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Author Topic: "Holding a pile of cash in a bank account is madness."  (Read 1669 times)
GoWest
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August 06, 2011, 04:02:06 AM
 #1

From a comment on zerohedge.com on the economic events of the past week:

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I don't know if you realize it, but what just happened this week is huge... The Eurozone in complete and definitive implosion (Italy and Spain down, which was unimaginable only two months ago, only the core of the core is left standing with a lethally high debt burden) ; the stock market crashes 12% in 10 days, wiping out many underwater retirement funds ; and the US lose their AAA.

It has been 3 years I've waited for the final crash. It has never seemed so close now...

What happens next?

Quote
Bank holidays and overnight devaluations/monetization of governmental debt.

There will be zones of deflation. Stocks will crash in case of high inflation, only hyperinflation can send them higher. Real estate may temporarily move lower in nominal.

But holding a pile of cash in a bank account is madness, even if you're a hardcore deflationist. When the core banking system gets killed by defaulting debt the masters of the game will not allow their death. One day your bank account is "suspended", or you can't send money crossborders. My -- European -- great-grandfather learnt it in the 1930s.

Summary: if you don't hold gold in your hands, free of all liens that can default (so including ETFs) you're in deep shit. Why gold? Ask central banks and sovereign countries worlwide. It is immortal, stockable, dividable, movable. Nothing can match it in the whole world of elements. Not even water or food.

Bitcoin is obviously another alternative for protecting your money.  It's not held in a bank, it's held by you, and frankly, you can buy shit with it.

http://www.zerohedge.com/news/and-just-because-there-risk-us-could-lose-its-aaa-rating-tim-geithner-no-risk#comment-1528884

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Jack of Diamonds
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August 06, 2011, 09:17:48 AM
 #2

What I don't like is the fact bitcoins are virtual only, and the fact it's going rate is only determined by the latest buy orders on Mt. Gox
(let's face it, other exchanges follow their pricing like a lapdog)

If bitcoins lose their fiat value on Mt. Gox by permanently dropping to namecoin levels (or worse yet become unsellable as nobody wants them), they are as good as virtual dust because all merchants have to pay fiat to cover their operating expenses.

This makes me very reluctant to consider bitcoins as a deflationary investment like gold despite it's artificial scarcity.

Will gold and silver be accepted in Greece by the common population if the euro crashes? Yes it will, and it will spread to every neighboring state that potentially fails.

Will bitcoin ever be accepted by any major retailer or business? That's a big stepping stone. Bitcoin hasn't shown signs of widespread adaptability. Everything around bitcoin ultimately revolves around Mt. Gox which is sad.
A gold or silver economy on the other hand does not rely on exchangers or outside fiat value

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memvola
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August 06, 2011, 10:28:20 AM
 #3

A "deflationary" (don't think it's the right word but hey) mutual fund including Bitcoin (together with gold, silver, etc.) would be interesting.
Cluster2k
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August 06, 2011, 10:53:18 AM
 #4

If bitcoins lose their fiat value on Mt. Gox by permanently dropping to namecoin levels (or worse yet become unsellable as nobody wants them), they are as good as virtual dust because all merchants have to pay fiat to cover their operating expenses.

This makes me very reluctant to consider bitcoins as a deflationary investment like gold despite it's artificial scarcity.

The last sale price determines the value of gold too, but unlike bitcoins, gold has a proven track record of several thousand years and does not rely on the Internet nor on a mass of miners to process transactions.  From a wealthy investor in the USA, to a farmer in India to a factory worker in China, all would prefer a bar of gold over a USB key with a wallet.dat.

You're right that if Mt Gox is crippled or fails then bitcoin's utility and value plunges.  Sure, there is Tradehill and other exchanges, but it's a little like saying the NYSE, FTSE, and Nikkei closing don't matter because the stock exchange in Australia is still up and running.

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Jack of Diamonds
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August 06, 2011, 10:09:31 PM
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The last sale price determines the value of gold too, but unlike bitcoins, gold has a proven track record of several thousand years and does not rely on the Internet nor on a mass of miners to process transactions.  From a wealthy investor in the USA, to a farmer in India to a factory worker in China, all would prefer a bar of gold over a USB key with a wallet.dat.

That's my point, even if all the major gold exchanges went down, people would still use it as a currency all around the world, probably silver as well. Modern currencies are all *based* on gold even though no longer backed by it. People would find it very easy to adapt to a gold economy.

If just one internet bitcoin exchange lacks enough buy orders (Mt. Gox), the coins become absolutely worthless.

Since nobody accepts BTC payments for electricity bills, wholesale goods, land, storage, it's no good as a real currency. It's only value comes from people willing to convert it to fiat money.
If bitcoin can't be converted to dollars or euros relatively fast due to a lack of buyers, it becomes dead and will hold zero value to anyone.

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CurbsideProphet
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August 06, 2011, 10:20:24 PM
 #6

A comment on zerohedge?  In otherwords, a random guy on the internet with no credentials.   Roll Eyes

Are we in bad shape?  Sure.  But fear mongering doesn't help anything. 

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August 07, 2011, 02:11:51 AM
 #7

What I don't like is the fact bitcoins are virtual only

I like this fact a lot. It's like gold you can back up.
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August 07, 2011, 03:02:42 AM
 #8

From a wealthy investor in the USA, to a farmer in India to a factory worker in China, all would prefer a bar of gold over a USB key with a wallet.dat.


 ;DExactly, BTC is just too complex to use (and understand) for the majority of people

westkybitcoins
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August 07, 2011, 07:05:13 PM
 #9

Gold and silver are it. Anyone watching the world financial train wreck should be stocking up.

Too bad they can't be shoved into a usb port and privately sent somewhere else without a central server of some sort.

People will get used to a limited digital commodity money, eventually seeing it as the superior means of online exchange. It'll just take time.

Bitcoin is the ultimate freedom test. It tells you who is giving lip service and who genuinely believes in it.
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The idea that deflation causes hoarding (to any problematic degree) is a lie used to justify theft of value from your savings.
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