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I find the Ron Paul/Austrian school camp's complaints that central banking causes bubbles hilarious because their most notable achievements so far have been the

I find the Ron Paul/Austrian school camp's complaints that central banking causes bubbles hilarious because their most notable achievements so far have been the creation of two asset bubbles. Since 2008 they have been claiming that monetary policy will usher in hyper inflation and they created a gold/silver asset price bubble. Now the same ideology is being used to create a bitcoin bubble. Even more hilarious is their assertion that a crypto-currency like bitcoin is scarce and limited in supply. Clone the bitcoin github repo, find and replace bitcoin with HollowayCoin, edit a couple lines of code to create a new genesis block and boom I just made my own crypto currency with all the benefits of bitcoin. New crypto coins will become important because the block chain won't scale, and new block chains will need to be created. These alt coins are already being traded for btc on a couple exchanges. These crypto-currencies serve a purpose, but there is no need for them to trade at $230 per coin.

Spooky23 14y ago
Even funnier is claiming that the gold/silver standards resulted in more stable financial systems. Inflation, deflation, and starvation of capital were huge problems before we switched to debt-based currencies. They also equate "no central banking" with commodity-based currency. The United State's 19th century experiments with disbanding central banking wasn't exactly an economic revolution.
- 3pt14159 14y ago
  The point is not that gold and silve were stable, but that they have been more stable and have kept more value than fiat/debt-based currencies.
  - dragonwriter 14y ago
    > The point is not that gold and silver were stable, but that they have been more stable and have kept more value than fiat/debt-based currencies. Which is exactly half true. They have been less stable (more volatile) than major fiat currencies, but kept more value over the long term. "Less stable" makes them worse as currency. "Kept more value" makes them potentially better as long term investments.
  - Spooky23 14y ago
    They absolutely were not. Look at a graph of UK inflation in the 19th century. http://www.bankofengland.co.uk/education/Pages/inflation/timeline/chart.aspx http://www.bankofengland.co.uk/education/Pages/inflation/tim... The market value of a hunk of gold has done ok over the centuries, but it's value at any point in time as a currency goes all over that place. This makes it difficult to get capital -- who wants to lend money when you have no idea what money will be worth?
    - api 14y ago
      "who wants to lend money when you have no idea what money will be worth?" Easy. Don't lend in raw gold (or Bitcoin, or whatever). Create a mathematical construct that attempts to capture the value transacted and denominate your loan in that, and/or index your loan's value and payments to the in/deflation adjusted value of your currency. Quantitative finance and math in general was less well developed back in the gold standard days, and they didn't have computers. So they didn't invent such instruments. Today they probably would.
    - 3pt14159 14y ago
      Your evidence is faulty for these reasons: 1. You are choosing a specific currency. 2. You are choosing a specific time period. 3. The time period you choose from already had world wide debt based currencies. 4. The UK already had a central bank. 5. The UK already had a reserve rate that was < 100%, and a practical reserve rate that was less than the prescribed one due to fraud by the banks. I do afford you that gold is volatile, that is true, but it is especially volatile these days because of its role in the economy. People view gold as the "oh shit, the government is going to default" or the "oh shit, I need to smuggle my wealth out of this country before they confiscate it" currency. Both of those properties make it very volatile to political and economic news. The point is that for every USD or CAD you bring forward, I can bring forward one of these: http://instagram.com/p/X7pWUKIHK5/ http://instagram.com/p/X7pWUKIHK5/ History is riddled with the collapse of currencies (and, hence, economies as there is a sudden shift of wealth away from those that saved it). The point of currencies is not to have them be good for the economy. The point of currencies is to be a store of value and a divisible good for exchange. I agree that gold has flaws, I also agree that bitcoin has flaws, but they do have some advantages as well, and I would argue that in gold or silver's case stability is one of them.
- noclique 14y ago
