Inside the Bitcoin advocates’ closed-door meeting with federal regulators(washingtonpost.com)
washingtonpost.com
Inside the Bitcoin advocates’ closed-door meeting with federal regulators
http://www.washingtonpost.com/blogs/the-switch/wp/2013/08/27/inside-the-bitcoin-advocates-closed-door-meeting-with-federal-regulators/
65 comments
since all inflation is created by the US government as an unofficial policy [...] to fund an ongoing operating deficit
This is crackpot conspiracy theory stated as fact. There is a very obvious reasons why this theory doesn't make any sense: People know about inflation, and are free to adjust their behavior accordingly. The simple fact is that if inflation were lower, nominal interest rates would be lower to match as well, and vice versa. In the end, the real interest rate will end up in the same place.
So the real story is much more nuanced. One important aspect is that monetary policy works better with higher inflation, because it takes longer to hit the Zero Lower Bound. This is why many economists have recently advocated raising the inflation target, with the hindsight experience of the ongoing aftermath of the Great Recession.
Another important aspect is essentially the Red Queen Hypothesis of economics. Due to the way pricing works in the real world outside of financial markets and auctions, prices move up more easily than they move down. For markets to work well, relative prices must adjust quickly to reflect changing underlying conditions. This relative adjustment is easier to get when the overall price level tends to move upwards.
This is crackpot conspiracy theory stated as fact. There is a very obvious reasons why this theory doesn't make any sense: People know about inflation, and are free to adjust their behavior accordingly. The simple fact is that if inflation were lower, nominal interest rates would be lower to match as well, and vice versa. In the end, the real interest rate will end up in the same place.
So the real story is much more nuanced. One important aspect is that monetary policy works better with higher inflation, because it takes longer to hit the Zero Lower Bound. This is why many economists have recently advocated raising the inflation target, with the hindsight experience of the ongoing aftermath of the Great Recession.
Another important aspect is essentially the Red Queen Hypothesis of economics. Due to the way pricing works in the real world outside of financial markets and auctions, prices move up more easily than they move down. For markets to work well, relative prices must adjust quickly to reflect changing underlying conditions. This relative adjustment is easier to get when the overall price level tends to move upwards.
Crackpot conspiracy theory? The Fed doesn't think so [1]. As that FAQ explains, the FOMC judges that maintaining a 2% inflation rate is optimal for price stability and maximal employment. The federal government operates at a deficit [2]. The Federal Reserve Banks holds U.S. Treasury debt as collateral for the Federal Reserve notes put into circulation by the Fed [3]. Therefore, although the quoted statement is somewhat inaccurate, the essential idea that government policy is responsible for inflation and finances its operations is true.
1. http://www.federalreserve.gov/faqs/economy_14400.htm
2. https://www.cbo.gov/publication/21999
3. http://www.federalreserve.gov/faqs/currency_12770.htm
1. http://www.federalreserve.gov/faqs/economy_14400.htm
2. https://www.cbo.gov/publication/21999
3. http://www.federalreserve.gov/faqs/currency_12770.htm
Low, positive inflation is the ideal for many reasons that have nothing to do with the federal budget: inflation encourages investment, spending, makes people feel richer when their salaries go up every year, and it reduces debts. Given that most americans carry some form of large debt (student loans, mortgages, etc.), this is good for most citizens.
We are talking about slightly different things.
I responded to the claim that inflation is created with the goal of financing a government deficit, and I stand by the claim that that's crackpot conspiracy theory.
To substantiate that claim, you would have to prove somehow that the real interest rate is lower than it would be without this inflation.
I responded to the claim that inflation is created with the goal of financing a government deficit, and I stand by the claim that that's crackpot conspiracy theory.
To substantiate that claim, you would have to prove somehow that the real interest rate is lower than it would be without this inflation.
While I wouldn't defend the wording of the original post, I don't believe it's too far from the truth. What do you mean by the _real_ interest rate?
While Fed Chairman Ben Bernanke claims the Fed is simply "managing the monetary base" [1], the Fed does in fact purchase US Treasury Bonds without requiring the Treasury to pay back the debt. This monetization of debt allows the Treasury to increase government spending. The outcome is an increase in the monetary base which leads to rising price levels, or inflation.
So while saying that inflation is created with the goal of financing government deficit is somewhat backwards, it's only a conflation of cause and effect--not a "crackpot conspiracy theory".
1. http://research.stlouisfed.org/publications/es/article/9644
While Fed Chairman Ben Bernanke claims the Fed is simply "managing the monetary base" [1], the Fed does in fact purchase US Treasury Bonds without requiring the Treasury to pay back the debt. This monetization of debt allows the Treasury to increase government spending. The outcome is an increase in the monetary base which leads to rising price levels, or inflation.
So while saying that inflation is created with the goal of financing government deficit is somewhat backwards, it's only a conflation of cause and effect--not a "crackpot conspiracy theory".
1. http://research.stlouisfed.org/publications/es/article/9644
By the real interest rate I mean the interest rate after taking inflation into account. If you think about it, the average long term nominal interest rate in the economy is going to be roughly in line with nominal growth of GDP, because there are market mechanisms in place to make it so:
If the nominal interest rate exceeds nominal growth in GDP, then wealth effects (aka people have more money thanks to interest and therefore spend more) will eventually encourage faster growth of nominal GDP - either by stimulating more production (real GDP growth) or by driving up prices (inflation), or, more likely, by a mix of both.
If nominal interest rates are below nominal growth in GDP, then it becomes more profitable to borrow money to invest in production. People will do this, and this will adjust interest rates up (you can understand this from two directions: on the one hand, profit is being spread around via interest, on the other hand, demand for loan drives up interest rates).
These adjustments do not take over night - they probably operate on the timescale of years (unfortunately, economics tends to pay very little attention to how fast such market mechanisms operate, so we basically have no scientific basis for such statements, just common sense and gut feelings). Still, you cannot escape those adjustments of the interest rate in the long term.
What does this have to do with governments, inflation, and financing the deficit? If the government consciously acted to increase inflation to finance its deficit [1] this would indeed temporarily benefit borrowers. However, this is a temporary measure and certainly not the case today. Furthermore, governments have also consciously acted to decrease inflation, which obviously has the opposite effect. So in the end, it's at best a wash.
