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Author Topic: How an EURO melt down will affect bitcoins?  (Read 6759 times)
zby
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November 27, 2011, 02:51:53 PM
 #1

A complete Euro melt down looks more and more probable.

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The crisis in the euro area is turning into a panic and dragging the zone into recession. The risk that the currency disintegrates within weeks is alarmingly high
from The Economist Beware of falling masonry.

I think the common wisdom is that in cases like this there is a flight to safety, risky assets are being sold and dollar rallies, but bitcoin is probably fringe enough for this to have no real effect here.  What is your opinion?
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November 27, 2011, 03:03:47 PM
 #2

I dont think it will have much of an effect. No one sees bitcoin as an alternative to euro's at this point and if the euro zone does implode, it likely means a lot less people with money to spend on risky stuff like bitcoins.

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November 27, 2011, 03:10:34 PM
 #3

No one knows what the Euro melt down is going to do, so it's tough for use to predict how some unknown Euro melt down is going to affect bitcoin.

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November 27, 2011, 03:24:09 PM
 #4

LOL, take a wild guess.

It obviously affects Bitcoin. EUR is imminently endangered of a crash, USD is stupid monopoly money, Gold and Silver are bubbling as much as they can already. People are desperate for alternatives.

If the community can withstand the current pressure and keep going forward, there's no doubt we'll get a few people who see Bitcoin as a last measure to escape all the madmen.
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November 27, 2011, 05:53:41 PM
 #5

Bitcoin also dropped a lot, it's a high risk thing, people invest in it if they can afford to lose money. But if they are losing enough of it due to the crysis and the euro meltdown, i doubt they will invest in bitcoin.
Sure, there is the chance they can start use it for trading and other things

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November 27, 2011, 06:00:16 PM
 #6

LOL, take a wild guess.

It obviously affects Bitcoin. EUR is imminently endangered of a crash, USD is stupid monopoly money, Gold and Silver are bubbling as much as they can already. People are desperate for alternatives.
Gold+Silver are not in bubble territory yet. Once you get a foreclosed house with a ounce of gold and a car with an once of silver we are talking.

Anyway rumor has it that several member states are already considering exit strategies. Greece and co will get kicked out which might (on the surface prolong the total collapse for another 2 years.)
Then when the time is right whats left from the Euro and the USD will collapse nearly simultaneously. PMs will spike during that periods.

Bitcoins time is the time after that when the dust has settled and people are beginning to refuse whatever crap comes out of this. (Like a UN world currency or something)
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November 27, 2011, 06:06:36 PM
 #7

I doubt a UN world currency will be created if Euro fails.  I'm pretty sure the main reason the Euror is failing is that multiple countries with multiple fiscal policies are trying to use a single currency that needs a single fiscal policy. 

Expanding the currency to the whole world would not really solve anything. 

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November 27, 2011, 07:41:02 PM
 #8

I'm pretty sure the main reason the Euror is failing is that multiple countries with multiple fiscal policies are trying to use a single currency that needs a single fiscal policy. 

It's failing because all the governments are bankrupt and people are realizing this.
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November 27, 2011, 07:41:34 PM
 #9

If Euro melts down now (as in 2011) Bitcoin might be rallied in by some freedom-survivalist-dudes. It could make another high as people *think* they have an alternative. But will fall down hard because we have no economy to sustain it. But, if in 2012-2013 I can buy food, groceries, pay bills with bitcoin, when Euro falls, I see a huge rally, SF-style, with $50 today, 100 tomorrow and 500 the day after. Just sain'

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November 27, 2011, 07:42:13 PM
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Oh, and beware. If euro fails there will be a war.

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November 27, 2011, 07:53:15 PM
 #11

I've noticed that price for Bitcoin on the Euro exchanges has often been slightly higher than it should according to the USD/EUR exchange rate.

I think it's possible if it got really dramatic that it would affect the price. But it is actually quite hard to get Euros into any of the the relevant exchanges (mtgox and tradehill) without using expensive international bank transfers.

I think the ruling elites will do anything to prevent a Euro meltdown and will sacrifice the dollar if necessary to prevent it (which is already happening as the latest idea is that the Federal Reserve funds the IMF to help with the European bailouts).

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November 27, 2011, 08:53:40 PM
 #12

Oh, and beware. If euro fails there will be a war.

Can you say more ? You got my attention (all 30 seconds of it) !

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November 27, 2011, 08:55:28 PM
 #13

I think it's possible if it got really dramatic that it would affect the price. But it is actually quite hard to get Euros into any of the the relevant exchanges (mtgox and tradehill) without using expensive international bank transfers.
This seems to be the case, yes. It's a hassle. Takes a long time, too.

As a European, I'm much more worried about how an EURO melt down will affect me. I have no idea how that works, and I'm considering investing more in bitcoins, but I can't really justify that to myself with the high risk, and the mental bookmark that my outlook on bitcoin is skewed due to me being immersed in it…

Btw: That's an actual question. If someone has any idea what's going to happen, then let me know Tongue

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November 27, 2011, 09:00:59 PM
 #14

Jothan, Read up on your European history, financial and political, between world wars I and II.

I don't believe a euro collapse would negatively effect bitcoin value, thus I think $/bitcoin would sky-rocket.

BTCurious, in my experience Europeans are generally averse to physical metals, but are moving money into dollars (banks are reporting record withdrawls). You might consider stocking up on food and petrol. You can't go wrong if it's a false alarm.

Withdrawal from the European Union is a right of European Union (EU) member states under TEU Article 50: "Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements." No state has ever withdrawn, though some dependent territories or semi-autonomous areas have left. Of these, only Greenland has explicitly voted to leave, departing from the EU's predecessor, the European Economic Community (EEC), in 1985.

Yeah baby. What foresight!

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November 27, 2011, 09:02:24 PM
 #15

No effect.  People aren't gonna turn to bitcoins after whats happened to it. 

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November 27, 2011, 09:23:25 PM
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I'm pretty sure the main reason the Euror is failing is that multiple countries with multiple fiscal policies are trying to use a single currency that needs a single fiscal policy. 
This!  Europe just isn't homogenous enough to support a single currency as there is little cross-border movement of labor or capital.   How many people would actually move from Greece to Germany for work, as traditional economics would dictate?  I can't find any numbers, but with a different climate, culture, and language, and the unlikeliness of friends or family in Germany, I just don't see many Greeks relocating.  Though it's a big change to move from Florida to New York, it's still common.

