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Author Topic: Krugman makes some good points  (Read 6960 times)
Severian
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March 26, 2013, 08:52:22 AM
 #121

You cant have a flourishing  economy without credit

Is this beat into people during their training at the Keynesian Academy for the Performing Arts? I hear it frequently enough that it sounds like a political slogan.
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memvola
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March 26, 2013, 08:52:53 AM
 #122

Im saying you cant use it as a universal currency to replace credit money.

Does it have to replace credit money? If what you have been saying is true, it should cause economic collapse without even having to compete with credit money as currency, its mere existence should be enough. However your debate with MoonShadow seem to indicate otherwise.

(Sorry if I'm making an odd statement, isolating the problem helps me understand the argument better.)

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My question is, why being able to invest in another scarce resource does not result in stagnation?

Your answer seems to be:

    Land isn't as liquid
    Gold isn't as scarce

YOu seem to look at money purely as an investment. To me its prime function is facilitating commerce and enabling economic prosperity.
Bitcoin might be suitable for the former; its far less so for the latter. 
Pretty much like gold and land.

No, I'm just perfectly convinced that the deflationary aspect will not hinder its usage in commerce. The claimed harmful effects of deflation seem to focus on the investment aspect.

It seems to me that, if the assumption is true, no one will make an investment if it likely will not outperform the economy. The problem I'm having with this is that it should already be the case. I guess we both exhausted our arguments about this, so time will tell...
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March 26, 2013, 10:29:50 AM
 #123

Does it have to replace credit money?

In my opinion; of course not. Although credit money and bitcoins are not necessarily antagonistic, as ripple demonstrates.

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If what you have been saying is true, it should cause economic collapse without even having to compete with credit money as currency, its mere existence should be enough.

no, why?
Its deflationary nature  is only a problem for bitcoin to become a mainstream currency, or it could be a problem for the economy if it somehow were forced on us. But the mere existence of something that can store wealth and cant scale with the economy is no threat to the economy. For argument sake; there is only a limited number of Rembrandt paintings; that may make it a worthwhile investment; but I dont see why that would wreck our economy. Then again  no one claims we could use rembrandt paintings to replace credit money, and if we were to try it anyway, I think we can agree it wouldnt end well.

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No, I'm just perfectly convinced that the deflationary aspect will not hinder its usage in commerce. The claimed harmful effects of deflation seem to focus on the investment aspect.

Its rather the opposite.
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March 26, 2013, 10:46:32 AM
 #124

BTW, its perhaps appropriate to remind you all that credit money isnt a government invention. It was created by the free market in response to a demand for credit when gold was our monetary base and there wasnt enough to finance our economic growth. It wouldnt be different with bitcoins if it were to become as popular as  gold once was,  there would always be demand for credit that bitcoin by itself could not satisfy. So someone is going to create credit money based on it, pretty much like ripple is trying now.  Which in the longer run will again beg the question why there is a need for the monetary base to begin with; particularly if its peer 2 peer issued credit.
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March 26, 2013, 11:34:27 AM
 #125

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If what you have been saying is true, it should cause economic collapse without even having to compete with credit money as currency, its mere existence should be enough.

no, why?

Because you can always buy Bitcoin instead? Isn't that the whole idea?

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No, I'm just perfectly convinced that the deflationary aspect will not hinder its usage in commerce. The claimed harmful effects of deflation seem to focus on the investment aspect.

Its rather the opposite.

As long as I can exchange currencies freely, I don't see the difference between owning coins or dollars. No rational person would convert their coins to dollars in order to lose the incentive to save. And if you were willing to spend your dollars, you must be willing to spend the coin equivalent. If Bitcoin does indeed hinder your willingness, it doesn't make any sense to be more willing to spend your already existing dollars, since you can exchange them for bitcoins instead. Does it make sense?

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March 26, 2013, 01:40:14 PM
 #126

You cant have a flourishing  economy without credit

Is this beat into people during their training at the Keynesian Academy for the Performing Arts? I hear it frequently enough that it sounds like a political slogan.

Yup, what people like this don't realise if you have a deflationary currency then everything becomes so cheap you don't even need credit.
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March 26, 2013, 01:56:41 PM
 #127

There is always a conflict between interests of the individual and society.

Not always. Not even most of the time, I'd submit.

Edit: rest of message deleted as I realized I had misinterpreted some of what you're saying.

I guess my response is that if Bitcoin is better for the individual, then that is what individuals will select. If you're suggesting (and I don't think you are) that the government should outlaw Bitcoin "for the good of society", that's a different issue.

