Why FED like bitcoin

[johnyj]

Ben just printed 1 trillion dollar, where would them go?

Compare 2 alternatives

1. He lend them to government to setup some project, hire some worker, make some products. At first, this will create some jobs, but after a while, production increased, competition get hard, price level will go down, some other companies shut down and jobless rate increase again. Since computer and automation solutions are continuously deployed everywhere, less and less people will be required, and the government project can not fight against such a big trend

2. He lend them to people to buy bitcoin. After a while, bitcoin prices are on the steady rise, and everyone join the game wins, they start to spend big , more business are rushing into this new economy, and other companies will expand their capacity to meet the rising demand

-----------------------------

The core reason for a recession is simply caused by one fact: People do not have enough money to spend

So it is clear that in alternative 1, majority of people still don't have money, they just had another consumption option which might deplete their saving further, it does not really help them to get out of their trouble

But in alternative 2, people will get rich from buying bitcoin, and then they have money, they have saving, and they will spend, the recession will end naturally

[knight22]

banks doesnt care for the poeple when there is a recession

[johnyj]

Either way, Helicopter Ben would be risking price inflation, and you can't eat bitcoins.

A country's economy is a complex beast. Trying to 'stimulate' it by controlling just one variable is a questionable endeavour at the best of times. One could naively hope that the money eventually trickles down to innovators who want to borrow cash in order to finance their big project. But what if:
-the banks aren't lending money to the public? Instead, they're just giving themselves fat bonuses and spending it overseas?
-regulations are stifling innovation?
-there is low public morale, making the business environment more difficult for innovators?

People in the US already own a large proportion of the available bitcoins. Imagine that the FED keeps adding more and more trillions to the balance sheets, thus causing a crisis, and people try to save their wealth from the hyperinflation by buying bitcoins. Sure, Bitcoin would then be worth a huge amount, but it would still only equal whatever value is required for the US economy to subsist. You might get lucky if you manage to convince other countries of Bitcoin's value, and you'll be able to gain a lot by exporting your new currency overseas (and thus continuing to import lots of oil, Chinese manufactured goods, and so on). However, a) Bitcoin is open-source, b) I doubt people will fall for the same trick twice.

You can not eat gold either

Same as gold and stock, theoretically they worth a lot, but if everyone is going to sell them for real goods, their value will drop like a falling stone, holding them and feel getting richer and safer is an illusion, but people like this illusion and they will spend more when they have this illusion

A human body is also a complex beast, but you just need some common sense to know his reaction without need to know how his brain works

[twolifeinexile]

Fed at least will not hate bitcoin too much, since bitcoin will not substitute fiat for the simple reason it is not the denomination of debt and tax, thus business can operate in bitcoin, but still accounting for dollar in the US.  But since the convenience and limited supply of bitcoin, it can form a "bubble", that is much needed when economy is shrinking and debt/credit creation slows.

Simple think this way, it has always been housing and new mortgages that brought US economies out of recessions in the last several cases, now fed have another thing in mind - fuel a bitcoin bubble and bitcoin mortgage to drive the economy (I am not saying this is good policy, but some central bankers may consider this as an option)

[veteranBtc]

The second situation sounds great

[Luno]

putting money in the bank or in buying Bitcoin does not increase spending in society.

Bitcoin related businesses might be able to hire more people that in turn spend more for their sallary, but any amount of saving or speculating, counter act the intended effect of printing more money.

if Bitcoin some day is considered in general to be the safe and easy alternative way to protect your savings against inflation, the government will have to act on Bitcoin, either by siezeing it or  capital tax holdings.

Are you crazy, no government would allow that and be able survive.

[Richy_T]

So let's examine this scenario: Government prints money, gives to banks, banks lend to people, people buy bubble item of the month, sorry, I mean Bitcoin, bubble bursts, money disappears, bankers get rich, politicians get rich, public gets shafted.

Sorry, how is this any different than SOP?

[Doctor Mushies]

Many goods we trade in we can not eat, I see this as an opportunity to make bacon a currency !

[twolifeinexile]

So let's examine this scenario: Government prints money, gives to banks, banks lend to people, people buy bubble item of the month, sorry, I mean Bitcoin, bubble bursts, money disappears, bankers get rich, politicians get rich, public gets shafted.

