The recurring trouble-cycle of bitcoins, and why I'm here.

[misterbigg]

Nicely put; capitalism has blown up in our faces... Let's wait and see. I really wonder where this whole thing is heading.

When did we have capitalism? I must have missed the memo.

Bitcoin IS capitalism!!!

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[mobodick]

If you read my earlier posts, what I'm essentially going for is BBB + Yelp for bitcoin-denominated businesses.  I.e. a p2p review system that customers who have done business can leave a review (provide proof of transaction).

My work would be more on a valuation/financial analysis side.  i.e. Are these operations able to generate positive cashflow, what sort of return could investors expect based on similar business models, what experience does ownership have, is their marketing plan viable and professional, is there any insurance against fraud or theft (i.e. certain amount of capital left in third party escrow via a bond, etc.), what sort of dispute resolution is offered (i.e. judge.me) for a dispute between customers and business or investors and business (if any), is the owner of the business forthcoming with his own personal information to help expedite disputes, etc. etc. etc.

There would be essentially a full checklist of hoops through which a business must jump in order to receive an AAA rating, weighted upon how much damage it can do to customers or investors - each minor knock takes the business down within its tier, each major knock bumps it down a tier.  Again this is a work in progress, and I am using the existing models of legitimate ratings agencies and research firms as a template to go on, with the main focus being on recourse and saleable, insured assets in the event of a bankruptcy, etc.

On top of that, I would assign what valuation models deem to be a fair value per share, for companies that are in the IPO stage or secondary offering/bond offering/etc.  So if John's VPN Service is trying to IPO his shares at 2btc when valuation models show they are only worth 0.5btc, I will point this out.

Ok, that seems fair enough.

Your insinuation that this gives me the power to make or break businesses is sort of hilarious. First of all, I am a complete unknown here.

Once you start rating businesses you will be far from unknown. This is not an argument.

So I would imagine for the first while that the majority of the community would just completely ignore me, which they have every right to do.

Untill, of course, the market needs this information and you become the God of providing a clear path through the mess (whatever mess is then currently going on).
Again, I think the problem with the big rating agencies is not that they rate, but that the whole world is looking at them in times of turmoil.

Even if people start paying attention, valuations only get you so far and the future is not crystal-ball-capable (if it were, I would be living on my own private island right now and would want for nothing, ever.).

But people will inevitably use a rating agency as a crystal ball.

 Ratings agencies make mistakes all the time, however the good ones are far more likely to predict future trends and forecast business results with success.  I am only human, but if the difference between me doing a valuation and writeup on a company saves a miner a few grand worth of coins that can be put to more productive uses, it is within my own best interest to do this, outside of any payment I might receive for the service:  I have a fairly substantial bitcoin holdings, and the more legitimacy this economy receives, the more goods and services are brought into the fold and people are protected or at least alerted to bad risk, the more those coins go up in value.  I like to think of it as working towards an earlier and earlier retirement...

As far as corruption goes, anyone on the interwebs is absolutely free to compete with me.  Maybe someone comes out with a way better model that asses risk more effectively.  Who knows. This is not meant to be some great sword with which a business can be instantly cut off from funding by the community, unless they are a likely scammer/tramp. This is just like you hopping on to the BBB website and checking out a local roofing company before you hire them, or visiting yelp before you order a flower arrangement for your mother back home, etc.  Just a check and balance, which bitcoin desparately, desparately needs.  

Yes, i'm aware of the positive sides to a rating agency.
However, I'm afraid that in times of panic or volatility (often occuring states in bitcoinland) everyone grabs for the biggest sword they can find by any means possible.

Another thing that i was thinking of was to what extent classical analysis methods can be applied to future bitcoin businesses.
I'm expecting a lot of new business models that may or may not be well analysed by real world models.
Sure, in the end its about the numbers below the line, but this needs to be evaluated by the numbers above the line and i'm not sure the old models will hold in all cases.

Anyhow, i feel satisfied with your answers so all i can say now is good luck in your new endeavour!
 

[istar]

I so much enjoy reading this thread; really. Before learning about BC, I've discussed an idea with a friend of mine (he's into stock exchange business). I've asked him to imagine how the perfect monetary system would look like. I proposed a saying from Alvin Toffler who predicted ''the society in order to preserve itself should be evolved into a hypersociety and declare money obsolete''.