America's "secret" advantage has been that it was able to exterminate the indigenous population, forcibly drive out the Spanish and Russians, and colonize a huge landmass with everyone primarily using a single language.   The language barrier between English and Spanish is far less than between Greek and German.

As far as what this means for bitcoin, I'm with P4man: less Euro play money to spend on novelties like btc.

However, if the Drachma makes a comeback, I'd expect Bitcoin to do well in the Greek zone as a hedge against devaluation of both the Euro and Drachma.
There's evidence that countries that have experienced overnight currency devaluations are more likely to take up bitcoins, such as Ukraine and Bulgaria:



(from http://www.thebitcointrader.com/2011_10_01_archive.html )

BTCurious, I think your best bet is to diversify diversity diversify.  My thought would be 25% cash, 25% bank euro, 25% bank USD, 25% bitcoin.  If one or two fail, you won't be wiped out, and if USD or BTC shoot up relative EUR, you might come out ahead.
But also, keep in mind that currency "failure" is a loose term: if EUR drops by 50% vs. USD, people will consider it to have "failed", but it will still be useful paper to own.
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November 27, 2011, 09:24:14 PM
 #17


BTCurious, in my experience Europeans are generally averse to physical metals, but are moving money into dollars (banks are already reporting record withdrawls). You might consider stocking up on food and petrol. You can't go wrong if it's a false alarm.

The best thing you can invest in is INDEPENDENCE. In knowledge, growing your own food, producing own energy, thinking without ait, being prepared for the worse.

I don't wanna sound like a conspiracy-guy but I also believe there is a possibility that someday some powers will stage a false-flage alien attack. The frame is already in place, greyish aliens that kidnap people and cows, lot's of alien invasion movies. They need just some fancy technology and some casualties. Actually there is a fear-frame for everything: economic collapse, nuclear wars, pandemics, running low on resources. And since most are already afraid and framed-in, the only thing I need is to wait for sunset and flashlight my face to scare the shit out of people.

On the other hand, if one is independent and thinks for it's own, how hard will be to scare him with "OMG, NO FOOD THIS YEAR". He'll just work harder to produce more. See the tribes people. What fears do they have, other than their gods and Earth's creatures?

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November 27, 2011, 09:30:45 PM
 #18

I don't wanna sound like a conspiracy-guy but I also believe there is a possibility that someday some powers will stage a false-flage alien attack. The frame is already in place, greyish aliens that kidnap people and cows, lot's of alien invasion movies. They need just some fancy technology and some casualties.

Paul? Is that you?


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November 27, 2011, 09:49:15 PM
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I don't wanna sound like a conspiracy-guy but I also believe there is a possibility that someday some powers will stage a false-flage alien attack. The frame is already in place, greyish aliens that kidnap people and cows, lot's of alien invasion movies.
Can't tell if troll or serious, but leaning troll.  Where can I bet on conspiracy theories?  Oh wait, conspiracy theories are _designed_ around available data, and hence can never be disproved with available data, so the bet could never be settled. 
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November 27, 2011, 10:13:17 PM
 #20

No effect.  People aren't gonna turn to bitcoins after whats happened to it. 
Some would for sure, the price would rise and draw others in - we'd probably see the next bubble.

Another sure consequence is that with a hypothetical return of national currencies in Europe, Bitcoin would immediately gain usefulness.

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November 27, 2011, 10:19:47 PM
 #21

BTCurious, I think your best bet is to diversify diversity diversify.  My thought would be 25% cash, 25% bank euro, 25% bank USD, 25% bitcoin.  If one or two fail, you won't be wiped out, and if USD or BTC shoot up relative EUR, you might come out ahead.
But also, keep in mind that currency "failure" is a loose term: if EUR drops by 50% vs. USD, people will consider it to have "failed", but it will still be useful paper to own.
Sounds reasonable. "25% cash" would still have to be cash in a certain currency though, and as such would only prevent against bank collapse. But in the event of a bank collapse my government ensures my savings up to a certain amount far above my current savings. So it might protect against a bank and government collapse, but the Netherlands seems rather unphased in the euro crisis, based on some graph that floated in front of my eyes (I haven't read up on economics).

Then there's also the thing where I have no idea how to properly "invest in USD" or whatever, and it seems scary to do anything with more than half of my money.

The best thing you can invest in is INDEPENDENCE. In knowledge, growing your own food, producing own energy, thinking without ait, being prepared for the worse.
Growing your own food etc…? I thought I lived in a Western country. Investing a large portion of my time in things like that seems so… pointless. Maybe that's my habits speaking.

No effect.  People aren't gonna turn to bitcoins after whats happened to it.
I'm considering at least investing more. I don't have a lot of money, but maybe people with more money would consider it too.

Another sure consequence is that with a hypothetical return of national currencies in Europe, Bitcoin would immediately gain usefulness.
I'd hate to go back to this misshapen quilt blanket of currencies… From a regular civilian point of view, the euro has been really convenient. Mark, Drachma, Guilder, Francs… Thanks but no thanks.

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November 27, 2011, 10:28:35 PM
 #22

I'd hate to go back to this misshapen quilt blanket of currencies… From a regular civilian point of view, the euro has been really convenient. Mark, Drachma, Guilder, Francs… Thanks but no thanks.
I Agree. It was also very appropriate that the European Bitcoin conference was in a non-Euro country - it was a great demonstration for the immediate usefulness of Bitcoin.

But anyway - having to exchange currencies again when traveling would probably be one of the less annoying consequences of a Euro collapse Wink

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November 28, 2011, 07:28:14 AM
 #23

Oh, and beware. If euro fails there will be a war.

Wow, I didn't know Angela Merkel read this board.

The printing press heralded the end of the Dark Ages and made the Enlightenment possible, but it took another three centuries before any country managed to put freedom of the press beyond the reach of legislators.  So it may take a while before cryptocurrencies are free of the AML-NSA-KYC surveillance plague.
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November 28, 2011, 08:50:48 AM
 #24

No effect.  People aren't gonna turn to bitcoins after whats happened to it.  

