6 ms·

Bitcoin and the U.S. Fiscal Reckoning

23 points by longhand 5y ago

DantesKite 5y ago
To those with hopes and dreams in Bitcoin I suggest reading Nassim Taleb’s black paper. It does a great job outlining every major problem and (while in its current version and even a few iterations from now) it won’t succeed as a currency.
- weavie 5y ago
  Do you mean this one? https://www.fooledbyrandomness.com/BTC-QF.pdf https://www.fooledbyrandomness.com/BTC-QF.pdf
  - jw1224 5y ago
    Wow — some hot takes in there! > Why BTC is worth exactly 0: Gold and other precious metals are largely maintenance free, do not degrade over an historical horizon, and do not require maintenance to refresh their physical properties over time. Cryptocurrencies require a sustained amount of interest in them. And? None of these reasons mean it is worth “exactly 0” (not to mention some of them are just plain wrong). Gold requires sustained interest too! Bitcoin continues to be the only “currency” (regardless of how practical it is in everyday life) that’s free of direct influence from government monetary policy or insider control. That reason alone makes it totally unique and extremely valuable. > The customary standard argument is that "bitcoin has its flaws but we are getting a great technology; we will do wonders with the blockchain". No, there is no evidence that we are getting a great technology — unless "great technology" doesn’t mean "useful". And at the time of writing —in spite of all the fanfare — we have done still close to nothing with the blockchain. It’s a technology in its infancy, and it’s also clear that we are doing useful things with crypto: • DeFi has incredible potential to upset the power imbalance of the banking industry. It is rapidly democratizing financial instruments which were previously only available to the big guys. • NFTs, whilst something of a fad right now, have established means of recognising ownership of digital assets. • A global currency like Bitcoin makes international payments possible in areas where it would not be otherwise.
- liuliu 5y ago
  The United States is a democracy. Having large swarth of people owning cryptocurrencies making it possible for 1. no outright government bans or criminal investigations, 2. potential government buyout.
  - jw1224 5y ago
    Are you suggesting the US government would buy-out Bitcoin? I can’t see that happening, by any stretch of the imagination…
    - adventured 5y ago
      They're going to more heavily regulate it over time. That's how they're going to deal with Bitcoin. The goal will be to keep it at the margin (compared to other assets, other investments), along with gold ownership. They can and will easily accomplish that outcome (which also doesn't prevent Bitcoin from gradually becoming a multi trillion dollar entity given the scale of the global economy). There's likely to be no need for the US Government to worry about, for example, confiscating Bitcoin as FDR's administration did with gold. Today Bitcoin is comparable to Facebook's market cap. Back in FDR's day the scale of US gold holdings in relation to the US economy and its asset base was radically greater than these entities are today (today gold holdings in the US are trivial compared to the US stock market or housing market). For that type of confiscation event to happen Bitcoin would have to become a super giant asset vs global currencies, which will only occur if the US Dollar, Euro and Yen collapse or something close to it. If that happens, all manner of confiscations will be on the table, a lot of very, very bad things will be occurring.
  - tcbawo 5y ago
    It is far more likely for the government to step up investigations into tax evasion and money laundering. They will have the opportunity to take civil forfeiture in a whole new direction. Instead of a ban, it will be far more profitable for them to figure out how to get their slice of the pie.
- dageshi 5y ago
  It's pretty obvious at this point that bitcoin is digital gold. It's a precursor to something that is a real currency and the real currency probably can't exist without digital gold existing first.
- theknocker 5y ago
  I'll just let your irrational, absolutist comment serve as the cliff's notes; thanks.
- jw1224 5y ago
  > it won’t succeed as a currency Whilst I can appreciate why people think it might not succeed as a mainstream consumer currency — do you recognise how successful it is becoming as an asset, like gold? Worth a read: https://www.lynalden.com/gold-and-bitcoin/ https://www.lynalden.com/gold-and-bitcoin/
  - unicornmama 5y ago
    Gold has been valued for millennia. Regardless of what anyone thinks the price of gold should be, most will agree it’s not zero. Gold has uses for jewelry that cannot be substituted with any another metal. Bitcoin has no use other than to sell or loan to someone else; or to pay taxes levied by criminals.
  - throw0101a 5y ago
