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Author Topic: Positive aspects of deflation...  (Read 6082 times)
rahl
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November 09, 2011, 01:46:01 PM
 #21

It isn't possible? If there was a commodity that worked very efficiently as a currency and was always difficult to acquire but not limited, would that not create a stable value to the currency?

Well about as stable as the price of gold in LCT-TVs have been over the last 10 years....

There will be no spirals just because the money supply is fixed. The money would need to outperform every investment option on the market for there to be any incentives to hoard. It only happens under exceptional circumstances where all investments become extremely risky.
All commodities goes up and down in price, the same things that cause speculation in any commodity causes speculation in money. Small primitive markets with very poor information are very susceptible to these things to happen.

Ohh, wait BitCoins are a small primitive market with almost no information where all investments are extremely risky...

The problem is the regression theorem of money. You can circumvent that launching something hasn't already been figured out what is actually worth by previous non-monetary uses of it will be extremely unstable by just changing the algorithm.

What you would have to do is give a promise of redemption in something else until the currency has a good circulation if you want to overcome the problem of initial price volatility.

If the benefits of anonymity and lack of central authority in virtual payments is large enough to overcome this problem Bitcoin will stabilize ... if not it will fail.


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November 09, 2011, 03:16:28 PM
 #22

We're talking about currency that tends to grow in value - the price for a typical product will be lower next year than it is now.  Call that whatever you want, but we're trying to discuss the relative merits of such a thing.  You're just sidetracking into silly semantics arguments.

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rahl
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November 09, 2011, 03:49:51 PM
 #23

We're talking about currency that tends to grow in value - the price for a typical product will be lower next year than it is now.  Call that whatever you want, but we're trying to discuss the relative merits of such a thing.  You're just sidetracking into silly semantics arguments.

What silly semantics? I pointed out once that deflation is inaccurate terminology. Everything else I have written is argumentation against that there should be any problems with the kind of currency you describe.

To summarise:
1. consumer goods will not become cheaper relative to money faster then they do towards accumulating productive capital. Any current hoarding taking place would not be because the supply of Bitcoin is limited but because there is a lack of low-risk savings opportunities.
2. the price curve of BitCoin this far has nothing to do with this but can be explained by Mises regression theorem as well as normal speculation vulnerability that applies to all commodities and especially in markets with low trust, volume and information.

On another note Gresham's Law is not applicable here either since it is only between two government currencies. But it still teaches us that while overvaluated fiat will not make people hoard crypt-currencies it will make it impossible for crypto-currencies to gain any foothold of significance in the white market before the fiat system collapses...

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November 09, 2011, 07:28:59 PM
 #24

Well about as stable as the price of gold in LCT-TVs have been over the last 10 years....

I don't follow the analogy.

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There will be no spirals just because the money supply is fixed. The money would need to outperform every investment option on the market for there to be any incentives to hoard. It only happens under exceptional circumstances where all investments become extremely risky.

How many "exceptional circumstances" can we come up with? Investments are going to create growth, growth is going to create further demand for the money...

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All commodities goes up and down in price, the same things that cause speculation in any commodity causes speculation in money. Small primitive markets with very poor information are very susceptible to these things to happen.

Commodities go up and down in price because of real world factors beyond speculation. Currency speculation is only based on what currency will outperform another. I wonder how a fixed supply of money will perform compared to an unfixed supply? Bitcoin only has very poor information by design.

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The problem is the regression theorem of money. You can circumvent that launching something hasn't already been figured out what is actually worth by previous non-monetary uses of it will be extremely unstable by just changing the algorithm.

Could you please restate the second sentence? It is making my brain hurt.

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What you would have to do is give a promise of redemption in something else until the currency has a good circulation if you want to overcome the problem of initial price volatility.

