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Author Topic: The Big Question: 21 Million Coins (yes, I know its been asked before)  (Read 8147 times)
Etlase2
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May 09, 2012, 07:36:52 PM
 #81

That is an interesting perspective, and it may very well prove true.  Yet, Bitcoin was designed to be cash on the Internet, and thus in person transactions are actually an expansion of the protocol in the same way that Paypal is an expansion of the 'protocol'  for fiat currencies on the Internet.  So even if Bitcoin is always a niche medium of exchange, that's still a huge niche.

I'm not sure of the point you're trying to make with cash on the internet. Businesses accept CCs online, and they still pay a fee. If online businesses want to accept BTC and convert it to something else, they're going to pay a fee.

And not that you are the only one guilty of this, but I'm tired of the "but bitcoin is this" statements whenever it seems to apply in the most beneficial way to make a point. Lots of people believe bitcoin is the second coming of currency, and I'm just pointing out that it is going to have an incredibly difficult if not impossible time trying to fulfill that role. No, the deflation aspect and 21 million limit don't really mean anything if bitcoin is mostly just a payment processor with a few speculative nerds hoping to make money on volatility here and there.


As far as 3% for currency exchange vs the current 1.5ish mtgox fee, convenience does always come into play. If BTC is popular enough for banks to do the conversion for businesses, then they may well pay the extra percent or so. I don't know how easy or hard it is to become a forex trader and what the fees are like there (and how many int'l businesses bother with it instead of a bank? no idea) and it's hard to predict how the exchange situation will play out with bitcoin in the future, so it's hard to predict what businesses/people will typically be paying for this service. You have to keep in mind though that it is unlikely that many people will be paid in BTC, so they will be buying it and there is the fee involved there too. How much that fee matters depends on how often each coin gets used in trade before being exchanged, which is impossible to predict. Without a fully up and down bitcoin economy, I don't see it being that often. Regardless, it is unlikely people will be seeing any "massive savings over credit cards" in pricing by using bitcoin.

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May 09, 2012, 07:53:42 PM
 #82

I think an assumption here is

Fixed monetary quantity = deflation.

The increase or decrease in money value is not entirely based upon scarcity.

A major factor in inflation is monetary velocity (how much the money flows around). If all holders of bitcoin suddenly started using bitcoins for the majority of their transactions, we would face rapid inflation.

Also, whatever equation you use to quantify the value of money goes out the window once it hits perception. How people view a currency is more important to its value than anything else.

Yes, people might hold bitcoins for some time as the price goes up, but if it doesn't go up forever, and starts to flatline, people will want to start getting rid of it, and this will cause a feedback loop that might make it so people will jump ship as fast as they can.

In the end, without some large economic event, I think bitcoins are fairly stable, and will just get more stable over time. That means they will become a pretty piss poor investment, especially if they end up only deflating at <5% annually. Investing in revenue generating businesses would end up being more lucrative. Also, investing in things that would provide immediate happiness would be more valuable.

Only about 7200 per day are being produced right now, and I am sure speculators are already adjusting their valuations for output halving (it is not like it is a surprise). So we are looking at moving from $36000 per day to $18000 per day in "quantitate easing." With the number of people in bitcoin, I consider that to mean that for all purposes, we have practically reached the end of money production.

So here you are. The train has basically reached the $21M quantity. Look around you, because at this point, I think speculators are going to get bored soon, and move on to some other new beanie baby. We have some stuff you can buy and sell, and it makes a great currency for gambling and buying drugs. I see a super bright future in its use in games, and if the USD ever falls apart, bitcoin and precious metal holders will be laughing all the way to the bank (not to say they will be rich, but just that they have weathered a storm). Bitcoins will go up and down in value, but really I think it is pretty much in the right ballpark now. The economy will grow one storefront at a time, and hopefully it will be a boring useful part of the economy, and not a long dead fad.

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May 09, 2012, 08:08:02 PM
 #83

That is an interesting perspective, and it may very well prove true.  Yet, Bitcoin was designed to be cash on the Internet, and thus in person transactions are actually an expansion of the protocol in the same way that Paypal is an expansion of the 'protocol'  for fiat currencies on the Internet.  So even if Bitcoin is always a niche medium of exchange, that's still a huge niche.

