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Author Topic: Bitcoin a fool's Gold Standard?  (Read 2424 times)
pening
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January 30, 2014, 12:00:25 AM
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For example, loans are basically impossible with a deflationary currency like bitcoin. In an economy where bitcoin were the only currency, loans would have to be done via some other method, or bitcoins would have to be redesigned to be either non-deflationary or with only minor deflation.  

That's all a good thing, the whole point of a deflationary currency is that it's supposed to be extremely difficult to borrow vast amounts of cash and prevents any possibility of hyperinflation or reckless spending at the expense of others

Is it? So loans are bad, M'kay.  Ever stop to consider the consequences of having no loans?  The entire developed world is built on loans.  Your computer and the network you us to read this for example, all paid for up front?  I mean the infrastructure and the technology, like a $3bn fab plant, a multi $bn road or rail network etc. 

Industrialisation is only possible because of loans, a promise of returns greater than the original investment.  Want to see a world without loans, take a tour of the Arabic world pre-oil.  So, government has taken things too far, paying for stuff you don't want and to much of it too boot.  But are we really going to throw the financial baby out with the bath water?  Think on it.
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January 30, 2014, 12:19:58 AM
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For example, loans are basically impossible with a deflationary currency like bitcoin. In an economy where bitcoin were the only currency, loans would have to be done via some other method, or bitcoins would have to be redesigned to be either non-deflationary or with only minor deflation.  

That's all a good thing, the whole point of a deflationary currency is that it's supposed to be extremely difficult to borrow vast amounts of cash and prevents any possibility of hyperinflation or reckless spending at the expense of others

Is it? So loans are bad, M'kay.  Ever stop to consider the consequences of having no loans?  The entire developed world is built on loans.  Your computer and the network you us to read this for example, all paid for up front?  I mean the infrastructure and the technology, like a $3bn fab plant, a multi $bn road or rail network etc. 

Industrialisation is only possible because of loans, a promise of returns greater than the original investment.  Want to see a world without loans, take a tour of the Arabic world pre-oil.  So, government has taken things too far, paying for stuff you don't want and to much of it too boot.  But are we really going to throw the financial baby out with the bath water?  Think on it.


First it will be fairly simple to create a a derivative market around bitcoin that does in fact result in lending at interest, inflation, and all the other things we manage to do with financial products. It's a simple ignorance of the history of money to believe bitcoin cannot be utilized in this way.

Second you're quite right. Debtors (the majority of the population) are better off owing fiat than owing deflationary assets. Thus there is huge incentive for people to stick to fiat, and I see little possibility of a wholesale transition away from it. It's not impossible but far more likely is competing currencies. There is nothing wrong with this other than banks probably don't want the competition. Bitcoin is not an existential threat to their business though. Just a chunk of it (payment raking).

But more critical is the question implicit in your correct observation. The whole industrialized world is built on credit, which is predicated on growth. However we have a finite planet with finite resources and growth is rapidly approaching a limit (arguable, but draw out a 50 year consumption base of 7+ billion people and it's a tough argument to the contrary).

Currently banks are not lending in expectation of growth. They are on record on this point (Fed member banks discussing negative rates on bank deposits, in lieu of positive returns on loans). All they can do is inflate assets through monetization. But this is not wealth creation exactly, it is more like cannibalism of the majority.

So rather than argue whether we are better off in a debt based economy based on history the question may actually be can we survive in a growth limited economy, and if we are in a growth limited/negative economy, does a deflationary currency actually make more sense?

I don't know but I think it's a better question at this point.

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January 30, 2014, 12:21:02 AM
 #23

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For example, loans are basically impossible with a deflationary currency like bitcoin. In an economy where bitcoin were the only currency, loans would have to be done via some other method, or bitcoins would have to be redesigned to be either non-deflationary or with only minor deflation.  

That's all a good thing, the whole point of a deflationary currency is that it's supposed to be extremely difficult to borrow vast amounts of cash and prevents any possibility of hyperinflation or reckless spending at the expense of others

Is it? So loans are bad, M'kay.  Ever stop to consider the consequences of having no loans?  The entire developed world is built on loans.  Your computer and the network you us to read this for example, all paid for up front?  I mean the infrastructure and the technology, like a $3bn fab plant, a multi $bn road or rail network etc. 

Industrialisation is only possible because of loans, a promise of returns greater than the original investment.  Want to see a world without loans, take a tour of the Arabic world pre-oil.  So, government has taken things too far, paying for stuff you don't want and to much of it too boot.  But are we really going to throw the financial baby out with the bath water?  Think on it.

