Topic: The fiat experiment: Stopping time - page 2. (Read 5577 times)

There is no significant inflation because the money distribution is extremely unbalanced: FED printed 4x more money but did not cause 4x rise in everything's price, simply because banks hold majority of those money and save them back at FED as reserve

Banks get themselves 100 dollars and spend only 1 dollar to make sure there is no inflation. Their first priority is to keep the inflation in check, not helping the economy. The amount of money in circulation purely depends on a few people's action, they become extremely rich after financial crisis, but a few of them spending a couple of million dollars buying luxury things won't help the economy at all

Same thing could happen in bitcoin, if majority of miners hold their coin, they will create heavy deflation and raise the exchange rate of bitcoin, if they start to spend, they will increase the money in circulation. Although there are lots of miners decide the money in circulation, their action can be highly identical in a crisis

I'm with you on not fully understanding the goals or methods being implemented. My guess is that we were treating a symptom of a problem instead of the problem. We reached a point where banks were going to be insolvent, leading to financial collapse. What's the solution to this? Get more money in those banks! I don't think this addresses the real problem at all, and actually creates a bigger monster.

I have been struggling to understand how and why the broader measures of the money supply have been more or less constant despite the dramatic increase in monetary base shown in the figure. According to the econtalk podcast with Steve Hanks, it has something to do with Basel III which (by my cursory knowledge of the subject) increased capital reserve requirements on banks. So, if I understand correctly, and I'm not sure I do, it means that the 2 Trillion USD printed (metaphorically speaking, since most of it is held electronically) since 2007 just sits there and does nothing other than satisfy Basel III requirements.

What I don't understand is why the powers-that-be would implement the above strategy. From their perspective, what's the point of printing money and then requiring it to sit there doing nothing in bank vaults? I think I'm missing something key. But I am thinking that if inflation got started, then banks would want to convert all those excess USD into some other asset, which would stimulate inflation, which would make them want to dump their USD even faster, and suddenly you have massive inflation coming out of nowhere and catching everybody (except the architects of the system) by surprise. It creates in my mind the image of a slingshot that is getting poised to go off.

But like I said, I think I am missing something. Why would the powers that be set this system up? The first reason that comes to my mind is that it's a big payoff to the banks, who surely spread the money around to their friends. But if this is the story, then my question becomes: why now?

Where will we look to determine the rate of inflation or hyper-inflation? What are the signs? The first sign is deflation. The economy slows and money must be injected to maintain momentum. The graph above is a pretty good indicator that we're doing that, and like aminorex said before, it's pretty impressive that it's been done in such a way as to maintain a relatively stable rate of inflation, from the consumer point of view.

The price of gold and other commodities. Going down? Surely we can't be in a period of inflation. This could either be a reflection of the deflation we're in (per above chart) or manipulation, depending on which theory you subscribe to. Either one has the same conclusion, I think.

Hyperinflation will kick in when the economy recovers it's momentum, i.e., if QE actually starts "working" and this glut of wealth "trickles down" to consumers. You can see how this would happen quickly, and uncontrollably, as the money has already been in the system for some time, therefore there won't be any "warning signs" for the average Joe to begin hedging.

There is an interesting podcast of Econtalk that is focused on hyperinflation.

http://www.econtalk.org/archives/2012/10/hanke_on_hyperi.html

Summary of podcast:
"Steve Hanke of Johns Hopkins and the Cato Institute talks with EconTalk host Russ Roberts about hyperinflation and the U.S. fiscal situation. Hanke argues that despite the seemingly aggressive policies of the Federal Reserve over the last four years, there is currently little or no risk of serious inflation in the United States. His argument is that broad measures of the money supply lag well below their trend level. While high-powered reserves have indeed expanded dramatically, they have not increased sufficiently to offset reductions in bank money, in part because of requirements imposed by Basel III. So, the overall money supply, broadly defined, has fallen. Hanke does argue that the current fiscal path of the United States poses a serious threat to economic stability. The conversation closes with a discussion of hyperinflation in Iran--its causes and what might eventually happen as a result."

One of the interesting tidbits I picked up from this podcast is that there are, by his count, 57 examples of hyperinflation throughout history, defined as a rate of price increase that exceeds 50% in one month. (I'm not sure how long it has to stay above that threshhold to count.)

I think China turned negative because they don't want a bunch of millionaires who are not beholden to the princelings.

I think the Senate hearings were favorable because the foundation did a great PR offensive, and because no one wants to be the guy who killed the Internet (electric light, wheel, fire, polio vaccine, whatever) in commitee.