Sorry, how is this any different than SOP?

It is not,
(We are discussing what Fed would think of bitcoin and I am thinking of one reason they may like it.)

[johnyj]

putting money in the bank or in buying Bitcoin does not increase spending in society.

Bitcoin related businesses might be able to hire more people that in turn spend more for their sallary, but any amount of saving or speculating, counter act the intended effect of printing more money.

if Bitcoin some day is considered in general to be the safe and easy alternative way to protect your savings against inflation, the government will have to act on Bitcoin, either by siezeing it or  capital tax holdings.

Are you crazy, no government would allow that and be able survive.

I'm sure you will spend more when your coin worth 1 million each 
Fed is appointed by government, they have huge problem now and maybe bitcoin is their only hope

[johnyj]

So let's examine this scenario: Government prints money, gives to banks, banks lend to people, people buy bubble item of the month, sorry, I mean Bitcoin, bubble bursts, money disappears, bankers get rich, politicians get rich, public gets shafted.

Sorry, how is this any different than SOP?

Why do you think it is a bubble? 

In order for bubble to burst, one condition must be met: supply >> demand

Any other things in the current world can increase supply when demand rises, and typically there is a delay, so when the added supply reaches market at large scale, the market has already fullfil the demand by a higher price, so there comes the crash

But for bitcoin, supply is fixed and transparent, demand is just start to rise, it might take 100 years before it bursts, or it might never burst, just absorb all the over produced values into it like a black hole

[Jason]

Why do you think it is a bubble? 

In order for bubble to burst, one condition must be met: supply >> demand

Any other things in the current world can increase supply when demand rises, and typically there is a delay, so when the added supply reaches market at large scale, the market has already fullfil the demand by a higher price, so there comes the crash

But for bitcoin, supply is fixed and transparent, demand is just start to rise, it might take 100 years before it bursts, or it might never burst, just absorb all the over produced values into it like a black hole

A number of factors can affect the bitcoin supply/demand equation.  Here are a few examples:

• What happens if the US government announces new regulations that outlaw (or effectively outlaw) the use of bitcoins by US businesses/citizens?
• What happens if Mt. Gox is hacked again?
• What happens if someone holding 250,000 bitcoins decides that the market has reached a top and dumps them all at once on Mt. Gox?

Any of the above scenarios, while hopefully unlikely, could cause a dramatic selloff not unlike what happened in 2011.  Bitcoin was designed to weather such storms, but it could take a long time for the price to recover, as it took over 1.5 years to recover from the last time this happened.

[Severian]

you can't eat bitcoins.

But Bernanke slow-roasted with an apple in his mouth would feed a family of four for a week.

[johnyj]

Why do you think it is a bubble? 

In order for bubble to burst, one condition must be met: supply >> demand

Any other things in the current world can increase supply when demand rises, and typically there is a delay, so when the added supply reaches market at large scale, the market has already fullfil the demand by a higher price, so there comes the crash

But for bitcoin, supply is fixed and transparent, demand is just start to rise, it might take 100 years before it bursts, or it might never burst, just absorb all the over produced values into it like a black hole

A number of factors can affect the bitcoin supply/demand equation.  Here are a few examples:

• What happens if the US government announces new regulations that outlaw (or effectively outlaw) the use of bitcoins by US businesses/citizens?
• What happens if Mt. Gox is hacked again?
• What happens if someone holding 250,000 bitcoins decides that the market has reached a top and dumps them all at once on Mt. Gox?

Any of the above scenarios, while hopefully unlikely, could cause a dramatic selloff not unlike what happened in 2011.  Bitcoin was designed to weather such storms, but it could take a long time for the price to recover, as it took over 1.5 years to recover from the last time this happened.

All these events won't change the supply

[jubalix]

Why do you think it is a bubble? 