No, you have to do that if you want to overcome the initial problem of price ridiculousness. If the difficulty of creating money is easily quantifiable (electricity cost + time/processing cycles) and is only created when there is demand for it, then your demand will always oscillate around supply. It doesn't need to be pegged to an exact value, the value will become "sticky" over time, but the volatility will not be all that big in the mean time. Just because bitcoin did an absolutely terrible job of it does not mean that it couldn't happen much more smoothly.

1. consumer goods will not become cheaper relative to money faster then they do towards accumulating productive capital.

And by what authority do you have to make this claim? Historical inaccuracy?

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2. the price curve of BitCoin this far has nothing to do with this but can be explained by Mises regression theorem as well as normal speculation vulnerability that applies to all commodities and especially in markets with low trust, volume and information.

Herein lies the problem: a bitcoin as a commodity is effectively a digital trash token that used to be insanely easy to create and is now insanely difficult to create because more people are creating it. Makes it awfully hard for people to come up with a time value of money of a commodity that has no idea what its price is. A stable cost to produce would heavily alleviate that as well as fix the intentional pyramid of wealth transfer.

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On another note Gresham's Law is not applicable here either since it is only between two government currencies. But it still teaches us that while overvaluated fiat will not make people hoard crypt-currencies it will make it impossible for crypto-currencies to gain any foothold of significance in the white market before the fiat system collapses...

Are you suggesting that bitcoins are not in any way overvalued? That their value is not determined in almost the exact same way? Bitcoins won't gain any foothold because merchants will run back to fiat any time deflation starts making the risk of accepting bitcoins too great. It will effectively compromise its own utility by being a fixed quantity since fiat will always exist right alongside it. Bitcoin will be the hoarding currency, fiat will be the spending currency. A currency that has a stable cost to produce and unfixed quantity, however, would be resistant to both inflation and deflation, and would appeal to both spending and saving.

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November 11, 2011, 01:57:37 PM
 #25

How many "exceptional circumstances" can we come up with? Investments are going to create growth, growth is going to create further demand for the money...

Usually the exceptional circumstances are government intervention. War, monetary manipulation, trade manipulation and shortages created by legislation. But there are a number of other things too like technological revolutions, natural disasters and a very small economy could be vulnerable to problems caused by poor self-regulation creating an unsafe environment for contracts.

The commodity money will maintain purchasing power, but that is all it does. It doesn't generate any profit or income. Value of money = total goods and services. But what this doesn't show is anything of what is going on the right side where more of capital created gets allocated to individuals with very low time-preferences then people with high time-preferences that spend most on consumption.

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Commodities go up and down in price because of real world factors beyond speculation. Currency speculation is only based on what currency will outperform another. I wonder how a fixed supply of money will perform compared to an unfixed supply? Bitcoin only has very poor information by design.

Currency demand depends on the amount of trade. But if a commodity currency grows enough and gets used by many different industries in many different locations this should stabilize and the price start to grow very steadily and speculation will stop.

I suppose you could attach you decentralized currency to a centralized statistical agency and force people that use it to specify what it is sent and received for ... doesn't really make anything any better though. The problem is not in BitCoin itself but with the rest of the market. Because we don't have BitCoin stock exchanges that force disclosure of certain information from large bitcoin trading companies to be listed there and the like...

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Could you please restate the second sentence? It is making my brain hurt.

Sorry

You can not circumvent that launching a currency that doesn't already have an established market price will be extremely unstable by just changing the algorithm. Doing it by decree would be a good way to stop all commerce dead in it's tracks. Some people are willing to take the risk with bitcoin because there are many benefits to the alternatives but it is a long way before the market will start pricing these things in a way that correlates any good with people value scales...

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No, you have to do that if you want to overcome the initial problem of price ridiculousness. If the difficulty of creating money is easily quantifiable (electricity cost + time/processing cycles) and is only created when there is demand for it, then your demand will always oscillate around supply. It doesn't need to be pegged to an exact value, the value will become "sticky" over time, but the volatility will not be all that big in the mean time. Just because bitcoin did an absolutely terrible job of it does not mean that it couldn't happen much more smoothly.

