3 ms·

I mean, you're arguing against a point I didn't make, but I'll take the bait anyway.... People should not be forced to go further out on the risk spectrum than

by javert 7y ago

I mean, you're arguing against a point I didn't make, but I'll take the bait anyway.... People should not be forced to go further out on the risk spectrum than they want to by government policy (which is what you are suggesting by saying that we shouldn't have what economists call sound money). Forcing them to do that distorts the economy. People should buy bonds because they think the extra risk is justified, not because there is no alternative.

chii 7y ago
and perhaps the situation has come to the point where low risk investments aren't available anymore. The banks (or ECB) cannot offer risk free interest rates anymore because there just isn't enough such investments to satisfy the demand. The lever that policy has is interest rates, and by lowering it even more, it forces savers to adjust their view on risk - if they can handle the lowered interest because their risk tolerance is so low that they cant buy bonds or anything, then they will need to suffer the low rates. It's just that a lot of people are in the situation where they cannot take on any risk with their savings. Historiaclly, banks being risk free is just a gimmick (even if the gov't is insuring the deposit). Banks's risks are diversified, and minimized. But if the economy is doing poorly, they cannot magically produce the low risk returns. I think the only way forward is actually gov't spending sprees - invest in long term projects, like 100 year long projects, and make these projects the backbone of fiscal policy (print money, if needed). Long term projects that can derive value for all of society, such as establishing bases on moon/mars, mining asteroids, etc.
- javert 7y ago
  Another option is "sound money" (historically, this was gold). If you had a sound money option available, people could save wealth without going further out on the risk curve. At this point, even high-quality corporate bonds are going negative in Europe, so people who want to save have to take a big risk. In my opinion that is unnatural; it's a creation of central planners who forced everyone away from gold and into fiat currencies. Gold is pretty risky now because it's not actually used as a currency and thus has low liquidity. If we all used gold as a currency, it would have high liquidity and it would be very stable. (I don't want to go back to gold because digital currency is far more practical, but I'm just making a historical point.) > I think the only way forward is actually gov't spending sprees That is going further in the direction of central planning and also further inhibits regular people from saving and investing safely and wisely. How is the middle class going to save and invest under this paradigm? I think the most likely answer is that they won't/can't, and the middle class disappears (like what happens with hyperinflation, e.g. Weimar Germany). A recurring theme: I am really against central planning. The planners do not always get it right, and when they screw up big time, it makes the system collapse. When people are free to make their own choices the economy adjusts dynamically.
  - arcticbull 7y ago
    I guess what I don't understand is why we need to force everyone onto sound money. People who receive what they perceive as unsound money can use it to buy whatever would back sound money anyways, can they not?
    - javert 7y ago
      We don't need to force people onto sound money. People will adopt it naturally over time if it's better for them than fiat money. However, there is no sound money right now. Bitcoin was designed to be sound money in theory, but it has to get a lot more liquidity first. Gold once was sound money, but also would need a lot more liquidity to be sound money once again. So we just have to wait. I'm not suggesting that we force it. Fiat money seems destined to eventually collapse. There is a long road, but every time fiat money stumbles, it will be a little victory for alternatives. Investors have been fleeing into gold lately. Wealthy Chinese people have been fleeing into bitcoin to at least some small extent.
  - QuesnayJr 7y ago
    Sound money is the surest route to destroying capitalism. The middle class didn't disappear because of Weimar. (It was a mixed bag, because the hyperinflation wiped out a lot of debts.) They disappeared because of the Great Depression. Sound money caused that.
    - javert 7y ago
      > Sound money is the surest route to destroying capitalism. I don't agree at all. But let's wait and see. That is a risk I'm happy to take. Sound money is honest money. A system that can't survive sound money is an unsound system. Anyway, we probably disagree on the definition of 'capitalism.' We don't have capitalism now, we have a mixed economy with partial capitalism. > the Great Depression. Sound money caused that. I completely disagree. This is but one theory, and I don't think it's a good one. > It was a mixed bag, because the hyperinflation wiped out a lot of debts. Hyperinflation = no debts, but also no savings. So only the very wealthy with large portfolios in real estate or industry could survive financially. Everyone else reduced to poverty. (Granted, I'm no expert on Weimar history, so if that's not exactly accurate, I welcome corrections.)

