Topic: Inflation and Deflation of Price and Money Supply - page 65. (Read 1425216 times)

No success?

This has been the money system used worldwide for the last several centuries.  As much as we all hate it, and despite all of the faults, it has been wildly successful.

Yes, you're missing the fact that this has been tried before (with gold instead of bitcoins) with absolutely no success.

It has been at least 20 years since I took macro economics, but I was thinking about this.

When fiat governments do bad things resulting in hyperinflation, if bitcoins are easy enough to aquire in said country I could see people switching to it simply because it may be more stable, dumping the governments currency creating additional hyperinflation.

Country could regain faith by issuing a centalized paper currency but backed by bitcoin. With the open nature of blockchain, how much currency is in their reserve could always be determined, if say a 1 dollar bill could be sold to the bank for 1 mBTC or 1 mBTC sold to the bank for a 1 dollar bill, they could stabalize their paper currency and even keep many aspects of fiat currency such as fractional reserve lending and credit cards etc. based upon the paper currency backed by bitcoin.

As long as there wasn't a run on the bank, they could print more than they had bitcoin to back, and as tourists came and exchanged outside bitcoin for their paper currency, their bitcoin reserve could grow.

Am I missing something obviously flawed with this?

Thoughts:

On the government's "problem":

The beauty of a deflationary currency is the ability to control the depredations of government. Unfortunately, the people become accustomed to the control, become relaxed and allow those in government to remove the control. The people need to remain vigilant.


On the true size of BTCitcoin:

21 million x 10⁸ = 2.1 quadrillion.
If you think we'll still need a couple of decimal places for dimes and cents:
21 million x 10⁶ = 21 trillion.
Bitcoin can handle the world's transactions without problem. In addition to that, other currencies will probably not completely disappear.


On mining rate:

Already done. Have you heard of LiteCoin?


On sovereign digital currency:

I would expect a government controlled digital currency to remove "finality." The government will always want to be the final decision-maker on what transactions, between whoever, should be rescinded or reversed, both for the sake of laws it creates (good and bad) and for the sake of payments it doesn't want to make. That's what we already have. Just because it's digital doesn't mean it's better.

Sorry to drop in like this, but I was thinking about that idea (sovereign digital currency) a lot lately. But I cant figure why would one nation (considering everything we know about fiats, debt, credits etc) drop, substitute or introduce a second currency instead of(or in parallel) to the existing one. I  can`t think of any except pulling a clean slate (i.e argentina, greece or ex yugoslavia countries) after a severe hyperinflation and economic burst. One global digital currency, now thats another story, but bitcoin is becoming exactly that. What am I missing?

After pages of reading some very good economic banter, one thing that seems to have NOT been discussed is Bitcoin offers an unprecedented
historical opportunity in regards to Deflation.

Deflation has had some real negative effects in the past, depending on your circumstances. Anyone (like the government) who OWES money in a deflationary cycle actually ends up worse off because their payments are in a fixed amount but the value of the current is appreciating. Then there is the issue of divisibility. Once you get to .01 or whatever was the smallest currency, there was no easy or practical way to justify minting a smaller amount (if gumballs were 10 for .01, your only choice was to buy 10 of them).

Bitcoin has the unique ability, if necessary, to deflate gracefully to 8 decimal places. This provides an unprecedented mechanism since there is no inherent cost difference in processing any size transaction down to .00000001. While today there is a fee mechanism that makes this "dust" type of transaction not viable, from what I have read about the upcoming changes to fee structure, fees should be able to adjust up or down to follow whatever economic situation presents itself.

Lastly, I feel obligated to point out that Bitcoin also COULD have more than 21 million coins simply (or not so simply) by an economic majority willing it so. Today this would be totally unrealizable, but in 10,20 or 50 years there may be some compelling reason to adjust the mining rate to some other number.

Final Thoughts: How many years before a national government implements a sovereign digital currency? (probably based on this project) I believe that it will happen, although a government would remove the economic majority function, probably add a "dial" for the mint rate.