In order for bubble to burst, one condition must be met: supply >> demand

Any other things in the current world can increase supply when demand rises, and typically there is a delay, so when the added supply reaches market at large scale, the market has already fullfil the demand by a higher price, so there comes the crash

But for bitcoin, supply is fixed and transparent, demand is just start to rise, it might take 100 years before it bursts, or it might never burst, just absorb all the over produced values into it like a black hole

A number of factors can affect the bitcoin supply/demand equation.  Here are a few examples:

• What happens if the US government announces new regulations that outlaw (or effectively outlaw) the use of bitcoins by US businesses/citizens?
• What happens if Mt. Gox is hacked again?
• What happens if someone holding 250,000 bitcoins decides that the market has reached a top and dumps them all at once on Mt. Gox?

Any of the above scenarios, while hopefully unlikely, could cause a dramatic selloff not unlike what happened in 2011.  Bitcoin was designed to weather such storms, but it could take a long time for the price to recover, as it took over 1.5 years to recover from the last time this happened.

I would be buying up every cheap bit-coin I could

[MarlboroMan]

Why do you think it is a bubble? 

In order for bubble to burst, one condition must be met: supply >> demand

Any other things in the current world can increase supply when demand rises, and typically there is a delay, so when the added supply reaches market at large scale, the market has already fullfil the demand by a higher price, so there comes the crash

But for bitcoin, supply is fixed and transparent, demand is just start to rise, it might take 100 years before it bursts, or it might never burst, just absorb all the over produced values into it like a black hole

A number of factors can affect the bitcoin supply/demand equation.  Here are a few examples:

• What happens if the US government announces new regulations that outlaw (or effectively outlaw) the use of bitcoins by US businesses/citizens?
• What happens if Mt. Gox is hacked again?
• What happens if someone holding 250,000 bitcoins decides that the market has reached a top and dumps them all at once on Mt. Gox?

Any of the above scenarios, while hopefully unlikely, could cause a dramatic selloff not unlike what happened in 2011.  Bitcoin was designed to weather such storms, but it could take a long time for the price to recover, as it took over 1.5 years to recover from the last time this happened.

This.

[johnyj]

The cyprus problem recently again showed how dangerous today's monetary system is. If it could not find any higher consumption that could keep the country's exponential growth, the only way to reduce that debt is to reduce the saving

But with bitcoin, there will never be such kind of problem, it is not debt based. No debt = freedom, you can select whatever growth rate you want without worrying about the debt interest

[theta]

The cyprus problem recently again showed how dangerous today's monetary system is. If it could not find any higher consumption that could keep the country's exponential growth, the only way to reduce that debt is to reduce the saving

But with bitcoin, there will never be such kind of problem, it is not debt based. No debt = freedom, you can select whatever growth rate you want without worrying about the debt interest

Not quite.

Debt/credit is a separate layer on top of any monetary system or currency. Credit has existed for thousands of years and asset bubbles that resulted from huge credit expansion (and always ended in tears) have also been plenty. There's nothing that stops people from extending credit denominated in bitcoins. If this happens, and whatever investment is funded with such credit fails, default will follow.

In fact, given bitcoin's design (limited supply), debtors would have a very hard time paying off debt after bad investments as they will not even have the benefit of inflation eroding the real value of their debt over time. So, if anything, if an economy based on BTC evolved, and there was an established credit system in place (again, in BTC), and there was significant credit expansion, the next time a recession came, there would be mass defaults everywhere, much worse than the current situation in the Eurozone.

But we are nowhere near this happening. Because it's so obvious, I doubt anyone would ever extend credit on BTC, so in that sense you are right, a debt crisis will not happen in bitcoinland.

[BTCLuke]

OP, PLEASE tell me you're trolling us.

[johnyj]

But we are nowhere near this happening. Because it's so obvious, I doubt anyone would ever extend credit on BTC, so in that sense you are right, a debt crisis will not happen in bitcoinland.

Yes, that's the point, and it is not the only reason. If you closely study how today's fiat money are created, you will notice the fundamental difference between a debt based money (fiat money) and honest money (gold/silver/bitcoin)

Before 1971, US dollar is 40% backed by gold, so in certain degree fiat money is not debt based, but after that backing is removed, all new created money are backed by future debt. After 40 years, it has grown into a huge mountain there is just no hope to pay back that amout of debt without significant increase in income

But bition might be able to help pay back that debt, the only thing it requires is its value grow to a scale close to the current debt