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Author Topic: Inflation and Deflation of Price and Money Supply  (Read 507763 times)
MikeMark
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May 17, 2013, 03:41:53 AM
 #61


I agree with you but in the field of "economics" we have to be terribly specific and strict in our assumptions, and positively saintly in our choices and conclusions because by definition we are talking about an awful lot of other peoples business, behind their backs, almost all of the time.

Grin


I knew it! You've been talking behind my back again.  Cheesy

And quit callin' me a "but". Them's fightin' words.  Angry


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May 24, 2013, 12:39:43 AM
 #62

After pages of reading some very good economic banter, one thing that seems to have NOT been discussed is Bitcoin offers an unprecedented
historical opportunity in regards to Deflation.

Deflation has had some real negative effects in the past, depending on your circumstances. Anyone (like the government) who OWES money in a deflationary cycle actually ends up worse off because their payments are in a fixed amount but the value of the current is appreciating. Then there is the issue of divisibility. Once you get to .01 or whatever was the smallest currency, there was no easy or practical way to justify minting a smaller amount (if gumballs were 10 for .01, your only choice was to buy 10 of them).

Bitcoin has the unique ability, if necessary, to deflate gracefully to 8 decimal places. This provides an unprecedented mechanism since there is no inherent cost difference in processing any size transaction down to .00000001. While today there is a fee mechanism that makes this "dust" type of transaction not viable, from what I have read about the upcoming changes to fee structure, fees should be able to adjust up or down to follow whatever economic situation presents itself.

Lastly, I feel obligated to point out that Bitcoin also COULD have more than 21 million coins simply (or not so simply) by an economic majority willing it so. Today this would be totally unrealizable, but in 10,20 or 50 years there may be some compelling reason to adjust the mining rate to some other number.

Final Thoughts: How many years before a national government implements a sovereign digital currency? (probably based on this project) I believe that it will happen, although a government would remove the economic majority function, probably add a "dial" for the mint rate.

Thoughts?

Cheers

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June 09, 2013, 07:39:05 PM
 #63

After pages of reading some very good economic banter, one thing that seems to have NOT been discussed is Bitcoin offers an unprecedented
historical opportunity in regards to Deflation.

Deflation has had some real negative effects in the past, depending on your circumstances. Anyone (like the government) who OWES money in a deflationary cycle actually ends up worse off because their payments are in a fixed amount but the value of the current is appreciating. Then there is the issue of divisibility. Once you get to .01 or whatever was the smallest currency, there was no easy or practical way to justify minting a smaller amount (if gumballs were 10 for .01, your only choice was to buy 10 of them).

Bitcoin has the unique ability, if necessary, to deflate gracefully to 8 decimal places. This provides an unprecedented mechanism since there is no inherent cost difference in processing any size transaction down to .00000001. While today there is a fee mechanism that makes this "dust" type of transaction not viable, from what I have read about the upcoming changes to fee structure, fees should be able to adjust up or down to follow whatever economic situation presents itself.

Lastly, I feel obligated to point out that Bitcoin also COULD have more than 21 million coins simply (or not so simply) by an economic majority willing it so. Today this would be totally unrealizable, but in 10,20 or 50 years there may be some compelling reason to adjust the mining rate to some other number.

Final Thoughts: How many years before a national government implements a sovereign digital currency? (probably based on this project) I believe that it will happen, although a government would remove the economic majority function, probably add a "dial" for the mint rate.

Thoughts?

Cheers
Sorry to drop in like this, but I was thinking about that idea (sovereign digital currency) a lot lately. But I cant figure why would one nation (considering everything we know about fiats, debt, credits etc) drop, substitute or introduce a second currency instead of(or in parallel) to the existing one. I  can`t think of any except pulling a clean slate (i.e argentina, greece or ex yugoslavia countries) after a severe hyperinflation and economic burst. One global digital currency, now thats another story, but bitcoin is becoming exactly that. What am I missing?

