Ben just printed 1 trillion dollar, where would them go?

Compare 2 alternatives

1. He lend them to government to setup some project, hire some worker, make some products. At first, this will create some jobs, but after a while, production increased, competition get hard, price level will go down, some other companies shut down and jobless rate increase again. Since computer and automation solutions are continuously deployed everywhere, less and less people will be required, and the government project can not fight against such a big trend

2. He lend them to people to buy bitcoin. After a while, bitcoin prices are on the steady rise, and everyone join the game wins, they start to spend big , more business are rushing into this new economy, and other companies will expand their capacity to meet the rising demand

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The core reason for a recession is simply caused by one fact: People do not have enough money to spend

So it is clear that in alternative 1, majority of people still don't have money, they just had another consumption option which might deplete their saving further, it does not really help them to get out of their trouble

But in alternative 2, people will get rich from buying bitcoin, and then they have money, they have saving, and they will spend, the recession will end naturally

21.) A blackhole

NSA agents are all here, they know how secure sha256 is and they are buying BTC like crazy, their salary have just been lowered by the government spending cuts and they need some extra income to make their ends meet

A bought one BTC from B for $2, and B bought back the coin for $4, and A bought it back again for $8, and B bought it back again for $16 ... Each time they made 100% return and both of them become rich in the process. The people who holding the BTC feel he is rich since the BTC price is high and he can sell it even higher later, and the people just profited from the trade also become rich and he want to buy again to enjoy the next ride

You might notice that there is only one BTC at any time and they just exchange it for more and more fiat at each trade. So how long the price appreciation will last depends on how much fiat they can put in the trade, before they exhausted most of their fiat reserve, the process will continue

And in current debt driven monetary system, fiat must increase exponentially to support it from collapsing, banks are getting fresh fiat money all the time and there will be people borrow these money to buy coins. Actually these people will become very important customers for banks, because in a mature economy, there will be less company who are willing to borrow

In a debt based fiat money system, it is a zero sum game, your saving comes from another people's debt, so your conclusion is correct

But in a debt free money system like bitcoin, it is totally possible that everyone are rich, since every BTC existed are not a kind of loan, the electricity, time and R&D cost of the mining equipment has all been paid and contains in each BTC, it is debt free and have value coined in, everyone can get BTC with their product/service without incur a debt somewhere else in the society

Ignore the USD exchange rate, that partly depends on the USD supply by FED, do not really represent the real value of BTC, market is discovering that value now

The year is 2015, BTC exchange price doubled every 2 month, everyone buying BTC become rich, there are more consumption, more people are quiting their job and retiring, jobless rate down, GDP up, and inflation is low, it even caused deflation because all money are flowing to BTC

There is a shortage of USD, people start to borrow USD to buy BTC. The banks are very happy to issue the loan, this is their first big wave of customer after housing bubble

Finally FED become concerned and start to tighten, banks stopped issuring new loan, people start to sell their BTC to pay back the loan, the BTC price advancing stopped

But since BTC are also traded in other exchanges by that time, US monetary policy only stablized the USD/BTC price, it won't stop other currencies flowing into BTC to chase the wealth effect. As a result, USD/EUR exchange rate increased very quickly, and hurt US export badly, then there will be a G20 meeting, discuss the worldwide monetary tighten strategy...

I've been considering this typical scenario in a relatively small market:

One big player accumulated lots of coins at $5 during a long period, and then use some amount of cash to push the price upwards, slowly toward 40 (since the supply is low, it is not difficult to push the price up), and he slowly dump all the coins he accumulated during this rally process

Since the amount he dumped is huge, the price will lose steam after he left and eventually crash down. When this happens, what is going to support BTC price to stay relatively stable?

On a falling price market, every business owners that accept bitcoin will face potential future loss, they will reduce the exposure to BTC, which further accelerate the fall. So people need to have a strong motivation to keep the money flow into BTC when the price is falling

So far the only motivation I can find is scarcity (and those true believers), is there any other motivation? For example, users always get decent discount when buying with BTC, so they have the motivation to exchange for BTC no matter how price goes, and that exchange volume will help to keep the BTC demand up

I am interested if BTC is enough resilient against a deep price drop, because that day will come

Ok, added your reasons 

If there are any other reasons, please post them here

Just read your plan, I think the biggest risk is BTC exchange price, is there any hedge against a sudden crash in BTC price like what happened in 2011?

http://www.forbes.com/sites/timothylee/2013/02/14/why-i-dont-think-bitcoins-big-price-rise-is-another-bubble/

"For example, right now, the wire transfer industry is dominated by monolithic firms like Western Union. Bitcoin could make it possible to build a decentralized Western Union competitor that in principle could have lower fees and much greater convenience."

