Defiatize the unit of value

[johnyj]

How are you supossed to give value to something without being compared to anything?
what dictates BTC purchasing power? i never understood that.

The purchasing power is simply set by merchants. For example, if most of the merchant set the price of one humburger at $5, then $5 will have the purchase power of one hamburger. Similarly, if most of the merchant set the price of one hamburger to 0.01 bitcoin, then 0.01 bitcoin can buy you a hamburger anywhere

And this has nothing to do with exchange rate, only the merchants' willingness to fix the price at 0.01 bitcoin

The cost of goods is ultimately set by the fact that a merchant's costs are a certain amount plus a certain amount of profit that the merchant wants to earn. The fact that merchants do not have costs in terms of bitcoin means that they should not price items in terms of bitcoin

If majority of the cost is payable using bitcoin, then the loop will be closed. Of course not every industry will adopt, but basically you need only one large supermarket chain, one house renting chain to accept bitcoin, then they will cover majority of the worker's demand, then you could just hand out bitcoin as salary to your employees

Actually housing/renting is almost the biggest cost for enterprises, if the landlord start to accept bitcoin payment, then that's almost on track

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[jaysabi]

The value of Japanese Yen dropped so much against USD, while Japanese people seldom feel any price change, and none of the Japanese merchant were driven into losses, because everything's price in that economy is presented in Japanese Yen, unless all of them change at the same time, they will become sticky altogether

It defies logic that a currency could lose 50% of it's value but have the same purchasing power as before. If the currency loses 50% of it's value, it loses 50% of its purchasing power. Value and purchasing power are the same thing. Further, your assertion that a currency could lose 50% of it's value relative another currency, yet people who use it would not feel the price change defies economics. This could only be possible if Japan's economy created everything their population consumed itself and had no imports, but it doesn't. With a weaker currency, everything Japan imports is more expensive. If you could somehow have a weaker currency vs. the USD that could somehow still purchase the same amount as before in Japan, you could make huge profits by converting USD to Yen and buying items in Japan to export out. Even net the shipping expenses. This doesn't happen because the situation you're describing doesn't exist.

Japan is also an interesting case because Japan has been undergoing price deflation as their economy has been stagnated over the last 10 years and their population continues to decline. I'm not sure it's a relevant analogy to bitcoin anyway because there are far more complex economic issues at play than just the value of the currency.

[johnyj]

The value of Japanese Yen dropped so much against USD, while Japanese people seldom feel any price change, and none of the Japanese merchant were driven into losses, because everything's price in that economy is presented in Japanese Yen, unless all of them change at the same time, they will become sticky altogether

It defies logic that a currency could lose 50% of it's value but have the same purchasing power as before. If the currency loses 50% of it's value, it loses 50% of its purchasing power. Value and purchasing power are the same thing. Further, your assertion that a currency could lose 50% of it's value relative another currency, yet people who use it would not feel the price change defies economics. This could only be possible if Japan's economy created everything their population consumed itself and had no imports, but it doesn't. With a weaker currency, everything Japan imports is more expensive. If you could somehow have a weaker currency vs. the USD that could somehow still purchase the same amount as before in Japan, you could make huge profits by converting USD to Yen and buying items in Japan to export out. Even net the shipping expenses. This doesn't happen because the situation you're describing doesn't exist.

Japan is also an interesting case because Japan has been undergoing price deflation as their economy has been stagnated over the last 10 years and their population continues to decline. I'm not sure it's a relevant analogy to bitcoin anyway because there are far more complex economic issues at play than just the value of the currency.

Exactly, the reality does not match the logic and reasoning based on equal purchasing power theory, so either the theory is flawed, or it is only an ideal situation that never happens in real world

Even if your currency increased its purchasing power against another currency, there could still be barriers for you to arbitraging from the price difference in these two countries, include union trade protecting terms, which charge you 50% tax for importing from that country, and foreign currency exchange costs, which could be as high as 10% both way in a volatile market

Japan is a production-export style country, weaker currency will boost their export, especially when the material cost is low and most of their products are high value added industry productions like electronic and cars

[worle1bm]

I know this is going to blow your minds, and I apologize for interrupting your circle-jerk of pseudo-theory, but what if currency doesn't exist in a vacuum? What if prices fluctuated, meaning purchasing power fluctuated, in a similar manner to currency?