I'm not sure of the point you're trying to make with cash on the internet. Businesses accept CCs online, and they still pay a fee. If online businesses want to accept BTC and convert it to something else, they're going to pay a fee.

And not that you are the only one guilty of this, but I'm tired of the "but bitcoin is this" statements whenever it seems to apply in the most beneficial way to make a point. Lots of people believe bitcoin is the second coming of currency, and I'm just pointing out that it is going to have an incredibly difficult if not impossible time trying to fulfill that role. No, the deflation aspect and 21 million limit don't really mean anything if bitcoin is mostly just a payment processor with a few speculative nerds hoping to make money on volatility here and there.



The point that you're missing is that bitcoin isn't just a payment processor.  It can function in that role for a very large portion of it's economy for decades, but that isn't it's only use.  CC's & paypal have no other use and therefore those transaction fees are truely unavoidable.  With bitcoin, there and will be many different wasy to exchange.  In teh early stages, yes, any bitcoin accepting business is going to have to deal with the exchanges & the costs that they can impose.  This will limit early adoption rates.  However at some point (usually aroun 12% of the general public in any given area or market) bitcoin is suddenly 'mainstream' and the savvy business owner doesn't have to depend upon the exchanges for all of their conversions.  I'll concede that a future that involves never needing to deal with the exchanges if you are a bitcoin business owner isn't going to happen in my lifetime, but it's all a matter of degree.  These are not sudden events, they're transitions.  The business owners who deal with bitcoin early on are as likely to keep a portion of those funds as not.  No business just hangs onto checks or credit card receipts on the possibility of appreciation or the possibility of reduced conversion costs.  Such things will never happen.  Again, bitcoin is much more than a payment processor, even though that is a large part of it's current functions.

"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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May 09, 2012, 08:22:28 PM
 #84

And the less bitcoin is used as just a payment processor the more likely a deflationary spiral and people bailing. We're going in circles here. Bitcoin is not going to be an effective medium of exchange by my logic. We can agree to disagree, but I most certainly did not miss the point that bitcoin is not just a payment processor.

And through all this, anyone holding runs the risk that satoshi decides to just utterly collapse the market one day and buy his private island.

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May 09, 2012, 09:41:34 PM
 #85

And the less bitcoin is used as just a payment processor the more likely a deflationary spiral and people bailing. We're going in circles here. Bitcoin is not going to be an effective medium of exchange by my logic. We can agree to disagree, but I most certainly did not miss the point that bitcoin is not just a payment processor.

And through all this, anyone holding runs the risk that satoshi decides to just utterly collapse the market one day and buy his private island.

There remains no evidence that a deflationary spiral is a real threat, or even a real economic theory.  I find this to be one of the most amusing things about this viewpoint, let's explore it a bit, please.

The theory, at it's root, is that if the value of the bitcoin increases too much, people will
hoard' it, increasing it's value further.  This leads to a crash in the exchange volume as some other comparable currency is used in it's place.  Grisham's law in effect.   While this sounds reasonable to an academic, it ignores the reality that we are talking about common people doing common things, not the rational speculator looking for an ideal exit.  Real people don't hold currency for it's own sake, nor to trade for some other currency in the hopes of turning a nominal profit on arbitrage.  Real people hold currency in order to spend it later, and real people don't consider only the future value of a currency in choosing to spend it now or later.  Real people have real problems that often require them to spend money sooner rather than later, and for those people the future value of the currency is irrelevant.

"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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May 09, 2012, 11:34:07 PM
 #86

There remains no evidence that a deflationary spiral is a real threat, or even a real economic theory.  I find this to be one of the most amusing things about this viewpoint, let's explore it a bit, please.

The theory, at it's root, is that if the value of the bitcoin increases too much, people will
hoard' it, increasing it's value further.  This leads to a crash in the exchange volume as some other comparable currency is used in it's place.  Grisham's law in effect.   While this sounds reasonable to an academic, it ignores the reality that we are talking about common people doing common things, not the rational speculator looking for an ideal exit.  Real people don't hold currency for it's own sake, nor to trade for some other currency in the hopes of turning a nominal profit on arbitrage.  Real people hold currency in order to spend it later, and real people don't consider only the future value of a currency in choosing to spend it now or later.  Real people have real problems that often require them to spend money sooner rather than later, and for those people the future value of the currency is irrelevant.

