Japans GINI value blows your argument out of the water, it is NOT a winner take all society in which all wealth goes to the 1%, how many times do I have to point this out for you to get it through your thick skull.  Just because that is what we in the US and UK and other unfortunate places get dealt dose not mean it is a universal quality of all society.  Show me a scrap of data that actually supports your argument and I'll reconsider but right now your just massive projecting your view of your own society onto a foreign one.

Even if I agreed with your 'capitol' statement your interpretation probably neglects Human capitol which is a huge portion of any societies capitol stock and which is spread quite widely through the population.

And if their are idle resource and people then your argument falls apart because idle resource simply decay (both human and machine) and produce ZERO returns, any positive return is better then that.  The history of interest rates clearly shows that interest dose not ONLY reflect an average of growth rates or even the average return on investment activity (which is what you meant to say).

Yes I understand your objective I just don't think the structure gets you their because the time factor is not present.  The two parties in an exchange need to be trading places 'in time' so to speak for the market price to reflect a market valuation over time.

The real exchange of Gold vs USD isn't a good target to emulate because it's simply a commodity exchange and both parties are exchange their commodities in the present, no one is taking a different position in time from the other party.  The better market to try to emulate would be a commodity futures market or a bond market.  In both cases the parties are trading across time, the commodity futures market tries to pull future commodity prices into the present and the bond market tries to pull future money demand into the present.  The bond market uses only a single commodity (money) where as futures markets use two so I favor bond-like markets as I think these will be simpler.

Also we have a well documented history of gold fluctuating in its inflation-adjusted exchange with the Dollar, not to mention that as a mined and consumed commodity a fixed quantity coin is not an accurate reflection of it despite what BTC propaganda says.

I'm interested in continuing discussion but via a more direct channel, do you use Skype?  Etlase2 your welcome to join us if you wish, I'll PM you both my Skype account.  Anyone else interested PM me.

Again your refusing to either understand or acknowledge my main point, that Japan lost RELATIVE to everyone else.  And that profoundly DOSE matter.  If were watching a race and the lead runner is 100 yard ahead of the pack and someone shoots him in the leg and he falls down and starts crawling and the pack of other runners start rapidly closing the 100 yard distance but haven't yet over taken the now crippled runner.  You can not rationally claim that because the shoot runner hasn't fallen behind (yet) that being shot 'wasn't so bad'.

Yes our growth in the US/UK has been going all to the 1% POST REAGAN/THATCHER, before that growth got distributed a lot better.  Japan though has always had higher equality both Before AND After it's lost decades, it is simply a part of their culture.  CEO's of huge Japaneese companies make only 10x what a line-worker makes, inheritance taxes are up in the 90% range and their Gini values are one of the best outside of Europe.  But their is nothing to suggest a link between a nations income-inequality and it's growth or lack of growth.

You argument that deflation doesn't matter is absurd particularly when applied to Japan, IF that economy had continued to grow the 99% would have been the primary beneficiaries, they would have seen living standards grow to perhaps the highest in the world.  The disaster is the difference in what could have been and what actually happened.

Now apply the same deflationary economy to an highly UN-equal society and you will actually ratchet DOWN the wealth and standard of living of the 99% as every downward dip will pick the pocket of the worker and every recovery is funneled to the 1%.  An unequal society only lets the common man improve his living standards when their is an all out BOOM, that's why we have such a huge emphasis on achieving high growth.

Well on a basic level it would make the 'hardness' of BTC and the 'softness' of the USD the only principle difference between the two and we would get to see these two economic paradigms battle it out on a more level playing field. 

Some people focus on the 'instant', 'digital', 'cryptographic' nature of BTC, if that is your primary focus then you would not expect BTC to be competitive once government co-ops thouse features.  If you focus on 'limited supply', 'deflation', 'lack of central banking' then BTC would retain it's core advantages compared to a governmental crypto currency managed according to current practices.

I didn't say the Japanese standard of living declined, I said it stagnated.

