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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

#81

Post by MR4D »

danield9tqh wrote: post #37
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…

Debt can absolutely be issued with Bitcoin. What's to stop someone from saying, here I'll give you 1 BTC today if you give it back to me tomorrow? The reason you've probably heard that debt cannot be issued in Bitcoin is because debt cannot be issued in a 'safe' way. In other words if I give someone 1 BTC today, I can't be sure that they will give it back to me tomorrow. But that's just the nature of debt and has not…

Sure, you can do that, but that’s not how the modern world works. And it can’t create enough debt.

For instance, if you borrow in USD,you generally have to put it somewhere (like a bank) who can loan it out again. How do you let two different people use a single bitcoin? You need to do that for Fractional-reserve banking.

I’d reference this as a longer example of what I’m talking about: http://thismatter.com/money/banking/money-supply-money-multi...

Re: What Bitcoin shows us about how money works

#82

Post by andrenth »

jganetsk wrote: post #45
fuddcoinn wrote: post #29

Earlier quoted context omitted.

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.

Would debt be immediately paid off though? Would people be able to, considering the overall price increases? And if so, how long until they’re in debt again because they can’t keep up with increased prices (since they spent their printed money to pay their debt?)

Re: What Bitcoin shows us about how money works

#83

Post by voidmain »

andrewla wrote: post #14
darawk wrote: post #6

Overall I like the article, but a few points of disagreement: 1. The US dollar has intrinsic value. That intrinsic value is that the US government accepts it as payment for taxes. Regardless of what currency you conduct your business in, the USG accepts its cut only in dollars. That creates intrinsic demand for dollars, and links that intrinsic demand directly to the US GDP. 2. Bitcoin also has intrinsic value. That…

> That intrinsic value is that the US government accepts it as payment for taxes That can be argued to be an abstract utility for the US Dollar, but it is not an argument for the value (or "intrinsic value", whatever that means) of the US dollar in that the value of it is what determines the tax obligation. That is, if I own taxes on a non-USD transaction (say capital gains for BTC sales), the amount of those taxes i…

I really think you have this wrong. At the least, you need a better defense of your position.

Assume for the moment that the number of USD in circulation is fixed. (Presumably we agree that if the government prints or retires currency they can change the value of USD, so let's remove that as a factor). For the sake of argument let's say there are 10^13 USD at all times.

Every year America produces some amount of real income. Let's just call that 1 A, measured relative to some fixed basket of goods. And let's say the government collects .2A in taxes.

Now, you are saying that the value of USD is not constrained by this situation. Suppose that almost everyone switches to cryptocurrency and 1USD = 10^-16 A. Then at tax time Americans have to come up with 0.2A=2x10^15 USD which is 200x more than actually exist. So people will need more USD than they have and will have to bid the price up.

Thus, given a fixed money supply and that the government doesn't literally instantly spend every tax dollar, there is a floor on the value of the USD proportional to total tax collection (and thus to the size of the economy being taxed).

Re: What Bitcoin shows us about how money works

#84

Post by voidmain »

voidmain wrote: post #83
andrewla wrote: post #14

Earlier quoted context omitted.

> That intrinsic value is that the US government accepts it as payment for taxes That can be argued to be an abstract utility for the US Dollar, but it is not an argument for the value (or "intrinsic value", whatever that means) of the US dollar in that the value of it is what determines the tax obligation. That is, if I own taxes on a non-USD transaction (say capital gains for BTC sales), the amount of those taxes i…

I really think you have this wrong. At the least, you need a better defense of your position. Assume for the moment that the number of USD in circulation is fixed. (Presumably we agree that if the government prints or retires currency they can change the value of USD, so let's remove that as a factor). For the sake of argument let's say there are 10^13 USD at all times. Every year America produces some amount of real…

To add some real world numbers: it seems that federal, state, and local taxes total about 40% of the $18.6 trillion GDP, or $7.4 trillion per year. The broad money supply M2 is about $13.8 trillion. So more than half of all the USD in existence anywhere need to be handed to US governments every year! If the value of the USD were to fall precipitously, this fraction would go up. It seems crazy to think that this doesn't bound the value of the dollar.

Re: What Bitcoin shows us about how money works

#85

Post by xapata »

panarky wrote: post #75
xapata wrote: post #70

Earlier quoted context omitted.

> suddenly double Implying ceteris paribus -- all else held constant. Historical observations are generally not controlled experiments, as we only have one path through time.