Whatever, I just use the term deflationary spiral because it basically gets the gist across. I don't think bitcoin will ever have a deflationary spiral--and I basically said as much in that post but explicitly said it a couple posts up too; so enjoy your amusement. What it will have are deflationary "jerks" where there are sharp periods of deflation among more mellow periods. This causes massive problems for debt (and massive problems with adopting bitcoin as a replacement currency). But the "real people" argument still doesn't hold water. "Real people" aren't the ones that control the wealth of a nation (for example). Real people aren't the ones packaging subprime mortgages into a CDS. Real people aren't the ones who cause credit crunches--whether real or imagined(/fabricated). This all falls into the hands of the top 1% or so. Real people have no power to retract liquidity, only the wealthy/banks do. So what real people do or do not do is irrelevant.

Wealthy people are going to find themselves in positions to be able to manipulate the bitcoin economy in unnatural ways. This is never good news for "real people."

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May 10, 2012, 12:27:26 AM
 #87

There remains no evidence that a deflationary spiral is a real threat, or even a real economic theory.  I find this to be one of the most amusing things about this viewpoint, let's explore it a bit, please.

The theory, at it's root, is that if the value of the bitcoin increases too much, people will
hoard' it, increasing it's value further.  This leads to a crash in the exchange volume as some other comparable currency is used in it's place.  Grisham's law in effect.   While this sounds reasonable to an academic, it ignores the reality that we are talking about common people doing common things, not the rational speculator looking for an ideal exit.  Real people don't hold currency for it's own sake, nor to trade for some other currency in the hopes of turning a nominal profit on arbitrage.  Real people hold currency in order to spend it later, and real people don't consider only the future value of a currency in choosing to spend it now or later.  Real people have real problems that often require them to spend money sooner rather than later, and for those people the future value of the currency is irrelevant.

Whatever, I just use the term deflationary spiral because it basically gets the gist across. I don't think bitcoin will ever have a deflationary spiral--and I basically said as much in that post but explicitly said it a couple posts up too; so enjoy your amusement. What it will have are deflationary "jerks" where there are sharp periods of deflation among more mellow periods. This causes massive problems for debt (and massive problems with adopting bitcoin as a replacement currency). But the "real people" argument still doesn't hold water. "Real people" aren't the ones that control the wealth of a nation (for example). Real people aren't the ones packaging subprime mortgages into a CDS. Real people aren't the ones who cause credit crunches--whether real or imagined(/fabricated). This all falls into the hands of the top 1% or so. Real people have no power to retract liquidity, only the wealthy/banks do. So what real people do or do not do is irrelevant.

Wealthy people are going to find themselves in positions to be able to manipulate the bitcoin economy in unnatural ways. This is never good news for "real people."

Real people are quite relevant for bitcoin.  Much like a gold standard, there is no way for the "one percent" to leverage liquidity flucuations, which is really the condition that you are describing.  This is one major reason that bankers don't like the idea of a gold standard, and why they won't like bitcoin either.  That's one effect of fractional reserve lending, which has practical limits under a true gold standard or a bitcoin standard that do not exist under a pure fiat currency.

"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'
Etlase2
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May 10, 2012, 01:08:14 AM
 #88

How do the ones who provide liquidity and debt leverage liquidity? Leveraging liquidity to leverage liquidity? I don't get it, but maybe it's just over my head rather than three words cobbled together.

I'm curious to where you get the idea that "bankers don't like the gold standard." First off, bitcoin really should stop being compared to the gold standard. The gold standard as we know and talk about it is a complete bastardization of gold as money. Governments would add and drop the standard when it suited them; they would raise and lower the conversion price at will; and fractional reserve made it essentially meaningless. As long as paper money is legal tender, the reserve can drop to 5% by law to effectively double the money supply. Instead of going that route, we have central banks and interest rates. It's really not much different from fiat other than the warm feeling that your money is backed by 10% of what it says it's worth in pretty metal.

Gold standard as we know it was a banker's paradise, just like modern fiat. Until I understand how to leverage liquidity fluctuations and what that may or may not have to do with retracting liquidity, I can't really respond an appreciable way. I agree though that traditional bankers will not like bitcoin very much because they cannot hope to retain the power that they have now. 50% of the currency to ever be in circulation will already be in circulation by the end of this year. However, this most certainly does not preclude some kind of bitcoin cartel from emerging.

