Fiat is Effective: fiat for the crypto crowd [pdf] • Hacker News Board

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#71

Post by paulgb » Mon, Oct 16, 2017, 12:31 PM UTC

littlestymaar wrote: post #53

nadam wrote: post #32

Earlier quoted context omitted.

Let's say we have a huge global cryptocurrency, that the whole world uses. If I understand well, when the economy expands, you can buy more BigMac for one unit, when the economy shrinks, you can buy less BigMac for one unit. What I am wondering now is whether is it something that needs to be avoided at all, (or can it be avoided in the long term at all).

For bigmac it's not a big deal, but for investment it is. Imagine your company have 10 millions in cash, you could invest on a new machine to produce more (or better quality, or cheaper). But if you knew that the machine was going to cost you only 9 millions in 3 months. Will you buy it now even though you know it's only going to make you earn 300k in 3 months ? Of course not, you'll wait those 3 months. This is the…

The Capitol Hill Babysitting Co-op is sometimes cited as an example of this. https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#72

Post by icebraining » Mon, Oct 16, 2017, 12:31 PM UTC

sek wrote: post #61

ttoinou wrote: post #49

Earlier quoted context omitted.

Is deflation an awful situation ?

It is believed to be the primary reason for the great depression. https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression Deflation or Hyperinflation on the other side is nothing compared to the crises we have today. They are both a path for disaster, this is the primary fear of economists. Good explanation: https://www.quora.com/Why-is-2-the-ideal-inflation-rate

"Our main finding is that the only episode in which we find evidence of a link between deflation and depression is the Great Depression (1929—34). We find virtually no evidence of such a link in any other period."

-- Federal Reserve Bank of Minneapolis (Research Department)

https://www.minneapolisfed.org/research/sr/sr331.pdf

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#73

Post by lucozade » Mon, Oct 16, 2017, 12:31 PM UTC

roenxi wrote: post #69

neilwilson wrote: post #43

Earlier quoted context omitted.

Zimbabwe had little to do with supply of currency, and more to do with supply of stuff. They forgot that our economies rely upon the magic of the pin factory. Unsurprisingly if you take land from a specialist farmer and give it to a load of people who have no such specialism, then you get a collapse in production. The result of that is obvious unless you ramp up taxes to colossal levels to kill the excess money circu…

Are you suggesting that a government, having regulated against specific capable farmer running farms, should raise taxes to colossal levels if they observe food shortages? I suspect you want to rephrase your comment. That argument seems to have a non-sequitur in it.

I don't believe the GP is advocating it.

I believe he's implying that you'll get hyperinflation unless you do something draconian to take all the money out of the system.

This may well solve the hyperinflation at the expense of not having any (legal) economy left.

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#74

Post by pseud0r » Mon, Oct 16, 2017, 12:31 PM UTC

littlestymaar wrote: post #53

nadam wrote: post #32

Earlier quoted context omitted.

Let's say we have a huge global cryptocurrency, that the whole world uses. If I understand well, when the economy expands, you can buy more BigMac for one unit, when the economy shrinks, you can buy less BigMac for one unit. What I am wondering now is whether is it something that needs to be avoided at all, (or can it be avoided in the long term at all).

For bigmac it's not a big deal, but for investment it is. Imagine your company have 10 millions in cash, you could invest on a new machine to produce more (or better quality, or cheaper). But if you knew that the machine was going to cost you only 9 millions in 3 months. Will you buy it now even though you know it's only going to make you earn 300k in 3 months ? Of course not, you'll wait those 3 months. This is the…

That would be an argument against stock market and interest rate as well.

If a significant number of companies waited those 3 months to invest, there would be no deflation.

The deflation will be the same as the increase in a stock market index.

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#75

Post by lucozade » Mon, Oct 16, 2017, 12:36 PM UTC

subroutine wrote: post #34

pjc50 wrote: post #11

Earlier quoted context omitted.

"Fiat money and associated banking systems are the technology that enables the finance of war on scales that would have been unimaginable a few centuries ago" This quote appears in the summary but isn't really supported by argument within the article, and is quite a big claim!

What of countries that go full crypto, then later have a war levied against them; this suggests these governments would not have effective economic means to defend themselves. Its almost like it assumes if citicens of a state switch to crypto their government would/could not tax them

> this suggests these governments would not have effective economic means to defend themselves

They'll just re-introduce a fiat currency like they did all the other times that this was a problem. Assuming they want to survive.

Historically, communities that favoured philosophical consistency over self preservation tended to become, well, historical.

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#76

Post by namelost » Mon, Oct 16, 2017, 12:37 PM UTC

soniman wrote: post #66

sp4ke wrote: post #55

Earlier quoted context omitted.

1- Bitcoin is not stock so comparing with stock has no weight in your argument 2- It has already been on a very long bear market (2013-2015) where everyone said pretty much the same thing (fad, tulip, the experiment failed .... ). So yeah the new holders will go through rough times but your argument that it reached the peak of the hype cycle has no logical facts to support it since you could have said the same in the…

You're right, I have no idea when the top is going to be. My point is that bear markets have a very different feel and can be emotionally devastating if you're in the middle of one and bitcoin has not been through that and made it to the other side. Are the bitcoin boys ready for that? Because it's coming, sooner or later.

