The consequences of Bitcoin

KyussBishop

Sure, there's no problem with people adopting Bitcoin if they want to; keep in mind though, that government can still ensure their fiat currency stays dominant, by using taxes denominated in the fiat currency (which generate enough demand to make the fiat currency dominant).

SupaNova2

KyussBishop wrote: »

Companies also do not get more bang for their buck, they get less, because when a company starts production on an item, they convert $ into materials for production which appreciate less in value than money, and they spend time and more money manufacturing, and then have to wait for a customer before selling the item.

I said they get more bang for their buck with profits. And your point with a little thought can be applied equally to problems of inflation.

KyussBishop

SupaNova2 wrote: »

I said they get more bang for their buck with profits. And your point with a little thought can be applied equally to problems of inflation.

Only if they hoard money, not spend/invest it. Also, prices are constantly falling in a deflationary system, and the longer it takes to go from spending $ for production, to selling the good for $, the greater the chunk of profits that are eaten into due to deflation (both from the initial $ being worth more if it were not spent, and the falling price the good is eventually sold for).

SupaNova2

KyussBishop wrote: »

Only if they hoard money, not spend/invest it. Also, prices are constantly falling in a deflationary system, and the longer it takes to go from spending $ for production, to selling the good for $, the greater the chunk of profits that are eaten into due to deflation (both from the initial $ being worth more if it were not spent, and the falling price the good is eventually sold for).

I'm sure anyone dumb enough to buy and hold raw materials for a couple of years before they start to produce wouldn't be around for long. And yes they do get more bang for their buck with profits, unless you are assuming no deflation in their input costs to make your point.

You will have to explain the second bolded part further?

If there is a trend of a falling price of a good, a company is hardly going to start out production expecting the current market price of the final good, they estimate the price they can sell the final product for, if its greater than their costs that is good enough for them. They deal with similar issue's in an inflationary environment, not only do sales for the final product have to be high enough to cover costs, but large enough to start the process again with larger input costs.

KyussBishop

SupaNova2 wrote: »

I'm sure anyone dumb enough to buy and hold raw materials for a couple of years before they start to produce wouldn't be around for long. And yes they do get more bang for their buck with profits, unless you are assuming no deflation in their input costs to make your point.

You will have to explain the second bolded part further?

If there is a trend of a falling price of a good, a company is hardly going to start out production expecting the current market price of the final good, they estimate the price they can sell the final product for, if its greater than their costs that is good enough for them. They deal with similar issue's in an inflationary environment, not only do sales for the final product have to be high enough to cover costs, but large enough to start the process again with larger input costs.

Businesses profit by spending money for production, not by hoarding it; (in a deflationary system) they do not need to have years-long delays between buying production materials and selling the final product, in order to have their profits cut into, it occurs constantly as they are making an immediate loss once holding materials that appreciate less than money itself, and the constantly-decreasing sale price relative to the initial money spent on production (which for Bitcoin, would gradually worsen over time as the bitcoin economy grows, pushing the currency into greater and greater deflation).

On the second bolded part: Since deflation means constant falling prices, that means money spent on production goods today, means an increase in the value of the spent money tomorrow, and loss in the nominal value of the production goods you bought, and as more time goes on there is a constant loss in the nominal value of the final product, until it is sold and converted back into money.

The worse deflation gets (which there is no control over for a cryptocurrency), the more profitable hoarding (which is a risk-free profit) becomes relative to production, disincentivizing production and promoting ever greater amounts of hoarding.
Such hoarding is unproductive deadweight money, that could be spent on investing (and no, storing that money in banks doesn't mean reinvestment, because banks would be full reserve), and a constantly increasing monetary value without any productive effort, is (in real, not nominal terms) like constantly throwing bucketloads of free money at people (for doing nothing), where most of that goes to the rich, constantly worsening regressive concentration of wealth.


If you would seriously support a deflationary currency as the base for a countries monetary system, then (for many of the reasons I've previously listed, not limited to just the above) you are supporting a system which expressly exists to regressively benefit people that are already wealthy, at the expense of the rest of society, and which creates all the wrong incentives for an efficient and functioning economy (promoting hoarding over investment, to a greater and greater degree the worse deflation gets).

Almost all economists view deflation as extremely harmful to economies and society; you won't find many outside of financial/business/wealth lobbyist 'economists' promoting such a system.
It's plain to see that the gains go almost entirely to the wealthy (with the less well off who require debt to fund mortgages etc., getting hammered by the debtor vs creditor dynamics, that expressly favour the wealthy/creditor), so I don't understand how you don't see just how bad an idea deflation is, and how it would expressly benefit the wealthy over everyone else?