    > do you recognise how successful it is becoming as an asset, like gold? And why would anyone want to own gold? It's certainly not to protect against inflation, which seems to be what everyone talks about: > While gold objects have existed for thousands of years, gold's role in diversified portfolios is not well understood. We critically examine popular stories such as 'gold is an inflation hedge'. We show that gold may be an effective hedge if the investment horizon is measured in centuries. Over practical investment horizons, gold is an unreliable inflation hedge. […] * https://www.nber.org/papers/w18706 https://www.nber.org/papers/w18706
- base698 5y ago
  I bought an olive tree and it yielded 2 olives now I'm starving! Meanwhile Bitcoin is up another 50%! Nassim has a bone to pick with Saifedean, whom he wrote the forward of "The Bitcoin Standard" apparently without understanding what Bitcoin was. https://mobile.twitter.com/saifedean/status/1382408549343580161 https://mobile.twitter.com/saifedean/status/1382408549343580...
- wyager 5y ago
  Taleb is a grifter and one of the IYIs he likes to complain about. Bitcoin people are deeply familiar with taleb, because they were interested in some of the observations he made in Antifragile and Black Swan - they’re already familiar with his objections to Bitcoin as well.
JavaBatman 5y ago
> In other words, governments with fiat currencies — including the United States — have the power to expand the quantity of those currencies. If they choose to do so, they risk inflating the prices of necessities like food, gas, and housing. > In recent months, consumers have experienced higher price inflation than they have seen in decades. A major reason for the increases is that central bankers around the world — including those at the Federal Reserve — sought to compensate for Covid-19 lockdowns with dramatic monetary inflation. As a result, nearly $4 trillion in newly printed dollars, euros, and yen found their way from central banks into the coffers of global financial institutions. This automatically assumes that the inflationary issues we are facing come from demand. However, it is very clearly a supply issue. Namely, the closure of plants and factories due to labor shortages, lockdowns, and geopolitical issues. When you reduce the supply of goods and services while demand is left the same, you get higher prices. Furthermore, OPEC isn't producing more, which increases oil prices and the prices of all other industries. The chip shortage, which is fundamentally a supply shortage, is also increasing the prices of all other goods and services that rely on chips. This is not an issue of demand. It's similar to the 1970s: supply shocks that led to an increase in the price level.
- newaccount2021 5y ago
  > However, it is very clearly a supply issue. Says who?
- wsjtho55 5y ago
  And supply shocks have more to do with JIT logistics than government interference Blockchain, like a lot of computing ideas, is far too academic requiring constant fetishizing, or it’ll disappear. May as well trot out a new religion; blockchain will be as unprovable and ephemeral to the masses. Which is great for the hopes and dreams of blockchain grifters, and “egalitarian” tech oligarchs. They have proven one thing though; the public will chase ephemeral carrot off a cliff.
- night862 5y ago
  Word on the street is fed "printing money" = "inflation like Venezuela." I've had these conversations dozens of times this year. I'm not extra smart, but somehow almost everybody misses your point about demand. There is also the matter of where the money the fed "prints" ends up. Its not handing out singles, they're using other instruments like buying paper. I'm not educated enough to recount exactly what the mechanisms are. If you allow me to contrive that essentially the fed is buying stock dips for example, the funds they are creating to do so doesn't end up as you mentioned buying loafs of bread and driving up demand, it ends up in the dragon's horde of large corporations and the beneficiaries of the windfall. So the ultra-wealthy, corporations, large institutional funds (Stanford?) and/or corporate stakeholders see their paper balances of stocks increase, and along with the fabulous credit that having lots of assets brings you, they are free to leverage these assets to consolidate other assets such as real estate, stocks (and buybacks), maybe (but probably not given the yeilds) bonds and maybe a yacht or three. Corporations, institutions, and ultra-wealthy wouldn't suddenly be able to afford to pay off their credit cards or buy extra calculators or yogurt, that is covered nicely in the first 100k/yr. The rest is fiefdoms and trust funds for generational transmission. Probably lobbyists too. Gotta add about 401k/retirement plans: That money is more or less a stipend for end-of-life, how much could that really balance the scale given the facts about the business cycle?
TradingPlaces 5y ago
Another article premised on “sound money” and the money supply theory of inflation that understands neither.
- longhand 5y ago