There was a huge brainstorming that night; I guess the red wine from Nemea, Greece helped a lot; but there was a conclusion. We've came along to the fact that a certain productivity factor should arise. One that should baptise each and everyone's effort for the community to evolve, with a certain grade. Not one should be left without one. Grades should be given to everyone, regardless how small or big they were. Even animals and plants should be graded.

We agreed that the grades should reflect money... well not really; points taken should get you more to the ''respect'' rate of the society system. The more respected, the louder the voice you'd had in order to make a decision for the society to maintain its evolvement. And then... it came to me. I've proposed that the ''points'' should be measured in ''Energy''. Joules, W/h, kW/h and so forth. For instance you are a plumber and fixed a hose; how much hours did you spend? A. Your points should be: (A_hours_spent x Productivity_Factor)=Points_taken. Productivity factors should -of course- include the quality of work done; but that's a different chapter...

The only worry of ours was how could you fix a system that incorporates high security, viability and most important; the 'inability' of someone to create some points out of thin air... and then came BitCoin... and here I am!

Actually, what you are describing is essentially what the market does when it is allowed to organically and voluntarily select what it wants to use as money.  Instead of a mathematical equation assigning "figures" to productivity and quality and such, you've already got one - it's called profit.

The more scarce/desired the thing I am offering, the more I am likely to make in profit.  All things equal, in a society where interactions between humans are voluntary and non-coercive, my contribution to my fellow man can literally be measured in terms of how much money I make.  Walter Williams likes to call money "certificates of performance" - the more you have, the more you've done, in terms of giving your fellow man what he wants and needs, and the more desired and necessary the thing, the more you succeed.  This in spite of the fact that capitalism is, when you boil it down, a conspiracy to drive profits down to 0 (if it is allowed to).

Except it doesnt work.
A banker who creates a depression makes billions.
A nobelprice winner who contribute by saving millions of lives makes far less.

[thezerg]

S&P and Moody's entire business model is easily corruptible.  They are Banana Republic ratings agencies, and I hope that individual investors continue to realize what a sham they are (they are regularly paid the companies whose securities and debt they rate).

Egan Jones is more like the business model I would be looking to bring to Bitcoin.  In my book, those guys are heroes.  They have been around for a long time, and remain uncorrupted against their alleged competition, because of the business model that they chose to adopt (i.e. their business model is buy-side driven, whereas the other ratings agencies are sell-side funded).  The investing public can petition us to rate a security, and I can contact the security issuer and tell them that I have a bunch of investors lined up, but they want to see more than a business prospectus and feel-good idea.  Investors wouldn't have to pay for the rating unless the business or individual agreed to be rated.   There are other services I will be offering in conjunction to a straight ratings agency that will provide investors with some insurance against scamming and poor business models.

This is where many scammers will fade away.  A lot of them can talk a good game, but if someone were to go through and dissect their operations, the holes are pretty obvious (If I were asked to rate Pirate, for example...).  If they refused to allow their business to be rated, I would actually post up on our ratings page that the business in question issued a refusal or we received no response from them, including screenshots of the conversation, if applicable.  Our ratings would be based on whether an investor or buyer would be able to obtain any sort of recourse in the event of a collapse or fraud, on top of the potential gains/losses from operations, and whether the business idea really is a good and viable one.

This still seems like a traditional ratings agency to me.  And potentially limited by opinion "whether the business idea really is a good and viable one".  But you are certainly correct that anonymity has been a bit of an Achilles heel for legal uses of bitcoin.  It is very important that the underlying protocol support pseudo-anonymous transactions but just because the capability is there does not mean that you as a business *SHOULD* be anonymous.  I have been thinking about this a lot and about how the unique properties of bitcoin can be applied to the problem.

While traditional expert-opinion based ratings will always be a part of the equation, you may want to consider the advantages the bitcoin system offers and provide services on top of that for cooperating companies.  As a simple example, it should be possible to generate real-time P&L statements instead of annual/quarterly if a company is willing to divulge its addresses.  Bitcoin and the open company http://effluviaofascatteredmind.blogspot.com/2009/03/thoughts-on-gpl-open-company-concept.html concept seem to go hand in hand.