Of course there are loans with deflationary currencies. It's just those loans are a lot more responsible and less reckless then when banks can create credit out of thin air.

Even now some exchanges like Vicurex, pay you interest on your BTC. (You are loaning them your BTC)
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January 30, 2014, 12:32:48 AM
 #24

What's the size of the US debt. Its got too many zeros for me to count ...

I have something for you to give you an idea of the size of the debt

USA's Debt

Imagining the American debt-image is not an easy task...

The picture you know, it is a 100 dollar bill.



This famous and known everywhere 100 dollar bill will help us to represent the debt figuratively.




----------------------------------------------------------------------------------------------------------------------

A whole new perspective!!!!!!!!!!!!!!!!


Those are from demonocracy.org a cool site for sure.

But consider that all that money is owed to someone. That's a lot of wealth. Of course this is just a shell game in the end. The debt was invented, nobody "had" all that money to lend out, they just invented it because they have laws written to say they are "creditors".

Take Europe... Take Greece for example. Ten years ago the German and French banks open up the spigot and say "Hey borrow all you want at 4%"

Well common delusion holds that the Greeks borrowed money that these banks had. This is mostly untrue. Because it was sovereign debt, the banks credited Greece with "zero capital allocation". Or in other words they just entered a debt on a ledger and handed Greece newly printed Euros from the ether.

So 10 years go by, 40% of the principal has been paid as interest to the banks, but Greece still owes 100% of the principal because that is the game.

But there was no money borrowed from some wealth holder to lend to Greece. It was conjured for the sole purpose of lending to Greece.

Of course they can never pay it back, I mean the whole world can never pay back more money than the whole world has. This is what the public must wake up to, and realize the banks aren't "owed" jack shit. They have a lot of explaining to do, they owe us a definitive reason we should let them hold their license to steal if they are not furthering human progress (which at this point it is hard to argue that they are doing anything but enriching themselves at the expense of humanity).

Don't get caught up in the illusion of debt, it is just that, it is a rigged game. To whom is what owed... is the ultimate  question of the 21st century.

Your'e last line says it all, good post.

"Don't get caught up in the illusion of debt, it is just that, it is a rigged game. To whom is what owed... is the ultimate  question of the 21st century."

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leopard2
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January 30, 2014, 12:47:57 AM
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For example, loans are basically impossible with a deflationary currency like bitcoin. In an economy where bitcoin were the only currency, loans would have to be done via some other method, or bitcoins would have to be redesigned to be either non-deflationary or with only minor deflation.  

That's all a good thing, the whole point of a deflationary currency is that it's supposed to be extremely difficult to borrow vast amounts of cash and prevents any possibility of hyperinflation or reckless spending at the expense of others

Is it? So loans are bad, M'kay.  Ever stop to consider the consequences of having no loans?  The entire developed world is built on loans.  Your computer and the network you us to read this for example, all paid for up front?  I mean the infrastructure and the technology, like a $3bn fab plant, a multi $bn road or rail network etc.  

Industrialisation is only possible because of loans, a promise of returns greater than the original investment.  Want to see a world without loans, take a tour of the Arabic world pre-oil.  So, government has taken things too far, paying for stuff you don't want and to much of it too boot.  But are we really going to throw the financial baby out with the bath water?  Think on it.

No. You have been brainwashed.

Deflation and inflation exists only due to central banks, before central banks existed there was no such thing. There was only price chance which is healthy and normal.

People with finite lifetimes do not hoard money, they save and spend.

For thousands of years, money was based on tangible goods such as gold, silver, grains et cetera. High cultures have thrived without the use of credit based money. Babylon, Aztec, Egypt, Rome and so on. Credit based money is relatively young; the Fed was created in 1913.

While I believe that Freigeld is the best variety, industrialisation works just fine with commodity money. Sharia compliant investments work in such a way that the loan is provided at the beginning (so someone lends you gold to invest in machines) and, instead of interest, a share of the profit is given to the investor. Alternatively a building firm builds you a house free of cost, then you pay it off over the years. No bank loan needed.

Your $3bn factory would be built just like today, but there would be no fiat money created from thin air to build it - instead all the subcontractors would receive stock as payment. The shares in the company would be a form of money, but one that does not create inflation. Permanent growth would stop of course, but permanent growth is unhealthy. Economic growth is not good, it is just necessary to balance the growth of the money supply. Again we are being brain washed to believe that permanent growth is good, although in nature only tumours grow permanently.

Say goodbye to bonds and hello to stocks, which reflect real value.

