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Krugman on BitCoin

krugman.blogs.nytimes.com

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Re: Krugman on BitCoin

#221

Post by brown9-2 »

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.

But what about the people that want to use it as a currency, to buy things? If everyone views it as an investment, and not a vehicle for trade, it will fail as a currency / never take off as a currency.

A lot of this logic is circular - the value will continue to rise because people will keep investing because the value will keep rising, etc.

Re: Krugman on BitCoin

#222

Post by alenlpeacock »

stevedekorte wrote: post #192
alenlpeacock wrote: post #133

Earlier quoted context omitted.

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…

It is undoubtedly true that high inflation is bad. Very bad.

What you want, ideally, is a currency whose value doesn't fluctuate much at all in the short term, and which has a long term trend towards slight inflation.

Re: Krugman on BitCoin

#223

Post by sandee »

tptacek wrote: post #167
mcantelon wrote: post #130

Earlier quoted context omitted.

It doesn't ecourage you, it forces you. Yet currency is misleadingly sold to society as a legitimate store of value.

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

Why treasuries and bonds are purchased ?

Re: Krugman on BitCoin

#224

Post by mcantelon »

msbarnett wrote: post #209
mcantelon wrote: post #114

Earlier quoted context omitted.

Fiat currencies discourage saving by gradually stealing the value of the saved money via inflation. Theft isn't essential to trade: people will still innovate and exchange without being coerced into doing so by the systematic devaluation of their previous economic contributions.

Inflationary currency does absolutely nothing to discourage saving value, it merely discourages saving value in currency by stuffing it under a pillow, where it does no one any good. Save your value in assets.

Converting money to an asset isn't a great boon to the economy, and assets are vulnerable to depreciation.

The North American drumbeat urging the sacrifice of security for "the economy" is interesting... reminds me of communism's drive to sacrifice for "the collective".

Re: Krugman on BitCoin

#225

Post by Duff »

icebraining wrote: post #204
Duff wrote: post #198

Earlier quoted context omitted.

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.

But Bitcoin has no intrinsic value. So what's the threshold there?

Intrinsic value is set by the marketplace. Right now, the market perception is that prime numbers (or whatever bitcoins are) are scarce, valuable resources.

Re: Krugman on BitCoin

#226

Post by caf »

michaeldhopkins wrote: post #205
euroclydon wrote: post #200

Earlier quoted context omitted.

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

Just to be clear, it's an argument against fiat currency as deflationary and inflationary shocks occur in those systems. The effects of deflation and inflation over time are countered with market-set interest rates -- higher savings and loan rates in an inflationary period and low-to-negative rates in a deflationary period. Yes, in a deflationary economy a (for example) -5.00% interest rate might be fair and would ha…

Why would you ever lend money at a negative interest rate? You can always get 0.00% with virtually no risk just by socking the money away in a secure location. This is the heart of the problem with deflation (and deflationary currencies like bitcoin) - there's a 0.00% floor on the time cost of money.

Re: Krugman on BitCoin

#227

Post by scrollbar »

arvinds wrote: post #170
jtolle wrote: post #160

Earlier quoted context omitted.

I was going to mention that article too. It's a great explanation. Money and monetary systems are human creations, not laws of nature.

Yeah - it always amuses me to read these long detailed arguments on these threads from people who seem to not have understood basic macroeconomics.

Econ isn't a science. There are schools of economic thought that completely contradict "basic economics" taught in schools today, and you can't possibly prove that one or the other method is correct.

Hence, Economics: the dismal science.

Re: Krugman on BitCoin

#228

Post by pessimizer »

webXL wrote: post #68
RyanMcGreal wrote: post #39

Earlier quoted context omitted.

I think David Frum put it best [1]: > Imagine, if you will, someone who read only the Wall Street Journal editorial page between 2000 and 2011, and someone in the same period who read only the collected columns of Paul Krugman. Which reader would have been better informed about the realities of the current economic crisis? [1] http://www.frumforum.com/were-our-enemies-right

Using that hypothetical, you'd either think George W. Bush was the next coming of Jesus or Hitler. There was very little unbiased economic information in either opinion section. On his blog, Krugman is much less biased and inflammatory (perhaps because he doesn't feel the need to help sell newspapers there) and in this case, he brings up some valid points about the intentionally deflationary currency.

You're missing the point of the frumforum post. It was: if you were planning for the future, which source of predictions (the WSJ editorial page or Krugman's column) would have been a more accurate guide? It's about whether the horse would win, place, show, or be in the money at all - not whether the horse was pretty.

Biased or unbiased doesn't matter. The truth is biased. If the WSJ or Krugman says the passage of X bill will destroy Thailand's exports, and Thailand's exports rise, that's a failure. If the WSJ or Krugman say that Thailand is a beautiful country, that's irrelevant to the question.

Re: Krugman on BitCoin

#229

Post by thesteamboat »

wmf wrote: post #177
shazow wrote: post #145

Earlier quoted context omitted.

Agreed. Couple more points that may not be obvious: 7. Even if Bitcoin is not a useful currency today, not only is it a novel tech invention but it is also a useful medium of exchange (akin to credit cards). You can buy coins temporarily just so you can buy something from Amazon.com and have it shipped to Africa (as one Bitcoin startup does international shipping for many US-only retailers). 8. Bitcoin could be a use…

7. You can buy coins temporarily just so you can buy something... This is so kludgey that I don't see it as a benefit, and IMO touting it as a benefit just makes Bitcoin look worse. 8. all the properties of Bitcoin can be adjusted if the majority of the network clients agrees with this fork I suspect that there will be many Bitcoin forks, and none of them will take off due to a combination of path dependence (i.e. ko…

>> 7. You can buy coins temporarily just so you can buy something...

> This is so kludgey that I don't see it as a benefit, and IMO touting it as a benefit just makes Bitcoin look worse.

It's a benefit if it can easily add anonymity to transactions under existing currency schemes.

Re: Krugman on BitCoin

#230

Post by pessimizer »

nazgulnarsil wrote: post #219

Pro-inflationists a simple question for you. Inflation creates an incentive to invest. Fine. But why should the level of inflation and thus the risk profile for investors be determined by a single authority? Why not multiple competing currencies whose rates float against each other? Let the market figure out an optimal rate of inflation. The wild guesses and uncertainty of the Fed resetting the rate is surely inferio…

The world already works like that. You can buy money from countries other than the US, you know.
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