Strange how people interpreted it as if I suggested that EURO failure would move the BTC price up - while I clearly stated that it would mean 'risk off', selling of risky assets like bitcoins.  But in the end it is possible that in a case of a full financial meltdown people will try out any crazy schema to get out of the trouble.
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November 28, 2011, 09:03:43 AM
 #25

Strange how people interpreted it as if I suggested that EURO failure would move the BTC price up - while I clearly stated that it would mean 'risk off', selling of risky assets like bitcoins.  But in the end it is possible that in a case of a full financial meltdown people will try out any crazy schema to get out of the trouble.
Ok, so what do you think people would sell their Bitcoins for? USD? Gold? I don't think either is a very wise choice if the meltdown already happens. Since BTC are mostly traded for USD anyway, are highly liquid and far more resilient to confiscation / currency control measures I sure as hell would hold on to them in case of such a crisis.

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November 28, 2011, 09:09:14 AM
 #26

No effect.  People aren't gonna turn to bitcoins after whats happened to it.  

Strange how people interpreted it as if I suggested that EURO failure would move the BTC price up - while I clearly stated that it would mean 'risk off', selling of risky assets like bitcoins.  But in the end it is possible that in a case of a full financial meltdown people will try out any crazy schema to get out of the trouble.

I doubt that that would be true.  In a crisis such as this, I suggest that people will be buying damn near anything just to unload their EURO's.  Additionally, there would almost certainly be capital controls and Bitcoin is probably second to none (litterally) in working around that sort of issue.

I personally expect that were the EURO to fail, the USD would be not far behind (though it could go through some very interesting and rapid-cycle gyrations.)  Since the whole thing seems like a distinct possibility to me, I have already taken steps to diversify and I choose BTC as a percentage of this diversification strategy and in part because I could imagine having control of some of them providing a certain amount of utility in a crisis situation.


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November 28, 2011, 09:51:36 AM
 #27

A falling apart of the euro zone doesnt mean euro's will become worthless. They will just be converted in to whatever new/old currencies those counties adopt. There might be a haircut involved, but its not like you will be using 100 euro bills as toilet paper. I also think its unlikely the euro will disappear completely, its more likely a few countries will drop out.

The biggest opportunity for bitcoin in this context is not that it would be a safe storage of wealth (clearly its not), but that it could gain usefulness to avoid currency exchange costs.

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November 28, 2011, 10:20:42 AM
 #28

Strange how people interpreted it as if I suggested that EURO failure would move the BTC price up - while I clearly stated that it would mean 'risk off', selling of risky assets like bitcoins.  But in the end it is possible that in a case of a full financial meltdown people will try out any crazy schema to get out of the trouble.
Ok, so what do you think people would sell their Bitcoins for? USD? Gold? I don't think either is a very wise choice if the meltdown already happens. Since BTC are mostly traded for USD anyway, are highly liquid and far more resilient to confiscation / currency control measures I sure as hell would hold on to them in case of such a crisis.

Answering your question - USD - from what I read on the Internet this is the usual direction in such cases because USD is still considered the safest and the most liquid currency.  Also there is a lot of debt denominated in USD - so there can be a kind of short squeeze on dollars - and that is why liquidity matters and why gold can suffer for some time.  All of this is what I recently learned from some internet pundits - I am still not very confident about this thinking and I am not convinced that it matters much for bitcoins.  Also a drowning man will clutch at a straw - if the crisis gets really bad people will try all kinds of fringe investments and if that happens on a global or even just on a continental scale - then this could send bitcoin prices to the moon.
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November 28, 2011, 04:40:50 PM
 #29

Humans are creatures of habit. With soveriegn debt crisis, what do people do? Buy more but different sovereign debt. It was amazing that with the US credit downgrade, US treasury yields appreciated. The logic may be that huge institutions with rating averages minimums were required to replace lower rated bonds and had no choice but to buy from the most liquid market - US Treasuries.

While EUR and USD are both looking bad, whichever one tumbles first, the other will climb. Mysteriously, people haven't yet lost faith in paper, they just shift from one paper to the other. I believe that bitcoin will behave much like CHF before Zurich pulled the plug. Representing only a tiny fraction of the European economy, what was only a trickle from EUR was a flood toward CHF. It would only take a few drops from the EUR ocean to make a tsunami in the BTC pond.

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November 28, 2011, 04:55:46 PM
 #30

Humans are creatures of habit. With soveriegn debt crisis, what do people do? Buy more but different sovereign debt. It was amazing that with the US credit downgrade, US treasury yields appreciated. The logic may be that huge institutions with rating averages minimums were required to replace lower rated bonds and had no choice but to buy from the most liquid market - US Treasuries.

While EUR and USD are both looking bad, whichever one tumbles first, the other will climb. Mysteriously, people haven't yet lost faith in paper, they just shift from one paper to the other. I believe that bitcoin will behave much like CHF before Zurich pulled the plug. Representing only a tiny fraction of the European economy, what was only a trickle from EUR was a flood toward CHF. It would only take a few drops from the EUR ocean to make a tsunami in the BTC pond.

Must. Resist. Temptation. To. Turn. Bullish...
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November 28, 2011, 04:57:11 PM
 #31

Must. Resist. Temptation. To. Turn. Bullish...
You're having trouble not buying shitloads of bitcoins? Try me! I actually live in Europe!

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November 28, 2011, 07:46:07 PM
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Humans are creatures of habit. With soveriegn debt crisis, what do people do? Buy more but different sovereign debt. It was amazing that with the US credit downgrade, US treasury yields appreciated.
Eh, the downgrade was more a reflection of the pathetic ratings companies, the "Wall Street equivalent of the LA Clippers" as Nate Silver so aptly put it.  The US can and will pay, and everyone knows it.  The US economy is just so staggeringly huge - Walmart's revenue last year was about the same as the GDP of Sweden - the even if the political system is broken, they can still pay back debt eventually.