  What's it missing? You're apparently a delicate genius so enlighten us all please.
  - throw0101a 5y ago
    It's missing the fact that central banks don't create money: > A major reason for the increases is that central bankers around the world — including those at the Federal Reserve — sought to compensate for Covid-19 lockdowns with dramatic monetary inflation. As a result, nearly $4 trillion in newly printed dollars, euros, and yen found their way from central banks into the coffers of global financial institutions. Central banks create reserves, which are only good in the inter-bank system, and never enter general circulation. Money is created by private banks via credit. See Roche: * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 And no, reserves don't determine credit creation. The 'money multiplier' hasn't been true for several decades: * https://research.stlouisfed.org/publications/page1-econ/2021/09/17/teaching-the-linkage-between-banks-and-the-fed-r-i-p-money-multiplier https://research.stlouisfed.org/publications/page1-econ/2021...?
zz865 5y ago
> By increasing the number of U.S. dollars in circulation...the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to...inflation This is a pretty simplistic view as for most of the last few decades Europe and Japan has been expanding the money supply without causing any deflation - and still caught in a deflationary spiral. But the question of money supply should be flexible - it has to be. Eg if US population expands and the economy expands every year you need more money every year. It was a problem with the gold standard - you needed to get more gold in order for your economy to expand.
- wyager 5y ago
  > Eg if US population expands and the economy expands every year you need more money every year You really don’t. This is one of those weird Keynesian constraints that doesn’t actually match reality. Deflation is totally harmless as long as it’s predictable. A fixed money supply in particular (which is deflationary if the economy is growing) is great specifically because unit purchasing power tracks total productive output.
  - zz865 5y ago
    > Deflation is totally harmless as long as it’s predictable. I kinda agree if this is inflation, but deflation is different. > is great specifically because unit purchasing power tracks total productive output. This is a problem because people horde money, just keep saving - why would you spend it? And the economy dies.
    - wyager 5y ago
      > I kinda agree if this is inflation, but deflation is different. Why’s that? > This is a problem because people horde money, just keep saving - why would you spend it? And the economy dies. This is one of those things where local Keynesian reasoning can lead you to the wrong answer, and tons of people get trapped there. “Hoarding money” isn’t harmful. Ideally, people should be “hoarding” money unless they want to buy something. “Passive investing” (the rational strategy with an inflationary money) is not a good thing, but a harmful inefficiency. The key realization is that at any given time, the total human productive output sits more or less on a pareto frontier, with positions in the space representing how much of various goods are being produced. For didactic purposes, we can pretend this space is 2D and has only two goods that can be produced - “capital goods” and “consumable goods”. So you can shift human productive output between these two goods, but the total output is capped. When people spend money, what they are doing is (often indirectly) bidding for the right to decide how some fraction of human productive output gets allocated. Either into capital goods (e.g. by buying stocks) or into consumable goods (e.g. by buying a TV). When people don’t spend money (because they are saving/“hoarding”), they are simply choosing not to participate in this auction process. This means the people who choose to participate in the auction have less competition. Because the amount of goods being auctioned is fixed (or more accurately, lies on a pareto frontier), the people buying the goods pay less than they would in the absence of “money hoarding”. This means their purchasing power has increased! Inflation, less saving/hoarding: People who don’t really want to spend money are forced to do so anyway unless they want to lose wealth. They either buy consumable goods they don’t really want, or invest in stocks without really thinking about it, introducing inefficiencies in asset allocation. People who do want to spend money (because they actually want a good, or have a solid investment thesis, or have a business plan) have to compete with those other people, and lose purchasing power. Fixed supply, more saving/hoarding: People who don’t really want anything or have an investment thesis just sit on their money and it naturally appreciates in line with economic development. No need to buy index funds - money already behaves like a market-wide fund behaves today. People who actually want to buy something or have an investment thesis don’t have to compete with the former group, making it easier for them to bid on socially efficient allocations. The effects are somewhat marginal, but I expect that with a fixed money supply, the economy would be more oriented to capital goods production and less to consumption, and also asset allocation would be a bit more efficient thanks to decreased distortion from blind “passive” investing. Life is easier for people who just want to save for the future, or don’t have an investment account.