One last point:
the Fed does in fact purchase US Treasury Bonds without requiring the Treasury to pay back the debt
The same happens in the real economy as well. Firms operate using debt that is effectively never paid back. The debt is regularly rolled over, sure, but it is de facto permanent and contributes to a permanent increase of the money supply, which is what matters (if any of those quantities matter).
The Fed does buy mostly Treasuries to create the monetary base (which is necessary for purely technical reasons), but what else would you have them buy? I personally wouldn't want "my" central bank to gamble on risky assets.
[1] Also, I find it fascinating that the goldbugs never point to actual examples where this happened. I suspect they don't because it's a myth, at least in the countries those people come from outside of wartime.
If the nominal interest rate exceeds nominal growth in GDP, then wealth effects (aka people have more money thanks to interest and therefore spend more) will eventually encourage faster growth of nominal GDP - either by stimulating more production (real GDP growth) or by driving up prices (inflation), or, more likely, by a mix of both.
If nominal interest rates are below nominal growth in GDP, then it becomes more profitable to borrow money to invest in production. People will do this, and this will adjust interest rates up (you can understand this from two directions: on the one hand, profit is being spread around via interest, on the other hand, demand for loan drives up interest rates).
These adjustments do not take over night - they probably operate on the timescale of years (unfortunately, economics tends to pay very little attention to how fast such market mechanisms operate, so we basically have no scientific basis for such statements, just common sense and gut feelings). Still, you cannot escape those adjustments of the interest rate in the long term.
What does this have to do with governments, inflation, and financing the deficit? If the government consciously acted to increase inflation to finance its deficit [1] this would indeed temporarily benefit borrowers. However, this is a temporary measure and certainly not the case today. Furthermore, governments have also consciously acted to decrease inflation, which obviously has the opposite effect. So in the end, it's at best a wash.
One last point:
the Fed does in fact purchase US Treasury Bonds without requiring the Treasury to pay back the debt
The same happens in the real economy as well. Firms operate using debt that is effectively never paid back. The debt is regularly rolled over, sure, but it is de facto permanent and contributes to a permanent increase of the money supply, which is what matters (if any of those quantities matter).
The Fed does buy mostly Treasuries to create the monetary base (which is necessary for purely technical reasons), but what else would you have them buy? I personally wouldn't want "my" central bank to gamble on risky assets.
[1] Also, I find it fascinating that the goldbugs never point to actual examples where this happened. I suspect they don't because it's a myth, at least in the countries those people come from outside of wartime.
> People know about inflation, and are free to adjust their behavior accordingly.
People are not free to adjust their behavior accordingly. The average person is forced to transact in the official currency. Any alternative that threatens to become liquid enough for the average person to use will be shut down. (Thus the interest in this Bitcoin backers meet government regulators article)
Sovereign countries with key energy resources must sell them for US dollars exclusively and they must recycle excess dollars into US government bonds, or receive freedom and democracy. This is the Petrodollar system, and it is the reason why the Feds can run endless deficits, and the Fed can put trillions of dollars of unmarketable assets onto its balance sheet without creating Weimar-style problems.
People are not free to adjust their behavior accordingly. The average person is forced to transact in the official currency. Any alternative that threatens to become liquid enough for the average person to use will be shut down. (Thus the interest in this Bitcoin backers meet government regulators article)
Sovereign countries with key energy resources must sell them for US dollars exclusively and they must recycle excess dollars into US government bonds, or receive freedom and democracy. This is the Petrodollar system, and it is the reason why the Feds can run endless deficits, and the Fed can put trillions of dollars of unmarketable assets onto its balance sheet without creating Weimar-style problems.
The Fed does not run endless deficits, in fact, it makes a profit.
And any central bank can do crazy amounts of QE without inflation once the economy hits the Zero Lower Bound. The ECB did something rather similar.
All of this has nothing to do with my central point, which was about real rates of interest.
And any central bank can do crazy amounts of QE without inflation once the economy hits the Zero Lower Bound. The ECB did something rather similar.
All of this has nothing to do with my central point, which was about real rates of interest.
Please notes the use of Feds and Fed. The Feds run the endless deficit, not the Fed. And in my humble opinion, the Petrodollar system has a great deal to do with real rates of interest.
This is crackpot conspiracy theory stated as fact.
It's not crackpot, though it's slightly inaccurate. The Federal Reserve is established by Congress and its chairman appointed by the President. It's otherwise somewhat independent, is part public and part private, but might be considered a de facto fourth branch of the government.
And among its remits are to manage the long-term inflation rate through open-market transactions (buying and selling treasury bills).
You pretty much allude to that -- how could you have a target inflation rate ... without some means of aiming for and hitting that target.
Now, the question of how effective monetary (and fiscal) policy are in actually affecting long-term economic growth is a whole 'nother barrel of tadpoles. I subscribe to the thermoeconomic / biophysical economic heterodoxies (very strongly influenced by ecology) which say that the cheapness (which is to say, ease of access) and abundance (flow rate) of energy are principle.
It's not crackpot, though it's slightly inaccurate. The Federal Reserve is established by Congress and its chairman appointed by the President. It's otherwise somewhat independent, is part public and part private, but might be considered a de facto fourth branch of the government.
And among its remits are to manage the long-term inflation rate through open-market transactions (buying and selling treasury bills).
You pretty much allude to that -- how could you have a target inflation rate ... without some means of aiming for and hitting that target.
Now, the question of how effective monetary (and fiscal) policy are in actually affecting long-term economic growth is a whole 'nother barrel of tadpoles. I subscribe to the thermoeconomic / biophysical economic heterodoxies (very strongly influenced by ecology) which say that the cheapness (which is to say, ease of access) and abundance (flow rate) of energy are principle.
Yes, the Fed is supposed to manage long-term inflation. I was reacting the rather extraordinary claim that it does so to help finance the government deficit. This claim would only make sense if a long-term (and therefore known and expected by everybody) stable inflation could have an effect on the real interest rate. Evidence for that seems not to be forthcoming, so I stand by my statement.
Growing the money supply -- inflating it -- does help finance the deficit, by allowing federal debt to be repaid with deflated currency.
The US has grown its way out of past debts. Because real wealth and economic activity was also growing, the inflation, while significant, was still reasonably limited.
Attempting to continue growing the money supply while the real economy is stagnant or contracting won't have that effect.