Quote
While EUR and USD are both looking bad, whichever one tumbles first, the other will climb. Mysteriously, people haven't yet lost faith in paper, they just shift from one paper to the other. I believe that bitcoin will behave much like CHF before Zurich pulled the plug. Representing only a tiny fraction of the European economy, what was only a trickle from EUR was a flood toward CHF. It would only take a few drops from the EUR ocean to make a tsunami in the BTC pond.
I see the spike in CHF-EUR exchange rate in August, but how did they pull the plug?

When talking about wealth storage, bitcoin is resistant to even breaks in the algorithm. The network might be down for a couple of days, like a bank's website going offline, but after the patch is applied, everything returns to normal.  This happened once before when a 2 billion coin error was found.

Must. Resist. Temptation. To. Turn. Bullish...

Holy shit, is proudhon questioning his bearishness?  Even Nagle's trolling in a different thread seemed half-hearted.
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November 28, 2011, 07:57:52 PM
 #33

Oh, and beware. If euro fails there will be a war.

Wow, I didn't know Angela Merkel read this board.

European peace and cooperation has a short history, and the collapse of this monetary union, even in the absence of the actual destruction of the currency itself, historical animosities are very likely to return to the surface of public discourse.  It's already happened between Greece and Germany, with some Germans calling for Greece to sell off some of their prized islands and Greeks referencing the looting of Greece during WWII.  Fringe political parties, with strong 'nationalistic' platforms have also been receiving more attention, and winning more seats, across all of Europe.  Mish has predicted that the first polititian to openly declare the Machiart (sp?) treaty a dead letter will win in a landslide, no matter which country he hails from.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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November 28, 2011, 08:12:57 PM
 #34

...
Must. Resist. Temptation. To. Turn. Bullish...

Holy shit, is proudhon questioning his bearishness?  Even Nagle's trolling in a different thread seemed half-hearted.

Seems that the three little bears (Naggle, EdwardNN, and Proudhon) might be finding more bee stingers than honey in the valley of the Bitcoin market depth.


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November 28, 2011, 10:34:19 PM
 #35

If a melt down happens, bitcoins will fall.

Bitcoins are based on the people, who trust the system. If the trust gets lost, ....
Old euros you can burn to heat your soup. For bicoins you need a computer, electri...

So maybe the rest of the world stores bitcoins, but the europeans cannot/won't do this.

Why? Because they notice now that money (also bitoins) isn't worth too much. The "real" things help you, feed you, make your life easier. To store money doesn't make any sense.

Especially the USD isn't any help any more. The europeans have got so much Dollars, because of the high debts of the US-government and the american people, they don't need more. And: The USA has got the same "european" problems. Exactly the same, but more debts and less resources to cope with them.

No currency is the problem and can't be a solution. Most of the time, it's just the trading-mechanism.
The europeans are learning this now. And they are taking the expensive way.
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November 28, 2011, 10:35:44 PM
 #36


Seems that the three little bears (Naggle, EdwardNN, and Proudhon) might be finding more bee stingers than honey in the valley of the Bitcoin market depth.

Some predictions haven't quite come true, and I have great respect for anyone that changes their opinions based on new evidence:

Get ready for $1 bitcoins at the end of this month.

Full disclosure: my only prediction was three weeks ago, and though technically it was broken, no one had a chance to buy when it was sub $2.00:
My prediction: prices won't drop below $2 or go above $4 this year.

I'm still standing by this, and will buy more if it drops below $2, and sell if it approaches $4 before the end of the year.
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November 28, 2011, 11:41:58 PM
 #37

If a melt down happens, bitcoins will fall.

Bitcoins are based on the people, who trust the system. If the trust gets lost, ....
Old euros you can burn to heat your soup. For bicoins you need a computer, electri...

So maybe the rest of the world stores bitcoins, but the europeans cannot/won't do this.

Why? Because they notice now that money (also bitoins) isn't worth too much. The "real" things help you, feed you, make your life easier. To store money doesn't make any sense.

Especially the USD isn't any help any more. The europeans have got so much Dollars, because of the high debts of the US-government and the american people, they don't need more. And: The USA has got the same "european" problems. Exactly the same, but more debts and less resources to cope with them.

No currency is the problem and can't be a solution. Most of the time, it's just the trading-mechanism.
The europeans are learning this now. And they are taking the expensive way.

Wow, this prediction is based upon a particularly error filled view of economics.  So if the Euro begins to really collapse, the European "1%" are just going to throw up their hands and say, "Well, it was good while it lasted"?  Of course not, they are going to scramble to do whatever they can to save as much of their wealth as they can in any fashion that they can.  I find it unlikely that Bitcoin will benefit in any significant way, but the US $ certianly would.  Gold would.  Silver might.  Bitcoin just isn't a large enough of an economy to absorb even a small portion of the needs of Europe at this time, and anyone with enough money to bother would be able to understand that up front.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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November 29, 2011, 12:00:31 AM
 #38

With the European 1% you mean the richest ones?
This ones are searching for investments. They are spending all the money they have. None of them tries to have a big bank account, or anything like that.

The money is spent into companies (especially startups), properties, cars...

They use currencies for transactions or speculation. The speculation-part is the fun/casino-part.

Gold/Silver can be ok, but seems to be quite overpriced, because everyone is looking for investments. And these properties became part of the casino.

@US$-benefits: The Euro startet 1:1 to the dollar. And now? Investments in the US didn't pay of for europeans. And for storing value?
Look what happend after 2002.
http://finance.yahoo.com/echarts?s=EURUSD=X+Interactive#chart3:symbol=eurusd=x;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
The investors learned that the FED is printing money.
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November 29, 2011, 01:51:16 AM
 #39

Eh, the downgrade was more a reflection of the pathetic ratings companies, the "Wall Street equivalent of the LA Clippers" as Nate Silver so aptly put it.  The US can and will pay, and everyone knows it.  The US economy is just so staggeringly huge - Walmart's revenue last year was about the same as the GDP of Sweden - the even if the political system is broken, they can still pay back debt eventually.

A credit rating is not determined by the size of an economy, but upon default risk and inflationary risk. At 100% debt to GDP, deficits of 37.5% of the annual budget, more monetization scheduled, an aging population, engaged in multiple wars, the United States certainly represents an inflationary risk. You must be getting your opinion spoon fed directly from the Treasury Dept. AA+ was grossly generous.


