Topic: Inflation and Deflation of Price and Money Supply - page 65. (Read 1259606 times)

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.

ONLY central bank have the right to create money, commercial banks can not create money, they can only loan out part of their existing money

Actually, lots of people get the order of events wrong with private lending.

Banks loan whenever they find a creditworthy borrower, and the money comes out of thin air at that point.  After the loan is made, if the bank's reserves are insufficient, they borrow from the fed.  This is a pull process initiated by the bank, not a push process initiated by the fed.

Congressional spending is a different story.  When congress spends, the fed creates money out of thin air and loans it to the fed.

The actual mechanisms involved are a bit more complicated.  You have a checking account with your local bank, your local bank has a checking account with the regional fed branch.  If congress writes a check to you, you present it to your bank, and the bank increases your account balance.  Your bank then presents it to the fed, which then increases your bank's account balance.  (In ordinary check clearing, the regional fed would decrement some other bank's account balance, making a zero sum.)

It's created out of nothing by the FED, loaned to the government, who gives it back to the FED, where it is then used as "reserves" by commercial banks. Commercial banks then attempt to create, out of nothing, 10 times this amount in the form of interest bearing debt to regular people and businesses. Somebody tell me if i didn't get this exactly right. It is a rotted zombie of a monetary system.

Please explain how is that "expanding the money supply" done in practical

For example, you are Ben Bernanke, and now is 1st of May, you are going to purchase 85 billion dollars worth of government bonds and Agent MBS, where is that money come from?

Market speculators and their antics capriciously determine the latest fiat exchange-value the last fiat Bitcoin that came their way.

The actual "price" of any given Bitcoin remains forever unknown and unknowable until after it has been sold (re-exchange valued) to the next guy, in the future.

The intrinsic and utility values of the "futures derivative contract token" no matter how attractive, are materially too small to be a major factor in it's exchange-value (aka price)

Buying a Bitcoin futures derivative contract token is gambling on the current exchange-value of it's future exchange-value.


The supply of Bitcoins is totally irrelevant and unrelated to their values, and likely to remain so for a long, long time. Small (or even large) quantitative changes in the small intrinsic and utilitarian characteristics of it's values should have practically no impact on it's exchange value, which is solely a "fiat election" of it's futures-market traders alone.

The (largely utilitarian) demand for Bitcoins is thus far for the most part entirely a function of their intrinsic curiosity, utilitarian novelty and speculative exchange values. Their original purpose was as a gambling casino utility, and they also apparently work pretty well to deal with certain other nastinesses at SR and sports gambling sites.

The best way to think of the exchange-value of Bitcoins is as a kind of a "virtual toilet" which regardless of what has been dumped through it only bears the memory-value of the position that it's last user left the seat in. (to it's own current owner, alone)



The supply of Bitcoins has, does and will always have zero to do with the inflation and deflation of their exchange values.

The supply of Bitcoins has everything to do with the fiat exchange value that upper-level "cheap-cheap Bitcoin Pharaohs" are willing to be bothered to settle for, and about nothing to do with the demand for or surplus value of them. Bitcoin millionaires would just as soon be Bitcoin billionaires than  part with them for $80 or something lousy bucks. (unless or until they get a hankering for some more cash)



So far, the needs of speculators to take advantage of or engineer volatile price bubbles and crashes.

Happy Trading! (and remember to leave those seats up guys!)  

The Monetary Inflation of Fiat Bitcoins won't have anything to do with the supply of them for another 30-40 years at least. The supply of them is totally irrelevant to their "current" massive, hourly, fiat exchange-value inflations and deflations, or the "bank holiday" Mt Gox forced itself to call the other day..

You began by referring to the well known economic cancers of "Monetary Inflation" which are caused by:

- adding inflationary pressures by increasing rates of usury on the money supply and thus causing price rises upon everything to pay for it.

- by properly expanding the money supply to serve more workforce members who could no longer be competitive nor productive enough (due to exporting manufacturing and the means of production to slave labour gulags and erasing import tariffs against them) to return the balance of trade wealth (that the fruits of their labours should have represented) back to the economy.

- debasing or devaluing the values of a given Labour Exchange Currency by quantitative counterfeiting in a vain effort to pay off old debts,

- by expanding the money supply to bail out reserve banksterers who purchased the corrupt political policies of free trade, but wouldn't cover their own losses that were actually the direct result of them.