Unless the Fed directly injects money into the Federal treasury, where it's paid out. In which case, unless the money is then lost through nonproductive economic activity, it will inflate the currency. In any event, the ability to continue immense levels of Federal borrowing will end.
I'm not inclined to swallow the Republican line, but I'm coming to see long-term Federal deficits as a looming and increasing problem. Keep an eye on those Federal Reserve interest rates.
The US has grown its way out of past debts. Because real wealth and economic activity was also growing, the inflation, while significant, was still reasonably limited.
Attempting to continue growing the money supply while the real economy is stagnant or contracting won't have that effect.
Unless the Fed directly injects money into the Federal treasury, where it's paid out. In which case, unless the money is then lost through nonproductive economic activity, it will inflate the currency. In any event, the ability to continue immense levels of Federal borrowing will end.
I'm not inclined to swallow the Republican line, but I'm coming to see long-term Federal deficits as a looming and increasing problem. Keep an eye on those Federal Reserve interest rates.
Maybe I am extraordinarily dense, but I still don't see an argument that the real interest rate is decreased by long-term stable inflation.
If real GDP growth stops or even becomes negative, then the real interest rate will have to end up being zero or less as well, regardless of what the government supposedly does to create inflation or not. Ultimately, even if government acts like every gold bug wants it to act, the private sector will create inflation through its action if the real interest rate remains too high. [1]
So I don't know what we should make of all this? Perhaps you want the government to stop borrowing when the Limits of Growth have been reached? But (a) we are not at this point yet, so it is irrelevant for current decisions, and (b) how would you recognize when we've reached this point?
Perhaps you recognize it when there is zero unemployment and real GDP is still shrinking?
In any case, this is very unclear territory.
[1] Since I don't want to repeat myself too much, this is the comment where I've tried to explain my understanding of the mechanisms behind this: https://news.ycombinator.com/item?id=6291096
If real GDP growth stops or even becomes negative, then the real interest rate will have to end up being zero or less as well, regardless of what the government supposedly does to create inflation or not. Ultimately, even if government acts like every gold bug wants it to act, the private sector will create inflation through its action if the real interest rate remains too high. [1]
So I don't know what we should make of all this? Perhaps you want the government to stop borrowing when the Limits of Growth have been reached? But (a) we are not at this point yet, so it is irrelevant for current decisions, and (b) how would you recognize when we've reached this point?
Perhaps you recognize it when there is zero unemployment and real GDP is still shrinking?
In any case, this is very unclear territory.
[1] Since I don't want to repeat myself too much, this is the comment where I've tried to explain my understanding of the mechanisms behind this: https://news.ycombinator.com/item?id=6291096
If real GDP growth stops or even becomes negative
Given that return on invested capital has been decreasing 1965-2009, and I've seen similar charts for GDP, we're on track for that. How our banking/finance system resolves that situation will be ... interesting
http://www.deloitte.com/view/en_US/us/Insights/Browse-by-Con...
http://www.forbes.com/sites/stevedenning/2012/01/25/shift-in...
I still don't see an argument that the real interest rate is decreased by long-term stable inflation.
I need to think this over a bit more. I'm not sure there is a stable long-term relationship here -- the financial system is part of the internal control and feedback system of the economy, growth is ultimately dependent on exogenous factors (notably resources). So it's fair to say that the real interest rate is determined by the nominal rate and the inflation rate. And the nominal interest rate is strongly influenced by the real rate of return on investment. See Shift Index above.
Though I'm trying to reconcile that with the low interest rates of the late 1960s / early 1970s and high interest of 1979-1982 or so.
Given that return on invested capital has been decreasing 1965-2009, and I've seen similar charts for GDP, we're on track for that. How our banking/finance system resolves that situation will be ... interesting
http://www.deloitte.com/view/en_US/us/Insights/Browse-by-Con...
http://www.forbes.com/sites/stevedenning/2012/01/25/shift-in...
I still don't see an argument that the real interest rate is decreased by long-term stable inflation.
I need to think this over a bit more. I'm not sure there is a stable long-term relationship here -- the financial system is part of the internal control and feedback system of the economy, growth is ultimately dependent on exogenous factors (notably resources). So it's fair to say that the real interest rate is determined by the nominal rate and the inflation rate. And the nominal interest rate is strongly influenced by the real rate of return on investment. See Shift Index above.
Though I'm trying to reconcile that with the low interest rates of the late 1960s / early 1970s and high interest of 1979-1982 or so.
If real GDP growth stops or even becomes negative
Given that return on invested capital has been decreasing 1965-2009, and I've seen similar charts for GDP, we're on track for that. How our banking/finance system resolves that situation will be ... interesting
http://www.deloitte.com/view/en_US/us/Insights/Browse-by-Con...
http://www.forbes.com/sites/stevedenning/2012/01/25/shift-in...
I still don't see an argument that the real interest rate is decreased by long-term stable inflation.
I need to think this over a bit more. I'm not sure there is a stable long-term relationship here -- the financial system is part of the internal control and feedback system of the economy, growth is ultimately dependent on exogenous factors (notably resources). So it's fair to say that the real interest rate is determined by the nominal rate and the inflation rate. And the nominal interest rate is strongly influenced by the real rate of return on investment. See Shift Index above.
Though I'm trying to reconcile that with the low interest rates of the late 1960s / early 1970s and high interest of 1979-1982 or so.
Perhaps you want the government to stop borrowing when the Limits of Growth have been reached?
Not so much "want" as "it will have to, as the costs of borrowing will start increasing uncontrollably".
But (a) we are not at this point yet
You and I disagree on that point.
(b) how would you recognize when we've reached this point?
Real, depreciation-adjusted (e.g., declining stocks of energy reserves), EROEI-adjusted, quality-of-life adjusted aggregate and per-capita growth falling. GDP itself is a poor metric, it's mostly just easy to obtain (sum up everyone's incomes). There are other alternatives which have been proposed: FISH, GPI, UNHDI, among them.
A long, sustained, global recession or depression from which neither fiscal nor monetary stimulus seems sufficient to restore growth might lend another clue.
zero unemployment and real GDP is still shrinking?
I'd expect unemployment to be rather nonzero. Better: workforce participation rates to be low despite considerable pressures for individuals to seek out work.