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MikeMark
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June 12, 2013, 05:58:29 AM
 #64

After pages of reading some very good economic banter, one thing that seems to have NOT been discussed is Bitcoin offers an unprecedented
historical opportunity in regards to Deflation.

Deflation has had some real negative effects in the past, depending on your circumstances. Anyone (like the government) who OWES money in a deflationary cycle actually ends up worse off because their payments are in a fixed amount but the value of the current is appreciating. Then there is the issue of divisibility. Once you get to .01 or whatever was the smallest currency, there was no easy or practical way to justify minting a smaller amount (if gumballs were 10 for .01, your only choice was to buy 10 of them).

Bitcoin has the unique ability, if necessary, to deflate gracefully to 8 decimal places. This provides an unprecedented mechanism since there is no inherent cost difference in processing any size transaction down to .00000001. While today there is a fee mechanism that makes this "dust" type of transaction not viable, from what I have read about the upcoming changes to fee structure, fees should be able to adjust up or down to follow whatever economic situation presents itself.

Lastly, I feel obligated to point out that Bitcoin also COULD have more than 21 million coins simply (or not so simply) by an economic majority willing it so. Today this would be totally unrealizable, but in 10,20 or 50 years there may be some compelling reason to adjust the mining rate to some other number.

Final Thoughts: How many years before a national government implements a sovereign digital currency? (probably based on this project) I believe that it will happen, although a government would remove the economic majority function, probably add a "dial" for the mint rate.

Thoughts?

Cheers

Thoughts:

On the government's "problem":


The beauty of a deflationary currency is the ability to control the depredations of government. Unfortunately, the people become accustomed to the control, become relaxed and allow those in government to remove the control. The people need to remain vigilant.


On the true size of BTCitcoin:

21 million x 108 = 2.1 quadrillion.
If you think we'll still need a couple of decimal places for dimes and cents:
21 million x 106 = 21 trillion.
Bitcoin can handle the world's transactions without problem. In addition to that, other currencies will probably not completely disappear.


On mining rate:

Already done. Have you heard of LiteCoin?


On sovereign digital currency:


I would expect a government controlled digital currency to remove "finality." The government will always want to be the final decision-maker on what transactions, between whoever, should be rescinded or reversed, both for the sake of laws it creates (good and bad) and for the sake of payments it doesn't want to make. That's what we already have. Just because it's digital doesn't mean it's better.


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June 15, 2013, 06:08:16 AM
 #65

Final Thoughts: How many years before a national government implements a sovereign digital currency? (probably based on this project) I believe that it will happen, although a government would remove the economic majority function, probably add a "dial" for the mint rate.

Thoughts?

Cheers

It has been at least 20 years since I took macro economics, but I was thinking about this.

When fiat governments do bad things resulting in hyperinflation, if bitcoins are easy enough to aquire in said country I could see people switching to it simply because it may be more stable, dumping the governments currency creating additional hyperinflation.

Country could regain faith by issuing a centalized paper currency but backed by bitcoin. With the open nature of blockchain, how much currency is in their reserve could always be determined, if say a 1 dollar bill could be sold to the bank for 1 mBTC or 1 mBTC sold to the bank for a 1 dollar bill, they could stabalize their paper currency and even keep many aspects of fiat currency such as fractional reserve lending and credit cards etc. based upon the paper currency backed by bitcoin.

As long as there wasn't a run on the bank, they could print more than they had bitcoin to back, and as tourists came and exchanged outside bitcoin for their paper currency, their bitcoin reserve could grow.

Am I missing something obviously flawed with this?

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June 16, 2013, 04:10:06 AM
 #66

Am I missing something obviously flawed with this?
Yes, you're missing the fact that this has been tried before (with gold instead of bitcoins) with absolutely no success.

Will pretend to do unverifiable things (while actually eating an enchilada-style burrito) for bitcoins: 1K6d1EviQKX3SVKjPYmJGyWBb1avbmCFM4
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June 16, 2013, 12:19:02 PM
 #67

Am I missing something obviously flawed with this?
Yes, you're missing the fact that this has been tried before (with gold instead of bitcoins) with absolutely no success.