People will still be producing it at what would be a loss in the creators mind. Some find ways to lower or externalise production costs, other produce at a loss because they think the price will go up later. Production cost is not that relevant. Also how would you measure demand anyway? Adjusting the supply by the circulation rate or something seems like a recipe for disaster. When everyone is trading down the currency the response from the algorithm would be to increase the supply...
If you are just using the market prices relying on a fixed production price it might create shorter and sharper speculation cycles but it will not get rid of them.

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1. consumer goods will not become cheaper relative to money faster then they do towards accumulating productive capital.

And by what authority do you have to make this claim? Historical inaccuracy?

It is impossible I already explained why earlier in this post. There are stuff going inside the stock of goods of services that isn't going on inside the stock of money. If A = B + C and B increases at a faster rate then C you are better of in B then in A. It isn't more difficult then that really. Essentially the model would be (money stock = capital + consumer goods and services)

History has nothing to do with it. There is no point proving this empirically and there is very little economic data from commodity money economies and even less from economies where regular people have been allowed to save and invest under the same conditions as the political class.


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Herein lies the problem: a bitcoin as a commodity is effectively a digital trash token that used to be insanely easy to create and is now insanely difficult to create because more people are creating it. Makes it awfully hard for people to come up with a time value of money of a commodity that has no idea what its price is. A stable cost to produce would heavily alleviate that as well as fix the intentional pyramid of wealth transfer.

Might be possible to improve the launch a little. But in the long run this is irrelevant and Bitcoin is already past the worst of it I think. It is no pyramid really. Everyone is making a profit since Bitcoin are actually usable and valuable.

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Are you suggesting that bitcoins are not in any way overvalued? That their value is not determined in almost the exact same way? Bitcoins won't gain any foothold because merchants will run back to fiat any time deflation starts making the risk of accepting bitcoins too great. It will effectively compromise its own utility by being a fixed quantity since fiat will always exist right alongside it. Bitcoin will be the hoarding currency, fiat will be the spending currency. A currency that has a stable cost to produce and unfixed quantity, however, would be resistant to both inflation and deflation, and would appeal to both spending and saving.

Yes, but this is the key part of what you wrote "since fiat will always exist right alongside it".
If you create free money that is more inflationary then fiat no one will accept it.
If you create one that is less inflationary no one will spend it.
You can't really get around that. Instead we should simply focus on the black and grey sectors and other merchants that aren't forced to do any business in fiat. Because they would much rather take payments in a currency that is not inflationary and refuse fiat...

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November 11, 2011, 04:16:31 PM
 #26

Usually the exceptional circumstances are government intervention. War, monetary manipulation, trade manipulation and shortages created by legislation. But there are a number of other things too like technological revolutions, natural disasters and a very small economy could be vulnerable to problems caused by poor self-regulation creating an unsafe environment for contracts.

The commodity money will maintain purchasing power, but that is all it does. It doesn't generate any profit or income. Value of money = total goods and services. But what this doesn't show is anything of what is going on the right side where more of capital created gets allocated to individuals with very low time-preferences then people with high time-preferences that spend most on consumption.

Yes, value of money = total goods and services. However, in a totally fixed supply like bitcoin's, the value is pushed up the chain like no other. Those with a low time-preference earn for doing nothing productive. Who can generally afford to have a low time-preference? The wealthy. As the total goods and services expand but the supply of money doesn't, this is giving value to those with money. This value doesn't just magically appear from no where, it is taken from those with a high time-preference. Yes, Bitcoin may create wealth by lowering barriers to trade, however, this will be insignificant compared to the amount of value that is moved up the chain. "Monetary manipulation" doesn't have to have anything to do with what the government does (other than a lack of regulation, as will be rampant with bitcoin) as the recent mortgage crisis shows.