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March 26, 2013, 02:04:05 PM
 #128

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If what you have been saying is true, it should cause economic collapse without even having to compete with credit money as currency, its mere existence should be enough.

no, why?

Because you can always buy Bitcoin instead? Isn't that the whole idea?

Quote
No, I'm just perfectly convinced that the deflationary aspect will not hinder its usage in commerce. The claimed harmful effects of deflation seem to focus on the investment aspect.

Its rather the opposite.

As long as I can exchange currencies freely, I don't see the difference between owning coins or dollars. No rational person would convert their coins to dollars in order to lose the incentive to save. And if you were willing to spend your dollars, you must be willing to spend the coin equivalent. If Bitcoin does indeed hinder your willingness, it doesn't make any sense to be more willing to spend your already existing dollars, since you can exchange them for bitcoins instead. Does it make sense?



Sane and rational people are investing everything they can afford to lose in bitcoin right now.


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March 26, 2013, 02:20:12 PM
 #129

There was a rumor a couple of weeks ago saying Krugman filed for chapter 13 bankcruptcy protection,http://dailycurrant.com/2013/03/06/paul-krugman-declares-personal-bankruptcy/

Maybe there were some facts behind it  Grin

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March 26, 2013, 03:54:45 PM
 #130

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If what you have been saying is true, it should cause economic collapse without even having to compete with credit money as currency, its mere existence should be enough.

no, why?

Because you can always buy Bitcoin instead? Isn't that the whole idea?

Like you can buy rembrandts or gold. Or land.

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As long as I can exchange currencies freely, I don't see the difference between owning coins or dollars. No rational person would convert their coins to dollars in order to lose the incentive to save. And if you were willing to spend your dollars, you must be willing to spend the coin equivalent. If Bitcoin does indeed hinder your willingness, it doesn't make any sense to be more willing to spend your already existing dollars, since you can exchange them for bitcoins instead. Does it make sense?

I see what you are saying; but it applies to any store of wealth. Credit money is universally accepted and easily obtainable, also -and crucially- as, well,  credit. With pure bitcoins; thats just not going to happen.

Take the example of that Canadian selling his house for bitcoins. Made a nice news story, but think it through. Most people borrow for their first house. Are they going to be borrowing 2K bitcoins? Not bloody likely. So their debt and the price of the house will still be in credit money, no matter if the transaction happens in BTC. And to service their debt they will need to obtain credit money and so nothing really changes. Some people will invest in BTC like others invest in gold or land; they might even do some transactions in it but its not going to be replacing credit money as long people and business need credit which is forever. Its going to be replacing other stores of wealth.
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March 26, 2013, 04:08:58 PM
 #131

I guess my response is that if Bitcoin is better for the individual, then that is what individuals will select.

Better for what? Its certainly not better for any individual or any business needing credit, and that is mostly everyone. Commerce without affordable credit just isnt going to work. Again, there is a reason we invented credit money countless centuries ago - when we already had gold. What makes you think today we could do without ?
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March 26, 2013, 04:42:28 PM
 #132

I guess my response is that if Bitcoin is better for the individual, then that is what individuals will select.

Better for what? Its certainly not better for any individual or any business needing credit, and that is mostly everyone. Commerce without affordable credit just isnt going to work. Again, there is a reason we invented credit money countless centuries ago - when we already had gold. What makes you think today we could do without ?

Most individuals do not *need* credit. In the medium to long term, it is a net drain on their income and their ability to improve their future. It bonds them to jobs they don't want and saddles them with depreciating assets. They do it because running the presses all day forces interest rates low, discouraging saving and incentivizing non-advantageous spending.

I would suggest that it's also not always wise for businesses either. I'm not up for going into the full arguments and it's not always the case but there are some other perverse incentives at play there also.

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March 26, 2013, 04:52:32 PM
 #133

How many people do you know  that purchased their first house from savings alone? Started a business without needing some financing? I dont think I know anyone.  And trade is all about credit.  Just look what happens when credit contracts even a tiny bit like now. And you think we could pretty much eliminate it and still have a thriving economy? Common, gimme a break. Unless you want to rely on hand to hand  bartering pretty much any business  transaction involves the creation of debt. Thinking you can do without sounds almost as naive as someone who thinks we can print money to make everyone rich. We cant all be rich and we cant all be net savers all the time.
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March 26, 2013, 05:05:09 PM
 #134

How many people do you know  that purchased their first house from savings alone? Started a business without needing some financing? I dont think I know anyone.  And trade is all about credit.  Just look what happens when credit contracts even a tiny bit like now. And you think we could pretty much eliminate it and still have a thriving economy? Common, gimme a break. Unless you want to rely on hand to hand  bartering pretty much any business  transaction involves the creation of debt. Thinking you can do without sounds almost as naive as someone who thinks we can print money to make everyone rich. We cant all be rich and we cant all be net savers all the time.