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May 10, 2012, 04:56:12 AM
 #89

How do the ones who provide liquidity and debt leverage liquidity? Leveraging liquidity to leverage liquidity? I don't get it, but maybe it's just over my head rather than three words cobbled together.

I'm curious to where you get the idea that "bankers don't like the gold standard." First off, bitcoin really should stop being compared to the gold standard. The gold standard as we know and talk about it is a complete bastardization of gold as money. Governments would add and drop the standard when it suited them; they would raise and lower the conversion price at will; and fractional reserve made it essentially meaningless. As long as paper money is legal tender, the reserve can drop to 5% by law to effectively double the money supply. Instead of going that route, we have central banks and interest rates. It's really not much different from fiat other than the warm feeling that your money is backed by 10% of what it says it's worth in pretty metal.

 
you're confusing fractional reserve banking with a gold standard.  A gold standard is, generally speaking, referring to the convertability of a national currency note into a predefined weight of gold.  Fractional reserve banking is the idea that a bank can lend out more in loans than it actually has on deposit.

Quote
Gold standard as we know it was a banker's paradise, just like modern fiat. Until I understand how to leverage liquidity fluctuations and what that may or may not have to do with retracting liquidity, I can't really respond an appreciable way. I agree though that traditional bankers will not like bitcoin very much because they cannot hope to retain the power that they have now. 50% of the currency to ever be in circulation will already be in circulation by the end of this year. However, this most certainly does not preclude some kind of bitcoin cartel from emerging.

If the gold standard was a bankers' paradise, we would have never left it anywhere on Earth.  Are you really going to claim that bankers don't have influence over governments?  Or that the Federal Reserve system wasn't created by and for bankers?  The Federal reserve system is why inflation occurs to begin with, and why there was too much cash chasing too little gold.  Nixon didn't have any choice, the gold was probably long gone before he ever got there.

"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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May 10, 2012, 05:22:46 AM
 #90

you're confusing fractional reserve banking with a gold standard.  A gold standard is, generally speaking, referring to the convertability of a national currency note into a predefined weight of gold.  Fractional reserve banking is the idea that a bank can lend out more in loans than it actually has on deposit.

MY POINT, my dear, is that they have been intertwined for hundreds of years. This is why I say things like "gold standard as we know it."

Quote
If the gold standard was a bankers' paradise, we would have never left it anywhere on Earth.  Are you really going to claim that bankers don't have influence over governments?  Or that the Federal Reserve system wasn't created by and for bankers?  The Federal reserve system is why inflation occurs to begin with, and why there was too much cash chasing too little gold.  Nixon didn't have any choice, the gold was probably long gone before he ever got there.

Central banking is just the next step. The gold standard and central banking coexisted, and inflation has risen about the same with and without the gold standard during that time. Nixon could have just decreased the amount of gold per dollar, but why bother with the farce and potentially lose all our gold?

There is a difference between pre- and post- central banking modified "gold standard" though, and that is the point I have tried to make time and time again as the reason why bitcoin will fail as a replacement currency. Inflation is not obvious theft; wealthy elites liquidating stock markets and large banks to restore the economy in a bust cycle is very visible and very irksome to the public. People demand change, and the bankers (JPM specifically) are more than happy to "help" the politicians write some laws to "regulate this problem." The first time a major event like this happens in bitcoin, the public will be running back to their inflationary ignorance. It may have already happened with last year's run-up. How many entrepreneurs were turned off by it? Who knows.

Bitcoin will absolutely fail as a replacement currency because of the 21 million limit and other factors, in my typically not so humble opinion. So scream for liberty and freedom from government and all that jazz, but you're screaming at the wall. People will not adopt bitcoin as anything more than a token novelty or for the occasional black/grey market purchase. With all the problems we both recognize with fiat currency, I had hoped bitcoin was that replacement currency. But then I researched it more and understood how flawed it was. And then I loudly made my opinion known and you deleted my posts and got my original account squelched, thus the notorious 2 on my user name. Kiss I was really disappointed with bitcoin and obviously still am. And I will create a competitor, it's just a matter of time.