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Currency demand depends on the amount of trade. But if a commodity currency grows enough and gets used by many different industries in many different locations this should stabilize and the price start to grow very steadily and speculation will stop.

You are making gross assumptions that do not fit the historical divide of how those with wealth use it. Yes, the price of BTC would stabilize if it became more popular. This does not mean those with wealth will not attempt to manipulate the currency, and this does not mean that this won't cause more deflation than there should be. No matter what, deflation is a vehicle that gains more value for those with currency than those without. They will use this to gain even more. Human greed is at the source of every recession. Lack of productivity should not be encouraged by gaining real wealth. It is stupid.

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People will still be producing it at what would be a loss in the creators mind. Some find ways to lower or externalise production costs, other produce at a loss because they think the price will go up later. Production cost is not that relevant. Also how would you measure demand anyway? Adjusting the supply by the circulation rate or something seems like a recipe for disaster. When everyone is trading down the currency the response from the algorithm would be to increase the supply...
If you are just using the market prices relying on a fixed production price it might create shorter and sharper speculation cycles but it will not get rid of them.

Status quo bias. You are willing to accept that bitcoin works, but not that another way could. In my design, there is no "loss in the creator's mind." It is all determined by the demand for new currency which is based on whether or not people produce new currency based on the market price. In my design, there is no algorithm that determines to increase the supply. People determine whether or not to increase the supply. And the supply is occasionally restricted (by the currency award, nothing more) to foster competition; what this competition does is help level off the cost to produce against factors that are unknowable to an algorithm. Price of electricity goes down or electrical consumption of GPUs go down--foster competition on a restricted supply to see who is willing to set the bar for what is profitable.

People can't hoard and expect that the value of their currency will increase by virtue of them restricting the supply. The supply will expand in response. The supply will expand in response to more goods and services being available in the economy. The value of each unit of currency will remain stable, or oscillate around a stable point. All of this requires separating the money supply from the security of the network. It can't be done with the gross simplicity of bitcoin's coin distribution scheme. That's why I had to propose a redesign for everything.

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History has nothing to do with it. There is no point proving this empirically and there is very little economic data from commodity money economies and even less from economies where regular people have been allowed to save and invest under the same conditions as the political class.

So you don't consider gold a commodity money? "Political class" is irrelevant, it is the "wealthy class" that controls politicians. The poor are never going to be able to invest under the same conditions--they don't have the capital! Bitcoin is a more ridiculous version of commodity money than gold because its supply is absolutely fixed. If it were to ever gain wide acceptance (which it won't because of early adopters), the wealthy class will again control the currency, and again they will do whatever is most beneficial to themselves. This *will* result in another deflationary spiral (and I mean spiral in the sense that deflation is happening far faster than it should), and they will be happy to fix it by spending a lot less currency for the same goods and services as before. And they get all of that value before the money gets back to circulation; it is almost the exact same measure by which banks and the wealthy gain from cheap lending from the central banks in an inflationary currency. The gap between the rich and the poor grows and eventually a recession will be the result. The poor will have had their wages deflated as a result of this restriction in the supply, and once prices rise again, realize that all of a sudden they no longer had the purchasing power they once had. Where did that value go? To the wealthy. A limited commodity currency does not solve anything.

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Might be possible to improve the launch a little. But in the long run this is irrelevant and Bitcoin is already past the worst of it I think. It is no pyramid really. Everyone is making a profit since Bitcoin are actually usable and valuable.

Wait wait, so how many people made a profit that bought in from anywhere between $4->$30->$4? Somebody bought in. Do you think it was the early adopters buying in? Everyone is not making a profit. The later adopters are not making a profit. This is a zero sum game where wealth is transferred up the chain. It doesn't matter if there were early adopters, there will always be those who are wealthier, and the wealthy have proved on many different occasions that they, time and time again, will do whatever they can to increase that wealth. It was goldsmiths, after all, that created fractional reserve. Bitcoin is no solution, it is just the beginning of the same old bullshit.

