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"The demand for USD is robust because people need USD to pay taxes..." You cite this a priori - but it's so much more complicated than this. Demand is intimat

"The demand for USD is robust because people need USD to pay taxes..." You cite this a priori - but it's so much more complicated than this. Demand is intimately connected with supply in many cases. Soemtimes this can be because demand is latent. If production of food goes through the roof - and people were previously starving because the price of food was too high, then that latent demand will be released when supply improves and costs drop. But currency is different - opposite even. If supply goes through the roof - then demand will respond inversely. People will rush to unload that currency for other assets as they watch their wealth evaporate. It may hit some sort of baseline determined by the daily needs of payroll and tax payments - but other than those moments everyone will try to store there wealth anywhere but that currency. What is actually happening empirically is that people are coming to see Bitcoin as a reliable store of value over medium to long timeframes. You can continue to believe in your theory a priori, believing that in the even longer term, the lack of goverment mandate in Bitcoin will see its value evaporate... You can even continue to do this when everyone is vested in Bitcoin except you. At which point, you can claim, with 100% theoretical consistency that everyone is a stupid lemming. But ultimately, it will be the case that the Bitcoin folks had a better explanation of supply and demand than you - and their prediction of reality will be the measure of this.

tylerhou 6y ago
Citing "latent demand" or "induced demand" as counter-evidence to my original statement shows your (mis)understanding of basic economics. In fact, basic economics predicts "latent demand" for ordinary goods! > But currency is different - opposite even. If supply goes through the roof - then demand will respond inversely. This is terrible reasoning. It depends on why that supply is going through the roof. Maybe the supply is increasing because of higher demand? (Hint: increased demand for the USD is why the Fed is increasing the supply -- to keep the price stable.) The phenomenon you're referring to is that, with all else equal, people will shift away from the USD if supply increases make the USD's value drop. But all else is not equal; demand for USD last year effected all-time high issuings of stocks and bonds. Or, another way I could interpret this sentence is that you are claiming that the USD is not an ordinary good. Do you have some evidence to back that up? > What is actually happening empirically is that people are coming to see Bitcoin as a reliable store of value over medium to long timeframes. "Happening empirically." Have some numbers to back that up?
- oraphalous 6y ago
  >Citing "latent demand" or "induced demand" as counter-evidence to my original statement shows your (mis)understanding of basic economics. Your original statement: >The demand for USD is robust because people need USD to pay taxes and to purchase most goods ...remains an absurdly simplistic explanation of USD demand. I wasn't citing latent demand as a counter example to this explanation - just an illustration of easy to intuit scenario where demand responds dynamically to supply so that folks can see it happening in another context besides currency. Clearly I was not referring to latent demand in my actual counter-example - which you even seem to acknowledge later... > This is terrible reasoning. It depends on why that supply is going through the roof. I don't disagree. And at least one scenario where USD demand has skyrocketed has been because of its safe haven reserve status... which again speaks to how simplistic your original claim about the robustness of USD demand actually is... and lo - suddenly we have another vector of possible future weakness of USD demand that Bitcoin folk can consider. A vector, mind you, that was completely elided by that simplistic explanation of demand that I contested. Which is all I really want to achieve here... to remove this veil of simplicity - folks like you repeat ad nauseam these one line, simplistic claims about why Bitcoin demand must be illusory or idiotic... "Because you can't pay taxes with it! Hurrumph!". But no - there is considerably more complexity and nuance to all this - as you yourself are admitting in your response. That all I wanted / needed to do to demonstrate the obfuscatory contribution to the discussion of your original comment.
  - tylerhou 6y ago
