The piece of paper that the dollar is printed on is real. The dollar itself is more than the paper it's printed on similar to how a bitcoin is more than just the electrons used to store it in a computer. The electrons are real physical particles, but a bitcoin is virtual.
(Good) counterfeit dollars, on the other hand, really are no different from non-counterfeit dollars. Sometimes they're even made with the same materials and equipment. The difference is all in whether whoever made the dollars had authorization to do so, not in the dollars themselves.
The fact that we consider unapproved dollars to be counterfeit even when they are basically identical is evidence that dollars are not physical. There is no such thing as counterfeit gold that is identical to real gold. If you find a way to make gold (e.g. alchemy), your gold is just as valid as any other gold.
Physical dollars are no different than virtual dollars, and you have to trust that it is not counterfeit. I said it was simpler not better. It is certainly simpler to have trust than to be diligent about security.
A credit crunch is the reduction in availability of loans, not the reduction in willingness to borrow money. In a free market, less people borrowing money would mean a smaller supply of investment opportunities and more competition for the people that still want to borrow leading to lower interest rates. The lower interest rates might spur more borrowing, so the interest rate will actually just reach an equilibrium point based on the supply and demand for borrowers.
My point was that you don't have to make the illicit look legal, because the government can't stop your transactions, similar to the way that the government can't stop a cash transaction. In many ways it's better than laundering money, because you can't have your accounts frozen when/if you are found out. Anonimity is good, but it's good because it allows you to keep doing whatever you want to do. Bitcoin allows you to do what you want to do even without anonymity *and* it provides a higher degree of anonymity than regular bank accounts, though probably not as much anonymity as cash.
Whats the difference between giving a guy $300 in an alley for some drugs, or using a phone to transfer 1 bitcoin from a wallet to another wallet right before a guy in an alley verifies that this wallet received a bitcoin and gives you some drugs?
So you are saying that the welfare family who buys more luxury items than the responsible family next door actually *can* afford all those items, but they are unnecessarily and irresponsibly going into debt to get those items now rather than later?
This example is quickly making less and less sense.
we have a reliable computing infrastructure for trading bitcoins dollars and gold. The security provided by bitcoin whatever it's shortcomings is more than the security provided by the dollar or gold (which is none). Banks and governments provided security to compensate for the lack of security inherent in these currencies, but they could do this for bitcoin as well.
Why would we want to fall back to a currency whose main benefit is that it will still work in a limited way if all the computers in the world stopped working, until/if that actually happens?
How do you show that someone owns a bitcoin wallet? Anyone could own a bitcoin wallet if they know the private key. How do you prove a person is the only person who knows a particular number?
The laundered bitcoins are not on one guilty person's computer, they are on everyone's computer. The knowledge of the private key is hard to prove if you take the right precautions.
Of course a country that tolerates convicting people with slim evidence are free to punish whoever they want, but those countries usually punish mostly poor minorities anyway.
Deposit insurance isn't a property of currency, it's a property of a bank. There is no reason that a government couldn't decide to insure bitcoin deposits, even if they don't currently.
You can buy physical bitcoins if you want something simpler, just like you can get physical dollars if you don't want to deal with complexity of virtual dollars. Or if you want something even simpler you can go back to bartering, or just farming your own food.
Wealth is more than just the number of dollars you ave in the bank. We absolutely have economic growth even with our debt. Look at all the stuff we have (e.g. cars, food, video games, televisions cell phones, roads, bridges, trains, airplanes, etc). And we have one more thing that Ugandans don't have: the ability to pay back most of the debt that allowed us to get all that stuff.
If you're definition of wealth means that Ugandans are more wealthy than Americans, then I want to be poor.
Yes, if the deflation rate exceeds market interest rates, this would be a problem. But this is true of any currency of this sort, not just bitcoin. It would be true of gold if gold deflated that much.
Why isn't anyone scared of this type of death spiral of high demand causing deflation causing high demand, etc, for gold? Whats the difference?
