And Krugman is correct to an extent. The MBSs on the banks balance sheet can't be de-leveraged. You have a situation w no liquidity because its all tied up in toxic assets. I agree w Bernanke for buying these assets to free up liquidity. But I also agree w Koo that buying long term bonds won't spill the QE into the real economy. Instead, it gets stuck in the financial sector because there are no borrowers. You see things like asset portfolio rotation which inflate the equities markets -- good for investors, but not for the unemployed. But I also see Koo's point that QE only alleviate short term problems that might be difficult to deal with once the recovery starts. The problem is when the govt buys long term bonds, it makes it difficult to exit QE without affecting sharp rise in long term rates. Here is an interesting chart of what Koo calls "QE trap"  "The QE "trap" happens when the central bank has purchased long-term government bonds as part of quantitative easing. Initially, long-term interest rates fall much more than they would in a country without such a policy, which means the subsequent economic recovery comes sooner (t1). But as the economy picks up, long-term rates rise sharply as local bond market participants fear the central bank will have to mop up all the excess reserves by unloading its holdings of long-term bonds. Demand then falls in interest rate sensitive sectors such as automobiles and housing, causing the economy to slow and forcing the central bank to relax its policy stance. The economy heads towards recovery again, but as market participants refocus on the possibility of the central bank absorbing excess reserves, long-term rates surge in a repetitive cycle I have dubbed the QE "trap." In countries that do not engage in quantitative easing, meanwhile, the decline in long-term rates is more gradual, which delays the start of the recovery (t2). But since there is no need for the central bank to mop up large quantities of funds, everybody is no more relaxed once the recovery starts, and the rise in long-term rates is far more gradual. Once the economy starts to turn around, the pace of recovery is actually faster because interest rates are lower. This is illustrated in Figure 2." Read more: http://www.businessinsider.com/koo-says-no-one-can-refute-the-qe-trap-2013-10#ixzz33jos1g1eIn any case its a complex issue and many debates on how to go about it. I disclose that I do follow heterodox economics Post-Keynesian & MMT, and therefore I prefer post-Keynesians like Minsky, Keen & Koo over Krugman. But I do respect Krugman for publicly speaking out against austerity based economics |
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Is there any solid (or even pseudo-solid) research about the fundamentals that impact the price of bitcoin?
I am curious from a Finance/Economics perspective about the long-term drivers. I would imagine that in the long term, the cost of energy and the price of bitcoin mining hardware would play a big role.
It would also be interesting to know if there is any correlation between bitcoin price and various global stock indices, currencies, and commodities.
Any thoughts?
Read this article about economics of mining & price http://www.businessinsider.com/bitcoin-is-facing-a-potentially-fatal-paradox-2014-5 |
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By definition it is "decentralized".
But it can be "monopolized" by a dominant group
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Of note: He's not saying QE is ineffective in regular recessions, he's saying its ineffective when we are in a 'balance sheet recession". The main reason being private sector had just experienced a credit bubble & crash so in a sense they are traumatized from taking on too much debt
Another interesting thing. The difference about Japan's QE and the US is that the BOJ used short term private paper to do QE. The BOJ took on debt at 3 month maturity so they could easily remove the money from circulation. MBS are long term private paper, but treasuries are long term public bonds. He thinks this makes it hard to get out of the QE due to the compounding effect of interest possibly ballooning debt to unsustainable levels.
This is the debate between the neo-Keynesians (Krugman) & post-Keynesians (Keen, Koo)
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He have a few conclusions.
But the new ones, don't seem good.
And the good ones, don't seem new.