Given that return on invested capital has been decreasing 1965-2009, and I've seen similar charts for GDP, we're on track for that. How our banking/finance system resolves that situation will be ... interesting
http://www.deloitte.com/view/en_US/us/Insights/Browse-by-Con...
http://www.forbes.com/sites/stevedenning/2012/01/25/shift-in...
I still don't see an argument that the real interest rate is decreased by long-term stable inflation.
I need to think this over a bit more. I'm not sure there is a stable long-term relationship here -- the financial system is part of the internal control and feedback system of the economy, growth is ultimately dependent on exogenous factors (notably resources). So it's fair to say that the real interest rate is determined by the nominal rate and the inflation rate. And the nominal interest rate is strongly influenced by the real rate of return on investment. See Shift Index above.
Though I'm trying to reconcile that with the low interest rates of the late 1960s / early 1970s and high interest of 1979-1982 or so.
Perhaps you want the government to stop borrowing when the Limits of Growth have been reached?
Not so much "want" as "it will have to, as the costs of borrowing will start increasing uncontrollably".
But (a) we are not at this point yet
You and I disagree on that point.
(b) how would you recognize when we've reached this point?
Real, depreciation-adjusted (e.g., declining stocks of energy reserves), EROEI-adjusted, quality-of-life adjusted aggregate and per-capita growth falling. GDP itself is a poor metric, it's mostly just easy to obtain (sum up everyone's incomes). There are other alternatives which have been proposed: FISH, GPI, UNHDI, among them.
A long, sustained, global recession or depression from which neither fiscal nor monetary stimulus seems sufficient to restore growth might lend another clue.
zero unemployment and real GDP is still shrinking?
I'd expect unemployment to be rather nonzero. Better: workforce participation rates to be low despite considerable pressures for individuals to seek out work.
> since all inflation is created by the US government
... no. You're confusing currency with money. Governments create the former. The latter (which is a much larger number) is the result of any lending (be it by the Fed or a private bank), and "inflation" is a virtually inescapable side effect. Any macroeconomics textbook would have told you this. Even a google search for "how banks create money" should do pretty well.
But you can continue feeding your macroeconomic intuition with stuff you read on WND or see on Fox if you like.
... no. You're confusing currency with money. Governments create the former. The latter (which is a much larger number) is the result of any lending (be it by the Fed or a private bank), and "inflation" is a virtually inescapable side effect. Any macroeconomics textbook would have told you this. Even a google search for "how banks create money" should do pretty well.
But you can continue feeding your macroeconomic intuition with stuff you read on WND or see on Fox if you like.
Fractional reserve banking is only one way the fed can create inflation, POMO is another. I'm sure you've heard of quantitative easing. And while excessive money demanding "stuff" is the mechanism by which prices go up, first there has to be a lot of cash, which is the purview of the fed. They can't mandate how banks lend, which is why consumer inflation isn't out of control, but the fed can directly influence asset markets, and the signs of which are everywhere. Fear of the "fed taper" tells us how important this support is to asset prices.
Long term QE can destroy money just as easily as create it. The FED only has two ways to create money long term buy loans that area not going to be paid back or rescue depositors from failed banks which is effectively buying already failed loans. QE often buys assets which may be worth more in the future and is thus a temporary measure like lowering banks reserve requirements.
Edit: OK, they can also make negative interest loans but that's both rediculusly rare and creates tiny amounts of currency relative to the amount loaned.
PS: Consider what happens when they buy a US treasury note it's worth say 100million now while they hold the bond there is extra 100 million floating around. However if they sell it in a year they just removed 102 million from circulation net result 2 million is forever gone.
Edit: OK, they can also make negative interest loans but that's both rediculusly rare and creates tiny amounts of currency relative to the amount loaned.
PS: Consider what happens when they buy a US treasury note it's worth say 100million now while they hold the bond there is extra 100 million floating around. However if they sell it in a year they just removed 102 million from circulation net result 2 million is forever gone.
There are a few misconceptions about money here.
- QE is about creating new money. The buying of loans is merely a way to distribute it; instead of just giving the money away, the central banks buys an asset (any asset would do) so nobody gets an unfair advantage through distributing the new money.
- all loans can be repaid. At the end, people would just own dollar bills which in turn don't depend on anything else for their value.
- a lot of the confusion around money comes from confusing different sorts of money as being the same thing. We commonly use two sorts of money: Base money (e.g. dollar bills) that depend on nothing. This form of money can only be (legally) created and destroyed by the central bank. The second form of money is Bank money which is a loan of Base money. THis form of money can be created or destroyed by many individuals and banks.
- As an example of Base money vs Bank money, when I pay $100 into a bank, I have really loaned the money to the bank - it owes me $100. Yet I can "spend" this loan with my bank card and by goods from a shop, now the shop is owed $100 by the bank. The loan is a form of money; I really did have some Bank money. But the original $100 bills were sat in the bank vault, and they are definitely still (Base) money.
- QE is about creating new money. The buying of loans is merely a way to distribute it; instead of just giving the money away, the central banks buys an asset (any asset would do) so nobody gets an unfair advantage through distributing the new money.
- all loans can be repaid. At the end, people would just own dollar bills which in turn don't depend on anything else for their value.
- a lot of the confusion around money comes from confusing different sorts of money as being the same thing. We commonly use two sorts of money: Base money (e.g. dollar bills) that depend on nothing. This form of money can only be (legally) created and destroyed by the central bank. The second form of money is Bank money which is a loan of Base money. THis form of money can be created or destroyed by many individuals and banks.
- As an example of Base money vs Bank money, when I pay $100 into a bank, I have really loaned the money to the bank - it owes me $100. Yet I can "spend" this loan with my bank card and by goods from a shop, now the shop is owed $100 by the bank. The loan is a form of money; I really did have some Bank money. But the original $100 bills were sat in the bank vault, and they are definitely still (Base) money.
I generally agree with what your saying, but...
As I said QE is about creating money in the short term. However, there are vary good reasons why the FED buys bonds vs say Gold. A major goal is to reduce the interest rate on long term loans. But, this means that the asset they acquire is generally worth more nominal dollars in the future. So when sold or simply paid back the money supply shrinks.
That's not to say the FED can't purchase more assets to make up for the lost money. But, the temperary nature of QE is seen as a benifit that helps avoid inflation.
As I said QE is about creating money in the short term. However, there are vary good reasons why the FED buys bonds vs say Gold. A major goal is to reduce the interest rate on long term loans. But, this means that the asset they acquire is generally worth more nominal dollars in the future. So when sold or simply paid back the money supply shrinks.