What if, and I know this is really out there because it means the government and fiat money and the world isn't actually going to collapse, but what if the modern currency has enough flexibility to meet purchasing power at a reasonable level, and the only examples of this not happening are anecdotes, exceptions to the norm, and not statistically relevant?

[johnyj]

I know this is going to blow your minds, and I apologize for interrupting your circle-jerk of pseudo-theory, but what if currency doesn't exist in a vacuum? What if prices fluctuated, meaning purchasing power fluctuated, in a similar manner to currency?

What if, and I know this is really out there because it means the government and fiat money and the world isn't actually going to collapse, but what if the modern currency has enough flexibility to meet purchasing power at a reasonable level, and the only examples of this not happening are anecdotes, exceptions to the norm, and not statistically relevant?

Of course the current system will never collapse, as you said, it is all relative and floating. In a worst case scenario they will issue new money in exchange for old hyper inflated money, and last for another few years, like Zimbabwe government did for many times

If you regard fiat currency the unit of value, then your slavery will never end, you will forever working to earn some paper printed by a few while they take the ownership of your wealth by simply printing or adding zeros to their account

[ffe]

If you regard fiat currency the unit of value, then your slavery will never end, you will forever working to earn some paper printed by a few while they take the ownership of your wealth by simply printing or adding zeros to their account

You know, of course that most money is not printed by the central bank. Most money is created by the stroke of a pen by normal banks when someone comes in asking for a loan. 90% of our economy runs on money created this way.

In reality fiat is not without backing. Fiat is backed by the promises we make to each other to pay back loans. Personally, I can't think of a better backing for the money I hold. Much better than some arbitrary faith in a yellow metal or some cryptography.

If the Government paid back all it's loans it would have to do it by taxing everyone today, making us poorer today. We are getting richer as a society all the time so it makes sense to pay our loans in the future when we are wealthier. Government borrowing is being paid off all the time. We do borrow as well so it just appears that we are not paying our debt. The amount we can wisely collectively borrow is also going up because we are getting richer. It makes sense that the balance goes up. We can afford it.

You may disagree with how much society spends through Government. That's politics. Just don't blame fiat. Fiat enables Government. It enables Industry. It enables you and me. It's just a tool and a good one if well managed.

[johnyj]

If you regard fiat currency the unit of value, then your slavery will never end, you will forever working to earn some paper printed by a few while they take the ownership of your wealth by simply printing or adding zeros to their account

You know, of course that most money is not printed by the central bank. Most money is created by the stroke of a pen by normal banks when someone comes in asking for a loan. 90% of our economy runs on money created this way.

In reality fiat is not without backing. Fiat is backed by the promises we make to each other to pay back loans. Personally, I can't think of a better backing for the money I hold. Much better than some arbitrary faith in a yellow metal or some cryptography.

If the Government paid back all it's loans it would have to do it by taxing everyone today, making us poorer today. We are getting richer as a society all the time so it makes sense to pay our loans in the future when we are wealthier. Government borrowing is being paid off all the time. We do borrow as well so it just appears that we are not paying our debt. The amount we can wisely collectively borrow is also going up because we are getting richer. It makes sense that the balance goes up. We can afford it.

You may disagree with how much society spends through Government. That's politics. Just don't blame fiat. Fiat enables Government. It enables Industry. It enables you and me. It's just a tool and a good one if well managed.

Commercial banks does not create money, I mean base money, not some check book numbers in their database. When you ask for a loan, if commercial bank does not have base money, they can not give you a loan, that's a liquidity problem. Otherwise there will never be any bank failure, they could just loan to each other and create trillions of dollars

Only FED create base money when government and commercial banks borrow from them. However, a loan is a promise to pay back in the future, what if you are not able to pay back? Then you have to default and all those money will be backed by nothing. So money backed by debt should worth much less than money backed by existing asset, since the debt is some thing in future, must be discounted for its risk of default

That is the situation today, since the aggregate ability of the whole society to pay back the loan will be less and less because of diminishing increase of productivity (partly caused by less and less increase in aggregate demand due to centralization and automation of the production), the loan based money issuing will eventually end up with large scale of default

The only way to avoid such a default is to borrow more and more to pay back the loan + interest, and that is what the government is doing right now. So it becomes such a game: Your ability to pay back the loan depends on your ability to get new loans, as long as you can get new loans, the game continues

So, unlike what you believe, the fiat currency's value is backed by the government's ability to get new loans, not any tangible product or service in future

Money is no different than any other goods, it is just the most liquid commodities in the market, it must have a cost to hold its value. Money without production cost is a scam

[ffe]

Commercial banks does not create money, I mean base money, not some check book numbers in their database. When you ask for a loan, if commercial bank does not have base money, they can not give you a loan, that's a liquidity problem. Otherwise there will never be any bank failure, they could just loan to each other and create trillions of dollars

I'm afraid that's not right.

