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Author Topic: Krugman makes some good points  (Read 6968 times)
Technomage
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March 25, 2013, 03:52:17 PM
 #81

As far as the value of spending vs saving goes... you know what is valuable?  Stuff.  People do all kinds of useful things to get stuff.  You know what is not valuable?  Savings that just sit there.  If savings just sit around doing nothing for years then it's no good to anybody until you pull it out of savings and spend it on stuff.  Banks invest savings in order to make money, which stimulates the economy because the savings are used for (hopefully) profitable ventures.  Savings is investment when you put your savings in a bank rather than your mattress.  Money has no value on it's own.  It is only valuable when you exchange it for stuff.  Currencies with no velocity are not currency.

Learn about time preference. It's one of the most important and relevant concepts in the Austrian theory. There is no such thing as money that just sits there forever. Saving money means having a low time preference for current consumption, which means delaying the consumption for future needs. For situations where the time preference for consumption has increased. Therefore saving, or "hoarding" as some idiots call it, is not putting money away for good. It's saving money for future consumption.

It's total and absolute folly to have a monetary system where consumption is artificially incentivized. That is wrong on many levels.

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March 25, 2013, 04:14:25 PM
 #82


It's total and absolute folly to have a monetary system where consumption is artificially incentivized. That is wrong on many levels.

1984 and Brave New World. Two of the most prophetic books ever written.

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March 25, 2013, 05:11:28 PM
 #83

Buying land is an investment and like any other investment it can turn out good or bad.

Almost exactly like Bitcoin...

But even if land were the only risk free investment in the world that was guaranteed to increase its inflation adjusted purchasing power over time, it would do little to refute my argument because land isnt our currency. Our wages are not paid in acres, food prices arent set in it, loans are not made in it and its not what drives our economies primarily. I can do business without owning any land, I cant to business without having any money.

... minus the fact that it isn't as liquid. By your description, both should correlate well with economic growth in the long run. So I guess the difference still boils down to Bitcoin being accessible to everyone, which was my point. I will need to think more about how this fundamental changes things.

You cant have economic growth and stable value if the amount of money is unable to adjust to the economy the way credit money can.

Sure, I wasn't going for stable value. 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
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March 25, 2013, 05:26:41 PM
 #84

Buying land is an investment and like any other investment it can turn out good or bad.

Almost exactly like Bitcoin...

If you look at it as an investment today, yeah maybe; though much, much higher risk and potential reward. Land is probably about as stable as an investment as you can get while bitcoin is on the other end of the scale.

But thats not my point. I dont have a problem with a risky or potentially lucrative investment; Im saying you cant use it as a universal currency to replace credit money.  No one is making that claim for land or gold either.
It just wont work if its value keeps going up. Among all other problems inherent to a deflationary currency,  no one will be able to afford a loan and no one will be willing to give one. 

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Sure, I wasn't going for stable value. 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.
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March 25, 2013, 05:30:09 PM
 #85

It's total and absolute folly to have a monetary system where consumption is artificially incentivized. That is wrong on many levels.

I wouldnt say consumption is incentivized; after all you can just as well invest your money if you dont want to spend it.
All that is desincentivized is hoarding of money; I see nothing wrong with that; quite on the contrary if you agree the prime purpose of money is making commerce easier.
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March 25, 2013, 05:38:40 PM
 #86

It's total and absolute folly to have a monetary system where consumption is artificially incentivized. That is wrong on many levels.

I wouldnt say consumption is incentivized; after all you can just as well invest your money if you dont want to spend it.
All that is desincentivized is hoarding of saving money; I see nothing wrong with that; quite on the contrary if you agree the prime purpose of money is making commerce easier.
I see that as a bad thing.
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March 25, 2013, 06:08:12 PM
 #87

Buying land is an investment and like any other investment it can turn out good or bad.

Almost exactly like Bitcoin...

If you look at it as an investment today, yeah maybe; though much, much higher risk and potential reward. Land is probably about as stable as an investment as you can get while bitcoin is on the other end of the scale.

But thats not my point. I dont have a problem with a risky or potentially lucrative investment; Im saying you cant use it as a universal currency to replace credit money.  No one is making that claim for land or gold either.
It just wont work if its value keeps going up. Among all other problems inherent to a deflationary currency,  no one will be able to afford a loan and no one will be willing to give one


This is not a problem inherent to deflationary currencies.  It's also true within inflationary currency systems when the inflation rate is too high.  That's the real issue; not that Bitcoin is deflationary (it's not really, and won't be until at least 2100), the problem is that the rate of change of the exchange value is too high for such long term contracts to be sensible.  The current and past instablility is a consequence of Bitcoin's adoption rate, not any particular flaw in the system, and certainly not Bitcoin's "deflationary" nature.  It's simply not a mature economic system, yet.