  Technically, Austrians don't equate "no central banking" with "commodity-based currency". They simply point to the fact that without a Socialist central bank dictating by fiat what currency to use, the free market would simply decide. Austrians point to the historical record that shows precious metals filling this role in the majority of cases where the market was left alone. However Bitcoin seems to be competing now as-well in certain ways which is very exciting. I suggest you watch http://www.youtube.com/watch?v=TxcjT8T3EGU http://www.youtube.com/watch?v=TxcjT8T3EGU on trade cycles before the Fed.
  - 13b9f227ecf0 14y ago
    Isn't it more accurate to say that the state mandates the currency by requiring it in payment of taxes? If I start paying people in old Deutschmark notes or silver bullion it's not the Fed that will come at me, it's the IRS.
    - noclique 14y ago
      Yeah you're right. I'm fairly certain also that it's legal for private businesses / individuals to accept and sell other forms of money. Only when it comes to tax payment must you use the State issued currency or suffer repercussions. However we're reminded by Gresham's law that money overvalued by government will tend to drive out money that is not.
      - aidenn0 14y ago
        At least in the US, you are also required to take dollars for discharging debt; you could refuse bitcoin if you wanted to, but not cash.
tlrobinson 14y ago
These crypto-currencies serve a purpose, but there is no need for them to trade at $230 per coin. Would you feel better about the price if we use mBTC instead? mBTC are only $0.23 right now. You should be looking at market capitalization, not price. As for crytpcurrencies being scarce, there are network effects that come with one system having the majority of the market share. Good luck convincing people HollowayCoin is worth accepting. Now, if some other decentralized payment system (that works with any currency and isn't a currency too) like Ripple gains adoption that could eliminate Bitcoin's network effect advantage. I believe this is one of the biggest threats to Bitcoin.
dr_doom 14y ago
I'm just curious as how a relatively small group of people can be responsible for affecting the price of gold? By all accounts libertarians are a small section of the populace yet you suggest they are driving up the price and causing a bubble in the trillion gold dollar market. It's hard to find solid data but this old article[1] states that $15,200bn worth of gold was traded in one quarter alone. I find it impossible that any one group of people can cause a bubble when that amount of gold is being moved around, much less the tiny slice of americans who consider themselves Austrians/libertarians. My second issue is with the idea that gold is in a bubble at all. Despite a couple of spikes the price has been about $1600 an ounce for the past 2 years. The trader/investor in me suggests that it was rising steadily for a decade until it reached a fair market price. Everyone from Goldman Sacs[2] to leftist George Soros[3] to libertarian Kyle Bass[3] suggest gold is getting boring and are bearish. So I'm not sure where you are getting this info that gold is in bubble territory? 1. http://www.ft.com/intl/cms/s/0/eb342ad4-daba-11e0-a58b-00144feabdc0.html#axzz2Q4xa3R00 http://www.ft.com/intl/cms/s/0/eb342ad4-daba-11e0-a58b-00144... 2. http://www.businessweek.com/news/2013-04-10/goldman-lowers-gold-price-forecast-through-2014-as-cycle-turns http://www.businessweek.com/news/2013-04-10/goldman-lowers-g... 3. http://money.cnn.com/2013/02/15/investing/soros-gold/index.html http://money.cnn.com/2013/02/15/investing/soros-gold/index.h... 4. http://bloom.bg/11P3V3V http://bloom.bg/11P3V3V EDIT: I love the downvotes from people who can't answer how Austrians are causing non-existent gold bubbles. Not like central banks bought more gold in 2012 than any other year since 1964[1]... it has to be those pesky libertarians and their love of this barbaric relic. 1. http://www.business2community.com/finance/central-banks-gold-purchases-in-2012-most-since-1964-0448288 http://www.business2community.com/finance/central-banks-gold...
noclique 14y ago
I find the argument that Gold and Silver are currently in "bubbles" to be unfounded. I think in the future as central banks across the planet continue their reckless expansionary monetary policies, the potential is certainly there. However I don't think we're at that point yet. If you contrast the current precious metals market with the tech and housing bubbles, you don't see the masses running out to buy gold and silver on credit. Nor do you have a Federal government subsidizing this behavior adding more air in the bubble.
wnight 14y ago
The value of Bitcoin is in the blockchain, and the work it took to generate it. Your crypto currency would be light work for an attacker because it wouldn't have many miners. Also, as another poster said, the issue is market capitalization, not individual unit price.

