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Krugman on BitCoin

krugman.blogs.nytimes.com

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Re: Krugman on BitCoin

#191

Post by stevenwagner »

sesqu wrote: post #161
maratd wrote: post #84

Earlier quoted context omitted.

> Perhaps when Bitcoin reaches supply maturity the value will stabilize I absolutely hate Krugman, but this is Econ 101 and even he gets it right. Bitcoin was a flawed experiment from the start because it has an absolute supply limit. Reaching that limit won't help. It'll make things worse. The money supply needs to expand for healthy economic activity and growth. If it doesn't, weird shit starts to happen. Here's an…

> In a normal economy, the population is constantly expanding. That may be, but the western world is then abnormal. US population is projected to peak at 2030, and a number of countries already have negative population growth. Exponential growth assumptions should not be made for long periods ahead. http://en.wikipedia.org/wiki/List_of_countries_by_population...

Most people don't seem to realize that when your currency inflates, there are people who get the new money. Inflation=wealth redistribution

Re: Krugman on BitCoin

#192

Post by stevedekorte »

alenlpeacock wrote: post #133
3pt14159 wrote: post #119

Earlier quoted context omitted.

You can't have it both ways. Either consumption is encouraged via inflation or investment is encouraged. For example, say that prices were slightly deflationary, as they are with computer equipment, across the board.* I could easily make the case that saving goes up! Why? Well if I took my goldbucks and lent them to you at 1% interest we would both be happy. My total return would be something like 3% per year (2% def…

Inflation/deflation has very little impact on the poor; the poor spend almost 100% of their income within a short window of receiving it just to survive. From the view of poverty, saving money is a rich man's luxury, and worries about inflation/deflation rates goes along with it. For those with excess money, inflation does encourage investment. Under a steady inflationary pressure, it is irrational to hoard your exce…

"For those with excess money, inflation does encourage investment." If they have their savings in a bank account, it's invested anyways via lending so inflation doesn't change the amount invested. What it can change is how wealth is invested, e.g. high inflation causes people to abandon the currency as a store of wealth - you get people buying and "hoarding", say, appliances they don't need as a store of wealth whose nominal ROI is higher than bank interest on savings accounts.

Re: Krugman on BitCoin

#193

Post by scott_s »

stevenwagner wrote: post #179
ajross wrote: post #127

Earlier quoted context omitted.

Exactly. In the bitcoin world, you make more money by not investing the money you have and instead holding onto it in the hopes that you'll be able eventually convert it to a stable currency in the future. That's a disaster. Who, for example, is going lend their precious bitcoins to a risky startup when they can just sit on them and watch them appreciate?

Finance 101, its called hedging. You can invest in dollars, euros, bitcoins, google, gold, food or whatever. They all have relative leverage and are all investments. Purchasing bitcoins means to investing in a share of the bitcoin economy. Its a startup currency which has never happened before. The increase in trading value has created an enormous amount of funding for bitcoin startups.

He's talking about the situation where you already have bitcoins. If their value is deflating fast enough, then the most sound "investment" is to just hold onto them.

Re: Krugman on BitCoin

#194

Post by stevenwagner »

waitwhat wrote: post #7
userulluipeste wrote: post #4

Had read it. It's not serious at all. The arguments there are out of touch with reality. For example: "What that means is that if you measure prices in Bitcoins, they have plunged; the Bitcoin economy has in effect experienced massive deflation." For this argument alone, one may look at https://www.bitcoinmarket.com and see exactly what kind of person Krugman is.

So I went to bitcoinmarket. They appear to show 1 BTC = (exactly) 15.00 USD all day every day since the beginning of August, never changing. Meanwhile, MtGoX currently shows 7.00.

http://bitcoincharts.com/

Re: Krugman on BitCoin

#195

Post by msbarnett »

stevenwagner wrote: post #184
danielsoneg wrote: post #122

Earlier quoted context omitted.

The other big problem is that debt loads don't drop along with prices - which effectively makes them rise. Falling prices (which lead to falling wages) + stable debt loads make it far harder for debtors to pay off their debts, which puts even further drag on the economy.