Businesses do not deal with a similar situation in an inflationary environment either, because businesses are about turning money into goods (or otherwise investing it in useful productive activity, which inflation encourages), not about hoarding money; in an inflationary environment prices increase, which means in the period where companies exchange $ for production materials, and then sell the final good for $, they make no loss on that because the materials likely appreciate in value more than money, and the final price of the good is constantly increasing, without the final sale causing a loss.

Valmont

If as you say, KyussBishop, we have a banking system controlled by private interests and these private interests have a vested interest in deflation, why have central banks set interest rates at historically low levels? According to your analysis the large banks, central bankers, and vested interests should be calling for a tightening of interest rates but it is in fact the completely other way around. How do you explain this disparity?

KyussBishop

That really seems to be making a very tenuous connection/point there; you can see yourself that these banking/financial groups don't have the political power to change the monetary system to a deflationary one, and their current level of control depends upon the central bank (and the current functioning of the monetary system) retaining political legitimacy/credibility, which would disappear entirely if there was a serious push by banks/finance to move towards a deflationary system (the backlash against that would be huge).

They already have massive control, by having control over money creation, by receiving enormous bailouts, and by being able to blow massive asset bubbles wherever they'd like; they don't need deflation to reap enormous profits in this system.


The points as the thread progresses on, seem to be verge more and more towards nitpicking on small parts of what I say, without actually contesting any of my wider arguments.

What do you think of the current monetary system:
Do you think it is acceptable or democratic for private banks to create money?
Would you eliminate fiat currency altogether?
How would you prevent excessive deflation/inflation, without a central authority with some control over the money supply?
If you don't support elimination of fiat currency, how do you think it should work? (how should money be added to or removed from the economy, without giving private banks undemocratic control over money creation?)

I've presented a lot of points detailing problems with alternative currencies and also the current monetary system, and I've even described how to fully reform the monetary system itself to be more democratic; especially in the latter, there are a lot of interesting consequences and things to discuss (and learn), but seem to be getting stuck debating over ancillary/unimportant points instead, without any of the major statements being looked at.

SupaNova2

KyussBishop wrote: »

That really seems to be making a very tenuous connection/point there; you can see yourself that these banking/financial groups don't have the political power to change the monetary system to a deflationary one, and their current level of control depends upon the central bank (and the current functioning of the monetary system) retaining political legitimacy/credibility, which would disappear entirely if there was a serious push by banks/finance to move towards a deflationary system (the backlash against that would be huge).

Why would banks favour a deflationary enviroment?

Valmont

KyussBishop wrote:

these banking/financial groups don't have the political power to change the monetary system

Thank you for acknowledging that power over and control of our financial system does not rest with banks but with politicians and the state (although you seem to argue the opposite when it suits you). The very same politicians who rubber-stamped our current monetary system and then allowed and failed to prevent the current crisis. Why you think giving these fellows more power over something they have proven to be unable to manage is beyond me.

Regarding not engaging with your entire post, may I politely suggest that your multiple posts are often very long and cover several topics simultaneously in a rather slapdash manner. I think narrowing your focus would help the debate considerably -- for yourself and others.

I'll have to get back to you on some of your other points later on this week!

KyussBishop

SupaNova2 wrote: »

Why would banks favour a deflationary enviroment?

I didn't say banks specifically, that was the connection Valmont made, I said creditors; that can include banks, but I wasn't specifically singling out the banks.

el pasco

Didn't bitcoins lose amount of value very rapidly a few weeks back and couldn't hackers just destroy it aswell
http://m.guardian.co.uk/technology/2013/apr/10/bitcoin-new-high-losing-160

KyussBishop

Valmont wrote: »

Thank you for acknowledging that power over and control of our financial system does not rest with banks but with politicians and the state (although you seem to argue the opposite when it suits you). The very same politicians who rubber-stamped our current monetary system and then allowed and failed to prevent the current crisis. Why you think giving these fellows more power over something they have proven to be unable to manage is beyond me.

Regarding not engaging with your entire post, may I politely suggest that your multiple posts are often very long and cover several topics simultaneously in a rather slapdash manner. I think narrowing your focus would help the debate considerably -- for yourself and others.

I'll have to get back to you on some of your other points later on this week!

