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I'm enjoying sitting on the sidelines and watching people "save" in a fiat "currency" whose value is not linked to anything intrinsic, whose supply can magicall

I'm enjoying sitting on the sidelines and watching people "save" in a fiat "currency" whose value is not linked to anything intrinsic, whose supply can magically be increased at the discretion of a few powerful individuals, and whose value has been declining relative to almost any tradeable assets. What a time to be alive. No wonder the M2 money supply is at an all time high. No one has any idea of what the intrinsic value is of anything.

andrewmcwatters 6y ago
Central banking as it exists in the US is designed to encourage spending. One person’s spending becomes another’s income. Having finite dollars and increasing demand leads to a currency that only increases in value. If an asset increases in value, there is an incentive to acquire it and not part with it.
- jkhdigital 6y ago
  No matter how much I read on the subject, I always feel like the true nature and complexity of money eludes me. I don’t mean to disparage your comments, but I believe they reflect a lack of appreciation for the magnitude of the subject.
  - andrewmcwatters 6y ago
    I agree with you. I don’t mean to suggest economic machinations are trivial, but some of the comments in this subthread raise counterpoints that I think casually dismiss the original points.
    - traceddd 6y ago
      It’s true, but hardly limited to this subthread. While I disagree with most of HN about cryptocurrency and economics, the discussions are significantly more considerate and studied than anything I’ve come across in my daily life. Even society’s proclaimed experts seem to have an admittedly limited understanding and predictive capability. At the core, economics are an expression of collective human desire and thus it seems it will never be truly rigorous.
  - brighton36 6y ago
    Money is a faith.
    - voodootrucker 6y ago
      Put your faith in the entire human history of scarcity leading to optimization, or you can try the US Federal Reserve and Bretton Woods.
  - volume 6y ago
    what I don't understand is Modern Monetary Theory: https://www.investopedia.com/modern-monetary-theory-mmt-4588060 https://www.investopedia.com/modern-monetary-theory-mmt-4588... Could it be that all this worry about printing money really doesn't matter?
    - seibelj 6y ago
      As long as the US dollar is the global reserve currency, then forcing all other countries to accept our infinite printing is easier. But MMT will incentivize foreign countries to use alternatives, and when the US dollar is no longer a reserve currency, the game is over. MMT also requires the government to rapidly increase and reduce taxes, from my research on it. All of this makes it intellectual masturbation, plus a very terrible idea IMO.
    - anonymouse008 6y ago
      It only doesn't matter as long as your demand outstrips supply -- Read as: as long as others want access and are not fully satiated to you, your affiliates, or what you both possess
      - ayyy 6y ago
        So, yes. Also, if the answer is "no", we're already very screwed.
- doggosphere 6y ago
  Yes, the problem with this power is the inevitable folly of short term fixes (through interest rates and government stimulus) by mortgaging future value. The pressures and short term thinking of believing you can fix your economy catches up to everyone eventually. We are in an era where saving does not exist, where interest rates are negative.
- beaner 6y ago
  Many believe this to be a good thing. To discuss it we'd have to go all the way down the keynesian vs. austrian rabbit hole. Someone here might be up for it. I'm content to sit on the sidelines and watch it continue to succeed and speak for itself.
  - andrewmcwatters 6y ago
    Yeah, I agree. That’s actually a really interesting discussion, too!
  - humaniania 6y ago
    How could a lower velocity of money be a good thing when there's still underemployment?
- gzu 6y ago
