If you think gold will suffer under this scenario, you're kidding yourself. Whether Bitcoin will outperform gold is another matter. Bitcoin has been outperforming gold and silver for 3 yrs now. when are you going to learn? |
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Bitcoin is holding just fine as far as i'm concerned.
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I do not disagree that deflation is a real risk (or that it is happening now), i disagree only that it is the expanding money supply in the form of debt that is the reason for it.
It is the reason. The higher the Debt/GDP ratio (that caused inflation) - the nearer the tipping point that leads to a reversal. Debt can't be created fast enough anymore at a debt level of 4 x GDP. What he's missing is that the ever expanding debt is preferentially being extended to the Treasury market, ie gvt, versus the private sector by speculators looking for risk free return and leading to severe misallocations of capital and even suppression of free markets. This is deflationary. Misallocation of capital should decrease productivity, which should drive prices higher. So there must be something else, or, an indirect causality creating the deflation. i think this is what you're looking for. net shadow liabilities in the system have been dropping since 2007-8 despite new record national debt levels trying to compensate ---> deflation: http://www.newyorkfed.org/research/epr/2013/0713adri.pdf I agree on most of what you say in this thread. That chart does not indicate that debt is contracting yet, and including other countries, I think debt is still increasing greatly, contributing to the inflation (higher prices), as seen in consumer prices including housing, energy and capital prices which is also part of the equation. Still the equation is not exact, because the market expectations are a great part of it. The deflation scare put forward by politicians is a tool to manipulate the hordes to accept the current money regime. who knows for sure? http://www.zerohedge.com/news/2014-04-16/fed-fabricating-loan-data |
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How do you think this will end?
no one knows of course. according to Fekete, we are going to end up in death and destruction as the Black Hole US Treasury sucks everything into it. only then does he think gold will be restored as ultimate money. gold would be part of an Armageddon play. i obviously disagree with this part about gold. i'll also disagree with the death and destruction part b/c w/o hope for a better life, there is no living. so i'll take the optimist prediction. not just for that but also b/c i think technology can save us, of which Bitcoin is an integral part. whether gold's drop in price from 2011 to now is from a topping of its 9yr cycle, from manipulation, or from a nascent Bitcoin effect doesn't really matter. the fact is, the price is dropping. if it continues to drop and Bitcoin is flat or starts increasing in price, there will be a solid case for optimism. to explain this, let's assume interest rates continue to drop from Fed printing and more deflation. but first, it's helpful to understand the relationship btwn interest rates and gold hoarding from long ago before CB's. when a country lowered interest rates on loans that were considered "too low", fears would arise from investors that the lending was being made too easy thus encouraging a potential speculative boom. as a check to this, potential new bondholders would not buy and instead redirect their money into gold hoarding. when the country noticed this, it would be a signal that their lending policies were too easy and that they needed to raise interest rates. so gold was a check on bond prices and vice versa interest rates. fast forward to today when there appears to be something wrong with this dynamic. as i said above, it could be from manipulation, a topping of gold's 9 yr cycle, or a nascent Gold 2.0 effect from Bitcoin. if there is manipulation going on then one has to assume that this is possible b/c the Fed actually owns some gold and can thus lease it out to primary dealers to do the manipulating. how much is left is anyone's guess. also, there is a huge paper market surrounding gold that is opaque and can be manipulated to suppress price. to the extent that the Fed/gvt doesn't have any usable Bitcoin to short with (excluding the SR stash that we can monitor on the blockchain) i think that Bitcoin has an advantage over gold in that regard. if my 9yr cycle top call continues to hold, that means we still have a few more years of downside in the gold price to go. the question will be how deep that goes. if Bitcoin holds steady or starts to rise again, that would be a huge sign, imo. not to mention all of the technical advantages we've all advanced ad nauseum in this thread. all these factors tip the scale towards Bitcoin from gold, imo. so my optimist view goes like this. since gold doesn't seem to be doing its historical role of providing a check on bond buying or interest rate manipulation, perhaps Bitcoin might one day assume this role instead. that would require a significant and progressive rise in the Bitcoin price as speculators would start dumping UST's in favor of Bitcoin. if this happens, interest rates will start to rise, savers in fiat won't continue to be penalized as now they could start leaving money in the bank again and earn reasonable interest. pensioners and retirees could start to rely on CD's for income once again. and then maybe we could even go to a Bitcoin Standard as i've talked about in the past. Bitcoin could become the great regulator of CB's and gvt's. this would be my greatest hope. after all, i am biased. Thanks for explaining