflation" as calculated the way it is, is more or less under control.  On the other hand, blowing bubbles in speculative assets is now the result.


You see what I mean.  If it is centrally "regulated", it can, at any moment, be centrally abused and mismangled.

Cause and effect are something else than "what the FED can control" !
If I fall on the floor and I bleed, then the fall is the cause of the bleeding, and the bleeding is not the cause of the fall.  Even if the FED doesn't control nor my falling, nor my bleeding !

What I mean is: you said that low inflation causes V to fall.  But "inflation" is not decided upon by anybody.  And in as much as the FED wanted low inflation, as you say, she can control M, but she cannot control V.  V is a "human action" that is the result from individual decisions of people to hold or to spend.  The price is a RESULT of Q (what people decide to produce), M (what the FED decides it to be) and V (what the people decide).  If we see that the price doesn't increase, then it would be strange that this CAUSES V to drop, right ?  Indirectly, this is not impossible, is this is a general behavior of people.  They may indeed have more confidence in the currency and store value in it if they observe that the prices are constant, and that the currency doesn't loose value.

But I see why you think that the price level determines V: it is because you CALCULATE it that way.  It is because you see V as a kind of fitting parameter that you can estimate after the fact by knowing P and knowing Q and knowing M.

However, to me, V is a genuine economic behavior: the (inverse of) the demand for store of value in the currency. 

The dependent variable is always the price.  The price is never chosen first.  The price is always an EFFECT.  It is a result of market forces, of offer and demand.  Nobody decides upon a price in advance.  The price is the thing that comes last.   So "price" can never be the cause of anything, except in an artificial setting such as a FED, where the FED measures the past prices, and fixes the future M as a function of it.

You could say that "hyperinflation causes V to explode", but no.  That not how hyperinflation is physically established.  People don't wake up one day, and decide "today we do hyperinflation".  No.  People decide NOT TO HOLD the money any more.  They decide to increase V.  They decide that they don't have any confidence in the money any more, and want to get rid of it.
Their DECISION is to get rid of the money.   The RESULT is hyper inflation.  Not the other way around.



I don't want anything.  It is not up to me (or any body else) to decide human action of others.  Nothing should be maximized or minimized or whatever.  Human action should be able to be expressed in its most free form.  That's all. 

If people want to hoard, they should be able to hoard.  If people want to spend, they should be able to spend.  If people want to produce, they should be able to produce.  If people want to stop producing, they should be able to stop producing.  I don't think any central authority should say what "should be good" and "what should be bad".   The economic dynamics must be left as much as possible to free, decentralized, individual decisions.
There is no collective "good" or "bad", and no collective "goal to attain" or "disaster to avoid".
The dynamics which is the result of all individual decisions should be respected.  Whether that leads to booms and busts, famine and joy, doesn't matter.  It is the result of people's decisions.  That should be respected.

This is why I don't have to say whether V should be large or small.  It should be FREE, so that it adapts to whatever people decide to do.

2 !

Aren't we inverting cause and effect here ?  We get a low inflation BECAUSE V drops, of course !


There's nothing wrong with "long run high V".  In fact, it would satisfy Keynesians: the relative holding of value in the currency is then quite low.

If price stability implies low V, this would mean that price stability implies hoarding of money.  

As such, assuming your hypotheses correct, a FED that tries to stabilize prices would cause a falling V, and hence should have to print and print and print, for people to hoard, and hoard, and hoard.  The falling V then compensates the printing.

But this is a dangerous and potentially unstable situation: with low V (caused by a price stabilisation policy - which is your hypothesis), it means that people have been storing A LOT OF MONEY.  Now why is that a dangerous situation ?
Because several things can happen in this unnatural situation of higher-than-normal demand for store of value in the currency when people start to find that there's a lot of money stored and want to do things with it.

One thing would be a loss in confidence in the currency, where the people are going to spend, or are going to place their store of value in another asset.  In the first case, we obtain unstoppable inflation.  Maybe this was part of the inflation problem in the 70ies.  For a FED, it is hard to destroy money if it is being SPEND.

The other possibility is that people are going to store a lot of value in other assets, which get over inflated.  In other words, bubbles are blown on speculative assets.  Now, that's exactly what we've had for the .com bubble, and the housing bubble, and the banking bubble.

So artificially low V which you claim is a consequence of stable price policy is a time bomb, because or it leads to uncontrollable inflation (when the V goes back to normal long-term values), or it leads to blowing bubbles in speculative assets.

And that's exactly what we've seen during the FED years.

That's your vision on its head !!  If price stability has CAUSED velocity decrease with an increasing regulator money supply, it would have meant that velocity would probably have remained constant if the regulator hadn't been printing money !

Your vision is that price stability should be obtained by regulating M.  Now you say that price stability causes a falling V.  Moreover, we know that we didn't have price stability, but strong price increase during the 20th century (a factor of 23 or so of price increase since 1914).  If that price increase has caused a drop in velocity, you are saying that velocity is a NATURAL REGULATOR of price !

But if it is a natural regulator of price, counter acting partially the manipulation of M, then there's absolutely no need for regulating M !

In other words, M has been blowing up during the 20th century to:
- compensate the increase in Q (to keep prices stable instead of having them fall with technological improvement)
- cause a 23-fold price increase
- counter-act the falling of V that would have lowered the price increases if done nothing.

If you are saying that V drops whenever M is increased to obtain "price stability", and hence V counter-acts this increase in M by the regulator, then you should also conclude that V would remain constant (or would have tendency to remain constant) if M is NOT increased, right ?

So in supply-stable model, we would, according to you, finally also have V constant.... and hence P constant as long as Q is constant, right ?

And have a slight deflation if there's a slight economic growth (slight increase in Q).