  Central banks are trying to prop up the deflationary structural changes happening in the broader world economies due to aging demographics and technology reducing the value of human labor. The end result is an enormous asset bubble as their only solution is to print money to prevent any actual deflation from happening as that would implode the financial system.
  - seebetter 6y ago
    Yes but the inflation will come in 5-7 years. Just in time to liquidate the amount of debt the government owes. Pretty clever trick but it’s only a random accident of the financialized systems that make modern life possible. It’s like how all the pandemic chaos only increased corporate profits and government power. It’s just endless consistent accidents that never benefit 95% of people.
  - legulere 6y ago
    Central banks seem to accept low deflation now. At least here in Germany we have low deflation. The money the central banks print is not for preventing inflation. They would need to put money in the hands of common people, but it just stays in the financial system and keeps asset prices up.
dmitrygr 6y ago
> whose value is not linked to anything intrinsic The value of US currency is backed, whether you like it or not, by US's military might. Very much not nothing
- doggosphere 6y ago
  Can you take your dollars in to the government and redeem it for units of "military might", whatever that means? You have it backwards. The military is an instrument in protecting the US dollar's dominance, control and influence as a reserve currency.
  - wayeq 6y ago
    No, but you can pay your taxes with USD, and stay out of prison, which is kind of nice.
    - wizeman 6y ago
      Practically all fiat currencies that have ever existed can or could also be used to pay your taxes and keep you out of prison, including all the ones that got destroyed or are currently being destroyed by hyper-inflation. So I don't think that it's a good argument for the USD being backed by value.
      - jerrymiller 6y ago
        Exactly. How did that work out for Venezuela and their currency?
itsoktocry 6y ago
>I'm enjoying sitting on the sidelines and watching people "save" in a fiat "currency" whose value is not linked to anything intrinsic I'm pro crypto, but this is ridiculous. No intrinsic value? I can spend my dollars anywhere in the world with no input or reliance on any other entity. They might be the most valuable asset on the planet.
- doggosphere 6y ago
  As a means of trade, yes, they are powerful because they are widely trusted and preferred. However once you have them, you get rid of them. Good assets don't lose value over time. https://www.statista.com/statistics/1032048/value-us-dollar-since-1640/ https://www.statista.com/statistics/1032048/value-us-dollar-...
  - deleted 6y ago
    [deleted]
  - kbhn 6y ago
    Good assets also don't get stolen if 51% of the network becomes compromised by a bad actor.
    - doggosphere 6y ago
      Hm? Stolen assets you say? https://en.m.wikipedia.org/wiki/Civil_forfeiture_in_the_United_States https://en.m.wikipedia.org/wiki/Civil_forfeiture_in_the_Unit... https://en.m.wikipedia.org/wiki/Executive_Order_6102 https://en.m.wikipedia.org/wiki/Executive_Order_6102 https://en.m.wikipedia.org/wiki/Greek_austerity_packages https://en.m.wikipedia.org/wiki/Greek_austerity_packages A 51% attack doesn’t let the bad actor steal someone else’s coins. It lets them reverse and double spend their own spending. They can’t directly steal coins. The flexibility of open source software gives opportunities to mitigate such an event, should it happen.
- shawnz 6y ago
  That's not intrinsic value though. Fiat currency by definition has no intrinsic value. Fiat literally means "let it be done", i.e. it is given value by a decree and not because of its intrinsic value.
UShouldBWorking 6y ago
I love you and this comment. Way better put than I could have, thank you!!!
RhysU 6y ago
Crypto true believers should be shorting dollars to buy Bitcoin according to those arguments.
mbesto 6y ago
There are two ways to look at currency (fiat or otherwise): - Medium of exchange - Store of value Fiat currency has utility for both. If crypto was more widely accepted by merchants (thereby satisfying bullet point #1) then this certainly changes the game. But it's not. Comparing both in their current capacities is disingenuous.
