Global Financial Crisis scenarios

[tee-rex]

The store of value function leads to bubbles for houses when houses are used for money.

Bitcoin can be considered a bubble for the same reason. The exchange value part of the good is the bubbly part. The bitcoin bubble may never deflate because it is the best money.

Bitcoin solves the problem with housing bubbles. There is never a tooth-paste bubble - because nobody uses toothpaste as a store of value.

I wouldn't say that Bitcoin will solve the problem with housing bubbles, just because there is no direct use value behind it. The house prices can't fall down and reach null for evident reasons (people need homes to live in). Though this doesn't in the least mean that some decrepit houses in dangerous places would be worth anything.

Also, I'm not sure about a tooth-paste bubble, but there had already been a tulips mania (you know what I mean).

Look, if houses fall down to the use value like you describe, and stay there forever, the house bubble problem is solved.

But this would have nothing to do with Bitcoin. If you still doubt my words, consider "paper" gold instead of Bitcoin. Did it prevent housing bubbles? It didn't, and the reason for this is just the direct use value which is present in the case of homes and absent in the case of gold (paper gold, I mean).

[tee-rex]

I'm a little confused here.  You say that bitcoin and fiat have no value for direct use, with which I agree.  You then say that fiat does not work as a store of value.  But then you imply that bitcoin can be a store of value that will suck in all of the extra stored value of the housing market.  Why wouldn't bitcoin and fiat be the same in this regard?  Yes, bitcoin has limited supply, but why does that mean that it should be considered a safe store of value (it would have to be considered even safer than real estate to suck in its stored value)?  Or are you thinking of a future in which bitcoin basically becomes the reserve currency of the world, or at least the dominant currency of a particular country or region?

The difference between fiat and bitcoin is precisely that fiat is unlimited, and bitcoin is limited in supply. Since fiat is unlimited in supply, it can not be used as a store of value. Each  time the supply is doubled, the stored value is halved (well, after the new fiat is dispersed). This is the main difference that bitcoin makes. It is in effect now, no need to wait until all others use bitcoins, if they ever will.

You are not telling the whole truth here. Your point that each time the money supply increases, the value of money decreases is only valid if all other things stay the same. If the money supply stays on par with the economy growth, there will be no decrease in the purchasing power of money. So fiat supply limitlessness is not enough per se to make it different from Bitcoin as a store of value.

The parameters I hold unvariable in the consideration, is the number of people and their holding preferences (the saving rate is 0, or the amount saved does not change).

I do not consider economy growth as input to the money value function. Some do, but that is based on flaky statistics, which are trusted even when they fail. I consider the growth thing as an allegedly plausible way to get out of the current mess.

This is flat-out wrong. Consider there are twice as many goods and services with the same amount of money in circulation. How are you going to sell all these new articles unless the purchasing power of coin increases (that is prices decrease), provided all other things like velocity of money stay the same?

I don't care about volume of goods or velocity of money. Goods and services are sold for goods and services, money oils the trade by enabling indirect trade, there is always enough money, and with bitcoin we don't even have to worry about changing between notes and coins of different number of units.

There could be enough money only if the velocity of money turnover increases in the case the amount of money stays the same while the volume of goods increases in the economy. If you are arguing with this, it proves that you just don't know how money works.

[Erdogan]

I'm a little confused here.  You say that bitcoin and fiat have no value for direct use, with which I agree.  You then say that fiat does not work as a store of value.  But then you imply that bitcoin can be a store of value that will suck in all of the extra stored value of the housing market.  Why wouldn't bitcoin and fiat be the same in this regard?  Yes, bitcoin has limited supply, but why does that mean that it should be considered a safe store of value (it would have to be considered even safer than real estate to suck in its stored value)?  Or are you thinking of a future in which bitcoin basically becomes the reserve currency of the world, or at least the dominant currency of a particular country or region?