by javert 7y ago

chii 7y ago

and perhaps the situation has come to the point where low risk investments aren't available anymore. The banks (or ECB) cannot offer risk free interest rates anymore because there just isn't enough such investments to satisfy the demand. The lever that policy has is interest rates, and by lowering it even more, it forces savers to adjust their view on risk - if they can handle the lowered interest because their risk tolerance is so low that they cant buy bonds or anything, then they will need to suffer the low rates. It's just that a lot of people are in the situation where they cannot take on any risk with their savings. Historiaclly, banks being risk free is just a gimmick (even if the gov't is insuring the deposit). Banks's risks are diversified, and minimized. But if the economy is doing poorly, they cannot magically produce the low risk returns. I think the only way forward is actually gov't spending sprees - invest in long term projects, like 100 year long projects, and make these projects the backbone of fiscal policy (print money, if needed). Long term projects that can derive value for all of society, such as establishing bases on moon/mars, mining asteroids, etc.

javert 7y ago
Another option is "sound money" (historically, this was gold). If you had a sound money option available, people could save wealth without going further out on the risk curve. At this point, even high-quality corporate bonds are going negative in Europe, so people who want to save have to take a big risk. In my opinion that is unnatural; it's a creation of central planners who forced everyone away from gold and into fiat currencies. Gold is pretty risky now because it's not actually used as a currency and thus has low liquidity. If we all used gold as a currency, it would have high liquidity and it would be very stable. (I don't want to go back to gold because digital currency is far more practical, but I'm just making a historical point.) > I think the only way forward is actually gov't spending sprees That is going further in the direction of central planning and also further inhibits regular people from saving and investing safely and wisely. How is the middle class going to save and invest under this paradigm? I think the most likely answer is that they won't/can't, and the middle class disappears (like what happens with hyperinflation, e.g. Weimar Germany). A recurring theme: I am really against central planning. The planners do not always get it right, and when they screw up big time, it makes the system collapse. When people are free to make their own choices the economy adjusts dynamically.
- arcticbull 7y ago
  I guess what I don't understand is why we need to force everyone onto sound money. People who receive what they perceive as unsound money can use it to buy whatever would back sound money anyways, can they not?
  - javert 7y ago
    We don't need to force people onto sound money. People will adopt it naturally over time if it's better for them than fiat money. However, there is no sound money right now. Bitcoin was designed to be sound money in theory, but it has to get a lot more liquidity first. Gold once was sound money, but also would need a lot more liquidity to be sound money once again. So we just have to wait. I'm not suggesting that we force it. Fiat money seems destined to eventually collapse. There is a long road, but every time fiat money stumbles, it will be a little victory for alternatives. Investors have been fleeing into gold lately. Wealthy Chinese people have been fleeing into bitcoin to at least some small extent.
- QuesnayJr 7y ago
  Sound money is the surest route to destroying capitalism. The middle class didn't disappear because of Weimar. (It was a mixed bag, because the hyperinflation wiped out a lot of debts.) They disappeared because of the Great Depression. Sound money caused that.
  - javert 7y ago
    > Sound money is the surest route to destroying capitalism. I don't agree at all. But let's wait and see. That is a risk I'm happy to take. Sound money is honest money. A system that can't survive sound money is an unsound system. Anyway, we probably disagree on the definition of 'capitalism.' We don't have capitalism now, we have a mixed economy with partial capitalism. > the Great Depression. Sound money caused that. I completely disagree. This is but one theory, and I don't think it's a good one. > It was a mixed bag, because the hyperinflation wiped out a lot of debts. Hyperinflation = no debts, but also no savings. So only the very wealthy with large portfolios in real estate or industry could survive financially. Everyone else reduced to poverty. (Granted, I'm no expert on Weimar history, so if that's not exactly accurate, I welcome corrections.)