Spooky23 14y ago

Even funnier is claiming that the gold/silver standards resulted in more stable financial systems. Inflation, deflation, and starvation of capital were huge problems before we switched to debt-based currencies. They also equate "no central banking" with commodity-based currency. The United State's 19th century experiments with disbanding central banking wasn't exactly an economic revolution.

3pt14159 14y ago
The point is not that gold and silve were stable, but that they have been more stable and have kept more value than fiat/debt-based currencies.
- dragonwriter 14y ago
  > The point is not that gold and silver were stable, but that they have been more stable and have kept more value than fiat/debt-based currencies. Which is exactly half true. They have been less stable (more volatile) than major fiat currencies, but kept more value over the long term. "Less stable" makes them worse as currency. "Kept more value" makes them potentially better as long term investments.
- Spooky23 14y ago
  They absolutely were not. Look at a graph of UK inflation in the 19th century. http://www.bankofengland.co.uk/education/Pages/inflation/timeline/chart.aspx http://www.bankofengland.co.uk/education/Pages/inflation/tim... The market value of a hunk of gold has done ok over the centuries, but it's value at any point in time as a currency goes all over that place. This makes it difficult to get capital -- who wants to lend money when you have no idea what money will be worth?
  - api 14y ago
    "who wants to lend money when you have no idea what money will be worth?" Easy. Don't lend in raw gold (or Bitcoin, or whatever). Create a mathematical construct that attempts to capture the value transacted and denominate your loan in that, and/or index your loan's value and payments to the in/deflation adjusted value of your currency. Quantitative finance and math in general was less well developed back in the gold standard days, and they didn't have computers. So they didn't invent such instruments. Today they probably would.
  - 3pt14159 14y ago
    Your evidence is faulty for these reasons: 1. You are choosing a specific currency. 2. You are choosing a specific time period. 3. The time period you choose from already had world wide debt based currencies. 4. The UK already had a central bank. 5. The UK already had a reserve rate that was < 100%, and a practical reserve rate that was less than the prescribed one due to fraud by the banks. I do afford you that gold is volatile, that is true, but it is especially volatile these days because of its role in the economy. People view gold as the "oh shit, the government is going to default" or the "oh shit, I need to smuggle my wealth out of this country before they confiscate it" currency. Both of those properties make it very volatile to political and economic news. The point is that for every USD or CAD you bring forward, I can bring forward one of these: http://instagram.com/p/X7pWUKIHK5/ http://instagram.com/p/X7pWUKIHK5/ History is riddled with the collapse of currencies (and, hence, economies as there is a sudden shift of wealth away from those that saved it). The point of currencies is not to have them be good for the economy. The point of currencies is to be a store of value and a divisible good for exchange. I agree that gold has flaws, I also agree that bitcoin has flaws, but they do have some advantages as well, and I would argue that in gold or silver's case stability is one of them.
noclique 14y ago
Technically, Austrians don't equate "no central banking" with "commodity-based currency". They simply point to the fact that without a Socialist central bank dictating by fiat what currency to use, the free market would simply decide. Austrians point to the historical record that shows precious metals filling this role in the majority of cases where the market was left alone. However Bitcoin seems to be competing now as-well in certain ways which is very exciting. I suggest you watch http://www.youtube.com/watch?v=TxcjT8T3EGU http://www.youtube.com/watch?v=TxcjT8T3EGU on trade cycles before the Fed.
- 13b9f227ecf0 14y ago
  Isn't it more accurate to say that the state mandates the currency by requiring it in payment of taxes? If I start paying people in old Deutschmark notes or silver bullion it's not the Fed that will come at me, it's the IRS.
  - noclique 14y ago
    Yeah you're right. I'm fairly certain also that it's legal for private businesses / individuals to accept and sell other forms of money. Only when it comes to tax payment must you use the State issued currency or suffer repercussions. However we're reminded by Gresham's law that money overvalued by government will tend to drive out money that is not.
    - aidenn0 14y ago
      At least in the US, you are also required to take dollars for discharging debt; you could refuse bitcoin if you wanted to, but not cash.