The difference between fiat and bitcoin is precisely that fiat is unlimited, and bitcoin is limited in supply. Since fiat is unlimited in supply, it can not be used as a store of value. Each  time the supply is doubled, the stored value is halved (well, after the new fiat is dispersed). This is the main difference that bitcoin makes. It is in effect now, no need to wait until all others use bitcoins, if they ever will.

You are not telling the whole truth here. Your point that each time the money supply increases, the value of money decreases is only valid if all other things stay the same. If the money supply stays on par with the economy growth, there will be no decrease in the purchasing power of money. So fiat supply limitlessness is not enough per se to make it different from Bitcoin as a store of value.

The parameters I hold unvariable in the consideration, is the number of people and their holding preferences (the saving rate is 0, or the amount saved does not change).

I do not consider economy growth as input to the money value function. Some do, but that is based on flaky statistics, which are trusted even when they fail. I consider the growth thing as an allegedly plausible way to get out of the current mess.

This is flat-out wrong. Consider there are twice as many goods and services with the same amount of money in circulation. How are you going to sell all these new articles unless the purchasing power of coin increases (that is prices decrease), provided all other things like velocity of money stay the same?

I don't care about volume of goods or velocity of money. Goods and services are sold for goods and services, money oils the trade by enabling indirect trade, there is always enough money, and with bitcoin we don't even have to worry about changing between notes and coins of different number of units.

There could be enough money only if the velocity of money turnover increases in the case the amount of money stays the same while the volume of goods increases in the economy. If you are arguing with this, it proves that you just don't know how money works.

There is always enough money. If you are arguing with this, consult the policy of the reichsbank of the weimar republic, as expressed by its president Rudolf Havenstein. During the whole hyperinflation, he thought there were not enough money. (Because the value of the sum of money decreased, even if the amount of marks increased). You could also read any of the austrian economic writers.

[tee-rex]

The parameters I hold unvariable in the consideration, is the number of people and their holding preferences (the saving rate is 0, or the amount saved does not change).

I do not consider economy growth as input to the money value function. Some do, but that is based on flaky statistics, which are trusted even when they fail. I consider the growth thing as an allegedly plausible way to get out of the current mess.

This is flat-out wrong. Consider there are twice as many goods and services with the same amount of money in circulation. How are you going to sell all these new articles unless the purchasing power of coin increases (that is prices decrease), provided all other things like velocity of money stay the same?

I don't care about volume of goods or velocity of money. Goods and services are sold for goods and services, money oils the trade by enabling indirect trade, there is always enough money, and with bitcoin we don't even have to worry about changing between notes and coins of different number of units.

There could be enough money only if the velocity of money turnover increases in the case the amount of money stays the same while the volume of goods increases in the economy. If you are arguing with this, it proves that you just don't know how money works.

There is always enough money. If you are arguing with this, consult the policy of the reichsbank of the weimar republic, as expressed by its president Rudolf Havenstein. During the whole hyperinflation, he thought there were not enough money. (Because the value of the sum of money decreased, even if the amount of marks increased). You could also read any of the austrian economic writers.

At first you stated that the economy growth is not relevant to the money value function ("I do not consider economy growth as input to the money value function"), now you are saying that "there is always enough money". Okay, but would you care to explain how the latter is related to the former (provided the amount of money in circulation stays the same)?

[Erdogan]

The parameters I hold unvariable in the consideration, is the number of people and their holding preferences (the saving rate is 0, or the amount saved does not change).

I do not consider economy growth as input to the money value function. Some do, but that is based on flaky statistics, which are trusted even when they fail. I consider the growth thing as an allegedly plausible way to get out of the current mess.

This is flat-out wrong. Consider there are twice as many goods and services with the same amount of money in circulation. How are you going to sell all these new articles unless the purchasing power of coin increases (that is prices decrease), provided all other things like velocity of money stay the same?

I don't care about volume of goods or velocity of money. Goods and services are sold for goods and services, money oils the trade by enabling indirect trade, there is always enough money, and with bitcoin we don't even have to worry about changing between notes and coins of different number of units.