Thoughts?

Cheers

I knew it! You've been talking behind my back again. 

And quit callin' me a "but". Them's fightin' words. 

I agree with you but in the field of "economics" we have to be terribly specific and strict in our assumptions, and positively saintly in our choices and conclusions because by definition we are talking about an awful lot of other peoples business, behind their backs, almost all of the time.

I think people here need to lighten up a bit.

We are all treading the grounds of definitions, philosophy and high-level concepts. There will always be a misunderstanding among us, simply because the language used may not be strict enough or possibly the concept not presented clearly enough to get the ideas completely across to one another. We don't have the ability to read one another's thoughts. 

Thank goodness.


However, we can think of those using BTCitcoin as an "economy". There is exchange within and foreign. It is currently a tiny economy, subject to great fluctuation and disruption. However it is growing.

We can consider the price of BTCitcoin in terms of something else. USD, Euros, mg of Gold, ozs of Silver, seashells, or Litecoin.

We can choose definitions we want to use. Is inflation an increase in supply of money, or an increase in money needed to purchase a particular item (or basket of items)?

Once we choose definitions we like, we can then track some things about our little "economy".

From that we may be able to help ourselves and others choose what best to do, whether it be to ignore or embrace the use of BTCitcoin.

However, we'll get the most done if we combine our strengths and forget about our individual desire to be the one who is "right".   

Only nations, communities or groups with exclusive territories, assets, labourers, exports and imports can have an "economy" and a national (or local socially accepted) Medium of Labour Exchange "currency" for which there exists a "current foreign exchange value". Globes cannot have economies since they lack all of those things and (thus far at least) trade with no other globes. The planet is merely a Global Marketplace there is, and so far, can be no such thing as a "global economy". (unless you want to consider Liechtenstein, Bermuda, Belize, Switzerland and the Cayman Islands as "another planet" populated by racially superior "alien" boardroom-gold-pharaoh-socialist slave-owners)

For instance your "American" home (BTConomist's Kingdom) could have it's own Medium of Labour Exchange "BTCono-Dollar" currency based upon the assets, labour values, imports and exports of BTConomist's "subjects", that might be accepted by your neighbours as a local "foreign currency". Your little tribe and it's tribal economy might consist of you importing lawn equipment and exporting lawn maintenance and your wife might import beauty supplies and run a salon and your kids might paint houses, deliver papers and do lawns too, your nephews, aunts and uncles and in-laws may also become part of the families' "BTCono-Dollar" economy. Your families' little "economic kingdom" can do as it pleases as long as it pays it's communist rent-taxes to the private Federal Tory-Bilderberg Gold-Pharaoh Reserve Printing Companies' Pentagon war-communist Union of ZioNazi Socialist Republics within which it is imprisoned.

You could "back" your "BTCono-Dollars" with grass seed, house painting or lawn cutting jobs for instance, then everybody would know when your kids showed up with them just about how many popsicles to give them for one. If the BTConomist's Kingdom imports too many slave goods from the kingdom of Walmart, such that it must go into debt to a private plastic-counterfeit renting Vultures International Slavery Association outfit to whom you must pay 30% interest then you cannot afford to be "backing" too much exported currency for the neighbors around your 'hood, and your economy must increase it's exports. Now you might also Friedmanize ("monetize") your Walmart debts by printing up more BTCono-Dollars to pay off your wife and kids with, but sooner or later they are going to be all like "Where's the popsicles Tory Trotskyite Papa Friedman?" on your butt.

Unlike a "money" a "penny stock exchange-traded" Bitcoin is only an Over the Counter Funded Credit Swap Derivative that is only worth what the next guy wants to pay you for it, the next time it's cashed in, and that is all it ever can or will be worth. It certainly had a "funded cost" to you but what it's worth is, (exchange value) is unknowable until you are rid of it.