You are assuming that the interest rate for an inflationary and a deflationary currency will be the same, but when people calculate long term interest rates, they factor in estimated inflation. If they would factor in estimated deflation instead, then the interest rate would be lower to compensate.
Imagine if I had to pay back a loan in gold rather than dollars. If we predicted that gold prices were going to go up relative to the dollar, then my gold interest rate would be lower than my dollar interest rate.
Medical Doctor: For fun why don't you run though the following scenario. You have 500k in your bank account. You could invest that plus 12 years of your life to become a doctor who earns 200k a year before the deflationary event or you could run a restaurant and earn 50k right now. First, what is the better deal? Second, why should you invest in long term assets – such as education, plant, equipment, whatever – when sitting on cash offers a much higher, safer return?
Presumably the deflation rate would be low enough that sitting on a pile of bitcoins is not the best investment you could make for yourself. For instance people nowadays don't forgo their education to work at a restaurant in order to invest 50K in gold per year, even though gold deflates, because it deflates too slowly for this to be a wise decision.
That's good news. Ignorance is easily fixed. If you can't find the subjects I referenced on the internet I would suggest Kahneman's Thinking, Fast and Slow or Gladwell's Blink. There pop science books but it's a place to start.
I guess I should have said "I don't find this question interesting". If it is true, then the solution could be to simply show the number on your paycheck in different units (e.g. $) to ensure it is always going up. If it is false, then we don;t need to do anything.
I do however suspect that the human brain can deal with deflation just fine. I get my 401K statement, and it shows that the amount of stocks that my contribution can buy is going down. This is because my salary has sort of plateaued and the stock prices have been rising, yet I remain untraumatized, and I suspect I am not alone. If I ever feel a little traumatized, I can look at the other number which shows how much money I am contributing rather than how many shares this money can buy.
Incidentally I actually acquired Blink a few months ago, but I just haven't had a chance to read it yet.
Banks, which have more cash assets then cash debits, make off like a bandit. Farmers, who have little cash assets, lots of real assets, and lots of debt, get crushed.
This doesn't mean that this is the reason banks are doing better financially than farmers, this could just be a correlation. There are lots of other differences between these 2 groups. I could say that financial success is due to owning suits, but this would just be a correlation.
Just to throw out a more plausible explanation. Banks are doing better, because their services require a higher degree of education and are therefore in higher demand relative to their supply. You can become a farmer with almost no formal education. There are not many farmers, but they are able to produce so much that demand is low relative to the supply they create.
Our brains can better handle 100% inflation then 50% deflation.
First of all, people are not happy accepting large salary increases in an environment of rampant inflation. This is an empirical fact. Can a human brain deal with deflation without psychological trauma? I have no idea. What I am saying is that if that is true, all you need to do is give out paychecks show a different number than the number of bitcoin. They could show the US dollar equivalent or the number of loaves of bread that you can buy, etc. This is no different than the trauma I might feel if my current paycheck showed the equivalent ounces in gold I could buy. So just don;t show that. Show whatever the most psychologically pleasing number is if you want.
You do the same thing as for US dollars. When calculating long term loans, the banks estimate the level of inflation and factor that in to the interest rate. With a deflationary currency the same principle would hold. You estimate the amount of deflation (in terms of something like loaves of bread, or oil, or however anyone estimates inflation/deflation) and you factor that into the interest rate.
With a deflationary currency, the interests rates of loans would be lower than with an inflationary currency.
Loaves of bread aren't a good currency because they are consumables and they expire. The value of currency is based on how much stuff you can get with the currency. This is true of dollars and bitcoins.
Somewhere in the thread I conceded that bitcoin does deflate significantly once we near the 21 million cap, but propose that it's effect is insignificant now, and will not be a problem later when it is significant.
Even if you demand less, people are pretty spiteful. If I try to blackmail a rich person for $100, so that he can avoid losing $1000, he is going to hire ivan for $10,000 just to make sure I never try something like this again.
