Topic: Down to zero it goes! - page 2. (Read 6695 times)

OK. Fair enough that you don't dispute it. Let's just focus on that then.



Three points.

First, let's look at "who benefits and who suffers." In a centralized, inflationary monetary system, this is pretty clear. The primary beneficiary is the one who gets to create more money (or I suppose more accurately, those immediately able to use the new money in exchange for goods and services at full value. This could be the central bank itself. This could be the entities bailed out via newly minted cash.) The primary suffering are those forced to hold the money, those holding it out of ignorance, and those holding it out of necessity--the system as it is requires us all to use dollars for our everyday needs. There will always be some of these people. In fact, for the monetary system to actually function, the money MUST be in someone's hands. And those someones get screwed.

What about with bitcoins? Well, remember that the bitcoin network doesn't go and periodically destroy bitcoins. There's simply a cap on the number of them that will ever exist. So the primary beneficiaries of any deflation are ALL the voluntary holders of bitcoins. So far, no problem there, is there? And the primary suffering in this case? Those who lose their bitcoins.

Please take a second and think about how ingenious that is.

Some people will irretrievably lose their money in ALL monetary systems. Under inflation, these people lose 100% of their lost money, and will also lose some % of their remaining money due to their central bank. Under a non-inflationary money, these people still lose 100% of their lost money, but they gain some % of that value back in their remaining money. Even if they have no remaining money, then they've just broken even with the inflationary system... they certainly didn't fare any worse for it.

This reduces the group of sufferers to the ideal, most fair group... those who would have lost purchasing power anyway. They are demonstrably never worse off than they would be under an inflationary system, and periodically are better off. This arrangement seems far, far superior to one where the politically connected profit at the expense of the poor, the uneducated and the coerced.


Second, there's a big difference in how any transfer of wealth occurs under an inflationary and a non-inflationary system. In a non-inflationary system, any wealth transfer can only be initiated by the person who would lose their purchasing power... for example, those who lose their bitcoins. Call such a situation what you will, but at best, their loss of purchasing power is an accident, at worst, it's just their own fault.

Under an inflationary system, the wealth transfer can be initiated pretty much at will by those who would gain the purchasing power. Which is so ripe for abuse it stinks. Moreover, that purchasing power comes AT THE EXPENSE of the suffering. And remember: for the monetary system to even work, SOMEONE has to be holding the money, so there is NECESSARILY a patsy. Before we started redefining terms in western society, we used to call that sort of a wealth transfer theft. And considering it's a system forced onto some segment of the society or another, I prefer to just call it getting screwed.


Third, there's something far more fundamental we're overlooking. Our opinions on the issue don't matter. The fact is: people choose non-inflationary systems. You can call that stupidity, ignorance, cowardice, whatever. People do. They do it over and over, every time. They choose non-inflation over inflation. This is proved by the fact that governments have to resort to legal tender laws and having tax payments required to be in their own currency. Gresham's law ceases to exist in the absence of coercion. Thought experiment: go to a nation, any nation. Give them a choice: they can transact in a non-inflationary fiat money, or some other inflationary fiat money, or even both, with all contracts and debts honored equally. They can pay taxes in either form of money they wish. Of course, they still can have access to all the other means of asset protection; just ensure there will be no penalties or punishments given to them for choosing one fiat money over the other in regular use. Oh, and don't bar anyone from informing others about the true natures and consequences of each.

Which of the fiat monies do you think people will choose? Seriously, is there even any question?

So say what we will, people have spoken. They don't want inflationary monies. THE MASSES DISAGREE WITH YOUR ASSESSMENT OF THE ILLS OF A NON-INFLATING CURRENCY. They only deal with it because it's forced down their throat by people who feel the need to save them from themselves.

But considering that (a) they're the ones who have to use it, and (b) the whole issue is supposedly about what's in their best interests... I'd say the people themselves are best suited to determining what is best for them.

ROFL.

Well played sir   5 star thread !!!

yet again unk proves he wrong, wrong, more wrong and full of wind ... bristling or otherwise ... tax laws and monetary policy are bound at the hip by the same people creaming it off the top ... supporting a failed system must leave one feeling dirty and guilty at some point ... surely?

What is the chart actually showing? Dollar in $ makes no sense to me.

@unk
I agree with you theoretically, and I always recommend holding only as much currency as needed for monthly expenses. If most people would do that, the central bank had less influence. But I don't think it's as easy as you make it out to be. We get bubble after bubble in things that seem to be good assets, but actually aren't. Gold is the only "hands-off" store of wealth, and in many countries it's legally impossible or expensive to acquire. In case of emergency it will likely get confiscated.