- doggosphere 6y ago
  Fiat currency as a store of value is plainly bad, not sure how you determined there is much utility in using it for saving. A US Government 10 yr bond currently yields 0.91%, and has been falling consecutively since its peak in 1981. It is at the whims of whoever decides the interest rate.
  - mbesto 6y ago
    > It is at the whims of whoever decides the interest rate. Which is precisely what makes it a fiat currency - its value is determined by a government entity. > A US Government 10 yr bond currently yields 0.91%, and has been falling consecutively since its peak in 1981. You know there are other fiat currencies right? > not sure how you determined there is much utility in using it for saving. "store of value" doesn't mean simply saving, it means the asset doesn't depreciate. The alternative to a fiat currency is to hold your goods as is and barter them, which relative to a fiat currency is a bad idea. Your cow eventually dies, your milk eventually soils, your tree eventually dies, etc. etc. In other words those assets all eventually depreciate to zero.
tybit 6y ago
Most people aren't investing in fiat, they are investing productive assets like real estate or businesses e.g the share market. I don't have strong opinions on fiat vs crypto, primarily because it seems like a boring question. Whatever currency is the future, currency isn't the present or the future of investments, productive assets are.
- santahigh 6y ago
  Most people aren't investing in bitcoin either. Current market cap of bitcoin is ~200 billion dollars. This is so minuscule it qualifies as rounding error on any meaningful scale.
  - gthaman 6y ago
    And there is the hint to the rational mind that you ought to take notice of the sector. Why is the status quo 'elephant' saying anything at all about the crypto 'ant' ?
- maehwasu 6y ago
  Fiat game mechanics force them to "invest" in "productive" assets in order to stay ahead of inflation. Scare quotes used because a ton of the price of those assets now reflects a monetary premium. I.e. a portion of the price of a house is its value for living or renting out in a given area, but a lot of it is its value as a scarce asset that is somewhat resistant to inflation. Needless to say, this is not a great allocation of resources and is an incredibly inefficient way for saving to work.
  - pembrook 6y ago
    > Fiat game mechanics force them to "invest" in "productive" assets in order to stay ahead of inflation So you’re suggesting this is a bad thing? And the alternative of hoarding unproductive assets is preferable? > houses...a lot of it is its value as a scarce asset that is somewhat resistant to inflation. The reason houses are expensive has nothing to do with being resistant to inflation. They get expensive when the supply of the land they sit on gets used up relative to the number of people who want to live in a given area. Houses in rural Kentucky aren’t expensive at all, because nobody wants to live there. That’s the main factor driving prices, not some inflation hedge. If the only reason people bought houses was to hedge inflation, they’d be better off buying stocks which are even more productive and produce returns above inflation. > this is not a great allocation of resources and is an incredibly inefficient way for saving to work. After reading this, I could not be more confused. So you’re saying that, the inflation mechanics of fiat is bad because it encourages people to invest in productive businesses and build useful real estate? And it’d be more efficient for society if everybody kept a useless stash of gold bars in their basement and took no risk? How would this make less people want to live in SF and houses suddenly cheaper?
legulere 6y ago
“Fiat” money has its value by there being a lot of obligations in it. If I sell stuff for Bitcoin, I still have to pay taxes in Euro to the German State for that. There are a lot of credits in fiat currency that have to be paid off. Currencies are used for valuation and obligations to pay in trade.
- jerrymiller 6y ago
  How did that work for Venezuela and their currency? USD is heading the same way, just slower.