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You can't really get around that. Instead we should simply focus on the black and grey sectors and other merchants that aren't forced to do any business in fiat. Because they would much rather take payments in a currency that is not inflationary and refuse fiat...

So you would just give up on a better currency then because you think it's impossible? What makes you think merchants would want to take currency when it was $30 but could be worth $4? When/if it hits $30 again and they have to charge 0.25 BTC for their widget, what guarantee do they have that that BTC won't essentially become worthless again? How can they be sure that the wealthy are not merely manipulating the supply?

Merchants and consumers would both love a currency with a stable value. The rich, not so much, but they might eventually be forced to use it because no one else wants their bullshit, manipulative currency. *I* say we come up with something that forces the rich to stop abusing us, and use money on the 99%'s terms. Bitcoin is the SOS with a new group of people in control. All it will ever amount to is a payment processor with fees every step of the way that make it no better than paypal or CCs. *I* want something that is actually a store of value. *I* want to actually change how the system of money works. Bitcoin has no hope of doing that. Stop thinking that it is impossible, focus your energy on what you could do to make it possible, if that's actually what you want, anyway. If you are a bitcoin elite, you might certainly not.

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November 15, 2011, 12:06:34 AM
 #27

Yes, value of money = total goods and services. However, in a totally fixed supply like bitcoin's, the value is pushed up the chain like no other. Those with a low time-preference earn for doing nothing productive. Who can generally afford to have a low time-preference? The wealthy. As the total goods and services expand but the supply of money doesn't, this is giving value to those with money. This value doesn't just magically appear from no where, it is taken from those with a high time-preference. Yes, Bitcoin may create wealth by lowering barriers to trade, however, this will be insignificant compared to the amount of value that is moved up the chain. "Monetary manipulation" doesn't have to have anything to do with what the government does (other than a lack of regulation, as will be rampant with bitcoin) as the recent mortgage crisis shows.

There is no wealth transfer caused by money. Everyone will be relatively exactly where they where before when the price of money changes. If I have 1 BTC and you have 99 the and one BTC can buy a goat I have 1% of the wealth in terms of goat purchasing power and you have 99%. If the price of BTC doubles it means I can buy 2 goats and you 198. 2/200 is still 1%. So my bargaining position in the market is not affected at all.

There is a transfer counted in market prices from low to high time-preferences but it is not because money changes in value it is because people with low time-preferences receive interest from the entrepreneurs that borrow there money. The entrepreneur gets the money to pay those interest rates from the consumers.

However in terms of value everyone is still better of, and most likely in terms of market prices this will not really concentrate wealth either. Since higher interest rates drives up consumer prices as well the motivation to save increases double and should keep interest rates fairly low as long as investing in safe. But if it is not there are other problems that have very little to do with the currency as long as it was freely adopted...

Also one does not "afford" to have high or low time-preferences. Generally it is the other way around too, people from very poor backgrounds tend to have extremely low time-preference and trust fund babies extremely high. It is true that the rich one might still save more in absolute terms because the marginal utility on there money is lower but in the long run the poor people will save a larger portion and it will balance wealth. Anyone with any job can save up a fortune in a lifetime in any western country even with our taxes. All my grandparents did. So the only healthy people that will remain poor for there entire life are those with very high timepreferences...



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You are making gross assumptions that do not fit the historical divide of how those with wealth use it. Yes, the price of BTC would stabilize if it became more popular. This does not mean those with wealth will not attempt to manipulate the currency, and this does not mean that this won't cause more deflation than there should be. No matter what, deflation is a vehicle that gains more value for those with currency than those without. They will use this to gain even more. Human greed is at the source of every recession. Lack of productivity should not be encouraged by gaining real wealth. It is stupid.

The incentives to increase productivity are only higher with a "deflationary" currency. Consumption does not create any wealth and the incentives to save are higher or equal as I just tried to explained.