And it would be possible to put an overlay database and network protocol on top of the blockchain data -- for example one that allows users to "rate" blockchain transactions.  As in all ratings systems this sort of network is hamstrung by the same authenticity issue that is elegantly solved by proof of work in the blockchain.  What I mean is that it would be very easy for someone to create N addresses and M artificial transactions to create artificial ratings.  However, there are many methods that can be used to ferret out these fakes.  For example, a network analysis ought to show a scale property whereas the greater bitcoin blockchain network may have different topology.  Additionally, ratings could be weighted by metrics calculated from the rater's prior activities -- for example "bitcoin days" (loosely: account balance * time you've held them), how long the rater has been active, transactions to other well-known companies, and the rater's own rating.  A combination of these techniques might be used in conjunction to produce a pretty accurate analysis.

And finally, companies who are not willing to provide complete disclosure could register with essentially an "information escrow" service, providing only that company detailed information.  Then that "trusted" 3rd party (that would be your company) could perform the real-time calculations, providing the public with details like daily/weekly money flows (and customer ratings) but every specific rating/transaction would remain private.

[Coreadrin_47]

I so much enjoy reading this thread; really. Before learning about BC, I've discussed an idea with a friend of mine (he's into stock exchange business). I've asked him to imagine how the perfect monetary system would look like. I proposed a saying from Alvin Toffler who predicted ''the society in order to preserve itself should be evolved into a hypersociety and declare money obsolete''.

There was a huge brainstorming that night; I guess the red wine from Nemea, Greece helped a lot; but there was a conclusion. We've came along to the fact that a certain productivity factor should arise. One that should baptise each and everyone's effort for the community to evolve, with a certain grade. Not one should be left without one. Grades should be given to everyone, regardless how small or big they were. Even animals and plants should be graded.

We agreed that the grades should reflect money... well not really; points taken should get you more to the ''respect'' rate of the society system. The more respected, the louder the voice you'd had in order to make a decision for the society to maintain its evolvement. And then... it came to me. I've proposed that the ''points'' should be measured in ''Energy''. Joules, W/h, kW/h and so forth. For instance you are a plumber and fixed a hose; how much hours did you spend? A. Your points should be: (A_hours_spent x Productivity_Factor)=Points_taken. Productivity factors should -of course- include the quality of work done; but that's a different chapter...

The only worry of ours was how could you fix a system that incorporates high security, viability and most important; the 'inability' of someone to create some points out of thin air... and then came BitCoin... and here I am!

Actually, what you are describing is essentially what the market does when it is allowed to organically and voluntarily select what it wants to use as money.  Instead of a mathematical equation assigning "figures" to productivity and quality and such, you've already got one - it's called profit.

The more scarce/desired the thing I am offering, the more I am likely to make in profit.  All things equal, in a society where interactions between humans are voluntary and non-coercive, my contribution to my fellow man can literally be measured in terms of how much money I make.  Walter Williams likes to call money "certificates of performance" - the more you have, the more you've done, in terms of giving your fellow man what he wants and needs, and the more desired and necessary the thing, the more you succeed.  This in spite of the fact that capitalism is, when you boil it down, a conspiracy to drive profits down to 0 (if it is allowed to).

Except it doesnt work.
A banker who creates a depression makes billions.
A nobelprice winner who contribute by saving millions of lives makes far less.

I think you missed a pretty huge caveat in there:  "In a society where interactions between humans are voluntary and non-coercive".  This means where there is actually a market, not a state imposing its politicized, fascist version of one.  i.e. a banker couldn't make billions if he weren't lending out 9x the money he had with an unconditional guarantee from a currency monopoly to cover his losses.  No FDIC = depositors that actually give a shit, and a market that immediately begins to differentiate between time deposits and demand deposits, etc. etc.

There are so many things I could add on to that, I could be here typing for hours.  When you have a state whose direct appropriation of wealth and spending is 40% of all economic activity, plus it imposes millions of behavior-modifying regulations upon the remaining 60% of that economy, we can hardly define that as "voluntary and non-coercive".