I said they can't change the monetary system (I also didn't say anything like that regarding the financial system, it was specifically about the monetary system); they already have control over critical parts of the monetary system, as I described (particularly the ability to create money), but they can't get away with making such a huge change as making it run in a deflationary fashion.

Fair enough if my posts are too long; that's more for the sake of completeness and covering every angle; it's usually the bits I leave uncovered that get picked at.


To simplify it a bit more:
Private banks being able to create money through loans, is (for reasons described in a previous post) undemocratic and a privilege that is unjust, so banks should be made full reserve again in my view.
You still need money creation to happen somewhere though, so the money supply expands with economic growth, and I think government is the main democratic way of doing that.

With alternative currencies, you can't avoid excessive deflation/inflation without some control over the money supply, so you need a fiat currency in order to have this control; I'm not opposed to alternative currencies though, I just don't think fiat currency should be abolished.

This is a large part of my view on how the monetary system needs to be reformed, so I wonder how you would reform it differently, in a way that it doesn't encounter any of the problems above?

WIZE

are bitcoins just a computer code you are buying?

SeanW

KyussBishop wrote: »

I just don't think fiat currency should be abolished.

Yes. We should trust the government fiat money system. It's not like it has ever encouraged boom-bust cycles or anything? :rolleyes: BTW when you look specifically at the greatest economic expansion the First World has ever seen - the Industrial Revolution - it came at a time when there was honest (i.e. commodity standard) currency and private banks that allowed entrepreneurs to borrow the savings of savers ...

KyussBishop

SeanW wrote: »

Yes. We should trust the government fiat money system. It's not like it has ever encouraged boom-bust cycles or anything? :rolleyes: BTW when you look specifically at the greatest economic expansion the First World has ever seen - the Industrial Revolution - it came at a time when there was honest (i.e. commodity standard) currency and private banks that allowed entrepreneurs to borrow the savings of savers ...

So, a question I have asked many times now whenever this comes up: How do you propose we avoid excessive deflation/inflation, without a currency where we have some element of control over the money supply? (i.e. a fiat currency)

You do see also, that it is debt-based money that is causing the cycles? (due to there only being enough money in the economy to pay off the total initial principle of debt, but not the total accumulated interest, which causes debt to grow well beyond the money supply until there is a bust)
This also means that non-debt-based money (created and spent by government), introduces money into the economy without leading to debt-fueled economic cycles.

If you're seriously advocating a gold-standard again, you take a position that even the majority of the economically right-wing regard as a crackpot position; again, that leads directly to deflation, and all the regressive upward-concentration-of-wealth issues discussed earlier.

SeanW

KyussBishop wrote: »

So, a question I have asked many times now whenever this comes up: How do you propose we avoid excessive deflation/inflation, without a currency where we have some element of control over the money supply? (i.e. a fiat currency)

You can't really have inflation in a commodity currecncy, such as the pre-1913 dollar. "Excessive inflation" is what occurs when the government controls the supply of currency: consider the Weimar republic and Zimbabwe under Mughabe. It is also happening today in the Western world, albeit to a lesset extent.

The only way to prevent abuse of a fiat currency system and to empower the people is not to have a fiat currency system.

You do see also, that it is debt-based money that is causing the cycles? (due to there only being enough money in the economy to pay off the total initial principle of debt, but not the total accumulated interest, which causes debt to grow well beyond the money supply until there is a bust)
This also means that non-debt-based money (created and spent by government), introduces money into the economy without leading to debt-fueled economic cycles.

If the government prints money and spends it directly it can have many of the same effects ... inflation and a likely boom-bust cycle.

Giving anyone, including or perhaps particularly government, the right to make "money" out of thin air is an open invitation to abuse. Consider this quotes by the Rothschilds:

Mayer Amschel Bauer Rothschild wrote:

Give me control of a nation's money and I care not who makes it's laws

If you're seriously advocating a gold-standard again, you take a position that even the majority of the economically right-wing regard as a crackpot position; again, that leads directly to deflation, and all the regressive upward-concentration-of-wealth issues discussed earlier.

A currency that can guarantee zero inflation would seriously empower the people, far more so than the government and the corporations.

For example, if we assume that gold is never going to fall in value because the rate of mining versus the desire for holdings will never allow it, which is better?