I would not short gold or Apple either, the risk would be huge! So are you agreeing that bitcoins will become worth more then? So I shouldnt take a bitcoin loan out, I should take a dollar loan out and buy bitcoins with it. Or you are saying bitcoins are bad so they will go down in value ... and I should... whaaat?

He's saying that the characteristics of bitcoins make it a lousy currency (people have little incentive to spend or loan it).

Whether or not it's an asset worthy of investing in is a separate question. (I'd argue that it isn't, but that's a separate issue from the characteristics that make it a bad currency).

Re: Krugman on BitCoin

#196

Post by Duff »

icebraining wrote: post #75
cube13 wrote: post #69

Earlier quoted context omitted.

Commodities are things people buy. Currencies are what people use to buy commodities with.

So what's the Swiss Franc right now?

A currency that people are hoarding because they feel that the faith and credit of Switzerland is proportionally better than other currencies, especially the Euro.

Re: Krugman on BitCoin

#197

Post by Duff »

maratd wrote: post #84
snorkel wrote: post #33

"What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And that’s not at all what is happening in Bitcoin." Spot friggin' on, Mr. Krugman. Bitcoin's supply limiting design has added a psychological dimension that encourages collecting. Perhaps when Bitcoin reaches supply maturity the value will stabilize but for now its…

> Perhaps when Bitcoin reaches supply maturity the value will stabilize I absolutely hate Krugman, but this is Econ 101 and even he gets it right. Bitcoin was a flawed experiment from the start because it has an absolute supply limit. Reaching that limit won't help. It'll make things worse. The money supply needs to expand for healthy economic activity and growth. If it doesn't, weird shit starts to happen. Here's an…

Bitcoin is not a flawed experiment -- it made the mysterious early adopters quite a bit of money.

Re: Krugman on BitCoin

#198

Post by Duff »

icebraining wrote: post #150
scott_s wrote: post #80

Earlier quoted context omitted.

Note that people treating the Swiss Franc as a commodity is harming the Swiss economy. See http://www.npr.org/blogs/money/2011/08/19/139791374/the-frid... and http://www.npr.org/blogs/money/2011/09/06/140211340/swiss-to...

Yes, that's why I chose that example. The thing is, currencies are and have always been a commodity with many traders. Bitcoin being treated as a commodity does not prevent it from being a currency.

A penny is made of zinc, but not all zinc is a penny.

A square is a rectangle, but not all rectangles are squares.

Scott is on the right path -- there's some sort of threshold where a substance is more valued as a transaction medium than for its intrinsic value.

Re: Krugman on BitCoin

#199

Post by msbarnett »

sesqu wrote: post #181
tptacek wrote: post #167

Earlier quoted context omitted.

Please cite one credible source of mainstream financial planning advice that suggests parking savings in US Dollars.

Anyone offering you salary in US dollars instead of a share of the product is implying that the dollar is a better store of the value you provided them with than the actual thing you produced.

No, it implies that US dollars are a better means of transferring value for time, because they're for example, highly liquid and fungible.

Properties that they posses at least in part because of the fact that currency is not a good long-term value storage proposition, and so they are not hoarded.

Re: Krugman on BitCoin

#200

Post by euroclydon »

danielsoneg wrote: post #122
johnthedebs wrote: post #100

Earlier quoted context omitted.

The problem isn't the psychological effects of needing to constantly lower prices – this happens all the time in the tech industry, and everyone in that industry is doing just fine psychologically. Rather, it has to do with the fact that constantly down-shifting prices cause people not to buy nearly as often as they would if prices were stable or slightly inflationary. As a result of that, the economy slows down (som…

The other big problem is that debt loads don't drop along with prices - which effectively makes them rise. Falling prices (which lead to falling wages) + stable debt loads make it far harder for debtors to pay off their debts, which puts even further drag on the economy.

Wow, for all I've read about Austrian Economics, I've never heard that simple yet devastating argument.
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