> ceteris paribus OK, so walk us through it. What are the mechanics that transmit the money supply increase to wages and prices? If the money supply instantly doubled by magically changing Treasury bonds and collateralized mortgages into cash, what would happen? Cash balances would go up for banks, brokerages and wealthy investors but cash balances would stay the same for most people who don't own these securities. W…

> cash balances would stay the same

You read the original comment differently than I did. I assumed some magical doubling, as if every dollar bill in someone's pocket duplicated itself.

If you want to play "What If?" I guess we need to figure out if we're magically erasing everyone's memory of their previous holdings. If not, the world would go a bit crazy. Journalists would report it, we'd learn about the existence of magic, etc. So, I guess we'll need to assume that the magic doubling also makes people forget what they had before.

Let's see ... there might be a bit of a wealth effect [0], but if we're saying people don't remember their old balances, would they really perceive themselves as wealthier? This question is just too nonsensical to really pursue. It could be a fun thought experiment, but it's hit the point where I'd rather get some work done instead.

[0] https://en.wikipedia.org/wiki/Wealth_effect

Re: What Bitcoin shows us about how money works

#86

Post by faint_coder »

UncleEntity wrote: post #58
jganetsk wrote: post #50

Earlier quoted context omitted.

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.

There's nothing inherently bad about deflation, the US economy was basically deflationary for the whole of the 19th century and did just fine. I would explain how the opposite is not true but people a lot more knowledgeable on the subject have written volumes.

If you say so, you don't know anything about macroeconomics, and John Maynard Keynes' thrift paradox. Money MUST BE printed, because players that use it (people and businesses) _GROW_ over time! Did you heard that Facebook ALONE in 2014 generated almost $400,000,000,000.00 in economic activity? How that would haven been possible if we had the same USD volume supply of 1930? How derivatives, futures contracts, options contracts, options writing would be possible with a fixed USD volume at 1930's levels?! What you say is absurd, for modern economies. Please, read some more books on those topics. Thank you.

Re: What Bitcoin shows us about how money works

#87

Post by faint_coder »

cmroanirgo wrote: post #61

Lol. Although many good and seemingly well-reasoned arguments, the author forgot that you can only place a value on something if it is traded for something else. (eg BTC to USD, or chickens to potatoes). It is the ratio that gives the value and also depends on what side of the trade you're on. "A sudden random jolt downward in bitcoin price prompts many people to try to sell it and worsen the situation," This sentenc…

Currency is enslavement? Strange, because I thought you could exchange it for good and services slaves didn't have. Nowadays with a standard household purchasing power you can buy a lot of good and services. Let's back in time, to see what really being slaves would have mean in the past.

Re: What Bitcoin shows us about how money works

#88

Post by projektfu »

osrec wrote: post #18
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…

"Burning dollars" can be done in other ways. For example, the powers that be can issue less debt going forward, which would shrink the money supply.

Burning dollars is achieved by issuing more bonds.

Re: What Bitcoin shows us about how money works

#90

Post by jganetsk »

andrenth wrote: post #82
jganetsk wrote: post #45

Earlier quoted context omitted.

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.

Would debt be immediately paid off though? Would people be able to, considering the overall price increases? And if so, how long until they’re in debt again because they can’t keep up with increased prices (since they spent their printed money to pay their debt?)

> Would debt be immediately paid off though?

Yes. We all know a lot of people with mortgages, student debt, and credit card debt, who if suddenly given a government handout that would double their savings, would immediately pay off their debts. But I can't claim that all debts would be paid.

> Would people be able to, considering the overall price increases?

Of course people would be able to pay off their current balance if you hand them money. What do price increases have to do with this? Prices may go up (or may not), but your current balance on your mortgage and your credit card bill do not. And if people anticipate interest rates going up, that motivates them to pay it off sooner rather than later. But note that there is a lot of fixed-rate debt out there (like mortgages) not affected by interest rate hikes.

> And if so, how long until they’re in debt again because they can’t keep up with increased prices (since they spent their printed money to pay their debt?)

You keep assuming that prices would go up. Prices are determined by supply and demand. It has been claimed on this thread that prices will go up exactly 2x, but this claim has not been substantiated whatsoever. One potential mechanism for this would be a substantial increase in aggregate demand, as a result of the handout, but much of the money would go into paying off debt instead. This is called "debt deflation". So prices might not go up nearly as much as you are claiming they would.

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