1. A hard currency backed by gold is given to the poor and middle class, with a not-expected-to-fall value plus market led interest rates, encouraging us to save for our futures, whether that be even more consumption down the line or investment in business education etc.
2. A fiat currency such as the U.S. dollar is given to the poor and middle class. Inflating rapidly and with artificially low interest rates, it makes no sense for the poor and middle to save money, but they can be provoked to splurge wildly on credit. Meanwhile powerful banks and corporations recieve the new money and use it to buy things that are going up in value (i.e. converting their printing press money into a deflating currency)

Which sounds better to you?

yore

SeanW wrote: »

You can't really have inflation in a commodity currecncy, such as the pre-1913 dollar. "Excessive inflation" is what occurs when the government controls the supply of currency: consider the Weimar republic and Zimbabwe under Mughabe. It is also happening today in the Western world, albeit to a lesset extent.

The only way to prevent abuse of a fiat currency system and to empower the people is not to have a fiat currency system.

If the government prints money and spends it directly it can have many of the same effects ... inflation and a likely boom-bust cycle.

Giving anyone, including or perhaps particularly government, the right to make "money" out of thin air is an open invitation to abuse. Consider this quotes by the Rothschilds:


A currency that can guarantee zero inflation would seriously empower the people, far more so than the government and the corporations.

For example, if we assume that gold is never going to fall in value because the rate of mining versus the desire for holdings will never allow it, which is better?

1. A hard currency backed by gold is given to the poor and middle class, with a not-expected-to-fall value plus market led interest rates, encouraging us to save for our futures, whether that be even more consumption down the line or investment in business education etc.
2. A fiat currency such as the U.S. dollar is given to the poor and middle class. Inflating rapidly and with artificially low interest rates, it makes no sense for the poor and middle to save money, but they can be provoked to splurge wildly on credit. Meanwhile powerful banks and corporations recieve the new money and use it to buy things that are going up in value (i.e. converting their printing press money into a deflating currency)

Which sounds better to you?

Zero inflation will mean the rich stay rich and the poor stay poor. Simple as that. And the rich never have to do anything productive with their wealth.

SeanW

yore wrote: »

Zero inflation will mean the rich stay rich and the poor stay poor. Simple as that.

Yes, it's very simple ...and also wrong :pac: Non-inflating currency with market set interest rates would help the poor and middle classes by promoting savings as the bedrock of a prosperous future. Inflating currency with artificially low interest rates is what encourages a lack of saving and the ocassional bubble-licious spending spree on housing and various forms of short-term consumption.

And the rich never have to do anything productive with their wealth.

Who says they're doing anything productive with it today?

Maybe if you live on another planet, but here on Earth the rich can buy everything from gold and other commodities, property etc down to more questionable things futures, derivative instruments or any other froms of wealth protection.

In short if you inflate the currency the rich can escape to non-currency assets. The poor and middle class? ... not so much.

yore

SeanW wrote: »

Yes, it's very simple ...and also wrong :pac: Non-inflating currency with market set interest rates would help the poor and middle classes by promoting savings as the bedrock of a prosperous future. Inflating currency with artificially low interest rates is what encourages a lack of saving and the ocassional bubble-licious spending spree on housing and various forms of short-term consumption.

Who says they're doing anything productive with it today?

Maybe if you live on another planet, but here on Earth the rich can buy everything from gold and other commodities, property etc down to more questionable things futures, derivative instruments or any other froms of wealth protection.

In short if you inflate the currency the rich can escape to non-currency assets. The poor and middle class? ... not so much.

I take it that you put your money where your mouth is then? As soon as you get paid you convert it to gold?


No inflation means the wealthy have the assets. It means they can sit on their wealth and live off the interest or rent.

With inflation, your wealth decreases if you do nothing with it. It's not rocket science. If you were a very wealthy millionaire in Ireland in 1993, with zero inflation, and decided to leave it in a bank and live off the interest, you'd still have your million and your expenses today would still be the same.

If you just put that million in the bank, in an inflationary world, you'll still have that million but now your costs are multiples of what they were. so you aren't nearly as wealthy as you were.

Inflation affects savings. It is a great leveller. Those with the most savings i.e. the middle-class/wealthy, are affected proportionally more. that is the way it should be.

With inflation it's use it or lose it! Zero inflation means put it under the bed until you need it. Zero positive benefit to the economy as a whole. No such thing as your loan/mortgage being inflated away over time. Your mortgage payment is as difficult at year 30 as it is on day 1

KyussBishop

SeanW wrote: »

You can't really have inflation in a commodity currecncy, such as the pre-1913 dollar. "Excessive inflation" is what occurs when the government controls the supply of currency: consider the Weimar republic and Zimbabwe under Mughabe. It is also happening today in the Western world, albeit to a lesset extent.