Your confusion seem to be that your not willing to accept that stagnation and 'lost decades' are not actually losses because material standards of living did not decline in absolute terms.  If THAT is what you need to see to consider it a 'bad' economy your demanding full on Great Depression or Civil-war levels of collapse.

But real people make their assessments of economics by comparison with their region or the world, and the last 20 years have seen growing GDP and rising standards of living in virtually every country on EARTH, particularly in Asia, hell even most countries in Africa have seen substantial rises in PCGDP and material standards of living.  For ONE nation to see virtually no growth in that period puts them at the bottom of the barrel and shows that their economy is very sick.

The trend I've noticed is that when the Upward movement of BTC stales and people become hesitant to push the price higher they go into Alts and start a bubble their as well, and that Alt bubble tends to pop first and THEN the BTC bubble starts to collapse as well.  Thus a wise trader could use the Alt market as a signal when to reverse their long position on BTC to a short position.

Market prices are by definition the 'fair' price or at least the only way to arrive at a consensus that we can call fair.

I think the spread will always mirror the ratio of the number of coins in each half of the system and won't provide any additional signal.  Say you start with 1:1 ratio between the two, the spread will be 1:1 and no signal to grow or shrink supply will exist.  Then lets say the value of this new crypto-currency rises, I think both halves will rise in tandem and the ratio between the cash/gold will remain 1:1 again no meaningful signal is sent even though their is deflation.

I as a holder of either the fixed supply or floating supply coins can always expect to long-term be able to exchange between the two halves of the system at what ever the ratio of existing coins is.  Only a change in the ratio would change my expectations, but their is nothing to actually initiate a change in the ratio and if their was the system is designed to counter act that movement by changing cash supply.  So a rational trader should conclude that the ratio is never going to move much if at all.

In fact I really see no reason to participate in the internal market except under some rare circumstances, such as if I'm holding the gold half and am ready to spend, then I'd convert just what ever I need for a purchase and I would treat the calculate the value by combining the gold-cash exchange rate and the cash-USD rate.  It would be a bit like using LiteCoin, it actually has a fairly stable exchange rate with BTC but it's still massively deflationary, the two coins just deflate together.

The Japanese economy over the last 20 years is considered catastrophic for good reason.  That nation had a growth curve like a bat-out-of-hell and has now under performed so badly and for so long that it's GDP is now HALF what it was anticipated to be by now.  Neighboring nations like South Korea which were far behind Japan have nearly reached parity in PerCapita GDP and if things continue will PASS them.  That is like the US being Passed in PCGDP by MEXICO.  No person in Japan will describe the last 20 years as anything but an economic disaster.

Your correct that Japanese SOCIETY has not crumbled, but that is because the Japanese have one of the most resilient social structures on Earth and a VERY extensive welfare state that's kept people out of poverty.  Just because they haven't been broken dose not mean they are not stressed and 'in a bad place' with the present economy.

Lastly, if your arguing that deflation only occurs when a society is already 'screwed' by demographics or other calamities that eliminate or reduce the potential for future growth then why did the US experience it so frequently in periods that deflation defenders like yourself describe as high-growth such as after the CivilWar?  Japan had and still has an export based economy, NOT one based on internal consumption, their demographic problems present a challenge but they are not a fundamental limiter of their growth when automation is everywhere, the total world trade continued to grow after Japan stagnated, and their is no reason that Japan could not have continued to at least maintain if not grow it's share of that market had it continued to be healthy.

I think were making some good progress, a lot of your ideas are avenues I've gone down before as well.  The idea of having one type of special coin that can not be sent by normal means but can only be exchanged through the internal block-chain market is a very interesting tool.  I'd considered this at one point as a tool in determining the appropriate level of demurrage which requires us to know the liquidity premium and an illiquid asset would be useful for illuminating that.