    > remains an absurdly simplistic explanation of USD demand. Are you willing to provide a more sophisticated explanation for USD demand? The biggest thing missing from my explanation is demand as an investment, or foreign demand to hedge risk. Which right now isn't huge, given interest rates are at 0. > just an illustration of easy to intuit scenario where demand responds dynamically to supply Sorry, I was not correct that you were using this as an "counterexample." My intended point was that you seem to be presenting this as an unexpected phenomenon (like how others present "latent demand"), which signals that you don't understand basic econ. (And if one isn't familiar with basic econ, how are they supposed to understand monetary policy, which is based on a second/third year econ (macro)?) A person who understands economics would usually write: a rise in supply (with all else equal) causes the price of an ordinary good to drop, which shifts the equilibrium to a point where usually there is more demand. "Supply is intimately linked with demand" misses the mark completely! Supply isn't at all "intimately" linked with demand; it's linked with price, which is linked with demand. That distinction is critically important. It's the difference between central-bank money printing being inflationary (as you seem to suggest) vs. it being stabilizing (which is what is actually happening). And it affects behavior: people don't start buying food when when they see the news reporting an increase in supply. People start buying food when that supply increase causes the price to fall. If the price doesn't fall, people don't buy the food! The same happens with USD. People don't swap the USD to another currency because they see the central bank creating money (apart from Bitcoin-fanatics). Normal people start migrating off the USD to other assets when they see its value fall (inflation), which isn't happening at all (as measured by the CPI)! > "Because you can't pay taxes with it! Hurrumph!". This is a strawman of my argument. Not only can you not pay taxes with Bitcoin, you also can't use it to buy any goods and services. In fact, the only thing it seems like you can do with Bitcoin is to tell others that how Bitcoin is the future, and if they are a disbeliever, that they will be left behind claiming "with 100% theoretical consistency that everyone is a stupid lemming."
sobellian 6y ago
The demand for USD, as with most things, does fluctuate regularly. The value of USD is stable because there is a more-or-less omnipotent central bank that can alter the money supply to match demand and target 2% annual inflation. The way we pay taxes does not matter nearly as much as the Fed. By design, BTC can never have such a central entity that ensures price stability, so its price is practically doomed to swing wildly with speculative booms and busts.
- imtringued 6y ago
  >The way we pay taxes does not matter nearly as much as the Fed. It matters, in the sense that the government could just adopt a foreign countries' currency and thus the value of that foreign currency would benefit from the power of the USA. The USD would lose its value as a result. I can run my own central bank and mint the hacker news dollar and the currency would still be worthless because of a lack of government adoption. The US government has decided for itself to be dependent on the USD via taxation and thus it will do everything in its power to protect it. It's that simple. So, yes taxation has a huge second order effect that completely dwarfs the first order effect. Compare that to oil dependent countries that get paid in dollars for their wealth. They tend to protect their USD based economy at the expense of everything else. Their local currency tax base tends to be pathetic in comparison to the oil money and thus they neglect it.
  - sobellian 6y ago
    If, say, the government abolished the IRS and demand plummeted for USD, the Fed would respond by taking money out of circulation. The Fed creates an elastic money supply. You cannot reason about the dollar's value by studying demand for USD in isolation. As for your "HND" hypothetical, it's very plausible that you could mint your own currency and control its value. You would not be able to control the total value of all HND in circulation. In aggregate HND would probably be a relatively worthless currency but so long as you are willing to constrain supply very tightly you will ultimately end up with a market for the few weirdos who are willing to part with $1 to obtain 1 HND. That may be a total of $1000 or less in the end, a laughable sum, but the unit price would still be controlled.
imtringued 6y ago
>But currency is different - opposite even. If supply goes through the roof - then demand will respond inversely. People will rush to unload that currency for other assets as they watch their wealth evaporate. It may hit some sort of baseline determined by the daily needs of payroll and tax payments - but other than those moments everyone will try to store there wealth anywhere but that currency. Whether wealth disappears or not is purely dependent on what the money is spent on. If there is a food shortage you can actually spend government money on producing more food and thus end up with more wealth than before. In this scenario each new unit of currency is backed by additional production capacity that guarantees that you can exchange the same amount of currency for food. Since the price of food is still the same but there is more food you actually do need to increase the supply of money to match the supply of food, otherwise the price of food would be going down and we would get deflation.

