Peter Schiff on Bitcoin

[AnonyMint]

In the Quantity Theory of Money a constant money supply requires that the economy can grow only if [...] the price level declines exponentially, neither of which are plausible for a healthy economy which is certainly plausible for a healthy economy.

Fixed that for you

Defend your argument.

Exponentially falling price levels leads to hoarding and Dark Age.

Exponentially rising velocity leads to a bubble and massive misallocation of resources as people take on debt faster and faster.

Even if you dispute the above two, you have the problem that exponential trends can not continue forever.

Thus you mathematically require that all growth has to be taken back at some point.

Sorry you have no argument.

[1714175202]

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[BldSwtTrs]

Fact:

In the Quantity Theory of Money a constant money supply requires that the economy can grow only if the velocity-of-money circulation rises exponentially or the price level declines exponentially, neither of which are plausible for a healthy economy.

Fact :
USA had several periods of concomitant growth and deflation in the 19th.

Corollary :
Any economic theory which state that deflation is bad for economy is false and should be rejected.

Corollary :
Any argument against Bitcoin which involve its deflationary charateristic is inoperative.

[AnonyMint]

Fact:

In the Quantity Theory of Money a constant money supply requires that the economy can grow only if the velocity-of-money circulation rises exponentially or the price level declines exponentially, neither of which are plausible for a healthy economy.

Fact :
USA have several period of concomitant growth and deflation in the 19th.

Corollary :
Any economic theory which state that deflation is bad for economy is false and should be rejected.

Corollary :
Any argument against Bitcoin  based on these theories which involve its deflationary charateristic is inoperative.

The USA has never had a period where the only circulating money was a constant supply. Even gold (ignoring that it also expands in supply) was debased by fractional reserve receipts (which were traded as money) the private banks were creating on bank deposits.

So that deflation was kept in reasonable balance by an expanding money supply. And that is why it didn't devolve immediately into the unhealthy outcome.

The mathematical conclusions of my original statement are irrefutable. You can only try to refute the Quantity Theory of Money.

[BldSwtTrs]

Fact:

In the Quantity Theory of Money a constant money supply requires that the economy can grow only if the velocity-of-money circulation rises exponentially or the price level declines exponentially, neither of which are plausible for a healthy economy.

Fact :
USA have several period of concomitant growth and deflation in the 19th.

Corollary :
Any economic theory which state that deflation is bad for economy is false and should be rejected.

Corollary :
Any argument against Bitcoin  based on these theories which involve its deflationary charateristic is inoperative.

The USA has never had a period where the only circulating money was a constant supply. Even gold (ignoring that it also expands in supply) was debased by fractional reserve receipts (which were traded as money) the private banks were creating on bank deposits.

So that deflation was kept in reasonable balance by an expanding money supply. And that is why it didn't devolve immediately into the unhealthy outcome.

The mathematical conclusions of my original statement are irrefutable. You can only try to refute the Quantity Theory of Money.

By definition deflation is contraction of money supply, and actually the US banking sector reduced its production of money. You describe exactly the contrary of what actually happened.

But I could also speak about the IT sector which is under ongoing deflation since the outset and yet thriving.

[AnonyMint]

Fact:

In the Quantity Theory of Money a constant money supply requires that the economy can grow only if the velocity-of-money circulation rises exponentially or the price level declines exponentially, neither of which are plausible for a healthy economy.

Fact :
USA have several period of concomitant growth and deflation in the 19th.

Corollary :
Any economic theory which state that deflation is bad for economy is false and should be rejected.

Corollary :
Any argument against Bitcoin  based on these theories which involve its deflationary charateristic is inoperative.

The USA has never had a period where the only circulating money was a constant supply. Even gold (ignoring that it also expands in supply) was debased by fractional reserve receipts (which were traded as money) the private banks were creating on bank deposits.

So that deflation was kept in reasonable balance by an expanding money supply. And that is why it didn't devolve immediately into the unhealthy outcome.

