Bitcoin is a Zero-Sum Game - Long-term interest bearing instruments viable?

[Wekkel]

Voluntary exchange is what produces growth because both parties benefit -- not just lots of trades.  In contrast, printing new fiat money (aka counterfeiting) is a form of involuntary exchange or theft.

As I said, this is just hypocritical. If you call inflation theft then you are inconsistent when you don't call deflation an involuntary theft from those who invest to those who put the money in the safe.

Is it wrong if I hld my Fiat-euro's in cash instead of bidding up the price of bread at the supermarket? Am I hurting anyone else if I decide to keep physical money in my pocket instead of lending it out to the bank against interest?

Why would hoarding individuals be thieves if everyone has the exact same opportunity to enjoy the benefits of the appreciating money? It's called a market (which includes ordinary money transactions); a summary of millions of individual transactions between millions of individuals. No more, no less.

If hoarding becomes a problem, it is individuals reacting to bad influences from the outside (usually: government policies).

[kjj]

No one here believes that but you (and maybe a couple of others). 

I would expect nothing else on a forum which has a deflationary currency as topic.

So, make an argument that isn't circular then.

[bitcoinbear]

I tried checking out GLBSE to see if there were any non-mining (btc currency creation) or non-ponzi investments, but I couldn't find any and their site is slow. Care to link to any non-BTC non-ponzi businesses? Wallets are not businesses. Armory is an open source client. About the only legitimate business on there that isn't illegal in many countries is camgirls, which I'll give you half a point for. It was an existing site, not one that took any investment in BTC. And really, wikileaks? You think wikileaks is a BTC business let alone a business at all? What's the point in even talking to you?

Not sure what you mean by "non-BTC", but here are a few to start with:

Check out FeedZeBirds, BitcoinTorrentz, Rugatu, IBB, SatoshiDice, bioethanol, and several assets backed by precious metals

(this list is in no way supposed to be exhastive or reflect advise to buy any of these assets)

[Etlase2]

I am not saying it is bad I'm just calling it what it is. You even mention "new money" in your quote above.

Inflation is an increase in price levels, not an increase in the money supply. Inflation is a result when the money supply is expanded beyond the demand for new money, just like deflation is the result if the money supply is not expanded enough to the demand for new money.

More money will always equal higher prices at some point.. unless you also plan to remove credits?

More money will not always equal higher prices. M(oney supply)*V(elocity of money) = P(rice level)*Q(real expenditures). If real expenditures go up to match the increase in money (or an increase in money goes up to match real expenditures), the price level remains constant. Or a simpler way P = (M*V)/Q.

And higher prices are irrelevant if the new money is distributed equitably rather than as expanding credit only available to banks, a sentence you ignored.

Off topic, but I also don't see how your system avoids being gamed to death: Hold a bunch of coins, send them to your own addresses once in a while - system awards you with new coin due to you being an "account holder that is trading".

It is really rather simple: if you pay a 0.01 fee on a transaction, the odds of you being awarded 1 coin for that transaction is made to be no less than 1 in 101. Transaction fees are required under this model, as they will eventually be under bitcoin.

If you are truly giving the money to everyone why not just make a Bitcoin client that moves the comma once in a while?

Uhh gee I dunno, maybe because this has shit all to do with the actual money supply?

You never mentioned anything about the investments being GOOD, just investments in general - you're "moving the goal posts". Surely the real world is no less riddled with bad investments and scams.
If something good did come along, and it will I think, people should start to choose that over the scams.

I didn't? Besides, are we to assume that an economy can grow on bad investments? I mean, isn't this what causes the business cycle?

News reporting is a business right? Fox news, CNN - all businesses, why not wikileaks?

Do you even know what wikileaks does and why it accepts bitcoin donations?

When discussing the investor willingness in a deflationary economy; yeah it immensely helps my case that people gave a guy named "pirate" 5% of the entire economy (okay maybe he only got 0.5% for real, who knows).

How willing will investors be to fight over 0.1%-0.5% per YEAR rather than 7% per WEEK? How willing will businesses be to take on the risk of a deflationary currency loan? There is a big difference between scam and reality.

[Grinder]

Is it wrong if I hld my Fiat-euro's in cash instead of bidding up the price of bread at the supermarket? Am I hurting anyone else if I decide to keep physical money in my pocket instead of lending it out to the bank against interest?

Kind of, but with all the money printing not enough people will do it to the degree that it stops inflation for very long, so you are mainly hurting yourself.

Why would hoarding individuals be thieves if everyone has the exact same opportunity to enjoy the benefits of the appreciating money?