The value of gold and platinum due to their utility other than as currency is insignificant [i.e. not zero]. In fact part of what makes them such good currency candidates is their [relative] lack of utility.
Inflation just does the reverse, hurting the wealth and helping the indebted.
Except that the wealthy have also borrowed a bunch of money (e.g. mortgages on mansions, etc), and often poor people aren't allowed to borrow money due to bad credit scores. The most indebted people are "rich" people.
I'm not saying inflation hurts the poor, but it doesn't help the poor.
Second, humans brains are just not wired that way. If I told you that you were doing a great job so I am only going to cut your pay by 45% - which in effect is a 10% raise – how would you feel?
Well if I convert my salary into ounces of gold, my salary has been going down. If I count my salary in terms of what I can buy with it, it is still going up (due to raises) but it would be going down if my salary stayed the same. Are people forever doomed to value their salary based on the number that shows up on their check? I suspect this wouldn't work in an environment of rampant inflation, so hopefully people could get used to an environment of deflation as well.
I don't think the deflation is something our brain can;t process, I think our brains just take time to get used to something new. For the real traditionalists, you can request your paycheck in an inflating currency like dollars, feel good about the high number, and then use the dollars to buy a non-inflating currency like gold or bitcoin.
That's assuming contracts ignore fluctuating currency values, and that these values are very volatile. Otherwise you could simply build these facts into the contract. I'm sure contracts that last a long time nowadays account for inflation. Part of the reason my mortgage is so high is because the banks know that the dollar will be worth less later. I am sure it would be possible to a smaller mortgage now if the banks were allowed to raise my mortgage costs to account for inflation.
Slashdot Mirror
The piece of paper that the dollar is printed on is real. The dollar itself is more than the paper it's printed on similar to how a bitcoin is more than just the electrons used to store it in a computer. The electrons are real physical particles, but a bitcoin is virtual.
(Good) counterfeit dollars, on the other hand, really are no different from non-counterfeit dollars. Sometimes they're even made with the same materials and equipment. The difference is all in whether whoever made the dollars had authorization to do so, not in the dollars themselves.
The fact that we consider unapproved dollars to be counterfeit even when they are basically identical is evidence that dollars are not physical. There is no such thing as counterfeit gold that is identical to real gold. If you find a way to make gold (e.g. alchemy), your gold is just as valid as any other gold.
Physical dollars are no different than virtual dollars, and you have to trust that it is not counterfeit. I said it was simpler not better. It is certainly simpler to have trust than to be diligent about security.
A credit crunch is the reduction in availability of loans, not the reduction in willingness to borrow money. In a free market, less people borrowing money would mean a smaller supply of investment opportunities and more competition for the people that still want to borrow leading to lower interest rates. The lower interest rates might spur more borrowing, so the interest rate will actually just reach an equilibrium point based on the supply and demand for borrowers.
I don;t see what this has to do with anything.
My point was that you don't have to make the illicit look legal, because the government can't stop your transactions, similar to the way that the government can't stop a cash transaction. In many ways it's better than laundering money, because you can't have your accounts frozen when/if you are found out. Anonimity is good, but it's good because it allows you to keep doing whatever you want to do. Bitcoin allows you to do what you want to do even without anonymity *and* it provides a higher degree of anonymity than regular bank accounts, though probably not as much anonymity as cash.
Whats the difference between giving a guy $300 in an alley for some drugs, or using a phone to transfer 1 bitcoin from a wallet to another wallet right before a guy in an alley verifies that this wallet received a bitcoin and gives you some drugs?
So you are saying that the welfare family who buys more luxury items than the responsible family next door actually *can* afford all those items, but they are unnecessarily and irresponsibly going into debt to get those items now rather than later?
This example is quickly making less and less sense.
we have a reliable computing infrastructure for trading bitcoins dollars and gold. The security provided by bitcoin whatever it's shortcomings is more than the security provided by the dollar or gold (which is none). Banks and governments provided security to compensate for the lack of security inherent in these currencies, but they could do this for bitcoin as well.
