Down to zero it goes!

[unk]

it is only recently that it was hard to match inflation in a bank account, and the reason for that has more to do with the unique failures of central banks over the last few years than the generalised problems that people here want to assign to all central banks everywhere, throughout time.

Well, that's just it.  The recent failures of central banking over the last few years were not only not unique, they were entirely predictable from the moment the central banks shed the discipline of the gold standard and thus gained the power to inflate.  That is what happens to all fiat currencies.  It always has.  Just because we are finally starting to see the fatal imbalances in the system accumulate to a visible level, doesn't mean that those imbalances were not there from the start.  They were, and I believe that you are smart enough to understand that.  The cognative dissonance that you are experiencing within this forum is not a unique affliction.  Most people very much desire to believe that the society that they live within is a predominately honest one, and that the image that it presents to us is not fraudulent.  I'm sorry to be the one to tell you this, but what you have been told since you were a child, what your parents believed, and what you believe about the best intentions of those who command these vast monetary systems is a lie.

but do you honestly think that kind of general, simplistic statement is convincing? merely because you claim something and present it as revolutionary doesn't make it correct. you're asserting things seemingly in response to very particular analysis i've offered showing that both inflation and deflation can be priced into alternative currencies, which can then be chosen freely as competing investments, at least in the absence of transaction costs. that cold analysis is what i 'believe', not what my 'parents' told me about central banks.

note that i'm not one of the people whose knee-jerk reaction was 'bitcoin can't work because it's deflationary'. my response was instead 'they're all mistaken to think it matters; it doesn't, on either side'.

in any event, one of the most frustrating things about anti-government extremists is their perception of themselves as visionaries who see truths that nobody else sees. the reality is that most of us flirted with similar ideas in our teenage years and then outgrew them, faced with the complex realities of the world and the recognition that not everything has simple answers. i hate to sound condescending, but outside internet message boards like this one, adjectives like 'juvenile' and 'sixth-form' come up much more often than 'idealist' or 'visionary' to describe that kind of extremism. and that is not because anyone feels threatened or surprised, and it is not because everyone outside this message board is corrupt or otherwise undermined.

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[westkybitcoins]

First, let's look at "who benefits and who suffers." In a centralized, inflationary monetary system, this is pretty clear. The primary beneficiary is the one who gets to create more money (or I suppose more accurately, those immediately able to use the new money in exchange for goods and services at full value. This could be the central bank itself. This could be the entities bailed out via newly minted cash.)

just as an example, bailouts of banks are an extremely recent phenomenon and have little to do with historical inflation. i've never criticised anyone who opposed bailing out the banks. i simply insist that people who criticise the very existence of central banks at least try to learn, in detail, how newly created funds enter the monetary system. almost nobody here seems to manifest that understanding, but that doesn't stop them from criticising the system they don't understand.

OK. Do you agree that the primary beneficiary in a centralized, inflationary monetary system is the one who gets to create more money? If not, who is the primary beneficiary?

What about with bitcoins? Well, remember that the bitcoin network doesn't go and periodically destroy bitcoins. There's simply a cap on the number of them that will ever exist. So the primary beneficiaries of any deflation are ALL the voluntary holders of bitcoins. So far, no problem there, is there? And the primary suffering in this case? Those who lose their bitcoins.

Please take a second and think about how ingenious that is.

ah, the near-religious faith in the 'ingenious' design of bitcoin. as i've demonstrated many times before, i've studied the code in detail and have commented on its strengths and weaknesses; i don't need to sit and reflect on its ingenuity.

nothing about bitcoin depends on a shift of wealth from those who lose funds to those who keep them. indeed, bitcoin would probably be stronger, rather than weaker, if there were a convenient way to recover funds that were lost, as some developers have proposed via a 'keepalive'-like system or a variety of other mechanisms.