No success?

This has been the money system used worldwide for the last several centuries.  As much as we all hate it, and despite all of the faults, it has been wildly successful.

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June 16, 2013, 12:39:53 PM
 #68

Am I missing something obviously flawed with this?
Yes, you're missing the fact that this has been tried before (with gold instead of bitcoins) with absolutely no success.

No success?

This has been the money system used worldwide for the last several centuries.  As much as we all hate it, and despite all of the faults, it has been wildly successful.
Huh Are we even talking about that same thing? The gold standard is not currently used by any country on the planet, as every country that ever tried found it too inconvenient as it prevented them from printing their way out of trouble. Not quite what I would call "wildly successful".

Will pretend to do unverifiable things (while actually eating an enchilada-style burrito) for bitcoins: 1K6d1EviQKX3SVKjPYmJGyWBb1avbmCFM4
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June 16, 2013, 01:01:22 PM
 #69

Am I missing something obviously flawed with this?
Yes, you're missing the fact that this has been tried before (with gold instead of bitcoins) with absolutely no success.

No success?

This has been the money system used worldwide for the last several centuries.  As much as we all hate it, and despite all of the faults, it has been wildly successful.
Huh Are we even talking about that same thing? The gold standard is not currently used by any country on the planet, as every country that ever tried found it too inconvenient as it prevented them from printing their way out of trouble. Not quite what I would call "wildly successful".

The world went off of gold in 1971.

But gold systems are rarely 100% "hard".  It would be more accurate to say that in 1971 the world switched from a moderately hard gold system (Bretton-Woods) to a very soft gold system (the US still has tons of gold, and everyone else still has tons of dollars, but you can't necessarily convert anything other than on the market).

p2pcoin: a USB/CD/PXE p2pool miner - 1N8ZXx2cuMzqBYSK72X4DAy1UdDbZQNPLf - todo
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June 23, 2013, 12:39:57 PM
 #70

Am I missing something obviously flawed with this?
Yes, you're missing the fact that this has been tried before (with gold instead of bitcoins) with absolutely no success.

No success?

This has been the money system used worldwide for the last several centuries.  As much as we all hate it, and despite all of the faults, it has been wildly successful.
Huh Are we even talking about that same thing? The gold standard is not currently used by any country on the planet, as every country that ever tried found it too inconvenient as it prevented them from printing their way out of trouble. Not quite what I would call "wildly successful".

The world went off of gold in 1971.

But gold systems are rarely 100% "hard".  It would be more accurate to say that in 1971 the world switched from a moderately hard gold system (Bretton-Woods) to a very soft gold system (the US still has tons of gold, and everyone else still has tons of dollars, but you can't necessarily convert anything other than on the market).

Yes but nowadays it seems that gold is completely taken out of the picture. You don't hear about governments using the gold to cover deficits. France could do that. Rather, it seems like states and individuals like to keep some gold just in case gold should become money again.
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July 30, 2013, 08:10:18 AM
 #71

I really wanna price of BTC increasing more=]]..equal a real value of BTC

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July 30, 2013, 11:16:16 AM
 #72

Here are two scenarios where I think a Central Bank will consider utilizing some form of a crypto currency and why:

1 - A complete overhaul (like Greece or an emerging nation)
2 - As a supplemental sovereign payments system (The Federal Reserve already intervened on the interchange fee for debit cards)

In both examples, I am not naive enough to think that any central bank wants an economic majority model for change, so they will certainly be "official" repository for adjustments. However, in both scenarios, there are very compelling reasons to consider using crypo currencies

- The government would "own" the sovereign payments mechanism (like they do with cash), except now this medium facilitates infinitely more robust international payments. The Federal Reserve and many other world central banks already have laws mandating how much card processors can charge, so I think they would relish being in charge of a competing payments mechanism that they own. Keep in mind that crypto currencies also replace the system of paper checks, so this is yet another huge cost savings

- The cost to issue currency could almost be completely eliminated. ATM's could literally print bills on demand for any amount. Citizens could print their own bills/checks right at their house through some official web site.

