The value problem - explained

[shawshankinmate37927]

Wrong again.  Even central bankers know gold is money...that's why they hoard it.

They also hoard a greater amount of Mortgage Backed Securities and Treasuries.  Its called an asset not money

They hoard the asset-based money to offset the risk of debt-based money.

What are you talking about?  All fiat money is credit.

FTFY.  It's only fiat money that is credit.  Precious metals and cryptocurrencies are not credit.  They aren't issued in the form of debt, but as an asset.

The reasons other Central Banks hold USD because they can use it to settle debts in USD.  The reason USD has value because its backed by assets like gold, securities but mistly treasuries.  Treasuries are debt of USA (US Treasury)

No, they hold USD to back their currencies.  This started when the USD was pegged to gold.  At the time, they agreed to back their currencies with gold indirectly because they could redeem USD for gold as needed.  Also, central banks don't need fiat to settle debt because they don't accumulate debt, they issue debt loans.

None of this has to do with hoarding

The value of money (which is what this thread is about) has EVERYTHING to do with hoarding.  When no one is willing to hold a particular form of money, it's worthless.  It's simple supply and demand.  No demand means no value.

Edit: Should have said "...they issue loans."

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[shawshankinmate37927]

In order for something to be considered as money it needs to have three qualities:
1 - It needs to be a unit of account
2 - It needs to be a store of value
3 - It needs to be a medium of exchange

Gold would not meet this criteria because people will rarely deal in terms of gold, therefore it is not a medium of exchange. Governments hold gold because of it's large and stable value

Those aren't qualities of money; they are the functions of money.  Some of the characteristics that money has to possess in order to fulfill those functions are: scarcity, durability, portability, fungibility, divisibility...

Gold outperforms fiat in scarcity and durability, but fiat outperforms gold in portability and divisibility.  Scarcity and durability are the characteristics that are important for people that live below their means and accumulate savings.  Most people don't fall into this category, so they don't use gold as a medium of exchange.  Those who do fall into this category just convert fiat to gold rather than accept the gold itself as a medium of exchange.

[twiifm]

Wrong again.  Even central bankers know gold is money...that's why they hoard it.

They also hoard a greater amount of Mortgage Backed Securities and Treasuries.  Its called an asset not money

They hoard the asset-based money to offset the risk of debt-based money.

What are you talking about?  All fiat money is credit.

FTFY.  It's only fiat money that is credit.  Precious metals and cryptocurrencies are not credit.  They aren't issued in the form of debt, but as an asset.

The reasons other Central Banks hold USD because they can use it to settle debts in USD.  The reason USD has value because its backed by assets like gold, securities but mistly treasuries.  Treasuries are debt of USA (US Treasury)

No, they hold USD to back their currencies.  This started when the USD was pegged to gold.  At the time, they agreed to back their currencies with gold indirectly because they could redeem USD for gold as needed.  Also, central banks don't need fiat to settle debt because they don't accumulate debt, they issue debt loans.

None of this has to do with hoarding

The value of money (which is what this thread is about) has EVERYTHING to do with hoarding.  When no one is willing to hold a particular form of money, it's worthless.  It's simple supply and demand.  No demand means no value.

Edit: Should have said "...they issue loans."

Gold is not money anymore its an asset.  Cryptos might become money but currently it isnt.  Bitcoins were money inside silk road market.  But not outside

Foreign currencies arent backed by dollars theyre backed by their own treasuries.  Foreign central banks might hold dollars as assets.  But its not to back their money.  Its because they need to setlle debts in dollars

Your idea of money isnt modern.  Search modern monetary theory to have a better understanding

[mnmShadyBTC]

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

Money are essentially IOUs.  It has value because someone accepts it as settlement

If nobody accepts it then it worthless.  Has nothing to do with hoarding

Fiat currencies are essentially IOUs, but not money in general--gold and bitcoins being two examples of money that is not debt-based.  If the central banks around the world that are hoarding dollars in the form of reserves were to suddenly decide they don't want to hoard them anymore then the dollar would certainly collapse in value.  Has everything to do with hoarding.  Hyperinflation is the result of no one willing to hoard the currency.  (When I use the term "hoard" I consider it to be synonomous with "hold" or "save".)

