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Well, bitcoin shows you exactly what to expect in such a situation: it makes a terrible currency that nobody ever wants to spend. I know many people are convin

Well, bitcoin shows you exactly what to expect in such a situation: it makes a terrible currency that nobody ever wants to spend. I know many people are convinced that the value of money comes from its scarcity, but it's actually a very limited view: An even more important characteristic of money is that it must be abundant enough. That's why humanity spent most of history using gold and silver as support for value and not diamond and platinum. That's the neat part with credit-based money: it's generally produced in just the amount you need for the economy. But another problem arise in case of financial crisis: banks can run out of liquidity if other banks refuse to lend them, and it has a catastrophic effect. That's what central banks are made for: they are lenders of last resort. The problems you are referring to aren't really related to monetary policy itself, but about fiscal policy: when you try solving all problems (namely aggregate demand being too low) with monetary policy alone, you end up in weird places.

roenxi 3y ago
It isn't a terrible currency because of the fixed supply pattern though; it is too volatile because there isn't a consensus on how to price it yet. At some point it'll be more like gold where the value of crypto is obvious and understood. And I think the major problem is it is too risky, a fat-finger mistake can deplete an entire wallet with technically no recourse.
- littlestymaar 3y ago
  Gold is also a terrible currency in today's world, that's why it has been abandoned by everyone during the last century. Of course bitcoin is broken in many additional ways, but the economics doesn't make sense in the first place. (And it was created and promoted by people who were confident that the Fed's intervention in 2008 was going to trigger hyperinflation, what happened in the following decade should give you a pointer how economically literate these people are).
  - roenxi 3y ago
    > Gold is also a terrible currency in today's world, that's why it has been abandoned by everyone during the last century. Open to question how bad though; there isn't really such a thing as a good currency. If the argument is that the US dollar is the best we have it is a bit of a disaster; it can't even be used to compare values over a 12 month span, the inflation is significant. And as I recall the abandoning done in the US was because because Nixon said the US government wasn't winning the game and flipped the table as opposed to any fair process, vote or even market consensus that gold was a bad idea. I'd agree if the argument was to anchor currency value to an energy commodity to preserve some sort of $/Joule energy measure. That'd be really helpful for using money to track value. I'm still not sure why people are so unhappy at the idea of using money to track some constant amount of value.
    - zie 3y ago
      Because when the world blows up, people need someone to step in and get the system going again. If they don't it will take forever to get the economy going again. See the GFC as an example. The US economy was about to implode, but the govt stepped in and said, heck no, not on my watch and fixed it. Instead of taking many many decades to right itself, we did it in 1 and the US govt made a nice profit to boot. A counter point is Japan, they chose not to fix their capital markets and it's 30+yrs later and they finally are getting back on track.
    - lupire 3y ago
      Why on earth would you expect something literally called "currency" to have any longitudinal attribute in time? Currency is meant to be used immediately. That's it's entire value proposition, as the lubricant of trade. If your time horizon is longer, you shouldn't be holding your assets in currency.
    - lupire 3y ago
      What is the unit of value? It doesn't exist.
    - sobellian 3y ago
      The point of a currency is not to experience zero inflation, it is to facilitate commerce as a medium of exchange. If you want to save, buy appreciating assets. > I'm still not sure why people are so unhappy at the idea of using money to track some constant amount of value. What's the grand cosmic purpose of having something that holds a "constant amount of value" (whatever that means)?
RunSet 3y ago
> Well, bitcoin shows you exactly what to expect in such a situation: it makes a terrible currency that nobody ever wants to spend. Long before bitcoin, Gresham's Law already said that, given the choice between spending soft money and hard, people will spend the soft and hold the hard. https://en.wikipedia.org/wiki/Gresham's_law#Theory https://en.wikipedia.org/wiki/Gresham's_law#Theory If the grocery store and tax man accepted Monopoly's in-game currency, I would likewise expect people to spend that before U.S. currency or bitcoin.
- jameshart 3y ago
  Gresham’s law doesn’t apply to bitcoin because it isn’t legal tender. If bitcoin were legally valid for all debts public and private… would people still hodl?
  - JumpCrisscross 3y ago
    > Gresham’s law doesn’t apply to bitcoin because it isn’t legal tender Gresham’s law applies to anything used as money. Which I would still argue does not apply to Bitcoin, as it’s transitioned into a store of value versus functional currency.
    - jameshart 3y ago
      Gresham’s law is really about currencies where coins have a ‘true value’ and a ‘nominal value’. Like, a silver coin has value as silver, and compared to a nickel coin with the same face value, it’s a ‘better’ coin, so people won’t spend it. It’s not obvious how to apply Gresham to a conversation about dollars and bitcoins. Legal tender parity would be one way to make the law apply.
      - deleted 3y ago
        [deleted]
      - JumpCrisscross 3y ago
        > Gresham’s law is really about currencies where coins have a ‘true value’ and a ‘nominal value’ Correct. Or, more classically, a nominal value and commodity value. Whether it’s legal tender isn’t functionally germane (though historically, it is). > not obvious how to apply Gresham to a conversation about dollars and bitcoins Bitcoins have a sloped demand curve. Liquidating ten billion U.S. dollars gives you ten billion dollars. Liquidating the same in Treasuries gives you almost ten billion dollars. Liquidating the same in Bitcoin yields an unknown amount—the commodity value of a basket of Bitcoin that size. The gap between the quoted “value” and that true value of a given aggregate creates a localised Gresham effect.
belorn 3y ago
Talking about currencies and banks, a core aspect is that debt is also a form of currency that be created and destroyed. The biggest issue in modern financial crises is not that banks run out of liquidity, but rather that the trust of existing debt can crash to the point of making people believe that the bank can no longer recover enough of it. A central bank can then act as last resort and buy the debt or repaying debt, restoring trust.
- littlestymaar 3y ago
  > The biggest issue in modern financial crises is not that banks run out of liquidity, but rather that the trust of existing debt can crash to the point of making people believe that the bank can no longer recover enough of it. This is exactly what we mean when talking about banks running out of liquidity though.
  - JumpCrisscross 3y ago
    The biggest problems in modern finance are not about banks running out of liquidity. It hasn’t been since the Great Depression. The recurring problem has been non-banks being bank-like.
    - littlestymaar 3y ago
      It is the biggest problem, until Central Banks intervene and solve the problem altogether, which makes the problem functionally disappear, but it's still the key problem. That's true for any company btw: you can live practically forever insolvent as long as you are liquid, but no matter how solvent you are “liquidity kills you quick”.
      - JumpCrisscross 3y ago
        > until Central Banks intervene and solve the problem altogether, which makes the problem functionally disappear, but it's still the key problem The Fed and FDIC are separate. Central banks help with the liquidity problem. Deposit insurance solves it. It remains a core risk. But risks have to be managed. Problems are unsolved.