- Accountability - The Government would/could require registration of account numbers, making the tracking of financial records completely transparent (at least on the surface and for the citizens...dont expect the government to disclose their ID's). This makes tax collection and auditing much easier

- Money supply manipulation - No change here than current. They could decide when and how much to ramp up the money supply or they could do a proof-of-burn to draw down the supply

- Peer to Peer processing would still be used. The government would certainly not want to invest in a huge server farm for transaction processing, so let miners do their job and simply dial in a reward that is attractive enough for them to do it. It just like printing money to them anyway and it is much more robust than managing a check clearing system and a paper currency system

- Counterfeiting is virtually eliminated, another cost savings

The list would go on but I think you get the idea.

The technology is not mature enough today to facilitate such a transition (just look at the sad state of wallets...) but in 5 or 10 (or 20 to 50..) years both governments and citizens should be much more adept with this technology to potentially consider the extraordinary benefits.

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August 18, 2013, 06:04:10 AM
 #73

good Grin

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August 18, 2013, 07:44:52 AM
 #74

The confrontation between John Maynard Keynes, and his Austrian born free market adversary and friend, Friedrich August von Hayek, is one of the most famous in the history of contemporary economic thought.  The debate took place during the Great Depression of the 1930s about the causes and remedies of business cycle downturns in market economies.
The origins of this debate can be traced back to the book ‘Treatise on Money’ (1930) written by Keynes, a rather obscure book, that was superseded by his masterpiece ‘The General Theory of Employment, Interest, and Money’ (1936).  ‘Treatise on Money’ was a difficult book to read, and this probably caused Hayek and Keynes to misunderstand each other.  As Keynes and Hayek were building their economic models at the same time, their debate was very much dominated by terminological definitions.  One of the main topics that Keynes and Hayek corresponded about was the definition of savings and investment, and Hayek wrote three extensive systematic reviews of ‘Treatise of Money’. (1 - footnotes below) In turn, Keynes wrote only one article in response accusing Hayek of misrepresentation. (2)
The debate on ‘Treatise of Money’ was rather one sided, and in 1932 Keynes withdrew from the debate to reshape and improve his central argument, which was to become ‘The General Theory’.  This work became probably one of the most influential economic treatises immortalizing Keynes as one of the greatest 20th century economists.  His lasting legacy, that was to become known as Keynesianism, is an economic perspective that argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes.  The theory, therefore, advocates active policy responses by the public sector, including monetary policy actions by the central bank, and fiscal policy interventions by the government, to stabilize economic output over a business cycle.
Many Keynesian economists have not regarded Hayek as their man’s equal.  However, there is an increasing agreement today that Hayek, although controversial, was one of the most influential 20th century economists.  He made fundamental contributions to economics in the theory of business cycles, capital theory, and monetary theory.  He was also awarded the Nobel Prize for economics in 1974, jointly with Gunnar Myrdal, “for their pioneering work in the theory of money and economic fluctuations”.
Most of Hayek’s work in the 1930s and the 1940s focused on the Austrian theory of business cycles.  He believed that the price system of a free market was an efficient mechanism to coordinate people’s actions, and that markets were a result of spontaneous order that had evolved slowly over a long period of time, as a result of economic exchanges between people.  Contrary to the statement in Wapshott’s book, that the Austrian School economists were more theoretical and mechanistic in their approach to economics, Hayek believed that markets were highly organic, and any interference with the spontaneous order of free markets would distort their efficient operation.  In fact, it can be argued that Keynes’ economic theory was more mechanistic, as economies could be manipulated in a machine-like fashion to behave according to the wishes of economic planners.
A true Renaissance man, Hayek also made intellectual contributions in political theory, psychology, and methodology.  It is perhaps because of his work in political theory that some economists, especially those with a Keynesian orientation, have wrongly dismissed his core economic research as ideologically motivated.  This is the trap that Wapshott seems to walk in, either intentionally, or because of Hayek’s criticism of the Keynesian model, that had become de facto orthodoxy for the most part of the 20th century, extends many decades, and to some extent, has remained unnoticed, or ignored, by many economists and policy-makers.