Umm no.  Gold isnt money anymore.  Bitcoin was only a money inside silkroad market.  

Wrong again.  Even central bankers know gold is money...that's why they hoard it.

They also hoard a greater amount of Mortgage Backed Securities and Treasuries.  Its called an asset not money

They hoard the asset-based money to offset the risk of debt-based money.

What are you talking about?  All money is credit.  

The reasons other Central Banks hold USD because they can use it to settle debts in USD.  The reason USD has value because its backed by assets like gold, securities but mistly treasuries.  Treasuries are debt of USA (US Treasury)

None of this has to do with hoarding

If somebody is holding two assets, Gold and IOU's, don't you think there is less risk in holding the Gold? IOU's are great, but not when a company defaults and you're left holding their worthless paper.

Gold only has it's value because the market gives it value. There is very little useful things you can do with gold and if you were to "use" gold then you would be loosing out on a lot of value. You would make the same argument that the market could stop giving gold it's value

[shawshankinmate37927]

Wrong again.  Even central bankers know gold is money...that's why they hoard it.

They also hoard a greater amount of Mortgage Backed Securities and Treasuries.  Its called an asset not money

They hoard the asset-based money to offset the risk of debt-based money.

What are you talking about?  All fiat money is credit.

FTFY.  It's only fiat money that is credit.  Precious metals and cryptocurrencies are not credit.  They aren't issued in the form of debt, but as an asset.

The reasons other Central Banks hold USD because they can use it to settle debts in USD.  The reason USD has value because its backed by assets like gold, securities but mistly treasuries.  Treasuries are debt of USA (US Treasury)

No, they hold USD to back their currencies.  This started when the USD was pegged to gold.  At the time, they agreed to back their currencies with gold indirectly because they could redeem USD for gold as needed.  Also, central banks don't need fiat to settle debt because they don't accumulate debt, they issue debt loans.

None of this has to do with hoarding

The value of money (which is what this thread is about) has EVERYTHING to do with hoarding.  When no one is willing to hold a particular form of money, it's worthless.  It's simple supply and demand.  No demand means no value.

Edit: Should have said "...they issue loans."

Gold is not money anymore its an asset.  Cryptos might become money but currently it isnt.  Bitcoins were money inside silk road market.  But not outside

Foreign currencies arent backed by dollars theyre backed by their own treasuries.  Foreign central banks might hold dollars as assets.  But its not to back their money.  Its because they need to setlle debts in dollars

Your idea of money isnt modern.  Search modern monetary theory to have a better understanding

Gold has been money for thousands of years and will very likely continue to be for many years into the future.  As long as there are people that continue to hoard it as a store of wealth, it's money.  Whether you choose to accept this fact is irrelevant.  It still remains a fact.  Bitcoin is also money because there are people that are willing to hoard it.  Bitcoin or gold may not be your money of choice, but as long as it is the money of choice for anyone that produces goods or provides services then they are both money.

I should have said that foreign central banks "used to hold USD to back their currencies."  Fiat currencies aren't backed by anything now because the issuers will not allow you to redeem them for anything.  Printing new units of currency and buying government debt with it is not backing--it's debasing.

The functions of money have not ever and will not ever change.  This "modern monetary theory" that you refer to is nothing more than an elaborate scam.  I understand it well and I'm quite familiar with how it works.  When you decide that you're ready to be deprogrammed, I recommend you start off with reading The Creature from Jekyll Island.  From looking at the reviews, it appears to have helped a lot of people in your shoes.

[btcbug]

If somebody is holding two assets, Gold and IOU's, don't you think there is less risk in holding the Gold? IOU's are great, but not when a company defaults and you're left holding their worthless paper.

Gold only has it's value because the market gives it value. There is very little useful things you can do with gold and if you were to "use" gold then you would be loosing out on a lot of value. You would make the same argument that the market could stop giving gold it's value

I agree, everything has and maintains its value because other people (the market) value it. Gold could be a useless chunk of metal, just like IOU's could be defaulted on. However, if I was to prioritize the risk levels of both Gold and IOUs, I would rank Gold as the less risky asset to hold.

