6 ms·

I didn't downvote you, (I don't think I'm allowed to!) but the "US Fed" (the Federal Reserve) does not simply add $X million to the money supply--it actually pu

I didn't downvote you, (I don't think I'm allowed to!) but the "US Fed" (the Federal Reserve) does not simply add $X million to the money supply--it actually purchases Treasury bills on the open market. The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money. Meanwhile, I've already discussed Bitcoin's potential as an alternative currency (or lack thereof) in other comments. If people demand Bitcoins as a "tax haven" from the government, then Bitcoins aren't long for this world.

mcantelon 15y ago
>The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money. Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply. >If people demand Bitcoins as a "tax haven" from the government, then Bitcoins aren't long for this world. It'll be interesting to see how the state tackles this. It'll be easy to drive it underground, but preventing its use will be another matter. Bitcoin transactions through a VPN seem hard to prevent.
- achompas 15y ago
  Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply. As they should be, given that populations increase. Anyway, even if Bitcoins go underground, they'd have to be priced such that they'd be cheaper than other money laundering channels. Due to their finite supply, though, money laundering through Bitcoins will get very expensive. So their utility re: taxes will be squashed by either the government or the black market.
  - nkassis 15y ago
    I think this is a very important thing that people don't understand. Static money supply in a world where as you point it out population increases means deflation. And increasing popluation is only one example of the need for inflation. We create wealth all the time, people in other countries are buying their first car etc... the more goods are purchases and sold the more money you need. At least that's what I understand from my couple Economics classes.
    - mobileman 15y ago
      Bitcoins are divisible, so everyone's share gets smaller
  - sigil 15y ago
    > As they should be, given that populations increase. Is the U.S. Population increasing like this? [1] That's what the U.S. monetary supply looks like. More correctly, fiat money supply should ideally match total economic output, not population. But the GDP graph also doesn't look anything like that monetary supply graph. Given this, the BitCoin phenomenon is understandable: savers are looking for a currency that's not subject to manipulation and is most of all predictable in terms of supply. Whether or not it succeeds, I'm glad there's the pressure of a competing, not-centrally-manipulated currency. [1] http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D=AMBNS http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D...
    - acslater00 15y ago
      Actually money supply should ideally match total demand for money. Real economic output is not super relevant.
      - sigil 15y ago
        Milton Friedman disagrees and measures inflation relative to output in his book on monetary phenomena [1]. Since you're an economist (right?) I'd be interested in why you think he's got the wrong measure. [1] http://books.google.com/books?id=ZNAhXe2pz1cC&lpg=PA196&ots=s51lXrnrkZ&dq=milton%20friedman%20money%20mischief%20match&pg=PA193#v=onepage&q&f=false http://books.google.com/books?id=ZNAhXe2pz1cC&lpg=PA196&...
        acslater00 15y ago
        I'm not disagreeing with Milton Friedman at all. Read the sentence "Prices might even fall gradually as higher incomes led people to want to hold a large fraction of their wealth in the form of money." Inflation is a Money Supply / Money Demand phenomenon. In the long term, Money Demand tracks real output, but in the short term (such as the recession we're currently in) you can see major swings in demand that counteract what would normally be a quite inflationary money printing exercise.
        15y ago
beagle3 15y ago
> The net transaction is $0 (an exchange of currency for T-bills of equal value) That is only true if T-bills are generated slower than the rise of other money instruments. In the last few years, that has not been the case (and evidence for that is seen in the tanking dollar value compared to any other currency, including gold).

mcantelon 15y ago

>The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money. Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply. >If people demand Bitcoins as a "tax haven" from the government, then Bitcoins aren't long for this world. It'll be interesting to see how the state tackles this. It'll be easy to drive it underground, but preventing its use will be another matter. Bitcoin transactions through a VPN seem hard to prevent.

achompas 15y ago
Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply. As they should be, given that populations increase. Anyway, even if Bitcoins go underground, they'd have to be priced such that they'd be cheaper than other money laundering channels. Due to their finite supply, though, money laundering through Bitcoins will get very expensive. So their utility re: taxes will be squashed by either the government or the black market.
- nkassis 15y ago
  I think this is a very important thing that people don't understand. Static money supply in a world where as you point it out population increases means deflation. And increasing popluation is only one example of the need for inflation. We create wealth all the time, people in other countries are buying their first car etc... the more goods are purchases and sold the more money you need. At least that's what I understand from my couple Economics classes.
  - mobileman 15y ago
    Bitcoins are divisible, so everyone's share gets smaller
- sigil 15y ago
  > As they should be, given that populations increase. Is the U.S. Population increasing like this? [1] That's what the U.S. monetary supply looks like. More correctly, fiat money supply should ideally match total economic output, not population. But the GDP graph also doesn't look anything like that monetary supply graph. Given this, the BitCoin phenomenon is understandable: savers are looking for a currency that's not subject to manipulation and is most of all predictable in terms of supply. Whether or not it succeeds, I'm glad there's the pressure of a competing, not-centrally-manipulated currency. [1] http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D=AMBNS http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D...
  - acslater00 15y ago
    Actually money supply should ideally match total demand for money. Real economic output is not super relevant.
    - sigil 15y ago
      Milton Friedman disagrees and measures inflation relative to output in his book on monetary phenomena [1]. Since you're an economist (right?) I'd be interested in why you think he's got the wrong measure. [1] http://books.google.com/books?id=ZNAhXe2pz1cC&lpg=PA196&ots=s51lXrnrkZ&dq=milton%20friedman%20money%20mischief%20match&pg=PA193#v=onepage&q&f=false http://books.google.com/books?id=ZNAhXe2pz1cC&lpg=PA196&...
      - acslater00 15y ago
        I'm not disagreeing with Milton Friedman at all. Read the sentence "Prices might even fall gradually as higher incomes led people to want to hold a large fraction of their wealth in the form of money." Inflation is a Money Supply / Money Demand phenomenon. In the long term, Money Demand tracks real output, but in the short term (such as the recession we're currently in) you can see major swings in demand that counteract what would normally be a quite inflationary money printing exercise.
        15y ago

beagle3 15y ago

> The net transaction is $0 (an exchange of currency for T-bills of equal value) That is only true if T-bills are generated slower than the rise of other money instruments. In the last few years, that has not been the case (and evidence for that is seen in the tanking dollar value compared to any other currency, including gold).