There could be enough money only if the velocity of money turnover increases in the case the amount of money stays the same while the volume of goods increases in the economy. If you are arguing with this, it proves that you just don't know how money works.

There is always enough money. If you are arguing with this, consult the policy of the reichsbank of the weimar republic, as expressed by its president Rudolf Havenstein. During the whole hyperinflation, he thought there were not enough money. (Because the value of the sum of money decreased, even if the amount of marks increased). You could also read any of the austrian economic writers.

At first you stated that the economy growth is not relevant to the money value function ("I do not consider economy growth as input to the money value function"), now you are saying that "there is always enough money". Okay, but would you care to explain how the latter is related to the former (provided the amount of money in circulation stays the same)?

More goods and services mean more wealth, because that is the definition of wealth. More goods and services compared to last year, means that the productivity has gone up. If this happens and nothing else changes, prices measured in money go down and the value of the money goes up, because that is the definition of value of money. So you don't need more money. You never need more money, a fixed supply is always enough.

[tee-rex]

More goods and services mean more wealth, because that is the definition of wealth. More goods and services compared to last year, means that the productivity has gone up. If this happens and nothing else changes, prices measured in money go down and the value of the money goes up, because that is the definition of value of money. So you don't need more money. You never need more money, a fixed supply is always enough.

And now compare what I made bold in your quote with what you said before, that is "I do not consider economy growth as input to the money value function. Some do, but that is based on flaky statistics". You seem to be contradicting your own words.

[CoinsCoinsEverywhere]

I'm a little confused here.  You say that bitcoin and fiat have no value for direct use, with which I agree.  You then say that fiat does not work as a store of value.  But then you imply that bitcoin can be a store of value that will suck in all of the extra stored value of the housing market.  Why wouldn't bitcoin and fiat be the same in this regard?  Yes, bitcoin has limited supply, but why does that mean that it should be considered a safe store of value (it would have to be considered even safer than real estate to suck in its stored value)?  Or are you thinking of a future in which bitcoin basically becomes the reserve currency of the world, or at least the dominant currency of a particular country or region?

The difference between fiat and bitcoin is precisely that fiat is unlimited, and bitcoin is limited in supply. Since fiat is unlimited in supply, it can not be used as a store of value. Each  time the supply is doubled, the stored value is halved (well, after the new fiat is dispersed). This is the main difference that bitcoin makes. It is in effect now, no need to wait until all others use bitcoins, if they ever will.

In one sentence, you say that fiat can't be used as a store of value, and then in the next, you talk about the stored value of fiat being halved.  So can fiat be used as a store of value or not?

I think fiat can be, and is, used as a store of value.  The stored value does fall over time with inflation, but it is still used as a store of value.  When you save money, you're storing something of value that can be exchanged for goods and services.

If bitcoin stabilizes in price and becomes an ingrained global currency, then its limited supply might make it a better store of value than fiat.  But for now, fiat is a better store of value because of its stability.

[CoinsCoinsEverywhere]

The store of value function leads to bubbles for houses when houses are used for money.

Bitcoin can be considered a bubble for the same reason. The exchange value part of the good is the bubbly part. The bitcoin bubble may never deflate because it is the best money.

Bitcoin solves the problem with housing bubbles. There is never a tooth-paste bubble - because nobody uses toothpaste as a store of value.

The fact that bitcoin has been so volatile with lots of bubbles and crashes makes it very bad money.  You want money to be stable.  Yes, the bitcoin bubble may never deflate, but it easily could.  Right now, bitcoin is acting much more like a speculative investment than a currency.

Edit: I also think that bitcoin is likely going to have a lot of problems with ever becoming stable because of its limited supply.