If I could be absolutely guaranteed of future repayment of the IOU, then I'd agree that the future productivity would be more valuable than Gold. The world we live in doesn't have those guarantees and that's part of the reason why we use these tools to store value in the first place.

Gold as a store of value has it's history behind it and therefore almost zero chance the market will stop giving gold it's value (unless Bitcoin completely takes its place).  That is why they say fiat currency, bonds, etc. all have what's called "counter-party risk". The risk of the issuer defaulting is much higher than the risk of the whole market deciding Gold is worthless.

[twiifm]

Wrong again.  Even central bankers know gold is money...that's why they hoard it.

They also hoard a greater amount of Mortgage Backed Securities and Treasuries.  Its called an asset not money

They hoard the asset-based money to offset the risk of debt-based money.

What are you talking about?  All fiat money is credit.

FTFY.  It's only fiat money that is credit.  Precious metals and cryptocurrencies are not credit.  They aren't issued in the form of debt, but as an asset.

The reasons other Central Banks hold USD because they can use it to settle debts in USD.  The reason USD has value because its backed by assets like gold, securities but mistly treasuries.  Treasuries are debt of USA (US Treasury)

No, they hold USD to back their currencies.  This started when the USD was pegged to gold.  At the time, they agreed to back their currencies with gold indirectly because they could redeem USD for gold as needed.  Also, central banks don't need fiat to settle debt because they don't accumulate debt, they issue debt loans.

None of this has to do with hoarding

The value of money (which is what this thread is about) has EVERYTHING to do with hoarding.  When no one is willing to hold a particular form of money, it's worthless.  It's simple supply and demand.  No demand means no value.

Edit: Should have said "...they issue loans."

Gold is not money anymore its an asset.  Cryptos might become money but currently it isnt.  Bitcoins were money inside silk road market.  But not outside

Foreign currencies arent backed by dollars theyre backed by their own treasuries.  Foreign central banks might hold dollars as assets.  But its not to back their money.  Its because they need to setlle debts in dollars

Your idea of money isnt modern.  Search modern monetary theory to have a better understanding

Gold has been money for thousands of years and will very likely continue to be for many years into the future.  As long as there are people that continue to hoard it as a store of wealth, it's money.  Whether you choose to accept this fact is irrelevant.  It still remains a fact.  Bitcoin is also money because there are people that are willing to hoard it.  Bitcoin or gold may not be your money of choice, but as long as it is the money of choice for anyone that produces goods or provides services then they are both money.

I should have said that foreign central banks "used to hold USD to back their currencies."  Fiat currencies aren't backed by anything now because the issuers will not allow you to redeem them for anything.  Printing new units of currency and buying government debt with it is not backing--it's debasing.

The functions of money have not ever and will not ever change.  This "modern monetary theory" that you refer to is nothing more than an elaborate scam.  I understand it well and I'm quite familiar with how it works.  When you decide that you're ready to be deprogrammed, I recommend you start off with reading The Creature from Jekyll Island.  From looking at the reviews, it appears to have helped a lot of people in your shoes.

Money are instruments used to settle debts.  Period.  

Gold is not money anymore.  It hasnt been money for a long time.  Doesnt mean its worthless.  There is still market value because its a traded commodity.  Same as soybeans

MMT is just an economic theory that describes money in a modern economy.  What Im telling you is not political.  Its just how it works.  

What does Jekyll Island have to do with anything?  Reading that kind of stuff isn't how you learn about economics

Bernanke said gold is not money.  He calls it an asset. Search it on YouTube.  And here you are claiming central banks hoard gold because its money.  

[twiifm]

If somebody is holding two assets, Gold and IOU's, don't you think there is less risk in holding the Gold? IOU's are great, but not when a company defaults and you're left holding their worthless paper.