Wapshott’s book ‘Keynes Hayek: The clash that defined modern economics’ is a commendable effort to bring economic thought to the attention of the general reading public.  It is written in an engaging ‘human interest’ style, and I am certain it will sell well.  Its publication is also well timed, because there has been a marked increase in public interest about economics and economic policy, as a consequence of the ‘Great Recession’, and sovereign debt crisis that currently grips the world.  And this is where the book fails to deliver.  A reader should not expect any great insight into how Keynesian or Hayekian economics could be applied in today’s economic situation beyond ‘truly Keynesian’, e.g. political, government policy interventions, as outlined in Wapshott’s book.
Nevertheless, the book provides a delightful insight into the personalities of Keynes and Hayek.  Keynes is portrayed as a privileged and bright economist at the top of his game effortlessly moving between academia, political elites, and his bohemian ‘Bloomsbury group’ of friends.  Hayek, however, is painted as a stiff, humorless, theoretical, and linguistically challenged, central European scholar, brought to London School of Economics (LSE) by Lionel Robbins to provide an alternative to the theories of Keynes and his ‘Cambridge circus’ of almost evangelical followers. (3) Robbins, and the dons of the LSE, considered Keynes’ view that when free markets were left to their own devices, this sometimes caused economic slumps, and that decisive government action was needed to pull the economy back to an equilibrium state of full employment, as heresy.  In contrast to Keynes, the Austrian economists thought that free markets, driven by people’s choices tended to adjust to equilibrium if left alone, and free from government intervention.  Concerned with the increasing intellectual and policy influence by the new generation of Keynesian economists at Cambridge, Hayek was appointed to LSE to counterbalance Keynesian interventionist doctrine.
Much of Wapshott’s book is about the political philosophy that divided Keynes and Hayek in terms of the role of the government in the running of an economy.  Much less is spent on understanding the economics upon which the big-picture conflict was based.  Indeed, Wapshott overemphasizes Hayek’s 1944 book ‘The Road to Serfdom’, on the dangers of socialism.  This book was written after Hayek moved to Britain where he observed that many British socialists were advocating some of the same policies of government control that had been advocated in Germany in the 1920s.  His basic argument was that government control of people’s economic lives was a form of totalitarianism: “Economic control is not merely control of a sector of human life which can be separated from the rest…. it is the control of the means for all our ends” (1944).  The book became a best seller in the USA and it established Hayek as a leading classical liberal, or ‘libertarian’, as he would be called today.  However, the success of the book, which was serialized in ’Reader’s Digest’, typecast Hayek as a free market ideologue, detracting attention away from his scientific contribution in economics.
Wapshott provides a ‘workmanlike’ description of Keynes’ theory, but his treatment of Hayek’s economics and the critique of ‘The General Theory’, is woefully inadequate.  The fundamental tenet of ‘The General Theory’ is that there is a direct and positive relationship between employment and the aggregate expenditure in an economy.  Therefore, according to Keynes, total demand determines the employment level in the economy, and the existence of unemployment indicates that aggregate demand is insufficient to employ all factors of production.  Keynes considered that the capitalist system was volatile, and there were times when the level of demand would be insufficient to maintain full employment.  Therefore, Keynes recommended that the public sector should address this by controlling the level of aggregate spending in the economy.  His recommendations to reduce unemployment can be categorized as follows:
• Interest rates should be reduced as far as possible to encourage private investment;
• A progressive tax system should be used to divert income from the wealthy to the lower paid, as their propensity to consume is higher; (4)
• The government should actively participate in public investment activity to supplement private investment, should this prove insufficient to maintain a level of aggregate expenditure that corresponds with full employment.
After the publication of ‘The General Theory’, Hayek did not critique Keynes’ work as was expected; this he regretted ever after (Hayek in Sanz-Bas, 2011).  However, Hayek’s critique of Keynes is incorporated into many of his works including ‘Monetary Nationalism and International Stability’ (1937), ‘Profit, Interest, and Investment’ (1939), ‘The Pure Theory of Capital’ (1941), ‘The Campaign Against Keynesian Inflation’ (1974), ‘The Fatal Conceit’ (1988). (5) It is perhaps because of the extended period of Hayek’s writing that Wapshott fails to provide a full account of Hayek’s economic thinking in general, and the critique of Keynesian theory in particular.