The main problem with central banks, fiat money and government debt is the illusion of wealth they create. When the economic distortions can no longer be hidden/ignored, people always blame scapegoats. For example the Greeks are angry at the prospect of becoming poorer, while, in fact, they were never as rich as they believed to be. Would you argue that there is no "debt supercycle", and that for example the US deficit is no big deal?

Unk: There is no free lunch. You cannot inflate a currency without consequence. Even if every citizen was capable of minimizing the loss of purchasing power, that purchasing power would still be seized from the rest of the world through treasury bills. As the rest of the world realizes that the US is increasingly printing money and issuing new debt just to pay the interest on past debt, the US will lose its reserve currency status, and nobody will want our debt. Then all of the government programs we have come to rely on will fail, and we (the private sector) will have to create and fund those programs ourselves, reducing our standard of living.

You can say that the specific inflationary policy alone does not cause all of this grief, but that policy was not enacted in a vacuum, and is what allows all of these problems to become possible.


I only suggested that your claim that the community is feeling more "amateurish" and "fringe" be ignored.

they could have simply asked their grandparents, as a similar phenomenon described the previous ninety years. inflation in the united states is generally recognised to have been greater from 1913 to 1999, but not by as much as the often-disputed '90%' figure would have you believe. (probably it was about twice as great in the 20th century as the 19th century, though i'm saying that offhand without looking at the best data.)

more to the point, very few people held dollars outside of interest-bearing accounts, particularly after the federal deposit guarantees that followed the great depression in the united states. as ribuck pointed out, most people matched or beat inflation in practice, with those interest-bearing accounts. my point is that to focus on the inflation of the currency, out of context, is itself 'extraordinarily disingenuous'.

i want to avoid the inline quoting in the rest of the responses, so i'll just address your points in freeform.

first, social security has nothing to do with what we're talking about. if you want to say that social security isn't sufficiently adjusted for inflation, that's fine, but again, that is not an indictment of monetary policy. if social security were properly adjusted for inflation, your concern here would fall away. (please, though, let's not have a general debate about social security. i recognise the american tea party calls it a 'ponzi scheme' and that those views are common in this forum. it's a profoundly and tragically misguided understanding of the system, but i don't want to debate that in detail here.)

second, i referenced my 'credentials' (not really; i just made a claim that i knew what i was talking about) only because you suggested that i ought to be ignored, incorrectly terming my analysis 'feelings' that ought to be easily dismissed. i'd never have brought anything personal about myself up if you'd responded to my analysis instead of dismissing it as coming from someone inappropriately emotional, which is of course far from the truth.

third, and probably most importantly, interest rates do affect riskfree savings, but their effect is largely to shift riskfree savings to 'investments'. in practice, empirically, they do not substantially decrease 'savings' as opposed to 'spending'. if all they do is shift around what 'saved' money does, then we're back to the point i've been making all along: nobody is forced to experience the inflation of the dollar, and their choice of other instruments (such as commodities) does not significantly distort the economy.

note also that you're criticising low interest rates, which ordinarily do not coincide with inflation. you may be upset at a particular feature of the monetary landscape over the last few years, and other actions of the central banks of major industrialised countries, that have little to do with inflation. as i have said from the start, i'm not telling you that you should not oppose all central banks' decision. i'm just telling you that you're opposing the wrong ones.

westkybitcoins: for much of the period you're describing, the group of 'middle class' americans to which you're referring held extremely little cash, and they held essentially none outside interest-bearing accounts with which they matched or even beat inflation. furthermore, many such families 'saved' in non-cash assets, such as a family house.

to be clear, however, i'm not disputing that inflation takes from some people and gives from others. that's true of anything, however; it's true, of deflation too, for example. who benefits and who suffers is a detailed empirical question that requires nuanced analysis to answer, just like questions about the true incidence of a new tax. for instance, if we all used bitcoins, the eventual presumed deflation would affect salaried laborers versus investors in very complicated ways that are hard to predict based merely on the notion of 'deflation', for they would depend on many other macroeconomic and psychological factors. (for example, how sticky are wages? how are pensions computed?) to answer these questions with ideological generalities will almost always lead to wrong answers and bad decisions.

westkybitcoins: excellent post!

But don't you see - it is their own fault for not having a crystal ball and knowing to move their savings out of cash. Nobody forced them to stay in the dollar. They should have known that it would have been better to hire a full-time broker to manage their (and their children's) funds.  

I understand you're trying to suggest that inflation shouldn't be a problem, because it's avoidable. But I believe you've missed my point.

Do you think the average person throughout the 20th century managed their finances with an eye toward inflation? If you do, may I suggest you have a rather generous view of "the average person throughout the 20th century?"