The only way to prevent abuse of a fiat currency system and to empower the people is not to have a fiat currency system.

You didn't answer the question, it was "how do you prevent excessive deflation/inflation", and you just said it avoids inflation, while ignoring that it leads to ever-worsening deflation.

You don't seem to think deflation is a problem at all, which puts you at odds with the vast majority of economists (even those on the right).

SeanW wrote: »

If the government prints money and spends it directly it can have many of the same effects ... inflation and a likely boom-bust cycle.

Giving anyone, including or perhaps particularly government, the right to make "money" out of thin air is an open invitation to abuse. Consider this quotes by the Rothschilds:

You're quoting the Rothschilds to bolster your point; the family who historically had great private control over money creation, by owning banks, and thus have had great undemocratic power over governments and society.

You're totally ignoring everything previously discussed again, to put your own selective framing on it: Should money creation be in private hands (through private banks that can create money, or though wealthy gold-mine owners), or should it be in public hands, through government?

Control over money creation resting in private hands is simply undemocratic, and this is what you specifically advocate.

SeanW wrote: »

A currency that can guarantee zero inflation would seriously empower the people, far more so than the government and the corporations.

For example, if we assume that gold is never going to fall in value because the rate of mining versus the desire for holdings will never allow it, which is better?

1. A hard currency backed by gold is given to the poor and middle class, with a not-expected-to-fall value plus market led interest rates, encouraging us to save for our futures, whether that be even more consumption down the line or investment in business education etc.
2. A fiat currency such as the U.S. dollar is given to the poor and middle class. Inflating rapidly and with artificially low interest rates, it makes no sense for the poor and middle to save money, but they can be provoked to splurge wildly on credit. Meanwhile powerful banks and corporations recieve the new money and use it to buy things that are going up in value (i.e. converting their printing press money into a deflating currency)

Which sounds better to you?

It doesn't guarantee zero inflation, it guarantees negative inflation, i.e. deflation. You know this, yet you are ignoring it because you know it is discreditable.
Lets hear your argument in support of deflation (which I've explained in detail, how it is severely regressive and damaging to society, at least 3 times over in this thread already).


The ironic thing about gold bugs, is that even though it would cause deflation in the present, it leads to guaranteed hyperinflation in the future (the precise opposite of their claims), because the oceans contain more than 100 times the current mined stock of gold, which will become profitably extractable within the century, through advancements in nanotechnology (at which point the amount of gold available, i.e. the money supply, will skyrocket).


They also don't seem to recognize how much of a massive waste of resources and human effort it is, digging useless yellow metal out of a hole in the ground, just to put it into another hole in the ground (a bank vault), where it then stays, hardly being touched at all, just so a few numbers can be punched into a computer to increase balance sheets. It's really ridiculous/crackpot stuff, to require that amount of wasted effort, in order to have a monetary system that can work at all, and which can only work in a crippled deflationary state.

You can literally replace an entire industry of gold mining with a single computer (resolving the entire problem of deflation along with it), that's how ridiculous the level of wasted effort is.

scamalert

dont agree with op completely,bit coin is only good to use for criminal purchases where anonymity is main priority ,now you said there can be only 21m of the coins created,and that would draw the prices down so if some rich group manages to buy 50% of the coins you're left with f all as they would control the market and amount being available would draw insane prices if the currency was further used.
Other point mentioned that banks print money so private investors turn to bitcoin,complete bull*** at least government funds are protected from sudden flucations not like bit coin market where one day its worth 25 bucks another day its nearly 150 and back down again.Imagine if real currency fluctuated in such manner.
When couple years back i heard about the idea i was fascinated ,because of posibility that anyone could make it,but eventually some managed to get the render farms and other gear to produce high amounts in short period of times,other profited from buying at the lowest point,and what completely destroyed its great idea that no one controls its value.
based on my limited knowledge of bitcoin history coins started as cheap as 0.25$ cents and in two years time it nearly topped up 200$ bucks within weeks.Also main goal of anyone being able to make coins has diminsihed as theres these special render machines to solve equations just for bitcoins.

SeanW

yore wrote: »

I take it that you put your money where your mouth is then? As soon as you get paid you convert it to gold?

