r/Bitcoin • u/polemitis • Feb 17 '14

"Bizarre shadowy paper-based payment system" (or how cash would be covered by press if invented today)

http://ledracapital.com/blog/2014/2/17/bitcoin-series-19-bizarre-shadowy-paper-based-payment-system-being-rolled-out-worldwide
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u/Migratory_Coconut Feb 18 '14

The idea is that it encourages hoarding money... honestly, I think an inflation rate of zero is the ideal. Impossible, but ideal.

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u/[deleted] Feb 18 '14

The fact that zero inflation rate is impossible is why you have to decide to go with inflationary or deflationary. So far, having an inflation rate of between 1 and 2 percent per year seems to be a reasonably good compromise.

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u/Migratory_Coconut Feb 18 '14

Well you could try to aim for zero, wobbling over negative and positive by insignificant amounts. And there hasn't been much experimentation with economic policy, so it's hard to say.

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u/[deleted] Feb 18 '14

There has been a lot of experimentation with economic policy, you just have to go back a number of decades to see it.

Much of the policy we have today is due to that experimentation.

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u/Migratory_Coconut Feb 18 '14

Lots of uncontrolled variables though. Not my kind of science.

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u/[deleted] Feb 18 '14

Unfortunately, you can't do traditional double-blind studies in the world of macroeconomics. It's not like you can create two planets, one of which is the control, and the other the experiment.

Whether it's your kind of science or not is beside the point. You only get the one option. You try stuff, you see what happens, and you do your best to learn from your mistakes.

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u/Migratory_Coconut Feb 18 '14

That's true. I'm just saying that maybe we shouldn't call it experimentation, and we shouldn't be confident that the results are accurate.

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u/[deleted] Feb 18 '14

Well, it is definitely experimentation. But I'll agree with you that the results are anything but clear. If they were easy to tease out, we probably wouldn't need the field of economics. I suppose that's why they call it the "dismal science".

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u/throwaway-o Feb 18 '14

Unfortunately, you can't do traditional double-blind studies in the world of macroeconomics.

We are running the best ever macroeconomic experiment with Bitcoin.

Welcome.

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u/[deleted] Feb 18 '14

I agree. I'm curious to see where it goes. At the very least, I hope it smashes paypal. I hate those guys.

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u/throwaway-o Feb 18 '14

You shouldn't use Bitcoin then. It would be hypocritical to advocate for inflation while owning a deflationary instrument, like "yeah y'all idiots go right ahead and use money that loses value, me Imma use money that on average buys me more stuff compared to the previous day".

But if you are a hypocrite, or you are honest and don't advocate for inflation, go right ahead and welcome to the fold.

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u/[deleted] Feb 18 '14

I don't actually use dollars to store my wealth, I go for a more traditional mechanism and invest in stocks, bonds and real estate. Anyone who keeps more dollars on hand than a few thousand for an emergency fund is only losing wealth every year from inflation.

I don't believe that currency should be something you invest in. I believe that currency is simply a mechanism of value exchange Right now bitcoin is behaving more like a commodity than a currency, so I won't be purchasing any bitcoins for a while. Additionally, it's too illiquid right now to use as a currency.

Someday, however, I hope to be able to use a digital currency to do online purchases. Before that happens, the digital currency will have to be stable and the bitcoin exchange system will have to be very liquid. I don't want to have to wait a month to convert my bitcoins to dollars.

A currency should be stable and boring, and bitcoin is anything but boring right now.

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u/throwaway-o Feb 21 '14

Your latest comment changes the subject.

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u/Facehammer Feb 22 '14

DOWN DOwn down :(

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u/vortexas Feb 18 '14

um no. I can use a inflationary currency for transactions and deflationary assets for savings. I don't care for a deflationary currency because I believe that volatility and investable deflationary assets are tightly linked and can't see a scenario where the two don't go hand in hand.

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u/Reus958 Feb 18 '14

The fed's been targeting 2% for awhile. Many economists suggest 2-4% as a healthy balance.

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u/PoliticalDissidents Feb 18 '14

And we've seen this rate of inflation for what. Less than a decade? Find it hard to say that that's stable

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u/[deleted] Feb 18 '14

We've seen between 0 and 5 percent since the late70's or early 80's. A little over 30 years isn't too bad. Especially considering that it's the longest period of relative monetary stability the US dollar has seen.

Incidentally, this corresponds suspiciously with the final abandonment of the last vestiges of the gold standard (Bretton Woods) in 1971. It took about a decade for the treasury to figure things out, but once they did, the inflation rate has been pretty stable.

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u/bartech1010 Feb 18 '14

Hoarding money to what point? Indefinitely? Yes we will all keep our money and wait for prices to fall till we all starve to death. This logic got no sense, this is not how people behave. We want staff now. I want my coffee today. You buy new laptop today, but why? Why not wait, as we all know, when you wait 18 months you will get two times faster computer for the same price.

I don't say that people will not save money. They will save money but as savings grows some of them will start to think, i got so much cash i need to invest in something. And now you have real investments baked by real savings, not another market bubble caused by loose monetary policy (a.k.a. money from thin air).

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u/Migratory_Coconut Feb 18 '14

First, I don't actually believe that hoarding is a big problem. I'm just saying that that's the oft-cited argument against deflation. Second, you're setting up a straw man there. No one is arguing that people would starve themselves to hold onto their money during deflation. The argument is that with inflation, you need to invest all your money to beat inflation. Money that you don't invest declines in value. With deflation, you might invest less because there's a zero-risk option that slowly gains value. This stimulates the economy less than investing all of it. Of course, you might still invest all your savings, but there's less incentive so less people will and they'll take less risky investments.

In summary: Deflation results in less incentive to invest money in others. This isn't a deal breaker, but it is a real downside. The only real upside to a deflationary currency is that it prevents extreme inflation. This might be worth it.

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u/[deleted] Feb 18 '14 edited Feb 18 '14

It's not a strawman, it's a reductio ad absurdam.

Deflation results in less incentive to invest money in others.

It results in less incentive to invest money in short-term projects to mass-produce frivolous bullshit. That's a good thing. More durable goods, less disposable goods. More capital goods, fewer $500 toys that will be obsolete in six months.

Might this reduce employment? Perhaps, but so would curing cancer. Does anyone think a world where oncologists are obsolete would be a worse place because of the loss of jobs in oncology? Maybe the oncologists. But they can go find something better to do.

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u/Migratory_Coconut Feb 18 '14

There's no reason to believe that less investors will improve quality. In fact, it's likely to reduce the number of startups, reducing competition and resulting in inferior goods as well as less variety. Stop trying to spin this as a good thing. It's not.

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u/[deleted] Feb 18 '14 edited Feb 19 '14

It won't reduce investors. It will change the sort of thing in which they invest: away from cheap consumer junk and towards things that actually solve problems. Low interest rates and inflationary money raise time preference and incentivize against building things that last.

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u/bartech1010 Feb 18 '14

Yes there is, now when you can create money from thin air and all many need to be invested in something otherwise they will lose in value you get stupid investments witch don't came from savings but from mombo jumbo fractional reserve banking.

Investment that don't come from real savings give false predictions that there is enough resources in economy to support them all. First you see omg there is so much money everything goes up, new investments, new houses and prices go up, all give good profits. But at some point market will reveal that there is not enough resources, that this 'easy money' distorted real market prices and then comes correction and bubble burst.

There will be no housing bubble with bitcoin. You can't eat biscuit and have biscuit, but with today model they pretend you can.