We have seen a 94% devaluation in the US dollar.
Why can't it just be a gold bubble? I really think there is a better argument for a gold bubble.
<ANSWER>There's been a "gold bubble" since the early 1900's? The USD has lost 94% of its purchasing power, not just for gold. For bread, movie tickets, cars, land, housing, candy, blow-jobs, heroin, stamps, envelopes, desks, pens, pencils, paper, everything. Gold stays roughly the same, and the fiat currencies move. This can be seen if you plot say, Wheat/GLD, or OIL/GLD, or S&P/GLD. The easiest way to see is price a basket of commodities, say the ones used to compute the CPI, and price that basket in gold, then price that same basket in USD. Priced in gold the basket will have remained relatively the same, whereas when priced in dollars the commodity basket costs more. So, if Commodity/GLD is flat, and Commodity/USD has gone up (things getting more expensive in dollars, duh, obv this has happened (94% actually) since the 1900's) one must come to the conclusion that when gold is priced in dollars, over that same time period, when GLD/USD goes up, it cannot be gold that is moving up, it must be the dollar moving down. Divide: (Price Stays Flat)Commodity/GLD and USD/Commodity(price goes down)
-----------------------------------------------------------------------------------= (Price is flat)GLD/USD(price goes down)
Simple math (and common sense) shows you that when X qty of gold buys Y amnt of goods in year 1,X in year 2,x in year 3,x in year 4, x in year 5. And when X qty of dollars buy Y qty of goods in year 1, X+1 in year 2, x+2 in year 3, x+4 in year 4, x+ 5 in year 5. The same qty of gold gets you the same amnt of stuff over time whereas over time an ever increasing amnt of dollars are needed to buy the same amnt of stuff. Therefore, relative to stuff gold stays the same, relative to stuff the dollar loses value. Remove stuff, and you are left with Gold staying the same, and the dollar losing value. GLD/USD going up, as a result of the USD side of the equation going down.
Why would gold become more valuable when the FED prints more USD. qty of gold is the same, qty of dollars goes up. I'll make it even simpler for you;
There are 100oz of gold in year 1, and the money supply of USD is 1,000,000. In year 2 there are still 100oz of gold, but the money supply of USD is now 2,000,000.
Price of 1 oz of gold in year 1 is: $1,000,000/100oz=$10,000 for 1 oz of gold.
Price of 1 oz of gold in year 2 is: $2,000,000/100oz=$20,000 for 1 oz of gold.
Nothing about the gold changed, just the quantity of dollars. Double the MS of a currency, you double the prices of all things priced in that currency. All the things don't become more valuable just because there is more paper floating around, it is the paper that has become less valuable. It blows my mind that you can't see this.
As for studying up on Macroeconomics, it has been my passion/obsession, along with trading & investing since I was 15, with a strong focus on International and Domestic monetary policy, and theory. I've served as a macroeconomic analyst, where it was my job to interpret and predict the monetary policies of various world banks, forecast their effects, and provide recommendations on which asset classes the firm and its clients should put their money to take advantage of the effects of the changes in monetary policy (money printing, interest rates, etc.).
I was quite good at it. So I've gotta stick to my guns here, and go with over a decade of classical and heterodox macroeconomic study, along with over a decade of practical application of that study, in the real world, with real sums of money, and real clients, with real consequences. It's funny how my interperitation of macroeconomics has led , time and time again to successful investments, trades, capital allocations, predictions, and forecasts.
Or, as you say, I could have just gotten lucky when my macro analysis predicted the collapse in 2008, for the right reasons, as well as what the FED's monetary policy response would be (you simply have to know what their agenda is, and what economic theory the chair-people subscribe to), and it's subsequent effect on prices of various assets.
If you want to see my credentials, I have nothing to hide, judge me based on what I've actually done, and maybe that will convince you that 100/2 > 100/4, not because the 100 on the left side of the equation is twice as large as the 100 on the right side, but because 2<4, and 100=100. 100, being gold, and 2,4 being USD.
www.linkedin.com/in/albertsavoy/That's me, with detailed outlines of my experience and background. The brokerage houses, the clients, and the hedge funds all must have been wrong about me, and all the profits that resulted from my macroeconomic analysis must have been a long series of accounting errors.
I'm an economist by education, training, experience, and desire. What is it, pray tell, are you, that gets to say that 100 oz of gold gains value when the money supply of the currency it's priced in increases from 1,000,000 to 2,000,000. Who are you to turn, logic, mathematics, economics, and common sense on their respective heads, because you think that over the last 100 years, Gold, Commodities, Housing Prices, and all consumer goods have been getting more and more value, that they have been in a bubble... not that the currency of which they are priced in has been in precipitous decline due to excessive money printing (increase of the money supply).