But one thing I realized is that a market being continually available for exchange MAKES an asset at least slightly liquid.  In your crypto-gold scenario the ability to convert to the crypto-cash means that a user can very easily convert and thus very easily spend both halves, and thus they lose any distinction.

To create real illiquid assets you will need to freeze coins, much the way newly mined coins can not be spent for certain periods of time.  This is a fairly simple technical solution and it could be done for different lengths of time, a bit like the different length of time that bonds take to mature.  At the very least you would need to do this to your gold equivalent to get the other 'cash' part to be the only medium of exchange.  While I think their may be some usefulness in this type of frozen coin, I think it's in the liquidity discovery area rather then in the inflation/deflation discovery area.

When you have a fixed quantity coin pool as with your 'gold' it's own lack of liquidity would concentrate it in a small number of hands which will make it's price unstable and thus send false signals.  Also if you were to actually have the development of a ratio in valuation that keeps the 'cash' at parity valuation and the 'gold' going ever up then half your total money is going to be of a deflationary type so the solution will be a half failure by your own admission.  I don't think any fixed quantity is useful in stabilizing valuation, but I'd encourage you to keep trying to prove me wrong.

As for how to increase money supply, so long as current coin stake is NOT the basis for the receipt of the newly created supply it would be fine as that linkage between present stake and future coins will invariably leak into the market.  Mining can work but at Freicoin we believe it's possible to give most new coins to charity.  Ultimately we hope to have users even choose which charities by a stake voting process.  Both demurrage and new coins created to counter-act deflation can distributed in this way.  The main obstacle is avoiding fraudulent capture by large stake holders.

In a sense yes, bankers and entrepreneurs are together doing all investments and my earlier comments on opportunity cost show that it doesn't matter WHO is providing the money, the interest rate gives the same incentive to DO or not do the investment if it is with borrowed money or your own money because the interest rate is for EVERYONE in an economy including the entrepreneur, it is as they say the most important price in the whole economy.

Your whole description of inflation and deflation in terms of 'pay in advance' vs 'pay after' is missing the point.  Every possible investment activity involves turning liquid money into illiquid goods and then back into (hopefully) more money MANY MANY times in the course of a year, ideally as fast as you possibly can.  The distinction of starting with your own money from savings or with loaned money is irreverent.  What matters is your internal rate of return vs your interest rate.  You must exceed interest rates to be considered 'a good investment' even if your self capitalized.

I'm not sure what 'loss' on the part of savers your asking about?  You might be assuming that because I'm against deflation I'm FOR inflation, a common misconception.  I am for a something a bit different a demurrage concept that reduces all money held nominally rather then in value, this keeps prices stable while still providing a similar cost to holding money.  Now why should money have a holding cost you say?

Liquidity, money by it's nature has the ability to immediately become any other asset and we call that liquidity, it is a VERY valuable quality and when you hold money you enjoy this 'wild card' up the sleeve, you can take advantage of almost any opportunity in the market and avert most calamities.  People will even PAY you to borrow that liquidity for a period of time.  Savers don't create liquidity, that's created by the people who are still doing transactions or in a modern state the legal tender laws mandate the liquidity of the national currency.  As savers aren't creating value I don't believe they are entitled to receive payments.  Thus the demurrage payment which should ideally equal the gain from interest, thus the saver will have their original purchasing power preserved but not increased.

As for investment through savings, I have nothing against this and didn't even mention it because it really is no different from borrowing to invest.  If I have money already (lets say $100) and an idea then I'm a self capitalized entrepreneur and I don't pay anyone interest.  But I still have the Opportunity Cost of not having collected interest on that money I used.  If interest rates are 5% I could have put my money in a bank and collected $5 in a year to have $105.  If my $100 investment return 6% then I now have $106 and my whole investment has only made me $1 richer then if I had done the best alternative.  Now if I have nothing and borrow the money, make the same return and pay the interest back I'd have made in the end $1, exactly the same profit and the same incentives.