Why would we want to fall back to a currency whose main benefit is that it will still work in a limited way if all the computers in the world stopped working, until/if that actually happens?
Only about 30% of our debt is to foreign countries, the rest is internal debt.
Our per American is about $53K, and only about $4K of that is to china.
So my question to you is this...
Why is china giving us credit we can't ever hope to pay off? Are they stupid?
It's not like credit card companies make tons of money by giving tons of credit to people on welfare to big big TVs.
How do you show that someone owns a bitcoin wallet? Anyone could own a bitcoin wallet if they know the private key. How do you prove a person is the only person who knows a particular number?
The laundered bitcoins are not on one guilty person's computer, they are on everyone's computer. The knowledge of the private key is hard to prove if you take the right precautions.
Of course a country that tolerates convicting people with slim evidence are free to punish whoever they want, but those countries usually punish mostly poor minorities anyway.
Deposit insurance isn't a property of currency, it's a property of a bank. There is no reason that a government couldn't decide to insure bitcoin deposits, even if they don't currently.
You can buy physical bitcoins if you want something simpler, just like you can get physical dollars if you don't want to deal with complexity of virtual dollars. Or if you want something even simpler you can go back to bartering, or just farming your own food.
What about information? Knowing better ways of converting matter/energy states into other desirable states surely makes us more wealthy.
Wealth is more than just the number of dollars you ave in the bank. We absolutely have economic growth even with our debt. Look at all the stuff we have (e.g. cars, food, video games, televisions cell phones, roads, bridges, trains, airplanes, etc). And we have one more thing that Ugandans don't have: the ability to pay back most of the debt that allowed us to get all that stuff.
If you're definition of wealth means that Ugandans are more wealthy than Americans, then I want to be poor.
A gold bar doesn't represent anything of value either. It, like the dollar, is only valuable because we all agree it's valuable.
Yes, if the deflation rate exceeds market interest rates, this would be a problem. But this is true of any currency of this sort, not just bitcoin. It would be true of gold if gold deflated that much.
Why isn't anyone scared of this type of death spiral of high demand causing deflation causing high demand, etc, for gold? Whats the difference?
You are assuming that the interest rate for an inflationary and a deflationary currency will be the same, but when people calculate long term interest rates, they factor in estimated inflation. If they would factor in estimated deflation instead, then the interest rate would be lower to compensate.
Imagine if I had to pay back a loan in gold rather than dollars. If we predicted that gold prices were going to go up relative to the dollar, then my gold interest rate would be lower than my dollar interest rate.
Medical Doctor: For fun why don't you run though the following scenario. You have 500k in your bank account. You could invest that plus 12 years of your life to become a doctor who earns 200k a year before the deflationary event or you could run a restaurant and earn 50k right now. First, what is the better deal? Second, why should you invest in long term assets – such as education, plant, equipment, whatever – when sitting on cash offers a much higher, safer return?
Presumably the deflation rate would be low enough that sitting on a pile of bitcoins is not the best investment you could make for yourself. For instance people nowadays don't forgo their education to work at a restaurant in order to invest 50K in gold per year, even though gold deflates, because it deflates too slowly for this to be a wise decision.
That's good news. Ignorance is easily fixed. If you can't find the subjects I referenced on the internet I would suggest Kahneman's Thinking, Fast and Slow or Gladwell's Blink. There pop science books but it's a place to start.
I guess I should have said "I don't find this question interesting". If it is true, then the solution could be to simply show the number on your paycheck in different units (e.g. $) to ensure it is always going up. If it is false, then we don;t need to do anything.
I do however suspect that the human brain can deal with deflation just fine. I get my 401K statement, and it shows that the amount of stocks that my contribution can buy is going down. This is because my salary has sort of plateaued and the stock prices have been rising, yet I remain untraumatized, and I suspect I am not alone. If I ever feel a little traumatized, I can look at the other number which shows how much money I am contributing rather than how many shares this money can buy.