The mathematical conclusions of my original statement are irrefutable. You can only try to refute the Quantity Theory of Money.

By definition deflation is contraction of money supply, and actually the US banking sector reduced its production of money. You describe exactly the contrary of what actually happened.

But I could also speak about the IT sector which is under ongoing deflation since the outset and yet thriving.

Deflation is not only that always. Learn the Quantity Theory of Money. Deflation can also be a drop in the velocity or a rise in productivity which causes prices to decline.

The banking sector did not reduce its production of money. I have the data since the 1800s. The money supply always increased at roughly 5% since the 1800s until the 1970s.

What was actually happening is the productivity was increasing at such a fast rate, because the government was only < 10% of the economy. Now it is > 50% probably 70+%.

What you want is small government, not a constant money supply.

You've been fooled!

[BldSwtTrs]

Fact:

In the Quantity Theory of Money a constant money supply requires that the economy can grow only if the velocity-of-money circulation rises exponentially or the price level declines exponentially, neither of which are plausible for a healthy economy.

Fact :
USA have several period of concomitant growth and deflation in the 19th.

Corollary :
Any economic theory which state that deflation is bad for economy is false and should be rejected.

Corollary :
Any argument against Bitcoin  based on these theories which involve its deflationary charateristic is inoperative.

The USA has never had a period where the only circulating money was a constant supply. Even gold (ignoring that it also expands in supply) was debased by fractional reserve receipts (which were traded as money) the private banks were creating on bank deposits.

So that deflation was kept in reasonable balance by an expanding money supply. And that is why it didn't devolve immediately into the unhealthy outcome.

The mathematical conclusions of my original statement are irrefutable. You can only try to refute the Quantity Theory of Money.

By definition deflation is contraction of money supply, and actually the US banking sector reduced its production of money. You describe exactly the contrary of what actually happened.

But I could also speak about the IT sector which is under ongoing deflation since the outset and yet thriving.

Deflation is not only that always. Learn the Quantity Theory of Money. Deflation can also be a drop in the velocity or a rise in productivity which causes prices to decline.

The banking sector did not reduce its production of money. I have the data since the 1800s. The money supply always increased at roughly 5% since the 1800s until the 1970s.

What was actually happening is the productivity was increasing at such a fast rate, because the government was only < 10% of the economy. Now it is > 50% probably 70+%.

What you want is small government, not a constant money supply.

You've been fooled!

That's not what Rothbard wrote in The Mystery of Banking.
His number say that money supply was decreasing during deflationary period.

Which is consistant with the theory of Austrian business cycles.

[AnonyMint]

Wait I will go find my data source.

Armstrong claims before his death Rothbard admitted that Armstrong had insight he didn't. Martin Armstrong also explains why the money can be constant.

I see my ignores increased after posting this. Goldbugs are very hard-headed even in the face of math.

[BldSwtTrs]

By the way fractional reserve is possible with Bitcoin too. So money supply will not necessarily be constant.

And Bitcoin is not doomed to be a monopole, other currencies will still exist and they well have an adjustment role of money supply.

[AnonyMint]

By the way fractional reserve is possible with Bitcoin too. So money supply will not necessarily be constant.

And who will control that? The whole point was to create something sustainable that is decentralized and does not end up in the lap of the government every time there is a bank run and it fails and the people demand to be protected.

Fractional reserves are what leads to the bad outcome we have now. Look how JP Morgan bailed out the USA then got his central bank in 1913.

And Bitcoin is not doomed to be a monopole, other currency will still exist and they well have an adjustment role of money supply.

Agreed. But we need to recognize the desirable features such altcoins should have. And diminishing coin rewards means Bitcoin is subject to the "transactions withholding attack" and thus will end up a fiat.


I found my data source, but while I am reviewing that here is a quote the shows Austrian economics never said that a constant money supply is desired.

The simple fact is that most people who believe in Bitcoin-type technology also believe in Austrian principles.