As for lower interest rates discouraging savings, and what entrepreneurs perceive the amount of savings to be.  This whole question seems to be premised on it being 'BAD' if their is some mismatch between the amount of money saved and the amount invested, when what we need to worry about is the absolute level of investment not investment relative to savings.  These two quantities saving and investments do not need to be equal and indeed are usually unequal.  In a modern economy invested money dose NOT come from savings, savings may help to determine interest rates but the lent money is usually credit, so it is perfectly possible for investments to exceed savings, just as it's possible for savings to exceed investment.

Sorry rex I don't think that 2-coins on the same chain really gets you any useful information because your exchange (as far as I can see) is all PRESENT valuation.  The value of the two coins will simple move in synch with each other compared to real assets their is never any reason for people to flee from one half of the system into the other because both halves are basically identical especially when your giving holders of the 'cash' a PPC like interest rate to cause money expansion, their is no way you can ever be diluted so holding cash is as good as holding 'gold' your just choosing which of two numbers goes up your quantity of coin or it's value in Dollars, your getting rich just as fast either way.

The bigger flaw in your approach is that you seem to be trying to create nominal price stability while KEEPING deflationary economics, aka just holding money is yielding an increase in purchasing power.  I'm not sure if deflationary economics is something you genuinely support, or just think is a prerequisite to adoption or if you just view proportional nominal increase for all coins as the simplest technical solution.  But I can assure you that any solution that involves money expansion ONLY through the inflation of all wallet balances will be economically identical to BTC.

What I am looking for is a system in which a coin networks increasing 'market cap' is in the hands of NEW people, not just the early adopters.  An individual holder of coins shouldn't be enriched or impoverished by changes in market-cap and ideally price information is preserved too.  How money new money is distributed is a separate issue from determining how MUCH to change money supply which is what we need to figure out first.

I'm a believer in Demurrage, which I feel has desirable effects on interest rates (lowers them) and velocity (raise it), while it might seem to contradict the non-impoverishment of holders I just mentioned a holder of money enjoys liquidity and demurrage is the payment for liquidity, so long as the rate is correct (another idea I've wrestled with) the money holder is neither robed nor subsidized.  Demurrage might also be a means of driving a prediction market.

The system might be something like this, everyone needs to pay demurrage but you can receive a kind of secondary 'pre-paid' demurrage coin (a bit like your gold/cash distinction) lets call them 'stamps', this sits in your wallet and can not be sent like normal coins but it is used first to pay all demurrage and it is denominated just like normal coins.   Once it runs out demurrage starts being drawn from your normal coin balance so the prepaid stamp is in a sense equal in value to normal coins in the present.

Now we take two people who have differing views on future coin valuation.  The one who expects an increase in coin value would like to have stamps in the future but would give them away now, the one who expects a decline in value would want stamps now but would be willing to give them later.  They could create an exchange that has them each paying the others demurrge costs in addition to their own during a different period of time.  First the person expecting an increase in value pays for them both in what he feels will be cheap coins and then the second person pays for both of them in the future with what he feels will be cheap coins.  Each party can gain ONLY by being correct in it's prediction AND in finding a willing counter-party to take the opposite side of the deal.  We can mandate that all the contracts be for equal pairings of time 1 week / 1 week, 6 months / 6 months, but the quantity of demurrage paid can float.  This will give us a predicted value of demurrage in the future and hence the predicted value of coins in the future and we adjust money supply accordingly.

In his defense this error is the NORM in the BTC universe and the broader gold-buggery communities.  It's repeated like a kind of mantra by the deflationary faithful.  Part of the error lies in the gold-bugs refusal to look at economic choices and incentives from the perspective of ANY other person in the economy other then speculators like themselves.  When your holding a deflating currency, and really any asset that is rising in value (such as homes in the housing bubble) you DO experience a kind of 'wealth effect' in which you feel wealthier and become a bit looser with discretionary spending.  The individual will logically adopt a 'shaving' policy of selling off a % of their asset LESS then the yearly appreciation rate so they can milk it indefinitely.  So gold-bugs then blithely claim this wealth-effect spending will make the economy prosperous and all opposing arguments can be dismissed out of hand.