How would they manipulate the currency to create deflation? It makes no sense. The only thing early adopters of BTC can create is inflationary pressure when they finally decide to cash out.

Greed does not cause recessions, inflation does.


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Status quo bias. You are willing to accept that bitcoin works, but not that another way could. In my design, there is no "loss in the creator's mind." It is all determined by the demand for new currency which is based on whether or not people produce new currency based on the market price. In my design, there is no algorithm that determines to increase the supply. People determine whether or not to increase the supply. And the supply is occasionally restricted (by the currency award, nothing more) to foster competition; what this competition does is help level off the cost to produce against factors that are unknowable to an algorithm. Price of electricity goes down or electrical consumption of GPUs go down--foster competition on a restricted supply to see who is willing to set the bar for what is profitable.

As I said people will just externalise there production cost and produce it anyway. Or they will produce it because they are speculating. I don't see how a fixed production cost will make anything different then bitcoin.


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People can't hoard and expect that the value of their currency will increase by virtue of them restricting the supply. The supply will expand in response. The supply will expand in response to more goods and services being available in the economy. The value of each unit of currency will remain stable, or oscillate around a stable point. All of this requires separating the money supply from the security of the network. It can't be done with the gross simplicity of bitcoin's coin distribution scheme. That's why I had to propose a redesign for everything.

And it is still impossible for hoarding to be the most profitable option in a sound market. Even if you control so much of the money supply you could actually create a price increase in money that is higher then gain from savings for a short period all it will do is turn people away from the currency. It is a very risky move so there we are again it is impossible to get higher risk adjusted profit from it then from savings. That doesn't mean that no one will do it since peoples preference to risk are different, but it is extremely unlikely that someone will A. control enough currency and B. be that reckless...


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So you don't consider gold a commodity money? "Political class" is irrelevant, it is the "wealthy class" that controls politicians. The poor are never going to be able to invest under the same conditions--they don't have the capital! Bitcoin is a more ridiculous version of commodity money than gold because its supply is absolutely fixed. If it were to ever gain wide acceptance (which it won't because of early adopters), the wealthy class will again control the currency, and again they will do whatever is most beneficial to themselves. This *will* result in another deflationary spiral (and I mean spiral in the sense that deflation is happening far faster than it should), and they will be happy to fix it by spending a lot less currency for the same goods and services as before. And they get all of that value before the money gets back to circulation; it is almost the exact same measure by which banks and the wealthy gain from cheap lending from the central banks in an inflationary currency. The gap between the rich and the poor grows and eventually a recession will be the result. The poor will have had their wages deflated as a result of this restriction in the supply, and once prices rise again, realize that all of a sudden they no longer had the purchasing power they once had. Where did that value go? To the wealthy. A limited commodity currency does not solve anything.

I won't get into to which degree politicians take bribes but it is still the politicians holding all the power and implementing the policies like fiat currencies, other bank regulation and taxes that put small investors at a disadvantage.

I don't know what the distribution of bitcoin looks like but I don't think it is that bad and there are still plenty of bitcoin to be produced. Even with a lot of concentration it is still very difficult to manipulate a commodity money effectively, but there are other reasons why this would make a commodity unattractive as money too so it can be a problem. Bitcoin would however need to be very very concentrated when it is all done for this to be any problem of note and I don't think it will be because a free-market disperses wealth, it is politics that concentrate it and there won't be any of that in the bitcoin economy.

The rest of that are just fallacies I have already addressed.

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Wait wait, so how many people made a profit that bought in from anywhere between $4->$30->$4? Somebody bought in. Do you think it was the early adopters buying in? Everyone is not making a profit. The later adopters are not making a profit. This is a zero sum game where wealth is transferred up the chain. It doesn't matter if there were early adopters, there will always be those who are wealthier, and the wealthy have proved on many different occasions that they, time and time again, will do whatever they can to increase that wealth. It was goldsmiths, after all, that created fractional reserve. Bitcoin is no solution, it is just the beginning of the same old bullshit.