(strictly speaking, 'deflation' is a bit imprecise when applied to a system where the money supply stays constant, and 'non-inflation' would be a more precise term, but i'm using 'deflation' the way most people do in this forum - that is, in a way, that does not at all depend on funds being lost by people who corrupt their wallets.)

the wealth transfers i was talking about are more complex than what i think you have in mind. for example, in a non-inflationary system, wages will need to fall as prices fall, and wealth will be transferred based on the relative rates at which they fall. note that the relative rates cannot be derived theoretically, because in the real world they depend on complex macroeconomic and psychological factors. if you propose a world with no transaction costs and perfectly competitive markets, you propose an ideal world that doesn't exist, and the economic conclusions you reach won't be particularly useful in our world.

OK.

(1) Who initiates these wealth transfers in a non-inflationary system?

(2) Who SHOULD be the initiator of these wealth transfers in a monetary system?

Third, there's something far more fundamental we're overlooking. Our opinions on the issue don't matter. The fact is: people choose non-inflationary systems. You can call that stupidity, ignorance, cowardice, whatever. People do. They do it over and over, every time. They choose non-inflation over inflation. This is proved by the fact that governments have to resort to legal tender laws and having tax payments required to be in their own currency.

it's absolutely not proved by that; many other things explain legal-tender laws, both historically and conceptually. if you adopt this sort of reasoning, you just assume your conclusion. the point i've made many times in this forum, in much greater detail, is that the inflation or deflation of a monetary instrument doesn't matter at all for investment decisions unless you take into account contextual factors, because if you're occupying an ideal theoretical realm, the inflation or deflation of competing instruments can be priced into the instruments. in the 'real world', of course, that pricing is imperfect, but that doesn't mean that inflation or deflation magically 'wins', and there's absolutely no historical evidence to bear out the kind of phenomenon you're describing (the systematic preference by large populations for deflationary currency instruments).

Gresham's law ceases to exist in the absence of coercion. Thought experiment: go to a nation, any nation. Give them a choice: they can transact in a non-inflationary fiat money, or some other inflationary fiat money, or even both, with all contracts and debts honored equally. They can pay taxes in either form of money they wish. Of course, they still can have access to all the other means of asset protection; just ensure there will be no penalties or punishments given to them for choosing one fiat money over the other in regular use. Oh, and don't bar anyone from informing others about the true natures and consequences of each.

Which of the fiat monies do you think people will choose? Seriously, is there even any question?

you're forgetting that the exchange rate between the two will matter, as well as the relatively riskfree interest available in both. you can't compute the merits of the competing instruments without considering those factors.

So say what we will, people have spoken. They don't want inflationary monies. THE MASSES DISAGREE WITH YOUR ASSESSMENT OF THE ILLS OF A NON-INFLATING CURRENCY. They only deal with it because it's forced down their throat by people who feel the need to save them from themselves.

i think you're just repeating this point over and over, but which masses? where? if your economic understanding of the foreign-currency markets is coming from the wikipedia page on gresham's law, note that at present it's simply an unjustified tirade against legal-tender laws, as many people in the 'talk' page of the article have pointed out.

I really didn't think you would even dispute this. I actually thought "no one would publicly try to defend the idea that the majority of people would voluntarily choose an inflationary currency over a non-inflationary one."

Once I saw that you did, I even got ready to ask you what sort of evidence you were going to accept to the contrary, and to spend time accumulating it for this post.

But I have a better idea....

Let's presume for the moment that you might be right. That people, in general, naturally gravitate toward an inflationary currency as opposed to a non-inflationary one.

If so, would you advocate for the abolition of legal tender laws and of the mandatory payment of taxes in a government-created medium of exchange?

That would seem to be the most important point here.

If yes, then good, I agree with you. Let's just see for ourselves the result.

If no, then why not, if doing such wouldn't result in an exodus of people from inflationary currencies anyway?

(EDIT: Slight tonal adjustment)

[bitcoin0918]

Unk: you have repeatedly stated that inflation is not a problem. Please answer the following:

1. Why is the Federal Reserve inflating the currency? I am not asking you to regurgitate their mandate, because they are far exceeding the 2% price inflation target. So why are they doing it?

2. When the Fed creates money to buy bonds - whether from the treasury or financial institutions holding subprime mortgages - is the Fed overpaying for those bonds? If not, then why must the Fed even step in to buy anything? Certainly there is a buyer at the right price, no?

3. What do the entities that receive this money do with it? Whether in the case of the government, or on-the-brink financial institutions, is the money put to the most productive value, given the scarce resources toward which that capital will be directed?