That's not to say the FED can't purchase more assets to make up for the lost money. But, the temperary nature of QE is seen as a benifit that helps avoid inflation.
I'm curious. By what mechanism and on what timeline do you think that QE will end?
Yes, I'm aware that it is promised to be temporary. I'm also aware of how the markets freaked out not long ago when Bernanke hinted that the Fed might consider exiting QE2 ahead of schedule if the economy continued to recover faster than expected. (This very innocuous statement was quickly retracted.)
It is therefore clear that the markets have no expectation that there will be an exit from the policy any time soon. And people that I've talked to on Wall St do not see a viable way to do it short of currency collapse.
Yes, I'm aware that it is promised to be temporary. I'm also aware of how the markets freaked out not long ago when Bernanke hinted that the Fed might consider exiting QE2 ahead of schedule if the economy continued to recover faster than expected. (This very innocuous statement was quickly retracted.)
It is therefore clear that the markets have no expectation that there will be an exit from the policy any time soon. And people that I've talked to on Wall St do not see a viable way to do it short of currency collapse.
> PS: Consider what happens when they buy a US treasury note it's worth say 100million now while they hold the bond there is extra 100 million floating around. However if they sell it in a year they just removed 102 million from circulation net result 2 million is forever gone.
No, the 2 millions are paid out as dividends to the government.
No, the 2 millions are paid out as dividends to the government.
It depends on whether you consider the fed a part of the government I suppose.
It really doesn't. Even including the bailout loans (and the argument about whether they constitute "loans" per se, yada yada), the overwhelming majority of lending is done by private banks. And that's where money comes from.
The idea that inflation happens because of "printing money" is a fiction. And a harmful one, IMHO, because it gets used as above as an argument to support some pretty ridiculous policies.
The idea that inflation happens because of "printing money" is a fiction. And a harmful one, IMHO, because it gets used as above as an argument to support some pretty ridiculous policies.
Fractional reserve banking has a limit, because the bank always need to keep said fraction. So that creates inflation up to a point - then it stops. The government can print infinite money without end, creating consistent, never-ending debasement. That's the difference.
The banking system on its own could not account for consistently rising prices for the past hundred (or however many) years.
The banking system on its own could not account for consistently rising prices for the past hundred (or however many) years.
Fractional reserve banking has a limit, because the bank always need to keep said fraction.
The thing is, though, that banks hand out loans independently of how much reserves they have. Only afterwards do they check whether they need more reserves, and obtain them if necessary. This is even reflected in the internal organization of banks: Loans and reserves are in different departments.
The central bank creates new reserves as a reaction to increased demand by banks as part of its normal operation. It is not a political decision to do so. The political decision is to set the target interest rate (Fed funds rate). The money supply fluctuates to accommodate the demand of borrowers given that interest rate. Because of that, private banks can and do account for the monetary expansion that goes hand in hand with rising prices.
However, it is probably more accurate to say that banks accommodate rising prices, i.e. the causality goes from rising prices to an increase of money (that is, causality goes from right to left in MV = PQ).
Most importantly, firms use more credit to cover their operating expenses as prices rise, and home owners take out larger mortgages as house prices rise, etc. This increase in the loan volume as a reaction to price increases is what drives the growth in the money supply.
All this about reserves is of course very far away from the fairy-tale stories of banks taking in deposits and loaning them out. Unfortunately, banking tends to be pretty opaque, and you really need to dig into this stuff to understand it. People like the MMT bloggers have popularized a proper understanding though, so it's not as difficult as it used to be (the MMT bloggers like Bill Mitchell and Randall Wray tend to have blind spots in other areas, but they have studied the monetary system pretty thoroughly and know what they're writing about in that regard).
The thing is, though, that banks hand out loans independently of how much reserves they have. Only afterwards do they check whether they need more reserves, and obtain them if necessary. This is even reflected in the internal organization of banks: Loans and reserves are in different departments.
The central bank creates new reserves as a reaction to increased demand by banks as part of its normal operation. It is not a political decision to do so. The political decision is to set the target interest rate (Fed funds rate). The money supply fluctuates to accommodate the demand of borrowers given that interest rate. Because of that, private banks can and do account for the monetary expansion that goes hand in hand with rising prices.
However, it is probably more accurate to say that banks accommodate rising prices, i.e. the causality goes from rising prices to an increase of money (that is, causality goes from right to left in MV = PQ).
Most importantly, firms use more credit to cover their operating expenses as prices rise, and home owners take out larger mortgages as house prices rise, etc. This increase in the loan volume as a reaction to price increases is what drives the growth in the money supply.
All this about reserves is of course very far away from the fairy-tale stories of banks taking in deposits and loaning them out. Unfortunately, banking tends to be pretty opaque, and you really need to dig into this stuff to understand it. People like the MMT bloggers have popularized a proper understanding though, so it's not as difficult as it used to be (the MMT bloggers like Bill Mitchell and Randall Wray tend to have blind spots in other areas, but they have studied the monetary system pretty thoroughly and know what they're writing about in that regard).
Do most people take "printing money" literally? I assumed that it meant creation of money, not actually printing it. Of course if everyone came to get cash from the banks the fed would literally have to print physical money or the banks would default.
Finally, if the fed didn't exist do you think the free market would allow banks to have such low reserve requirements? I'm guessing that the fear of bank runs and bankruptcy would significantly limit the amount they loaned (created).
Finally, if the fed didn't exist do you think the free market would allow banks to have such low reserve requirements? I'm guessing that the fear of bank runs and bankruptcy would significantly limit the amount they loaned (created).
Well, one can say that a bank giving a loan in a fractional reserve banking system is printing money.
Yes, though ajross's point was about the causality of things. Printing money by itself does not cause inflation, no matter who does the printing.
Inflation is a matter of supply and demand. As long as there is excess supply, one can buy the supply with newly created money without raising prices. That's supply and demand 101.
The only tricky part is figuring out how much money can be safely printed. Central planning tends to be bad at this (which is why so-called military Keynesianism is a bad idea from an economics point of view, even if you don't care about pacifism).
The trick is to figure out a decentralized and automatic approach. That is, an approach that automatically increases the amount of money creation when there's slack in the economy, and automatically scales back when the economy is operating at full capacity.