Think of the people who were present during the transition in 1913. They were used to a monetary system that was totally fixed to precious metals. Do you think most of them knew, and really understood, that first their paper dollars were going to be devalued in 1933, and then continually devalued from then on, all due to the deliberate actions of men, rather than natural market forces?

Think of poorer people who didn't have access to a lot of wealth, and hence much of the wisdom regarding it's proper handling. Think of grandpa stuffing money under the mattress because he didn't trust banks. Think of the poor family who diligently saved their coins (and even the occasional bill!) in a large jar as an emergency fund for when times got bad, trying to improve their condition. Think of people NOW who may not have a 401k or a stock broker, but have a money market savings account, and think that they're doing well because of it.

These people all got--and are getting--screwed.

If your attitude is that they're just not educated, then you're forgetting that education isn't free ("free" public education is the worst) and that even then there's much pressure to miseducate. Many people of modest means know they need to save to get ahead. But the Keynesian crap pushed in the classroom doesn't give them the tools to realize just saving dollars isn't enough, and that one of the best ways to save and avoid inflation is through that "relic" called gold.

If your attitude is that, well, some folks are just less intelligent, and can't be helped, then we have a problem. Fifty percent of any given society is going to be of less than average intelligence. What sort of man-made system requires us to take 50% of the population and just accept they're going to get robbed annually by their central bank? Especially considering this 50% is frequently the less-well-off?

That's my main beef with an centralized, inflationary monetary system. It's bad enough that it steals, moreso from the poorer and less educated. It's that at its core it's a fundamentally dishonest system, and one that to some extent (thanks to legal tender laws) is forced onto the society.

It's just plain wrong, regardless of whether I can personally figure out how to beat it.

I believe you stated it for me. People with wealth do not keep it in cash, due to long-term devaluation. This reduces the amount of savings available to be loaned out by banks to grow the economy.

Besides what I have said above, I am curious how you conclude that the Fed's monetary policy of keeping interest rates artificially low, thus reducing the interest rate paid toward savings, does not discourage savings.


I am forced to pay into social security - money which I will supposedly get back at retirement in a highly diluted state. Are you saying I have a choice not to give up that purchasing power?

Then why the necessity to reference your credentials? What did you hope to gain by citing them?

The expectation of the day was CERTAINLY NOT that the dollars they were accepting in 1913 would be lose more than 90% of their value in less than 90 years.

please try to explain the precise mechanism by which you think that happens. certainly taxes and transaction costs serve to slow various kinds of economic 'growth', though of course most people (perhaps not in this forum) think taxes have countervailing benefits. but you have not explained how you think monetary policy will 'discourage savings'; generally it does not, for the reasons i've already outlined. it simply makes one available 'savings' instrument less attractive, which eliminates nobody's choices. (other things, of course, might limit their choices.)

if it helps, you might think of the dollar as a service provided by the united states government. you might not like the service, but nobody forces you to engage in it as a long-term holder subject to the sorts of inflationary pressures in your chart. you have to pay taxes in it if you owe income taxes, but that only helps you if it inflates and you need to convert to it on a certain date in the future. you have to accept it for payment of debts, though you can convert out of it immediately in that case. what's left are, again, various taxing issues that are not as significant, in practice, as people here think they are.

note that i'm not relying on economic dogma here; i've explained the analysis i'm providing, both in this discussion and, in more detail, in others. i'm as critical of economic dogmas as anyone. i'm writing here just to try to correct an often-repeated misunderstanding in this forum. it's fairly unique to this forum and other fringe online communities; at least, i've never seen it elsewhere. my goal is actually to help people think more clearly about bitcoins, as i've been doing since i started posting. it is not in any way anti-bitcoin, in case that alleviates a concern that is possibly motivating your strident response to me.


that's not quite true, but regardless, the point is that purchasing power is lost only by those who choose to continue to hold dollars long-term in the face of many alternatives. think of it this way: if you couldn't avoid deflation by holding commodities, securities, or other instruments instead, how could bitcoin help you avoid inflation? bitcoin doesn't add anything new if your goal is simply to avoid inflation; what it adds is, in principle, a convenient payments system, and it reduces the transaction costs (again, in theory) of moving funds into and out of that payments system. the rest of bitcoin is either (1) ill-founded marketing, though that's quite common in this forum or (2) speculation, which is as good or as bad as anyone ordinarily thinks speculation is.


you seem to have neglected the flow of the conversation here. you suggested my 'feelings' were irrelevant; i claimed they aren't. nothing else i've said depends on my 'authority', my stature, or indeed on anything else about me.

westkybitcoins: you're missing my point, i'm afraid. i'm not saying that central banks aren't responsible for inflation. i'm saying that nobody is forced to experience that inflation long-term, contrary to the sentiments that i so commonly see in this forum. let me ask you: do you hold us dollars in your long-term investment accounts? if so, why? what's preventing you from avoiding them if you are so concerned about inflation? the answer is nothing, except again, in the marginal case, perhaps capital-gains taxes that you could likely avoid if you put your mind to it.