Side note: please stop with all of the snide remarks about "juvenile", "foaming at the mouth", "simplistic", etc. If you are unable to effectively state your case, leave it at that. Do not try to win people over by fallacious reasoning.

[MoonShadow]

it is only recently that it was hard to match inflation in a bank account, and the reason for that has more to do with the unique failures of central banks over the last few years than the generalised problems that people here want to assign to all central banks everywhere, throughout time.

Well, that's just it.  The recent failures of central banking over the last few years were not only not unique, they were entirely predictable from the moment the central banks shed the discipline of the gold standard and thus gained the power to inflate.  That is what happens to all fiat currencies.  It always has.  Just because we are finally starting to see the fatal imbalances in the system accumulate to a visible level, doesn't mean that those imbalances were not there from the start.  They were, and I believe that you are smart enough to understand that.  The cognative dissonance that you are experiencing within this forum is not a unique affliction.  Most people very much desire to believe that the society that they live within is a predominately honest one, and that the image that it presents to us is not fraudulent.  I'm sorry to be the one to tell you this, but what you have been told since you were a child, what your parents believed, and what you believe about the best intentions of those who command these vast monetary systems is a lie.

but do you honestly think that kind of general, simplistic statement is convincing?

Of course not.  I don't think that you could be convinced of anything.  You have a strong belief system, and are unlikely to accept any evidence to the contrary of that belief system.  It's like trying to convince a muslim from afganistan that a Catholic is correct.  It doesn't really happen.  Very few people who grow up surrounded by such a particular belief are going to be able to break free from it,

[unk]

Of course not.  I don't think that you could be convinced of anything.  You have a strong belief system, and are unlikely to accept any evidence to the contrary of that belief system.  It's like trying to convince a muslim from afganistan that a Catholic is correct.  It doesn't really happen.  Very few people who grow up surrounded by such a particular belief are going to be able to break free from it,

oh, the irony, since you just accused me of making strong assumptions about my interlocutors (which i indeed wasn't even doing). as i just finished saying in my last message, my beliefs have evolved substantially since i was a teenager. have yours? do you actually read, in the present day, sophisticated positions that disagree sharply with yours and consider their merits? again, i do, and indeed that's roughly my half-time job. are you anti-intellectual enough to think that my intellectual focus on the subject necessarily corrupts my reasoning so that i cannot see the faults of governments and must merely accept them as the 'slave' that libertarians must imagine i am?

you appear to be stuck in tragically simple generalities. there's apparently almost no content to your position, other than an anger at largely unspecified governmental forces. are you a member of the american tea party? it would be consistent with the many guns you've claimed you keep in the event of governmental collapse. the tea party is not known for its intelligence or sensitivity, to put it mildly. almost all smart people who care about political economy (1) consider extreme libertarianism in their youth and then (2) reject it on its merits in favour of something more nuanced. if all nuance is necessarily your enemy, it's hard to take your position seriously.

westkybitcoins: my point, which i've spelled out many times now, is that the legal tender laws aren't as significant as you're making them out to be. they simply don't matter much, because they don't force long-term holding of any currency, and they don't prevent any significant trade. i couldn't care less whether they're repealed, and my prediction is that it would make very little difference empirically if they were. suppose that the laws said that in addition to any other agreed-upon forms of payment, large merchants needed to accept online bill payments in the customer's choice of major currencies to satisfy debts. that is a 'legal-tender' law, and nonetheless it would be a minor procedural rule and wouldn't make much of a difference beyond the payments industry. legal-tender laws are quite similar in scope and effect.

if your concern is human liberty, you're simply picking the wrong regulatory targets to critique. if i wanted to be a demagogue for effect, i could make the same sort of conspiracy-theory-laden points as people commonly do in this forum: wouldn't the 'state' much prefer that you be complacent about the real, more significant threats to your liberty and have you spend all your time focusing on a mostly irrelevant procedural law about how payments have to be made before they're converted voluntarily into other instruments by anyone who cares? surely you want to pick the right thing to criticise; i'm trying to suggest that you be more careful about the ones you choose.

bitcoin0918: i'm not sure what the point of your questions is. i can't read the mind of the central bankers in a foreign country. what relevance would my answers have to the larger analytical points i've made?

note that i've never said that central banks are perfect, that they can't be corrupted, etc. perhaps you assume that that's what i think, because i'm not willing to suggest abolishing them entirely? if so, that would be an incorrect assumption. i'm just trying to explain that a system should be criticised for the problems it has, rather than made-up ones. the critique of a system should go no further than the problems it has; the proper response to an imperfect system isn't always to try to destroy it.