Gold only has it's value because the market gives it value. There is very little useful things you can do with gold and if you were to "use" gold then you would be loosing out on a lot of value. You would make the same argument that the market could stop giving gold it's value

I agree, everything has and maintains its value because other people (the market) value it. Gold could be a useless chunk of metal, just like IOU's could be defaulted on. However, if I was to prioritize the risk levels of both Gold and IOUs, I would rank Gold as the less risky asset to hold.

If I could be absolutely guaranteed of future repayment of the IOU, then I'd agree that the future productivity would be more valuable than Gold. The world we live in doesn't have those guarantees and that's part of the reason why we use these tools to store value in the first place.

Gold as a store of value has it's history behind it and therefore almost zero chance the market will stop giving gold it's value (unless Bitcoin completely takes its place).  That is why they say fiat currency, bonds, etc. all have what's called "counter-party risk". The risk of the issuer defaulting is much higher than the risk of the whole market deciding Gold is worthless.

You forgot liquidity preference.  If you sold a house you should accept 500K cash instead of equivalent in gold.  You can do more w the cash.  Like buy gold w it if that's what you want

[btcbug]

If somebody is holding two assets, Gold and IOU's, don't you think there is less risk in holding the Gold? IOU's are great, but not when a company defaults and you're left holding their worthless paper.

Gold only has it's value because the market gives it value. There is very little useful things you can do with gold and if you were to "use" gold then you would be loosing out on a lot of value. You would make the same argument that the market could stop giving gold it's value

I agree, everything has and maintains its value because other people (the market) value it. Gold could be a useless chunk of metal, just like IOU's could be defaulted on. However, if I was to prioritize the risk levels of both Gold and IOUs, I would rank Gold as the less risky asset to hold.

If I could be absolutely guaranteed of future repayment of the IOU, then I'd agree that the future productivity would be more valuable than Gold. The world we live in doesn't have those guarantees and that's part of the reason why we use these tools to store value in the first place.

Gold as a store of value has it's history behind it and therefore almost zero chance the market will stop giving gold it's value (unless Bitcoin completely takes its place).  That is why they say fiat currency, bonds, etc. all have what's called "counter-party risk". The risk of the issuer defaulting is much higher than the risk of the whole market deciding Gold is worthless.

You forgot liquidity preference.  If you sold a house you should accept 500K cash instead of equivalent in gold.  You can do more w the cash.  Like buy gold w it if that's what you want

As long term store I'd use Gold over fiat. For transacting and liquidity sure I'd take cash and then allocate it to whatever I wanted (stocks, gold, etc.)

[twiifm]

If somebody is holding two assets, Gold and IOU's, don't you think there is less risk in holding the Gold? IOU's are great, but not when a company defaults and you're left holding their worthless paper.

Gold only has it's value because the market gives it value. There is very little useful things you can do with gold and if you were to "use" gold then you would be loosing out on a lot of value. You would make the same argument that the market could stop giving gold it's value

I agree, everything has and maintains its value because other people (the market) value it. Gold could be a useless chunk of metal, just like IOU's could be defaulted on. However, if I was to prioritize the risk levels of both Gold and IOUs, I would rank Gold as the less risky asset to hold.

If I could be absolutely guaranteed of future repayment of the IOU, then I'd agree that the future productivity would be more valuable than Gold. The world we live in doesn't have those guarantees and that's part of the reason why we use these tools to store value in the first place.

Gold as a store of value has it's history behind it and therefore almost zero chance the market will stop giving gold it's value (unless Bitcoin completely takes its place).  That is why they say fiat currency, bonds, etc. all have what's called "counter-party risk". The risk of the issuer defaulting is much higher than the risk of the whole market deciding Gold is worthless.

You forgot liquidity preference.  If you sold a house you should accept 500K cash instead of equivalent in gold.  You can do more w the cash.  Like buy gold w it if that's what you want

As long term store I'd use Gold over fiat. For transacting and liquidity sure I'd take cash and then allocate it to whatever I wanted (stocks, gold, etc.)

Nobody uses cash for long term store.  LOL

They have portfolio of assets

[btcbug]

If somebody is holding two assets, Gold and IOU's, don't you think there is less risk in holding the Gold? IOU's are great, but not when a company defaults and you're left holding their worthless paper.

