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Author Topic: Blockchain = Powerful Tool for Keynesian Monetary Policy  (Read 11207 times)
cunicula
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November 17, 2012, 03:33:07 PM
 #1

Recall that the purpose of money printing is to encourage or discourage spending. When the central bank wants to encourage spending, they print money leading to inflation. Inflation encourages people to turn cash into goods and physical assets. This increases spending in the short-run and stimulates the economy.

The blockchain makes it possible to execute more powerful monetary policy. Money printing is coarse because price increases occur with a time delay. The blockchain is precise and effective inflation can be achieved instantaneously.

Suppose the central bank controls 51% of hashing power and wants to achieve a stimulus equivalent to a 3% increase in inflation.

Simply demand a txn fee equal to 3% of coin-age (with age measured in years). This is just like instantaneously increasing the inflation rate by 3%. Take the fee proceeds and hand them out to banks. Voila. You have stimulated spending. Once the economy recovers, the txn fee can be lowered again. The inflation rate of every single block is completely at the bank's discretion. This is 100% impossible with the tools available today.

Now people might try and horde (the bank can't steal my coins... I'll just wait till they lower the fee and spend then). Ha, this would not work at all.
The bank has a historical record of its inflation policy and would bill these guys. The fact that you haven't paid yet won't help them. The seignorage will be deducted from their account whenever they finally decide to spend. [Could go through more details on calculating seignorage fee, but I think that is enough for now.]

It is pretty clear that the blockchain gives central banks unprecedented control over monetary policy. All they have to do is command 51% of hashing power. An absolutely negligible investment for such a well-capitalized institution.

I am kind of confused why we still operate with dollars. Central bankers should start issuing dollars and euros this way. Or they could just adopt bitcoin. It would make their lives so much simpler.

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Rassah
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November 17, 2012, 04:30:50 PM
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Hmmm, yep, you're still an idiot. Your entire idea depends on your blockchain based currency being a monopoly. Forcing a fee on spending it will just make people not want to spend or receive your money, and instead will push them to something else. And a central bank capturing 51% will result in either attempt to take that 51% away from the bank, or a quick abandonment of the currency. Who will want to keep mining if the currency, and the main fundamentals that give it value, are under threat? The bank will eventually end up with 100% mining power of a currency that's been abandoned.

cunicula
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November 17, 2012, 04:44:59 PM
Last edit: November 17, 2012, 04:57:10 PM by cunicula
 #3

Your entire idea depends on your blockchain based currency being a monopoly. Forcing a fee on spending it will just make people not want to spend or receive your money, and instead will push them to something else.
I guess you are no longer using the USD then?

Monetary policy is irrelevant unless a currency serves as a unit of account. Once a currency is used as a unit of account, you cannot easily avoid using it. Just like you can't buy your groceries with gold.
Bitcoin cannot be both widely used and outside of direct central bank administration.

Gold could escape control (in theory) because there is no blockchain. Bitcoin cannot escape control.

And a central bank capturing 51% will result in either attempt to take that 51% away from the bank,

Did you skip your meds?
DublinBrian
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November 17, 2012, 05:26:13 PM
 #4

When the central bank wants to encourage spending, they print money leading to inflation. Inflation encourages people to turn cash into goods and physical assets. This increases spending in the short-run and stimulates the economy.
There is no need for any entity to intervene in the economy. If people want to spend, they will spend. If they want to save then they will save.

Your "central bank" has no right to even exist. Its just a gang who think they can order people around and control them like livestock.

If a gang like that ever gains the power to do what you are suggesting, then users will abandon the currency and set up another one that isnt controlled by a gang of authoritarians.
cunicula
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November 17, 2012, 05:39:38 PM
 #5

When the central bank wants to encourage spending, they print money leading to inflation. Inflation encourages people to turn cash into goods and physical assets. This increases spending in the short-run and stimulates the economy.
There is no need for any entity to intervene in the economy. If people want to spend, they will spend. If they want to save then they will save.

Your "central bank" has no right to even exist. Its just a gang who think they can order people around and control them like livestock.