In the long-run neither will matter.

doesn't the political pathway fork at "fiat failure" and "world war"?

do you think the U.S. thus far is at least neutral if not slightly positive to Bitcoin because of the potential for fiat failure protection without war?  do you think this may have been one of the goals of bitcoin in the first place?

do you also think China is slightly below neutral because the pieces were aligning for reserve currency status transition to the yuen with military collaboration underway if/when the hard political fork draws closer?

serious questions.

fiat failures are not necessarily a good thing if they result in wars and acquisitions, see my thread on what i think would be an end-of-bitcoin historical event

https://bitcointalk.org/index.php?topic=413236.0;topicseen

unfortunately not quite.  implementation remains, and the transactions per block issue is fundamental, protocol forking.

There is no reason why Bitcoin QT (or it's replacement) has to download anything more than say the past 100,000 blocks. Prior blocks could be stores on supernodes which still do not have to be centralised.

Problem solved.

It has been suggested that bitcoin is useful for large transfers and reserve use, while alts and layered apps fulfill petty transactional use.  This would be analogous to the historical use of bimetal exchange.  I personally don't like that outcome.  It leads to political abuse and gaming, and is inefficient in many ways.  Certainly alts and layered apps will exist, but a great deal of the appeal of BTC is as a universal exchange vehicle.  Unless it adapts to fulfull those requirements, it will either be obsoleted by an alt or layered protocol which does, or we will fail to have a universal exchange medium.  I prefer a world in which bitcoin is dominant, in part because of personal stake, but also because I want my life simplified, not complicated, by crypto.

I would hope that the core devs would be motivated by stake alone to make BTC dominant.  That would strictly require either a fundamental change in the implementation or a fundamental innovation in layered protocols.  A centralized app is worse than nothing.  Of course the layered apps may not come from the core devs, but fundamental changes in the implementation would have to go that route.

Is anyone aware of an initiative to produce a layered protocol to deal with scalability problems?

Maybe not quite exponentially, but close, 3x during the last year versus 5x in 2012. At this rate it's going to be unusable in a couple of years, without major changes.
Those changes may have to decrease security, making the network somewhat vulnerable. It's probably a difficult problem to solve, and it's looming closer.

Further to my above post I suggest that if you are already wealthy from bitcoins, it would be appropriate to convert a portion of that bitcoin gains to hard assets, eg gold or silver which by any stretch is looking remarkably cheap at the moment. Bitcoins may yet have another bubble or two, and rise to even greater heights however in the end it will either be an unwanted unwieldy currency or it will be the money of the new world order and have morphed into a centralised network.

In the UK gold and silver sovereign coins are not subject to capital gains tax however silver does have VAT tax when you buy it! Which is the way the powers that be try to stop investors buying silver.

Who cares when your mortgage is reduced to pennies (in real terms). And we all know that bitcoin is also subject to capital gains tax.

If serious inflation arrives you will know about it.  If the price of gasoline suddenly doubles then pay attention.  If the price of bread doubles pay attention.  If the price of computers (measured in flops) doubles then run around screaming.

But futures indexes are piss poor predictors of the future (otherwise we would all be rich).  You can sit and draw lines on charts all day long and it means bugger all in the real world.  

If you really care about this write code that scrapes real time pricing data off websites for basic commodities and do your own real time inflation index.  Work with real data in real time not bullshit from gold bugs.  If you are good enough at it you can front run the Fed inflation figures and make your fortune that way.

Its a great opening post but I don't think bitcoins will fill that void. There is a flaw in bitcoins which is that the blockchain is increasing exponentially in size . So far it doesn't look like a problem but with compounding it will become a problem, that is certain and might hit sooner than we think. How it is going to be handled is not yet established! At the moment 14G is already a hassle, it takes days to sync with the blockchain. What when it is 14Terrabytes ? This will be too big for peer to peer decentralisation. More and more specialised bitcoin nodes will be needed or to put another way more and more centralisation of the bitcoin network. I'm on the bitcoin bandwagon for now as the profit potential is still there but this concern has bugged me for a while. I've yet to see a response that makes sense.  If I put a tinfoil hat on I might even think this has been a design feature that centralisation will eventually be required.

I am eager to learn what they have ground out.

I question the effectiveness of gold as a hedge against inflation.  For the past few decades it has been more of a hedge against negative real interest rates.  But anything so easily manipulated by unaligned interests does not feel very hedgey to me.  Base metals seem more hedgey.  Lead certainly, but Zinc and Steel as well.  Kyle "Nickels" Bass famously took an asymmetric tail hedge by buying $1mm in nickels, US 0.05 coins made with nickel. 

But an inflation hedge and a hyperinflation hedge are two very different creatures.

At first glance these do indeed seem like effective hedges against inflation, yet when you add capital gains tax to the mix, some of the wind is taken from the sails.

I'm fond of the notion that the best defense is a good offense.

Thanks for the rhetoric, aminorex.  You've really got the cogs spinning in my head this morning.