I think he pointed out a very bright future for BTC as an infrastructure for international clearing. Although the transaction itself is irreversible, the services built upon it will handle that without problem, more flexibility can be added

Just fun to know that some totally different system can exist. As stated by their leader, "people are with more motivation when they are poor"

They confiscated the extra cash saved by "capitalists" by setting a conversion limiation, and redistribute those wealth to normal workers in state-owned enterprise through a 100x salary increase, for me this is a very simple way to redistribute wealth to working people, but I think 100x are too much, maybe 2x is fine

For example 1 rich guy have 1million won savings but he can only convert 100,000 won, so those 900,000 won are confiscated by government, suppose there is 1 rich guy in every 10 people, the rest of the 9 people will share this 900,000, each get 100,000, and their salary is 3000, through a 100x salary increase, they will earn 300,000 per month, much higher than the confiscated money, so it will unavoidably cause hyper inflation

I think that even they get a very small salary increase, it will still cause inflation, since those 900,000 won saved in the hand of "capitalist", they might be just sitting there doing nothing, they won't cause inflation if they are not spent

NK example just showed that taxing a small amount of rich people is not enough to enrich the most of the people in the society, even that tax is more than 90%

Government and FED are different organization, FED buy bonds from government, and government has to pay interest to FED. That's my understanding, if you have better source please share it

And you can even remove the interest element in this discussion (As I did in my model), anyway interest is almost 0 now.

This is the same as FDIC, they are trying to prevent people from withdraw large sum of money, since banks are all empty now

You are right, Bitcoin do not have a tangible format, but you could try cacasius coin and see if it makes you feel better  
https://www.casascius.com/

And it is produced by mathematical calculation which is extremely hard. Try to hash a block with a pen and a paper by yourself and you will understand why $27 is almost nothing compared to the amount of effort involved (and energy/heat used) in generating a bitcoin

People's value changes over time depends on technology and environment change. 200 years ago, if you dig out some petroleum, it worth very little, but now people spend huge amount of resource searching for it...

If more than one people claim the same piece of gold at the same time, banks go bankrupt, that is what is happening after financial crisis


The growth are all true, but not sustainable. For average people, the biggest spending (and hence the growth for society) comes from housing, then their spending will decrease, unless you could find an even bigger spending after housing, that is the problem now



Yes, those aspects all affect efficiency, but my model just showed that no matter how smart/efficient the banks/policy maker are, that debt based money creation will always lead to insolvency

In my second model desribed in the OP, you can try all different productivity/pricing combination to generate saving for both A,B and D, you will find out that is simply impossible, their combined net worth in currency's form is always 0, just because none of them have the original ownership of the currency

Most of the money is debt based, but not all of them, when US disgarded gold standard, some part of the money is backed by gold

I think FRB has nothing to do with this, it is more like insurance, commercial banks hedge the withdraw risk by combining lot's of savings together. They can never loan out more gold than they have, that so called "money multiplier" concept is just an accounting trick

And what you said is true when the economy needs to EXPAND continuously. Like human body, when an economy has become more mature, the growth will eventually slow down, the reason that an economy has to grow continuously is because all the money are debt driven

You can hold lots of gold while have a decent but low living standard and no innovation, it's totally fine (Just like old China and India) But you can not hold lots of USD while doing the same, because someone else in the society must be heavy debt laiden because of your saving, they have to work hard to payback that debt, and those guys will try to earn your USD to pay back their debt

Some old news, but it is the first time I read about north korea currency reform, I also heard that they raise the salary for normal workers by 100 times in the process, how genius 

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On November 30, 2009, North Korea announced that it would exchange new currency for old currency at the rate of 100:1, spurring panic in the North Korean markets. The plan was announced to the public with little advance warning, catching individuals with large amounts of local currency off guard. As a strategy for exposing and impoverishing holders of excess local currency, the initial phase of the strategy was effective. A representative of the Korean Central Bank affirmed that “we are not moving toward market opening, but will further strengthen the principle and order of socialist economic management.” North Korea’s objective in pursuing the revaluation, therefore, was aimed at curbing the markets and reinstituting state control over the markets and over public reliance on the state. But given that objective, it is clear that as the currency revaluation process unfolded, it met with a variety of challenges that in the course of less than two months led to an unprecedented public admission of failure by DPRK Premier Kim Yong-il and the dismissal—and reported execution—of finance chief Pak Nam-gi.

North Korea's policy failure occurred at a variety of levels. At the technical level, initial implementation of the currency revaluation was undermined by the inability of the state to have sufficient goods on hand to restore the public distribution system as a replacement to the market. Moreover, the reforms themselves caused the markets to seize up, robbing them of the exchange needed to ensure that they continued to be well supplied with goods from China, leading to the breakdown of distribution of necessities in North Korea. A related failure was the difficulty the state faced in setting prices in the aftermath of the reform. The failure to get prices right also interfered with the functioning of the markets and made normal commerce difficult to conduct, leading to shortages of goods. Second, the state effort to expropriate hoarding of local currency and set the limit for exchange of new currency at impossibly low levels invited public outrage and a rather strong backlash among the people. In fact, the backlash was sufficient that the government was forced to undertake tactical readjustments to the ceiling on the amount of local currency that could be exchanged for new currency within days of the announcement of the initial plan. Each dimension of the failure contributed to exposing the major conceptual miscalculation behind the policy, namely, that it is possible to roll back the markets and return to the old state-centered distribution system of the past.