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Commercial banks do create money. It may not be base money but base money is only a small fraction of total fiat money. They create a loan on their books and balance it with an asset which is the contract you sign for a loan, not any base money they may or may not have. Base money is only used for cash withdrawals, a very small value relative to their normal volume. If they run short they're allowed to run to the fed and borrow some.

They don't over borrow from the fed because they have to pay interest. They can't just have base cash sitting in their vaults if they have to pay interest on it.

Base money is small part of the total fiat money we use.

[worle1bm]

I know this is going to blow your minds, and I apologize for interrupting your circle-jerk of pseudo-theory, but what if currency doesn't exist in a vacuum? What if prices fluctuated, meaning purchasing power fluctuated, in a similar manner to currency?

What if, and I know this is really out there because it means the government and fiat money and the world isn't actually going to collapse, but what if the modern currency has enough flexibility to meet purchasing power at a reasonable level, and the only examples of this not happening are anecdotes, exceptions to the norm, and not statistically relevant?

Of course the current system will never collapse, as you said, it is all relative and floating. In a worst case scenario they will issue new money in exchange for old hyper inflated money, and last for another few years, like Zimbabwe government did for many times

You keep repeating one event:

but what if the modern currency has enough flexibility to meet purchasing power at a reasonable level, and the only examples of this not happening are anecdotes, exceptions to the norm, and not statistically relevant?

If you regard fiat currency the unit of value, then your slavery will never end, you will forever working to earn some paper printed by a few while they take the ownership of your wealth by simply printing or adding zeros to their account

My slavery? Hahahaha my slavery is quite palatable. I have a job I enjoy, a wife I love, a nice home, a dependable vehicle, hobbies I enjoy, and enough of this evil evil money to provide all of these things comfortably. If this is the curse of fiat, I welcome the curse!

[jaysabi]

Commercial banks does not create money, I mean base money, not some check book numbers in their database. When you ask for a loan, if commercial bank does not have base money, they can not give you a loan, that's a liquidity problem. Otherwise there will never be any bank failure, they could just loan to each other and create trillions of dollars

I'm afraid that's not right.

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Commercial banks do create money. It may not be base money but base money is only a small fraction of total fiat money. They create a loan on their books and balance it with an asset which is the contract you sign for a loan, not any base money they may or may not have. Base money is only used for cash withdrawals, a very small value relative to their normal volume. If they run short they're allowed to run to the fed and borrow some.

They don't over borrow from the fed because they have to pay interest. They can't just have base cash sitting in their vaults if they have to pay interest on it.

Base money is small part of the total fiat money we use.

He's right. The practice by which banks create money is called "fractional reserve banking."

[johnyj]

My slavery? Hahahaha my slavery is quite palatable. I have a job I enjoy, a wife I love, a nice home, a dependable vehicle, hobbies I enjoy, and enough of this evil evil money to provide all of these things comfortably. If this is the curse of fiat, I welcome the curse!

That's true, banks bribe you with a good job and a family life and even a home and a nice car, while at the same time they grab hundreds of more asset than you without doing anything, but you don't care, since you are fine. This is the mindset of many people, so you really should not be here

But there are some people who feel the unfairness nature of the current system and want to get their fair share of the wealth

[johnyj]

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Commercial banks do create money. It may not be base money but base money is only a small fraction of total fiat money. They create a loan on their books and balance it with an asset which is the contract you sign for a loan, not any base money they may or may not have. Base money is only used for cash withdrawals, a very small value relative to their normal volume. If they run short they're allowed to run to the fed and borrow some.

They don't over borrow from the fed because they have to pay interest. They can't just have base cash sitting in their vaults if they have to pay interest on it.

Base money is small part of the total fiat money we use.