Mises's crack up boom is occurring now, so I am not saying all Austrian economics is out-of-touch with reality. I am saying you are misinterpreting it. It never said money supplies must be constant. Mises wasn't into telling fairy tales.

http://en.wikipedia.org/wiki/Austrian_School#Inflation

He therefore used the term "inflation" to mean an excessive increase of the money supply

[AnonyMint]

Okay my recollection about my data source was incorrect, but I don't think it invalidates my point.

It was nominal GDP that was increasing by 5% since 1790.

Nominal GDP is a rough proxy for P x Q in the Quantity Theory of Money. Thus it means either velocity or money supply was expanding or both.

Do you have any number from Rothbard on the rate of decrease in the money supply from that period? Although base money (gold) may have been stagnant or decreasing, the private banks were expanding credit and the money supply by printing fractional reserve receipts for that gold, i.e. bank notes.

It is not near to -5% then it was not the most significant factor causing deflation at that time. Rather it would the rise in productivity which would have been reflected in rising Q possibly falling or moderated P and a rising V with either a slightly rising or falling M.

See I don't think you can argue that a declining or constant money supply had anything to do with the deflation at that time, unless you can show it was near to -5% and velocity was thus going radically exponential and staying there (which we know isn't true because there were numerous recessions in the 1800s), which I claim would not be a healthy economy.

In short, the velocity V does not stay continuously high without expansion of the money supply because the rich would aggregate all of the money via usury since they spend a negligible (minute) percentage of their income. Wealth and income is power-law distributed [1]. Thus debasement is required else there is no money for the working class to use.

[1] Dragulescu, Exponential and power-law probability distributions of wealth and income in the United Kingdom and the United States

>>Inflation is not a problem, because it benefits the working class, whose
>>wages will rise proportionally and depletes the idle capital of the
>>capitalists who are not investing in new technology and productivity.

There is no problem for workers when their wages keep up with inflation.

And the data from 1790 to 2012 says:

http://www.measuringworth.com/growth/

http://www.measuringworth.com/growth/growth_resultf.php?begin%5B%5D=1790&end%5B%5D=2012&beginP%5B%5D=&endP%5B%5D=&US%5B%5D=UNSKILLED&US%5B%5D=MANCOMP&US%5B%5D=NOMINALGDP&US%5B%5D=NOMGDPCP&US%5B%5D=SAP&US%5B%5D=POPULATION&UK%5B%5D=GDPC&UK%5B%5D=GDPCP&UK%5B%5D=POP&gold%5B%5D=NEWYORK&gold%5B%5D=SILVERRATIO

The average annualized values from 1790 - 2012 are as follows.

3.26% - Production Worker Compensation
5.24% - Nominal GDP   
3.18% - Nominal GDP per capita
1.99% - Population (millions)

3.26 + 1.99 = 5.25 which is very close to 5.24%

In other words, the increase in nominal GDP was spread proportionally to the workers, diluted by the increase in the population.

So the only problem was if the money supply was increasing faster than the nominal GDP, i.e. if the velocity of money was declining. Indeed the velocity of money is declining now, because the bastards have their hands on the levers of money supply creation and are hoarding it for themselves.

Here is the same data again 1970 - 2000:

5.46% - Production Worker Compensation
7.82% - Nominal GDP   
6.68% - Nominal GDP per capita
1.07% - Population (millions)

So we see that lately the workers have been cheated.

5.46 + 1.07 = 6.53, which is 1.5% less than 7.82%.

M2 increased only 7.12% from 1970 to 2000, so velocity was increasing:

http://www.economagic.com/em-cgi/data.exe/frbH6/m2

So it appears the bastards were able to steal about 1.5% per year from the working class from 1970 - 2000. Hopefully we could eliminate that by eliminating their control over the printing of money.

[AnonyMint]

If we know that prices P were declining or rising significantly less than P x Q at roughly 5%, then it is impossible to argue that large increases in productivity Q was not the cause of deflation. The other side of the equation M x V must balance, but isn't a cause.