If a gang like that ever gains the power to do what you are suggesting, then users will abandon the currency and set up another one that isnt controlled by a gang of authoritarians.

And the authoritarians will control that currency as well. And the peons will know that. So they will rationally accept control.
Carlton Banks
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November 17, 2012, 05:54:54 PM
 #6

If a gang like that ever gains the power to do what you are suggesting, then users will abandon the currency and set up another one that isnt controlled by a gang of authoritarians.

Hence Bitcoin.

Sorry cunicula, but your seem to have turned up to a free-money-movement talking shop trying to talk about how effective it would be to try and turn it into a system that's just like the one the one we want rid of. People will vote with their feet if that came to pass, just like they are now with turning to Bitcoin.

Vires in numeris
Roger_Murdock
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November 17, 2012, 06:09:50 PM
 #7

When the central bank wants to encourage spending, they print money leading to inflation. Inflation encourages people to turn cash into goods and physical assets. This increases spending in the short-run and stimulates the economy.
There is no need for any entity to intervene in the economy. If people want to spend, they will spend. If they want to save then they will save.

Your "central bank" has no right to even exist. Its just a gang who think they can order people around and control them like livestock.

If a gang like that ever gains the power to do what you are suggesting, then users will abandon the currency and set up another one that isnt controlled by a gang of authoritarians.

And the authoritarians will control that currency as well. And the peons will know that. So they will rationally accept control.
That would be like paying a huge premium to acquire a controlling share of a company and then deliberately rendering that company worthless through mismanagement. And then repeating that process. That doesn't sound like a great business model.
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November 17, 2012, 06:16:29 PM
 #8

Simply demand a txn fee equal to 3% of coin-age (with age measured in years). This is just like instantaneously increasing the inflation rate by 3%. Take the fee proceeds and hand them out to banks. Voila. You have stimulated spending. Once the economy recovers, the txn fee can be lowered again. The inflation rate of every single block is completely at the bank's discretion. This is 100% impossible with the tools available today.

You aren't increasing the money supply at all. You are just transferring existing money from consumers to bankers.

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cunicula
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November 17, 2012, 06:39:55 PM
 #9

When the central bank wants to encourage spending, they print money leading to inflation. Inflation encourages people to turn cash into goods and physical assets. This increases spending in the short-run and stimulates the economy.
There is no need for any entity to intervene in the economy. If people want to spend, they will spend. If they want to save then they will save.

Your "central bank" has no right to even exist. Its just a gang who think they can order people around and control them like livestock.

If a gang like that ever gains the power to do what you are suggesting, then users will abandon the currency and set up another one that isnt controlled by a gang of authoritarians.

And the authoritarians will control that currency as well. And the peons will know that. So they will rationally accept control.
That would be like paying a huge premium to acquire a controlling share of a company and then deliberately rendering that company worthless through mismanagement. And then repeating that process. That doesn't sound like a great business model.

I see. So if I understand the argument correctly:

1) If the central bank inflates the currency, then people will not use it.
2) If the people do not use the central bank's currency, then the central bank cannot affect people's behavior.

Is that right? So let's apply that to USD or Euros. Do you still continue to use USD/Euros/other national currencies for over 90% of your purchases in value terms? If yes, then I guess the central bank is not inflating the currency (otherwise premise 1 is wrong). I'd be interested to hear you confirm that. If no, then please tell me what you do. I'd be even more interested to hear about that.

If this reasoning applies to you, why wouldn't it apply to others in a similar predicament?
If no, then what do you use?
cunicula
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November 17, 2012, 06:41:02 PM
 #10

If a gang like that ever gains the power to do what you are suggesting, then users will abandon the currency and set up another one that isnt controlled by a gang of authoritarians.

Hence Bitcoin.

Sorry cunicula, but your seem to have turned up to a free-money-movement talking shop trying to talk about how effective it would be to try and turn it into a system that's just like the one the one we want rid of. People will vote with their feet if that came to pass, just like they are now with turning to Bitcoin.