Correct me if I'm wrong his conclusions are China: “Even though the USD and CNY markets are tightly connected, we find no clear evidence that the Chinese market influences the USD market.” Seems inconclusive Bitcoin as safe haven: “Apart from the Cypriot crisis, there are no longer-term time intervals where the correlations are both statistically significant and reliable (in a sense of the cone of influence).” No correlation between BTC & safe haven Market perception: “The interest and prices are then negatively correlated and the interest still leads the relationship. However, the correlations are found at lower scales than for the bubble formation. The interest in bitcoin thus seems to have an asymmetric effect during the bubble formation and its bursting – during the bubble formation, the interest boosts the prices further, and during the bursting, it pushes them lower.” Price rises gradually but collapse quickly. However, bubble doesn't burst all the way. Seems like what he's saying is that price keeps going up because new speculators find out about bitcoin. But the price rises are from speculative activity since they collapse quickly which are markings of a bubble Fundamentals: “Even though bitcoin is usually labelled as a purely speculative asset, we find that standard fundamental factors – usage in trade, money supply and price level – play a role in bitcoin prices in the long term.” This is where I question his conclusions. He doesn't cite any fundamentals. (I don't think BTC has any fundamentals). However he seems to be saying that bitcoin price driver is more like speculative short term but he thinks long term price is driven by fundamentals |
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I couldn't understand the paper or the conclusions. I guess I don't understand what a wavelet is Doesn't seem like he has any conclusions except all these factors have some influence on price but he doesn't know how much |
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Interesting. Im sure there are potentially many reasons why Japan has failed to create inflation despite decades of QE. I assume the main reasons are an ageing population and / also a population of savers. Or does it just say that QE does not work and that the deflation 'problem' is actually structural? The best explanation comes from Richard Koo, chief Economist of Nomura and famous for his theory on "Balance Sheet Recession" "During a usual monetary policy-driven market, money created by an accommodative central bank typically spreads throughout the economy and lifts markets. During a balance sheet recession, however, the private sector is a net saver, which means only the financial sector is flooded with funds that are generated by private sector saving and deleveraging" Basically QE doesn't make inflation because the private sector is deleveraging so even though there is cheap money there are no borrowers Read more: http://www.businessinsider.com/richard-koo-on-bubbles-in-a-balance-sheet-recession-2013-11#ixzz33ixdIvlhHere's him giving a presentation on this idea. Worth a watch if you are interested in economics. https://www.youtube.com/watch?v=rMGUveWr7Fg |
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you shoudnt get all your education about economics from blogs and youtube videos.
Hes probably in high school. Just look at the language he uses |
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they control nothing, other non evil miners would step in and start mining, and things would continue, the lack of the other miners would reduce difficulty.
what your missing and not understanding is that before asics we had this issue on a daily basis. miners had a small profit margin and as the profit went to 0 for some of them they simply stopped mining. the rest who still saw profit kept mining. even now there are differences in profit for different miners. even if some are forced out there will be others who arnt. as miners leave the profit for others will go up. it ALWAYS reaches a natural balance.
The situation was very different when mining was done with one guy with one GPU that he switched to mining whenever he was not playing games on the computer. They could switch on and off at whim. Things are developing fast into the direction that only profitable mining is going to be done in some few places on planet where electricity is cheap and they have the most bleeding edge HW running on huge datacentres. Whenever that becomes unprofitable there is nobody to step up in near term to fill the gap so that bitcoin economy as a whole that needs the mining can continue uninterrupted. There is going to be huge drop in profitability at the moment when block rewards cease to exist. At that moment all the mining gear at individual homes not in the datacentres has been obsoleted long ago and have been collecting dust at some attic for along time. If somebody closes datacentres they need to be cleared from the equipment so that the facilities can be rented for some other use and without revenue from block rewards there is not enough money to go around for anybody rebuild the datacentres back up. They do not sit idle waiting if mining will become profitable in the future. They need to run constantly to pay the rent or be dismantled. Or probably it actually works so that some will quit and some will stay and in this case mining will be concentrated to much fewer hands and getting the 51% will be very easy buying unprofitable mining datacentres from bankruptcies and the one reason to buy them is getting 51% to some one persons hands. I believe keeping the mining profitable without any significant drop is actually very much in the interest of bitcoin economy as a whole to prevent any huge datacentres ever becoming available to the market for a ridiculously low price as that would be a disaster much bigger than anything else. Good explanation. As the cost to mine increases the mining corporations will naturally consolidate until there are only a few mining corporation similar to every other business like utilities, ISPs, telcos, banks etc.. The paradox is that in order to profit these few mining corps need to increase the bitcoin price to keep their margins. But if BTC increase less people would want to use it as currency. It'll be speculated til the price gets where majority want to take profit then the bubble would collapse |
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Neither.