I've said the same thing in as many ways as I can think of, I just don't understand how you can think what you do. </ANSWER>
Money is supposed to be a store of value
No, money is supposed to be what it is: a liquid medium of exchange. That is its primary purpose.
1. Money serves as a medium of exchange
2. Money serves as a unit of account
3. Money serves as a store of value (while not the primary purpose of money, a currency that is an excellent, even revolutionary medium of exchange, that is an amazing store of value, is much better than a currency that is a TERRIBLE store of value, and a good medium of exchange. Even if that second currency is more popular ATM because of its backing by the US govt, and that it didn't come out in 2009. One does notice that BTC/USD has increased by many thousands of % since 2009, so it appears the free market is supporting my thesis.
the CPI leaves out fuel and food so much of the inflation is missing.
"The widely repeated idea that [the CPI is] updated by an index that does not include food and energy is simply not true" (
http://www.bls.gov/opub/mlr/2008/08/art1full.pdf page 11).
Core Consumer Price Index:
Core CPI, which does not include food and energy costs, is what is widely reported in the media, and used by Federal Reserve to decide whether or not to raise the Fed funds rate. Food and energy are not taken into account when the government does its analysis and makes its policies. They say it is due to volatility in those goods, but those goods are only volatile because they are the places where inflation hits hardest and first.
also check out shadowstats.org the calculate the CPI and unemployment the way the did up until clinton.
You are not the first person to mention this site to me. There is gobs of info on the internet saying that the site is full of crap.
http://blog.jparsons.net/2011/03/shadow-stats-debunked-part-i.htmlhttp://rationalwiki.org/wiki/Shadow_Government_StatisticsGoogle "shadow stats" and you'll find a lot more.
All shadow stats does is calculate the CPI the way they did pre-clinton. Either the govt was totally wrong up until the late 1990's, or what shadow stats calculates is just as valid as any pre- CPI calculation change measurement.
A little bit of deflation can be a good thing, in an economy that doesn't wildly print money,and fuel a highly leveraged fractional reserve banking system.
Even Hayek thought deflation was bad. Deflation is bad (
http://en.wikipedia.org/wiki/Deflation#Effects).
Just because one economist thinks a deflationary spiral is bad, doesn't; mean that all deflation is bad... For example, say there is a asset bubble in the stock market, where artificially low interest rates have fuled mal-investments, so there is a crash. Credit contracts, and prices fall, there is a deflation. The price of inputs falls for those who have savings, allowing them to use their increased purchasing power caused by the deflation to buy up depressed assets, and start businesses that are moving in the right direction, and are sustainable. This is a true, organic, and healthy economic recovery.
This idea that deflation is evil, and we must always be in a perpetual inflation causes the situation the world financial system is in now, with leverage upon leverage, no real wealth being created, just paper profits, ready to unwind again at the first sign of trouble. The housing bubble didn't generate real wealth for anyone, it would have been better to allow for an economic contraction, a modest deflation, and a re-deployment of assets into productive industries that form the basis of a healthy new economy. Instead they're pumped up the bubble again, and what wealth is there, nearly 50% of full-time american workers make minimum wage. That is not real economic growth.
Central bankers are part of the government, and thus they will always have political pressures and motivations, leading to, say holding interest rates down at 1% after 9/11 way too long and creating a huge bubble.
If you read the highly influential book that predicted both the .com crash and the housing bubble burst,
Irrational Exuberance (
http://en.wikipedia.org/wiki/Irrational_exuberance), you will see that the bubble was born far before 9/11. The data is clear as day on this point.
I have read that book, a few times, I got it for Christmas from my father when I was 13 in 2002. It is true that the BIG, long term bubble started between 1973-1978 with the deregulation, squasing of unions, Reaganomics, Supply-Side, trickle down non-sense, the US stopping foreign central banks from redeeming USD for gold, etc.
It is a fact however, that 1% interest rates, plus deregulation of the housing market, and financial institutions allowed them to leverage up way too much, and create the conditions which preceded the 2008 crash. I know this was the case, because I saw those signs, which pointed me to investigate the balance sheets of the banks, which revealed that they were leveraged into housing CDO's, and MBS's like crazy, many of them were leveraged all the way up to 40:1. This would have been physically mathematically and economically impossible if not for the extended period of time with 1% interest rates.
If I were correct about the policies discussed above, then a small 1-2% correction in the housing market should have triggered a crash in the economy due to massive losses at the banks, almost definitely collapses of banks, and since the FED thinks like you do, the response would be lower interest rates and bail-outs, to blow the bubble back up again. That kind-of is exactly what happened.
I paid for college off those trades.