It is beyond the scope of this review to discuss Hayek’s critique in detail.  However, one of Hayek’s main criticisms of ‘The General Theory’ was about Keynes’ assumption that unemployment could be solved through increases in aggregate spending.  Keynes linked aggregate spending with employment; if spending in the economy was increased sufficiently, this would result in workers getting their old jobs back, and the economic crisis would be averted.  In contrast to Keynes, Hayek argued that the crisis was a direct result of the misallocation of resources during the previous economic booms.  Hence, Keynes’ solution to reestablish the same distribution of resources would not provide a sustainable solution to unemployment.  The only solution to systemic unemployment, according to Hayek, required a liquidation of wrong investments and reallocation of productive resources.  To quote Hayek:
“If the real cause of unemployment is that the distribution of labour does not correspond with the distribution of demand, the only way to create stable conditions of high employment which is not dependent on continued inflation (or physical controls) is to bring about a distribution of labour which matches the manner in which in which a stable money income will be spent” (1950).
What we can infer is that Keynes’ solution to economic crises was a short-term panacea, while Hayek advocated a market driven solution that would result in a more sustainable productive economic structure.  Such a structure would be consistent with consumer preferences.  Trade cycles, according to Hayek, were a result of the government interference with the spontaneous order of the markets.  Hence, the only way to avoid booms and busts, trade cycles, is to prevent them form occurring in the first place.
Wapshott concludes his book by crediting Keynes for “saving capitalism a second time”.  He makes a reference to Keynesian doctrine for solving the Great Depression, and the applicability of the same dogmatic panacea for the Great Recession from the 2008 onwards.  He conjures the ghost of the Keynesian high priest, John Kenneth Galbraith, who scolds conservatives in the English-speaking countries for embracing Hayekian economics: “better to accept the unemployment, idled plants, and mass despair of the Great Depression, with all the resulting damage to the reputation of the capitalist system, than to retreat on true principle….”.  What Wapshott misses in his argument is Hayek’s central proposition: booms and busts are a result of malinvestment created by the government interference in the operation of free market, a result of the very policies advocated by the dogmatic Keynesians of today.
In contrast to Wapshott’s conclusion, I leave the reader with Hayek’s comment, that is particularly appropriate to this review:
“I find myself in an unpleasant situation.  I had preached for forty years that the time to prevent the coming of a depression is during the boom.  During the boom nobody listened to me.  Now people again turn to me and ask how we can avoid the consequences of a policy about which I had constantly warned.  I must witness the heads of governments of all Western industrial countries promising their people that they will stop the inflation and preserve full employment.  But I know that they cannot do this.  I even fear that attempts to postpone the inevitable crises by new inflationary path may temporarily succeed and make the eventual breakdown even worse” (1979).
Footnotes:
1. Hayek, Economica, August 1931; Economica, February, 1932; Prices and Production, 1931
2. Keynes, Economica, November 1931.  Keynes on Prices and Production: “The book as it stands, seems to me be one of the most frightful muddles I have ever read, with scarcely a sound proposition in it…. It is an extraordinary example of how, starting with a mistake, a remorseless logician can end up in bedlam.”
3.  A critical reader of the book can’t help notice the leading language used by Wapshott from the start.  Keynes is described to have a ‘commonsense understanding’, while Hayek is described as ‘intellectual’, rather than practical.  Keynes is motivated by understanding ‘real life dilemmas’ and ‘improving the lives of others’, whereas Hayek is boxed in as a ‘theoretician’.
4.  Keynes assumed that as incomes rise, people tend to save more.  Therefore, the society’s propensity to consume reduces as more of the income is saved.  As a result, the society’s investment multiplier will be lower.  According to Keynes, the market mechanism is incapable to connect savings with investment.  Instead, investment is dependent on business expectations and the creditors’ liquidity preferences that determine interest rates.  As a result, the capitalist system is prone to suffer from a systemic lack of demand and, as a consequence, a chronic level of unemployment.