The exact sequence of events you are describing happened between 2013-2016 when Bitcoin fell from a hype induced >$1000 to (at its lowest) $200, and didn't rise above $1000 until this year.

It clearly did not kill Bitcoin, and Bitcoin won't die if the same thing happens again.

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#77

Post by sp4ke » Mon, Oct 16, 2017, 12:45 PM UTC

subroutine wrote: post #64

In the words of Patrick McKenzie's tweet linking to this pdf‏, "Hey look, someone took the time to explain to cryptocurrency enthusiasts why the rest of us perceive money as working". For those singing the praises of cryptocurrency I pose this question: Say the United States decides to allow decentralized cryptocurrencies to become the dominant medium of exchange in the US; say it even gets rid of the $USD. What prob…

Patrick McKenzie is fortunate enough to not be born in a country that is currently suffering from hyper-inflation neither is he living under a dictatorship that is putting capital controls and deciding how he should use his hard earned money .... yet :)

In other words, "the rest of us" of Patrick's folks do not represent the people for whom crypto is a necessity and not a luxury. So if money is already working for you, keep using it and ignore this fad

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#78

Post by DeerSpotter » Mon, Oct 16, 2017, 12:46 PM UTC

littlestymaar wrote: post #68

subroutine wrote: post #64

In the words of Patrick McKenzie's tweet linking to this pdf‏, "Hey look, someone took the time to explain to cryptocurrency enthusiasts why the rest of us perceive money as working". For those singing the praises of cryptocurrency I pose this question: Say the United States decides to allow decentralized cryptocurrencies to become the dominant medium of exchange in the US; say it even gets rid of the $USD. What prob…

I don't think cryptocurrencies are a solution to anything, but saying that the current system is «working» is dubious to say the least: the Fed has been controlling the money supply by targeting low inflation but the money supply grew much quicker than growth nonetheless (probably linked with the decline in money velocity, probably caused by the concentration of wealth. Disclaimer, this is a personal interpretation,…

Ahhh, the Feds.... There is one Variable nobody is talking about. Where are the bitcoins that were seized from the silk road and other drug dealers, etc... As soon as the USA floods those bitcoins back into the markets prices of bitcoin will drop.

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#79

Post by littlestymaar » Mon, Oct 16, 2017, 12:49 PM UTC

subroutine wrote: post #70

littlestymaar wrote: post #68

Earlier quoted context omitted.

I don't think cryptocurrencies are a solution to anything, but saying that the current system is «working» is dubious to say the least: the Fed has been controlling the money supply by targeting low inflation but the money supply grew much quicker than growth nonetheless (probably linked with the decline in money velocity, probably caused by the concentration of wealth. Disclaimer, this is a personal interpretation,…

What do you think the Fed was attempting to do? Or let me put it another way - it sounds like you are advocating there be no way for an agency of a democratic government to dynamically adjust money supply (or interest rates). Say we went all-in on crypto and 10-years-in for whatever reason the crypto supply generation rate we set a decade ago wasnt working (the US economy was crumbling). What then? This is an honest…

> What do you think the Fed was attempting to do? Or let me put it another way - it sounds like you are advocating there be no way for an agency of a democratic government to dynamically adjust money supply (or interest rates).

You are misinterpreting me. To be more explicit : cryptocurrencies suck for the exact reason you explained (if you look around in this discussion, that's exactly the point I'm making against any cryptocurrency fan) yet saying that current system is working properly is foolish. The recent history (since the 80s) is a good illustration that interest rate isn't a good enough tool for money supply control. And actually it should have been predicted: you have two independent things you want to control (consumer price inflation and asset price inflation) then you can't control them with only one variable. The fed's policy ignored the asset price, and it had the bad consequences I was talking about, but if you chose to control the asset price you'll probably cause deflation and kill economic growth. My take: because it's a system with 2 degrees of freedom, we should have at least two variables to adjust. If the first one is the interest rate, what should the second one be ? I don't know, but probably taxes (On savings ? On capital held maybe ?).

Re: Fiat is Effective: fiat for the crypto crowd [pdf]

#80

Post by namelost » Mon, Oct 16, 2017, 12:49 PM UTC

subroutine wrote: post #70

littlestymaar wrote: post #68

Earlier quoted context omitted.

I don't think cryptocurrencies are a solution to anything, but saying that the current system is «working» is dubious to say the least: the Fed has been controlling the money supply by targeting low inflation but the money supply grew much quicker than growth nonetheless (probably linked with the decline in money velocity, probably caused by the concentration of wealth. Disclaimer, this is a personal interpretation,…

What do you think the Fed was attempting to do? Or let me put it another way - it sounds like you are advocating there be no way for an agency of a democratic government to dynamically adjust money supply (or interest rates). Say we went all-in on crypto and 10-years-in for whatever reason the crypto supply generation rate we set a decade ago wasnt working (the US economy was crumbling). What then? This is an honest…

There are many countries which do not have the ability to print money, either because they use another country's currency or their currency is pegged. This usually comes about in order to ease trading (e.g. Hong Kong), because the existing currency was very weak, or because that country is too small to manage its own currency.