Then, for some reason you dropped the topic and began to talk about "Moneysupply-stuff" to do with Bitcoins

The fiat "exchange value" of a "fiat Bitcoin futures derivative contract token", is totally detached from and completely unrelated to the supply or production of them. It is an assumed, stale, past-value, randomly decreed by a fiat penny-stock market. In fact the futures derivative token has no exchange value until after it has been sold to the next owner, whomever and where ever and for whatever that future value might eventually turn out to be decided to be, later on. The only marginal values a bitcoin itself retains is it's intrinsic security and utilitarian transportability, invisibility and anonymity ones.

It's "exchange value" is totally "fiat", it is in no way "hard".
 

Once again we return to Locke and Smith's three distinctly separated concepts of the loose-term "value". These are differentiated as utility-value, exchange-value and intrinsic-value. If we consider the Medium of Investment commodities of water and emeralds as examples, you can see where each can end up isolated into a single category depending entirely upon conditions of chance. In a long drought or in a desert water has all three wealths, emeralds only one. At a feast next to the fountains of a palace garden emeralds have all three wealths and water only maybe one.

In both cases above the "Prime Resource of Labour" alone ALWAYS stably retains at least two if not all three of the natures of value, as it usually does in most all scenarios. It is the prime function of a "money" that it be a suitably stable "Medium of Labour Exchange" value first and foremost!

Difficult to counterfeit paper money is proof that the intrinsic (Saudi Oil backed) value and utility (Global Reserve-Currency Status) value are also necessary. Since the demise of Bretton Woods, and the inevitable deflationary demise of far too rare gold, a private Federal Reserve Printing Company "They-Owe-Us Note" is backed by the exchange-value of the global oil that can only be priced and exchanged in terms of it. (for now LOL)

Bitcoin's silly "Money-Supply attributes" are totally irrelevant to it's wildly gyrating, horrifically volatile and disgustingly unreliable "fiat quarter-hourly" massively inflationary and deflationary exchange values. (plural because there has been no such thing as a single one)

Adding more or losing many Bitcoin futures derivative contract tokens does absolutely squat to the exchange-value of them. They each only represent, solely in the mind of their owner, the memory of what the dude whom they bought them from, took from them and made off with! A few fresh new, or old lost Bitcoins makes nobody else any richer or poorer than the guy who discovered or lost them, and never ever will.

The sole purpose of the so-called "mining strategy" is to continue to autonomously fund the "bitchain" security-confirmation exchange logging network. It will have zero impact on Bitcoin inflation or deflation.

The entire notion of the speculative market-trading of the value of the Bitcoin derivative itself is almost nonsense, if you ever honestly intended it to be a “currency”.

If the BitCoin asset pool were merely valued by simple Debit-Balance and Credit-Balance Bookkeeping all varied-currency-converted values coming into it would always exceed all varied-currency-converted values flowing out of it. It’s mere “funding” would generate a constant surplus that would assure each token’s constant value. But that would require an accountable “Central Exchange Authority” (bank) to take in the values and dispense the tokens for them.

But, the BitCoin “asset pool” is a Derivative Market where the coins themselves are ALSO THE DERIVATIVE, and are only worth their FUTURE (not current), highly volatile gambling-derivative market value, an hour from now. This derivative market also suffers from the underlying "pyramid pressures" where a few Bitcoin-flush “somebodies” got (or feel they deserve) a lot of something for little and are unafraid to go in hard after that something whenever the grass starts looking a bit greener.

Meanwhile the Bitcoin buyers are merely holding a derivative of it’s former owner’s withdrawal from the asset-exchange system. The only thing that keeps it's value-growth expanding are the "buy and holders" who don’t (and can’t really) spend their derivatives anywhere save by cashing them in, or by patiently selling them (at some break even or gain) to newbies or other speculators, so as not to tip the applecart.

The corollary is that despite there being no central boardroom-socialist banksters, the more aggressive BitCoin Pharaohs can (must and do) still take every opportunity to devalue “our” currency, and they are not alone, as other enemies can come in with worthless cash that costs them nothing to feed speculative bubbles and then dump too, to devalue the currency and discredit us..