There is nothing called "total fiat money", only two types of money: base money and checkbook money. Banks usually add them together and call it money supply, but this is to confuse normal people

A 100$ note is base money, banks can lend it out again and again to accumulate 1000$ in their checkbook (records), but at any time, they have only 100$ note in circulation, when more than two customer ask for a withdraw at the same time, bank will run into a liquidity problem and have to borrow base money from FED. Of course in a mostly electronic money system like today, the customer withdraw will end up in another bank account, which the original bank can borrow back to deal with more withdraw, so the liquidity crisis only happens when all the banks were facing the same withdraw pressure in a very short time

Anyway, that $1000 (or M2) is only the total number recorded on bank's checkbook, it has nothing to do with what amount of money in circulation, it is just a database number indicating how many times the banks has lent the same money out

[ffe]

There is nothing called "total fiat money", only two types of money: base money and checkbook money. Banks usually add them together and call it money supply, but this is to confuse normal people

You may not call checkbook money "money", but it's 90% of what most people and industry needs for commerce. Some countries are exploring eliminating paper money altogether. Base money will then just be numbers in checkbooks between the fed and the banks.  That will certainly "confuse" normal people.

I'm not saying base money isn't important. It keeps the banks honest. In practice they never have to hand out more than a small fraction of their liabilities in base money. But they do have to produce it on demand hence they need to keep their reputations intact so they can borrow some when they need it.  This makes the correspondence between checkbook money and base money very tight.

My comments on the desirability of being able to borrow fiat (base or checkbook) still hold. My comments on the opinion that fiat (base or checkbook) is backed by loan contracts representing promises to labor also still hold. Banks will shun a bank that has ruined its own credit by not balancing its liabilities (checkbook accounts) with assets (loan contracts and the associated income).

Base money, of course, can be printed as needed by the fed. They print the right amount to target inflation at under 2%. That's the "if it's well managed" part of my comments. As far as I can tell, the fed seems to be pretty conservative in this regard.

An intersting alternative setup is to get rid of the fed and allow banks to issue their own paper money. See the literature on free banking for how that works. The idea is that if a bank abuses its power to print it is punished by the market when their paper bills are not accepted. The owners will have a market incentive to be responsible.

[worle1bm]

My slavery? Hahahaha my slavery is quite palatable. I have a job I enjoy, a wife I love, a nice home, a dependable vehicle, hobbies I enjoy, and enough of this evil evil money to provide all of these things comfortably. If this is the curse of fiat, I welcome the curse!

That's true, banks bribe you with a good job and a family life and even a home and a nice car, while at the same time they grab hundreds of more asset than you without doing anything, but you don't care, since you are fine. This is the mindset of many people, so you really should not be here

But there are some people who feel the unfairness nature of the current system and want to get their fair share of the wealth

What is this fair share bull****? What is this egalitarian crap? Economic systems are inherently unequal, because we are not equal. People makes choices and win or lose. You aren't entitled to a fair share, you're entitled to the same shot every individual receives. Make your own way instead of asking someone to give it to you.

[johnyj]

My slavery? Hahahaha my slavery is quite palatable. I have a job I enjoy, a wife I love, a nice home, a dependable vehicle, hobbies I enjoy, and enough of this evil evil money to provide all of these things comfortably. If this is the curse of fiat, I welcome the curse!

That's true, banks bribe you with a good job and a family life and even a home and a nice car, while at the same time they grab hundreds of more asset than you without doing anything, but you don't care, since you are fine. This is the mindset of many people, so you really should not be here

But there are some people who feel the unfairness nature of the current system and want to get their fair share of the wealth

What is this fair share bull****? What is this egalitarian crap? Economic systems are inherently unequal, because we are not equal. People makes choices and win or lose. You aren't entitled to a fair share, you're entitled to the same shot every individual receives. Make your own way instead of asking someone to give it to you.

What I mean is, you and many others around you should have 10 times more wealth than you have now, because your productivity is enough high to command that amount of wealth. However in current system you are maxed out at your current status, all your extra productivity goes to those bankers and become their asset, they don't work, you work

[johnyj]

You may not call checkbook money "money", but it's 90% of what most people and industry needs for commerce. Some countries are exploring eliminating paper money altogether. Base money will then just be numbers in checkbooks between the fed and the banks.  That will certainly "confuse" normal people.

