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Macro-economist here. I can’t wait for this bubble to burst so some non-noxious (inflationistic, fractional-reserve-banking enabling) second- or third-generat

• headmelted 9y ago
  Not to dump on the libertarian dreams of Bitcoin - but isn't a massive popping bubble the expected response to a naturally deflationary, non-government-controlled currency? I have to assume that for any cryptocurrency to become practically useable for trade it would need to be government-backed for price stability (and to keep the proceeds from heroin and arms sales from running it up to $17k USD).
• patrickaljord 9y ago
  > Macro-economist here. Oh gosh thanks for the input, now we finally know what is going to happen with bitcoin. /s
  • qubex 9y ago
    What is about to happen seems pretty blatantly obvious at this point. Why it is desirable that it occurs might (or might not) require a bit of domain-specific knowledge. Of course aI’m aware of my professions pretty shitty track record (”predicted nine of the last seven market crashes, missed the big one” yada yada yada so I take no offence at your sarcasm).
    • patrickaljord 9y ago
      What's blatantly obvious? Many expect Bitcoin to reach gold level and $50k a bitcoin or $500k. I would love to know where you get your obviousness from. I guess you should short it if it's so obvious.
      • qubex 9y ago
        I have no interest in taking risky situations regarding this statement. A few weeks will tell who’s right and who’s wrong. Meanwhile, I shall preserve my objectivity by not entering a market and holding a position either way (I have the advantage that I run the family firm, so I don’t really need to put my money where my mouth is).
        • patrickaljord 9y ago
          That's my point though, if it's obvious then it's not risky but by your own admitting it is risky and therefore non obvious.
          • qubex 9y ago
            I must admit I smiled when I read your rejoinder because you nailed me and I had it coming.
    • deleted 9y ago
      [deleted]
• opportune 9y ago
  I'm hoping you can answer this given your credentials (it looks like an essay but it's really just a few questions): I always learned in Macroeconomics that a slightly inflationary currency is ideal under most circumstances. I understand why you wouldn't want high inflation, but the argument against deflation was that it caused a cycle where people delay purchases so they get more, decreasing aggregate demand, further decreasing economic output, possibly resulting in even worse deflation than before. What I don't understand is, why does it matter if the currency itself is inflationary if we have deflationary assets we can purchase with that currency? I can already purchase gold and Bitcoin and shares in companies etc. with my cash so rather than just letting it sit in my account, I can just buy those instead. Sure my money gets sent to someone who previously did own those, but there's also the case where I simply increase the total market cap of what I bought by exactly as much as I spent (not really possible on an individual level mostly, but in aggregate). The net effect of the second scenario is the same: my money didn't go towards purchasing anything productive and is instead parked in something deflationary. Sure someone is left "holding the bag" so to speak, but since all of these assets are deflationary, the holders of the cash are incentivized to continue shuffling the money back into deflationary assets. The US effectively left the gold standard in 1933, and I'm having a hard time finding economic data from before then, but I know both the US and global economy grew massively in size and on a per capita level from 1776 to 1933, and I remember reading that the USD was deflationary for a period of at least 100 years (maybe more). Was the economic growth during the dollar's deflationary period simply in spite of the widespread use of deflationary currency, and how so? Finally, what makes a debt-backed currency good? One of the problems I have with it is that if increases in the money supply only come from more debt, it drives policy encouraging people and businesses to enter debt. Obviously debt is just a monetary tool that is neither inherently good nor evil, but debt can exist under a non debt-backed currency too, so the net effect to me seems to be creating debt solely to force people to give banks most of the money supply (so it can be relended and expand and grow the economy, yadda yadda). Why is this good for the economy as a whole, and not just bankers? I feel like the actual purpose of this is to stop people from pulling all of their money from banks whenever they feel like it; that is, it removes any incentive to keep your money out of the banking system. Actually one more thing, the way the Fed issues money only directly to member banks irks me because there can really only be a finite number of member banks. Because every dollar must flow through these banks when the debt creating it is issued from the fed and again when it is collected, and these banks are obviously only taking money when they know they can lend it out at better rates, this creates a rentier relationship for the entire economy where all money creation and destruction MUST come through these member banks and everyone else essentially gets taxed for the privilege of borrowing from them. Why is this (lending to member banks) better than simply growing the money supply by printing money and giving it directly to citizens? They would still take the money and spend it around, and if the money were inflationary, it would end up in banks who could lend it out anyway. So it seems the net effect would be about the same, absent the rentier banks lending directly from the Fed, except the Fed would no longer need to decrease the money supply by simply not reissuing debt. Is it that important for the economy that we have the ability to decrease the money supply? Moreover, why can't we simply do both? So 1. How come deflationary assets do not decrease aggregate demand the way deflationary currency does? 2. Why was there so much economic growth from ~1700-1900 if all of that currency was deflationary? Was the growth simply in spite of deflation, and would have been much greater otherwise? 3. Is the main benefit of debt-backed currency that a central bank has direct control over the money supply's creation and contraction? 4. Do debt-backed currency's comparative benefits (which are at least ability to directly decrease the money supply) outweigh the benefits of expanding the money supply by issuing money directly to citizens (e.g. more consumer spending, higher velocity of money, essentially not needing to "rent" every dollar from banks)? What about a hybrid model?