The question is whether exponentially rising V was sustainable, assuming you are correct that M was constant or declining.

Clearly it was not. We had numerous frequent bank failures and short duration depressions throughout the 1800s, because the demand for money was exceeding the supply and the banks were writing fractional reserves to meet that demand. If the banks had not been able to do that, then the corrections would have been even more frequent (the monetary leash would have been shorter).

And the high level of V was correlated with very much instability in the economy.

And where did that end up? Ultimately the banking system had to be bailed out by the elite and they created a central bank to backstop the banking system so that instability could be prevented (the monetary leash was extended to be MUCH longer as in $trillions of printing we are seeing now).

What they accomplished was the ability to delay corrections and to increase debt levels to astronomical levels as what we have now with 300+% total debt-to-GDP levels for every major country in the world today and government at 50 - 70% of the GDP in every developed country (except maybe Switzerland).

So I want to see someone make an cogent argument based on the evidence and math, that constant money supplies accomplish anything good.

They seem to just exacerbate fractional reserves and thus the trend towards fiat.

That is what I was trying to explain to MoonShadow yesterday.

P.S. Gold also has an expanding money supply. God apparently wasn't so myopic.

[Zarathustra]

The velocity is not relevant. If you sell a bitcoin to me and buy it back tomorrow, we won't have additional GDP. Additional credit (debt) leads to additional GDP.

[AnonyMint]

The velocity is not relevant. If you sell a bitcoin to me and buy it back tomorrow, we won't have additional GDP. Additional credit (debt) leads to additional GDP.

Velocity is relevant when the trades are in exchange for goods and services, which applies to everything I wrote in the posts upthread.

[Zarathustra]

The velocity is not relevant. If you sell a bitcoin to me and buy it back tomorrow, we won't have additional GDP. Additional credit (debt) leads to additional GDP.

Velocity is relevant when the trades are in exchange for goods and services, which applies to everything I wrote in the posts upthread.

A bitcoin is a goody. If you sell a bitcoin to me and buy it back tomorrow, we won't have additional GDP. Additional credit (debt) leads to additional GDP.

[joae1975]

Added:

Nov 15, 2013  I cut this show up.  Two callers here.  The first is anti-BTC, 2nd is pro-BTC.  The first tries to say the media promotes BTC, LOL!  I'm not sure what media he's listening to.  Judge for yourself.
https://dl.dropboxusercontent.com/u/21580995/Peter.Schiff.11.15.13.bitcoin.mp3

[2_Thumbs_Up]

I regret entering the earlier immature tit-for-tat debate.

It would be better for me to phrase my view succinctly and unarguably.

Fact:

In the Quantity Theory of Money a constant money supply requires that the economy can grow only if the velocity-of-money circulation rises exponentially or the price level declines exponentially, neither of which are plausible for a healthy economy.

Goldbugs give up. You have no argument.

Fact:
The Quantity Theory of Money is circular logic. It basically says that the velocity of money determines the value of money which determines the velocity. It treats velocity as a cause of human action, when it actually is the result.

https://mises.org/daily/2916

The equation asserts merely that what is paid is equal to what is received. This proposition may require algebraic formulation, but to the present writer it does not seem to require any formulation at all. The contrast between the "money side" and the "goods side" of the equation is a false one. There is no goods side. Both sides of the equation are money sides.

This bears repetition in slightly different words. Increased velocity of circulation is not, in itself, even a contributing cause of higher commodity prices. It is not even a link in the chain of causation. Increased velocity of circulation and higher commodity prices are joint results of a change in the value of money in relation to the value of goods. When people value money less in relation to goods, they offer more money for goods; when they value it more in relation to goods, they offer less money for goods. Any change in velocity of circulation is likely to be a result of these changed value decisions: it is not itself a cause of the change in value. The value of money does not decline because its velocity of circulation has increased, though the velocity of circulation may increase, when it does so, because the value of money in relation to goods has declined.