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August 21, 2013, 12:15:38 AM
 #75

Am I missing something obviously flawed with this?
Yes, you're missing the fact that this has been tried before (with gold instead of bitcoins) with absolutely no success.

No success?

This has been the money system used worldwide for the last several centuries.  As much as we all hate it, and despite all of the faults, it has been wildly successful.
Huh Are we even talking about that same thing? The gold standard is not currently used by any country on the planet, as every country that ever tried found it too inconvenient as it prevented them from printing their way out of trouble. Not quite what I would call "wildly successful".

The world went off of gold in 1971.

But gold systems are rarely 100% "hard".  It would be more accurate to say that in 1971 the world switched from a moderately hard gold system (Bretton-Woods) to a very soft gold system (the US still has tons of gold, and everyone else still has tons of dollars, but you can't necessarily convert anything other than on the market).

Yes but nowadays it seems that gold is completely taken out of the picture. You don't hear about governments using the gold to cover deficits. France could do that. Rather, it seems like states and individuals like to keep some gold just in case gold should become money again.

It may seem that way, but gold is still used as a hedge for dollars on foreign exchanges from what I understand.  There's solid evidence that the federal reserve activity works to control the price of gold in order to anchor the dollar's value internationally.  Gold is still an international currency in its own right.

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August 21, 2013, 03:00:15 PM
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Am I missing something obviously flawed with this?
Yes, you're missing the fact that this has been tried before (with gold instead of bitcoins) with absolutely no success.

No success?

This has been the money system used worldwide for the last several centuries.  As much as we all hate it, and despite all of the faults, it has been wildly successful.
Huh Are we even talking about that same thing? The gold standard is not currently used by any country on the planet, as every country that ever tried found it too inconvenient as it prevented them from printing their way out of trouble. Not quite what I would call "wildly successful".

The world went off of gold in 1971.

But gold systems are rarely 100% "hard".  It would be more accurate to say that in 1971 the world switched from a moderately hard gold system (Bretton-Woods) to a very soft gold system (the US still has tons of gold, and everyone else still has tons of dollars, but you can't necessarily convert anything other than on the market).

Yes but nowadays it seems that gold is completely taken out of the picture. You don't hear about governments using the gold to cover deficits. France could do that. Rather, it seems like states and individuals like to keep some gold just in case gold should become money again.

It may seem that way, but gold is still used as a hedge for dollars on foreign exchanges from what I understand.  There's solid evidence that the federal reserve activity works to control the price of gold in order to anchor the dollar's value internationally.  Gold is still an international currency in its own right.

You have a point, but it seems that the gold is stuck, by the way states does'n seem to clear out deficit and surplus these days, they prefer just to acumulate debt.

Other indications are the possible manipulation of paper gold prices, I guess some heavy fractional reserve gold certificating is going on.

Also in India, the state refers to gold import as consumer goods, while the people still regard it as money. If India had instead counted gold as money, I guess their trade deficit would turn to surplus right away. I wonder why they don't, politicians are normally good at cooking the books, and this wouldn't really be cooking.

Some countries have VAT on gold.

Most people prefer cards instead, or bills, in stead of carrying a bag of coins.

Gold is of course a threat to the elites. I prefer gold as money, measured in grams or troy ounces, instead of dollars, because in a (true or not so true) gold standard it is to easy to redefine the dollar to a different amount of gold.
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August 24, 2013, 12:10:16 PM
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Asset backed currencies have been the ONLY succesful models tried. They stood for centuries, none ever "failed" they were all replaced by fiat systems.