Inflation is a matter of supply and demand. As long as there is excess supply, one can buy the supply with newly created money without raising prices. That's supply and demand 101.
The only tricky part is figuring out how much money can be safely printed. Central planning tends to be bad at this (which is why so-called military Keynesianism is a bad idea from an economics point of view, even if you don't care about pacifism).
The trick is to figure out a decentralized and automatic approach. That is, an approach that automatically increases the amount of money creation when there's slack in the economy, and automatically scales back when the economy is operating at full capacity.
>As long as there is excess supply, one can buy the supply with newly created money without raising prices
I don't understand how this works in the case of, say, quantitative easing, which released tons of new cash into the economy, while nothing else had fundamentally changed with regard to supply in the economy. By your definition, wouldn't that create rampant inflation?
Or, are you saying that much of that money ended up in the equities market vs. "in the economy" as fresh demand, which allowed supply/demand equlibrium to remain virtually unchanged?
I don't understand how this works in the case of, say, quantitative easing, which released tons of new cash into the economy, while nothing else had fundamentally changed with regard to supply in the economy. By your definition, wouldn't that create rampant inflation?
Or, are you saying that much of that money ended up in the equities market vs. "in the economy" as fresh demand, which allowed supply/demand equlibrium to remain virtually unchanged?
Exactly: Quantitative easing did not release new cash into the economy. It only swapped assets that banks held (such as treasuries) for central bank money (aka "reserves"). This is why you saw some asset price increases (which is the stated goal of QE), but almost no effects in the real economy (which is the other stated, but unrealistic, goal of QE).
Printing money by itself does not cause inflation.
You can quibble on what "causing inflation is", but:
- Money is a lien on production of goods and services, e.g., "real wealth" (as opposed to "financial wealth").
- Increasing the amount of money in circulation means that each unit can demand a smaller portion of those goods and services.
- Whether or not inflation is experienced depends on whether or not the money supply, or real wealth, are increasing faster. However we can absolutely say that increasing the money supply will increase inflation over not increasing it.
- Modulo various other factors: is money being destroyed elsewhere in the system (bonfires of Franklins, asset bubble crash, loan defaults, negative real reaturn on business investment)? In that case, net inflation may still be negative, but once again producing more money increases the relative rate of inflation, even if that only means you're deflating more slowly.
- The other principle question is how the new monies are introduced to the economy, which is a matter of some debate, for both economic effectiveness and equity. Many have argued that the TARP bailouts were distortionary in that they provided additional financial wealth to banks and other institutions, many of which were directly implicated in the crisis precipitating the bailouts, creating massive perverse incentives. Alternatives would be allocating the funds evenly throughout the economy -- "throwing money out of helicopters" (where, to avoid the obtuse objection of one thick-headed oaf I was discussing this with recently, we make clear that there are lots of helicopters flying high and the money is distributed evenly through the population), or through a lottery (compulsory, you're entered no matter what) such that the distribution is "clumpy" but random -- present wealth or status plays no role in elevating or decreasing your chance of receipt.
And how the monies are destributed has some role in how pricing signals propogate. But in general: more money == higher inflation. Again, even if that means a lower rate of deflation.
You can quibble on what "causing inflation is", but:
- Money is a lien on production of goods and services, e.g., "real wealth" (as opposed to "financial wealth").
- Increasing the amount of money in circulation means that each unit can demand a smaller portion of those goods and services.
- Whether or not inflation is experienced depends on whether or not the money supply, or real wealth, are increasing faster. However we can absolutely say that increasing the money supply will increase inflation over not increasing it.
- Modulo various other factors: is money being destroyed elsewhere in the system (bonfires of Franklins, asset bubble crash, loan defaults, negative real reaturn on business investment)? In that case, net inflation may still be negative, but once again producing more money increases the relative rate of inflation, even if that only means you're deflating more slowly.
- The other principle question is how the new monies are introduced to the economy, which is a matter of some debate, for both economic effectiveness and equity. Many have argued that the TARP bailouts were distortionary in that they provided additional financial wealth to banks and other institutions, many of which were directly implicated in the crisis precipitating the bailouts, creating massive perverse incentives. Alternatives would be allocating the funds evenly throughout the economy -- "throwing money out of helicopters" (where, to avoid the obtuse objection of one thick-headed oaf I was discussing this with recently, we make clear that there are lots of helicopters flying high and the money is distributed evenly through the population), or through a lottery (compulsory, you're entered no matter what) such that the distribution is "clumpy" but random -- present wealth or status plays no role in elevating or decreasing your chance of receipt.
And how the monies are destributed has some role in how pricing signals propogate. But in general: more money == higher inflation. Again, even if that means a lower rate of deflation.
Hmmm, there are a lot of opinions and not many hard fact on this topic.
The majority of cultures and religions in human history shared the opinion that in general lending for interest leads to instability.
The majority of cultures and religions in human history shared the opinion that in general lending for interest leads to instability.
The majority of cultures and religions in human history are no longer around.
Joking aside... most of the societies that shared this belief tried to justify interest lending as morally dubious rather than presenting reasoned arguments as to why such a practice was unstable.
And perhaps they had a point. There's a difference between predatory lending to pilgrims at a temple and lending for an interest rate that's close to the expected time value of the money borrowed.
But extraordinary claims require extraordinary evidence. I'm inclined to side with today's economists.
Joking aside... most of the societies that shared this belief tried to justify interest lending as morally dubious rather than presenting reasoned arguments as to why such a practice was unstable.
And perhaps they had a point. There's a difference between predatory lending to pilgrims at a temple and lending for an interest rate that's close to the expected time value of the money borrowed.
But extraordinary claims require extraordinary evidence. I'm inclined to side with today's economists.
Money is "printed" everytime a credit card is swiped. This is detailed (though with check writing instead of credit cards) in a great little booklet[1] that the Federal Reserve put out in in the 1970s:
"The actual process of money creation takes place primarily in banks. As noted earlier, checkable liabilities of banks are money. These liabilities are customers' accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers' accounts.
In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.
It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their "deposit receipts" whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.
Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented for payment.
Transaction deposits are the modern counterpart of bank notes. It was a small step from printing notes to making book entries crediting deposits of borrowers, which the borrowers in turn could "spend" by writing checks, thereby "printing" their own money."