tylerhou 6y ago

Citing "latent demand" or "induced demand" as counter-evidence to my original statement shows your (mis)understanding of basic economics. In fact, basic economics predicts "latent demand" for ordinary goods! > But currency is different - opposite even. If supply goes through the roof - then demand will respond inversely. This is terrible reasoning. It depends on why that supply is going through the roof. Maybe the supply is increasing because of higher demand? (Hint: increased demand for the USD is why the Fed is increasing the supply -- to keep the price stable.) The phenomenon you're referring to is that, with all else equal, people will shift away from the USD if supply increases make the USD's value drop. But all else is not equal; demand for USD last year effected all-time high issuings of stocks and bonds. Or, another way I could interpret this sentence is that you are claiming that the USD is not an ordinary good. Do you have some evidence to back that up? > What is actually happening empirically is that people are coming to see Bitcoin as a reliable store of value over medium to long timeframes. "Happening empirically." Have some numbers to back that up?

oraphalous 6y ago
>Citing "latent demand" or "induced demand" as counter-evidence to my original statement shows your (mis)understanding of basic economics. Your original statement: >The demand for USD is robust because people need USD to pay taxes and to purchase most goods ...remains an absurdly simplistic explanation of USD demand. I wasn't citing latent demand as a counter example to this explanation - just an illustration of easy to intuit scenario where demand responds dynamically to supply so that folks can see it happening in another context besides currency. Clearly I was not referring to latent demand in my actual counter-example - which you even seem to acknowledge later... > This is terrible reasoning. It depends on why that supply is going through the roof. I don't disagree. And at least one scenario where USD demand has skyrocketed has been because of its safe haven reserve status... which again speaks to how simplistic your original claim about the robustness of USD demand actually is... and lo - suddenly we have another vector of possible future weakness of USD demand that Bitcoin folk can consider. A vector, mind you, that was completely elided by that simplistic explanation of demand that I contested. Which is all I really want to achieve here... to remove this veil of simplicity - folks like you repeat ad nauseam these one line, simplistic claims about why Bitcoin demand must be illusory or idiotic... "Because you can't pay taxes with it! Hurrumph!". But no - there is considerably more complexity and nuance to all this - as you yourself are admitting in your response. That all I wanted / needed to do to demonstrate the obfuscatory contribution to the discussion of your original comment.
- tylerhou 6y ago
  > remains an absurdly simplistic explanation of USD demand. Are you willing to provide a more sophisticated explanation for USD demand? The biggest thing missing from my explanation is demand as an investment, or foreign demand to hedge risk. Which right now isn't huge, given interest rates are at 0. > just an illustration of easy to intuit scenario where demand responds dynamically to supply Sorry, I was not correct that you were using this as an "counterexample." My intended point was that you seem to be presenting this as an unexpected phenomenon (like how others present "latent demand"), which signals that you don't understand basic econ. (And if one isn't familiar with basic econ, how are they supposed to understand monetary policy, which is based on a second/third year econ (macro)?) A person who understands economics would usually write: a rise in supply (with all else equal) causes the price of an ordinary good to drop, which shifts the equilibrium to a point where usually there is more demand. "Supply is intimately linked with demand" misses the mark completely! Supply isn't at all "intimately" linked with demand; it's linked with price, which is linked with demand. That distinction is critically important. It's the difference between central-bank money printing being inflationary (as you seem to suggest) vs. it being stabilizing (which is what is actually happening). And it affects behavior: people don't start buying food when when they see the news reporting an increase in supply. People start buying food when that supply increase causes the price to fall. If the price doesn't fall, people don't buy the food! The same happens with USD. People don't swap the USD to another currency because they see the central bank creating money (apart from Bitcoin-fanatics). Normal people start migrating off the USD to other assets when they see its value fall (inflation), which isn't happening at all (as measured by the CPI)! > "Because you can't pay taxes with it! Hurrumph!". This is a strawman of my argument. Not only can you not pay taxes with Bitcoin, you also can't use it to buy any goods and services. In fact, the only thing it seems like you can do with Bitcoin is to tell others that how Bitcoin is the future, and if they are a disbeliever, that they will be left behind claiming "with 100% theoretical consistency that everyone is a stupid lemming."

sobellian 6y ago

The demand for USD, as with most things, does fluctuate regularly. The value of USD is stable because there is a more-or-less omnipotent central bank that can alter the money supply to match demand and target 2% annual inflation. The way we pay taxes does not matter nearly as much as the Fed. By design, BTC can never have such a central entity that ensures price stability, so its price is practically doomed to swing wildly with speculative booms and busts.

imtringued 6y ago
>The way we pay taxes does not matter nearly as much as the Fed. It matters, in the sense that the government could just adopt a foreign countries' currency and thus the value of that foreign currency would benefit from the power of the USA. The USD would lose its value as a result. I can run my own central bank and mint the hacker news dollar and the currency would still be worthless because of a lack of government adoption. The US government has decided for itself to be dependent on the USD via taxation and thus it will do everything in its power to protect it. It's that simple. So, yes taxation has a huge second order effect that completely dwarfs the first order effect. Compare that to oil dependent countries that get paid in dollars for their wealth. They tend to protect their USD based economy at the expense of everything else. Their local currency tax base tends to be pathetic in comparison to the oil money and thus they neglect it.
- sobellian 6y ago
  If, say, the government abolished the IRS and demand plummeted for USD, the Fed would respond by taking money out of circulation. The Fed creates an elastic money supply. You cannot reason about the dollar's value by studying demand for USD in isolation. As for your "HND" hypothetical, it's very plausible that you could mint your own currency and control its value. You would not be able to control the total value of all HND in circulation. In aggregate HND would probably be a relatively worthless currency but so long as you are willing to constrain supply very tightly you will ultimately end up with a market for the few weirdos who are willing to part with $1 to obtain 1 HND. That may be a total of $1000 or less in the end, a laughable sum, but the unit price would still be controlled.

imtringued 6y ago

>But currency is different - opposite even. If supply goes through the roof - then demand will respond inversely. People will rush to unload that currency for other assets as they watch their wealth evaporate. It may hit some sort of baseline determined by the daily needs of payroll and tax payments - but other than those moments everyone will try to store there wealth anywhere but that currency. Whether wealth disappears or not is purely dependent on what the money is spent on. If there is a food shortage you can actually spend government money on producing more food and thus end up with more wealth than before. In this scenario each new unit of currency is backed by additional production capacity that guarantees that you can exchange the same amount of currency for food. Since the price of food is still the same but there is more food you actually do need to increase the supply of money to match the supply of food, otherwise the price of food would be going down and we would get deflation.