[Erdogan]

I'm a little confused here.  You say that bitcoin and fiat have no value for direct use, with which I agree.  You then say that fiat does not work as a store of value.  But then you imply that bitcoin can be a store of value that will suck in all of the extra stored value of the housing market.  Why wouldn't bitcoin and fiat be the same in this regard?  Yes, bitcoin has limited supply, but why does that mean that it should be considered a safe store of value (it would have to be considered even safer than real estate to suck in its stored value)?  Or are you thinking of a future in which bitcoin basically becomes the reserve currency of the world, or at least the dominant currency of a particular country or region?

The difference between fiat and bitcoin is precisely that fiat is unlimited, and bitcoin is limited in supply. Since fiat is unlimited in supply, it can not be used as a store of value. Each  time the supply is doubled, the stored value is halved (well, after the new fiat is dispersed). This is the main difference that bitcoin makes. It is in effect now, no need to wait until all others use bitcoins, if they ever will.

In one sentence, you say that fiat can't be used as a store of value, and then in the next, you talk about the stored value of fiat being halved.  So can fiat be used as a store of value or not?

I think fiat can be, and is, used as a store of value.  The stored value does fall over time with inflation, but it is still used as a store of value.  When you save money, you're storing something of value that can be exchanged for goods and services.

If bitcoin stabilizes in price and becomes an ingrained global currency, then its limited supply might make it a better store of value than fiat.  But for now, fiat is a better store of value because of its stability.

Fiat is a store of value, but not a good store, as the value evaporates with time. Other money, with a near stable value, is better. Bitcoin is more risky as it can go down further, but since it can also appreciate, it can be described as stable with volatility, or stable with a risk. But I expect the value to go up as far more likely than to go down, so as a store of value it is far better than stable money.

[twiifm]

More goods and services mean more wealth, because that is the definition of wealth. More goods and services compared to last year, means that the productivity has gone up. If this happens and nothing else changes, prices measured in money go down and the value of the money goes up, because that is the definition of value of money. So you don't need more money. You never need more money, a fixed supply is always enough.

If fixed supply is always enough then why inflate btc to 21M?  Why not premine 21M and give everyone an equal amount?  Let the people decide which money they prefer to use?

[Erdogan]

More goods and services mean more wealth, because that is the definition of wealth. More goods and services compared to last year, means that the productivity has gone up. If this happens and nothing else changes, prices measured in money go down and the value of the money goes up, because that is the definition of value of money. So you don't need more money. You never need more money, a fixed supply is always enough.

If fixed supply is always enough then why inflate btc to 21M?  Why not premine 21M and give everyone an equal amount?  Let the people decide which money they prefer to use?

That could have been done (see Auroracoin). The mining is partly for initial distribution of coins.

[CoinsCoinsEverywhere]

I'm a little confused here.  You say that bitcoin and fiat have no value for direct use, with which I agree.  You then say that fiat does not work as a store of value.  But then you imply that bitcoin can be a store of value that will suck in all of the extra stored value of the housing market.  Why wouldn't bitcoin and fiat be the same in this regard?  Yes, bitcoin has limited supply, but why does that mean that it should be considered a safe store of value (it would have to be considered even safer than real estate to suck in its stored value)?  Or are you thinking of a future in which bitcoin basically becomes the reserve currency of the world, or at least the dominant currency of a particular country or region?

The difference between fiat and bitcoin is precisely that fiat is unlimited, and bitcoin is limited in supply. Since fiat is unlimited in supply, it can not be used as a store of value. Each  time the supply is doubled, the stored value is halved (well, after the new fiat is dispersed). This is the main difference that bitcoin makes. It is in effect now, no need to wait until all others use bitcoins, if they ever will.

In one sentence, you say that fiat can't be used as a store of value, and then in the next, you talk about the stored value of fiat being halved.  So can fiat be used as a store of value or not?

I think fiat can be, and is, used as a store of value.  The stored value does fall over time with inflation, but it is still used as a store of value.  When you save money, you're storing something of value that can be exchanged for goods and services.

If bitcoin stabilizes in price and becomes an ingrained global currency, then its limited supply might make it a better store of value than fiat.  But for now, fiat is a better store of value because of its stability.