unyttigfjelltol 5y ago
>Third, bitcoin is more secure than gold. A single bitcoin address carried on a USB thumb drive could theoretically hold as much value as the U.S. Treasury holds in gold bars — without the need for costly militarized facilities like Fort Knox to keep it safe. BTC does not eliminate the need for security. The USB in question would need military grade security, and the exclusivity of the claim of its holder over the ledger entries recorded in it would never be demonstrably secure, because BTC's value is information that can simultaneously exist in multiple locations. The article reads like a high school term paper. BTC is a fiat currency whose scarcity is determined by the actions of some random computer programmers who, for now, aren't leveraging that power for their own personal benefit. Gold is a natural element whose scarcity is a function of the laws of nature, and there are no people today who can measurably exercise their own power to reduce its scarcity. Also, not to nitpick, but a single gold bar also could theoretically have value equivalent to the entire BTC Blockchain. A single dollar bill could too. This would be the case if BTC was valueless. The article isn't very well reasoned.
- wyager 5y ago
  > The USB in question would need military grade security Which is widely available and effectively free. > BTC is a fiat currency whose scarcity is determined by the actions of some random computer programmers who, for now, aren't leveraging that power for their own personal benefit Statements like this are a sure sign of not actually understanding how Bitcoin works. There is no person or cartel in the world who could successfully unilaterally change the Bitcoin consensus rules. > Gold is a natural element whose scarcity is a function of the laws of nature The amount of gold we’ve mined compared to the amount of gold in nature (on earth, in asteroids, etc) is infinitesimal. The amount of Bitcoin we’ve mined is 89.5%.
  - throwdecro 5y ago
    > Which is widely available and effectively free What? Who is going to fight off people trying to obtain or destroy that USB drive to increase the value of their own holdings (i.e. speed up deflation by reducing available bitcoin), or extract the passcode from its owner, for free? EDIT: I realize this is the plot of Goldfinger, but the author did invoke Fort Knox, and the strategy of destroying stores of value to increase the worth of your own stash makes sense.
TekMol 5y ago
Every time I read about inflation, it is only attributed to governments via the central banks. I wonder how it works with the private banks. Say some entrepreneur goes to their bank and borrows $100k. They try to build a business, pay rent, employees, SAAS license costs, advertising and ... goes bankrupt. So the $100k never comes back to the bank. Did this create $100k?
- CarelessExpert 5y ago
  The short answer is: yes. Loans expand the money supply.
- lifty 5y ago
  I think yes. The money will remain in circulation forever.
- mohanmcgeek 5y ago
  Your company will need some kind of collateral or a cashflow in order for the bank to extend credit. When you file bankruptcy, the assets are auctioned the bank gets back some of that money, if not the whole 100k You created money when borrowed the 100k. The rest of it doesn't matter. It's the case with the government and the central bank too. Money is created when the government borrows money from the bank by issuing bonds. The idea of government "printing" money is plain wrong. (except in a physical sense when the mints print your currency notes)
- throw0101a 5y ago
  > I wonder how it works with the private banks. […] Did this create $100k? Central banks do not create money, contrary to popular opinion. Money is created in two ways: by the Treasury/Mint via bills and coins, and via private banks with credit. See Roche: > This paper provides a general understanding of the workings of the modern fiat monetary system in the United States within the context of the global economy. The work is primarily descriptive in nature and takes an operational perspective of the monetary system using the understandings of Monetary Realism. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
westcort 5y ago
This is what Bitcoin was designed to do—-make the net safer by incentivizing the government to reveal the forms of encryption it can break, starting with SHA256: https://news.ycombinator.com/item?id=28860239 https://news.ycombinator.com/item?id=28860239

