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Author Topic: Hyperdeflation, own half the world by headstart - don't you care at all?  (Read 4398 times)
Haplo
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March 26, 2012, 03:12:49 AM
 #41

While I do agree that the CPI doesn't fully reflect reality as the standard basket of goods which it is based on keeps changing.

But with 6% we are looking at a doubling of prices on average within 12 years, or halving of value.
That simply hasn't happened. I remember well enough what my purchasing power and of the company I work with was in 2000 and how it changed given income and my standard of living. I guess there are some areas in the US where that happened, but I don't see it.
SGS recently calculated even 10.5%(!), nobody could believe that we are dealing with stats that have longterm validity here. There value is just as skewed as the CPI, just in the other direction.

Well, unfortunately things aren't so simple. The main issue with the USD is that because it's used as a reserve currency (see: oil) the US can export it's inflation to other countries. As a result, we only see a small amount of that inflation in the states. Until everyone throws their dollars back at us, prices will rise faster everywhere else than they do here.

A common (although colloquial) method of gauging this is the "Big Mac Measure". Ie, the price of a Big Mac in various countries over time. In other places like Australia and South America (many south american countries basically use the USD as their official currency, or unofficially by backing their currency 100% with USD), the price of a Big Mac has skyrocketed, although unfortunately I no longer have those particular numbers available.

Technically that means that if you make more than the "nominal" inflation rate in interest, if you cash out quickly enough you can keep your gains and avoid being crushed by the sudden inflationary backlash that is coming, but that's catching a falling knife to say the least.

There are a few other reasons that apparent inflation is relatively low, mainly to do with the unnecessarily complicated way in which the banking system works, and the interactions between inflationary lending and deflationary paying back of the loans. Price inflation is non-linear, which is why "economic bubbles" happen rather than all prices going up evenly. When the bubble "pops", the price of the bubble asset moves back towards a fair market value, and anyone who had financial securities in the bubble asset goes shit broke, a la the whole financial industry in 2008.

Bubbles have occurred in college tuitions (most people graduate with literally a mortgage worth of debt today), automobiles (subprime auto loans) and houses, just naming the main ones. All are a result of artificially low interest and easy money policies (a la robosigning). The general chain of events goes something like:

Easy money policy -> Artificial demand -> Rising prices -> Stagnation -> Insolvency -> Government Bailouts

Rinse, repeat.

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MoonShadow
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March 26, 2012, 03:34:17 AM
 #42



MoonShadow, I don't think bitcoin is screwed if the dollar returns to a gold standard,  these are not mutually exclusive. Comparing the graph for gold value to bitcoin I don't see the correlation, and I don't think these two will be excluding each other even if they would both be deflationary. They are 'controlled' by different mechanisms for starters.



Maybe not 'screwed', but it's adoption would be hampered if the US $ returned to a true gold standard, because then the US $ (which is already fairly digital in nature) could easily go the distance and become an online competitor worldwide against bitcoin.  Since bitcoin is neither backed by anything, nor is it an international reserve currency like the US $ is, it would likely get crushed if Ron Paul wins and actually succeeds in ending the Fed.

"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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March 26, 2012, 03:21:54 PM
 #43

Maybe not 'screwed', but it's adoption would be hampered if the US $ returned to a true gold standard, because then the US $ (which is already fairly digital in nature) could easily go the distance and become an online competitor worldwide against bitcoin.  Since bitcoin is neither backed by anything, nor is it an international reserve currency like the US $ is, it would likely get crushed if Ron Paul wins and actually succeeds in ending the Fed.

...so let's just hope that a person like R.P. never wins a presidential election.

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March 27, 2012, 04:42:12 AM
 #44

I think you guys are trying to apply real world economic concepts to a completely virtual structure.  Bitcoins have zero value beyond the BTC Network.  Sure they are exchange traded against currencies like the USD, EUR etc, but it is unlikely that BTC would be used as a replacement for those currencies.  Just try and move some of your coins to pay for your electricity bill, with the fees it suddenly kills your $/kWh.

For me, BTC are valuable in an age where information is the commodity that is constantly traded; open an article on Huffington Post and you are exchanging your impression of a diaper ad for an article on Lady Gaga's meat dress.  That paradigm of advertising to support information has a limited life span (my guess is another 4 to 6 years), beyond that information will need to be directly monetized to its audience and a micro payment structure will be required to handle the transactions.  Right now there is not enough infrastructure to make this viable with BTC (we would need many magnitudes more of hashing power) but it will happen down the road.  Remember, BTC are divisible to 8 powers of ten. That is the smallest fraction of a BTC would be 0.00000001.  Maybe this will be called fractional currency expansion?

Mining with FPGAs will allow people to have an interest paying bank in their back pocket for information purchases.