Just wanted to congratulate you on a very sound analysis. It is good to see someone who understands monetary policy beyond Tea Party soundbites.

To the contrary, I imagine plenty of the people who received silver dollars in 1913 expected those dollars to have the same purchasing power... or even greater... by the end of their children's lifetimes. And, hey, they pretty much were right! It's those who held paper dollars that got screwed.

Oh, but that's their own fault though, right? These largely rural, pre-WWI folks should have known not to trust the government, and to save and conduct business in precious metals only... that's what their government schools taught them to do, after all. (Not.)



Yes, it absolutely is the fault of the central bank. Inflation is an increase in the money supply. The central bank is the primary entity which increases the money supply. Ergo, the central bank is responsible for inflation throughout the 20th century.

Where are you getting 4% inflation?  TIPS just sold for a record low last week.  If the market (read: not the gov't) was pricing for inflation, TIPS would not be at the yield they are.  I'm curious where you're getting your information.

Exactly, and because these reasons discourage savings, and savings is a necessity for economic growth, the economy suffers. It may still prosper overall, but it will not prosper as much as it could have.

No matter how you try to paint it, the loss of real purchasing power does not benefit anyone but those who use it to their advantage (which in this case are politicians who use deficit spending to fund short-term projects to gain votes, and then encourage an inflationary policy to pay off past debt with devalued currency)

Your appeal to authority, on the other hand, is not influential.

What's wrong with that chart? It's a masterpiece!

- Ben the Junkie

Actually, no.

Remember A.Lamo 

you misunderstand my point, or perhaps you haven't fully thought through the economic landscape. right now, bitcoins are used almost entirely as a speculative vehicle, but if they took on the form of an operational currency, there could indeed be 'income' through simple monetary deflation against the economy that bitcoin represented.


again, you misunderstand or are applying insufficient analysis. a statement like 'it is not savings that depends on economic growth, but the other way around' is not analytically coherent because we're not describing a mutually exclusive causal process. economic growth in a capitalistic system both requires and rewards investment; 'requires' does not eliminate or oppose 'rewards' in that sentence.


again, this is a misunderstanding. a long-term loan is not inconsistent with anything i've said.


i've shown at least two or three times, in other discussions, exactly why this is wrong. i said that in my last message, and you could have looked it up before responding in ignorance. the 'legal tender' laws do not force anyone to hold fiat currencies long-term and thus experience their long-term inflationary effects. the transaction costs of moving out of fiat currency are minimal in most contexts. moving back in occasionally incurs capital-gains taxes, but that is then a feature of the taxing laws, not the legal-tender laws, that may discourage particular types of investments; the taxing laws are not neutral as to the choice of investments, but that is not an indictment of monetary policy. and in any event, it is easy to avoid capital-gains taxes, in these contexts, in nations like the united states and the united kingdom using a variety of practical mechanisms.

if you think that you are forced to experience the inflation of fiat currencies, you're simply mistaken. i have significant holdings, and about 5% of them are in fiat currencies and thus subject to any sort of inflation. few people with significant wealth choose a portfolio more weighted toward cash in the long term, for obvious reasons.


yet my scholarship is often cited, my businesses prosper, and my teaching is influential. your dismissive arrogance in response to me is startling given that you don't appear to have understood anything i've said.

Nobody but speculators are hoping to gain *income* from bitcoins. Bitcoins are not an investment, and are not supposed to pay a return.

Economic growth requires capital, which comes from savings. It is not savings that depends on economic growth, but the other way around. So long as people save, there will be money for future economic growth. Only when monetary policy intervenes to discourage savings does the economy suffer.

From where have you summoned such omniscience? Look up the concept of the "99-year loan" - which was much more common in the past, but is unheard of today.

Correlation is not causation. The US was prosperous despite its degrading purchasing power, and would have been even more prosperous had the currency been stable.

Given that the US dollar has a government-backed monopoly on legal tender, forcing people who want to trade with others to accept US dollars, I will vehemently disagree with this claim. You are basically saying, "if you don't like it - leave!" That is not an argument.

Fortunately, feelings are no substitute for rationale. Your feelings will be disregarded.