Just because everyone can steal doesn't mean it's not stealing. I would call it a tax because it would be legal and fairly predictable, but then a lot of people here don't differentiate between taxing and stealing, so stealing it is.

If hoarding becomes a problem, it is individuals reacting to bad influences from the outside (usually: government policies).

Hoarding is will suppress the economy, and I think that's bad. If someone thinks having a deflationary self regulating currency is more important than having an economy that is as strong and flourishing as possible that's an opinion they are entitled to, but I disagree with it.

[Grinder]

No one here believes that but you (and maybe a couple of others). 

I would expect nothing else on a forum which has a deflationary currency as topic.

So, make an argument that isn't circular then.

Pointing out inconsistency in an argument is not being circular, and yours was an argumentum ad populum.

[kjj]

No one here believes that but you (and maybe a couple of others). 

I would expect nothing else on a forum which has a deflationary currency as topic.

So, make an argument that isn't circular then.

Pointing out inconsistency in an argument is not being circular, and yours was an argumentum ad populum.

No it wasn't.  Pointing out that people aren't likely to accept a bland assertion from you on the very point of debate is hardly an appeal to popularity.

[Grinder]

No it wasn't.  Pointing out that people aren't likely to accept a bland assertion from you on the very point of debate is hardly an appeal to popularity.

You can call the argument whatever you like, saying it's wrong solely because most people don't believe it is the very definition of an argumentum ad populum.

[Etlase2]

No it wasn't.  Pointing out that people aren't likely to accept a bland assertion from you on the very point of debate is hardly an appeal to popularity.

Like providing links and information to basic economic theory will do anything to change your minds. Bitcoinomics is rampant around here and it is pretty obvious that people will believe whatever they want to believe as long as they think it's good for them and someone smarter than they can come up with some perfume-laden shit as ammo to repeat. It smells an awful lot like political positions.

[kjj]

No it wasn't.  Pointing out that people aren't likely to accept a bland assertion from you on the very point of debate is hardly an appeal to popularity.

You can call the argument whatever you like, saying it's wrong solely because most people don't believe it is the very definition of an argumentum ad populum.

No, no, no.  I'm saying that you can't just assert your position and expect us to accept it.  You need to demonstrate it.  That the majority of us won't buy it when you say "I'm right" doesn't mean that I'm arguing from popularity, it means that you are begging the question.

[Realpra]

Inflation is an increase in price levels, not an increase in the money supply.

Inflation usually refers to an inflation in the money supply. Prices in said economy are irrelevant to the concept of monetary inflation.
ALL inflationists usually justify their inflation with "stable prices" - and that's FINE, stable prices would be neat - but you're still an inflationist.

Inflation is a result when the money supply is expanded beyond the demand for new money, just like deflation is the result if the money supply is not expanded enough to the demand for new money.

I think this is your problem right here; you think money is a necessary commodity or something that society can somehow "run out of". This is simply not the case, its a system of IOUs and there can NEVER be scarcity because you can always "rip an IOU in two" so you have twice the amount of tokens to go around.
This ESPECIALLY goes for Bitcoin which is digital and infinitely divisible.

A "credit crunch" is not a bad thing; its just the market figuring out that some or many main activities it was undertaking were stupid and so everything slows down until the market finds something NEW and more SENSIBLE to invest in.
Forcing the market to invest will just lead to bad investments as I see it.

And higher prices are irrelevant if the new money is distributed equitably rather than as expanding credit only available to banks, a sentence you ignored.

Because distributing the new money equally is the same as moving the comma, think about it. Give everyone 10 times as much money and its exactly the same as moving the comma once to the left.
Mentioning banks is just appeal to emotion btw

It is really rather simple: if you pay a 0.01 fee on a transaction, the odds of you being awarded 1 coin for that transaction is made to be no less than 1 in 101. Transaction fees are required under this model, as they will eventually be under bitcoin.

Well Bitcoin needs those fees for a reason and not to control price levels or something.

Anyway if you pay 0.01 as fee and on average win the same all you are doing is subsidizing miners and allowing them to charger higher fees perpetually. This would either lead to a NEW wasteful banker-class or over consumption of CPU time.

Besides, are we to assume that an economy can grow on bad investments? I mean, isn't this what causes the business cycle?

I am assuming that A people prefer good investments and that B if they are investing in bad things they are also investing in good things to similar extent.

Do you even know what wikileaks does and why it accepts bitcoin donations?

Businesses can operate on emotion, low pay and volunteer work. Many "human aid" orgs are nothing but money machines today.