andrewmcwatters 6y ago

Central banking as it exists in the US is designed to encourage spending. One person’s spending becomes another’s income. Having finite dollars and increasing demand leads to a currency that only increases in value. If an asset increases in value, there is an incentive to acquire it and not part with it.

jkhdigital 6y ago
No matter how much I read on the subject, I always feel like the true nature and complexity of money eludes me. I don’t mean to disparage your comments, but I believe they reflect a lack of appreciation for the magnitude of the subject.
- andrewmcwatters 6y ago
  I agree with you. I don’t mean to suggest economic machinations are trivial, but some of the comments in this subthread raise counterpoints that I think casually dismiss the original points.
  - traceddd 6y ago
    It’s true, but hardly limited to this subthread. While I disagree with most of HN about cryptocurrency and economics, the discussions are significantly more considerate and studied than anything I’ve come across in my daily life. Even society’s proclaimed experts seem to have an admittedly limited understanding and predictive capability. At the core, economics are an expression of collective human desire and thus it seems it will never be truly rigorous.
- brighton36 6y ago
  Money is a faith.
  - voodootrucker 6y ago
    Put your faith in the entire human history of scarcity leading to optimization, or you can try the US Federal Reserve and Bretton Woods.
- volume 6y ago
  what I don't understand is Modern Monetary Theory: https://www.investopedia.com/modern-monetary-theory-mmt-4588060 https://www.investopedia.com/modern-monetary-theory-mmt-4588... Could it be that all this worry about printing money really doesn't matter?
  - seibelj 6y ago
    As long as the US dollar is the global reserve currency, then forcing all other countries to accept our infinite printing is easier. But MMT will incentivize foreign countries to use alternatives, and when the US dollar is no longer a reserve currency, the game is over. MMT also requires the government to rapidly increase and reduce taxes, from my research on it. All of this makes it intellectual masturbation, plus a very terrible idea IMO.
  - anonymouse008 6y ago
    It only doesn't matter as long as your demand outstrips supply -- Read as: as long as others want access and are not fully satiated to you, your affiliates, or what you both possess
    - ayyy 6y ago
      So, yes. Also, if the answer is "no", we're already very screwed.
doggosphere 6y ago
Yes, the problem with this power is the inevitable folly of short term fixes (through interest rates and government stimulus) by mortgaging future value. The pressures and short term thinking of believing you can fix your economy catches up to everyone eventually. We are in an era where saving does not exist, where interest rates are negative.
beaner 6y ago
Many believe this to be a good thing. To discuss it we'd have to go all the way down the keynesian vs. austrian rabbit hole. Someone here might be up for it. I'm content to sit on the sidelines and watch it continue to succeed and speak for itself.
- andrewmcwatters 6y ago
  Yeah, I agree. That’s actually a really interesting discussion, too!
- humaniania 6y ago
  How could a lower velocity of money be a good thing when there's still underemployment?
gzu 6y ago
Central banks are trying to prop up the deflationary structural changes happening in the broader world economies due to aging demographics and technology reducing the value of human labor. The end result is an enormous asset bubble as their only solution is to print money to prevent any actual deflation from happening as that would implode the financial system.
- seebetter 6y ago
  Yes but the inflation will come in 5-7 years. Just in time to liquidate the amount of debt the government owes. Pretty clever trick but it’s only a random accident of the financialized systems that make modern life possible. It’s like how all the pandemic chaos only increased corporate profits and government power. It’s just endless consistent accidents that never benefit 95% of people.
- legulere 6y ago
  Central banks seem to accept low deflation now. At least here in Germany we have low deflation. The money the central banks print is not for preventing inflation. They would need to put money in the hands of common people, but it just stays in the financial system and keeps asset prices up.

dmitrygr 6y ago

> whose value is not linked to anything intrinsic The value of US currency is backed, whether you like it or not, by US's military might. Very much not nothing

doggosphere 6y ago
Can you take your dollars in to the government and redeem it for units of "military might", whatever that means? You have it backwards. The military is an instrument in protecting the US dollar's dominance, control and influence as a reserve currency.
- wayeq 6y ago
  No, but you can pay your taxes with USD, and stay out of prison, which is kind of nice.
  - wizeman 6y ago
    Practically all fiat currencies that have ever existed can or could also be used to pay your taxes and keep you out of prison, including all the ones that got destroyed or are currently being destroyed by hyper-inflation. So I don't think that it's a good argument for the USD being backed by value.
    - jerrymiller 6y ago
      Exactly. How did that work out for Venezuela and their currency?

itsoktocry 6y ago

>I'm enjoying sitting on the sidelines and watching people "save" in a fiat "currency" whose value is not linked to anything intrinsic I'm pro crypto, but this is ridiculous. No intrinsic value? I can spend my dollars anywhere in the world with no input or reliance on any other entity. They might be the most valuable asset on the planet.

doggosphere 6y ago
As a means of trade, yes, they are powerful because they are widely trusted and preferred. However once you have them, you get rid of them. Good assets don't lose value over time. https://www.statista.com/statistics/1032048/value-us-dollar-since-1640/ https://www.statista.com/statistics/1032048/value-us-dollar-...
- deleted 6y ago
  [deleted]
- kbhn 6y ago
  Good assets also don't get stolen if 51% of the network becomes compromised by a bad actor.
  - doggosphere 6y ago
    Hm? Stolen assets you say? https://en.m.wikipedia.org/wiki/Civil_forfeiture_in_the_United_States https://en.m.wikipedia.org/wiki/Civil_forfeiture_in_the_Unit... https://en.m.wikipedia.org/wiki/Executive_Order_6102 https://en.m.wikipedia.org/wiki/Executive_Order_6102 https://en.m.wikipedia.org/wiki/Greek_austerity_packages https://en.m.wikipedia.org/wiki/Greek_austerity_packages A 51% attack doesn’t let the bad actor steal someone else’s coins. It lets them reverse and double spend their own spending. They can’t directly steal coins. The flexibility of open source software gives opportunities to mitigate such an event, should it happen.
shawnz 6y ago
That's not intrinsic value though. Fiat currency by definition has no intrinsic value. Fiat literally means "let it be done", i.e. it is given value by a decree and not because of its intrinsic value.