I met quite a few people with stories like yours when I lived in middle-of-nowhere Thailand for two years. One of them told everyone of the several BMW's that he had had. And then lost. People who have a poor grasp of mainstream economic theory who shirk diversification and put all their money into a few things may win once in a while but eventually they will lose big. You got good luck; someday you will have bad luck. It is evidence of nothing.
I've been consistantly lucky for over a decade, and have fooled hedge fund managers, clients, and the owners of brokerage houses. If not for my consistently correct, insightful and profitable track record across many different asset classes, up markets, down markets, and sideways markets, one might think you weren't totally full of shit, with everything backwards.
It was my in depth understanding of main stream economic theory that informed my predictions of what the FED and the treasury would do following the banking collapse. It allowed me to invest accordingly, by buying what the fed would buy, before they bought it. I traded, both he collapse, the response, and the recovery based on my view of economic theory. And it all worked out just how I said it would.
I'm not right 100% of the time on all things, but I am certifiably correct in my understanding of economic theory, mainstream, and heterodox.
nd the reason we aren't seeing crazy massive sick nasty inflation from the money the banks are printing is because it's being hoarded by the banks, then lent back to the government through treasury buys so the banks can heal and make money on the intereest rate spread from the fed to treasuries.
This argument requires fundamental misunderstanding of how our money and banking system works.
So you're telling me that the banks don't borrow short term from the FED at the discount window for 0-0.25%, then turn around and buy HUGE amounts of US treasuries (short term), which has caused their prices to go higher, and their yields lower than they have been is basically ever. You believe that if the banks were to unwind their huge long positions in treasuries, bought with money printed by the FED, and buy commodities and equities, real estate, whatever... that that MASSIVE amount of printed money, which has yet to cause inflation, because it has ben hoarded in treasuries, wouldnt cause asset prices to skyrocket, the dollar to fall (they are selling treasuries to do this afterall), which would finally allow the freshly minted money out into the economy (after the banks have repaired the balance sheets by making the spread between 0.25% the borrow at and the yierld on treasuries ofc.) wouldn't then create the inflation that has been "missing".
That is exactly what is happening, and exactly why all the money printing hasn't caused a huge inflation yet, the money hasn't circulated through the economy. The us financial system doesn't collapse, bogged down with debt, and the rest of the world decides hey, lets invest in their debt more than we ever have before, the main driver of high treasury prices has been the borrow from the fed, lend to the treasury scam that the banks have been running, and the govt is cool with, because it keeps the inflationary consequences of their money printing from escaping into the broader economy.
Instead of me regurgitating a couple hours worth of macro lectures, I highly recommend to brush up on basic Economic theory, especially Macroeconomic theory. I further recommend it for anyone else who is confused why the poster was wrong on any of these points. Khan Academy is awesome for stuff like that.
I went to SUNY Stony Brook for my Economics degree, along with several years of real world industry experience... but your website will set me straight. No need for reality here :-/
https://www.khanacademy.org/economics-finance-domain/macroeconomics There are people that sometimes say that they know mainstream macro well enough already, but what often happens is that when I quiz them about basic macro, they really don't know it. It is VERY important to know the mainstream viewpoint if yours is not the mainstream one because you must be secure that you are not arguing against a straw man (
http://en.wikipedia.org/wiki/Straw_man) and that you are following the Principle of Charity (
http://en.wikipedia.org/wiki/Principle_of_charity).
The users of SophyphreakCoin have to trust that the intervention in the issuance rate won't be manipulated by the markets. The miners would be in prime position to do so, seeing as they would be privileged to receive all additions to the money supply. This can happen now, but the rate of issuance cannot be affected by price manipulation (or at all).
Unlikely if the mechanism works like a normal pegging: you affect things slowly. It doesn't snap back like a rubber band.
Yes, the Satoshi model has price instability, but so do other small currencies.
This is untrue. Small currencies (as far as I know) almost always peg their value to avoid price instability.
Don't forget that there is a real possibility that the incumbent fiat currency system will not be in a stable condition by the time bitcoin volatility is tamed.
There is no good data to support this point that I am aware of.
The closest example to this I'm aware of is Ripple.
Awesome. I'll research this. Update: Ripple currency does not peg it's value and it is not P2P.
A volatile price means greater risk on the part of the user. So he thinks maybe this is not such a good thing to use. Maybe I should use something that does not carry that risk.
Exactly!
It is impossible.
Coins that do this are centralized and their "P2P"ness is just an implementation detail.
Any interaction with the real world, or real world information is centralization. You might then as well keep balances in a text document with notepad. Securing virtual tokens with cryptography is a waste of time when their actual value depends on a central entity.
Interesting point. I would argue that such a concept would be more centralized than BitCoin but less centralized that Ripple (though I haven't researched Ripple enough yet...).
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