"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 25, 2013, 06:11:36 PM
 #88

It's total and absolute folly to have a monetary system where consumption is artificially incentivized. That is wrong on many levels.

I wouldnt say consumption is incentivized; after all you can just as well invest your money if you dont want to spend it.
All that is desincentivized is hoarding of saving money; I see nothing wrong with that; quite on the contrary if you agree the prime purpose of money is making commerce easier.
I see that as a bad thing.

Why? Why is it good to keep your savings in something which prime function is allowing commerce? Its better to have that money available for commerce than idling under your mattress.
Just put your savings in to something thats more suitable for it than credit money: Its not like you dont have a million things to choose from.

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March 25, 2013, 06:21:31 PM
 #89

This is not a problem inherent to deflationary currencies.  It's also true within inflationary currency systems when the inflation rate is too high. 

So we agree deflation and hyperinflation are both bad Smiley
At least with hyperinflation you could compensate with higher interest rates. If interest rates are higher than the inflation rate, I dont see why I wouldnt lend.

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That's the real issue; not that Bitcoin is deflationary (it's not really, and won't be until at least 2100),

Currently its actually incredibly deflationary if you define deflation as price deflation. If you are only referring to the increase of money supply, then it wont take nearly that long for the supply rate to be exceeded by the economic growth rate. If you only look at the bitcoin economy thats obviously already the case and thats only going to get worse if you have any confidence in bitcoins adoption.
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the problem is that the rate of change of the exchange value is too high for such long term contracts to be sensible.  The current and past instablility is a consequence of Bitcoin's adoption rate, not any particular flaw in the system, and certainly not Bitcoin's "deflationary" nature.  It's simply not a mature economic system, yet.

Volatility is another problem which does hinder its adoption but it has nothing to do with inflation or deflation: If bitcoin reward halving protocol were devised differently so it would perpetually grow by 1 or 2% per year you would still have that. I do agree volatility is mostly because its so new and its unavoidable; but its not the fundamental problem I see with it.
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March 25, 2013, 07:06:49 PM
 #90

If you look at it as an investment today, yeah maybe; though much, much higher risk and potential reward. Land is probably about as stable as an investment as you can get while bitcoin is on the other end of the scale.


Land is actually a pretty shitty investment as, like with so much else, the government feel free to help itself to your wealth if you own any (unless you are rich enough to be able to indulge in tax dodges).

That land prices have risen reasonably in recent history is just one of those things and the link between this and the paragraph above may not be entirely unrelated to the government created housing bubble.

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March 25, 2013, 07:12:14 PM
 #91

It's total and absolute folly to have a monetary system where consumption is artificially incentivized. That is wrong on many levels.

I wouldnt say consumption is incentivized; after all you can just as well invest your money if you dont want to spend it.
All that is desincentivized is hoarding of saving money; I see nothing wrong with that; quite on the contrary if you agree the prime purpose of money is making commerce easier.
I see that as a bad thing.

Why? Why is it good to keep your savings in something which prime function is allowing commerce? Its better to have that money available for commerce than idling under your mattress.

Better for whom?  It's not better for everyone.  The owner of the currency should be able to choose the best method of saving.  If your method really is better, others will follow.

"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 25, 2013, 07:19:33 PM
 #92

If you look at it as an investment today, yeah maybe; though much, much higher risk and potential reward. Land is probably about as stable as an investment as you can get while bitcoin is on the other end of the scale.


Land is actually a pretty shitty investment as, like with so much else, the government feel free to help itself to your wealth if you own any (unless you are rich enough to be able to indulge in tax dodges).

That land prices have risen reasonably in recent history is just one of those things and the link between this and the paragraph above may not be entirely unrelated to the government created housing bubble.

A government can create the legal basis to tax anything they like; including the gold in your safety deposit box or bitcoins.
So I guess your point is that investing in land is a poor way to evade taxes,  legally or illegally?
Sure,  bitcoin does look better in that regard.
Still I wouldnt worry an investment in land would lose 50% or 90% of its value in a short term.  Something I cant say of bitcoin or many other investments.
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March 25, 2013, 07:23:30 PM
 #93

Better for whom?  It's not better for everyone.  The owner of the currency should be able to choose the best method of saving.  If your method really is better, others will follow.

For society at large.
And as the owner of the currency you are completely free to choose your method. BUt you seem to want the government to guarantee the return of your "investment" when you decide to keep it in fiat? Why? They arent promising you that, in fact they will pretty much guarantee you take a small haircut each and every year. Still, its your choice.
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March 25, 2013, 07:32:07 PM
 #94

This is not a problem inherent to deflationary currencies.  It's also true within inflationary currency systems when the inflation rate is too high. 