@Haplo,
I totally agree with your description of the debt/interest cycle.  It is important to remember that our current interest rates are practically below inflation, which in China is diluting their currency against their infrastructure.  Isn't the only way out to stop participating?
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March 27, 2012, 01:29:34 PM
 #45

Maybe not 'screwed', but it's adoption would be hampered if the US $ returned to a true gold standard, because then the US $ (which is already fairly digital in nature) could easily go the distance and become an online competitor worldwide against bitcoin.  Since bitcoin is neither backed by anything, nor is it an international reserve currency like the US $ is, it would likely get crushed if Ron Paul wins and actually succeeds in ending the Fed.

...so let's just hope that a person like R.P. never wins a presidential election.


Or, perhaps, you could learn that the POTUS doesn't have the power to abolish the fed, nor institute a gold standard?

Honestly, it's not realistic regardless of who wins.

"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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March 27, 2012, 03:00:16 PM
 #46

Maybe not 'screwed', but it's adoption would be hampered if the US $ returned to a true gold standard, because then the US $ (which is already fairly digital in nature) could easily go the distance and become an online competitor worldwide against bitcoin.  Since bitcoin is neither backed by anything, nor is it an international reserve currency like the US $ is, it would likely get crushed if Ron Paul wins and actually succeeds in ending the Fed.

Quote from: MoonShadow
Or, perhaps, you could learn that the POTUS doesn't have the power to abolish the fed, nor institute a gold standard?

Yes, I knew that (one reason why I don't take RP seriously), but the thing that I just learned is that it is hard to take your statements seriously, it seems either you contradict yourself or you don't consider the logical implications of your statements (do you see a difference of 'ending' or 'abolish' in the context of your statement, or simply believe that the preamble 'actually succeeds' invalidates or even negates above statement anyways)?

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March 27, 2012, 03:19:43 PM
 #47

I think you guys are trying to apply real world economic concepts to a completely virtual structure.  Bitcoins have zero value beyond the BTC Network.  

Most modern currencies have zero value unless someone accepts them or backs them up. That's one of the reasons some people wish for a gold standard again, but really a currency gets their value by acceptance and the economy that it supports (which is still growing in case of bitcoin).

Quote
<snip the rant>
BTC are divisible to 8 powers of ten. That is the smallest fraction of a BTC would be 0.00000001.  Maybe this will be called fractional currency expansion?

And the dollar has a fraction of 0.01, many internal accounting systems have many more digits after the coma, where's your point?
If your point is, that BTC is supposed to increase in value to the point (in a distant future) where we will be paying with mBTC or uBTC, there's a term for that, it's called deflation. So what was your point again?

Quote
Mining with FPGAs will allow people to have an interest paying bank in their back pocket for information purchases.
Ahhhh, so? Let's recall the title of the thread:  "Hyperdeflation, own half the world by headstart - don't you care at all?"

Quote
It is important to remember that our current interest rates are practically below inflation, which in China is diluting their currency against their infrastructure.  Isn't the only way out to stop participating?

Yes, I would think that most of us realized that interest rates are not just 'practically below inflation', they are definitively below inflation right now. The fed thinks we should spend more to boost economy...
After commenting on you stating the very obvious, now to something different (I'm not quite sure how you made this turn): You may have noticed that with China holding a serious amount of US debt (and of other countries; many politicians are pounding on that right now) and given a globalized economy, how do you envision your way out to stop participating? And would you care to elaborate on how exactly this directly relates to the topic at hand?


 

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March 27, 2012, 03:28:05 PM
 #48



Quote
<snip the rant>
BTC are divisible to 8 powers of ten. That is the smallest fraction of a BTC would be 0.00000001.  Maybe this will be called fractional currency expansion?

And the dollar has a fraction of 0.01, many internal accounting systems have many more digits after the coma, where's your point?
If your point is, that BTC is supposed to increase in value to the point (in a distant future) where we will be paying with mBTC or uBTC, there's a term for that, it's called deflation. So what was your point again?

 

<cough>  Ahh, no.  It's not.  That would be currency appreciation, not deflation.  I don't understand why this concept is so hard.  From an economic perspective, deflation is a (relative) reduction in the monetary base in circulation.  Changes in the value of the currency/the prices of goods in that currency is often a symptom of deflation or inflation, but changes in the monetary base are not the only (or even the majority) reason for such visable symptoms.

"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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March 27, 2012, 03:38:33 PM
 #49

<cough>  Ahh, no.  It's not.  That would be currency appreciation, not deflation.  I don't understand why this concept is so hard.  From an economic perspective, deflation is a (relative) reduction in the monetary base in circulation.  Changes in the value of the currency/the prices of goods in that currency is often a symptom of deflation or inflation, but changes in the monetary base are not the only (or even the majority) reason for such visable symptoms.