I see the spike in CHF-EUR exchange rate in August (6 September), but how did they pull the plug?

The same way all nations are devaluing their currencies: printing more paper.

http://www.snb.ch/en/mmr/reference/pre_20110906/source/pre_20110906.en.pdf


Bitcoin just isn't a large enough of an economy to absorb even a small portion of the needs of Europe at this time...

That is precisely why EUR/BTC will go up!

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November 29, 2011, 04:36:54 AM
 #40

Eh, the downgrade was more a reflection of the pathetic ratings companies, the "Wall Street equivalent of the LA Clippers" as Nate Silver so aptly put it.  The US can and will pay, and everyone knows it.  The US economy is just so staggeringly huge - Walmart's revenue last year was about the same as the GDP of Sweden - the even if the political system is broken, they can still pay back debt eventually.

A credit rating is not determined by the size of an economy, but upon default risk and inflationary risk. At 100% debt to GDP, deficits of 37.5% of the annual budget, more monetization scheduled, an aging population, engaged in multiple wars, the United States certainly represents an inflationary risk. You must be getting your opinion spoon fed directly from the Treasury Dept. AA+ was grossly generous.

I see what you're saying in theory, but practice appears to disagree, with the inflation rate down since 2000, when the US had 60% debt to GDP ratio, a $236 billion surplus, and zero wars:


It seems clear to me that there's more to exchange rates than your theory.  My thought is that exchange rates reflect who's the least fucked-up of countries, not who's the best.  And while the US is undoubtedly dysfunctional, the EU is even more fucked with a lack of meaningful regional monetary policy, and a commitment to austerity that's strangling their economy.

And for whatever it's worth, I'm a Krugman and Roosevelt Institute fan.
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November 29, 2011, 05:42:19 AM
 #41

Are you aware that housing prices are included in core inflation statistics but that food and energy are not? I don't know where those headline data come from, but they conflict with data I trust:



The United States tripled its M0 supply as higher aggregates collapsed since late 2008. Most of that cash is parked at the Federal Reserve and will trickle out into the economy over the decade.

When you intend to buy and hold sovereign debt (US treasury bonds) you need to calculate the chance that the country will refuse to honor their debt or will pay you back in devalued currency IN THE FUTURE. Monetizing debt is a sure way to devalue a currency.

The United States' budget has been in deficit 37.5% over revenue each year, to the tune of $1.56 trillion (2011), with debt payments at $0.25 trillion -- 16% of the current deficit will pay off previous deficits. The US public debt has doubled in five years.

Which do you think is more likely: that the United States will increase taxes or cut spending 40%, reduce the budget and pay off its debt; or reduce taxes, increase spending, increase the debt burden, and monetize payments?

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November 29, 2011, 06:52:56 AM
 #42

Are you aware that housing prices are included in core inflation statistics but that food and energy are not? I don't know where those headline data come from, but they conflict with data I trust:
I think if you take your red line and do a 36 month moving average, you get the graph I posted.

Shadow Government Stats looks like a nifty site, I'll read more when I have some time.

Quote
When you intend to buy and hold sovereign debt (US treasury bonds) you need to calculate the chance that the country will refuse to honor their debt or will pay you back in devalued currency IN THE FUTURE. Monetizing debt is a sure way to devalue a currency.

The United States' budget has been in deficit 37.5% over revenue each year, to the tune of $1.56 trillion (2011), with debt payments at $0.25 trillion -- 16% of the current deficit will pay off previous deficits. The US public debt has doubled in five years.

Which do you think is more likely: that the United States will increase taxes or cut spending 40%, reduce the budget and pay off its debt; or reduce taxes, increase spending, increase the debt burden, and monetize payments?
I think you're overthinking how people invest. I've watched people making $200k/yr ask their stockbroker to buy stocks based on the brand name on their work computer (no kidding!).  In the current climate, they lose a bit in stocks and see the wild volatility, they ask their financial adviser "what, traditionally, has been the safest investment?", their adviser says "t-bills", and that's what they buy.  End of story.

I don't know what the right theory is, all I can say is that in practice, most people aren't judging based on fundamentals, but on past performance.  And this might explain why inflation is much lower than one might expect with your theories based on fundamentals.

One of my favorite sayings by Keynes: "The market can stay irrational a lot longer than you and I can stay solvent."
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November 29, 2011, 08:32:00 AM
 #43

they ask their financial adviser "what, traditionally, has been the safest investment?", their adviser says "t-bills", and that's what they buy.  End of story.
Pretty crappy financial adviser then, if he doesn't give any financial advice.

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November 29, 2011, 12:17:03 PM
 #44

That tends to be the way it works. The guy asked for specific advice the FA gave him that specific advice.

I would say that if one needs to ask that question, then any advice more sophisticated than a straight answer is probably wasted.

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November 29, 2011, 12:38:03 PM
 #45

I would say that if one needs to ask that question, then any advice more sophisticated than a straight answer is probably wasted.

Maybe I'm not the average one, However, for me it seems that people around starting to think about it.
They are searching the bank-ratings, choose fonds with blueChips, invest directly, ...
I think this really changed. And they are discussing about the system itself. Not just these "bankster"-stories.

So the euro will get less important. Values and Venture-capital-investments will be get more important.
Maybe this is a possibility for bitcoin as a tool to: Raise money, and help starting companies/coops.



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November 29, 2011, 03:01:52 PM
 #46

Are you aware that housing prices are included in core inflation statistics but that food and energy are not? I don't know where those headline data come from, but they conflict with data I trust:
I think if you take your red line and do a 36 month moving average, you get the graph I posted.

Shadow Government Stats looks like a nifty site, I'll read more when I have some time.

I was being facetious. I know exactly where your data comes from. The Fed has been changing its statistical methods for the past thirty years. It's unreliable historical data.


The United States' budget has been in deficit 37.5% over revenue each year, to the tune of $1.56 trillion (2011), with debt payments at $0.25 trillion -- 16% of the current deficit will pay off previous deficits. The US public debt has doubled in five years.