this in such detail. I have been following your writings since mid-2011, and I must admit you were more right than at first I dared to concede. Do you think it is possible that we will see hyperinflation in USA? I ask this because while Mish believes that scenario is almost impossible, Fekete does not rule it out. Finally, many people seem to think that gold and bitcoin can go up hand in hand. What do you think of that? of course you can never rule it out. but i really don't think so. first off, both Weimar Germany and Zimbabwe did not have functioning bond markets. Germany was just coming off the war and really had no infrastructure so the only way they could get money out to its citizens and to pay off war reparations was to print. the massive potential for all the US debt build to deflate thru defaults is likely to win in the medium to long term. after a big washout, maybe hyperinflation is possible. but not until then. also, the monetary velocity chart is going nowhere but down right now along with interest rates. that's deflation. if ppl were dumping their cash as fast as possible, it would be going up instead. what ppl are doing is saving like crazy. banking deposits are way up and ppl are clinging to what cash they have. i know this from my own accounts. i've pulled out of the stock mkt and my deposit accounts are brimming. i'm expecting some bank trouble again so i've spread them out in multiple bank accounts trying to keep them close to the $250,000 limit. also saving in Bitcoin obviously. as long as the USD remains the petrocurrency and our military remains strong the USD is likely to go up in a deflationary event as it did in 2008. the good news for most Americans is that our price of goods and services has not gone up significantly. sure, in some areas it has, like student tuitions and healthcare premiums. but even $4 gas hasn't been too bad and food is relatively inexpensive. in short, i don't see the USD plummeting just yet and the charts i've been putting up indicate we may be starting a major rally. for the same reasons i argue that Bitcoin will win the altcoin space as ppl gravitate to one currency for efficiency reasons and the network effect, i think that Bitcoin wins over gold. as long as Bitcoin can remain secure, there is every reason to like it better than gold. definitive fixed supply, portable, divisible, transportable, room for growth, intangible, not encumbered by a paper market (yet), unreachable by gvt, etc. so no, i don't think they will go up together. for the last 3 yrs, we've already seen them go in opposite directions. gold has failed in its historical role as an enforcer to UST's. |
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i think the Ripple printing inflation that just happened is a major flaw for all appcoins. sure appcoins can have value, but they will likely degrade over time. i look at my cc generated flight miles that used to be $1/1pt. now it's nowhere near that and periodically i lose them if not used.
there should be no comparison of these appcoins to something like Bitcoin. they are entirely different.
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don't forget about this part of the Black Hole as well:  |
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It's the money velocity that has collapsed ... and is still in vicious downtrend. Monetising the debt directly is a futile attempt to boost money velocity by the wizards of fiat.
The two biggest stories of the week from the elite are that USA (White House) is considering bombing both sides in a far off war ... (suspected insanity) and that the CFR suggests to print money directly into householder accounts aka helicopter money drop (patently insane).
History will look back askance on these times with pity.
the collapse in velocity and interest rates is a strong signal that deflation is winning. no matter how much money the Fed prints, it can't force ppl to spend. the Fed's complicity with the US Treasury to buy bonds over the last 34 yrs has caused a steady drop in interest rates. this drop in rates has caused periods of euphoria and over investment in certain sectors of the economy but overall what it is causing is deflation. the Treasury market, the largest market in the world next to forex, is continually front run by speculators searching for risk free profits in the form of ever rising bond prices. speculators know that the Fed will be there to pay them a higher price for the bonds they just bought from front running auctions. they know that ultimately in the case of a problem, bonds will be backstopped by the public either in the form of taxes or further money printing. the Treasury market is a veritable Black Hole. stop and think for a moment of the Ponzi scheme at work. Fed uses fresh USD to buy UST's from gvt and turns around and sticks those UST's on the asset side of it's balance as backing for those same USD's it just printed. gvt turns around and uses the USD's obtained from issuing UST's and wastes that money on welfare projects and warfare. they are much worse at allocating capital compared to the free market. when gvt needs to redeem the UST's, it just issues even more UST's for more USD's from Fed and the cycle spirals downward in terms of real productivity. this is deflation and we're seeing it in a plunging monetary velocity and negative interest rates in Europe. of course, certain sectors of the economy can experience price inflation at different times like the stock mkt currently just to fool you that hyperinflation is just around the corner. the noughts saw commodities rise along with gold. student loans are at all time highs. but these are just distractions to the main dynamic in play; the US Treasury/Fed ponzi dynamic