Both Freigeld and commodity money have no half life; they can exist forever. Credit based money, due to the exponential function of compound interest, can only exist for a limited time. At the end of the cycle, there are only three options to reset the system: hyperinflation, currency reform or war. Germany is an example for the war option, the USD is going the inflationary route. Note that Japan is in a deflation, despite money printing. This is the aftermath of a huge credit bubble in the 90's.

Your financial baby is a teratism.  Grin

Truth is the new hatespeech.
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January 30, 2014, 12:55:59 AM
 #26


No. You have been brainwashed.

Deflation and inflation exists only due to central banks, before central banks existed there was no such thing. There was only price chance which is healthy and normal.

People with finite lifetimes do not hoard money, they save and spend.

For thousands of years, money was based on tangible goods such as gold, silver, grains et cetera. High cultures have thrived without the use of credit based money. Babylon, Aztec, Egypt, Rome and so on. Credit based money is relatively young; the Fed was created in 1913.



And also there was no penicillin, no radio, no internet, no space programs, not much of anything really.

Not saying for sure we wouldn't have advanced without massive capital investments derived from forward expectations, but it's a pretty safe bet the two have been inexorably linked.

Who wants to march back to Ur?
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January 30, 2014, 01:06:45 AM
 #27

Yes there was no internet in ancient Rome.

Of course that is because they did not have debt based money.




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January 30, 2014, 01:36:58 AM
 #28

Yes there was no internet in ancient Rome.

Of course that is because they did not have debt based money.




http://en.wikipedia.org/wiki/Roman_currency

Sorry no facepalm meme handy but it really is pointless to compare the last 100 years or even the last 20 to any other time in history. There is very little doubt that the modern financial system has driven innovation, leastwise the parts of the world that have developed fairly perfectly overlap.

But I am the last to say it is not antiquated and broken, and in need of advancement in line with technology, which is I believe what is happening now. But in any case, no I don't want to march back to Rome either. You call it advanced if you like, I dig my wi-fi.

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January 30, 2014, 01:45:24 AM
 #29

The comparisons to gold fall flat unless bitcoin is simultaneously compared to credit cards, paypal, and cash.

It is better than all of these in most of the ways that matter.  The minor ways in which it is not better yet are business opportunities.
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January 30, 2014, 01:54:04 AM
 #30

Can anyone provide a strong rebutal to this article?

http://dealbook.nytimes.com/2014/01/22/bitcoin-a-fools-gold-standard/?_php=true&_type=blogs&_r=0

For me the future of bitcoin doesn't involve it being the world's currency but it being a store of value - similar to gold. Gold is worth >$4trillion. If bitcoin were to capture 5% of it's market, it's value would be >$200billion. If anyone can soundly explain how bitcoin of limited supply would positively-act in a crisis, then I'll be convinced bitcoin should be the world's #1 currency. It's my understanding that during a crisis owners of a commodity with limited supply, tend to hoard, causing spending to stop and deflation to take place.


A deflation is only a major problem when it comes on the back-end of an inflationary currency.

If we use the Great Depression as an example.

The creation of the Federal Reserve in 1913 gave the US an inflationary currency. This created a decrease in the personal savings rate and a loss of purchasing power. It also lead to the funding of many unsustainable and uncompetitive business models. (The roaring twenties.)

So when a crisis occurred - 1929

Many many people from unsustainable and uncompetitive businesses found themselves unemployed.
The unemployed and employed alike had little savings so they couldn't benefit from the increase in purchasing power deflation brings.
As a result the unemployed starved and the employed hoarded their income to spend only on necessities.

Had they had a mildly deflationary currency leading up to 1929... There would have been an increase in purchasing power & the personal savings rate. Only more competitive and sustainable businesses would have been funded.

So when a crisis occurred - 1929

Because of more prudent investment, existing businesses would be far more sturdy and the initial crisis would be less severe, leaving fewer unemployed. Those that were unemployed would have had savings which would increase in purchasing power allowing them to sustain themselves. The employed would have savings too, in addition to their income, both of which would increase in purchasing power, quickly giving them excess. This would cause them to spend & invest more and re-stimulate the economy, perhaps culling a few unhealthy business in the process.

Looking at the short history of Bitcoin, the early savers now have excess purchasing power. This excess purchasing power has been used to invest in hundreds of interesting start-ups & further develop the crypto-currency economy as well as being used to make purchases with the thousands of merchants that have been attracted to Bitcoin too. The growth in purchasing power also continually attracts new savers, speculators and investors alike into the economy. Of course there will still be a few excesses, but a few Shiba Inus being periodically culled is healthy.
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January 30, 2014, 05:02:11 AM
 #31

Credit based money is relatively young; the Fed was created in 1913.