Appreciation and depreciation only apply to Mediums of Savings, which consist of rare fine arts, commodities or antiquities always absolutely certain to appreciate in exchange value, or, "bad" Mediums of Investment (like coal, whole used cars, or Tory-Trotskyite Red Chinese slave labour) doomed to be worth less than it was before. (monopolized-gold is only bulky, common-nuisance 3rd rate medium of savings) Labour is the PRIME RESOURCE which is expressed in and represented by an economies' Medium of Labour Exchange "currency". The gracefully inflating (depreciating minutely in concert with growth) exchange value "price" of a fair "currency" has a certain and direct impact on all prices over time, but it cannot (usually) strive to be a fair or good Medium of Savings or become as abused as a bad Medium of Investment.

It (Medium of Labour Exchange "currency") is (and must be) the central and most stably growing component of all valuations within a healthy, growing economy (where the citizens own and rent their own currency). In an unhealthy, diseased, private ex-gold Pharaoh Federal Reserve Monetary Labour Enslavement tyranny, all of the profits from reserve lending and counterfeiting are stolen by criminal Tory-Bilderberg Trotskyite oligarchs, and thus, armed-communist taxation robbery must be imposed (by the politicians they buy and own for nothing) to pay them their Trotskyite pounds of flesh. In that case the corruptly rented-private Medium of Labour Exchange currency must always (depreciate like a bad investment) inflate and all prices must also inflate, along with it, to ALWAYS PROFIT ONLY THEM, ALONE!

This phenomenon today is known as Neo-Keynesian Fascist-Friedmanism (aka Tory-Bilderberg Gold-Misesism) or "austere" urinate-down "voodoo economics".  It's simply a throw-back to Tory-Malthusian Gold-Mercantilism.

Try to avoid the silly temptation of confusing a "wealth" with a "money". In 1913 the results of the American Revolution and the Civil War were reversed and all became bonded slaves to the Transnational Trotskyite Tory-Bilderberg gold-pharaohs of London once again.

If exchange-traded Bitcoin Credit Swaps can somehow be made to work as well as a stable, liquid currency it means Global Human-Monetary Freedom from the private national-socialist bankstering tyrannies of the wealthy Pharaohs, once and for all, finally..

PS:

One “winning” wealthy Gold (or Bitcoin) Pharaoh, no matter how audacious his lifestyle, cannot “urinate down” a “Free Market” economy renovating his palaces. The power to counterfeit, loan and issue (from nothing) a fiat Labor Exchange Currency token is the power to corrupt. The Wealth of Nations (national economies) is their public property expressed and represented by the foreign-export fruits of all labors value of their publicly owned and issued “Medium of Labor Exchange Currency”. Maintaining and growing the ongoing exchange-value of its own economic “currency” is the public work of a nation, it is not ever to be regarded as the private toy-hobby of some “beneficent” private gang of boardroom-socialist Pharaohs.

Indeed a Bitcoin is nothing more than an exchange-traded  Over the Counter "Funded Credit Swap Derivative" that may work as a delayed-settlement funding mechanism of great utilitarian value and security but it can never ever be qualified as a liquid "money" that can be confidently exchanged at any guessable rate, without it being exchanged (cashed in for a national economic Medium of Labour Exchange with established stable liquidity) first.

Conducting business in Bitcoins is little more sane than spending and accepting Facebook shares would be.

You should not attempt to describe the workings of bitcoin economy with a standard economic theory, because your interpretations will always be wrong.

BTC is a completely new form of money and thus requires the application of its own economic theory when describing what drives its value up or down.

And it's definitely not the currency exchange rates that create deflation and inflation in a BTC-based economy. It's the BTC spending that does it.

It's also worth noting that when we talk about exchange rate fluctuations, we imply appreciation/depreciation, not inflation/deflation.

The local bank's interaction with the fed creates a soft limit, not a hard one.  Small and simple examples don't show the real picture, because it isn't just you, the bank and the fed.  There are thousands of other banks, and millions of other people.