23 points by longhand 5y ago

To those with hopes and dreams in Bitcoin I suggest reading Nassim Taleb’s black paper. It does a great job outlining every major problem and (while in its current version and even a few iterations from now) it won’t succeed as a currency.

weavie 5y ago
Do you mean this one? https://www.fooledbyrandomness.com/BTC-QF.pdf https://www.fooledbyrandomness.com/BTC-QF.pdf
- jw1224 5y ago
  Wow — some hot takes in there! > Why BTC is worth exactly 0: Gold and other precious metals are largely maintenance free, do not degrade over an historical horizon, and do not require maintenance to refresh their physical properties over time. Cryptocurrencies require a sustained amount of interest in them. And? None of these reasons mean it is worth “exactly 0” (not to mention some of them are just plain wrong). Gold requires sustained interest too! Bitcoin continues to be the only “currency” (regardless of how practical it is in everyday life) that’s free of direct influence from government monetary policy or insider control. That reason alone makes it totally unique and extremely valuable. > The customary standard argument is that "bitcoin has its flaws but we are getting a great technology; we will do wonders with the blockchain". No, there is no evidence that we are getting a great technology — unless "great technology" doesn’t mean "useful". And at the time of writing —in spite of all the fanfare — we have done still close to nothing with the blockchain. It’s a technology in its infancy, and it’s also clear that we are doing useful things with crypto: • DeFi has incredible potential to upset the power imbalance of the banking industry. It is rapidly democratizing financial instruments which were previously only available to the big guys. • NFTs, whilst something of a fad right now, have established means of recognising ownership of digital assets. • A global currency like Bitcoin makes international payments possible in areas where it would not be otherwise.
liuliu 5y ago
The United States is a democracy. Having large swarth of people owning cryptocurrencies making it possible for 1. no outright government bans or criminal investigations, 2. potential government buyout.
- jw1224 5y ago
  Are you suggesting the US government would buy-out Bitcoin? I can’t see that happening, by any stretch of the imagination…
  - adventured 5y ago
    They're going to more heavily regulate it over time. That's how they're going to deal with Bitcoin. The goal will be to keep it at the margin (compared to other assets, other investments), along with gold ownership. They can and will easily accomplish that outcome (which also doesn't prevent Bitcoin from gradually becoming a multi trillion dollar entity given the scale of the global economy). There's likely to be no need for the US Government to worry about, for example, confiscating Bitcoin as FDR's administration did with gold. Today Bitcoin is comparable to Facebook's market cap. Back in FDR's day the scale of US gold holdings in relation to the US economy and its asset base was radically greater than these entities are today (today gold holdings in the US are trivial compared to the US stock market or housing market). For that type of confiscation event to happen Bitcoin would have to become a super giant asset vs global currencies, which will only occur if the US Dollar, Euro and Yen collapse or something close to it. If that happens, all manner of confiscations will be on the table, a lot of very, very bad things will be occurring.
- tcbawo 5y ago
  It is far more likely for the government to step up investigations into tax evasion and money laundering. They will have the opportunity to take civil forfeiture in a whole new direction. Instead of a ban, it will be far more profitable for them to figure out how to get their slice of the pie.
dageshi 5y ago
It's pretty obvious at this point that bitcoin is digital gold. It's a precursor to something that is a real currency and the real currency probably can't exist without digital gold existing first.
theknocker 5y ago
I'll just let your irrational, absolutist comment serve as the cliff's notes; thanks.
jw1224 5y ago
> it won’t succeed as a currency Whilst I can appreciate why people think it might not succeed as a mainstream consumer currency — do you recognise how successful it is becoming as an asset, like gold? Worth a read: https://www.lynalden.com/gold-and-bitcoin/ https://www.lynalden.com/gold-and-bitcoin/
- unicornmama 5y ago
  Gold has been valued for millennia. Regardless of what anyone thinks the price of gold should be, most will agree it’s not zero. Gold has uses for jewelry that cannot be substituted with any another metal. Bitcoin has no use other than to sell or loan to someone else; or to pay taxes levied by criminals.
- throw0101a 5y ago
  > do you recognise how successful it is becoming as an asset, like gold? And why would anyone want to own gold? It's certainly not to protect against inflation, which seems to be what everyone talks about: > While gold objects have existed for thousands of years, gold's role in diversified portfolios is not well understood. We critically examine popular stories such as 'gold is an inflation hedge'. We show that gold may be an effective hedge if the investment horizon is measured in centuries. Over practical investment horizons, gold is an unreliable inflation hedge. […] * https://www.nber.org/papers/w18706 https://www.nber.org/papers/w18706
base698 5y ago
I bought an olive tree and it yielded 2 olives now I'm starving! Meanwhile Bitcoin is up another 50%! Nassim has a bone to pick with Saifedean, whom he wrote the forward of "The Bitcoin Standard" apparently without understanding what Bitcoin was. https://mobile.twitter.com/saifedean/status/1382408549343580161 https://mobile.twitter.com/saifedean/status/1382408549343580...
wyager 5y ago
Taleb is a grifter and one of the IYIs he likes to complain about. Bitcoin people are deeply familiar with taleb, because they were interested in some of the observations he made in Antifragile and Black Swan - they’re already familiar with his objections to Bitcoin as well.