using USD's and UST's to cause inadvertent deflation. real productivity suffers and the Fed is pushing on a string. for more on this read the writings of Professor Antal Fekete. How do you think this will end? no one knows of course. according to Fekete, we are going to end up in death and destruction as the Black Hole US Treasury sucks everything into it. only then does he think gold will be restored as ultimate money. gold would be part of an Armageddon play. i obviously disagree with this part about gold. i'll also disagree with the death and destruction part b/c w/o hope for a better life, there is no living. so i'll take the optimist prediction. not just for that but also b/c i think technology can save us, of which Bitcoin is an integral part. whether gold's drop in price from 2011 to now is from a topping of its 9yr cycle, from manipulation, or from a nascent Bitcoin effect doesn't really matter. the fact is, the price is dropping. if it continues to drop and Bitcoin is flat or starts increasing in price, there will be a solid case for optimism. to explain this, let's assume interest rates continue to drop from Fed printing and more deflation. but first, it's helpful to understand the relationship btwn interest rates and gold hoarding from long ago before CB's. when a country lowered interest rates on loans that were considered "too low", fears would arise from investors that the lending was being made too easy thus encouraging a potential speculative boom. as a check to this, potential new bondholders would not buy and instead redirect their money into gold hoarding. when the country noticed this, it would be a signal that their lending policies were too easy and that they needed to raise interest rates. so gold was a check on bond prices and vice versa interest rates. fast forward to today when there appears to be something wrong with this dynamic. as i said above, it could be from manipulation, a topping of gold's 9 yr cycle, or a nascent Gold 2.0 effect from Bitcoin. if there is manipulation going on then one has to assume that this is possible b/c the Fed actually owns some gold and can thus lease it out to primary dealers to do the manipulating. how much is left is anyone's guess. also, there is a huge paper market surrounding gold that is opaque and can be manipulated to suppress price. to the extent that the Fed/gvt doesn't have any usable Bitcoin to short with (excluding the SR stash that we can monitor on the blockchain) i think that Bitcoin has an advantage over gold in that regard. if my 9yr cycle top call continues to hold, that means we still have a few more years of downside in the gold price to go. the question will be how deep that goes. if Bitcoin holds steady or starts to rise again, that would be a huge sign, imo. not to mention all of the technical advantages we've all advanced ad nauseum in this thread. all these factors tip the scale towards Bitcoin from gold, imo. so my optimist view goes like this. since gold doesn't seem to be doing its historical role of providing a check on bond buying or interest rate manipulation, perhaps Bitcoin might one day assume this role instead. that would require a significant and progressive rise in the Bitcoin price as speculators would start dumping UST's in favor of Bitcoin. if this happens, interest rates will start to rise, savers in fiat won't continue to be penalized as now they could start leaving money in the bank again and earn reasonable interest. pensioners and retirees could start to rely on CD's for income once again. and then maybe we could even go to a Bitcoin Standard as i've talked about in the past. Bitcoin could become the great regulator of CB's and gvt's. this would be my greatest hope. after all, i am biased. |
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furthermore, continuously falling interest rates increase the burden of previously contracted debt at higher rates for businesses. this destroys their capital. a perfectly sound business may fail if their debt burden begins to exceed the profitability of their deployed capital, thru no fault of their own.
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Good point. Increasing productivity has been known to cause deflation since at least Adam Smith (1776). I still don't see how collapse of debt (which reduces the demand for money because now that debt isn't going to be repaid) causes deflation. If you have to make debt payments, you will try make sure you have enough dollars to pay them. This is why debt increases demand for dollars. Again, yes initial issuance is short term inflationary, but I don't see how you can claim it is inflationary overall.
you're over thinking this. money supply = monetary base + mostly credit/debt. in the run up into the 2008 high in housing and stocks, ppl leveraged up to buy both assets. when the bubble burst, margin calls went out to stock holders and home owners found they could no longer make mortgage payments. what do you do in that situation? panic sell at lower prices to limit your losses. the whole process began to snowball with stocks and home values plunging as a result along with widespread debt defaults. oil dropped to $30. gold hit its 9 yr cycle low. all that leverage started coming out of the system (deflation) and there was a worldwide scramble for USD's to pay off that liquidated debt as well as a run to safety into UST's which only exacerbates the deflation associated with Fed policy to manipulate rates downwards during normal times. |
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I do not disagree that deflation is a real risk (or that it is happening now), i disagree only that it is the expanding money supply in the form of debt that is the reason for it.