While I believe that Freigeld is the best variety, industrialisation works just fine with commodity money.

The First Bank of England was founded in 1694, the Rothschild dynasty started in the 1760s, the industrial revolution started in the 1760s to 1780s. And roman currency was ultimately a form of fiat. So not much to your argument here works.

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January 30, 2014, 05:18:41 AM
 #32

Credit based money is relatively young; the Fed was created in 1913.

While I believe that Freigeld is the best variety, industrialisation works just fine with commodity money.

The First Bank of England was founded in 1694, the Rothschild dynasty started in the 1760s, the industrial revolution started in the 1760s to 1780s. And roman currency was ultimately a form of fiat. So not much to your argument here works.

Nice work. Unfortunately for a lot of Americans, history only began with the formation of the USA Wink
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January 30, 2014, 06:59:56 AM
 #33

Credit based money is relatively young; the Fed was created in 1913.

While I believe that Freigeld is the best variety, industrialisation works just fine with commodity money.

The First Bank of England was founded in 1694, the Rothschild dynasty started in the 1760s, the industrial revolution started in the 1760s to 1780s. And roman currency was ultimately a form of fiat. So not much to your argument here works.

Nice work. Unfortunately for a lot of Americans, history only began with the formation of the USA Wink

That is an unfair stereotype. Lots of us know history all the way back to when Rome and Greece were founded by the very first Americans.

Oh and to stay half assed on topic, deflation was a problem before the Fed. In the US  I mean.  There is of course room for debate as to the lesser evil but there is also facts, mostly forgotten.

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January 31, 2014, 07:26:06 PM
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For example, loans are basically impossible with a deflationary currency like bitcoin. In an economy where bitcoin were the only currency, loans would have to be done via some other method, or bitcoins would have to be redesigned to be either non-deflationary or with only minor deflation.  

That's all a good thing, the whole point of a deflationary currency is that it's supposed to be extremely difficult to borrow vast amounts of cash and prevents any possibility of hyperinflation or reckless spending at the expense of others

Is it? So loans are bad, M'kay.  Ever stop to consider the consequences of having no loans?  The entire developed world is built on loans.  Your computer and the network you us to read this for example, all paid for up front?  I mean the infrastructure and the technology, like a $3bn fab plant, a multi $bn road or rail network etc.  

Industrialisation is only possible because of loans, a promise of returns greater than the original investment.  Want to see a world without loans, take a tour of the Arabic world pre-oil.  So, government has taken things too far, paying for stuff you don't want and to much of it too boot.  But are we really going to throw the financial baby out with the bath water?  Think on it.

No. You have been brainwashed.

Deflation and inflation exists only due to central banks, before central banks existed there was no such thing. There was only price chance which is healthy and normal.

Brainwashed, eh... hmmm. 
I would recommend you look up some history, there was deflation and inflation before central banks, and credit money exists along side commodity money.  Commodity backed money doesn't preclude loans anyway, which is what I was getting at.  Deliberate deflation does however, you need an investment to return the rate of deflation plus a return to make it worth while.  People do not risk money for nothing, and they do hoard money for descendants.  For some its the purpose of earning wealth in the first place.

Your $3bn factory would be built just like today, but there would be no fiat money created from thin air to build it - instead all the subcontractors would receive stock as payment. The shares in the company would be a form of money, but one that does not create inflation.


Really?  you don't see that stock isn't created from thin air?  What you suggest, company shares as a form of money, is exactly the same as government created fiat, except without any oversight, or even anything as certain as taxes to back it.  Fair enough equity does provide companies with capital debt free to invest, they still use debt to invest substantial amounts where large long term projects are concerned.  If Intel kept selling $3bn tranches of stock to fund their next fab plant, their paper would lose a lot of value (now what would that be called...?).  So they sell debt instead because people want the lower risk and steady returns.   
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January 31, 2014, 11:45:12 PM
 #35

1. the shares in question are covered by the factory; thus no creation of money from thin air and no inflation. The value of the fab would balance the value of the shares at any given time. This is basically a form of money based on drafts - not fractional banking debt based.

There are 3 forms of money: commodity based, IOU based (drafts), and debt based (fiat). Only fiat is dangerous because it is created without any coverage. In crypto speak, it is mined at zero difficulty  Grin

2. Roman money was commodity based in the beginning. later it was diluted and watered down; to cover government spending; so it turned into fiat  - that is correct. We all know what finally happened to the Empire.