JavaBatman 5y ago

> In other words, governments with fiat currencies — including the United States — have the power to expand the quantity of those currencies. If they choose to do so, they risk inflating the prices of necessities like food, gas, and housing. > In recent months, consumers have experienced higher price inflation than they have seen in decades. A major reason for the increases is that central bankers around the world — including those at the Federal Reserve — sought to compensate for Covid-19 lockdowns with dramatic monetary inflation. As a result, nearly $4 trillion in newly printed dollars, euros, and yen found their way from central banks into the coffers of global financial institutions. This automatically assumes that the inflationary issues we are facing come from demand. However, it is very clearly a supply issue. Namely, the closure of plants and factories due to labor shortages, lockdowns, and geopolitical issues. When you reduce the supply of goods and services while demand is left the same, you get higher prices. Furthermore, OPEC isn't producing more, which increases oil prices and the prices of all other industries. The chip shortage, which is fundamentally a supply shortage, is also increasing the prices of all other goods and services that rely on chips. This is not an issue of demand. It's similar to the 1970s: supply shocks that led to an increase in the price level.

newaccount2021 5y ago
> However, it is very clearly a supply issue. Says who?
wsjtho55 5y ago
And supply shocks have more to do with JIT logistics than government interference Blockchain, like a lot of computing ideas, is far too academic requiring constant fetishizing, or it’ll disappear. May as well trot out a new religion; blockchain will be as unprovable and ephemeral to the masses. Which is great for the hopes and dreams of blockchain grifters, and “egalitarian” tech oligarchs. They have proven one thing though; the public will chase ephemeral carrot off a cliff.
night862 5y ago
Word on the street is fed "printing money" = "inflation like Venezuela." I've had these conversations dozens of times this year. I'm not extra smart, but somehow almost everybody misses your point about demand. There is also the matter of where the money the fed "prints" ends up. Its not handing out singles, they're using other instruments like buying paper. I'm not educated enough to recount exactly what the mechanisms are. If you allow me to contrive that essentially the fed is buying stock dips for example, the funds they are creating to do so doesn't end up as you mentioned buying loafs of bread and driving up demand, it ends up in the dragon's horde of large corporations and the beneficiaries of the windfall. So the ultra-wealthy, corporations, large institutional funds (Stanford?) and/or corporate stakeholders see their paper balances of stocks increase, and along with the fabulous credit that having lots of assets brings you, they are free to leverage these assets to consolidate other assets such as real estate, stocks (and buybacks), maybe (but probably not given the yeilds) bonds and maybe a yacht or three. Corporations, institutions, and ultra-wealthy wouldn't suddenly be able to afford to pay off their credit cards or buy extra calculators or yogurt, that is covered nicely in the first 100k/yr. The rest is fiefdoms and trust funds for generational transmission. Probably lobbyists too. Gotta add about 401k/retirement plans: That money is more or less a stipend for end-of-life, how much could that really balance the scale given the facts about the business cycle?