How willing will investors be to fight over 0.1%-0.5% per YEAR rather than 7% per WEEK? How willing will businesses be to take on the risk of a deflationary currency loan? There is a big difference between scam and reality.

0.1-0.5% is a horrible investment, no one should accept that. But moving on with 1-20% in mind (low to very high risk).
I think people would take normal investments because there would be less risk compared to ponzi operations.

Why would anyone invest with 3% deflation?
1. Well for starters deflationary currencies may well be less stable so it could be to hedge or profit from temporary drops in BTC price.
2. Many valid investments can pay more than 3%.
3. Deflationary currencies may have years of little or negative growth where real-returns would be great.

[Grinder]

No, no, no.  I'm saying that you can't just assert your position and expect us to accept it.  You need to demonstrate it.  That the majority of us won't buy it when you say "I'm right" doesn't mean that I'm arguing from popularity, it means that you are begging the question.

No, this is what your saying now, it is not what your original reply said.

[Etlase2]

Inflation usually refers to an inflation in the money supply. Prices in said economy are irrelevant to the concept of monetary inflation.

No, it does not.

http://en.wikipedia.org/wiki/Inflation - In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time
http://www.thefreedictionary.com/inflation - 2.  A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.
https://en.wikipedia.org/wiki/Austrian_School#Inflation - Mises argues that inflation only results when the supply of money outpaces demand for money

Mises may have waxed poetic about how calling rising prices inflation confuses the issue with monetary supply increases, but AFAIK he is the only austrian that gave a shit about the distinction. For everyone else in the world, the meaning is clear: rising prices associated with an increase in the supply of money beyond the available goods and services or whatever exact definition you want to pick.

I think this is your problem right here; you think money is a necessary commodity or something that society can somehow "run out of". This is simply not the case, its a system of IOUs and there can NEVER be scarcity because you can always "rip an IOU in two" so you have twice the amount of tokens to go around.
This ESPECIALLY goes for Bitcoin which is digital and infinitely divisible.

Oh hey look, you putting ideas in my mouth that never fucking came out of it. The very definition of strawman and intelligence insulting. "OHH U THINK HERP A DERP BITCOINS WILL RUN OUT AND IT WILL FAIL"

FUCK OFF

[kjj]

No, no, no.  I'm saying that you can't just assert your position and expect us to accept it.  You need to demonstrate it.  That the majority of us won't buy it when you say "I'm right" doesn't mean that I'm arguing from popularity, it means that you are begging the question.

No, this is what your saying now, it is not what your original reply said.

Actually, it is exactly what I said.  I'll bold it for you.

Voluntary exchange is what produces growth because both parties benefit -- not just lots of trades.  In contrast, printing new fiat money (aka counterfeiting) is a form of involuntary exchange or theft.

As I said, this is just hypocritical. If you call inflation theft then you are inconsistent when you don't call deflation an involuntary theft from those who invest to those who put the money in the safe.

No one here believes that but you (and maybe a couple of others).  It is hardly an established fact.  It is, I think, the central question here, and you can't claim it as evidence of it's own truth.  (To do so would be to beg the question.)

[Grinder]

No one here believes that but you (and maybe a couple of others).  It is hardly an established fact.  It is, I think, the central question here, and you can't claim it as evidence of it's own truth.  (To do so would be to beg the question.)

It's very simple logic. Value doesn't come from nowhere, so when you get value even though you just keep the money in the safe you must be getting it from someone who has created it. If this wasn't an ideological question for so many of you it would be much easier for you to see. Unfortunately it's like telling a communist that communism in reality undermines the welfare of the people. It is obvious if you don't desperately need to deny it for your ideology to make sense.

[Realpra]

http://en.wikipedia.org/wiki/Inflation - In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time
http://www.thefreedictionary.com/inflation - 2.  A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.
https://en.wikipedia.org/wiki/Austrian_School#Inflation - Mises argues that inflation only results when the supply of money outpaces demand for money

But sure if it makes you happy I will call you a monetary inflationist instead of inflationist 

I think this is your problem right here; you think money is a necessary commodity or something that society can somehow "run out of". This is simply not the case, its a system of IOUs and there can NEVER be scarcity because you can always "rip an IOU in two" so you have twice the amount of tokens to go around.
This ESPECIALLY goes for Bitcoin which is digital and infinitely divisible.

Oh hey look, you putting ideas in my mouth that never fucking came out of it. The very definition of strawman and intelligence insulting. "OHH U THINK HERP A DERP BITCOINS WILL RUN OUT AND IT WILL FAIL"
FUCK OFF

You are the one constantly talking about the market running out of loans, credit, investment or money.