Hope your cough gets better soon MoonShadow.

Deflation/Inflation have a simple definition: Change in money supply over growth rate of supporting economy.  
(there's actually also the other definition that the CPI uses).
Important is the rate of change. Money supply doesn't need to shrink to cause a deflation; if the economy grows at a faster rate than the money supply, it is a deflation. But that's nothing new, it has been discussed up and down everywhere. If you like to call it 'currency appreciation' based on your diagnosis of 'symptoms', whatever. I guess you just want to emphasize that inflation is not necessarily equal to rising prices according to the classical definition of inflation, that's fine with me.


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March 27, 2012, 04:41:43 PM
 #50

If there's no way to regain lost BTC then surely there'll be there be a gradual fall in the supply once we reach the 21 million as people inevitably lose their wallets/forget their passphases/die without telling anyone?

By then the big (central) banks will probably have created their own version(s) and mandated that people use it but then you get the same problem just with different beneficiaries.
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March 27, 2012, 06:10:17 PM
 #51

If there's no way to regain lost BTC then surely there'll be there be a gradual fall in the supply once we reach the 21 million as people inevitably lose their wallets/forget their passphases/die without telling anyone?

By then the big (central) banks will probably have created their own version(s) and mandated that people use it but then you get the same problem just with different beneficiaries.

Yes, but I don't think that issue has a scale large enough to be of economic concern to BTC.

Certainly if you think in astronomical time intervals that would mean eventually there would be just a few BTC left as we inevitably continue losing coins. But then again, when will we have an issue with that? 15 years, 20 years, 25 years? Will we even have BTC then, BTCv2, something else? A new chain with different proof-of-work/stake concept, better encryption, SHA3, something else?

So I would not think that there's a practical contribution of the lost coins to the longterm deflationary properties of BTC.  


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March 28, 2012, 02:41:31 AM
 #52

@wogaut
I am an engineer not an economist, I will try explain my thoughts more eloquently.
Quote
And the dollar has a fraction of 0.01, many internal accounting systems have many more digits after the coma, where's your point?
If your point is, that BTC is supposed to increase in value to the point (in a distant future) where we will be paying with mBTC or uBTC, there's a term for that, it's called deflation. So what was your point again?
I think what I was trying to say is that BTC is much easier to split and transact than dollars and cents.  I don't see the value of BTC going down relative to real world items(electricity for example), more like the commodities (articles on a news site for example) that are represented by BTC grow quicker than and will drop value at a rate proportional to the growth of the BTC economy.  For example, New York Times charges a 0.001BTC/article when it costs the network 0.0001BTC/transaction.  As the network increases its hashing power, the cost per transaction decreases to say 0.00001BTC/trans., the CPA could drop to 0.0001BTC/article.  Does that make more sense?
Quote
Quote
Mining with FPGAs will allow people to have an interest paying bank in their back pocket for information purchases.
Ahhhh, so? Let's recall the title of the thread:  "Hyperdeflation, own half the world by headstart - don't you care at all?"
The difference here is that there is a limited supply of BTC, so the 'interest' for lack of a better term is actually a reward for supporting the network.  And remember, the greater the Hash/s, the greater the difficulty.
Quote
Quote
It is important to remember that our current interest rates are practically below inflation, which in China is diluting their currency against their infrastructure.  Isn't the only way out to stop participating?
Yes, I would think that most of us realized that interest rates are not just 'practically below inflation', they are definitively below inflation right now. The fed thinks we should spend more to boost economy...
After commenting on you stating the very obvious, now to something different (I'm not quite sure how you made this turn): You may have noticed that with China holding a serious amount of US debt (and of other countries; many politicians are pounding on that right now) and given a globalized economy, how do you envision your way out to stop participating? And would you care to elaborate on how exactly this directly relates to the topic at hand?
A good way to stop participating is by not taking on more debt.  It has nothing to do with BTC, but everything to do with the broader economic topic.  My apologies if it has distracted this thread.
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March 28, 2012, 04:39:45 AM
 #53

@wogaut
I am an engineer not an economist, I will try explain my thoughts more eloquently.


Seems to me that you would have made a good economist, but I'm glad that you're an engineer.  Economists don't actually do anything economicly productive, at least not those that actually call themselves economists.