[macsga]

[...]
That should be easy enough to understand. But what next? What if Bitcoin does become the saviour that everyone hopes? How is the question of government and taxation answered? Not everyone agrees with "Libertarian Anarchism" and "user pays" politics that some are promoting. I guess it's an understandable reaction against the US' oppressive government, but most other governments are surely less evil and just need a few small tweaks. Thankfully Bitcoin doesn't attempt to provide all the answers, giving different societies the ability to handle taxation as they see fit, if the issue ever arises.

Taxation is possible with bitcoins as with every other means of exchange. The key phrase here is ''how much''. From my point of view what we see now is the miniature of the bolder future. Dollars won't cease to exist; Nor any other ''government / bank controlled'' money. But they will continue to grow thinner.

Exchanging something you won't be able to ''reproduce / manufacture / print'' like any other fiat money should give a huge advantage on bitcoins. My guess is that we'll eventually come to a point that no miner / bitcoin holder will be happy to exchange his/her BCs to any other fiat money. The difference will be even bigger when the total lot of 21 Billion BCs have already been mined.

Someone might say, you may want to buy gold or diamonds with your BCs. You may as well do so; but eventually you will need to buy food to live; diamonds or gold are not so safe to move around.

[waspoza]

Bitcoin is very, very viable long-term.  It's only weakness is that it hasn't been selected as a commodity and then assigned a monetary premium by an organic and complex market, but instead was simply created with the intent of being used as a unit of exchange and account.

I think the intent was to create a concise and powerful answer to today's corrupt monetary system. It's not a popular thing to discuss (because of outsiders' mixed reactions) but Bitcoin's huge potential to avoid tax was obviously not lost on the creator/s either. However, that didn't stop them from continuing development. Bitcoin has huge potential to starve "evil" corporations -- ones that enjoy privileged positions as suppliers of easy credit, ones that control interest rates, and ones that simply mooch off society by being monopolies and charging high fees.

That should be easy enough to understand. But what next? What if Bitcoin does become the saviour that everyone hopes? How is the question of government and taxation answered? Not everyone agrees with "Libertarian Anarchism" and "user pays" politics that some are promoting. I guess it's an understandable reaction against the US' oppressive government, but most other governments are surely less evil and just need a few small tweaks. Thankfully Bitcoin doesn't attempt to provide all the answers, giving different societies the ability to handle taxation as they see fit, if the issue ever arises.

Taxation can be done by including tax in the price of the goods. http://en.wikipedia.org/wiki/Value_added_tax

[Coreadrin_47]

Bitcoin is very, very viable long-term.  It's only weakness is that it hasn't been selected as a commodity and then assigned a monetary premium by an organic and complex market, but instead was simply created with the intent of being used as a unit of exchange and account.

I think the intent was to create a concise and powerful answer to today's corrupt monetary system. It's not a popular thing to discuss (because of outsiders' mixed reactions) but Bitcoin's huge potential to avoid tax was obviously not lost on the creator/s either. However, that didn't stop them from continuing development. Bitcoin has huge potential to starve "evil" corporations -- ones that enjoy privileged positions as suppliers of easy credit, ones that control interest rates, and ones that simply mooch off society by being monopolies and charging high fees.

That should be easy enough to understand. But what next? What if Bitcoin does become the saviour that everyone hopes? How is the question of government and taxation answered? Not everyone agrees with "Libertarian Anarchism" and "user pays" politics that some are promoting. I guess it's an understandable reaction against the US' oppressive government, but most other governments are surely less evil and just need a few small tweaks. Thankfully Bitcoin doesn't attempt to provide all the answers, giving different societies the ability to handle taxation as they see fit, if the issue ever arises.

Taxation can be done by including tax in the price of the goods. http://en.wikipedia.org/wiki/Value_added_tax

It still has to be collected from someone, whether it's an employee, a consumer, or a merchant.  VAT just changes the point of collection, and (bonus) creates a massive black market for goods sold for cash or barter outside of the purview of this more recent imposition of immorality. 

What's to stop someone from simply moving their assets completely offshore and running things vicariously from there? (And damned right, he should)  How do you enforce taxation through bitcoin?  I hope that question never gets answered, and that every attempt to impose it rots away and gets tossed into the dustbin.

[runeks]

First of all, welcome to the forums! I think you are exactly one of the kinds of people that the Bitcoin community needs. I think I agree with all of your points, and it's refreshing to see them expressed with such clarity.