You cannot spend gold and silver today, unfortunately, but yes, when I had spare cash, I converted it to precious metals. Later on I needed money fast and I made a healthy profit when I sold them. Imagine how much more self reliant the average person could be if they had a non-inflating currency?

Oh and I'm not rich, not anything like it.

No inflation means the wealthy have the assets. It means they can sit on their wealth and live off the interest or rent.

They do that anyway: they can convert their cash into *anything* much easier than you or I - that's the point you and Kyuss keep avoiding.

The rich can conver their cash into some commodity or asset class they consider to be stable stores of wealth - often to the detriment of society as a whole by buying oil and food futures. It is flat out wrong to suggest that only the rich are hurt by inflationary fiat currency. The exact opposite is true.

With inflation it's use it or lose it! Zero inflation means put it under the bed until you need it. Zero positive benefit to the economy as a whole. No such thing as your loan/mortgage being inflated away over time. Your mortgage payment is as difficult at year 30 as it is on day 1

That sounds so great for the lower classes doesn't it?

Think about saving for a house, education or retirement ... theres no point because if you leave money in the bank it loses value. So sometimes we trust our money to fund managers, like pension plans, so the poor and middle classes become exposed to gamblers losing retirement funds in bubble assets (tech stocks, construction) etc. for which they charge a healthy commission.

My cousin - a tradesman - had a pension that was invested, he lost it all because the investments tanked. So yes, "use it or lose it" for those who are affected by the current system often becomes a case of "use it AND lose it" and again, it's the lower classes that are hurt by this.

yore

SeanW wrote: »

You cannot spend gold and silver today,
unfortunately,

oh ok.

SeanW wrote: »

but yes, when I had spare cash, I converted it to precious metals.

Fair play, please continue

SeanW wrote: »

Later on I needed money fast and I made a healthy profit when I sold them.

Wha'. huh. Hold on. You needed money , presumably to spend it on something and you used your gold? But you still can't spend it

SeanW wrote: »

Imagine how much more self reliant the average person could be if they had a non-inflating currency?

As said before, well do that. Buy your gold if that's what you believe. but you will have to define "non-inflating". Because the supplies of gold are finite, despite the fact that they can mine more. So as I accumulate my gold in a hole at the bottom of my garden, and the population of the earth doubles over time, you don't think that the demand for it is going to go up? So maybe now that a gramme of gold will buy you enough food for a week, in 10 years it might buy you enough food for a year. So we have de-facto deflation again. And I have my big stash of gold buried at the bottom of the garden. But the people who come after me, they can still become rich right? By saving their gold? Even though their access to it is limited and they now have to work 4 times as hard to get an oz as what I had to?

Do you really not understand this? You are thinking from the point of view of SeanW only. You have whatever wealth you have and you think that you are entitled to keep that forever. You are not thinking of the bigger picture.

SeanW wrote: »

Oh and I'm not rich, not anything like it.

They do that anyway: they can convert their cash into *anything* much easier than you or I - that's the point you and Kyuss keep avoiding.

The rich can conver their cash into some commodity or asset class they consider to be stable stores of wealth

Exactly the same as the poorer person can do.

SeanW wrote: »

often to the detriment of society as a whole by buying oil and food futures.

And often to it's advantage. You can google to learn about futures if you'd like to learn more about them. They aren't some evil lizard conspiracy mechanism to keep you down!!

SeanW wrote: »

It is flat out wrong to suggest that only the rich are hurt by inflationary fiat currency. The exact opposite is true.

Nobody suggested that. But it is ludicrious to suggest that the opposite is true.

SeanW wrote: »

That sounds so great for the lower classes doesn't it?

Think about saving for a house, education or retirement ... theres no point because if you leave money in the bank it loses value. So sometimes we trust our money to fund managers, like pension plans, so the poor and middle classes become exposed to gamblers losing retirement funds in bubble assets (tech stocks, construction) etc. for which they charge a healthy commission.

Well your system would have everyone fighting for finite resources with no chance to increase the money supply. so if the population doubles and the new people want houses, well they're going to have to live in box until they can dig enough gold out of the ground. Because the economy cannot create any "money" any other way to allow itself to grow

SeanW wrote: »

My cousin - a tradesman - had a pension that was invested, he lost it all because the investments tanked. So yes, "use it or lose it" for those who are affected by the current system often becomes a case of "use it AND lose it" and again, it's the lower classes that are hurt by this.