It is the reason. The higher the Debt/GDP ratio (that caused inflation) - the nearer the tipping point that leads to a reversal. Debt can't be created fast enough anymore at a debt level of 4 x GDP. What he's missing is that the ever expanding debt is preferentially being extended to the Treasury market, ie gvt, versus the private sector by speculators looking for risk free return and leading to severe misallocations of capital and even suppression of free markets. This is deflationary. Misallocation of capital should decrease productivity, which should drive prices higher. So there must be something else, or, an indirect causality creating the deflation. i think this is what you're looking for. net shadow liabilities in the system have been dropping since 2007-8 despite new record national debt levels trying to compensate ---> deflation: http://www.newyorkfed.org/research/epr/2013/0713adri.pdf |
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I do not disagree that deflation is a real risk (or that it is happening now), i disagree only that it is the expanding money supply in the form of debt that is the reason for it.
It is the reason. The higher the Debt/GDP ratio (that caused inflation) - the nearer the tipping point that leads to a reversal. Debt can't be created fast enough anymore at a debt level of 4 x GDP. What he's missing is that the ever expanding debt is preferentially being extended to the Treasury market, ie gvt, versus the private sector by speculators looking for risk free return and leading to severe misallocations of capital and even suppression of free markets. This is deflationary. |
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I have a problem with this debt creation means deflation meme.
In a restricted economic model, where we have some actors and some money, the value of each unit of money depends only on the actors willingness to hold. The demand and supply sides consists of the same people, where demand is the wish to hold more, and supply is the less willingness to hold.
Extending this with debt, a debt which is safe and of static volume, extends the money supply. The debt is more like money if it is transferable. If a debt is completely safe, have very low interest and is due very long time in the future, and is transferable, it is in practise equivalent to money.
In all cases up till now in the model, the money supply is static and we should have stable price level on goods in the market.
Extending the model again, now with an expanding money supply in the form of base money and debt, which is the current situation in the world, value of the money unit should fall, as the supply is now the willingness to hold less plus the new money, demand being the willingness to hold is the same.
Now the big unknown, hitherto considered static, is the willingness to hold. This is of course not static in the real world, as it depends on the actors life situation and the world situation, including the important prospect of the future value of the money. Basically, if there is an expectation that the money will fall in value, people will hold less money and hold long lasting, transferable goods instead. But this will only accelerate the fall of the value of the money, it will not be an upward pressure of the value of the money unit (otherwise called deflation).
I do not disagree that deflation is a real risk (or that it is happening now), i disagree only that it is the expanding money supply in the form of debt that is the reason for it.
In my view, it is a collapse of debt that is the reason for a possible deflation. A collapse of debt will happen when the market actors consider the risk of lending too high, or when other risks make people hoard wealth in the form of long lasting consumer goods like houses and cars, paid not with loans but paid for by less consumption of other goods.
The 'money supply' is only a fraction of total debt (USA 60 trillion). As long as debt creation in an economy is faster than productivity, you'll have inflation. As soon as the total debt sum doesn't increase as fast as productivity, you'll have deflation (Japan first and now the rest of the western world following). I of course include debt in the money supply, see above (red). Yes, any definition of money supply needs to include debt. |
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Crap. I missed the wall take down. Was on a bike ride. How did it happen? Did one or all of the walls get taken down at once or piece meal?
Whatever, it's a great victory for the bulls who stared those walls down for almost 24 hours. That'll teach 'em.
I only saw stamp and bitfinex, but both were swallowed in a matter of minutes. So the manipulator actually lost control of the coins as opposed to pulling down the wall? That's bullish as he will be forced to buy back later. |
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Crap. I missed the wall take down. Was on a bike ride. How did it happen? Did one or all of the walls get taken down at once or piece meal?
Whatever, it's a great victory for the bulls who stared those walls down for almost 24 hours. That'll teach 'em.
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i should have said, "wiping out the ask wall on either Bitfinex OR Bitstamp will cause all sorts of pain for that little red line".
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wiping out this ask wall on Bitfinex...  will cause all sorts of pain for that little red line...  |
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