My point: Bitcoin cannot succeed as a free-money movement. Full stop. If you think otherwise, you are deluding yourself.

If they haven't crushed you yet, it is because you are too insignificant to merit their attention.
cunicula
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November 17, 2012, 06:43:20 PM
 #11

Simply demand a txn fee equal to 3% of coin-age (with age measured in years). This is just like instantaneously increasing the inflation rate by 3%. Take the fee proceeds and hand them out to banks. Voila. You have stimulated spending. Once the economy recovers, the txn fee can be lowered again. The inflation rate of every single block is completely at the bank's discretion. This is 100% impossible with the tools available today.

You aren't increasing the money supply at all. You are just transferring existing money from consumers to bankers.

True. Prices don't actually change as a result of the policy. You would be implementing a policy that is equivalent to increasing prices though. It is called demurrage. Theoretical effects on consumer behavior are (more or less) identical.

http://en.wikipedia.org/wiki/Demurrage_(currency)

Note that Keynes says it won't work in the wikipedia article. True enough. An efficient technology for removing dollars from your wallet directly didn't exist then. Thank you blockchain.
DublinBrian
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November 17, 2012, 06:47:18 PM
 #12

Do you still continue to use USD/Euros/other national currencies for over 90% of your purchases in value terms? If yes, then I guess the central bank is not inflating the currency (otherwise premise 1 is wrong). I'd be interested to hear you confirm that. If no, then please tell me what you do. I'd be even more interested to hear about that.

If this reasoning applies to you, why wouldn't it apply to others in a similar predicament?
If no, then what do you use?
Of course we are still using euros & dollars, because up to now, no other currency could overcome the bootstrapping problem of network effects, to be useful. Bitcoin is changing that. Thats why we are all here, on the bitcoin forum.

Why are you on a bitcoin forum? Just to pester and annoy people, it seems.
cunicula
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November 17, 2012, 06:52:32 PM
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Of course we are still using euros & dollars, because up to now, no other currency could overcome the bootstrapping problem of network effects, to be useful. Bitcoin is changing that. Thats why we are all here, on the bitcoin forum.


I am here to tell you that you are an idiot. I'm in the educational sector. It is my calling.

You are kind of missing the period when paper currencies replaced very well bootstrapped metallic ones. How did that happen?

Carlton Banks
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November 17, 2012, 07:04:52 PM
 #14

If a gang like that ever gains the power to do what you are suggesting, then users will abandon the currency and set up another one that isnt controlled by a gang of authoritarians.

Hence Bitcoin.

Sorry cunicula, but your seem to have turned up to a free-money-movement talking shop trying to talk about how effective it would be to try and turn it into a system that's just like the one the one we want rid of. People will vote with their feet if that came to pass, just like they are now with turning to Bitcoin.

My point: Bitcoin cannot succeed as a free-money movement. Full stop. If you think otherwise, you are deluding yourself.

If they haven't crushed you yet, it is because you are too insignificant to merit their attention.

If you don't believe it will work, then why are you here? If it's to provide us all with the motivation to help the success along, then you're doing a fine job. It can't be much fun seeking out forums whose fundamental tenets you disagree with, disapprove of, or think to be invalid, and then proceeding to try and undermine it? Are you a sadist? Is someone paying you to do this? If the answer to both questions is no, then I'd recommend taking a big step back to take a look at what is motivating you. Because you're definitely rather unbalanced, to say the least.

Vires in numeris
Roger_Murdock
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November 17, 2012, 07:32:14 PM
Last edit: November 17, 2012, 08:24:02 PM by Roger_Murdock
 #15

Of course we are still using euros & dollars, because up to now, no other currency could overcome the bootstrapping problem of network effects, to be useful. Bitcoin is changing that. Thats why we are all here, on the bitcoin forum.


I am here to tell you that you are an idiot. I'm in the educational sector. It is my calling.

You are kind of missing the period when paper currencies replaced very well bootstrapped metallic ones. How did that happen?