"Demand for money" - what does that even mean... no SERIOUSLY; explain it to me, I don't get it.

[kjj]

No one here believes that but you (and maybe a couple of others).  It is hardly an established fact.  It is, I think, the central question here, and you can't claim it as evidence of it's own truth.  (To do so would be to beg the question.)

It's very simple logic. Value doesn't come from nowhere, so when you get value even though you just keep the money in the safe you must be getting it from someone who has created it. If this wasn't an ideological question for so many of you it would be much easier for you to see. Unfortunately it's like telling a communist that communism in reality undermines the welfare of the people. It is obvious if you don't desperately need to deny it for your ideology to make sense.

If it is so obvious, why can't you offer a more convincing argument than merely saying it?

Also, please read or listen to Bastiat's What is Money?.

[Realpra]

It's very simple logic. Value doesn't come from nowhere, so when you get value even though you just keep the money in the safe you must be getting it from someone who has created it. If this wasn't an ideological question for so many of you it would be much easier for you to see. Unfortunately it's like telling a communist that communism in reality undermines the welfare of the people. It is obvious if you don't desperately need to deny it for your ideology to make sense.

Yeah we're just brainwashed and emotionally ideological, there's some neat ad hominem.

Let me explain it to you:

1. 3 peps are on a deserted island with NOTHING there except some def. money that THEY hold.
2. YOU plant some crops, harvest and sell it for their worthless currency - lets say because you don't like to see people starve.
3. Now you do nothing and sit on your new money.
4. Because they are now well-fed and more energized they now plant two fields MORE with leftover seeds or with seeds from where you also found them.
5. There is now twice the amount of food on the island as when you finished harvesting.
6. NOW you spend your money for twice its previous value when you got it.
7. The value was "stolen" from people you helped earlier, from an economy that would not be where it was without your prior work.

With inflation? They print more money and buy your second harvest too without doing work, YOU have to keep working to keep "your value" on the island - who's brainwashed NOW?

[Roger_Murdock]

It's very simple logic. Value doesn't come from nowhere, so when you get value even though you just keep the money in the safe you must be getting it from someone who has created it. If this wasn't an ideological question for so many of you it would be much easier for you to see. Unfortunately it's like telling a communist that communism in reality undermines the welfare of the people. It is obvious if you don't desperately need to deny it for your ideology to make sense.

It seems like the disagreement boils down to what we each think about the following two groups of people:

1) people who save money in a deflationary currency (but don't lend it directly to others or otherwise "invest" it); and
2) people who enjoy a government-granted monopoly on printing new fiat currency in an inflationary economy.

You think that the first group is "getting something for nothing" but not the second group. I think the exact opposite. My position with respect to group one is based on the idea that by deferring consumption, savers are effectively lending the purchasing power of the saved money to all other currency holders, and that this is why they receive (and why they deserve to receive) a (relatively-modest) reward in the form of increased purchasing power over time.  My position with respect to group two is that the recipients of the new money gain real purchasing power in exchange for the equivalent of executing a copy-and-paste command. Honestly, that seems pretty intuitive to me. Your position, on the other hand, seems extremely counter-intuitive.  That doesn't mean you're wrong.  But when you say that your position is not only correct, but so obviously correct that the only reason people like me can't grasp it is because we're blinded by ideology, well, I find that REALLY hard to grasp.  

I'd also note that group two requires coercion backed by the threat of violence to receive the benefit they do whereas group one does not.  The state requires you to pay taxes in their fiat currency.  If you don't comply, they'll forcibly steal your stuff and/or arrest you and lock you in a cage.  Similarly, if YOU try to get in on the action and print your own "Federal Reserve Notes," they'll send you to prison for counterfeiting (and this is true even if your motivations were completely pure and you were just trying to "stimulate the economy.") In contrast, the use of a deflationary currency does not depend on state violence.  People were using precious metals as money long before the state got involved. People will voluntarily adopt and use a deflationary currency. They must be compelled to use inflationary fiat. (And that coercion backed by violence is the reason I think that the word "theft" can be accurately applied to group two but not to group one.) And if you don't think that's the case, then there shouldn't be a problem.  Start a new blockchain with a different reward scheme and watch as everyone abandons Bitcoin in favor of "Inflate-o-Coin."

[Etlase2]

You are the one constantly talking about the market running out of loans, credit, investment or money.

"Demand for money" - what does that even mean... no SERIOUSLY; explain it to me, I don't get it.

I have never used nor implied any "running out" of loans etc. only that a deflationary currency makes loaning a dangerous affair for both parties. So, paradoxically, a deflationary currency might make for high-interest and presumably short-term only loans. Not the type of loan you can do capital investment with--more akin to loan sharking.