Bitcoin will never work, regardless of it’s value-transfer utility, if they cannot stabilize the price of it. If nobody can guarantee what it will be worth in the next ten minutes nobody can afford to lend, contract, price, nor comfortably and safely wait the hour it takes to transfer, be paid in or even to spend it.

I was about halfway through your post when I realized that you weren't actually saying anything.  Safe to say that "philosopher" under your name is an actual academic thing, and not just a self assessment?

While it may be cute to try to confuse the "fiat" phenomenons of devalued/overvalued Monetary Inflation/Deflation with the "hard" phenomenons of Commodity-Resource Inflation/Deflation, there really can be no confusion and there is little room for any notion of marginal "Price Inflation" save within the context of the introductory Marketing Pyramid of a new Commodity-Resource, Item or Product.

When the first entrepreneur discovered salt, oil or gold for instance, they likely had no idea of the intrinsic-value, utility-value or exchange-values of them. In most all of these cases, the lucky dudes named Sitoshi brought some of their new "intrinsic curiosity" back to the encampment, and noticed their pals also had a curiosity about it, so he promptly gave them some in exchange for a few extra cups of their grog and went back a day or two later to the place he found that for more, to continue his enterprise. He did this because he was made drunkenly aware that this new "common curiosity" of his seemed to have both an intrinsic(curiosity) and what remarkably seemed to be an exchange value!

Meanwhile his pals noticed that you could salt meat to keep it from spoiling and even use it to make other crud taste better or use oil to make wagon wheels move more smoothly or was easier to light for light or heat, others noticed the hottest chicks loved earrings and bangles made out of the yellow shiny stuff. This second echelon "second floor-down" of low price meddlers had developed or discovered that Sitoshi's kool new "commodity" resources had utility value, separate from their common intrinsic value that increased their (greatest and most desirable of all) "exchange value".

Owing to these new discoveries Sitoshi's small second floor-echelon of Sitoshi-Resource Pharoahs began to market their new wares as bagged salt, bottled torch fuel and bullion to make chick-magnet jewellery. Buzz and newly discovered utility values allowed third and fourth floor-down echelons to "Price Inflate" (discover) the same Sitoshi-Resources their wholesalers got for grog into hard assets they could sell for boats, tents and fancier rides for their shorties. Finally fifth and lower floor-down operators in the marketing pyramid's echelon really started to exploit even newer and better utility values leading the price discovery of their new commodity resources into becoming something closer to reaching for the most treasured and coveted crown of either being a utilitarian commodity resource of serious hard-asset exchange value, or just a too-rare "wealth itself". (eg: emeralds)

Of course all these things didn't happen at once because, in the pre-refrigerated ancient world, salt (in high demand) was the first well known and widely traded form of a widely accepted Medium of Labour Exchange Currency (aka "money"). Indeed the further it had to be conveyed to deliver it, the more it's intrinsic value was "Price Inflated".

Salt worked as a "money" only so long as it retained it's aura as a rarity of constantly assured value. Salt's price-demise (Price Deflation)  as a currency no doubt came about with the invention of the Sauna bath where people suddenly became aware it was as common as sea water.

While one might find some reason to create the confusion of calling it "price inflation or deflation", most of us properly define those phenomenon as "Price Discovery". Unforeseeable, unpredictable, undesirable and nasty, "behind your back" economic fluctuations caused by Monetary "Inflation or Deflation" are the only "flationy" bubble-type things that everybody always cares about remedying.

There are three echelons of commodity resource values:

The top floor is occupied by Mediums of Labour Exchange Currency of Assured Value
The second floor is occupied by extreme rarities like gems, art, antiques and (lesser) precious metals or Mediums of Savings
The bottom floor is occupied by all other (finite or not-so) commodity resources which are Mediums of Investment

The top floor occupants must struggle to retain their tokens value to save everyone from starving to death.
The second floor contains rare and finite things certainly assured to only ever inflate in value
The bottom floor contains stuff that may inflate or deflate in value, it's a circus of games we call an economy.

The seeming "price inflation" of "finite" Mediums of Savings ("hard" assets) are the direct and unavoidable arithmetic consequence of "infinite" (or at least much less finite) economic growth.