No, checkbook money are just like your bitcoins in an exchange, it is the number that platform shows you, just a number in their database. It is this part most of the people misunderstand

For example, you put 100 bitcoins in an exchange, your account shows a number of 100, exchange write 100 coins in their checkbook. However, those coins went to their own wallet, and get moved to somewhere else. You still play around with the platform thinking you are playing with your bitcoin. But one day, the platform closed and the owner claim it was hacked... In fact, those coins are long gone the moment you put them in, you were just playing with numbers in their database

Same for the banks, the moment your 100 dollar bill were saved into a bank account, it is gone, you are left with only a number in your account to play with. Banks lend 90% of that bill to another people and he deposited or spent and deposited to merchants account in the same bank and they get another number 90 dollars, and so on. Because there are many people playing in the bank's account just like in an exchange, they are all playing with numbers, it is these numbers banks call it M2 M3 etc... But without your original dollar bill, these numbers will all disappear since they never existed in reality, that is the reason banks strictly restrict your daily withdraw of cash, a large scale of cash withdraw will empty their vault quickly

So, base money is the money, checkbook money is database numbers, just like your bitcoins in an exchange, they never existed in reality

When you do commerce with other people, those numbers move around: Your numbers get lower, merchant number get higher. From bank's point of view, the sum of your numbers does not change, they don't need to move money around, just adjust numbers in your account. However, every time the same money get loaned again, there will be new numbers generated in the database, that is the reason they say loan create money, in fact it only create new database numbers

If paper money is totally eliminated, then the loop will close, banks will never have a bank run and can create as much money as they want to rob people of their wealth. But what if people abandon their money altogether and don't play with their game anymore? Bitcoin fist time in human history let you hold your own money without the need to put them in a bank and play with numbers in their database, this is a vast evolution

[worle1bm]

What I mean is, you and many others around you should have 10 times more wealth than you have now, because your productivity is enough high to command that amount of wealth. However in current system you are maxed out at your current status, all your extra productivity goes to those bankers and become their asset, they don't work, you work

That's a completely fabricated statistic. How do you expect to be taken seriously when you're clearly making things up?

[ARadzi]

To defiatize the unit value of bitcoin at this time or even on the next five to ten years is next to impossible. we always need something to measure its value. In saying that the valuation of one currency is not correlated into another currency is like saying that import and export is not existing.

[johnyj]

What I mean is, you and many others around you should have 10 times more wealth than you have now, because your productivity is enough high to command that amount of wealth. However in current system you are maxed out at your current status, all your extra productivity goes to those bankers and become their asset, they don't work, you work

That's a completely fabricated statistic. How do you expect to be taken seriously when you're clearly making things up?

That's just my experience. I used to work in a large multinational enterprise. In 10 years, I clearly observed that the efficiency has increased at least by 10 to 20 times. However, the average salary of the branch never raised by that much, in fact it barely keep up with the inflation. Where are all those increased productivity gone? Why did not we have 5-10 times increase in salary?

There could be two reasons:

1. Demand has dropped due to market saturation, more production means less profit, so those added capacity will only result in redundancy of work force, not added income

2. Although the money supply also increased many folds, but those money did not reach the consumer to purchase more of our product thus bring us more income, they actually went to a few investors, they use majority of those money to push up the asset price and seldom increased the consumption of the whole society.

So, your income solely depend on where the FED money goes. This is very true because I have seen some of those top executives chasing the FED money, they even call it the top of the food chain. It is amazing that although we have so high productivity today, most of the people are still chasing those money which is simply printed by a few, and they don't even care slaughter each other to get a bigger share.

In one word, as long as banks create money and others chase, most of the people will always fall to the lower end of the food chain and get the least share of those money

[johnyj]

To defiatize the unit value of bitcoin at this time or even on the next five to ten years is next to impossible. we always need something to measure its value. In saying that the valuation of one currency is not correlated into another currency is like saying that import and export is not existing.

It will be a long process, maybe will never happen. Bitcoin is deflative and increase in value constantly, it is difficult to act as a unit of value

Energy can be used as a unit of value, like Joule. Energy can always be utilized in modern society to do some work, so its value is relatively objective. However, you can't store and circulate energy directly, so something that is produced mostly by energy will act as a token of corresponding energy's value

Since most of the time Bitcoin's value is closely related to the energy that used to produce it, using bitcoin as a token of energy will make it close to a very objective measure of value