But when you look from the perspective of the entrepreneur you see how this falls apart.  The entrepreneur in a capitalist society has to borrow money to make purchases of capitol goods and that means the interest rate is a KEY factor in determining how much money entrepreneur will be lent.  Some entrepreneur will have highly profitable ideas/opportunities some will have less, a whole spectrum will exist but only the entrepreneur with an expected return above the rate of interest will be funded.  In addition the entrepreneur will keep a higher percentage of their return because the entrepreneur share is the real rate minus the interest rate, so lower rates encourage more people to take the risk and commit the great personal investment of time and energy to BE entrepreneurs and seek out and create the ideas/opportunities that are the basis for entrepreneurial-ism.

This is why we lower interest rates to stimulate the economy, it causes more money to flow into the hands of entrepreneurs and more to be invested.  Deflation raises interest rates because potential lenders are happy to just hold money and the prospective investment has to have a real rate of return greater then the interest rate.  An idea that promises to return 4% is not funded when interest rates are 5%, and an idea that promises 6% will yield only 1% left over for the entrepreneur after interest has been payed back, hardly much incentive for the entrepreneur to try the idea or even seek a loan.

MoonShadow:  Your straying into a petulant tone which is uncalled for, when you misrepresent what someone is saying you apologize, you don't try to blame them and throw down the gauntlet as you just did.  Debate people respectfully and you'll get a lot more fruitful of a discussion.


P.S.  The 'mild deflation' definition being the reciprocal of what we consider mild inflation ~2% seems reasonable.  I don't have any faith that BTC would every reach that rate, but I'm sure it would never have any real economic usage until it DOSE reach that level or less.

So I think this thread is no longer about BTC and what rate it may/might ultimately have, but rather a discussion of a Central Bank POLICY of 2% deflation (and possibly a 0% policy of equal avoidance of both inflation and deflation) and if that is or is not better then the current orthodoxy of 2% inflation policy.  This may help you two to focus the discussion on JUST the merits of inflation and deflation.

That why usury can only be prevented by softening money itself such that the cost of holding money is equal to the time-value of money which we call LIQUIDITY.  That would bring the natural rate of interest (the rate that a risk-free borrower pays) down to Zero.  Then a free market would be able to lend at any rate it liked as every borrower has some risk which needs to be accounted for, and Ironically risk and how it is shared is one of the factors that Islamic Banking understands very well.

Thx, I've thought about this problem a metric Fuckton but it is still not solved to my satisfaction so if you interested in exploring the concept further I am game.

I completely agree that non-crypto inputs are neither desired nor useful, first off all real currencies currently target some level of inflation so even perfectly matching one of them would introduce an inflation rate into said coin that we really do not want.  So I'd forget about any scheme focusing on coins relative to anything external, just worry about the prediction markets relative valuation between 'now coin' and 'future coin'.

To get that kind of prediction you need to allow people to do effective trading of coins between the present and the future, but the 'push' nature of all transactions in BTC makes this nigh impossible, the person who is to receive in the future has no means to compel delivery of what's been promised which is a great part of why BTC is nearly impossible to short.  So we need some kind of NEW instrument that is recorded in the Block-chain along side coins and denominated IN coins but distinct, a kind of coin-futures-contract or coin-bond.

So are prediction market participants would be taking opposing sides in these special instruments, one side predicting a decrease in value for future coins, they are willing to give away future coins to receive coins in the present, and a side predicting an increase in value, they will give-up present coins to receive them in the future.  The instruments will be for some specified period of time so the market will produce a prediction that can be expressed in a ratio for multiple time segments.  For example the prediction for 6 months could be a 3:1 ratio, predicting a coin will fall to 1/3rd it's current value in that time.