Incidentally I actually acquired Blink a few months ago, but I just haven't had a chance to read it yet.
From like 2004 to 2011 I had a phone that I had to bend in half to answer.
Banks, which have more cash assets then cash debits, make off like a bandit. Farmers, who have little cash assets, lots of real assets, and lots of debt, get crushed.
This doesn't mean that this is the reason banks are doing better financially than farmers, this could just be a correlation. There are lots of other differences between these 2 groups. I could say that financial success is due to owning suits, but this would just be a correlation.
Just to throw out a more plausible explanation. Banks are doing better, because their services require a higher degree of education and are therefore in higher demand relative to their supply. You can become a farmer with almost no formal education. There are not many farmers, but they are able to produce so much that demand is low relative to the supply they create.
Our brains can better handle 100% inflation then 50% deflation.
First of all, people are not happy accepting large salary increases in an environment of rampant inflation. This is an empirical fact. Can a human brain deal with deflation without psychological trauma? I have no idea. What I am saying is that if that is true, all you need to do is give out paychecks show a different number than the number of bitcoin. They could show the US dollar equivalent or the number of loaves of bread that you can buy, etc. This is no different than the trauma I might feel if my current paycheck showed the equivalent ounces in gold I could buy. So just don;t show that. Show whatever the most psychologically pleasing number is if you want.
You do the same thing as for US dollars. When calculating long term loans, the banks estimate the level of inflation and factor that in to the interest rate. With a deflationary currency the same principle would hold. You estimate the amount of deflation (in terms of something like loaves of bread, or oil, or however anyone estimates inflation/deflation) and you factor that into the interest rate.
With a deflationary currency, the interests rates of loans would be lower than with an inflationary currency.
Loaves of bread aren't a good currency because they are consumables and they expire. The value of currency is based on how much stuff you can get with the currency. This is true of dollars and bitcoins.
Somewhere in the thread I conceded that bitcoin does deflate significantly once we near the 21 million cap, but propose that it's effect is insignificant now, and will not be a problem later when it is significant.
Even if you demand less, people are pretty spiteful. If I try to blackmail a rich person for $100, so that he can avoid losing $1000, he is going to hire ivan for $10,000 just to make sure I never try something like this again.
The value of gold and platinum due to their utility other than as currency is insignificant [i.e. not zero]. In fact part of what makes them such good currency candidates is their [relative] lack of utility.
Inflation just does the reverse, hurting the wealth and helping the indebted.
Except that the wealthy have also borrowed a bunch of money (e.g. mortgages on mansions, etc), and often poor people aren't allowed to borrow money due to bad credit scores. The most indebted people are "rich" people.
I'm not saying inflation hurts the poor, but it doesn't help the poor.
Second, humans brains are just not wired that way. If I told you that you were doing a great job so I am only going to cut your pay by 45% - which in effect is a 10% raise – how would you feel?
Well if I convert my salary into ounces of gold, my salary has been going down. If I count my salary in terms of what I can buy with it, it is still going up (due to raises) but it would be going down if my salary stayed the same. Are people forever doomed to value their salary based on the number that shows up on their check? I suspect this wouldn't work in an environment of rampant inflation, so hopefully people could get used to an environment of deflation as well.
I don't think the deflation is something our brain can;t process, I think our brains just take time to get used to something new. For the real traditionalists, you can request your paycheck in an inflating currency like dollars, feel good about the high number, and then use the dollars to buy a non-inflating currency like gold or bitcoin.
That's assuming contracts ignore fluctuating currency values, and that these values are very volatile. Otherwise you could simply build these facts into the contract. I'm sure contracts that last a long time nowadays account for inflation. Part of the reason my mortgage is so high is because the banks know that the dollar will be worth less later. I am sure it would be possible to a smaller mortgage now if the banks were allowed to raise my mortgage costs to account for inflation.
BTW deflation is the opposite of inflation... With deflation, the currency is worth more.