[...] (disclosure:  I am fully leveraged short in long-term treasuries as of about 2 weeks ago, along with Japanese long bonds, German bunds, and France long term debt).
[...]

I'm very interested in this as well. I've been thinking about doing the same, and have heard it suggested several places. I'd really like to hear more about your thoughts on doing this.

My first thought when considering this, is that I fear it's sort of a rigged game. I mean, US Treasury bonds are denominated in a currency that is controlled completely by the Federal Reserve. As far as I can see, the Fed could (theoretically) drive up the price of Treasury bonds to any price it desires. I mean, it creates the very currency that these bonds are denominated in. As far as I can see though, it would require the Fed to purchase bonds directly from the US Treasury, instead of in the secondary market. Or am I wrong on this one? How is the price, that your short references, determined? Is this by the price in the secondary market?
This is probably the thing I fear the most. The political system isn't exactly thrilled about speculation, and I'd imagine shorting US bonds is one of the least favored speculation activities a US politician can image. I don't think it would be far fetched to imagine political action that aims to drive up the price of treasuries temporarily, to get rid of the leveraged shorts. Or am I out of line here? I'm just bothered by the opacity of this market, and I feel like I'm trading against politicians instead of the market.

With regards to the actual process of shorting the bonds, I have a fair understanding of how it works. I presume you pay an interest on borrowing the bonds from someone. At which interest rate can you borrow the bonds?
I figure this must weigh in on your decision, since a high interest rate will make your position unprofitable quicker than a lower interest rate. Do you have any time estimate on when you expect the bonds to start declining in price?

[Coreadrin_47]

First of all, welcome to the forums! I think you are exactly one of the kinds of people that the Bitcoin community needs. I think I agree with all of your points, and it's refreshing to see them expressed with such clarity.

[...] (disclosure:  I am fully leveraged short in long-term treasuries as of about 2 weeks ago, along with Japanese long bonds, German bunds, and France long term debt).
[...]

I'm very interested in this as well. I've been thinking about doing the same, and have heard it suggested several places. I'd really like to hear more about your thoughts on doing this.

My first thought when considering this, is that I fear it's sort of a rigged game. I mean, US Treasury bonds are denominated in a currency that is controlled completely by the Federal Reserve. As far as I can see, the Fed could (theoretically) drive up the price of Treasury bonds to any price it desires. I mean, it creates the very currency that these bonds are denominated in. As far as I can see though, it would require the Fed to purchase bonds directly from the US Treasury, instead of in the secondary market. Or am I wrong on this one? How is the price, that your short references, determined? Is this by the price in the secondary market?
This is probably the thing I fear the most. The political system isn't exactly thrilled about speculation, and I'd imagine shorting US bonds is one of the least favored speculation activities a US politician can image. I don't think it would be far fetched to imagine political action that aims to drive up the price of treasuries temporarily, to get rid of the leveraged shorts. Or am I out of line here? I'm just bothered by the opacity of this market, and I feel like I'm trading against politicians instead of the market.

With regards to the actual process of shorting the bonds, I have a fair understanding of how it works. I presume you pay an interest on borrowing the bonds from someone. At which interest rate can you borrow the bonds?
I figure this must weigh in on your decision, since a high interest rate will make your position unprofitable quicker than a lower interest rate. Do you have any time estimate on when you expect the bonds to start declining in price?

I have a core short position, but I a mostly leveraged to the max via LEAPS (the premiums are pretty reasonable short-side right now, just because the VIX is so low and the market's got this huge still-baked-in expectation of continued upside.

As far as the rigging of the game goes - you can only violate the laws of economics for so long.  The Fed has been openly purchasing treasuries since 2008 and they already ARE the long-bond market.  Twist was just the last twist of the sword in attempting to push down long-term yields.  The Fed currently holds well over 2/3 of it's entire balance sheet in long term debt (LT Treasuries and Mortgage Debt).  If these markets begin to turn, they will start having to book serious losses, which will be pretty damned embarrassing for the all-powerful ivory tower gods of money. 

You couple that with what are sure to be serious, serious shenanigans in terms of the budget, plus the fact that SS continues to pay out more than it takes in (and its balance sheet is also made up almost entirely of treasury bonds), and you've got a highly probably chance that the everyone-and-their-mother who have piled on the Treasury bubble will get wiped out.