How many people do you know that *needed* to purchase a house when starting out? No one renting? Oh wait, no, they have to buy a house. It's the American dream! Wait, isn't that how we got in the mess?

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March 26, 2013, 05:05:28 PM
 #135

How many people do you know  that purchased their first house from savings alone? Started a business without needing some financing? I dont think I know anyone.  And trade is all about credit.  Just look what happens when credit contracts even a tiny bit like now. And you think we could pretty much eliminate it and still have a thriving economy? Common, gimme a break. Unless you want to rely on hand to hand  bartering pretty much any business  transaction involves the creation of debt. Thinking you can do without sounds almost as naive as someone who thinks we can print money to make everyone rich. We cant all be rich and we cant all be net savers all the time.

I have not yet purchased my first house. Also started my current business in 2003 without outside financing. I have to admit that the first company of mine back in 2001 had external stock and bond financing, and also underwent liquidation 2 years after I was ousted. That was the biggest single reason for my no-credit stance, which has worked incredibly well ever since thank you.

All trade also is not about credit, it is about discounting.

Excerpt: "Thus the discount rate is determined by the condition of the consumer goods market, and not by the availability of savings. It reflects the propensity to consume (with apologies to Keynes). There is no loan involved in discounting, so the rate of interest is irrelevant. Tradesmen processing semi-finished goods hardly ever pay cash for supplies to their suppliers. The prices they are quoted are not cash prices. They are “90 days net”. The credit is part of the deal: you need not even ask for it. On the rare occasion when you don’t need the credit you pre-pay your bill, having applied the discount to its face value." (emphasis original)

Strictly, Professor Fekete is saying that credit is vital, but it need not involve anyone lending. And this is the way how the world worked during its so far most glorious years between 1871-1913.
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March 26, 2013, 05:20:00 PM
 #136

How many people do you know that *needed* to purchase a house when starting out? No one renting? Oh wait, no, they have to buy a house. It's the American dream! Wait, isn't that how we got in the mess?

Strictly speaking one doesnt even need to rent a house. Once upon a time we were happy to live in caves too.

Thing is, you think we can turn the financial clock back to the dark ages or even the ancient egyptians and have a thriving economy based on a fixed supply currency without facing the same problems they did (and reinventing similar solutions).

I respectfully disagree.
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March 26, 2013, 05:20:23 PM
 #137

I can only think of two occasions that you need credit money to invest:
1. you are in a war with another country, if you do not produce weapons fast enough, you will lose the war
2. you are extremely shortage on everything after a war that you need to reach a certain living standard quickly

But today is totally another picture: People take out a huge loan to buy a house, and that loan locked in their future income for 20 - 30 years. Due to this loan, banks become rich and start to spend big, economy get boosted. And after they finished their spending, economy start to shrink back, now even those people's future income for 20-30 years are threatened due to less consumption

If every investment is backed by enough saving, there won't be such problem. Housing is just like any other financial gamble game using high leverage. Many people are doing margin trading for house, that kind of risk is just too absurd, but thanks to credit money, every one can bet their life and play it


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March 26, 2013, 05:35:59 PM
 #138

If every investment is backed by enough saving, there won't be such problem.

One persons debt is another persons money aka saving.  And vice versa.
You just reinvented the basic idea behind credit money. If you werent almost 5000 years late; Id nominate you for a Nobel prize Wink

Im not saying there is nothing wrong with our current financial system; but the basic principles behind it are pretty damn sound. I would expect nothing else after 5000 years of experimentation and (r)evolution. Bitcoin OTOH is technically new and a revolutionary system; but as a financial system its no different than those millenia old systems from which we have long evolved - for good reason.
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March 26, 2013, 05:50:50 PM
 #139

Puppet, credit systems within bitcoin will develop when the market is right for them.  To some degree, they already exist, but are very personal and unsecured.  I've done several myself.  As you already noted, Ripple is a decentralized consumer credit system.

You promised to respond to my arguments yesterday.  Did you not have a rational response?

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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March 26, 2013, 05:59:59 PM
 #140

You promised to respond to my arguments yesterday.  Did you not have a rational response?

+1

And take the time to read and respond to my post also. After all I majored in Economics, which you apparently didn't.
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