UShouldBWorking 6y ago

I love you and this comment. Way better put than I could have, thank you!!!

RhysU 6y ago

Crypto true believers should be shorting dollars to buy Bitcoin according to those arguments.

mbesto 6y ago

There are two ways to look at currency (fiat or otherwise): - Medium of exchange - Store of value Fiat currency has utility for both. If crypto was more widely accepted by merchants (thereby satisfying bullet point #1) then this certainly changes the game. But it's not. Comparing both in their current capacities is disingenuous.

doggosphere 6y ago
Fiat currency as a store of value is plainly bad, not sure how you determined there is much utility in using it for saving. A US Government 10 yr bond currently yields 0.91%, and has been falling consecutively since its peak in 1981. It is at the whims of whoever decides the interest rate.
- mbesto 6y ago
  > It is at the whims of whoever decides the interest rate. Which is precisely what makes it a fiat currency - its value is determined by a government entity. > A US Government 10 yr bond currently yields 0.91%, and has been falling consecutively since its peak in 1981. You know there are other fiat currencies right? > not sure how you determined there is much utility in using it for saving. "store of value" doesn't mean simply saving, it means the asset doesn't depreciate. The alternative to a fiat currency is to hold your goods as is and barter them, which relative to a fiat currency is a bad idea. Your cow eventually dies, your milk eventually soils, your tree eventually dies, etc. etc. In other words those assets all eventually depreciate to zero.

tybit 6y ago

Most people aren't investing in fiat, they are investing productive assets like real estate or businesses e.g the share market. I don't have strong opinions on fiat vs crypto, primarily because it seems like a boring question. Whatever currency is the future, currency isn't the present or the future of investments, productive assets are.

santahigh 6y ago
Most people aren't investing in bitcoin either. Current market cap of bitcoin is ~200 billion dollars. This is so minuscule it qualifies as rounding error on any meaningful scale.
- gthaman 6y ago
  And there is the hint to the rational mind that you ought to take notice of the sector. Why is the status quo 'elephant' saying anything at all about the crypto 'ant' ?
maehwasu 6y ago
Fiat game mechanics force them to "invest" in "productive" assets in order to stay ahead of inflation. Scare quotes used because a ton of the price of those assets now reflects a monetary premium. I.e. a portion of the price of a house is its value for living or renting out in a given area, but a lot of it is its value as a scarce asset that is somewhat resistant to inflation. Needless to say, this is not a great allocation of resources and is an incredibly inefficient way for saving to work.
- pembrook 6y ago
  > Fiat game mechanics force them to "invest" in "productive" assets in order to stay ahead of inflation So you’re suggesting this is a bad thing? And the alternative of hoarding unproductive assets is preferable? > houses...a lot of it is its value as a scarce asset that is somewhat resistant to inflation. The reason houses are expensive has nothing to do with being resistant to inflation. They get expensive when the supply of the land they sit on gets used up relative to the number of people who want to live in a given area. Houses in rural Kentucky aren’t expensive at all, because nobody wants to live there. That’s the main factor driving prices, not some inflation hedge. If the only reason people bought houses was to hedge inflation, they’d be better off buying stocks which are even more productive and produce returns above inflation. > this is not a great allocation of resources and is an incredibly inefficient way for saving to work. After reading this, I could not be more confused. So you’re saying that, the inflation mechanics of fiat is bad because it encourages people to invest in productive businesses and build useful real estate? And it’d be more efficient for society if everybody kept a useless stash of gold bars in their basement and took no risk? How would this make less people want to live in SF and houses suddenly cheaper?

legulere 6y ago

“Fiat” money has its value by there being a lot of obligations in it. If I sell stuff for Bitcoin, I still have to pay taxes in Euro to the German State for that. There are a lot of credits in fiat currency that have to be paid off. Currencies are used for valuation and obligations to pay in trade.

jerrymiller 6y ago
How did that work for Venezuela and their currency? USD is heading the same way, just slower.