[HappyFunnyFoo]

For fun's sake, let's compare dollars to gold

$1.00 in 1800 held in a bank as a CD with, let's say 2.5% continuously compounded interest, would be worth about $178 today.
$1.00's worth of gold in 1800 would be worth $72.66 today. (Sources: "Gold Standard" of $20.67/oz and $1502/oz spot price today)

Clueless OP, what was your point again?

[dana.powers]

Of course not.  I don't think that you could be convinced of anything.  You have a strong belief system, and are unlikely to accept any evidence to the contrary of that belief system.  It's like trying to convince a muslim from afganistan that a Catholic is correct.  It doesn't really happen.  Very few people who grow up surrounded by such a particular belief are going to be able to break free from it,

OMG the irony is unbearable.

[iya]

For fun's sake, let's compare dollars to gold

$1.00 in 1800 held in a bank as a CD with, let's say 2.5% continuously compounded interest, would be worth about $178 today.
$1.00's worth of gold in 1800 would be worth $72.66 today. (Sources: "Gold Standard" of $20.67/oz and $1502/oz spot price today)

Clueless OP, what was your point again?

That's not a fair comparison, since most of the time-span, theoretically until 1971, the dollar was pegged to and/or backed by gold.
So these 2.5% interest would have been paid in gold for the majority of years. It's also no secret that gold inflates at ~2% per year because of mining.

[bitcoin0918]

For fun's sake, let's compare dollars to gold

$1.00 in 1800 held in a bank as a CD with, let's say 2.5% continuously compounded interest, would be worth about $178 today.
$1.00's worth of gold in 1800 would be worth $72.66 today. (Sources: "Gold Standard" of $20.67/oz and $1502/oz spot price today)

Clueless OP, what was your point again?

I'm curious what the point of your reply was - did I mention gold in my OP? I'm also curious how that bank of yours survived the Great Depression, and the recent financial crisis. Ahh, that's right, the nation has repeatedly gone deep into debt to prop up failing financial institutions, now to the point where we cannot possibly pay it back. So we have racked up a massive debt to maintain that 2.5% return, with the added bonus of pushing gold's value below historic levels. Why do you pretend that the price of gold, banking solvency, and the value of the dollar are all determined in their own separate little vacuums?

[bitcoin0918]

i can't read the mind of the central bankers in a foreign country.

While this evasive response might apply to my 1st question, it certainly doesn't apply to the 2nd or 3rd. You claim that inflation's negative effects are minimal, but refuse to examine how inflation occurs in practice. All you see is the observed result, and judge it to be not so bad, but you cannot pretend to know what the current result would have been had the Fed not inflated the currency over the last century. Such a determination requires a more thorough analysis of how inflation occurs in practice, at the individual level.

[PCRon]

i can't read the mind of the central bankers in a foreign country.

"So you think that money is the root of all evil?" said Francisco d'Aconia. "Have you ever asked what is the root of money?"

Actually the quote is, "The LOVE of money is the root of all kinds of evil."  Money is not evil, it is what some people will do to get money. That leads to all kinds of evil.

[bitcoin0918]

Actually the quote is, "The LOVE of money is the root of all kinds of evil."  Money is not evil, it is what some people will do to get money. That leads to all kinds of evil.

That may be the biblical quote, but my quote comes from a novel in which one of the characters does say that money is the root of all evil.

It is also a common view people take, and I agree with you that it is not correct.

[AtomicTrader]

Why does the price on MtGox keep going down? Are people able to trade? The price is down in the 14's now. I'd really like to place an order to sell ASAP. Are other people able to trade?

P.S. Why does the moderator delete our posts? Is he trying to manipulate the forums?