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May 10, 2012, 05:58:27 AM
 #91

Whatever, I just use the term deflationary spiral because it basically gets the gist across.

Yet you crucify others for nebulous definitions. Quite the double-standard.

I don't think bitcoin will ever have a deflationary spiral--and I basically said as much in that post but explicitly said it a couple posts up too; so enjoy your amusement. What it will have are deflationary "jerks" where there are sharp periods of deflation among more mellow periods. This causes massive problems for debt (and massive problems with adopting bitcoin as a replacement currency).

There is no problem with debt in any situation, deflation or inflation, unless it is leveraged or there is no means to pay it back. FRB is a form of leverage. Bitcoin is not the issue here. Derivatives that develop based on it may be.

But the "real people" argument still doesn't hold water. "Real people" aren't the ones that control the wealth of a nation (for example). Real people aren't the ones packaging subprime mortgages into a CDS. Real people aren't the ones who cause credit crunches--whether real or imagined(/fabricated). This all falls into the hands of the top 1% or so. Real people have no power to retract liquidity, only the wealthy/banks do. So what real people do or do not do is irrelevant.

Wealthy people are going to find themselves in positions to be able to manipulate the bitcoin economy in unnatural ways. This is never good news for "real people."

What liquidity needs to be retracted from the Bitcoin system? That's like saying gold needs to be destroyed. There is no sensibility to that whatsoever.

Attempts will be made to profit off of the Bitcoin base, no doubt. That has nothing to do with Bitcoin itself. At this point, technical issues have far greater potential for impacting the system than economic concerns.

How do the ones who provide liquidity and debt leverage liquidity? Leveraging liquidity to leverage liquidity? I don't get it, but maybe it's just over my head rather than three words cobbled together.

That's what it boils down to. Currencies today have no direct connection to real assets, and no real restrictions on liquidity due to management decisions. FRB provides the mechanism by which liquidity begets liquidity. Who would agree to give up the digits in their account to drain liquidity when necessary? The only solution is to provide more.

I'm curious to where you get the idea that "bankers don't like the gold standard." First off, bitcoin really should stop being compared to the gold standard. The gold standard as we know and talk about it is a complete bastardization of gold as money. Governments would add and drop the standard when it suited them; they would raise and lower the conversion price at will; and fractional reserve made it essentially meaningless. As long as paper money is legal tender, the reserve can drop to 5% by law to effectively double the money supply. Instead of going that route, we have central banks and interest rates. It's really not much different from fiat other than the warm feeling that your money is backed by 10% of what it says it's worth in pretty metal.

Gold is the closest to an abstract form of money that a physical item can get. Because it has physical limitations, it forces deleveraging issues with liquidity. Bankers cannot continue business as usual, ignoring debts and deficits, when gold acts as a brake on their levering of financial instruments.

No government has ever willingly picked up the gold standard. It has always been due to duress of instability. The gold standard is as pure a monetary function for gold as there can be. Are you suggesting that you're smarter than Isaac Newton?

Fractional reserve did not make the gold standard meaningless: it simply allowed for expansion of the monetary benefits further from the foundation. Scarcity in a common form of capital restrains real economic growth. Additional supply allows for accelerated progress, just as a larger pot can allow a plant to grow bigger than a smaller one.

The difference is not just a "warm feeling" - with FRB, there is a chance that you might not get back but a fraction of your wealth should a collapse occur. The longer FRB continues, the greater the probability that a collapse will occur. With a 100% reserve system, there is no danger of losing any of your wealth; the only difference is that progressively smaller shares of it are necessary to conduct commerce. The real danger there is concentration of wealth, absent any other dynamics that would cause accumulation ratios to shift.

See the image below, where Bitcoin value is comparable to economic growth, and subunit value is comparable to price levels:



Gold has stringent limitations because it is physical: it is not infinitely divisible. If it were, there would never have been any need for another currency - just keep dividing gold smaller and smaller. MMT should love Bitcoin because it creates a form of gold in a purely abstract sense. The only problem current economists have is that they can't get past their fervent attachment to fractional fiat.

What gold can do is act as a large scale reserve. It could theoretically function as a currency as well. There are close to 170,000 metric tons of gold, which equates to over 5,400,000,000 troy ounces (~32,150 t ozs per metric ton), or approximately 169,000,000,000 grams (~31 grams per t oz). That supply could support global commerce, but would soon need to be subdivided if prices were to be kept stable.