What makes you think that the bank has to "have" $900 somewhere in your example?  Where is that $900 stored?  Physical tokens in the vault?  In their computer?  No.  And also clearly not in the central bank's computer.*

Banks have two kinds of "real" money.  They have physical tokens of money (dollar bills) and central bank deposits (reserve accounts at the fed).  They usually have a truck show up daily to either pick up excess tokens, or to bring more tokens, and all they really need are enough to service local demand, which is usually a tiny little fraction of the non-physical business at the bank.  As to reserve accounts, they can borrow from other banks or directly from the fed.

What really limits the local bank is that the auditors verify that they have enough on reserve on a regular basis.  And since reserves are so easy to get, they are effectively never out of compliance with their reserveholding requirements.  Banks fail when their books get out of whack, not when their vaults run empty.

*  Well, at least I hope it is clear.  Clearing and settlement is done on a net basis.  It would be silly for the bank to need $1000 in their reserve account, and then withdraw $900 to make the loan, leaving a 10% reserve.  First, how would the withdrawal work?  Second, what would stop the bank from redepositing whatever fraction of the loan doesn't leave that day and loaning out 90% again?

To simplify the matter, suppose that there is only one commercial bank in the country. That $900 I spent will become someone else's deposite at this bank, and his deposite will again be loaned out, but then the commercial bank need to have another $90 reserve at central bank and can only loan out $810, this is typical FRB

So, this bank only has $1000 to start with, but over time, it will create lots of accounting activities through loan and deposite. In the end there could be lots of people having a total desposites of $10000 at bank, but if more than 10% of them go to bank ask for withdraw, the bank went broke, since the total money in the system at any moment will never exceed $1000

Actually, the bank just needs to meet its average reserve requirement over time. It only needs to have the $900 when someone else cashes the check, presuming it is not at the same bank.

I don't think that is the case. If commercial banks can create loans as wish, then central bank's open market operation will have no effect at all. The OMO's purpose is to increase or reduce the amount of money that commercial banks can loan out, in such a way to adjust the credit money available for business. If commercial banks can create money by themselves as wish, this whole operation will have no effect

When a commercial bank give me a loan of $900, he must have that money at his account at the first place, and the reason that he can lend me that $900 is because he already have $100 deposited at central bank (10% reserve requirement)

Don't be fooled by bank's accounting tricks

I'm going to go ahead and predict that if the community doesn't come up pretty quick with a decentralized p2p system to issue notes and accounting entries on cryptocoin reserves, then bankers will do it, either new bankers or existing bankers.

I dislike the way the system works as much as the next guy around here, but it isn't the monetary system itself that is so completely batshit, it is the politicians and crony capitalism that have made it the astounding pile of shit that it is today. If banks actually had to have the reserves, if banks had to actually secure long-term assets to back long-term liabilities, if banks this if banks that it all comes down to big government letting it slide because they get a fat f'ing paycheck for doing so. It doesn't help that the same government spends $600 some odd billion dollars a year to make sure that nobody tries to cause trouble with this system.

It's a shame bitcoin won't do fuck all to fix it.

Ok thanks for clarifying, but the fact remains that this monetary system is a totally rotted fleecing operation. It is the result of the banking sector abusing a true reserve specie, gold, over and over again, and then getting bailed out repeatedly until the reserve currency turns into "monetized government debt". What kind of a dirty joke of a monetary base is that? It is completely insane. The people who have profited from this have acquired so much power that they've been able to dumb down the entire population of the world to where we have no idea what is going on nor think that we have any reason to care. I'd venture to say that if a single semester in highschool was devoted to this very subject, the whole system would change in a generation.

That's what you hear, but the truth is different.

When a bank makes you a loan, they just add a number to your checking account balance.  They also make a new account (your loan) and subtract a bigger number from that, so according to their books, they are even better off than before.  They don't have to run out and get more bits from someone.

When you spend part of that loan, you write checks against that new balance.  To the extent that your checks go to other banks, their account with the regional fed is decreased, which may put them in a tricky situation with the auditors, causing them to borrow to keep their reserves up.  This loan is, of course, backed by the asset they are holding, namely your promise to pay them.