[AnonyMint]

The velocity is not relevant. If you sell a bitcoin to me and buy it back tomorrow, we won't have additional GDP. Additional credit (debt) leads to additional GDP.

Velocity is relevant when the trades are in exchange for goods and services, which applies to everything I wrote in the posts upthread.

A bitcoin is a goody. If you sell a bitcoin to me and buy it back tomorrow, we won't have additional GDP. Additional credit (debt) leads to additional GDP.

It depends on how you compute the GDP. As far as I know, currency exchanges are not counted as goods and services in the computation of GDP. However, purchases and sales of assets I believe are counted. When you buy and sell a house, this indeed does cause people in the economy to earn salaries and commissions, and thus does increase the GDP. Buy and selling BTC does also to some extent.

Sorry if you are arguing that velocity of money has no relationship to GDP, then I should just ignore you as being retarded. It is quite obvious that the rate at which money changes hands in the economy, effects the amount of salaries and commissions earned by humans and thus the level of the economic activity.

[AnonyMint]

Math is not the strong suite of most people. See below...

I regret entering the earlier immature tit-for-tat debate.

It would be better for me to phrase my view succinctly and unarguably.

Fact:

In the Quantity Theory of Money a constant money supply requires that the economy can grow only if the velocity-of-money circulation rises exponentially or the price level declines exponentially, neither of which are plausible for a healthy economy.

Goldbugs give up. You have no argument.

Fact:
The Quantity Theory of Money is circular logic. It basically says that the velocity of money determines the value of money which determines the velocity. It treats velocity as a cause of human action, when it actually is the result.

https://mises.org/daily/2916

The equation asserts merely that what is paid is equal to what is received. This proposition may require algebraic formulation, but to the present writer it does not seem to require any formulation at all. The contrast between the "money side" and the "goods side" of the equation is a false one. There is no goods side. Both sides of the equation are money sides.

This bears repetition in slightly different words. Increased velocity of circulation is not, in itself, even a contributing cause of higher commodity prices. It is not even a link in the chain of causation. Increased velocity of circulation and higher commodity prices are joint results of a change in the value of money in relation to the value of goods. When people value money less in relation to goods, they offer more money for goods; when they value it more in relation to goods, they offer less money for goods. Any change in velocity of circulation is likely to be a result of these changed value decisions: it is not itself a cause of the change in value. The value of money does not decline because its velocity of circulation has increased, though the velocity of circulation may increase, when it does so, because the value of money in relation to goods has declined.

Okay you have accepted my challenge upthread, wherein I stated the only way you could challenge my argument is to attempt to refute the Quantity Theory of Money (QTM), M x V = P x Q.

Above Mises is not arguing that the velocity V has no mathematical relationship to the P x Q ≅ nominal GDP. Rather he is arguing that P x Q ÷ V is the demand for M.

Thus he is not refuting the QTM, rather he is interpreting it one way. And that is one correct way of characterizing the effects of the QTM. However it is not the only way to interpret the QTM.

What he is essentially saying (which is correct), is that the QTM does not guarantee a cause and effect relationship between M x V and P x Q. Rather they just match, but it can't say which variable item in that equation caused the changes in the others.

Duh! That is what the algebraic equation says. It just relates the quantities, it doesn't mathematically say much about cause and effect. It is not like Mises said anything that wasn't already obvious from looking at the QTM equation.

However as I explained upthread, since nominal GDP increased by 5% per annum in the 1800s, then P x Q ≅ nominal GDP, so we can conclude that if P was not rising by 5%, then Q was rising. And Q is the quantity of goods and services produced. If Q is rising faster than the percentage of additional workers per annum, then productivity per capita is rising.

So clearly we can conclude that productivity was rising in the 1800s very fast, because the price level P was not rising nearly as fast as the nominal GDP was. And I have claimed that the productivity was rising fast, because the government was 5 - 10X smaller! Small government is what leads to prosperity, and fooling yourself about money supply won't help you. The outrageous increases in money supply now, are because the government is huge and has control over the issuance of money and has a huge socialism bill to pay.