Gold only has it's value because the market gives it value. There is very little useful things you can do with gold and if you were to "use" gold then you would be loosing out on a lot of value. You would make the same argument that the market could stop giving gold it's value

I agree, everything has and maintains its value because other people (the market) value it. Gold could be a useless chunk of metal, just like IOU's could be defaulted on. However, if I was to prioritize the risk levels of both Gold and IOUs, I would rank Gold as the less risky asset to hold.

If I could be absolutely guaranteed of future repayment of the IOU, then I'd agree that the future productivity would be more valuable than Gold. The world we live in doesn't have those guarantees and that's part of the reason why we use these tools to store value in the first place.

Gold as a store of value has it's history behind it and therefore almost zero chance the market will stop giving gold it's value (unless Bitcoin completely takes its place).  That is why they say fiat currency, bonds, etc. all have what's called "counter-party risk". The risk of the issuer defaulting is much higher than the risk of the whole market deciding Gold is worthless.

You forgot liquidity preference.  If you sold a house you should accept 500K cash instead of equivalent in gold.  You can do more w the cash.  Like buy gold w it if that's what you want

As long term store I'd use Gold over fiat. For transacting and liquidity sure I'd take cash and then allocate it to whatever I wanted (stocks, gold, etc.)

Nobody uses cash for long term store.  LOL

They have portfolio of assets

"Nobody" is a pretty broad term. I'm sure there are some people putting cash in savings accounts, although these days probably less because of low interest. Of course I wouldn't and that's why I said I'd use Gold.

[shawshankinmate37927]

Gold has been money for thousands of years and will very likely continue to be for many years into the future.  As long as there are people that continue to hoard it as a store of wealth, it's money.  Whether you choose to accept this fact is irrelevant.  It still remains a fact.  Bitcoin is also money because there are people that are willing to hoard it.  Bitcoin or gold may not be your money of choice, but as long as it is the money of choice for anyone that produces goods or provides services then they are both money.

I should have said that foreign central banks "used to hold USD to back their currencies."  Fiat currencies aren't backed by anything now because the issuers will not allow you to redeem them for anything.  Printing new units of currency and buying government debt with it is not backing--it's debasing.

The functions of money have not ever and will not ever change.  This "modern monetary theory" that you refer to is nothing more than an elaborate scam.  I understand it well and I'm quite familiar with how it works.  When you decide that you're ready to be deprogrammed, I recommend you start off with reading The Creature from Jekyll Island.  From looking at the reviews, it appears to have helped a lot of people in your shoes.

Money are instruments used to settle debts.  Period.  

Gold is not money anymore.  It hasnt been money for a long time.  Doesnt mean its worthless.  There is still market value because its a traded commodity.  Same as soybeans

MMT is just an economic theory that describes money in a modern economy.  What Im telling you is not political.  Its just how it works.  

What does Jekyll Island have to do with anything?  Reading that kind of stuff isn't how you learn about economics

Bernanke said gold is not money.  He calls it an asset. Search it on YouTube.  And here you are claiming central banks hoard gold because its money.

Nope, money is something that acts as a medium of exchange, store of value, or unit of account.  When something is used to fulfill any of these functions, then it is money.  Period.

If money is a commodity, then yes, gold is a commodity, because gold is money.  It's not really important though, if money is considered a commodity or not.

Jekyll Island is where the modern fiat monetary scam was born.  The book will explain to you how that scam works.  Don't just take my word for it.  Check out the reviews.  It has helped a lot of folks see through all of the smoke and mirrors.  (Hint: Keynesianism and MMT aren't economics.  That stuff is to economics what astrology is to astronomy.  Or do you believe in astrology too?)

Don't listen to what bankers say, look at what they do.  Actions speak louder than words...and of course bankers are hoarding gold...because they know it's money and they know their fiat scam will eventually come to an end.  When fiat ceases to be money, gold will continue to be money just as it has for millenia.

[Erdogan]

Some absurdities are presented here. shawshankinmate37927 has it right. Ignore the other later posts.

