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Author Topic: How an EURO melt down will affect bitcoins?  (Read 6196 times)
netrin
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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
 #50


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
 #51

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
 #52

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?

your ad here:
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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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