There is no way to argue directly from the QTM that M had anything to do with P x Q. You could argue that increasing M while holding V constant would have increased P perhaps, yet then P x Q would have also increased and still Q would be the factor responsible for increase of the real GDP, i.e. nominal GDP minus the increase in P.

We can conclude that if P x Q ≅ nominal GDP is rising by 5% per annum, then either M or V or some combination must also rise by 5% per annum. So if M were constant or falling, then V would have to rise exponentially faster than 5%. And then you re-read my upthread posts on why that is not a normally functioning economy. In short, exponential growth of velocity can not physically continue forever. And the faster it is growing, the faster the economy must overheat and correct.

So we can conclude that those who are argue for benefits of a constant money supply have no mathematical acumen. Mises never argued for that, as I quoted him upthread. And gold never had a constant money supply God wasn't that stupid. Even the Parable of the Talents explains what burying capital in hole (i.e. money that is never diluted and increases in value from doing nothing) gets you with God (your talents are taken and given to someone who will use them more productively which is what is going to happen to most of you in Bitcoin, e.g. one reason is many of you will not exit before the final peak and crash some 18 - 48 months from now because Bitcoin is not a currency).

Complete nonsense that a constant money supply is good for Bitcoin, other than it perhaps causes "gold fever" which may increase the price faster into a bubble. It is worse for many reasons. One is it enables the Transactions Withholding Attack. Secondly is eliminates the ability to distribute the coins widespread throughout the economy via a CPU-only proof-of-work algorithm (which no crypto-currency currently has either), and thus Bitcoin is doomed to the dystopian failure for thus due to lack of widespread distribution it can never become a currency due to the chicken-and-egg dilemma.

It is up to you. Make your decision and buy the coin you think is better for our future. If all of you are math retards, then so help us God, we are headed for 666 dystopia then.

I have faith that not all of you are stupid and stubborn. And some of you can learn and make a wise decision.

I don't have time to discuss this more. I am busy programming. Leave me alone. Go on with your individual decisions. That is a free market.

I have told you. I can lead a thirsty horse to water, but I can't force it to drink from a blue colored aquifer because it thinks all water is colorless.

[MaxBTC1]

Schiff the Shiller has been at it all year round, and he's being found out.  I think he might turn a corner soon on his stance.

[joae1975]

Today's show had the best caller challenge yet.  But he waits until the end of the show and they have no time.  Please listen to the end.  He goes on an amusing tangent about Janet Yellen then back to bitcoin.
https://dl.dropboxusercontent.com/u/21580995/Peter.Schiff.bitcoin.11.14.13.mp3

The bitcoin defenders are poor in understanding here, particularly the first one, but Peter does make some good points here.  Gold cannot go to a use value of zero, while it's possible that Bitcoins can.  Granted, if gold were to drop to it's 'intrinsic value' it would be somewhat comparable to the value of lead, maybe slightly more due to much lower toxicity, but close.  Considering that refined lead is under a dollar a pound right now, that would represent something on the order of a 99.99% loss in value.  "You didn't lose everything, you've still got .01% of your life savings!  Don't Jump!"

While it's possible for bitcoins to go to zero, the only way that happens now is if there is some tragic & unfixable flaw discovered in the protocol that gives Bitcoin it's 'intrinsic value' to start with.  Again, possible; but the tragic and unfixable flaws with using electronic precious metal deposit receipts as an online trade currency are, if not altogether obvious, already demonstrated by the folding of both Egold.com and the persecution of the Liberty Dollar.  Governments will not suffer any competitor to exist if they can help it, but they can't help it with Bitcoin.

That last caller seemed to know his stuff, but was cut off by Peter before he could actually finish the argument.

You ever heard of "Gold Backwardation?"  I've only heard about. Someone brought it up in Peter's show and Peter blew him off.

See here:
http://www.professorfekete.com/articles/AEFTheDailyBellinterview2013.pdf