An increasing fiat base is necessary to maintain price stability in accordance with economic growth. Without that expansion, prices would plummet just as they would with gold at the limits of its divisibility.

Instead of succumbing to the unreliable course of managed fiat, Bitcoin eschews unit expansion for decimal expansion, allowing it to maintain price stability with a static base. Available supply (stock to flow ratios here again) will vary, but doing so within a static base container strongly limits the range.

Gold standard as we know it was a banker's paradise, just like modern fiat. Until I understand how to leverage liquidity fluctuations and what that may or may not have to do with retracting liquidity, I can't really respond an appreciable way. I agree though that traditional bankers will not like bitcoin very much because they cannot hope to retain the power that they have now. 50% of the currency to ever be in circulation will already be in circulation by the end of this year. However, this most certainly does not preclude some kind of bitcoin cartel from emerging.

MMT works wonderfully when there is no connection to reality - monetary actions can make the numbers do what's intended. When coming back to the notion of physical supply & demand, MMT falls apart. Bitcoin recognises this and ingeniously accommodates the function of both a store of value and means of exchange; it satisfies Triffin's dilemma.

Central banking is just the next step. The gold standard and central banking coexisted, and inflation has risen about the same with and without the gold standard during that time. Nixon could have just decreased the amount of gold per dollar, but why bother with the farce and potentially lose all our gold?

Lose all our gold through balance of payment transfers? You mean, like gold as a reserve currency? Shocking.

There is a difference between pre- and post- central banking modified "gold standard" though, and that is the point I have tried to make time and time again as the reason why bitcoin will fail as a replacement currency. Inflation is not obvious theft; wealthy elites liquidating stock markets and large banks to restore the economy in a bust cycle is very visible and very irksome to the public. People demand change, and the bankers (JPM specifically) are more than happy to "help" the politicians write some laws to "regulate this problem." The first time a major event like this happens in bitcoin, the public will be running back to their inflationary ignorance. It may have already happened with last year's run-up. How many entrepreneurs were turned off by it? Who knows.

Some will be scared back to fiat, but when has fear ever stopped progress? Hint: never.

Delays and setbacks are not death knells, no matter how bitter you may be over the fact that your own bright idea for a crypto-currency failed. My apologies, it never even got off the ground, so it couldn't have failed: it was still-born.

Bitcoin will absolutely fail as a replacement currency because of the 21 million limit and other factors, in my typically not so humble opinion. So scream for liberty and freedom from government and all that jazz, but you're screaming at the wall. People will not adopt bitcoin as anything more than a token novelty or for the occasional black/grey market purchase. With all the problems we both recognize with fiat currency, I had hoped bitcoin was that replacement currency. But then I researched it more and understood how flawed it was. And then I loudly made my opinion known and you deleted my posts and got my original account squelched, thus the notorious 2 on my user name. Kiss I was really disappointed with bitcoin and obviously still am. And I will create a competitor, it's just a matter of time.

See the diagram from earlier. You would do well to grow some humility before you fade into irrelevance. I've seen your kind come and go like so many gnats.

Oh, and your "competition" is based on laughably idiotic assumptions backed only by Byzantine rationale and a hostile persona. Were you wondering why not even the reputable fellow behind Solidcoin wouldn't help you? Now you know. Your strategy of dazzling people or, failing that, blinding them with bullsh*t is best left to professional bankers and politicians.

Stop trolling and grow up.
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May 10, 2012, 07:17:48 AM
 #92

Yet you crucify others for nebulous definitions. Quite the double-standard.

lol are you talking about the FRB nebulousity? Anyways, again I never did claim a deflationary spiral would happen, I always added a caveat. It was MoonShadow who ignored the caveat and ran with it.

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There is no problem with debt in any situation, deflation or inflation, unless it is leveraged or there is no means to pay it back. FRB is a form of leverage. Bitcoin is not the issue here. Derivatives that develop based on it may be.

I am not saying that debt is the problem; the repayment of it is.

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What liquidity needs to be retracted from the Bitcoin system? That's like saying gold needs to be destroyed. There is no sensibility to that whatsoever.