It's a 30 year bull market.  Not many bull markets can hold out for 30 years, and this one is a doozey.  Higher participation than stocks by the average household, and by a long shot.  Check out equity outflows compared to treasury inflows over the past 10 years, and you'll basically see another dot-com/NasdAPPL in the works.  There's not much possible upside even left on Treasuries, but the way down is a long, long way.

As for the rest of the discussion on here, I think it's going to be imperative to the future of bitcoin for more and more products and services to be offered and denominated in bitcoins.  As the underlying economy grows, so will the support infrastructure (bitcoin debit cards, etc.), and so will its value.  I'm working on a little something that will make it a lot easier to bring legitimate goods and services to the market and not worry (in the meantime) about your entire profit margin getting eaten up by specs over on the Gox.  That's project #1, which will hopefully generate enough revenue that I can focus entirely on my bigger goals over the next 6-12 months.

[runeks]

I won't pretend I understood the majority of the terms you just used, but again I agree with your general perspective on the market. I just find the dimension of time to be so damn difficult to grasp. I mean, as far as I can figure it could all come down next year, but I could also see it running for another 10 years, albeit very poorly, and with lots of intervention of course.

May I ask how long it can take the bond market to collapse before you don't make a profit because of the premiums you pay on borrowing the bonds?

I mostly focus on the opinion of the people on the street. We all agree the fundamentals are terrible, but still, I have yet to run across anyone in my daily life (in the "real world", ie. not these forums) that really think the whole system could collapse. And if it were to collapse, I find it quite probable that most people would voluntarily give up some freedom to keep it going longer - via capital controls, for example.
Then again, I don't really know many people who are even interested in economics, so that might be why. It's like everyone agree on the logic behind why the system is terribly unstable, but they have a very hard time envisioning a breakdown of it. Even just suggesting high inflation (>5%) is considered nonsense by most people.

[Coreadrin_47]

I won't pretend I understood the majority of the terms you just used, but again I agree with your general perspective on the market. I just find the dimension of time to be so damn difficult to grasp. I mean, as far as I can figure it could all come down next year, but I could also see it running for another 10 years, albeit very poorly, and with lots of intervention of course.

May I ask how long it can take the bond market to collapse before you don't make a profit because of the premiums you pay on borrowing the bonds?

I mostly focus on the opinion of the people on the street. We all agree the fundamentals are terrible, but still, I have yet to run across anyone in my daily life (in the "real world", ie. not these forums) that really think the whole system could collapse. And if it were to collapse, I find it quite probable that most people would voluntarily give up some freedom to keep it going longer - via capital controls, for example.
Then again, I don't really know many people who are even interested in economics, so that might be why. It's like everyone agree on the logic behind why the system is terribly unstable, but they have a very hard time envisioning a breakdown of it. Even just suggesting high inflation (>5%) is considered nonsense by most people.

Like I said, most of my position is using LEAPS (long term options, essentially).  they expire worthless if they aren't in the money by the expiration date.  I'm betting on a good hop up in the VIX even if treasuries manage to eke out another rally, which should keep the time premiums on the LEAPS up high enough that it's a very low-risk play.  And even if things are looking a little iffy, you can usually roll things over another year out (when available) for not too much price difference, sometimes you're only looking at a 10-15% rollover cost which gives to another 12 months.

I don't trade on fundamentals, but they do certainly bust open the dam when it's time for the trade to roll your way.  Investing is the long, long play.  Trading is on psychology, where the laws of economics can be stretched and ignored for a while.  We had a beautiful internal divergence on a host of indicators on that latest high in long bonds, a mature pricing pattern (early adopters, early majority, majority rush, late majority, final batch of greater fools), etc.  It was a great time to short it on a contra play.

[jojo69]

thread of the week

so nice to see some big picture debate...nice break from "oh noes, pirate is crashing teh bitcoin"



My thoughts, this is going to be a very close thing.  Bitcoin is far and away the most encouraging development I have seen in some time.  It truly does have the potential to break the current system of debt slavery.  The central banking conspiracy, however, is not going to shuffle off to the dustbin of history quietly.  The arc of history indeed bends toward freedom, but is jagged with spasms of state violence.  Much remains to be done.