Value is subjective and from there own point of view everyone made a profit. Except those people who made errors and didn't get what they expected but they only have themselves to blame.

The wealth going up the chain you speak of is no different then the transference between you and Apple if you and buy an iPad you really want. It gives you satisfaction for your high timepreferences and interest to Apples shareholders. The next poor guy that comes around could just as easily choose to buy Apples shares as that iPad, so it doesn't transfer anything from poor to rich just between people with different timepreference.
You will booth end up with more value, just as the people who bought Bitcoin later at a higher price ended up with a higher value because they needed it to do some transaction or just thought it was fun enough to mess with.

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So you would just give up on a better currency then because you think it's impossible? What makes you think merchants would want to take currency when it was $30 but could be worth $4? When/if it hits $30 again and they have to charge 0.25 BTC for their widget, what guarantee do they have that that BTC won't essentially become worthless again? How can they be sure that the wealthy are not merely manipulating the supply?

Merchants and consumers would both love a currency with a stable value. The rich, not so much, but they might eventually be forced to use it because no one else wants their bullshit, manipulative currency. *I* say we come up with something that forces the rich to stop abusing us, and use money on the 99%'s terms. Bitcoin is the SOS with a new group of people in control. All it will ever amount to is a payment processor with fees every step of the way that make it no better than paypal or CCs. *I* want something that is actually a store of value. *I* want to actually change how the system of money works. Bitcoin has no hope of doing that. Stop thinking that it is impossible, focus your energy on what you could do to make it possible, if that's actually what you want, anyway. If you are a bitcoin elite, you might certainly not.

My point was that nobody is going to want to spend a currency with stable value while they have an inflationary one in there pocket. So no free currency of any kind will be able to out-compete fiat in the white market. (If the free currency is more inflationary then the fiat it still won't be circulated because no one will accept it them.)

It only works if booth buyer and seller have the option to refuse any method of payment and don't have any expenses in fiat like taxes that forces them to circulate it even if they could technically refuse it in payment. That is why it will never work outside back and grey markets.

99% of bitcoin is held by 1% of users or what are you trying to say? Do you have anything that supports that is even remotely the case?

The way the rich profit from the currency system today is by printing more money and make sure they are as close the new money in the chain as possible so they can use it before the increase in the money stock is noticed by the market and prices go up.

For them to manipulate a fixed supply currency would be just as difficult as it is for a majority shareholder to manipulate the stock price of his company. They really only have the power to dump the price and loose all they have. Manipulating it so they make a profit just by trading (and not distorting the flow of information relating to the company in other ways) is extremely difficult and that is even when controlling a majority of the supply. I doubt very much a single entity will end up controlling even close to the majority of the supply of bitcoin...


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November 15, 2011, 01:50:59 AM
 #28

There is no wealth transfer caused by money. Everyone will be relatively exactly where they where before when the price of money changes. If I have 1 BTC and you have 99 the and one BTC can buy a goat I have 1% of the wealth in terms of goat purchasing power and you have 99%. If the price of BTC doubles it means I can buy 2 goats and you 198. 2/200 is still 1%. So my bargaining position in the market is not affected at all.

You have not followed any logic as to why the price of BTC doubles. If I need a goat and the price is cut in half because of deflation due to hoarding, the goat herder certainly isn't happy about taking half as much BTC. And if I need a goat, I may have to spend my 1 BTC on a goat before deflation, now I have nothing when the price halves. If the rich man needed a goat, he still has 98 BTC, and now can buy a hell of a lot more goats while my wage deflates along with the rest of prices.

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There is a transfer counted in market prices from low to high time-preferences but it is not because money changes in value it is because people with low time-preferences receive interest from the entrepreneurs that borrow there money. The entrepreneur gets the money to pay those interest rates from the consumers.

