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Author Topic: Hoarding == Investing?!  (Read 1047 times)
iya
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June 26, 2011, 01:40:05 PM
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Let's assume the whole world uses a currency with 100% fixed money supply, e.g. Bitcoin in 2150.

Is saving these Bitcoins exactly the same as investing into a hypothetical basket composed of world stocks + real estate + commodities + ...?

I think yes, because both simply mean storing wealth by forgoing immediate consumption. Then traders should arbitrage away any changes in the demand for money, and this "world wealth index" should flatline. While real wealth increases or decreases, nominal wealth will stay constant. Bubbles in individual markets could still happen, but arguably smaller and/or less often.

Short term credit with negligible risk of default will be available for almost 0% interest rates.
Longer loans will reflect time preferences, which cannot be captured by simply saving cash.

This is an intuitive approach that a fixed monetary base is compatible with optimal economic growth, without redistributive effects.
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hugolp
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June 26, 2011, 02:19:56 PM
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Basically yes, savings tends to be investment.

But for this to happen you need a financial system, which Bitcoin does not have (yet).
iya
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June 26, 2011, 06:13:06 PM
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I was generally referring to any fixed quantity currency, for example gold if gold mining would stop. A market economy and financial system would obviously help a lot.  Wink

I'm still not 100% sure if saving currency is really equivalent to "investing in everything", with "everything" being a basket weighted inverse to relative prices?
Macro-economically the difference is obvious: the former would tend to raise demand for currency and lower demand for goods, thus being price deflationary (bust), while the latter would do the opposite and be inflationary (boom), but because of the fixed money supply and supposed perfect hedge, speculators can always even imbalances out and thus prevent boom and bust.

More realistic examples would have to incorporate cross border trade, which would create dependencies and invalidate conservation laws. Just as in physics, it's much easier to consider isolated systems, like an island or the whole earth, so I'll leave that to somebody else.
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June 26, 2011, 06:33:59 PM
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Let's assume the whole world uses a currency with 100% fixed money supply, e.g. Bitcoin in 2150.

Is saving these Bitcoins exactly the same as investing into a hypothetical basket composed of world stocks + real estate + commodities + ...?

I think yes, because both simply mean storing wealth by forgoing immediate consumption. Then traders should arbitrage away any changes in the demand for money, and this "world wealth index" should flatline. While real wealth increases or decreases, nominal wealth will stay constant. Bubbles in individual markets could still happen, but arguably smaller and/or less often.

Short term credit with negligible risk of default will be available for almost 0% interest rates.
Longer loans will reflect time preferences, which cannot be captured by simply saving cash.

This is an intuitive approach that a fixed monetary base is compatible with optimal economic growth, without redistributive effects.

Bullseye.

This has a nice implication about what is profitable to do. Anything that beats the average return of the economy is worth letting go of money in order to get the resources for. Anything worse than average costs you.

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