roenxi 3y ago

It isn't a terrible currency because of the fixed supply pattern though; it is too volatile because there isn't a consensus on how to price it yet. At some point it'll be more like gold where the value of crypto is obvious and understood. And I think the major problem is it is too risky, a fat-finger mistake can deplete an entire wallet with technically no recourse.

littlestymaar 3y ago
Gold is also a terrible currency in today's world, that's why it has been abandoned by everyone during the last century. Of course bitcoin is broken in many additional ways, but the economics doesn't make sense in the first place. (And it was created and promoted by people who were confident that the Fed's intervention in 2008 was going to trigger hyperinflation, what happened in the following decade should give you a pointer how economically literate these people are).
- roenxi 3y ago
  > Gold is also a terrible currency in today's world, that's why it has been abandoned by everyone during the last century. Open to question how bad though; there isn't really such a thing as a good currency. If the argument is that the US dollar is the best we have it is a bit of a disaster; it can't even be used to compare values over a 12 month span, the inflation is significant. And as I recall the abandoning done in the US was because because Nixon said the US government wasn't winning the game and flipped the table as opposed to any fair process, vote or even market consensus that gold was a bad idea. I'd agree if the argument was to anchor currency value to an energy commodity to preserve some sort of $/Joule energy measure. That'd be really helpful for using money to track value. I'm still not sure why people are so unhappy at the idea of using money to track some constant amount of value.
  - zie 3y ago
    Because when the world blows up, people need someone to step in and get the system going again. If they don't it will take forever to get the economy going again. See the GFC as an example. The US economy was about to implode, but the govt stepped in and said, heck no, not on my watch and fixed it. Instead of taking many many decades to right itself, we did it in 1 and the US govt made a nice profit to boot. A counter point is Japan, they chose not to fix their capital markets and it's 30+yrs later and they finally are getting back on track.
  - lupire 3y ago
    Why on earth would you expect something literally called "currency" to have any longitudinal attribute in time? Currency is meant to be used immediately. That's it's entire value proposition, as the lubricant of trade. If your time horizon is longer, you shouldn't be holding your assets in currency.
  - lupire 3y ago
    What is the unit of value? It doesn't exist.
  - sobellian 3y ago
    The point of a currency is not to experience zero inflation, it is to facilitate commerce as a medium of exchange. If you want to save, buy appreciating assets. > I'm still not sure why people are so unhappy at the idea of using money to track some constant amount of value. What's the grand cosmic purpose of having something that holds a "constant amount of value" (whatever that means)?