:le sigh: Wealthy elites/bankers can retract liquidity; the regular joe cannot. The point I was making is that under a bitcoin-like currency, the regular joe will once again be at the whims of the wealthy elite and will be poorer for it through no fault of his own.

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Attempts will be made to profit off of the Bitcoin base, no doubt. That has nothing to do with Bitcoin itself. At this point, technical issues have far greater potential for impacting the system than economic concerns.

This thread is about economic concerns so let's try to stick with that, ok?

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Gold has stringent limitations because it is physical: it is not infinitely divisible. If it were, there would never have been any need for another currency - just keep dividing gold smaller and smaller. MMT should love Bitcoin because it creates a form of gold in a purely abstract sense. The only problem current economists have is that they can't get past their fervent attachment to fractional fiat.

This infinitely divisible crap is so outside anything relevant. Infinitely divisible is not some panacea, it just allows the currency to have a physical limit and still allow for some semblance of expansion. The equivalent with gold is moving on to silver or copper or whatever else for smaller denominations if necessary.

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Some will be scared back to fiat, but when has fear ever stopped progress? Hint: never.

When has fear allowed bad legislation to pass? oops. And I am not referring to potential future legislation that may hurt bitcoin.

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You would do well to grow some humility before you fade into irrelevance. I've seen your kind come and go like so many gnats.

How benevolent of you.

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Were you wondering why not even the reputable fellow behind Solidcoin wouldn't help you? Now you know.

What in the hell are you talking about?

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Your strategy of dazzling people or, failing that, blinding them with bullsh*t is best left to professional bankers and politicians.

I could say the same for anyone who argues for bitcoin as a solid foundation for money. It's practically evoorhees's MO

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May 10, 2012, 11:08:00 AM
 #93

Despite the endless discussion, I see no reason why Fractional Reserve Banking shouldn't work in principle.
It depends on what you mean by "work". Obviously, it works in the sense that it exists and is a pervasive phenomenon. I would also argue that it is not necessarily a violation of property rights (unlike some Austrians). I would also argue that it is the expected outcome of the conditions, similarly to what the freebanking branch of the Austrian School claims, except my reasoning is different.

However, if the leveraged instruments are accepted as a medium of exchange, it leads to business cycles, as explained in the Austrian Business Cycle Theory. It creates a boom by misleading the investors into thinking that the resources in the economy are more abundant than they really are. This leads to unsustainable projects. Once it turns out that there really are less resources available than the investors assume there were (which eventually it must, since otherwise the supply/demand is in a disequilibrium), the projects go bankrupt. This leads to a depression and a credit contraction. The central bank can also attempt an exponentially increasing money supply to postpone the bust, which eventually ends up in a hyperinflation.
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May 10, 2012, 12:15:25 PM
 #94


This infinitely divisible crap is so outside anything relevant.

How can it be irrelevant when it is a key feature of bitcoin, one that never existed before in any monetary system ?

I thought the excellent post by miscreanity above made that point clear..

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May 10, 2012, 12:32:45 PM
 #95

I doubt that there really is a deflationary spiral effect in a truely free market. I suspect the deflationary situations we have had, have been engineered by central banks.

People cannot delay all purchases forever. If it is *necessary* to have it then people will buy it, regardless if it gets cheaper later.

If there are unnecessary purchases that people can delay then it is better for everyone when people do that. It creates less waste that way. Goods should be more durable anyway. We already have too much crap polluting our environment.

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May 10, 2012, 12:37:55 PM
 #96

Well, it's not entirely correct that Bitcoin is infinitely divisible. In order to use smaller units than satoshis directly in the Bitcoin protocol, it requires an incompatible change. The Bitcoin protocol internally calculates in satoshis as integers. Other than that, it's right. Even when we use nanotechnology (see http://www.rfreitas.com/Nano/TangibleNanomoney.htm), gold cannot be transacted in units smaller than an atom. Bitcoin can be modified for any arbitrarily low smallest unit.
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May 10, 2012, 01:23:00 PM
 #97

Despite the endless discussion, I see no reason why Fractional Reserve Banking shouldn't work in principle.
It depends on what you mean by "work". Obviously, it works in the sense that it exists and is a pervasive phenomenon. I would also argue that it is not necessarily a violation of property rights (unlike some Austrians). I would also argue that it is the expected outcome of the conditions, similarly to what the freebanking branch of the Austrian School claims, except my reasoning is different.