The Chosun Sinbo interview with Central Bank representative Cho Song-hyo'n states clearly the objective of the currency revaluation as follows: "In the future, a great deal of economic activities will be conducted not according to the market but based on the planned supply and circulation system, and it is expected that this will make it possible to further strengthen order in the planned economic management. . . In the past, the utilization of the market was partially allowed because the state was unable to satisfactorily secure the supplies needed for the production activities of enterprises as planned. The market was utilized as a supplementary means based on the principle of socialist economic management. We believe that, as the capability of the state has strengthened, the role of the market—which has performed its function as a supplementary means—will gradually dwindle."

For the state to restore its role as the primary source of distribution within North Koreansociety, it would be necessary for DPRK central authorities to restore government-led distribution mechanisms to a level that would allow it to replace the markets, along the lines of the way that the Public Distribution System (PDS) had historically worked. In order to do this, the state-authorized points of distribution would have to be stocked at levels that would be more reliable than the markets. Distribution of new currency into the hands of the people would strengthen ties of people to their work units and restore loyalty to the state. But the spike in demand for goods resulting from distribution of the new currencies, the impoverishment of those marketeers in North Korea who had used local currency as a medium of exchange to facilitate distribution of goods from China, the lack of small bills available initially in the new currency in the markets, and the failure of state-guided pricing to "stick" at the time of the introduction of the new currency all served to undermine the effort.

Central bank representative Cho states in his Chosun Sinbo interview that commodities were set at the price levels that had existed in July of 2002 when previous economic reform measures had occurred, "with the international market price of rice as the standard." But those prices proved to be far from the market price of goods, especially in the new currency under circumstances where demand was outstripping supply. As a result, hyperinflation made it impossible for the state to set effective prices in the markets in early December, further contributing to the breakdown of the market mechanism.

North Korean authorities took a second step against the markets by banning use of foreign currencies on December 28, 2009. The Daily NK reported that the official decree requires businesses to deposit all foreign currencies in banks, to be withdrawn after obtaining approval for use of the foreign currency. This measure was designed to further strengthen political control over foreign exchanges in order to “bring the black market under control." The measure essentially criminalized the unauthorized possession of foreign currency in an edict that endangered anyone conducting foreign trade outside of market channels. Having impoverished individuals most likely to be active in meeting market demand, the foreign currency ban criminalized those same individuals.

The third step was the most drastic: North Korean authorities shut down general markets across the country in order to transition them to farmers' markets. This shutdown exacerbated both inflation and the supply of goods inside North Korea, contributing to the spread of famine conditions in various parts of the country. Good Friends reported deaths by starvation in both North and South Hamgyong and North and South Pyongyang Province and a sharp drop in the value of the new currency in North Korean markets.

Stephan Haggard and Marcus Noland argue in their recent policy brief that North Korea's currency reform was confiscatory in nature, that "currency reform was designed to target groups engaged in market activities that not only generate cash earnings but also require cash balances given the underdevelopment of the North Korean financial system, while at the same time providing compensatory allocations to favored groups closely connected to the state." In the same policy brief, Haggard and Noland estimate inflation in North Korea to have exceeded 100 percent per year in the years following 2002 and dropped to double or single digit levels in 2007 before accelerating again in 2008-2009.

Following the surprise announcement of the currency reform, North Koreans were given only a week (from November 30 to December 6) to exchange old currency for new and faced strict limits on the amount of currency they were allowed to exchange, although these limits reportedly faced strong opposition from average North Koreans. Interestingly, in the face of protests, North Korean authorities adjusted the original ceiling of 100,000 won per individual to 150,000 won in cash and 300,000 won in bank savings. The most egregious mistake of the reform was a serious underestimation by the authorities of the extent to which market activity—and the resulting need for money— was being used to hedge against political control by the state.

The reopening of the markets was accompanied by a rare public apology in a reported meeting with government officials and local village leaders. Premier Kim Yong-il stated that "regarding the currency reform, I sincerely apologize as we pushed ahead with it without a sufficient preparation so that it caused a big pain to the people" and that the government "will do its best to stabilize people's lives." Media reports have also revealed that the alleged responsible official, Park Nam-ki, was dismissed in January as chief of the planning and finance department of the Workers' Party and reportedly executed in March for his failure to lead the currency exchange successfully.

Thanks, you brought in some other variables that currently my model still can not analyze, I will try to make another model when it comes to import/export

At least in my current model stated above, you will see there is a big difference, debt free money like gold can permanently become saving, since itself is the result of work, holding that money do not incur anyone else's debt, while debt money could never become saving, since it does not contain any work, holding that money always incur someone's debt, so it can only be used as a token of exchange