Which do you think is more likely: that the United States will increase taxes or cut spending 40%, reduce the budget and pay off its debt; or reduce taxes, increase spending, increase the debt burden, and monetize payments?
I think you're overthinking how people invest. I've watched people making $200k/yr ask their stockbroker to buy stocks based on the brand name on their work computer (no kidding!).  In the current climate, they lose a bit in stocks and see the wild volatility, they ask their financial adviser "what, traditionally, has been the safest investment?", their adviser says "t-bills", and that's what they buy.  End of story.

It doesn't matter one bit on longer scales into what coworker Bob invests. MF Global didn't go bankrupt for lack of customers!

You can not avoid the budget numbers I've posted. You should ignore the song and dance performed by politicians on both side of the Atlantic. At most you are suggesting that Bob Coworker is going to prolong an already popped bubble. Save your breath and exhale.


And this might explain why inflation is much lower than one might expect with your theories based on fundamentals.

I referred primarily to monetary inflation. But even Keynes would agree, price inflation will follow with delay (salaries, layoffs take time (sticky vs quantity theory)). The 1970's stagflation blew gaping holes in his and derived theories (Hicks, Phillips). Its fascinating that since Lehmann, Keynes is popular again. That's just wishful thinking on a global scale.

Keynes and Monetarists suggest increased liquidity (print M0 and lend M1 - 0% interest rates, QE) to smooth out recession. The problem is not that they were wrong (who am I to argue with Keynes or Friedman?), it's that increased liquidity was also the policy for the last 20 years to prolong the economic (dot com, housing, bond) bubble. It's analogous to reserving some food for a rainy day: if you raid the pantry during good times, you'll starve during the bad.

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November 29, 2011, 08:22:27 PM
 #47

(who am I to argue with Keynes or Friedman?)

How I wish more people would argue against them. People like Steve Keen:
http://www.youtube.com/watch?v=rGkmgnprrIU

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November 29, 2011, 09:28:14 PM
 #48

I don't think that Keynes was entirely wrong, though his predecessors have failed horribly. Most significantly central banks have applied his theories inappropriately (creating bubbles during booms, rather than smoothing out recession). And now that the central banks are trying to apply Keynes' remedies, they're going to find that they've already used up all the medicine getting high. That's not Keynes' fault.

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November 29, 2011, 09:40:13 PM
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November 29, 2011, 11:33:21 PM
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Keynes and Monetarists suggest increased liquidity (print M0 and lend M1 - 0% interest rates, QE) to smooth out recession. The problem is not that they were wrong (who am I to argue with Keynes or Friedman

Since the root purpose of any scientific theory, economic or otherwise, is to be able to model the observed into a paradiem that permits the scientist to make accurate predictions; they were terribilely wrong.  The 1970's 'stagflation' was regarded as coincidentally impossible by Keyes's general economic theory.  That is where and why Austrian economic theory shines, by making predictions of long term outcomes.  That is the "one lesson" from the book by Hazlitt, Economics in one Lesson.  To quote the lesson, "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."

That's the macro in a nutshell.  If an economic theory cannot predict the long term effects of national monetary policies have on everybody then it's a false idol.  Keynesism in all it's forms should have been abandoned as false by 1979.  That's exactly why Ron Paul and Peter Schiff have been so prophetic in their warnings about where this country was headed for the past decade or more, and exactly why Austrian investors like Mish Shedlock and Rich Maybury make a killing while investing into what amounts to the ineffectivenesses of Keynesian and Monetarist theories.  These theories persist because they favor government with the idea that economies can actually be controlled by reason of altering one of the variable in the calculations, but in reality an economy is just a huge set of independent actors (generally) doing what (from their own perspectives) is in their own best interests.  At root, then, Economics is a social science, and is therefore not subject to the rigid rules that apply to hard sciences.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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November 29, 2011, 11:35:48 PM
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I don't think that Keynes was entirely wrong, though his predecessors have failed horribly.

Are you sure that you intended to say his predecessors?

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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November 29, 2011, 11:43:47 PM
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I doubt a UN world currency will be created if Euro fails.  I'm pretty sure the main reason the Euror is failing is that multiple countries with multiple fiscal policies are trying to use a single currency that needs a single fiscal policy. 

Another reason might be that USD and China are in a currency war (not alone) inflating their currencies so that eurozone must do the same in order to minimize harm to exports.

Expanding the currency to the whole world would not really solve anything. 

Right, it doesn't. Printing more money does not create new wealth, it merely transfers existing wealth and fucks up price discovery machanisms and free market in the process.
I cannot understand how we could be so stupid as to adopt such a ridiculous system that has failed so many times before.

Well, if we don't learn from history, we will relive it.

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November 30, 2011, 12:29:05 AM
 #53

I don't think that Keynes was entirely wrong, though his predecessors have failed horribly.

Are you sure that you intended to say his predecessors?

Right, I meant postdecessors. No, I meant descendants, those his ideas influenced. Smiley


The 1970's 'stagflation' was regarded as coincidentally impossible by Keyes's general economic theory.

That's what I'm specifically challenging. It was William Phillips' 1958 paper that codified the relationship between employment and inflation (wages actually). Friedman among others received the Nobel prize for crushing Philips with 70's stagflation data. Keynes just referred to these deltas as 'sticky'.

I don't want to be labeled as the great defender of Keynes. But to be fair, he recommended counter-cyclical policy, not deficit spending bubble pumping that has been enacted in his name since.

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November 30, 2011, 02:15:36 AM
 #54

I don't want to be labeled as the great defender of Keynes. But to be fair, he recommended counter-cyclical policy, not deficit spending bubble pumping that has been enacted in his name since.

Quote from: Ron Paul
..., it is true that paper money has always produced evil, but it is because it has not been properly managed. But, if there is not something essentially bad in fictitious money, there seems to be something in human nature which prevents it from being properly managed.

Maybe Keynes isn't so wrong after and we're just as humans incapable to execute his ideas correctly.

If this is true, we have 2 options:

  • have our money supply managed by computers according to unchangable rules
  • back our money with something precious (gold, bitcoin,...)