So we agree deflation and hyperinflation are both bad Smiley


We can agree that both high rates of deflation and high rates of inflation increase the risk of long term contracts.  What is "bad" is a realtive perspective, in the context of economics.  Again, bad for whom?

Quote
At least with hyperinflation you could compensate with higher interest rates. If interest rates are higher than the inflation rate, I dont see why I wouldnt lend.

Risk.  You're forgetting about risk.  That's why you shouldn't lend, if inflation is high.  It also matters why inflation is high.  High interest rates are often a reflection of a high systemic risk.  Often, not always.

Quote

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That's the real issue; not that Bitcoin is deflationary (it's not really, and won't be until at least 2100),

Currently its actually incredibly deflationary if you define deflation as price deflation.

I don't, and no economist worth listening to does either.  Inflation and deflation are best defined as the two most likely consequences of expansion and contraction of the monetary base, relative to the size of the economy that it represents, repectively.  Thus, Bitcoin is only deflationary in the contest that the rate of growth among the market exceeds the growth of the monetary base.

Quote

 If you are only referring to the increase of money supply, then it wont take nearly that long for the supply rate to be exceeded by the economic growth rate. If you only look at the bitcoin economy thats obviously already the case and thats only going to get worse if you have any confidence in bitcoins adoption.


Again, worse for whom?  There are alwasy two parties to every trade, buck.
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the problem is that the rate of change of the exchange value is too high for such long term contracts to be sensible.  The current and past instablility is a consequence of Bitcoin's adoption rate, not any particular flaw in the system, and certainly not Bitcoin's "deflationary" nature.  It's simply not a mature economic system, yet.

Volatility is another problem which does hinder its adoption but it has nothing to do with inflation or deflation: If bitcoin reward halving protocol were devised differently so it would perpetually grow by 1 or 2% per year you would still have that. I do agree volatility is mostly because its so new and its unavoidable; but its not the fundamental problem I see with it.


The voltility, relative to the exchange rate, will mute significantly as the economy grows.  The exchange rates of small nations' fiat currencies are (almost) always more volitile than the exchange rate between major nations such as teh US and the Euro.  And if the exchange rate of bitcoins continue to rise, it's a sign of economic growth; so if the volitility and deflationary nature does result in some breaking of that growth, so what?  That too will self-correct as the economy matures.  There is no such tihing as a deflationary spiral.  It's only an economic theory that has no real world examples.

"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 25, 2013, 07:53:59 PM
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Currently its actually incredibly deflationary if you define deflation as price deflation.

I don't, and no economist worth listening to does either.  Inflation and deflation are best defined as the two most likely consequences of expansion and contraction of the monetary base, relative to the size of the economy that it represents, repectively.

Actually my university text book defines deflation as a general decline in prices; as do most places  I can find online:     

In economics, deflation is a decrease in the general price level of goods and services.
http://en.wikipedia.org/wiki/Deflation

Definition of 'Deflation'
A general decline in prices, often caused by a reduction in the supply of money or credit
http://www.investopedia.com/terms/d/deflation.asp

"What Is Deflation?"
Answer: The standard deflation definition is when asset and consumer prices continue to fall.
http://useconomy.about.com/od/pricing/f/Deflation.htm

So yes; the bitcoin economy is very much deflationary right now and will likely remain so for the foreseeable future.  

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Again, worse for whom?  There are alwasy two parties to every trade, buck.

reread the phrase; I said deflation will get worse. Im not sure who you want me to attribute that to.

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There is no such tihing as a deflationary spiral.  It's only an economic theory that has no real world examples.

I guess those are all made up then:
http://en.wikipedia.org/wiki/Deflationary_spiral#Historical_examples

That said, what counter examples would you give of prosperous societies with permanent deflation?
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March 25, 2013, 07:56:08 PM
 #96

Krugman is a fool. Your university really uses textbooks from Krugman? Wow...



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March 25, 2013, 08:09:24 PM
 #97

Better for whom?  It's not better for everyone.  The owner of the currency should be able to choose the best method of saving.  If your method really is better, others will follow.

For society at large.


It's not better, nor worse, for society at large.  That's actually impossible.  The "market cap" of an economy is simply a reflection of the total wealth of that economy.  It doesn't matter so much who happens to possess that wealth, from an economic perspective.  Central bankers inflating a fiat currency is a hidden tax upon the entire currency userbase, as it transfers purchasing power from those who earn and save in a currency to those who create and have first access to that currency.  Said another way, every person who earns a paycheck is taxed in order to support the central banking system itself.  Since most central banks in our modern world are arms of governments, it's those governments that benefit from such inflationary policies at the expense of pretty much everyone else in the country.  However, governments are part of sociey, as it's usually defined, so such transfers are akin to removing water from one end of a pool and pouring into the other end.  Sure, you've moved some molecules around, but you have no hope of affecting the water level.