TradingPlaces 5y ago

Another article premised on “sound money” and the money supply theory of inflation that understands neither.

longhand 5y ago
What's it missing? You're apparently a delicate genius so enlighten us all please.
- throw0101a 5y ago
  It's missing the fact that central banks don't create money: > A major reason for the increases is that central bankers around the world — including those at the Federal Reserve — sought to compensate for Covid-19 lockdowns with dramatic monetary inflation. As a result, nearly $4 trillion in newly printed dollars, euros, and yen found their way from central banks into the coffers of global financial institutions. Central banks create reserves, which are only good in the inter-bank system, and never enter general circulation. Money is created by private banks via credit. See Roche: * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 And no, reserves don't determine credit creation. The 'money multiplier' hasn't been true for several decades: * https://research.stlouisfed.org/publications/page1-econ/2021/09/17/teaching-the-linkage-between-banks-and-the-fed-r-i-p-money-multiplier https://research.stlouisfed.org/publications/page1-econ/2021...?

zz865 5y ago

> By increasing the number of U.S. dollars in circulation...the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to...inflation This is a pretty simplistic view as for most of the last few decades Europe and Japan has been expanding the money supply without causing any deflation - and still caught in a deflationary spiral. But the question of money supply should be flexible - it has to be. Eg if US population expands and the economy expands every year you need more money every year. It was a problem with the gold standard - you needed to get more gold in order for your economy to expand.

wyager 5y ago
> Eg if US population expands and the economy expands every year you need more money every year You really don’t. This is one of those weird Keynesian constraints that doesn’t actually match reality. Deflation is totally harmless as long as it’s predictable. A fixed money supply in particular (which is deflationary if the economy is growing) is great specifically because unit purchasing power tracks total productive output.
- zz865 5y ago
  > Deflation is totally harmless as long as it’s predictable. I kinda agree if this is inflation, but deflation is different. > is great specifically because unit purchasing power tracks total productive output. This is a problem because people horde money, just keep saving - why would you spend it? And the economy dies.
  - wyager 5y ago
    > I kinda agree if this is inflation, but deflation is different. Why’s that? > This is a problem because people horde money, just keep saving - why would you spend it? And the economy dies. This is one of those things where local Keynesian reasoning can lead you to the wrong answer, and tons of people get trapped there. “Hoarding money” isn’t harmful. Ideally, people should be “hoarding” money unless they want to buy something. “Passive investing” (the rational strategy with an inflationary money) is not a good thing, but a harmful inefficiency. The key realization is that at any given time, the total human productive output sits more or less on a pareto frontier, with positions in the space representing how much of various goods are being produced. For didactic purposes, we can pretend this space is 2D and has only two goods that can be produced - “capital goods” and “consumable goods”. So you can shift human productive output between these two goods, but the total output is capped. When people spend money, what they are doing is (often indirectly) bidding for the right to decide how some fraction of human productive output gets allocated. Either into capital goods (e.g. by buying stocks) or into consumable goods (e.g. by buying a TV). When people don’t spend money (because they are saving/“hoarding”), they are simply choosing not to participate in this auction process. This means the people who choose to participate in the auction have less competition. Because the amount of goods being auctioned is fixed (or more accurately, lies on a pareto frontier), the people buying the goods pay less than they would in the absence of “money hoarding”. This means their purchasing power has increased! Inflation, less saving/hoarding: People who don’t really want to spend money are forced to do so anyway unless they want to lose wealth. They either buy consumable goods they don’t really want, or invest in stocks without really thinking about it, introducing inefficiencies in asset allocation. People who do want to spend money (because they actually want a good, or have a solid investment thesis, or have a business plan) have to compete with those other people, and lose purchasing power. Fixed supply, more saving/hoarding: People who don’t really want anything or have an investment thesis just sit on their money and it naturally appreciates in line with economic development. No need to buy index funds - money already behaves like a market-wide fund behaves today. People who actually want to buy something or have an investment thesis don’t have to compete with the former group, making it easier for them to bid on socially efficient allocations. The effects are somewhat marginal, but I expect that with a fixed money supply, the economy would be more oriented to capital goods production and less to consumption, and also asset allocation would be a bit more efficient thanks to decreased distortion from blind “passive” investing. Life is easier for people who just want to save for the future, or don’t have an investment account.