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November 30, 2011, 03:10:31 AM
 #55

While Keynes celebrated the abandonment of the Gold Standard in England, he did not invent paper nor fractional reserve. Before Keynes, governments just financed war through monetary inflation. Keynes suggested instead raising interest rates and taxes during booms and deficit spending during busts. Whether right or wrong, that is NOT what the United States and Europe have followed for the past forty years. They (Europe by treaty and law) set inflation targets and primed the economies continuously as if perpetual growth could be sustained indefinitely.

http://www.youtube.com/watch?v=_9DH07MBG_w&t=4s

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November 30, 2011, 08:28:33 PM
 #56

I don't want to be labeled as the great defender of Keynes. But to be fair, he recommended counter-cyclical policy, not deficit spending bubble pumping that has been enacted in his name since.

That is one of the problems with the dismal science, Keynes was a great and intelligent guy in his own right, and very well might be accurate in everything that he intended to communicate about what he understood about Economics; but then the failures of his students to understand (and therefore implement) his ideas are still Keynes own failures.  It's like saying that the Bible is the perfect word of God, and it's humans that screw it up; although it could be true taken alone it makes no difference for the outcomes.  Praxeology (and thus Austrian economic theory) views human interactions (including economic ones) to be a social science, and studies it from that perspective/paradigm.  It makes few promises about predictions, because humans are too complex to break down their actions into mathmatical algos, there is always going to be data that cannot be represented in such simulations.  It's like those 3D computer simulations of flocks of birds.  Sure we can model the mathmatics to mimic such behavior in a computer simulation, what we cannot do is use those mathmatics to predict how real flocks of birds would actually act in the real world.  The reason for this is that the simulations are simply mimicry of real birds, and must make numerous assumptions about the decision making processes of any given flock of birds.  Just as this decision making process is a complex and rapid group communications process that we can't come close to gathering enough data to model, the collective decisions that millions of independent human beings make each day can't be simulated either, for the simple fact that it's impossible for the observer to know all the data that all of the individuals know.  Austrians tend to refer to this principle as a 'fatal conceit'.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 01, 2011, 01:37:01 AM
 #57

Fascinating thread, thanks for the perspectives!

It makes me think that money, like agriculture, was a necessary invention, but both created almost as many problems as they solved.  Our civilization is still dealing with the fallout from both those enormous changes, and trying to mitigate the effects of the resulting problems.  One only has to look at the history of economic predictions to see how poorly our current systems are working.
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December 18, 2011, 03:24:47 PM
 #58

Goldman Sachs predictions on Eurozone: http://www.zerohedge.com/news/goldman-endgame-approaches-rally-aaa-euro-area-sovereign-bonds-no-longer-seems-sustainable
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December 19, 2011, 12:28:29 AM
 #59


The same Goldman Sachs that helped Greece to misreport their deficit / spending and had bets on their default?

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December 19, 2011, 01:49:57 AM
 #60

My take...

The Euro Crisis is bank-driven. Euro-nations cannot cannot pay back their bad debts to these banks and America is highly leveraged in this Euro Ponzi scheme

Bitcoins have no banking component. Bitcoins will be affected to the extent that the USD will be affected in value, when the Banks fail. The only liquidity Bitcoins have, for now, is exchanging back to USD / fiat money.
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December 19, 2011, 01:54:29 AM
 #61

LOL, take a wild guess.

It obviously affects Bitcoin. EUR is imminently endangered of a crash, USD is stupid monopoly money, Gold and Silver are bubbling as much as they can already. People are desperate for alternatives.
Gold+Silver are not in bubble territory yet. Once you get a foreclosed house with a ounce of gold and a car with an once of silver we are talking.


You can get houses in Detroit, Michigan for less than an ounce of gold.

I was wondering: the countries that now use the Euro, do they still circulate their own national currencies?

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December 19, 2011, 02:04:59 AM
 #62

I was wondering: the countries that now use the Euro, do they still circulate their own national currencies?

No. I'm sure they've still got the molds for the coins and printing plates for the notes, but the old currencies were phased out a decade ago*. In most countries** there was a window for redemption at fixed rates, after the window closed the coins were officially worth no more than melt or collector value (which is not much).

* Of course new entrants to the Euro-zone were phased out later, such as Estonia which only fixed the kroon 15.6:1 EUR last year.

** http://en.wikipedia.org/wiki/Euro#Introduction_of_the_euro

1992 The euro was established by the provisions in the 1992 Maastricht Treaty.
1995 The name "euro" suggested by Belgian Esperantist Germain Pirlot, 4 August 1995
1995 The name "euro" was officially adopted in Madrid on 16 December 1995
1998 Rates determined based on the market rates on 31 December 1998 (Greek drachma was fixed several months beforehand)
1999 Introduced in non-physical form (traveller's cheques, electronic transfers, banking, etc.) at midnight on 1 January 1999.
2001 Germany mark officially ceased to be legal tender on 31 December 2001
2002 Euro notes and coins were introduced on 1 January 2002.
2002 The changeover period lasted about two months, until 28 February 2002
2002 Portuguese escudos ceased to have monetary value after 31 December 2002, although banknotes remain exchangeable until 2022.
**** Currencies of Austria, Germany, Ireland and Spain continue to be accepted by national central banks forever

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December 19, 2011, 08:43:53 AM
 #63


The same Goldman Sachs that helped Greece to misreport their deficit / spending and had bets on their default?

Well - I read it as in this paper they had to admit their error in betting on Euro bailouts.
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December 19, 2011, 09:09:22 AM
 #64

You can get houses in Detroit, Michigan for less than an ounce of gold.

There's a very good reason for that: the properties have property tax arrears that the new owner must pay.  The house will still be valued at somewhere near its original value, not sub $2k, so the property taxes are going to be hefty.  The house has probably been stripped of all materials, used as a crack house and located in a neighbourhood where people are afraid to walk the streets during the day.

Some enterprising Americans are advertising these 'screaming bargains' to naive Australian property investors as a fantastic buying opportunity.  There's a sucker born every minute, and plenty are being hatched right now in Australia.


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December 19, 2011, 07:45:21 PM
 #65

Re: How an EURO melt down will affect bit coins?

