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Another refreshing sign of competence from the new administration. Yellen would be well aware of how destabilizing deflationary cryptocurrencies could become t

Another refreshing sign of competence from the new administration. Yellen would be well aware of how destabilizing deflationary cryptocurrencies could become to the macro economy. The more a cryptocoin is used as a savings asset, the more it gets tied to the real economy, the more it can become destabilizing. When gold had too much ties to the real economy, it caused enough instability to cause the great depression. This happens because people, businesses and banks start hording tokens instead of investing in building and maintaining the production capacity of consumables so the ratio of value of tokens meant to buy consumables vs the actual production of consumables gets out of wack. When the music stops, people realize that other people are sitting on tons of seemingly valuable tokens but stuff to buy with them is getting scarce because capacity is not being maintained, they reverse their trade, prices of stuff go up, volatility ensues, and the destructive cycle resets. Too much savings being tied to tokens instead of assets that create real value is an economy wide coordination failure, a terrible Nash equilibrium. It can be hard to solve because it's a prisoner's dilemma where the first people to invest in real production are disadvantaged so everyone hoards tokens instead (the gridlock in the production market this causes ends up hurting a lot more overall). This is what central banks and sound currencies are designed to prevent (as Yellen would know). We don't want cryptocoins to cause another great depression like gold tied currencies did almost a hundred years ago.

hedon1 6y ago
This is the best resource I can find that disagrees with you: https://mises.org/search-mises?search=deflation https://mises.org/search-mises?search=deflation
chii 6y ago
If people lose trust in fiat legal tender (e.g., their money starts losing value very quickly), they will look for an alternative. This is universal i believe, and no amount of central bank or legal banning will be able to reverse the loss of trust. The USD has not yet had its trust lost by a majority of the world. Whether it will in the future or not depends on the US gov't and their repairing of fractured relationships and bad PR, as well as increase stability and future outlook.
- BenoitEssiambre 6y ago
  That's the point. Macroeconomists understand that people should keep savings in assets that are tied to real production, not just fiat. It's important to make currencies not too attractive as a savings vehicle. A stable currency is very useful as an exchange and negotiation medium so we want to have it, but it being used too much as a savings medium is dangerous to the aggregate economy. It gets problematic when people's savings are too tied to promises/tokens/ious. I mean, if everyone owes everyone else their savings, on the aggregate, does anyone really have any savings? Things like gold remain sufficiently unattractive to not interfere with production markets because it is volatile and cyclical (Price of gold is highest when the average person is buying it and lowest when it is selling) usually making it a poor investment. Hopefully, cryptocoins remain that way too.
  - acapybara 6y ago
    There's a fundamental difference between storing value and investment. You're right that it's good to invest in productive assets. That said, there is still a need to store and represent value, and to be able to transfer it, divide it, etc. If you look up the history of money, it actually shows that using something with tangible value (e.g. salt) is a bad idea for multiple reasons. This is why the U.S. dollar is not backed by oil, corn, salt, shares of Berkshire Hathaway, etc. This is what made gold historically a good money as well, as it historically had more use as a status symbol/symbol of wealth than actual industrial uses (this may not hold for the future).
snarf21 6y ago
I don't get what you are saying. Everyone in the US holds dollars. Almost no one (statistically) holds BTC or other coins. Outlawing crypto won't cause a depression. The Fed selling all the assets it has been buying for 9 months would.
acapybara 6y ago
Er.. the term "sound currency"/"sound money" is used to describe currencies with tangible value, e.g. backed by gold. Gold itself is considered "sound money." What you're saying about sound money and/or deflationary (what I think you intend to say is disinflationary) is highly contested. The modern U.S. Dollar is represented by Federal Reserve Notes, which are simply nominal liabilities of the central bank. Before dollars were Federal Reserve Notes, they were Silver Certificates, redeemable as silver from the U.S. government. The Federal Reserve Note is a very young experiment, far from proven, and to make an argument from authority that of course Janet Yellen knows that FRNs and modern monetary theory is correct and proven is just plain wrong.

hedon1 6y ago

This is the best resource I can find that disagrees with you: https://mises.org/search-mises?search=deflation https://mises.org/search-mises?search=deflation

chii 6y ago

If people lose trust in fiat legal tender (e.g., their money starts losing value very quickly), they will look for an alternative. This is universal i believe, and no amount of central bank or legal banning will be able to reverse the loss of trust. The USD has not yet had its trust lost by a majority of the world. Whether it will in the future or not depends on the US gov't and their repairing of fractured relationships and bad PR, as well as increase stability and future outlook.

BenoitEssiambre 6y ago
That's the point. Macroeconomists understand that people should keep savings in assets that are tied to real production, not just fiat. It's important to make currencies not too attractive as a savings vehicle. A stable currency is very useful as an exchange and negotiation medium so we want to have it, but it being used too much as a savings medium is dangerous to the aggregate economy. It gets problematic when people's savings are too tied to promises/tokens/ious. I mean, if everyone owes everyone else their savings, on the aggregate, does anyone really have any savings? Things like gold remain sufficiently unattractive to not interfere with production markets because it is volatile and cyclical (Price of gold is highest when the average person is buying it and lowest when it is selling) usually making it a poor investment. Hopefully, cryptocoins remain that way too.
- acapybara 6y ago
  There's a fundamental difference between storing value and investment. You're right that it's good to invest in productive assets. That said, there is still a need to store and represent value, and to be able to transfer it, divide it, etc. If you look up the history of money, it actually shows that using something with tangible value (e.g. salt) is a bad idea for multiple reasons. This is why the U.S. dollar is not backed by oil, corn, salt, shares of Berkshire Hathaway, etc. This is what made gold historically a good money as well, as it historically had more use as a status symbol/symbol of wealth than actual industrial uses (this may not hold for the future).

snarf21 6y ago

I don't get what you are saying. Everyone in the US holds dollars. Almost no one (statistically) holds BTC or other coins. Outlawing crypto won't cause a depression. The Fed selling all the assets it has been buying for 9 months would.

acapybara 6y ago

Er.. the term "sound currency"/"sound money" is used to describe currencies with tangible value, e.g. backed by gold. Gold itself is considered "sound money." What you're saying about sound money and/or deflationary (what I think you intend to say is disinflationary) is highly contested. The modern U.S. Dollar is represented by Federal Reserve Notes, which are simply nominal liabilities of the central bank. Before dollars were Federal Reserve Notes, they were Silver Certificates, redeemable as silver from the U.S. government. The Federal Reserve Note is a very young experiment, far from proven, and to make an argument from authority that of course Janet Yellen knows that FRNs and modern monetary theory is correct and proven is just plain wrong.