The dollar was removed from gold backing in 1971, but it was weaned from gold onto oil and the "petrodollar" was formed, it was a brilliant plan and when put forth to Saudi "leaders" they realised that if they got in on the ground floor of the pyramid scheme they would greatly benefit.

Fiat moneys have ALWAYS failed. The ability to "print your way out of trouble" is in fact "printing your way into trouble" and will always end bad for the users (good for the bankers).

Fiat money ALWAYS ends up being backed by debt, that is what fractional reserve banking is, when you go into a bank and borrow $100, that bank is allowed to create $1000 out of thin air and loan that out to other users. This $1000 is not moved from some reserve to the bank, it is literally created out of thin air at the press of a key.

The word "Fiat" is latin for "It is" or "Let it be". Like a magic utterance allowing something to be created from nothing.

As to the thread title: Inflation and Deflation are only good for those that wish to control the money supply. Keynes would have you believe that this is necessary, but history tells us that it ALWAYS fails. It fails in a very lucerative way for the bankers and a very painful way for the majority of its users.

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November 05, 2013, 01:30:00 PM
 #78

Asset backed currencies have been the ONLY succesful models tried. They stood for centuries, none ever "failed" they were all replaced by fiat systems.

The dollar was removed from gold backing in 1971, but it was weaned from gold onto oil and the "petrodollar" was formed, it was a brilliant plan and when put forth to Saudi "leaders" they realised that if they got in on the ground floor of the pyramid scheme they would greatly benefit.

Fiat moneys have ALWAYS failed. The ability to "print your way out of trouble" is in fact "printing your way into trouble" and will always end bad for the users (good for the bankers).

Fiat money ALWAYS ends up being backed by debt, that is what fractional reserve banking is, when you go into a bank and borrow $100, that bank is allowed to create $1000 out of thin air and loan that out to other users. This $1000 is not moved from some reserve to the bank, it is literally created out of thin air at the press of a key.

The word "Fiat" is latin for "It is" or "Let it be". Like a magic utterance allowing something to be created from nothing.

As to the thread title: Inflation and Deflation are only good for those that wish to control the money supply. Keynes would have you believe that this is necessary, but history tells us that it ALWAYS fails. It fails in a very lucerative way for the bankers and a very painful way for the majority of its users.
Yes.
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November 05, 2013, 09:18:58 PM
 #79

Asset backed currencies have been the ONLY succesful models tried. They stood for centuries, none ever "failed" they were all replaced by fiat systems.

Fiat moneys have ALWAYS failed. The ability to "print your way out of trouble" is in fact "printing your way into trouble" and will always end bad for the users (good for the bankers).

It's not that simple and straightforward. Actually there's not much difference between "asset backed currencies" and "fiat moneys" in respect to what makes them all money

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November 13, 2013, 06:12:24 PM
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However, we can think of those using BTCitcoin as an "economy". There is exchange within and foreign. It is currently a tiny economy, subject to great fluctuation and disruption. However it is growing.


An economy is not its money or means of exchange. It is it's annual production. Bitcoins have really only served to produce bitcoin mining hardware and online services.

What money does in an economy is convert one commodity (stuff or services) into another. Once there is a sufficient division of labor, and say you go to work and make shoes. You must rely on somebody else for your bread. Presumably the breadmaker only makes bread and needs you for shoes and needs yet another person for toothpaste. The toothpaste producer only makes toothpaste and relies on the others etc. etc. etc.  Once this is the case, producers are inclined to produce a stock in excess of their own personal needs (of shoes, bread, or toothpaste, etc.) and exchange those for other goods that are the want of each producer. (We need not talk about capitalists and workers here, just assume everybody is a worker who is a producer self-employed).
In order to mediate exchange between to producers, Commodities become Money in order to become Commodities again. Marx called this circuit C-M-C. 

The problem with bitcoins is that it is not really mediating exchange of commodities (YET). It is as if everybody involved in this so-called economy were gold miners who hoard their gold and only occasionally exchange it for stuff.

This is the gap that needs to be bridged before we can see it become a useful currency.

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