How to turn the ratio into a change in money supply, it might be as simple as pushing the mint rate up and down in rather crude fashion until the ratio comes closer to 1:1, supply expansion and contraction could be stake based such that no ones proportional share is changed.  This would be the simplest solution from a technical standpoint (well maybe changing mining rewards is even simpler) but I don't think it would allow any kind of viable futures instrument because your effectively erasing the possibility of being diluted which is motivating people to enter truthful predictions in the market.

V is quite definitely a measure of transactions, it is relative to money supply which may be what you mean by 'reuse'.  If their is an M of 1 million and the total value of all transactions is 1 million in the specified period (usually yearly) then we would have a V of 1, it matters not if this is 1 million transactions of 1 unit or 1 transaction of 1 million units.

A single unit of currency transacting billions of time while the rest are frozen could theoretically do all transactions but it utterly impractical which was my point.  Every single person making transactions would need to receive and spend the one unit in a short period of time.  And to do that each individual would need to hold it for virtually no time at all, were talking fractions of a second.  Obviously the block-chains 10 minute rate is a barrier which is why your saying 'modification' would be necessary and I've got no argument with removal of technical barriers to V, we already have an incredibly low barrier in the electronic Dollar which can transact as fast as a computer can communicate.  

But I discussed the HUMAN factors that make that kind of scenario impractical, people hold money for appreciable time periods in the real world.  Some times it's just our natural slowness as humans, but most of the time it is an actual goal they have not just the result of 'friction'.  All it takes is 1 person in that chain of 1 second transactions to decide to hold and poof velocity plummets.  This is why we would not expect velocity to able to rise to infinity, are you claiming otherwise?

V isn't assume to be perfectly constant, it is generally assumed that a change in any one factor of MV=PQ will ripple out into the other three, in varying degrees and the equation is telling us primarily the DIRECTION of movement to expect in the others.  Claims that 'an increase in X always going into Y and only Y' are claims above and beyond the basic theory, and I personally do not hold them in much regard, to form a reliable prediction of change that detailed, you need to know why the unique situation might cause a factor to be constant or more resistant to change then another.

We have a well demonstrated history of falling P in BTC and no evidence of a change in V, in fact a naive look at BTC transaction volumes could lead one to conclude V is actually dropping because BTC's M has risen over the last year but transactions are roughly flat meaning each individual BTC is moving less often then it used too.  But I don't put any weight on raw transactions as so many (and an unknowable amount) are just sending to ones self and thus don't constitute actual purchases which are what matters to V.

But in a broader sense we would not expect perpetual rise in V to avert deflation because their is simply a practical limit too how fast people can transact.  At some point you will want to sleep and you will probably have coins in your wall when sleeping, that's going to put a huge drag on V.  Also you need to consider the need for liquidity, people who are engaged in an economy want and NEED to hold an amount of money in a liquid state and that amount is proportional to Q, aka people want to hold money sufficient to buy goods consumed in a time period.  So as the economy grows, wealth increases and Q rises people want (and business need too) hold more money.  This significantly resists V from rising to infinity, instead P falls so that a smaller nominal sum can satisfy the desired liquidity.

In a larger sense though we can't even apply MVPQ theory to BTC at it's present stage of development because BTC valuation isn't being supported by a circulating economy of goods and services with a P and Q.  It's being supported by a scarce commodity supply-demand model which simply pushes a P value out into an embryonic economy that has been build around highly variable exchange rates.  I think the OP understands this, and is discussing the hypothetical future of BTC, but I'd like to make it clear that MVPQ in the present tells us nothing because major axioms of the theory are not met by the BTC economy.

You would need to have a functioning prediction market entirely in the block-chain that requires coin state to participate in and which allows people to hold some kind of 'bond' token which rewards them for correctly betting on future inflation or deflation of the purchasing power of a unit of money.  This ensures honest predictions, meanwhile coin volume grows or shrinks counter to the market prediction, predicted inflation shrinks money supply and predicted deflation grows it.