Krugman on BitCoin • Hacker News Board

Re: Krugman on BitCoin

#231

Post by nazgulnarsil » Thu, Sep 08, 2011, 12:45 AM UTC

pessimizer wrote: post #230

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.

Legal tender laws should be abolished is the thrust.

Re: Krugman on BitCoin

#232

Post by stevenwagner » Thu, Sep 08, 2011, 12:46 AM UTC

wmf wrote: post #169

smokeyj wrote: post #148

Earlier quoted context omitted.

If a bitcoin clone were to spin-off where inflation was controlled by a set algorithm, would we still consider it to have a limited supply?

That would solve one problem, although it seems impossible to pick the right level of inflation. Then we could get on to discussing Bitcoin's other problems, such as slow transaction clearing and poor usability.

http://bitcoin.stackexchange.com/questions/328/how-do-i-safe...

Re: Krugman on BitCoin

#233

Post by sesqu » Thu, Sep 08, 2011, 12:55 AM UTC

msbarnett wrote: post #199

sesqu wrote: post #181

Earlier quoted context omitted.

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.

Are you suggesting that goods that retain value are intrinsically illiquid? Certainly, liquidity is not important for investment targets, but I don't think that relationship necessarily goes the other way.

Yes, currency is used (where available) for transfer of value because it is highly liquid, but I would not say that liquidity alone disqualifies a potential good from consideration as value storage. Quite to the contrary. And since currency circulates rather than being reformed as tissue paper at the end of every transfer, it effectively stores a constant amount of value until such a time as it is retired.

Re: Krugman on BitCoin

#234

Post by SkyMarshal » Thu, Sep 08, 2011, 1:18 AM UTC

sesqu wrote: post #176

2arrs2ells wrote: post #157

Earlier quoted context omitted.

If money is decreasing in value, it gives people a huge incentive to do something with it - buy something or invest. As long as the decrease to the value is small (1-3%) and predictable, this is a good thing .

I don't really buy this argument. People invest to increase their capital, not to stop it from decreasing. When inflationary pressure is actually tangible, money becomes a hot potato that no one wants, and poof, there goes the economy in a blaze of hyperinflation. Arguing that inflation is good is tantamount to arguing that illiquidity is good. If I were to argue for inflation, I would go with some other angle, like…

Inflation != hyperinflation. You're conflating the two in your argument.

Re: Krugman on BitCoin

#235

Post by pessimizer » Thu, Sep 08, 2011, 1:25 AM UTC

anigbrowl wrote: post #73

danenania wrote: post #59

Earlier quoted context omitted.

What's the difference?

Volatility. An ideal currency is immune to supply and demand and is simply a medium of exchange for actual commodities (which can be burned/eaten/used to manufacture things). Of course no currency can meet this ideal, but maintaining stability is a key task of a central bank.

I'd like to add that being useful isn't a negative for something's properties as a currency - for example, the reason cigarettes become a currency in a lot of jail/P.O.W. situations is because they are always liquid due to smokers needing to smoke.

Often in those situations, cigarettes come into the economy as a ration (or a purchase limit) that people get whether or not they are smokers, and the economy revolves around getting this commodity that everyone gets to the minority that need it. Pretty quickly, you end up with non-smokers trading cigarettes with each other, because you can always get whatever you want through paying a smoker in cigarettes.

Bitcoin could benefit from that if it encouraged a very large drug market, because people need their drugs. If an easy, comfortable bitcoin drug market could get a lot of volume, it would become a lot easier to buy a cup of coffee or a car with it, and the prices would rise and fall based on the relationship of the ease of purchasing drugs with bitcoin vs. the ease of purchasing drugs in dollars. Maybe money laundering could keep bitcoin stable, too. In any case, to be successful, IMO bitcoin will have to be driven by something other than belief in bitcoin.

The use of the USD? It can be used to pay US taxes.

