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Bitcoin Cannot Replace the Banks

11 points by joubert 6y ago

JMTQp8lwXL 6y ago
Agree with the title's premise, but there is no interesting conclusion here, which is regulators and economists like fiat money (I'm being somewhat reductionist, but it still isn't a particularly groundbreaking assertion). The author doesn't go on say bitcoin has no value, or no place in the broader financial system. The author makes clear bitcoin won't usurp banks. Which is a very believable point to accept. Ultimately, banks and fractional lending have the upper hand because we collectively believe the outcome is better: higher growth, stable employment, etc. If regulators egregiously fail to deliver these benefits in the future, there's a potential successor waiting in standby. And 10 to 15 years ago, we didn't have that. Overall, crypto is good in ensuring existing actors fulfill the functions they've promised and are obligated to do.
joubert 6y ago
One of the comments on the article: “ Banks create money out of nothing. Where does the real wealth in the economy lie? It’s easiest to see when people get it badly wrong Weimar Germany and Zimbabwe had created far too much money compared to the goods and services available within the economy causing hyper-inflation. States can just create money, and the last thing you want is too much of the damn stuff in your economy. They had made so much money it lost nearly all its value, and they needed wheelbarrows of the stuff to buy anything. States can create money out of nothing as well. You need the right amount of money in the economy for the goods and services available within that economy. The real wealth lies in the good and services available with the economy and is measured by GDP. Central bankers actually look at the money supply, and expect it to rise in line with the new goods and services in the economy, as it grows. More goods and services in the economy require more money in the economy. This is the problem with gold and Bitcoin, they are not really flexible enough.”
- Aerroon 6y ago
  Gold and Bitcoin might not be flexible enough, but you could consider them to be more just. When somebody can determine the value of money for everyone else, then that leaves the door open for corruption. It can erode people's faith in money. Fiat money requires that people have faith in the money for it to be worth much. Look at currencies from poor countries with rampant corruption. You can frequently pay in dollars/euros for goods and services, because people trust those currencies above the local one.
  - abernard1 6y ago
    > Gold and Bitcoin might not be flexible enough I won't agree or disagree with this as it pertains to today. That said, I would like to point out that the American industrial revolution happened during a period without central banks and their "flexibility." That particular economic revolution makes anything in the 20th century or beyond look quaint in comparison. >4% a year real GDP growth for a century, CPI deflation. A dollar in 1900 bought more than it did in 1800.
    - africanboy 6y ago
      The institutional arrangements of the American System were initially formulated by first Secretary of the Treasury, Alexander Hamilton, who proposed the creation of a government-sponsored bank and increased tariffs to encourage industrial development https://en.m.wikipedia.org/wiki/First_Bank_of_the_United_States https://en.m.wikipedia.org/wiki/First_Bank_of_the_United_Sta... Jefferson did not change Hamilton's basic policies. As president in 1811 Madison let the bank charter expire, but the War of 1812 proved the need for a national bank and Madison reversed positions. The Second Bank of the United States was established in 1816, with a 20-year charter. https://en.m.wikipedia.org/wiki/Second_Bank_of_the_United_States https://en.m.wikipedia.org/wiki/Second_Bank_of_the_United_St...
      - abernard1 6y ago
        > with a 20-year charter. ...which expired. And then we had the greatest boom in global history. I'm aware of the intermittent nature of the banks (as well as all the central banks that failed under the Articles of Confederation). The point is we had a situation where the money supply was basically fixed under a very imperfect gold standard. People say "deflation is bad", but can't explain basically a century under the most amazing economic growth of history.
- jfengel 6y ago
  People learn the wrong lesson from Germany and Zimbabwe. In both cases economic disruption was the problem -- war reparations in the case of Germany, agricultural collapse in the case of Zimbabwe. Hyperinflation was the response of the government, trying to inflate its way out of debts. It didn't work, but it wouldn't have helped to end the policy, either. The fundamental cause of the economic collapse would still have meant that the supply was weak and demand was inelastic. The zeroes in the currency are just there to make it look scary, but the real problem was much scarier. The amount of money is largely immaterial. You can go out and add three zeroes to every dollar in every pocket and nothing changes. Governments can do it selectively to nudge the economy one way or the other, and it works pretty well. That's really just the same as borrowing money, and nobody blinks an eye at fractional reserve banking, even though it also causes inflation in exactly the same way. Hyper-inflation is a permanent boogeyman, but it's not the real problem and people keep taking the wrong lessons. The lesson is to keep people producing, which governments can help by selectively boosting parts of the economy with monetary policy. Learning the right kind of policy is far more involved, but far more useful, than just repeating "Oh no Weimar and Zimbabwe".
ghgdynb1 6y ago
This is true! But there are quite a few other projects in the “defi” space (defi meaning decentralized finance, although I’m not convinced that it needs to stay fully decentralized to be useful). Perhaps the invention of smart contracts will be as revolutionary as the introduction of double entry bookkeeping in Italy, the maturation of insurance markets in London, or the invention of the modern corporation in the Netherlands.
ram_rar 6y ago
Its behind a paywall. Archive link https://archive.is/aYpCn https://archive.is/aYpCn
deleted 6y ago
[deleted]