[twiifm]

Whats the point of discussing money from pre 1907?  We're in 2014.  Half the money doesnt even originate from central bank system.

Why do you think GFC 2008 happened? 

If you are learning economics from conspiracy books, then theres no point to discuss

[cr1776]

Whats the point of discussing money from pre 1907?  We're in 2014.  Half the money doesnt even originate from central bank system.

Why do you think GFC 2008 happened? 

If you are learning economics from conspiracy books, then theres no point to discuss

I agree, the so-called economics books like The General Theory of Employment, Interest and Money and A Treatise on Money are the "astrology" books of economics to the "astronomy" books like The Road to Serfdom, or A Program for Monetary Stability. BTW, great analogy shawshankinmate37927.  If you are learning economics from books like TGTEIM, there is no point in discussing.

 

[giveBTCpls]

 The difference between bitcoins and other currencies is that there is no centralised bank that prints the currency and sets relative values. Through transactions, the value of bitcoin fluctuates through supply and demand.

[pbtc]

Sorry to be joining the conversation so late. I read the original post a couple of days ago, and it took a while to digest.

I think the OP presents a clear and valid discussion of the value problem, as far as it goes. But it obviously skirts the question of interest to most people, which might be phrased as, "What is a logical or rational price/utility curve?"

If you have a basis for identifying irrational price curves, then you could, in principle, hypothesize an "investment strategy," which might be as simple a deciding to consume later, or it might evolve into a more complex strategy of opponent modeling and exploiting irrational prices within a market.

I don't think this contradicts the OP's points, but maybe it clarifies some of the practical import of people's urge to identify an objective basis for the value of btc.

-pbtc

[jersey19957]

Value is FICTIONAL. A human mind made concept. Anything can have value if people agree it has value.

[Erdogan]

Sorry to be joining the conversation so late. I read the original post a couple of days ago, and it took a while to digest.

I think the OP presents a clear and valid discussion of the value problem, as far as it goes. But it obviously skirts the question of interest to most people, which might be phrased as, "What is a logical or rational price/utility curve?"

If you have a basis for identifying irrational price curves, then you could, in principle, hypothesize an "investment strategy," which might be as simple a deciding to consume later, or it might evolve into a more complex strategy of opponent modeling and exploiting irrational prices within a market.

I don't think this contradicts the OP's points, but maybe it clarifies some of the practical import of people's urge to identify an objective basis for the value of btc.

-pbtc

I think I established that the demand the urge to save value for later, and the supply is the urge to hold less than you currently hold. Aggregated, the urge to hold (measured in psychical value) is the total value of all coins.

Join me in this thought experiment: Remember back in your life when you were confident that you had enough money. Maybe just after you started earning, and before your consumption exploded (for some, that might be the current time). How much value did you hold in money plus deposits, measured in some form of value (the value of a car, the value of one month of consumption). For me, I have sometimes had the value of a used car in reserve, or stated otherwise, the value of a few months of food and rent. (Later, I bought flats and so on, excess reserves went into the loan. Don't include your other assets, only money and deposits). Lets say you can decide a number for yourself.

Now, imagine bitcoin is fully implemented, most people on earth define it as money, so you are quite sure that the value is easily exchanged for merchandise or readily exchanged for fiat, and the value of bitcoin is rather stable, but prices of merchandise expressed in bitcoin are slowly decreasing (weak deflation).

In this scenario, how much value would you prefer to have in reserve in the form of bitcoin. Compared to the first number you compiled above, is it less, the same, more, or far more? For me, it is certainly far more. No need to go upmarket in housing just to build equity.

The consequence of this (in case you and others also want to hold far more value in the form of bitcoin), is that the aggregated value of bitcoin also will be far more than the aggregated value of fiat and deposits as of now. Then divide by 21 million. I could say a number, but everybody can do that, and since we don't know, any number is as good as another. But you will quickly see that the value of a bitcoin can be quite high, far higher than now.

Now I will go back to being depressed because the current price is so low...

[Erdogan]

And the strategy is simple: Buy and hold.