Furthermore, one would have to define "society" in the context of economics, otherwise you're just advocating a political perspective with broken math.

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And as the owner of the currency you are completely free to choose your method.



Not till now, but that's exactly why Bitcoin exists, to present a real alternative.

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BUt you seem to want the government to guarantee the return of your "investment" when you decide to keep it in fiat? Why?


Where did you get that idea?  I'd just prefer that governments not make those choices for me, nor limit my choices.  They limit my choices all the time.

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They arent promising you that, in fact they will pretty much guarantee you take a small haircut each and every year. Still, its your choice.

And it's your choice also, now that Bitcoin exists.  I suggest that you choose to invest elsewhere.  Bitcoin is, after all, a very risky investment for which you seem to have zero faith.  Why are you here?  Do you want us to convince you of your errors, or are you trying to convince us of ours?  In the case of the former, all the benefit is your own; in the case of the latter, your task is futile.

"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 25, 2013, 08:11:19 PM
 #98


A government can create the legal basis to tax anything they like; including the gold in your safety deposit box or bitcoins.

Yes, the point is kinda that they shouldn't.


So I guess your point is that investing in land is a poor way to evade taxes,  legally or illegally?
Sure,  bitcoin does look better in that regard.
Still I wouldnt worry an investment in land would lose 50% or 90% of its value in a short term.  Something I cant say of bitcoin or many other investments.

Worse. Land could gain a lot of value in the short term. If you didn't want to sell it, you may suddenly have no choice as land is taxed on assessed value.

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March 25, 2013, 08:32:20 PM
 #99


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There is no such tihing as a deflationary spiral.  It's only an economic theory that has no real world examples.

I guess those are all made up then:
http://en.wikipedia.org/wiki/Deflationary_spiral#Historical_examples



The only "example" I can find there is a reference to the Great Depression, which is only considered an example of a deflationary spiral because there exist no better examples.  The Great Depression was cause by a number of events in concert, most of which are actually bad political and international trade policies.  The example of the Panic of 1920, and the fact that it's nearly identical to the first two years of the Great Depression, is evidence enough that a deflationary spiral is, at most, a minor contributing factor to the depth of the Great Depression.  I say that it's a false theory.

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That said, what counter examples would you give of prosperous societies with permanent deflation?

Easy peasy, since I get to choose the time frames.  Any society that has ever existed upon a gold standard, prior to that same society's move towards currency debasement.  You're getting your cause and effect wrong, The Roman Empire didn't collapse because they used a deflationary currency (gold, silver, salt, nails) they debased that same deflationary currency because they were in the process of multi-generational collapse.  Money is simply a tool.

"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 25, 2013, 08:49:58 PM
 #100

It's not better, nor worse, for society at large.  That's actually impossible.  The "market cap" of an economy is simply a reflection of the total wealth of that economy.  It doesn't matter so much who happens to possess that wealth, from an economic perspective.

Distribution of wealth actually matters very, very much.
But thats not the point Im making, as it isnt about wealth; its about availability of credit.  You (usually) dont get significantly more or less wealthy if you invest your credit money for instance in the stock market. But what you do achieve is making credit (ie money) available for businesses and generally thats a good thing for the economy. If everyone would hide their fiat under their pillow you would have a problem. Thats why I say the small disincentive inherent to inflationary  credit money is actually a  good property for the economy at large.

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 Central bankers inflating a fiat currency is a hidden tax upon the entire currency userbase, as it transfers purchasing power from those who earn and save in a currency to those who create and have first access to that currency.

Sure; but you dont have to save in  fiat currency: buy gold; buy stock; buy bitcoins; buy land, start a business. Credit money isnt meant to be the best possible preservation of wealth and that its not  is therefore not in the least a problem. Its by design.  The most important goal of a monetary system is not to preserve my wealth,  it has to do enable our economy.  And thats what credit money is much better suited for than bitcoins.

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Not till now, but that's exactly why Bitcoin exists, to present a real alternative.

Before bitcoin,  you truly found nothing to invest your money in?

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And it's your choice also, now that Bitcoin exists.  I suggest that you choose to invest elsewhere.  Bitcoin is, after all, a very risky investment for which you seem to have zero faith.  Why are you here?  Do you want us to convince you of your errors, or are you trying to convince us of ours?  In the case of the former, all the benefit is your own; in the case of the latter, your task is futile.

You are completely misreading me. Im neither risk averse nor anti bitcoin; I just acknowledge what bitcoin is and what it isnt: A viable universal alternative to credit money; it is not: Something like ripple OTOH perhaps might be one day.
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