11 points by joubert 6y ago

Agree with the title's premise, but there is no interesting conclusion here, which is regulators and economists like fiat money (I'm being somewhat reductionist, but it still isn't a particularly groundbreaking assertion). The author doesn't go on say bitcoin has no value, or no place in the broader financial system. The author makes clear bitcoin won't usurp banks. Which is a very believable point to accept. Ultimately, banks and fractional lending have the upper hand because we collectively believe the outcome is better: higher growth, stable employment, etc. If regulators egregiously fail to deliver these benefits in the future, there's a potential successor waiting in standby. And 10 to 15 years ago, we didn't have that. Overall, crypto is good in ensuring existing actors fulfill the functions they've promised and are obligated to do.

joubert 6y ago

One of the comments on the article: “ Banks create money out of nothing. Where does the real wealth in the economy lie? It’s easiest to see when people get it badly wrong Weimar Germany and Zimbabwe had created far too much money compared to the goods and services available within the economy causing hyper-inflation. States can just create money, and the last thing you want is too much of the damn stuff in your economy. They had made so much money it lost nearly all its value, and they needed wheelbarrows of the stuff to buy anything. States can create money out of nothing as well. You need the right amount of money in the economy for the goods and services available within that economy. The real wealth lies in the good and services available with the economy and is measured by GDP. Central bankers actually look at the money supply, and expect it to rise in line with the new goods and services in the economy, as it grows. More goods and services in the economy require more money in the economy. This is the problem with gold and Bitcoin, they are not really flexible enough.”

Aerroon 6y ago
Gold and Bitcoin might not be flexible enough, but you could consider them to be more just. When somebody can determine the value of money for everyone else, then that leaves the door open for corruption. It can erode people's faith in money. Fiat money requires that people have faith in the money for it to be worth much. Look at currencies from poor countries with rampant corruption. You can frequently pay in dollars/euros for goods and services, because people trust those currencies above the local one.
- abernard1 6y ago
  > Gold and Bitcoin might not be flexible enough I won't agree or disagree with this as it pertains to today. That said, I would like to point out that the American industrial revolution happened during a period without central banks and their "flexibility." That particular economic revolution makes anything in the 20th century or beyond look quaint in comparison. >4% a year real GDP growth for a century, CPI deflation. A dollar in 1900 bought more than it did in 1800.
  - africanboy 6y ago
    The institutional arrangements of the American System were initially formulated by first Secretary of the Treasury, Alexander Hamilton, who proposed the creation of a government-sponsored bank and increased tariffs to encourage industrial development https://en.m.wikipedia.org/wiki/First_Bank_of_the_United_States https://en.m.wikipedia.org/wiki/First_Bank_of_the_United_Sta... Jefferson did not change Hamilton's basic policies. As president in 1811 Madison let the bank charter expire, but the War of 1812 proved the need for a national bank and Madison reversed positions. The Second Bank of the United States was established in 1816, with a 20-year charter. https://en.m.wikipedia.org/wiki/Second_Bank_of_the_United_States https://en.m.wikipedia.org/wiki/Second_Bank_of_the_United_St...
    - abernard1 6y ago
      > with a 20-year charter. ...which expired. And then we had the greatest boom in global history. I'm aware of the intermittent nature of the banks (as well as all the central banks that failed under the Articles of Confederation). The point is we had a situation where the money supply was basically fixed under a very imperfect gold standard. People say "deflation is bad", but can't explain basically a century under the most amazing economic growth of history.
jfengel 6y ago
People learn the wrong lesson from Germany and Zimbabwe. In both cases economic disruption was the problem -- war reparations in the case of Germany, agricultural collapse in the case of Zimbabwe. Hyperinflation was the response of the government, trying to inflate its way out of debts. It didn't work, but it wouldn't have helped to end the policy, either. The fundamental cause of the economic collapse would still have meant that the supply was weak and demand was inelastic. The zeroes in the currency are just there to make it look scary, but the real problem was much scarier. The amount of money is largely immaterial. You can go out and add three zeroes to every dollar in every pocket and nothing changes. Governments can do it selectively to nudge the economy one way or the other, and it works pretty well. That's really just the same as borrowing money, and nobody blinks an eye at fractional reserve banking, even though it also causes inflation in exactly the same way. Hyper-inflation is a permanent boogeyman, but it's not the real problem and people keep taking the wrong lessons. The lesson is to keep people producing, which governments can help by selectively boosting parts of the economy with monetary policy. Learning the right kind of policy is far more involved, but far more useful, than just repeating "Oh no Weimar and Zimbabwe".

ghgdynb1 6y ago

This is true! But there are quite a few other projects in the “defi” space (defi meaning decentralized finance, although I’m not convinced that it needs to stay fully decentralized to be useful). Perhaps the invention of smart contracts will be as revolutionary as the introduction of double entry bookkeeping in Italy, the maturation of insurance markets in London, or the invention of the modern corporation in the Netherlands.

ram_rar 6y ago

Its behind a paywall. Archive link https://archive.is/aYpCn https://archive.is/aYpCn

deleted 6y ago

[deleted]