Sounds like he had bad advice and an undiversified portfolio. These are the types of risks that people often don't understand. He puts all his money into Bank shares and they go up 10%. He sells some of them at a "healthy profit" and then puts all his savings from next year into the same shares. Same as you did with your precious metals. sometimes you win a lot, and sometimes you lose a lot. If he put ANY of his money into construction related shares, he was a fool. Not because it seems silly looking back on it now but because that industry was highly correlated with his occupation as a carpenter. He got bad advice or no advice.

Over the long run, stocks outperform bonds. If your cousin was nearing his retirement then he should not have had money in risky investments. If he has a lot to go before his retirement,, it's not such a big issue as he has plenty of time to make it back.

SeanW

Do you really not understand this? You are thinking from the point of view of SeanW only. You have whatever wealth you have and you think that you are entitled to keep that forever.

In a civilised society yes: you make money, and (after tax) it's yours to spend or save as you choose.

Exactly the same as the poorer person can do.

If you have lots of money its dramatically easier to put it into deflationary assets. For instance you can buy precious metals at lower premiums, buy silver in offshore instruments that avoid VAT, or indeed any commodity or asset class that will "suffer" from deflation when used as a store of wealth.

It's dramatically easier for the rich. That's the point that you and Kyuss keep missing.

And often to it's advantage. You can google to learn about futures if you'd like to learn more about them. They aren't some evil lizard conspiracy mechanism to keep you down!!

I know that futures have positive uses when used between consumers and producers, e.g. a baker buying a future delivery of grain, an airline hedging fuel costs etc.

But problems arise when people (rich people, banks, hedge funds) buy futures as a store of wealth - the food and energy crises of 2008 are perfect examples. Those speculators had no intention of ever taking delivery, they were only interested in buying and selling paper.

Gold, synthetic diamonds are perfect for this usage because they - as Kyuss pointed out - have limited practical uses unlike foodstuffs and energy because futures speculation drives the cost of them up, hurting poor people especially as the grain crisis of 2008 hurt people in the under-developed world very badly.

Sounds like he had bad advice and an undiversified portfolio.

It was some kind of managed fund. But the root cause of his problem was that he was dealing in a fiat currency. If we had a zero-inflation currency, he could simply have left his money in a cash savings account, the bank could have lent it out in loans to businesses, and even a pathetic 1 or 2% interest would have been pure gravy.

My central point remains unassailed: non-inflating currencies benefit and empower poor and middle class "average" people. Inflating currencies empower government and crony capitalist corporations with political connections.

KyussBishop

We don't care if it's currently easy for the rich, what you propose makes it even easier; there is no logic in that, that doesn't mean the entire currency system should be based upon it; we know the wealthy are more able to commit fraud (such as by hiding taxable income), and that is not an argument for getting rid of taxes or laws against fraud, the same way the fact that the wealthy can speculate in asset bubbles, does not mean we should build a currency around an asset that would cause deflation (which actually makes things worse for everyone who is not rich, and benefits the rich even more).

You're grasping at the most thin arguments here, while ignoring the wider arguments in the thread.


There is no such thing as a zero-inflation commodity-based currency, you either get positive inflation or negative inflation (deflation); the only actual possible way to get zero inflation, ironically, is by using a fiat currency to target a static price level.

SeanW

KyussBishop wrote: »

We don't care if it's currently easy for the rich, what you propose makes it even easier;

Keyword there is "even" easier ... it's already a trivial matter for the rich to hold their assets in something protected from inflation.

It's dramatically easier for someone who has €100,000 to save, versus €100 to save. That's the key point. A currenncy that does not inflate (whether because it is backed by gold or because it its a targeted zero-inflation fiat currency) evens the playing field and gives real power to the average person.

That's the real reason why it's not happening.

we know the wealthy are more able to commit fraud (such as by hiding taxable income)

You are comparing two completely different sets of activity:

1. Illegal behaviour such as fraud and tax evasion
2. Legal means to protect and improve ones wealth, by converting it from one currency (dollars, euros etc) to another (gold preferably, grain and oil futures, not so much)

There is no such thing as a zero-inflation commodity-based currency, you either get positive inflation or negative inflation (deflation); the only actual possible way to get zero inflation, ironically, is by using a fiat currency to target a static price level.

That would also be superior for the average person, for example in saving for retirement, a saver could leave their money in insured retail savings accounts, lent by banks to entrepreneurs and those who absolutely must borrow, and get real money in interest. Savings are the bedrock of a sound economy and a free people.