Modern Money Mechanics - Federal Reserve Bank of Chicago
[1] http://en.wikisource.org/wiki/Modern_Money_Mechanics/Introdu...
"The actual process of money creation takes place primarily in banks. As noted earlier, checkable liabilities of banks are money. These liabilities are customers' accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers' accounts.
In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.
It started with goldsmiths. As early bankers, they initially provided safekeeping services, making a profit from vault storage fees for gold and coins deposited with them. People would redeem their "deposit receipts" whenever they needed gold or coins to purchase something, and physically take the gold or coins to the seller who, in turn, would deposit them for safekeeping, often with the same banker. Everyone soon found that it was a lot easier simply to use the deposit receipts directly as a means of payment. These receipts, which became known as notes, were acceptable as money since whoever held them could go to the banker and exchange them for metallic money.
Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money. More notes could be issued than the gold and coin on hand because only a portion of the notes outstanding would be presented for payment at any one time. Enough metallic money had to be kept on hand, of course, to redeem whatever volume of notes was presented for payment.
Transaction deposits are the modern counterpart of bank notes. It was a small step from printing notes to making book entries crediting deposits of borrowers, which the borrowers in turn could "spend" by writing checks, thereby "printing" their own money."
Modern Money Mechanics - Federal Reserve Bank of Chicago
[1] http://en.wikisource.org/wiki/Modern_Money_Mechanics/Introdu...
It's not clear that commodity money or coinage existed before paper notes. Certainly the story of civilizations moving from barter to money to more complex instruments is false, but also: coins were not used any more than they are today. You might get some change back from a street vendor, but most transactions are cashless. In Anglo-Saxon England, the kings periodically recalled all coins and had them reminted. The coin of the realm wasn't necessarily anything more than a unit of account, something for prices to be denominated in. Various ancient law codes tend to be very specific about how many shekels a goat is worth (depending on sex, age, and condition), so that you can trade it directly.
The origins of modern bank notes probably have more to do with the Knights Templar than goldsmiths.
The point you were trying to make is accurate enough, but the source you're quoting is both lengthy and simplistic past the point of being correct.
The origins of modern bank notes probably have more to do with the Knights Templar than goldsmiths.
The point you were trying to make is accurate enough, but the source you're quoting is both lengthy and simplistic past the point of being correct.
> It's not clear that commodity money or coinage existed before paper notes.
Coins were around for millenia before paper money. The earliest paper money I know of is the bark money written of by Marco Polo [1]. Europeans got their idea for paper money from the Chinese.
[1] http://www.fee.org/the_freeman/detail/marco-polo-on-money
Coins were around for millenia before paper money. The earliest paper money I know of is the bark money written of by Marco Polo [1]. Europeans got their idea for paper money from the Chinese.
[1] http://www.fee.org/the_freeman/detail/marco-polo-on-money
Fractional reserve banking is a distinct concept from a central bank, although the two are used together. Parent is arguing that fractional reserve banking creates more inflation than the Fed does.
> [money] (which is a much larger number) is the result of any lending (be it by the Fed or a private bank), and
"Lending" money at 0% interest is monetary inflation. The banks in the federal reserve system are not private except in the sense that their profits are private. No one else gets handed money at virtually 0% interest.
> "inflation" is a virtually inescapable side effect
Are you talking about monetary inflation or price inflation? The lack of this distinction is why these discussions are always pointless.
"Lending" money at 0% interest is monetary inflation. The banks in the federal reserve system are not private except in the sense that their profits are private. No one else gets handed money at virtually 0% interest.
> "inflation" is a virtually inescapable side effect
Are you talking about monetary inflation or price inflation? The lack of this distinction is why these discussions are always pointless.
If you want to some useful documentary about the creation of money I was really impressed by that one: http://www.youtube.com/watch?v=TwmM5Nb6hiE
Very clear explanation on how the money is created (through lending/debt), very informative even if the documentary advocate a monetary reform the beginning is not biased.
Very clear explanation on how the money is created (through lending/debt), very informative even if the documentary advocate a monetary reform the beginning is not biased.
I watched about 20 minutes, but I do feel like this video has an agenda. It goes on about how the Federal Reserve System is a private corporation that makes a profit. That's true, but the board members (and other key positions) are selected by the President of the United States and confirmed by the Senate, and all the profits are transferred to the US Treasury. The video wants you to think Lehman Brothers (evil) when it's really like the Post Office (benign).
I agree with you, that's why I said that the beginning is the only very informative part (creation of money, the origins with gold) which was new to me as I'm not born in the US.
Nit: Bitcoin is not anonymous - It is hard pseudonymous. Wallets are known, balances are public, you can be tracked; It's really the IRS's dream, in some ways.
So clearly the answer is: you can remain anonymous, so long as you pay tax on your income.
So if you're reasonably careful you can earn an income on bitcoin and spend it in bitcoin, you just have to issue payment to the IRS for (.25 * income_in_BTC) otherwise they go after you and aggressively deanonymize you and hit you with a bill for (.9 * income_in_BTC). And the IRS really doesn't care if you're using your share to buy weed on Silk Road; they only care that you're not contributing your fair share.
Bonus: We get to tax income of non-US-Citizens ( benefits of empire ).
So if you're reasonably careful you can earn an income on bitcoin and spend it in bitcoin, you just have to issue payment to the IRS for (.25 * income_in_BTC) otherwise they go after you and aggressively deanonymize you and hit you with a bill for (.9 * income_in_BTC). And the IRS really doesn't care if you're using your share to buy weed on Silk Road; they only care that you're not contributing your fair share.
Bonus: We get to tax income of non-US-Citizens ( benefits of empire ).
I recently finished reading "Crypto: Secrecy and privacy in the new code war" by Steven Levy - and it sounds like bitcoin is going the way of cryptography in the 90s. The US Government wants to control it but doesn't get it enough to be very effective, and it's out of the bag so it is used internationally.
I seriously wonder if this is a bug that can be squashed - who says there won't be more variations of digital currency that's based on cryptography.
I seriously wonder if this is a bug that can be squashed - who says there won't be more variations of digital currency that's based on cryptography.
It can be squashed easily - declare it an illegal, terrorist financing activity; send a few guys to Guantanamo and the 80% of the population, that matter, won't touch it.
All dollars are created out of nothing. That's what fiat is. Worthless bits of paper you have to acquire to not go to jail. It's the way societies have organized themselves since the advent of agriculture.