unyttigfjelltol 5y ago

>Third, bitcoin is more secure than gold. A single bitcoin address carried on a USB thumb drive could theoretically hold as much value as the U.S. Treasury holds in gold bars — without the need for costly militarized facilities like Fort Knox to keep it safe. BTC does not eliminate the need for security. The USB in question would need military grade security, and the exclusivity of the claim of its holder over the ledger entries recorded in it would never be demonstrably secure, because BTC's value is information that can simultaneously exist in multiple locations. The article reads like a high school term paper. BTC is a fiat currency whose scarcity is determined by the actions of some random computer programmers who, for now, aren't leveraging that power for their own personal benefit. Gold is a natural element whose scarcity is a function of the laws of nature, and there are no people today who can measurably exercise their own power to reduce its scarcity. Also, not to nitpick, but a single gold bar also could theoretically have value equivalent to the entire BTC Blockchain. A single dollar bill could too. This would be the case if BTC was valueless. The article isn't very well reasoned.

wyager 5y ago
> The USB in question would need military grade security Which is widely available and effectively free. > BTC is a fiat currency whose scarcity is determined by the actions of some random computer programmers who, for now, aren't leveraging that power for their own personal benefit Statements like this are a sure sign of not actually understanding how Bitcoin works. There is no person or cartel in the world who could successfully unilaterally change the Bitcoin consensus rules. > Gold is a natural element whose scarcity is a function of the laws of nature The amount of gold we’ve mined compared to the amount of gold in nature (on earth, in asteroids, etc) is infinitesimal. The amount of Bitcoin we’ve mined is 89.5%.
- throwdecro 5y ago
  > Which is widely available and effectively free What? Who is going to fight off people trying to obtain or destroy that USB drive to increase the value of their own holdings (i.e. speed up deflation by reducing available bitcoin), or extract the passcode from its owner, for free? EDIT: I realize this is the plot of Goldfinger, but the author did invoke Fort Knox, and the strategy of destroying stores of value to increase the worth of your own stash makes sense.

TekMol 5y ago

Every time I read about inflation, it is only attributed to governments via the central banks. I wonder how it works with the private banks. Say some entrepreneur goes to their bank and borrows $100k. They try to build a business, pay rent, employees, SAAS license costs, advertising and ... goes bankrupt. So the $100k never comes back to the bank. Did this create $100k?

CarelessExpert 5y ago
The short answer is: yes. Loans expand the money supply.
lifty 5y ago
I think yes. The money will remain in circulation forever.
mohanmcgeek 5y ago
Your company will need some kind of collateral or a cashflow in order for the bank to extend credit. When you file bankruptcy, the assets are auctioned the bank gets back some of that money, if not the whole 100k You created money when borrowed the 100k. The rest of it doesn't matter. It's the case with the government and the central bank too. Money is created when the government borrows money from the bank by issuing bonds. The idea of government "printing" money is plain wrong. (except in a physical sense when the mints print your currency notes)
throw0101a 5y ago
> I wonder how it works with the private banks. […] Did this create $100k? Central banks do not create money, contrary to popular opinion. Money is created in two ways: by the Treasury/Mint via bills and coins, and via private banks with credit. See Roche: > This paper provides a general understanding of the workings of the modern fiat monetary system in the United States within the context of the global economy. The work is primarily descriptive in nature and takes an operational perspective of the monetary system using the understandings of Monetary Realism. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625

westcort 5y ago

This is what Bitcoin was designed to do—-make the net safer by incentivizing the government to reveal the forms of encryption it can break, starting with SHA256: https://news.ycombinator.com/item?id=28860239 https://news.ycombinator.com/item?id=28860239