[TraderTimm]

I have a sneaking suspicion that the entire bond curve is as false and rigged as LIBOR. Time will tell...

[macsga]

I really am curious where this is going Coreadrin_47. I *think* I have the outline of your thoughts and really want to wish you all the best. It's a good bet IMHO.

[Coreadrin_47]

I have a sneaking suspicion that the entire bond curve is as false and rigged as LIBOR. Time will tell...

lol have you looked at the Fed's balance sheet recently?  They are exposed to the tune of over 2/3 of their entire "asset" base in debt instruments with maturities 10 years or greater (including almost 1 trillion of long term mortgage securities, many of which are worth less than 50 cents on the dollar).

You are correct.  It is false and rigged - the Fed IS the long bond market right now, but the law of diminishing returns has and is going to keep knocking them over the head, and eventually if they start booking losses it will be a massively humiliating thing for the backstop of the country's "money" to be bleeding monetary losses of its own.  I will be laughing hysterically at them at this point, and I encourage all to join in.  This is why there is actually huge internal division among the Fed chiefs right now, if you read through their releases.  Many of them know this.  It's only a matter of time.

To the point of hyperinflation, it's not going to happen in the US.  The fed and treasury have hog-tied themselves.  They cannot instantly pay back long bonds - they must pay back as scheduled.  To pay back early means to default, and the market rejects any more debt issuance and very quickly the dollar itself.  Hyperinflation generally only lasts a couple of years, sometimes less.  It is impossible to hyperinflate and have the economy still using the same currency 30 years later, when a huge amount of debt needs to be paid off, including social security (20+ years out).  And as soon as an attempt were made to "pay off" an existing long-bond with very-debased money, the market would drop like a stone and people would just stop using dollars because that would be a de facto default.

If you look at monetary history, it is inevitable that all fiat currencies die.  This happened to the Nubians, the Romans, the British, all previous attempts in the US, and a good 15+ other instances in the 20th century alone (with cases occurring several thousand years ago, because human nature does not change, no matter how we would like to think it "evolves").  Hoever, there is a key difference between eras of true hyperinflation, and eras of high inflation of 20-50%.  The instances of hyperinflation were all instances where the political class, the State, had full control over the issue of money and credit.  Wiemer, Zimbabwe, Confederate Dollars, etc, were all instances where the government actually had control of the WHOLE money apparatus.  This is because it is the nature of the state to promise/mortgage itself out dozens of times more than it could ever afford to, and to "save face" with debasement.  The political class makes the farmers and anyone holding tangible assets win out, wipes out the banking system and eventually destroys the currency.

In instances of high inflation, it is always when a central bank or banking system is in control of the issue of what is always the largest portion of any currency in existence - promises to pay it:  Debt.  Central banks allow for high inflation to benefit the banking system at the expense of savers.  Hyperinflation doesn't occur when the government must use the banks as a proxy for its promises, only when the government itself attempts to fund them and controls the entire mechanism for doing so.  We don't have to worry about Weimer here, because the banks are beholden to the fed and the fed to the banks, with the state as a third-party benefactor (having its bonds as underlying collateral for all other credit).  We just have to worry about 20-50% annual inflation for a few years, which is still gutwrenching for an economy and easily enough to destroy a generation's worth of productive advancement, if not more. 

This all hangs on the caveat that the Fed's box of magic tricks could actually spur credit expansion with all those new, shiny reserves just sitting there waiting to explode out into the system and blow up the credit markets.

Considering that the velocity of money in USD terms has collapsed from over 25 to 5 in the past decade, I'm just not seeing it.  Ergo, cash is a safe bet for a little while, because even if the economy goes to absolute crap and credit starts to expand, everything we currently do in the brick and mortar world is currently denominated and settled in legal tender, and people calling in debts will create tremendous demand for physical cash notes, for a little while.  After that, it's look out below....

