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What Bitcoin shows us about how money works

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Re: What Bitcoin shows us about how money works

#41

Post by tbabb »

MR4D wrote: post #22

Good article. Two things were not addressed though, which I think have a bigger impact than the things he mentions: 1 - scalability (e.g. transactions per second) of the bitcoin block chain is abysmally low. So low in fact, that today’s society would crumble on it as it currently exists; 2 - credit markets are not addressed. How do you loan money in a bitcoin world? Our society is built upon credit transactions, from…

1) I specifically didn't want to focus on technical limitations and implementation details. Yes, scalability is very bad, but my main point was that even if it were fixed, Bitcoin-like cryptocurrencies still can't be viable currency.

2) Why wouldn't debt work? Wouldn't loans come from the pool of currency held by the creditor?

Re: What Bitcoin shows us about how money works

#42

Post by thanatropism »

patrickg_zill wrote: post #31
panarky wrote: post #9

> It’s pretty easy to understand that if the government were to suddenly double the number of dollars in circulation, the value of a dollar would go down by approximately half. Just because it's easy to understand doesn't mean it's correct. For example, the US money supply more than doubled in the last 10 years, yet the value of a dollar has not halved. M0 quadrupled in 10 years: https://imgur.com/a/L9mDx M1 tripled:…

Q: do you believe the govt-published inflation stats are accurate? Or is inflation under-reported by the US government?

No inflation stat is actually "accurate". Each person has its own consumption basket and the rise of prices affects him/zir differently.

In any case -- what matters is that the inflation index of note is wrong in the same exact way every week.

This isn't the nature of economics, it's the nature of numbers. My masters' thesis is about simulating certain physical systems. There we stipulate G=1 and get the fuck on with the real work.

Re: What Bitcoin shows us about how money works

#43

Post by tbabb »

crdoconnor wrote: post #26
panarky wrote: post #9

> It’s pretty easy to understand that if the government were to suddenly double the number of dollars in circulation, the value of a dollar would go down by approximately half. Just because it's easy to understand doesn't mean it's correct. For example, the US money supply more than doubled in the last 10 years, yet the value of a dollar has not halved. M0 quadrupled in 10 years: https://imgur.com/a/L9mDx M1 tripled:…

Personally I think this is fairly obvious too. If the government prints a whole bunch of dollars and gives them to somebody who will just put them in a Scrooge McDuck vault so that they can dive in to them the net impact on inflation will be nil. Less obvious is the strong dampening effect that industrial slack has on inflation. Printing more dollars can mean more cars get shifted off the lot instead of the same cars…

Yes, agree that it gets way more complicated. But the point remains that nobody has control over the supply lever with a cryptocurrency, and that causes problems for the value of the currency.

Re: What Bitcoin shows us about how money works

#44

Post by keithnoizu »

danield9tqh wrote: post #12

> Even if demand for the dollar plummeted, the Fed could in principle keep burning money until a dollar is scarce enough to be worth the “right” amount This seems like the crux of the argument of the difference between the dollar and Bitcoin in the author's view. To me though this statement doesn't make sense and is very misleading, and someone please correct me if I'm wrong. The Fed CANNOT just keep burning dollars…

They could simple increase the required reserve rate to reduce the amount of money supply banks can generate. They could also apply negative interest rates across the board so that any amount of money stored in any account decreases over time.

Re: What Bitcoin shows us about how money works

#45

Post by jganetsk »

fuddcoinn wrote: post #29
tbabb wrote: post #19

Earlier quoted context omitted.

> M0 quadrupled in 10 years: https://imgur.com/a/L9mDx Presumably the demand and market forces have changed for the dollar in that time. If the central bank doubled the supply in one day, don't you think that would have an (approximately) halving impact on the value?

if they doubled money supply and distributed it 1 for 1 to all current dollar holders then in theory the expected price increases (inflation refers only to money supply amount, despite popular usage) would occur before any of the new dollars were spent into circulation. if they doubled the money supply, evenly distributed it AND those new dollars were all spent at the same velocity then the expected price increase wo…

If they doubled money supply and distributed 1 for 1 to all current dollar holders, lots of debt would get immediately paid off. Unless you are also proposing doubling everyone's debts. But, if not, then this will cause "debt deflation" rather than the inflation you are postulating.