• kthejoker2 9y ago
  People predicting bubbles are ridiculous. You're wrong every single day until you're inevitably "right" because volatile assets rebalance. Just stick to EMH and stop.
  • qubex 9y ago
    You are kind of right, but I have quoted a source that makes a very clear prediction: maximum exchange rate between 25,000 and 45,000 USD/BTY, crash period between 24 December and 8 January. That is fairly tight and falsifiable. Ball’s in your court.
• tomjen3 9y ago
  >inflationistic, fractional-reserve-banking enabling The entire point of bitcoin is lack of trust in the financial system and a trust in math. With bitcoin nobody can take it, nobody can dictate what your company is allowed to sell, by holding your access to the financial network hostage; nobody can force you to pay for their schemes by coin clipping or inflation and nobody can hide counter-party risk in fractional reserve-banking. Your money is either there or outright stolen, not messed with by Wall Street cronies. Bitcoin exists because the current system is untrustworthy. what you are proposing is making Bitcoin less trustworthy.
  • qubex 9y ago
    You as many other technologists write knowingly of currencies and economies and how they should/could function as if of mechanics flying submarines. Your assumptions are all wrong.
    • tomjen3 9y ago
      My assumptions are that I can save money by not using them, that one should not take on a debt burden that one cannot pay back and that pumping billions of phantom money into the world will result in bubbles. Look I know, the average economist disagree with me. But the ideas (other than no inflation, which is more a moral thing than a thing of economics) are not mine - they belong to Hayek and to some degree Milton Friedman. Friedman got a nobel prize in economics; Hayek was the opponent of Keynes, and despite a bit less than a century after the disagreement we haven't gotten rid of cyclic boom and bust. I believe economies are significantly simpler than economists believe - and macro economists have an atrocious record of predicting the future.
      • qubex 9y ago
        Fair enough, we can agree to disagree about first principles. It just leaves me a bit nonplussed, as if I came to you and started to preach to you about how a computer processor contains sentient elves. I could probably make some workable predictions from that statement, but by overestimating the inherent autonomy of a deterministic processor I'd also make some statements you would hold to be ludicrous. To each his own domain, I cannot really attack your assumptions, just what you derive from them; of your principles and beliefs I can only provide commentary, and on the topic I shall be as succinct as I can. To wit, the “phantom money” you mention seems to allude to allude to a contrast to non-phantom money, supposedly some kind of “real stuff” that meets your intuition of being a unilateral asset. National debt for a country that can issue bonds denominated in currency it itself controls is not at all comparable to the debt accrued by the private household or firm. Through varying levels of inflation, that debt-load becomes more manageable over time, a process I am sure you are aware of and conversant with. Insofar as it is a debt repayable mostly to the citizens and institutions of the nation itself, denominated in a currency that the sovereign government controls, it is hardly ever going to be unplayable. Nor will there be wholesale plunder of savings through hyper-inflation or other means... it's usually a measured process. And the debt provides a place for savers to safely park their excess liquidity. If they did not have the national debt to fund, they would go on the hunt for other, riskier assets to use as interest-bearing vehicles, and they'd bid down the price of risky financial assets and achieve lower expected returns as a result. Macroeconomics is surprisingly adept at unravelling how capital flows flux through a body politic. We tend to explain retroactively. Now people are putting themselves out there making fairly crisp, and as-yet un-falsified predictions of a crash on the way... we'll see if I was right or wrong to be convinced by their argument.