Nowadays individual commodity resource "price inflation/deflations" are minute and relatively insignificant components of all large economic pictures, save in the area of marginal profitability and comparative advantage analysis. There's nothing anyone can really do about them, they come and go, they have to exist.


Bitcoin is a "fiat asset" it is not a "hard asset".

The Fiat Bitcoin "Bitchain-Securitized Bitcoin Futures Derivative Contract Token" has only a small actual intrinsic value owing largely to the novelty and curiosity of it's uniquely secured residence in the secured encrypted exchange-chain in which it only functions and resides. It also has utility value in the way it's easy to conceal, easy to transport, impossible to counterfeit, is mutually owned and profited from buy all of it's users alone and hopefully (more so in the future) requires no third party to use as a barely somewhat viable "medium of Byzantine-exchanges".

It's utilitarian value is only that of a contract-token of the past value of the last transaction in which it was involved where it's former owner, by mutually agreed upon "fiat", made off with the asset value of it's current owner. It still has no value other than in the mind of it's current contract owner who bought it's "futures contract" in hopes of getting and making off with an equal or greater asset value for it's possession in the future, when he trades it in (for another fiat labour exchange currency) or "exchanges" it some other product or service.

The reason it's grossly unstable "fiat price" (intrinsic+utilitarian+exchange value) changes so radically, nonsensically and foolishly with such suicidal volatility is because it is abused by it's supposed "promoters" as if it were "somebody else's" penny-stock, ideal for speculators to "play" by "penny stock marketeering" trading-speculation "exchanges" who think they are Wall St.

---

I'll get to your second and third comments in a bit  

Excellent thread. You can't find that kind of information in your TV especially 1st page of this thread was very cool. When will the next round begin on this battle: Keynesian v Libertarian?

So if bitcoin in spite of high volatility generally has an upward price, then it acts like a savings account with an actual interest rate?  To be competitive with savings in bitcoin, how would the US$ need to change?

It'd need to have an interest rate, right?

But then the US government could not begin to pay interest on it's debt. 

And so here we are...

I look forward to learning more about the market, that examines its underlying "nature." All very intriguing. It seems at first glance there is something "deep". I am watching the ocean and observed that the markets unfolded quite similiarly to stocks.

Excellent posts btw OP

Edit: That being said, there is a SET DECREASE in the generation rate of BTC, so you have sort of a "deflationary effect" in the value, as long as more exchange occurs for BTC at a rate which is faster than that set generation rate.

I just realised what you meant by that And people think it's price is spiking now, this will be most enjoyable to watch

Hopefully one day I will understand more about all this.  It's a lot to take in and I just found out about Litecoin last night, which adds to the pile.  Why didn't I pay more attention when it came to economics....that's right, I went to public school, it wouldn't have mattered. 

Marking for later lurking, rl calls....loudly.

i`m also considering litecoin since bitcoins difficulty will skyrocket, hence some people will move to litecoin and therefor increasing its value

Thanks everyone!!!! ... I didn't realize that other chains of Bitcoin were already starting to have success until I joined this discussion and saw there were so many other cryptos already.  Then I researched it and found Litecoin in the nick of time ... it doubled last night into this morning!!! Yaayyyyy

Wow, if you haven't tried it yet, BTC-e.com is a sweet site for trading BTC and LTC (litecoin).  It's a great hedge on BTC drops.  Whenever there is a selloff on mtgox BTC/USD ... you actually have time to react and sell any LTC you've accumulated for BTC.  Then, you just buy back some LTC when ever things settle back to normal.  Sometimes when BTC surges, then you can get a good deal on LTC to do it all again.   I'm just dabbling, but I earned 11 BTC trading like this last week.




"The only tweak I'd love to see would be a massive increase in block generation rate. I want lower difficulty, more blocks (like one ever 30 seconds or per min), the linking of transaction fees to both 'size of tx' and 'difficulty' along with an proportional decrease in the block reward. IMO this has to happen soon and really should be the focus of the devs (or at the very least the foundation) for the simple fact that if we can't service potential transactions we're placing a very real barrier to adoption. I'd love to see 10 confirmations take only 5 mins - lets really focus on exploiting the tech available instead of just saying "it's already way faster than a wire transfer' - because what we really need is for a vendor to be able to take a payment a point of sale - wait 30 seconds and know that it's paid."

I agree completely...

Have you looked at Litecoin yet?