When the € goes tits up expect protectionism & monetary controls to be the order of the day

Bank of England's working paper argues that it might be necessary to impose capital controls to repair the global financial system

Bitcoin may then come in to it's own as it is very hard to enforce monetary controls on it's almost instant international free flow of funds


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December 19, 2011, 07:52:16 PM
 #66

What is capital control exactly?

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December 19, 2011, 09:46:20 PM
 #67

What is capital control exactly?

Not answering your question, but...

'capital controls' are, I suspect, something which is going to do two things for Bitcoin:

 1) attract a significant interest from people who have some money.

 2) 'legitimize' Bitcoin's reputation.

I'll expand on #2 since I think it may be quite important.  As long as Bitcoin can be painted as being used by gamblers, druggies, scamers, etc, it is relatively easy manipulate public opinion about it (the the extent that it is even known of.)  Most 'normal' people will quite rationally consider Bitcoin to be a dark thing, and at least tacitly support any efforts that the authorities my take against the system.

OTOH, almost everyone is going to be able to relate to a countries citizens trying to protect their own savings against the backdrop of draconian capital control measures and wealth appropriation.  If Bitcoin is used for this purpose, and if such use of Bitcoin becomes more well known, it has the potential to be a very significant and positive 'PR' ramifications for the system.


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December 19, 2011, 11:30:08 PM
 #68

What is capital control exactly?

Quote from: Wikipedia
Capital controls are measures such as transaction taxes and other limits or outright prohibitions, which a nation's government can use to regulate the flows into and out of the country's capital account.

Types of capital control include exchange controls that prevent or limit the buying and selling of a national currency at the market rate, caps on the allowed volume for the international sale or purchase of various financial assets, transaction taxes such as the proposed Tobin tax, minimum stay requirements, requirements for mandatory approval, or even limits on the amount of money a private citizen is allowed to remove from the country. There have been several shifts of opinion on whether capital controls are beneficial and in what circumstances they should be used.

I'd expect Bitcoin to become a very hot topic in case of capital controls in Europe.

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December 19, 2011, 11:38:14 PM
 #69

So, if that is implemented, all those measures could effectively be circumvented using bitcoin?

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December 19, 2011, 11:52:29 PM
 #70

So, if that is implemented, all those measures could effectively be circumvented using bitcoin?

assuming bitcoin would be big enough to move such amounts of money around, yes.

on the other hand, control btc exchanges, find out who where converted money to bitcoin, track their customers' bitcoins movement and see if they cashed out into other currency abroad and there you go, busted. blockchain is public, exchangers' records can be inspected and either way government could take its share (either tap the money on the out exchange or simply take your bitcoins). if they'll be smart enough to know what's bitcoin, they would be capable of wiping the balances at gox or any other exchange. just curious if they would send them to an invalid address (read destroy) or they would 'get lost' in the archives and find a way to black market.

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December 19, 2011, 11:55:46 PM
 #71

So, if that is implemented, all those measures could effectively be circumvented using bitcoin?

I would doubt it and cannot visualize it ('all' being a very broad term.)

I could see Bitcoin being mainly a way of transferring value across international borders in a relatively reliable and autonomous manner.  That is a sharp tool to have, but the major problem remains of how to get control of BTC in the first place.  First movers (into almost anything but assets under national control) will have a big advantage.  Then Bitcoin could provide a mechanism which is helpful in allowing the value of these things to migrate across borders.


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December 20, 2011, 12:01:10 AM
 #72

Re: How an EURO melt down will affect bit coins?

When the € goes tits up expect protectionism & monetary controls to be the order of the day

Bank of England's working paper argues that it might be necessary to impose capital controls to repair the global financial system

Bitcoin may then come in to it's own as it is very hard to enforce monetary controls on it's almost instant international free flow of funds



So what you're saying is, Bitcoins might be the ultimate wealth life preserver if  the Global Economic Crisis reverts to Financial Martial Law.
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December 20, 2011, 12:49:54 PM
 #73

In most countries** there was a window for redemption at fixed rates, after the window closed the coins were officially worth no more than melt or collector value (which is not much).
[..]
**** Currencies of Austria, Germany, Ireland and Spain continue to be accepted by national central banks forever

Its the same here in Belgium, and I assume(d) elsewhere too; you can still change your old notes and even coins. They are no longer legal tender though, so you can not pay with them.

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December 20, 2011, 01:05:12 PM
 #74

When the € goes tits up[...]

pix plz

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December 20, 2011, 02:07:51 PM
 #75

Keynes ... to be fair, he recommended counter-cyclical policy, not deficit spending bubble pumping that has been enacted in his name since.
The intractible problem with Keynes is that you can never tell when the cycle begins and ends until after it has happened. At any instant, you don't know how much of the growth is the underlying steady growth, and how much is illusory cyclical growth.

Gordon Brown made a big noise about balancing the budget "over the economic cycle", but in the later years of the credit-induced boom he was already increasing the government deficit because he thought those were the leaner years of the cycle, when actually they turned out to be the fattest. Almost no-one (and certainly no Keynsians) challenged him at the time.
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December 20, 2011, 04:04:13 PM
 #76

Keynes ... to be fair, he recommended counter-cyclical policy, not deficit spending bubble pumping that has been enacted in his name since.
The intractible problem with Keynes is that you can never tell when the cycle begins and ends until after it has happened. At any instant, you don't know how much of the growth is the underlying steady growth, and how much is illusory cyclical growth.

Gordon Brown made a big noise about balancing the budget "over the economic cycle", but in the later years of the credit-induced boom he was already increasing the government deficit because he thought those were the leaner years of the cycle, when actually they turned out to be the fattest. Almost no-one (and certainly no Keynsians) challenged him at the time.

There are always innumerous cycles/waves of different magnitude playing out simultaneously. However, when the central banks start playing with near-zero percent interest rates, they are up to some artificial inflationary policy, they are priming the economy, and they know it. Central banks target core price inflation and have a very good idea of market growth.

Alan Greenspan inflated the economy in the 90's and the policy was continued in the 00's (and Clinton made similar noise). Just because few complained does not in anyway suggest that it was John Maynard Keynes policy. Remember, the time period was referred to as the "New Economy".

Billions of people label themselves Liberal, Conservative, Intelligent, Beautiful, and Clever, but let us not presume that they are.

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