3. Fiat was not the father of modern technology. Fiat was created to finance wars; those wars were the father of modern technology. Not a good basis for future advances in the nuclear age.

4. Ix comment is correct but in 1700 there were all sorts of currencies around. So these fiats were a local experiment, mostly to pay for criminal activity by governments. Paper currencies appeared and disappeared, with limited damage.
The big difference is that nowadays, all currencies are fiat. IMF prohibits commodity coverage. So modern fiat started in 1913, and the last currency forced to become a fiat currency was the Swiss franc in 2000; a referendum failed due to massive propaganda by you-know-who. Gold was sold at the lowest price ever.... Shocked

http://www.efd.admin.ch/dokumentation/medieninformationen/archiv/00382/index.html?lang=en

Regardless of the method used, IMF members may not peg the value of their currency to gold and the criteria used to establish the par value of their currencies must be divulged.


Read more: http://www.referenceforbusiness.com/encyclopedia/Int-Jun/International-Monetary-Fund-IMF.html#ixzz2s1WfgYhu


5. no there is no inflation or deflation unless fiat is involved. the definition of inflation is : money supply grows faster than economy. everything else is called price increase but sure enough, people are brainwashed to believe inflation = price increase. duh!

example for non-inflation price increase: bad harvest

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February 01, 2014, 12:13:31 AM
 #36

4. Ix comment is correct but in 1700 there were all sorts of currencies around. So these fiats were a local experiment, mostly to pay for criminal activity by governments. Paper currencies appeared and disappeared, with limited damage.
The big difference is that nowadays, all currencies are fiat. IMF prohibits commodity coverage. So modern fiat started in 1913,

Oh come on now. There is a lot of history to the history of modern money, and it didn't just start in 1913. The US dollar was convertible to gold during most of the time frame between 1913-1971, when it finally became "fiat". Lincoln's greenbacks were pure fiat and not all that unlike the modern system, and they certainly did more than limited damage in the south's eyes at the time. It's not really a big difference that all currencies are fiat nowadays--the bankers were always only one half of the equation, there have always been people eager to take their money and try to build things, so it is in the banker's best interest to find tricky new ways to lend.

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5. no there is no inflation or deflation unless fiat is involved. the definition of inflation is : money supply grows faster than economy. everything else is called price increase but sure enough, people are brainwashed to believe inflation = price increase. duh!

example for non-inflation price increase: bad harvest

Being clearer about what does cause inflation isn't suddenly going to incite a revolution in critical economic thinking. The people who already paid attention already knew, and the people who didn't still don't care.

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February 01, 2014, 12:30:14 AM
 #37

all kids should watch these in school, most important lesson ever

http://www.youtube.com/watch?v=dQ6hg1oNeGE

http://www.youtube.com/watch?v=lYi0deWPibU

http://www.youtube.com/watch?v=jqvKjsIxT_8

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February 01, 2014, 12:33:33 AM
 #38

1. the shares in question are covered by the factory; thus no creation of money from thin air and no inflation. The value of the fab would balance the value of the shares at any given time. This is basically a form of money based on drafts - not fractional banking debt based.
...
5. no there is no inflation or deflation unless fiat is involved. the definition of inflation is : money supply grows faster than economy. everything else is called price increase but sure enough, people are brainwashed to believe inflation = price increase. duh!

1.  you clearly don't understand stock pricing, usually based on the prospective future earnings, and 5. you've built yourself a nice wall there, i hope you enjoy the view.
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February 01, 2014, 02:39:49 AM
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I love the way all economics debates descend into this kind of thing. Its a subject nobody will ever agree upon.
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February 01, 2014, 04:20:19 AM
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I love the way all economics debates descend into this kind of thing. Its a subject nobody will ever agree upon.

Yeah, it's like faith. Keynesian vs. Austrian and both believe they have all the answers, but it's all just interpretation of how events in history panned out. What's amazing about bitcoin is it's an entity that's never existed and could truly test the theory of what would happen with a currency that's scarce like metals, instantly transportable, uses no storage space (it exists in your head...woah), and as fungible as paper.

To answer OP's question, there are a million points you could rebuff in his article which I hope this thread has demonstrated.

I did find this amusing: "In a Bitcoin or growcoin world, the government would have nothing to offer. Frequent bank runs and financial panics would be unavoidable."

There would be bank runs if money ran entirely on a deflationary cryptocurrency. Bitcoin removes the need for a "deposit account," which means individuals have nothing to withdraw from. Also, banks can't loan out your deposits.
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