RunSet 3y ago

> Well, bitcoin shows you exactly what to expect in such a situation: it makes a terrible currency that nobody ever wants to spend. Long before bitcoin, Gresham's Law already said that, given the choice between spending soft money and hard, people will spend the soft and hold the hard. https://en.wikipedia.org/wiki/Gresham's_law#Theory https://en.wikipedia.org/wiki/Gresham's_law#Theory If the grocery store and tax man accepted Monopoly's in-game currency, I would likewise expect people to spend that before U.S. currency or bitcoin.

jameshart 3y ago
Gresham’s law doesn’t apply to bitcoin because it isn’t legal tender. If bitcoin were legally valid for all debts public and private… would people still hodl?
- JumpCrisscross 3y ago
  > Gresham’s law doesn’t apply to bitcoin because it isn’t legal tender Gresham’s law applies to anything used as money. Which I would still argue does not apply to Bitcoin, as it’s transitioned into a store of value versus functional currency.
  - jameshart 3y ago
    Gresham’s law is really about currencies where coins have a ‘true value’ and a ‘nominal value’. Like, a silver coin has value as silver, and compared to a nickel coin with the same face value, it’s a ‘better’ coin, so people won’t spend it. It’s not obvious how to apply Gresham to a conversation about dollars and bitcoins. Legal tender parity would be one way to make the law apply.
    - deleted 3y ago
      [deleted]
    - JumpCrisscross 3y ago
      > Gresham’s law is really about currencies where coins have a ‘true value’ and a ‘nominal value’ Correct. Or, more classically, a nominal value and commodity value. Whether it’s legal tender isn’t functionally germane (though historically, it is). > not obvious how to apply Gresham to a conversation about dollars and bitcoins Bitcoins have a sloped demand curve. Liquidating ten billion U.S. dollars gives you ten billion dollars. Liquidating the same in Treasuries gives you almost ten billion dollars. Liquidating the same in Bitcoin yields an unknown amount—the commodity value of a basket of Bitcoin that size. The gap between the quoted “value” and that true value of a given aggregate creates a localised Gresham effect.

belorn 3y ago

Talking about currencies and banks, a core aspect is that debt is also a form of currency that be created and destroyed. The biggest issue in modern financial crises is not that banks run out of liquidity, but rather that the trust of existing debt can crash to the point of making people believe that the bank can no longer recover enough of it. A central bank can then act as last resort and buy the debt or repaying debt, restoring trust.

littlestymaar 3y ago
> The biggest issue in modern financial crises is not that banks run out of liquidity, but rather that the trust of existing debt can crash to the point of making people believe that the bank can no longer recover enough of it. This is exactly what we mean when talking about banks running out of liquidity though.
- JumpCrisscross 3y ago
  The biggest problems in modern finance are not about banks running out of liquidity. It hasn’t been since the Great Depression. The recurring problem has been non-banks being bank-like.
  - littlestymaar 3y ago
    It is the biggest problem, until Central Banks intervene and solve the problem altogether, which makes the problem functionally disappear, but it's still the key problem. That's true for any company btw: you can live practically forever insolvent as long as you are liquid, but no matter how solvent you are “liquidity kills you quick”.
    - JumpCrisscross 3y ago
      > until Central Banks intervene and solve the problem altogether, which makes the problem functionally disappear, but it's still the key problem The Fed and FDIC are separate. Central banks help with the liquidity problem. Deposit insurance solves it. It remains a core risk. But risks have to be managed. Problems are unsolved.