All of the craziness of the last few decades - rising home prices and other asset bubbles and people doing stupid things like charging €5 Starbucks coffees to their credit cards, are directly the result of monetary policy. Your monetary policy.

KyussBishop

SeanW wrote: »

Keyword there is "even" easier ... it's already a trivial matter for the rich to hold their assets in something protected from inflation.

It's dramatically easier for someone who has €100,000 to save, versus €100 to save. That's the key point. A currenncy that does not inflate (whether because it is backed by gold or because it its a targeted zero-inflation fiat currency) evens the playing field and gives real power to the average person.

That's the real reason why it's not happening.

No it does not even the playing field, we have to earn money in order to invest it, and most people have to go into debt in order to buy a home eventually (particularly with the rental market being so poor here); a deflationary (not 'zero inflation') currency, makes debt even more burdensome (tipping the balance in favour of creditors, at the expense of debtors), with the principal of the debt rising in real terms over time, which causes the rate of interest paid to be compounded twice-over (once for principal+interest, and once for appreciation in value of principal), and this happens alongside deflating wages as well, constantly making it more burdensome over time to keep up with repayments.

Saying that levels the playing field, is like saying the rich get away with fraud, therefore we should decriminalize fraud and let everyone defraud one another unrestricted.

You must be posting facetiously here, because you're not even pretending to address any of these massive massive problems that a deflationary currency brings about, you're just repeating the same unbacked assertions.

SeanW wrote:

You are comparing two completely different sets of activity:

1. Illegal behaviour such as fraud and tax evasion
2. Legal means to protect and improve ones wealth, by converting it from one currency (dollars, euros etc) to another (gold preferably, grain and oil futures, not so much)

That would also be superior for the average person, for example in saving for retirement, a saver could leave their money in insured retail savings accounts, lent by banks to entrepreneurs and those who absolutely must borrow, and get real money in interest. Savings are the bedrock of a sound economy and a free people.

All of the craziness of the last few decades - rising home prices and other asset bubbles and people doing stupid things like charging €5 Starbucks coffees to their credit cards, are directly the result of monetary policy. Your monetary policy.

If people want to engage in asset speculation, let them buy gold. We don't need to base our entire currency system on it when we know it is a massively bad idea, due to deflation.

Investment is the bedrock of a sound economy, because when banks lend they create money, which automatically creates the deposits/savings/reserves within the banking system, needed to support the investment

Investment is enabled by money creation, not by savings (as the above shows, investment leads to savings, not the other way around), and excessive saving (to an extent that it leads to a significant reduction in demand), especially combined with a deflationary currency and debt-deflation, can tank an economy; this is part of why avoiding deflation is a priority for economists and policymakers.

SupaNova2

KyussBishop wrote: »

Investment is the bedrock of a sound economy, because when banks lend they create money, which automatically creates the deposits/savings/reserves within the banking system, needed to support the investment.

Wait, if banks create money and lend money, the savings/deposits/reserves needed to support the investment are automatically created? How do you square that with a housing bubble, where were the automatic savings to support housing investments? Your theory is nonsense or you need to re-word it so it doesn't come across as nonsense.

KyussBishop

SupaNova2 wrote: »

Wait, if banks create money and lend money, the savings/deposits/reserves needed to support the investment are automatically created? How do you square that with a housing bubble, where were the automatic savings to support housing investments? Your theory is nonsense or you need to re-word it so it doesn't come across as nonsense.

It's not a "theory" it's how bank accounting works, and it is all drawn from the fact that banks create money through loans (if you accept that banks create money, the rest of this automatically follows):
Person A takes a €100 loan from bank X, person A buys a good from person B, person B deposits €100 in bank X; the bank is now owed €100 in debt, and has €100 in deposits (the loan/investment, has created the deposits/savings).

None of this prevents banks from getting in trouble through debt that is not getting repaid, or from having difficulty with reserves (since banks lend first, and fix up reserves later), because banks still have to attract the necessary deposits (in the above example, person B may deposit into bank Y instead, which might cause bank X to fall short of reserve requirements).

SupaNova2

Investment is the bedrock of a sound economy, because when banks lend they create money, which automatically creates the deposits/savings/reserves within the banking system, needed to support the investment.

I don't need the spiel on money creation thanks. I thought I had made it obvious what part of your quote I was talking about, so I better put in bold this time.

None of this prevents banks from getting in trouble through debt that is not getting repaid

You see how the phrasing automatically "creating reserves to support investment" does not gel with the above.