[runeks]

In instances of high inflation, it is always when a central bank or banking system is in control of the issue of what is always the largest portion of any currency in existence - promises to pay it:  Debt.  Central banks allow for high inflation to benefit the banking system at the expense of savers.  Hyperinflation doesn't occur when the government must use the banks as a proxy for its promises, only when the government itself attempts to fund them and controls the entire mechanism for doing so.  We don't have to worry about Weimer here, because the banks are beholden to the fed and the fed to the banks, with the state as a third-party benefactor (having its bonds as underlying collateral for all other credit).  We just have to worry about 20-50% annual inflation for a few years, which is still gutwrenching for an economy and easily enough to destroy a generation's worth of productive advancement, if not more.

Interesting. I hadn't thought about that. Reading Wikipedia's account of hyperinflation in Weimar Germany, it sounds awfully similar to our situation today though:

[...] The Treaty of Versailles imposed a huge debt on Germany that could be paid only in gold or foreign currency. With its gold depleted, the German government attempted to buy foreign currency with German currency, but this caused the German Mark to fall rapidly in value, which greatly increased the number of Marks needed to buy more foreign currency. This caused German prices of goods to rise rapidly which increase the cost of operating the German government which could not be financed by raising taxes. The resulting budget deficit increased rapidly and was financed by the central bank creating more money. When the German people realized that their money was rapidly losing value, they tried to spend it quickly. This increase in monetary velocity caused still more rapid increase in prices which created a vicious cycle.[9] This placed the government and banks between two unacceptable alternatives: if they stopped the inflation this would cause immediate bankruptcies, unemployment, strikes, hunger, violence, collapse of civil order, insurrection, and revolution.[10] If they continued the inflation they would default on their foreign debt. The attempts to avoid both unemployment and insolvency ultimately failed when Germany had both.[11]

Also, it doesn't mention that the Reichsbank were controlled by the government. It seems like the German central bank acted just as our central banks do today: buying up government debt to keep the rates low.
In 1937 - when Hitler came to power - however, the central bank was put under direct control of the Nazi government.

It sounds like one of those things that are very hard to stop once they begin. I mean, central banks really don't have any room to raise interest rates to 15% like they did in the 80's. 15% interest on a $15 trillion debt just isn't an option.

[Coreadrin_47]

http://www.garynorth.com/public/images/7010a.gif

That's the key right there.  If the central bank conjoins with the government at the hip and swaps its fascist partner (stops caring about the banks), you might see something like this happen.

Until then, the Fed is pretty constrained - they essentially just swap assets around - promises to pay that are deemed more valuable for promises that are worth less.  Worthless mortgage securities for fresh AAA rated treasuries on deposit with full reserve capability.  But it all hinges on the ability of credit to continuously expand - the fractional reserve banking system cannot survive a contraction in total money + credit.  It dies.  Depositors begin to demand deposits to pay off debts, because debts become more expensive as monetary velocity decreases and total credit contracts (less promises to pay against the same physical goods and services).

The velocity of money has dropped by over 80% since the year 2000.  For every $1.00 of GDP added last quarter, it took over $2.00 in new debt.  Government spending is accounted for in total GDP, even though it is an economic distortion and malinvestment with several costs: a) the cost of removing scarce resources from the economy in the first place, b) the cost of what might have been done with those resources (cure for disease, new paradigm shifting technology, etc), and c) the cost to finally re-allocate them when the malinvestment can no longer be sustained (the bubble bursts).

This is the real estate bubble but fifty times the size.  Total M2 moneys supply for the world's reserve currency sits at about 10 trillion.  Currency and credit derivatives are over 700 trillion.  All it would take is a mere 10% in counterparty claims or defaults and the entire monetary system of the planet blows up.   

As such, I do and have always recommended having a good store of your savings in precious metals.  Precious metals are not "investments" - an investment is something that you expect to generate you a yield.  Precious metals are cash savings in another form.  Treating them this way is the only smart way to hold them.

[lebing]

Bitcoin is something that can usher in world piece as a two edged sword - it removes the monetization possibility that enables war, and it keeps people in the rational world, where they do business together and benefit each other.  Rational people are that much harder to propagandize, and would revolt if their economic success were cut off because of politicking.

[Tuxavant]

There is a massive scandal unfolding as we speak which will likely shake bitcoin to its core along the lines of the Mt. Gox hack last year and the fold-up of the online wallets and the recent bitcoinica hack and collapse (along with your money).  

Since nobody else is biting, i will. What do you know that everyone else is missing?