"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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March 28, 2012, 04:48:02 AM
 #54

If there's no way to regain lost BTC

Actually, that's not likely true in the long term.  You see, even though that Bitcoin was designed so that lost keys are unrecoverable, those lost in the past few years are likely to be recovered eventually so long as Moore's Law holds up for another couple generations and the value of a bitcoin shoots for the Moon.  This is because Bitcoin's address creation method is (intentionally) modular, so that newer and more secure algos can be added (or swapped) into the system under the fair expectation that eventually all cryptographic systems that computers can use become insecure with the march of Moore's Law.  So eventually, a different set of algos will replace the current set to stay ahead of that problem, and over a few years all current users will move to the new algos.  Then the lost bitcoins will be visable to everyone because they are the unspent transactions that remain after this move.  Eventually, Moore's Law lowers the bar for brute forcing the old algos enough that 'treasure hunters' are incentivised to set up data centers to hammer at those remaining transactions looking for a keypair 'collision' that produces a private key capable of spending those old coins.  And then they are no longer lost.

This process is likely to take 80+ years even with Moore's Law, however; so don't be worrying about such things right now.

"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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March 28, 2012, 06:45:36 PM
 #55

This process is likely to take 80+ years even with Moore's Law, however; so don't be worrying about such things right now.

2^160 is a big number.  Even with Moore's law 80 years is not sufficient time.  I do agree that if Bitcoin remains active then eventually coins could be recovered but we are talking on a timeline of centuries or even a millennium.
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March 28, 2012, 11:27:05 PM
 #56

This process is likely to take 80+ years even with Moore's Law, however; so don't be worrying about such things right now.

2^160 is a big number.  Even with Moore's law 80 years is not sufficient time.  I do agree that if Bitcoin remains active then eventually coins could be recovered but we are talking on a timeline of centuries or even a millennium.

The same kinds of assumptions were in place for many algos that are now considered broken.  I made my guesstimate based upon the likelyhood that someone is going to come up with a mathamatical shortcut to help them brute force these current algos faster.  But the root of my point is that assuming that the algos that Bitcoin uses at present are secure forever is both wrong and unnecessary at the same time.

"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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March 28, 2012, 11:35:37 PM
 #57

If it becomes a serious issue, in the far distant future (assuming BTC doesn't crash before then for other reasons, and I've got a running list of them now) more BTC can be printed if needed. BTC might be recovered off of a ledger sheet from addresses that have been inactive for 100 years or more, but that's a very long time before any coins could be recovered, and by that time it'd probably be near irrelevant.

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March 29, 2012, 01:30:43 AM
 #58

If it becomes a serious issue, in the far distant future (assuming BTC doesn't crash before then for other reasons, and I've got a running list of them now) more BTC can be printed if needed. BTC might be recovered off of a ledger sheet from addresses that have been inactive for 100 years or more, but that's a very long time before any coins could be recovered, and by that time it'd probably be near irrelevant.

Another newbie who thinks he alone has discovered the Great Bitcoin Flaw (tm) that all the rest of us missed.

Please, enlighten us.  What have you discovered?

"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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March 29, 2012, 03:54:44 AM
 #59

It's not one "great flaw", but rather a war of attrition.

51% attacks could be used to destroy the currency basically by any government who cared to do so. At the current price of $21 million hardly any government around today would sneeze for that cost. There are a number of ways that 51% could be used malevolently, including timejacking attacks, block reversals, empty-block DoS, and so on, some of which may be appealing to self-interested miners, which may lead to problems with internal monopoly.

Other problems include difficulties with consensus if some major change to the software or protocol was required. A central agency (like a bank) can just take some of their servers offline and run off a backup. The same can't be accomplished in BTC without breaking the blockchain to bits. The blockchain is also an economic weakness since it requires common ownership of a limited, and worse yet time constrained resource.

Finally, issues with privacy for users and security for merchants makes the currency relatively unattractive for someone wanting to do business with it, and if enough business support for BTC is not accumulated by the time the block reward drops faster than the exchange rate increases, then the BTC economy may not be able to continue supporting miners through tx fees. Without continuous incentive, BTC would cease to exist, and this is maybe 2017-2025 at the latest. That's not a very long lifespan for a currency, especially not as a "store of value".

The fact that BTC has to deal with both economic issues and technical issues makes it both more complicated and higher risk than other currencies. BTC might die for technical reasons, or from communist revolution or monopoly action by miners, or by lack of economic support, and so on. Until at least some of those issues are dealt with or proven irrelevant, BTC is nothing but an experiment and a speculation, and can't be considered an "investment" in any intelligent sense. BTC does have some potential advantages over gold, but while gold might be easier to confiscate, its market value isn't going anywhere. BTC could disappear overnight for a number of reasons, all of which are harder to predict and prevent than confiscation.

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March 29, 2012, 01:01:38 PM
 #60

Not a single one of those is still valid.  The 51% attack issue was a real problem a year ago, but it no longer is.  Any government that tried to build a gpu cluster capable of overtaking the network now would distort that market and pay huge premiums to do so, even if other goverments didn't secretly oppose them.

"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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