Fiat is a store of value, but not a good store, as the value evaporates with time. Other money, with a near stable value, is better. Bitcoin is more risky as it can go down further, but since it can also appreciate, it can be described as stable with volatility, or stable with a risk. But I expect the value to go up as far more likely than to go down, so as a store of value it is far better than stable money.

What you're describing is a good investment, not a good currency.  Bitcoin is anything but stable.  Stable plus a little volatility is what the price of a bitcoin on Bitstamp has been for the last few days: it's oscillated only a few dollars around $621 or so.  For normal currencies, a 1% change is big deal.  Look at that article about Venezuela.  60% inflation is insane.  Compare that to the 7000% that bitcoin has gone up in the last 2 years.  You can't tell me that bitcoin is stable.

[Ibian]

Look the price is not supposed to be stable right now. This quest that some people seem to be on is idiotic. They don't understand how the price mechanism works at all.

It's a speculators game all the way to the top. When we have reached full adoption, and spent a number of years riding out the last volatility, then we can begin to talk about stability. Before that it's a waste of time.

[Ibian]

More goods and services mean more wealth, because that is the definition of wealth. More goods and services compared to last year, means that the productivity has gone up. If this happens and nothing else changes, prices measured in money go down and the value of the money goes up, because that is the definition of value of money. So you don't need more money. You never need more money, a fixed supply is always enough.

If fixed supply is always enough then why inflate btc to 21M?  Why not premine 21M and give everyone an equal amount?  Let the people decide which money they prefer to use?

Because Satoshi is not a dirty commie.

But let's entertain that idea once more. For starters, define "everyone". Then explain how the distribution would happen without someone to distribute it and why it would be worth something, anything, under such a scenario.

[CoinsCoinsEverywhere]

Look the price is not supposed to be stable right now. This quest that some people seem to be on is idiotic. They don't understand how the price mechanism works at all.

It's a speculators game all the way to the top. When we have reached full adoption, and spent a number of years riding out the last volatility, then we can begin to talk about stability. Before that it's a waste of time.

I agree, except will bitcoin ever be stable, even after full adoption, etc.?  The issue with limited supply is that everyone expects the value to increase over time as the global economy expands.  This would invite perpetual speculation, which would result in bubbles and crashes.

[Ibian]

Look the price is not supposed to be stable right now. This quest that some people seem to be on is idiotic. They don't understand how the price mechanism works at all.

It's a speculators game all the way to the top. When we have reached full adoption, and spent a number of years riding out the last volatility, then we can begin to talk about stability. Before that it's a waste of time.

I agree, except will bitcoin ever be stable, even after full adoption, etc.?  The issue with limited supply is that everyone expects the value to increase over time as the global economy expands.  This would invite perpetual speculation, which would result in bubbles and crashes.

And there is nothing wrong with that. Not even a little bit. People trade in fiat volatility right now. Most people just don't know it.

[Erdogan]

I'm a little confused here.  You say that bitcoin and fiat have no value for direct use, with which I agree.  You then say that fiat does not work as a store of value.  But then you imply that bitcoin can be a store of value that will suck in all of the extra stored value of the housing market.  Why wouldn't bitcoin and fiat be the same in this regard?  Yes, bitcoin has limited supply, but why does that mean that it should be considered a safe store of value (it would have to be considered even safer than real estate to suck in its stored value)?  Or are you thinking of a future in which bitcoin basically becomes the reserve currency of the world, or at least the dominant currency of a particular country or region?

The difference between fiat and bitcoin is precisely that fiat is unlimited, and bitcoin is limited in supply. Since fiat is unlimited in supply, it can not be used as a store of value. Each  time the supply is doubled, the stored value is halved (well, after the new fiat is dispersed). This is the main difference that bitcoin makes. It is in effect now, no need to wait until all others use bitcoins, if they ever will.

In one sentence, you say that fiat can't be used as a store of value, and then in the next, you talk about the stored value of fiat being halved.  So can fiat be used as a store of value or not?