tlrobinson 14y ago

These crypto-currencies serve a purpose, but there is no need for them to trade at $230 per coin. Would you feel better about the price if we use mBTC instead? mBTC are only $0.23 right now. You should be looking at market capitalization, not price. As for crytpcurrencies being scarce, there are network effects that come with one system having the majority of the market share. Good luck convincing people HollowayCoin is worth accepting. Now, if some other decentralized payment system (that works with any currency and isn't a currency too) like Ripple gains adoption that could eliminate Bitcoin's network effect advantage. I believe this is one of the biggest threats to Bitcoin.

dr_doom 14y ago

I'm just curious as how a relatively small group of people can be responsible for affecting the price of gold? By all accounts libertarians are a small section of the populace yet you suggest they are driving up the price and causing a bubble in the trillion gold dollar market. It's hard to find solid data but this old article[1] states that $15,200bn worth of gold was traded in one quarter alone. I find it impossible that any one group of people can cause a bubble when that amount of gold is being moved around, much less the tiny slice of americans who consider themselves Austrians/libertarians. My second issue is with the idea that gold is in a bubble at all. Despite a couple of spikes the price has been about $1600 an ounce for the past 2 years. The trader/investor in me suggests that it was rising steadily for a decade until it reached a fair market price. Everyone from Goldman Sacs[2] to leftist George Soros[3] to libertarian Kyle Bass[3] suggest gold is getting boring and are bearish. So I'm not sure where you are getting this info that gold is in bubble territory? 1. http://www.ft.com/intl/cms/s/0/eb342ad4-daba-11e0-a58b-00144feabdc0.html#axzz2Q4xa3R00 http://www.ft.com/intl/cms/s/0/eb342ad4-daba-11e0-a58b-00144... 2. http://www.businessweek.com/news/2013-04-10/goldman-lowers-gold-price-forecast-through-2014-as-cycle-turns http://www.businessweek.com/news/2013-04-10/goldman-lowers-g... 3. http://money.cnn.com/2013/02/15/investing/soros-gold/index.html http://money.cnn.com/2013/02/15/investing/soros-gold/index.h... 4. http://bloom.bg/11P3V3V http://bloom.bg/11P3V3V EDIT: I love the downvotes from people who can't answer how Austrians are causing non-existent gold bubbles. Not like central banks bought more gold in 2012 than any other year since 1964[1]... it has to be those pesky libertarians and their love of this barbaric relic. 1. http://www.business2community.com/finance/central-banks-gold-purchases-in-2012-most-since-1964-0448288 http://www.business2community.com/finance/central-banks-gold...

noclique 14y ago

I find the argument that Gold and Silver are currently in "bubbles" to be unfounded. I think in the future as central banks across the planet continue their reckless expansionary monetary policies, the potential is certainly there. However I don't think we're at that point yet. If you contrast the current precious metals market with the tech and housing bubbles, you don't see the masses running out to buy gold and silver on credit. Nor do you have a Federal government subsidizing this behavior adding more air in the bubble.

wnight 14y ago

The value of Bitcoin is in the blockchain, and the work it took to generate it. Your crypto currency would be light work for an attacker because it wouldn't have many miners. Also, as another poster said, the issue is market capitalization, not individual unit price.