In stages. Metallic coin --> privately issued metallic-backed paper --> central bank issued metallic-backed paper --> central bank issued pseudo-backed paper --> pure fiat. And that series was of course assisted by government coercion. Our task is much harder. We are trying to bootstrap a new currency that can overcome both the network effects advantage enjoyed by the current system AND the government coercion that's attempting to prop that system up. And for a long time those two hurdles in combination seemed insurmountable. But Bitcoin might just be the revolutionary technology powerful enough for the job. Time will tell.
Rassah
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November 17, 2012, 10:28:19 PM
 #16

Of course we are still using euros & dollars, because up to now, no other currency could overcome the bootstrapping problem of network effects, to be useful. Bitcoin is changing that. Thats why we are all here, on the bitcoin forum.


I am here to tell you that you are an idiot. I'm in the educational sector. It is my calling.

I'm sorry, what? You're a teacher? Got I hope you're not a university professor, or at least not from any place other than a diploma mill. Your "teaching" style would make you fit only for teaching theology classes, and if you are a professor, I feel sorry for your students.

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November 17, 2012, 11:02:45 PM
 #17

If a gang like that ever gains the power to do what you are suggesting, then users will abandon the currency and set up another one that isnt controlled by a gang of authoritarians.

Hence Bitcoin.

Sorry cunicula, but your seem to have turned up to a free-money-movement talking shop trying to talk about how effective it would be to try and turn it into a system that's just like the one the one we want rid of. People will vote with their feet if that came to pass, just like they are now with turning to Bitcoin.

My point: Bitcoin cannot succeed as a free-money movement. Full stop. If you think otherwise, you are deluding yourself.

If they haven't crushed you yet, it is because you are too insignificant to merit their attention.

Bitcoin is succeeding quite well as an example for the Free Money Movement,  the current authoritarian delusions of what 'money' should be is beginning its implosion. I'm not sure I want to watch your increasingly nasty, shrill disgusting pleas for state-violence and thuggery to defend the failed monopolistic monetary ideologies as it all progresses.

In the end, the superior technology will win the battle of ideologies as people choose "what just works".

I do not see any potential superstar crypto-currency programmers or mathematicians amongst the central banking keynesians ... so unless they can recruit the mind-share of a team of technologists needed they are dead as an implementable ideology ... and the market will probably reject it on basic economic principles even if you got one of your fantasy blockchain Inflatacoins off the ground.

Maybe you should go and learn C++, a bit of number theory, crypto, etc and try competing in the marketplace with a real product instead of spouting your failed ideologies?

Then again, teachers teach because they can't do, isn't that how it goes Mr. Economist?

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November 17, 2012, 11:34:44 PM
 #18

Suppose the central bank controls 51% of hashing power

All arguments to prove authoritarian central control always start by assuming authoritarian central control.
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November 17, 2012, 11:36:41 PM
 #19

Your entire idea depends on your blockchain based currency being a monopoly. Forcing a fee on spending it will just make people not want to spend or receive your money, and instead will push them to something else.
I guess you are no longer using the USD then?

False argument alert.  Of course cunticula leaves his premises tacit, to make his false argument harder to refute.

Did you skip your meds?

Statists insulting?  YOU DON'T SAY!
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November 17, 2012, 11:39:39 PM
 #20

Of course we are still using euros & dollars, because up to now, no other currency could overcome the bootstrapping problem of network effects, to be useful. Bitcoin is changing that. Thats why we are all here, on the bitcoin forum.


I am here to tell you that you are an idiot. I'm in the educational sector. It is my calling.

I'm sorry, what? You're a teacher? Got I hope you're not a university professor, or at least not from any place other than a diploma mill. Your "teaching" style would make you fit only for teaching theology classes, and if you are a professor, I feel sorry for your students.

He's totally in the "educational" sector.  Can't you tell?  He's a propagandist who seeds FUD.

Look at his rhetoric, at his signature (that overtly hints at violence against a certain set of people), at his profile image and the caption.  This man is either an agent provocateur or he is severely mentally disturbed.

I suggest ignoring him.  I will do so right after this post.
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