Probably a regulated Capitalism with progressive tax to avoid exaggeration of inequality
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From what I understand bitcoins cant be destroyed but the keys can be lost
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when economics of mining becomes not profitable for many hardware (around some halfing 12.5 not likely but 6.25 is possible, but 3.125 and after are sure dangerous points). some will be tempted at that point to use not enough energy efficient mining equipment that would be stop to do 51%. This equipment can be bought at big rebate or even for free to switch on to attack.
transaction fee will never be enough to compensate with the current size (higher fee will just make it more expensive then cash to transfer so useless no one will pay 0.01 BTC to buy it's grocery at 0.1 BTC ) the only option is bitcoin becoming very very expensive so reward is enough to not turn most mining equipment off and pay for maintenance and electrical cost. this would in fact only delay it until a next halfing makes it unprofitable. the only way out is to get xTH/s asics at >0.05w for 5$ so everyone would have one in his pc or cell phone and tx fee becomes enough to keep them running(tx fee not likely to be enough if BTC is to be used in day to day by user). But this has a big chance to have something wrong that prevent this from happening
the first step will be when buying/producing new mining equipement is for 90% guanrantiy to be unprofitable. the next is when the problem will come the equipment becomes obsolete so mining becomes unprofitable(this can also happen with BTC to 30$, that would be another problem and increase coin supply would not be helpful in that case).
the mining business at some point will ask for block reward that cover cost and this will be the turning point to increase supply. and since they are the concensus they will have the power to dictate it. (most miner don't keep most BTC mine, but sell to pay cost so 20% drop in price for xM coins/Year supply will be acceptable for them)
P.S. I don't like it. I don't want it to happen but the tx fee will never be enough to keep the mining running. so other solution can complement it and not touch supply, but the actual reality point to that
Heres an good article similar to what you are saying http://www.businessinsider.com/bitcoin-is-facing-a-potentially-fatal-paradox-2014-5 |
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Thomas Jefferson – “If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property until their children will wake up homeless on the very continent their fathers conquered!”
I wanna call Mythbusters on this http://www.snopes.com/quotes/jefferson/banks.asp |
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Right now in the present time gold and silver are not currency. USD is currency.
Unless you can show me a store where things are priced in gold or silver, its not currency
We are discussing the unsuitability of gold and silver as currency and I say they are not unsuitable. If tomorrow the government decided they want to use gold and silver they would be OK for currency as they have always been for millenia. Right now, gold and silver would be more than accepted in ~70% of the planet where local currency is considered very inflationary. Look up the word "currency" |
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Right now in the present time gold and silver are not currency. USD is currency.
Unless you can show me a store where things are priced in gold or silver, its not currency
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It's legal of course.
But here's the thing: pump and dump schemes might hurt short term market confidence but might also strengthen long term market confidence. What doesn't kill you makes you stronger. I wouldn't attribute the latest sell offs entirely to pumping and dumping.
It is not legal. While I don't have much sympathy for the greedy fools that are victims of the fraud, I don't think that pump and dump could ever be considered a good thing. Where is it illegal exactly? There is no law against buying a bunch of something then selling it. Insider trading is illegal but it is not a pure pump and dump. Its illegal for equities. Bitcoin isn't regulated so its not illegal YET |
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How doe's this fit/support your argument? I posted that if banks fail everyone gets hurt but poor will be hurt more than rich Look at the chart and see what happened to wealth inequality after Stock Market Crash 1929. The wealth gap narrowed. So obviously the rich didn't get richer Anyways, hasn't nothing to do with the OP topic which is why BTC face the same challenges of gold in the past |
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In any case I agree that inflation affects poor more than rich. I don't know what the point about Monet is about
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