And how is paying interest any different than the deflation of the currency. That is my point. The wealthy get wealthier for adding little of value to society.

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However in terms of value everyone is still better of, and most likely in terms of market prices this will not really concentrate wealth either. Since higher interest rates drives up consumer prices as well the motivation to save increases double and should keep interest rates fairly low as long as investing in safe. But if it is not there are other problems that have very little to do with the currency as long as it was freely adopted...

No, everyone is not better off. The goat herder is not better off as people wait to buy goats that may keep going down in price. Investing will not be very safe in a currency where a ROI is expected just from holding on to the currency. The wealthy can bide their time and wait for the spiral, then buying up immensely cheap goods and services (thus gaining real wealth, not currency wealth), while then the prices will rise again as velocity increases. The wealthy gained all kinds of value by spending a minimal amount of money.

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Also one does not "afford" to have high or low time-preferences. Generally it is the other way around too, people from very poor backgrounds tend to have extremely low time-preference and trust fund babies extremely high. It is true that the rich one might still save more in absolute terms because the marginal utility on there money is lower but in the long run the poor people will save a larger portion and it will balance wealth. Anyone with any job can save up a fortune in a lifetime in any western country even with our taxes. All my grandparents did. So the only healthy people that will remain poor for there entire life are those with very high timepreferences...

When you get back to reality, let me know. Your grandparents don't count for a very good sample size.

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The incentives to increase productivity are only higher with a "deflationary" currency. Consumption does not create any wealth and the incentives to save are higher or equal as I just tried to explained.

Incentives to increase efficiency are higher with a deflationary currency. But this does not fix the fundamental issues with a fixed supply. You can only get so efficient in a certain time frame, there is nothing stopping deflation from happening faster than this time frame.

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How would they manipulate the currency to create deflation? It makes no sense. The only thing early adopters of BTC can create is inflationary pressure when they finally decide to cash out.

Greed does not cause recessions, inflation does.

"It makes no sense." Well if you are unwilling to learn history to actually back up your arguments, I can't help you. And I can't argue against willing ignorance.

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As I said people will just externalise there production cost and produce it anyway. Or they will produce it because they are speculating. I don't see how a fixed production cost will make anything different then bitcoin.

You don't get it. Whatever. I'm sure they will just "externalise there[sic] production cost" to make it for free.

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And it is still impossible for hoarding to be the most profitable option in a sound market. Even if you control so much of the money supply you could actually create a price increase in money that is higher then gain from savings for a short period all it will do is turn people away from the currency. It is a very risky move so there we are again it is impossible to get higher risk adjusted profit from it then from savings. That doesn't mean that no one will do it since peoples preference to risk are different, but it is extremely unlikely that someone will A. control enough currency and B. be that reckless...

Yes, we should just rely on faith.

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I don't know what the distribution of bitcoin looks like but I don't think it is that bad and there are still plenty of bitcoin to be produced. Even with a lot of concentration it is still very difficult to manipulate a commodity money effectively, but there are other reasons why this would make a commodity unattractive as money too so it can be a problem. Bitcoin would however need to be very very concentrated when it is all done for this to be any problem of note and I don't think it will be because a free-market disperses wealth, it is politics that concentrate it and there won't be any of that in the bitcoin economy.

Fractional reserve exists because people demand currency. Banks are more than happy to create this currency for you, at interest. Fractional reserve will exist in bitcoin, and all it takes is greedy people who want more interest investing in banks with a 10% reserve or less to start the same chain of problems.

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The rest of that are just fallacies I have already addressed.

You have no leg to stand on in calling anything I've said a fallacy. None of your arguments come from any economic basis, only your opinion.

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Value is subjective and from there own point of view everyone made a profit. Except those people who made errors and didn't get what they expected but they only have themselves to blame.

:rofl: ok, you win. Bitcoin wiki 101 A+ grade.

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