Re: What Bitcoin shows us about how money works

#46

Post by stevedekorte »

"What about the gold standard? Well, it didn’t really work."

Saying the gold standard didn't work after central banks printed far more than their gold reserves (i.e. effectively went off the gold standard) is like saying vaccinations don't work after people stop getting vaccinated and start getting sick again. It would be more correct to say that parties responsible for maintaining the gold standard (the central banks) failed and therefore "don't really work".

Re: What Bitcoin shows us about how money works

#47

Post by RobertoG »

grandalf wrote: post #24
blowski wrote: post #10

Earlier quoted context omitted.

We quite often get firm evidence, and the evidence turns out to be wrong. But I'm a sceptic, which is why I never bought any Bitcoins for $1 in 2012.

I have no idea whether that will happen, just trying to express what I think the rational case is for investing in Bitcoin today. Goldbugs / conspiracy theorists have a line of argument where they describe all the fiat currencies that have ultimately experienced corruption and hyper-inflation. So I think it's fair to say that running a fiat currency successfully for more than 500 years is something that is unpreceden…

>"Goldbugs / conspiracy theorists have a line of argument where they describe all the fiat currencies that have ultimately experienced corruption and hyper-inflation"

And they are, practically in all the cases wrong. What we see is in history is a mismanagement of the real economy or external factors affecting the currency. They confound the symptom with the cause.

When the 'real' economy goes wrong, never mind if you have bit-coins, or whatever. In a desert, a bag with a million dollars buy you nothing. Of course, you can make a case for gold or similar because it could make easy run away to another place, but that it's not the argument they are pushing normally.

Re: What Bitcoin shows us about how money works

#48

Post by zxcb1 »

panarky wrote: post #27
tbabb wrote: post #19

Earlier quoted context omitted.

> M0 quadrupled in 10 years: https://imgur.com/a/L9mDx Presumably the demand and market forces have changed for the dollar in that time. If the central bank doubled the supply in one day, don't you think that would have an (approximately) halving impact on the value?

Here's a way to think about it using simple identities. 1) Nominal GDP = Money Spent 2) Nominal GDP = Price Level * Real GDP 3) Money Spent = Money Supply * Velocity Therefore 4) Price Level * Real GDP = Money Supply * Velocity So if supply doubles but velocity halves while real GDP remains constant, then there's no effect on prices. Economists call this "pushing on a string". The Federal Reserve increases the money…

So, would that mean, if this low velocity money where to engage with crypto currencies, it would be distributed to regular people who would actually spend it? Enabling the equivalent of helicopter money?

Re: What Bitcoin shows us about how money works

#49

Post by meri_dian »

panarky wrote: post #27
tbabb wrote: post #19

Earlier quoted context omitted.

> M0 quadrupled in 10 years: https://imgur.com/a/L9mDx Presumably the demand and market forces have changed for the dollar in that time. If the central bank doubled the supply in one day, don't you think that would have an (approximately) halving impact on the value?

Here's a way to think about it using simple identities. 1) Nominal GDP = Money Spent 2) Nominal GDP = Price Level * Real GDP 3) Money Spent = Money Supply * Velocity Therefore 4) Price Level * Real GDP = Money Supply * Velocity So if supply doubles but velocity halves while real GDP remains constant, then there's no effect on prices. Economists call this "pushing on a string". The Federal Reserve increases the money…

So if the Fed was somehow able to increase money supply by getting money into the hands of the average consumer rather than wealthy individual and institutional bond holders, monetary policy would be more effective?

Re: What Bitcoin shows us about how money works

#50

Post by jganetsk »

stevedekorte wrote: post #46

"What about the gold standard? Well, it didn’t really work." Saying the gold standard didn't work after central banks printed far more than their gold reserves (i.e. effectively went off the gold standard) is like saying vaccinations don't work after people stop getting vaccinated and start getting sick again. It would be more correct to say that parties responsible for maintaining the gold standard (the central bank…

The gold standard doesn't work because it's deflationary. The Eurozone effectively functions as a gold standard. And now we are re-learning why the gold standard is bad when we look at the impact austerity has had on the Greek financial crisis.
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