I will, against all better judgment, assume that your question is genuine and your insulting strawman was a misunderstanding.

https://en.wikipedia.org/wiki/Demand_for_money - The demand for money is the desired holding of financial assets in the form of money: that is, cash or bank deposits.



where M^d is the nominal amount of money demanded, P is the price level, R is the nominal interest rate, Y is real output, and L(.) is real money demand.

L(R,Y) is called liquidity preference which is a Keynesian idea, but Austrians have time preference which can be substituted and the situation works out roughly the same.

Keeping a stable price level P means that whenever output is increased, the demand for money M^d will increase in the same fashion, or prices will not be stable--they will have to decrease. Because the money supply is so restricted in bitcoin, this will generally be the case. When the central bank increases the supply of money, P rises then M^d rises. They can't happen at the same time because the money supply is narrowly focused to private banks. This is where the "theft" comes in because the prices increase before any of us have any say in the matter or see any benefit to new money. When the supply of money can meet new demand quickly, prices do not decrease. When money is not given to sacrosanct institutions first, but equitably across the economy, M^d and P can move at the same rate, if necessary (or L() can cancel it out).

Because distributing the new money equally is the same as moving the comma, think about it. Give everyone 10 times as much money and its exactly the same as moving the comma once to the left.

It is not, because you have forgotten the cost factor to mining. Miners are held in check by the potential of inflating prices by overproducing and making mining unprofitable. "Cash-hoarders" are held in check by miners because miners create new money that will presumably put to use, stifling deflation. If the demand for money gets too high, interest rates should increase as well, also prompting cash-hoarders to stop hoarding and invest at interest. It is a balance from all angles that can't be manipulated. There is also, at least in my proposal, a large chunk of the new money that goes straight to trade, which is why I chose my words carefully and said "equitably" instead of "equally". Trade is where new value is realized and it should be rewarded in kind.

It is really rather simple: if you pay a 0.01 fee on a transaction, the odds of you being awarded 1 coin for that transaction is made to be no less than 1 in 101. Transaction fees are required under this model, as they will eventually be under bitcoin.

Well Bitcoin needs those fees for a reason and not to control price levels or something.

The fees aren't there to control price levels.

Anyway if you pay 0.01 as fee and on average win the same all you are doing is subsidizing miners and allowing them to charger higher fees perpetually. This would either lead to a NEW wasteful banker-class or over consumption of CPU time.

The miners don't have anything to do with the fees. Mining isn't required at all. When the demand for money is in line with the supply, mining stops. No electricity usage at all.

0.1-0.5% is a horrible investment, no one should accept that.

Well there you go! There was some heated discussion a year or so ago on how deflation might somehow be prone to negative interest rates. CD rates nowadays are around 1%. Admittedly, that is with central bank theft of interest rates, but even when they were not manipulating as much, the best, safe interest rate in a typical 2-3% inflationary economy is going to be 2-3%. Riskier investments can lead to around a solid 5%, but they tank when the economy as a whole tanks (see everybody's IRAs, 401ks, etc. over the last few years). If deflation is 3%, 3% must be taken off of the interest rate. CDs can't pay you 1% if deflation is 3%, that would be a real 4% interest rate. Right now you're looking at -2% with inflation on a real return from a CD, how do we get from real -2% to real +4% just by using deflation? Magic? 6% better interest doesn't just come out of nowhere.

And this is assuming a nice, gradual, 3% year after year, with no one but the wealthy bitcoin holders who may or may not be manipulating the supply to keep that stability. If one year happens to be 6%, do you realize what that means to a business's profit margins? Bankruptcy. Many businesses run on very tight margins of only a few percent. An unexpected upswing in the deflation rate will simply bankrupt them. This is why economists are afraid of deflation.

I don't know if any economist has tried to define what a "good" (real) interest rate is in a stable economy, but it's gotta be somewhere in the range of 0.5-2%. If it goes higher than that, that's a sign that there isn't enough money to meet the demand for money, and economic progress will be retarded because businesses can't afford loans (which are going to be at a higher rate because of the bank's cut, of course). The higher the REAL interest rate, the worse it is for business. This is why the central bank tries to manipulate this situation by lowering interest rates to bring us out of a recession. The problem is, since the consumer level doesn't see any new money and is in fact penalized for this by reduced value in savings, there is less incentive to save and less purchasing power for a given amount of money. It doesn't fix the root of the problem and just puts everyone in greater debt. It is idiocy based on Keynes and it doesn't work.