However, if the leveraged instruments are accepted as a medium of exchange, it leads to business cycles, as explained in the Austrian Business Cycle Theory. It creates a boom by misleading the investors into thinking that the resources in the economy are more abundant than they really are. This leads to unsustainable projects. Once it turns out that there really are less resources available than the investors assume there were (which eventually it must, since otherwise the supply/demand is in a disequilibrium), the projects go bankrupt. This leads to a depression and a credit contraction. The central bank can also attempt an exponentially increasing money supply to postpone the bust, which eventually ends up in a hyperinflation.

Thanks for expanding on that. So I guess one of the problems with Fractional Reserve Banking can, as usual, be boiled down to human intervention. I have a theory that if a Fractional Reserve System were devised with rules that were set in stone,

e.g.:
X units of base money with 0% inflation,
Y% reserve ratio, unchangeable,
Z% interest, also unchangeable,

although there might initially be one or more boom-bust cycles (a la: Bitcoin 2011), people will eventually modify their behaviour. They won't expect to get "magically bailed out" because they accidentally miscalculated the profitability of their business. As it stands, it looks like the people f**king with the levers are the problem because they introduce feedback loops and create instability. Thus you get "chicken and egg" problems with everyone trying to second-guess everyone else.


Amen, brother.  Now go forth and preach the word!

"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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May 10, 2012, 02:05:47 PM
 #98

Amen, brother.  Now go forth and preach the word!

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Genesis (block) Chapter 1, Verse 1
In the beginning there was only fiat.  The currency was without form or limit and darkness was upon the face of the people.  They cried out from the multitude of oppression and humiliations inflicted upon them by the FED.  And the Satoshi said "let their be a block" and there was.  Satoshi verified the block and it had but one transaction, and it was good.  Satoshi called the block number 0 for it was special and from it all others block would come.   The crypto was a mere spark of light in an sea of darkness but it would grow.  The world was forever divided between the fiat and the crypto and it was good.
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May 10, 2012, 02:14:15 PM
 #99

I have a theory that if a Fractional Reserve System were devised with rules that were set in stone
....
although there might initially be one or more boom-bust cycles (a la: Bitcoin 2011), people will eventually modify their behaviour.
If I remember right, Detlev Schlichter argues that FRB could eventually find an equilibrium (if there are no bailouts etc). Many Austrians disagree that "no bailout" is a sufficient condition. For example, the businessmen might invest even if they know that it will go bust, as long as they believe they can sell it before the tide turns.

But if the majority of people understood the consequences, I think that could counteract it, so I tend to agree with you. The reason why expansion of credit leads to cycles is because the users are confused (deliberately tricked even). If they adapt their behaviour, the cycle would be mitigated. Theoretically, if the money supply is still elastic, there could be a misallocation of resources, but there would be no cyclical economic behaviour.
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May 10, 2012, 05:57:30 PM
 #100

I have a theory that if a Fractional Reserve System were devised with rules that were set in stone
....
although there might initially be one or more boom-bust cycles (a la: Bitcoin 2011), people will eventually modify their behaviour.
If I remember right, Detlev Schlichter argues that FRB could eventually find an equilibrium (if there are no bailouts etc). Many Austrians disagree that "no bailout" is a sufficient condition. For example, the businessmen might invest even if they know that it will go bust, as long as they believe they can sell it before the tide turns.

But if the majority of people understood the consequences, I think that could counteract it, so I tend to agree with you. The reason why expansion of credit leads to cycles is because the users are confused (deliberately tricked even). If they adapt their behaviour, the cycle would be mitigated. Theoretically, if the money supply is still elastic, there could be a misallocation of resources, but there would be no cyclical economic behaviour.

I don't quite agree.  I think that there would still be a cycle that statistics could identify, but that it's period and amplitude would be significantly attenuated under such a condition as to be inmaterial for the majority of people.  This is generally how it was for Joe Average for the first 100 or so years of the United States (generally) under a gold standard, it was those who earned an income (directly or indirectly) from investment capital and banking that such cycles affected to any dramatic degree.  Perhaps the Interent could one day lead to such a rise of distributed wisdom, but until such event the cycle will continue.

"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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