Re: Krugman on BitCoin

#236

Post by SkyMarshal » Thu, Sep 08, 2011, 1:36 AM UTC

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 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.

Everyone has an opinion about BTC's deflationary nature, but few people seem to consider the possibility that BTC might be the first currency that works substantially differently in this regard to all other past currencies.

BTC is the first currency that is infinitely subdivisible. Ostensibly only 21 million BTC will be created, but since it is subdivisible to 8 decimal places, there will be [21 million / .00000001] = 2.1 quadrillion atomic units.

And that is only an artifact of the data structure used to implement it in code, not an inviolable requirement of the protocol. The precision, and hence the quantity of BTC, can be increased in the future if necessary.

This aspect of BTC, along with the fact that is not a debt-backed interest-bearing fiat currency might require a rethinking of the Quantity Theory of Money as it applies to Bitcoin-like currencies.

Additionally, only ~7 million Bitcoins have currently been created, only ~33% of the eventual total. The BTC economy is so new you can't buy much with it besides other currencies, computer parts from Newegg etc., and perhaps illegal drugs. Finally, forks like Solidcoin are appearing based on perceptions of consequential flaws in the BTC technology (absolute dependence on miners to extend the blockchain, etc.).

Imho it's worth withholding judgement for a few years at least and just observing how it develops. It's something potentially new, to which the old rules may not apply.

Re: Krugman on BitCoin

#237

Post by tptacek » Thu, Sep 08, 2011, 1:42 AM UTC

sandee wrote: post #223

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.

Why treasuries and bonds are purchased ?

Because they pay a (small) risk premium.

Re: Krugman on BitCoin

#238

Post by tptacek » Thu, Sep 08, 2011, 1:45 AM UTC

sesqu wrote: post #233

msbarnett wrote: post #199

Earlier quoted context omitted.

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.

Are you suggesting that goods that retain value are intrinsically illiquid? Certainly, liquidity is not important for investment targets, but I don't think that relationship necessarily goes the other way. Yes, currency is used (where available) for transfer of value because it is highly liquid, but I would not say that liquidity alone disqualifies a potential good from consideration as value storage. Quite to the co…

You are using these words but putting them together in an order I don't understand. Liquidity isn't important for investments? "Quite the contrary" that liquidity doesn't "disqualify" a good as a store of value? Are you saying suitability as a store of value varies inversely with liquidity? Do you park your money in antiques and artwork? Currency "stores a constant amount of value"? It doesn't inflate and deflate?

Re: Krugman on BitCoin

#239

Post by michaeldhopkins » Thu, Sep 08, 2011, 1:56 AM UTC

caf wrote: post #226

michaeldhopkins wrote: post #205

Earlier quoted context omitted.

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.

Yes, you are right of course. The interest rate could not rationally go down below zero, but there would still be demand for loans during the deflationary period, so there would be other compensation (like equity in a business) in exchange for the load so that the risk/return would be proportionate to the risk-free rate of holding cash.

Re: Krugman on BitCoin

#240

Post by DennisP » Thu, Sep 08, 2011, 1:57 AM UTC

khafra wrote: post #182

DennisP wrote: post #156

Earlier quoted context omitted.

Rationally, people should wait as long as possible to buy tech because they'll get more later. Instead, they buy it at a furious rate. Why is that?

stevenwagner shows by example why this isn't so, but to spell it out: If you were buying a CPU as an investment like a share of a mutual fund, to buy, hold, and sell, you'd want to wait as long as possible. In fact, you'd never buy one; we pretty much always expect the price of a given CPU to go down in the future. But if you're going to use it to generate value, you should buy it as soon as your expectation for the…

That makes sense, but what I'm wondering is: why doesn't the same argument apply to all products in the presence of deflation?

It seems to me the real problem of deflation is that debts get harder to pay off, not that people put off their purchases. But the "deflationary spiral" of delayed purchases is what people keep talking about, and I haven't heard a good reason why the tech industry is uniquely exempt from that.