I think fiat can be, and is, used as a store of value.  The stored value does fall over time with inflation, but it is still used as a store of value.  When you save money, you're storing something of value that can be exchanged for goods and services.

If bitcoin stabilizes in price and becomes an ingrained global currency, then its limited supply might make it a better store of value than fiat.  But for now, fiat is a better store of value because of its stability.

Fiat is a store of value, but not a good store, as the value evaporates with time. Other money, with a near stable value, is better. Bitcoin is more risky as it can go down further, but since it can also appreciate, it can be described as stable with volatility, or stable with a risk. But I expect the value to go up as far more likely than to go down, so as a store of value it is far better than stable money.

What you're describing is a good investment, not a good currency.  Bitcoin is anything but stable.  Stable plus a little volatility is what the price of a bitcoin on Bitstamp has been for the last few days: it's oscillated only a few dollars around $621 or so.  For normal currencies, a 1% change is big deal.  Look at that article about Venezuela.  60% inflation is insane.  Compare that to the 7000% that bitcoin has gone up in the last 2 years.  You can't tell me that bitcoin is stable.

I didn't.

[CoinsCoinsEverywhere]

More goods and services mean more wealth, because that is the definition of wealth. More goods and services compared to last year, means that the productivity has gone up. If this happens and nothing else changes, prices measured in money go down and the value of the money goes up, because that is the definition of value of money. So you don't need more money. You never need more money, a fixed supply is always enough.

If fixed supply is always enough then why inflate btc to 21M?  Why not premine 21M and give everyone an equal amount?  Let the people decide which money they prefer to use?

That could have been done (see Auroracoin). The mining is partly for initial distribution of coins.

And look at how well that worked out for Auroracoin.  While I wish I had a bigger slice of the bitcoin pie, slow distribution is important for adoption, and people need incentive to get into bitcoin and develop businesses around it.

[CoinsCoinsEverywhere]

Look the price is not supposed to be stable right now. This quest that some people seem to be on is idiotic. They don't understand how the price mechanism works at all.

It's a speculators game all the way to the top. When we have reached full adoption, and spent a number of years riding out the last volatility, then we can begin to talk about stability. Before that it's a waste of time.

I agree, except will bitcoin ever be stable, even after full adoption, etc.?  The issue with limited supply is that everyone expects the value to increase over time as the global economy expands.  This would invite perpetual speculation, which would result in bubbles and crashes.

And there is nothing wrong with that. Not even a little bit. People trade in fiat volatility right now. Most people just don't know it.

I agree, there's nothing wrong with a little volatility.  But even the more extreme daily moves in the Forex markets are a percentage point or two, not 10%+.  Although I guess it will depend on how much bitcoins are worth when we reach full adoption.  If they're worth a lot more than they are now (like 10x, 100x, or more), that would limit the volatility.

[Ibian]

Look the price is not supposed to be stable right now. This quest that some people seem to be on is idiotic. They don't understand how the price mechanism works at all.

It's a speculators game all the way to the top. When we have reached full adoption, and spent a number of years riding out the last volatility, then we can begin to talk about stability. Before that it's a waste of time.

I agree, except will bitcoin ever be stable, even after full adoption, etc.?  The issue with limited supply is that everyone expects the value to increase over time as the global economy expands.  This would invite perpetual speculation, which would result in bubbles and crashes.

And there is nothing wrong with that. Not even a little bit. People trade in fiat volatility right now. Most people just don't know it.

I agree, there's nothing wrong with a little volatility.  But even the more extreme daily moves in the Forex markets are a percentage point or two, not 10%+.  Although I guess it will depend on how much bitcoins are worth when we reach full adoption.  If they're worth a lot more than they are now (like 10x, 100x, or more), that would limit the volatility.

At full adoption, as in everyone in the world use it, a "whale" will be anyone with a tenth of a coin. Math provides the answers we seek.