Is that right? I thought fiat was a lot more recent.
Fiat (credit) came first. As trust in central authorities broke down, barter & convertible currencies came into vogue.
A good book on the subject: http://www.amazon.com/Debt-The-First-000-Years/dp/1612191290
A good book on the subject: http://www.amazon.com/Debt-The-First-000-Years/dp/1612191290
The feds should love bitcoin - it stores a record of every transaction ever made. It's an auditor's dream.
Indeed, and thanks to non-repudiation they simply have to verify once that a given wallet belongs to a certain someone and they've solved that many more layers of that fully-documented transaction history.
A relevant recent article:
http://www.wired.com/wiredenterprise/2013/08/bitocoin_anonym...
http://www.wired.com/wiredenterprise/2013/08/bitocoin_anonym...
"drives jobs away" please, there are way more things that drive jobs away
"3$ to get money out of an ATM" Maybe you should 1) get a bank that refunds the fee 2) consider that there are costs associated with the physical ATM
"3$ to get money out of an ATM" Maybe you should 1) get a bank that refunds the fee 2) consider that there are costs associated with the physical ATM
Bitcoin removes the physical costs. Instant competitive advantage. So the proponent argument saying atms are outdated and obsolete, thus meaning they are a drain on the economy to maintain rather than productive, still holds.
It's usually free to get money out of an ATM where I live (using a debit card, in this bank's or affiliated ATM).
That is, you get every bit of what's charged to your account.
That is, you get every bit of what's charged to your account.
Bitcoin is only as anonymous as the blockchain allows. The sooner LE & bitcoin exchangers unify forces and convince Congress to act on a national level (thus removing the regulatory uncertainty), the sooner BTC will be allowed by existing players to be adapted into mainstream financial system.
The shifting of BTC abroad aspect is a problem from the LE perspective, because it's akin to everything 'going dark.' Yes there are downsides to more regulation if you're looking for truly being off the grid, or are mainly a user of silk road --- but it will also allow the system to live in the open, much like the recent rulings from FinCEN equating BTC exchangers to MSB's and pulling them in to the existing framework that way.
The shifting of BTC abroad aspect is a problem from the LE perspective, because it's akin to everything 'going dark.' Yes there are downsides to more regulation if you're looking for truly being off the grid, or are mainly a user of silk road --- but it will also allow the system to live in the open, much like the recent rulings from FinCEN equating BTC exchangers to MSB's and pulling them in to the existing framework that way.
As mentioned elsewhere here, Modern Money Mechanics booklet published by the Federal Reserve Bank of Chicago is a very good read. It explains the concept of "money" at a very fundamental level. The booklet talks about how and where money is "created", who are the players involved, and a working example of how these things happen.
Search for "Modern Money Mechanics" by FRB Chicago.
edit - Sorry, just realized this comment might be off-topic.
Search for "Modern Money Mechanics" by FRB Chicago.
edit - Sorry, just realized this comment might be off-topic.
Bitcoin currently has a tiny market cap (1.3 B USD) compared to USD (~6 T). [1] Average BTC transaction volume is around $35 M USD/day or roughly $12 B USD/year. [2] This is comparable to stock market capitalization (57.5 T) to USD (6 T) currency ratio (10x).
If you were a mega kingpin, you'd be forced to use other means of cash washing (art, metals, jewels, etc.). There isn't enough volume in BTC to wash great amounts of money unless something more clever were used (such as using BTC to cover escrow/insurance, but not normally transacted). (Are there black/grey market insurance carriers? I'm guessing there are with %75 confidence.)
[1] http://bitcoincharts.com/bitcoin/
[2] http://blockchain.info/charts/estimated-transaction-volume-u...
If you were a mega kingpin, you'd be forced to use other means of cash washing (art, metals, jewels, etc.). There isn't enough volume in BTC to wash great amounts of money unless something more clever were used (such as using BTC to cover escrow/insurance, but not normally transacted). (Are there black/grey market insurance carriers? I'm guessing there are with %75 confidence.)
[1] http://bitcoincharts.com/bitcoin/
[2] http://blockchain.info/charts/estimated-transaction-volume-u...
I found it interesting that last night over the course of an hour the value of bitcoin jumped up by $10. Clearly some people with a lot of money to invest assumed the meeting had a positive outcome.
If you look at "market depth" plots, you'll see that a small desire to buy or sell BTC has a disproportionate impact on the market relative to market capitalization. Lots of people are sitting on bitcoin, so the few who make trades on any given day have an amplified effect on price.
Right now, ~1 million USD can shift the price of BTC by ~$5. That $5 shift changes the effective market capitalization by ~$57 million. You'll know things are stable when a million dollar purchase of BTC shifts the market cap by ~$1 million.
Right now, ~1 million USD can shift the price of BTC by ~$5. That $5 shift changes the effective market capitalization by ~$57 million. You'll know things are stable when a million dollar purchase of BTC shifts the market cap by ~$1 million.
You'll know things are stable when a million dollar purchase of BTC shifts the market cap by ~$1 million.
In all fairness, this is nothing special about BTC. For every financial asset ever, an X$ amount of transactions shifts the market capitalization by more than X$.
That's what makes those "X billion $ value destroyed by stock market movement" stories so ridiculous.
It would be interesting though to see a comparison of BTC to a range of different stocks and other assets.
In all fairness, this is nothing special about BTC. For every financial asset ever, an X$ amount of transactions shifts the market capitalization by more than X$.
That's what makes those "X billion $ value destroyed by stock market movement" stories so ridiculous.
It would be interesting though to see a comparison of BTC to a range of different stocks and other assets.
<img intent in-standard-src="med.png" in-mobile-src="small.png" />
Why not <img intent src="med.png" in-mobile-src="small.png" />?
Why not <img intent src="med.png" in-mobile-src="small.png" />?
bitcoin deserves a better classification - "digital gold" - anonymous and resistant to inflation as is gold, but portable and easily divisible for use as a medium of exchange. corrects some key faults of gold, although secure long-term storage is a different kind of challenge.
since all inflation is created by the US government as an unofficial policy (or official, depending on how you look at it) to fund an ongoing operating deficit, I can't see them taking lightly to any serious challenger to currency transactions.
the pricing of oil (among other things) in US dollars around the world is a major pillar of US economic strength and the government probably will tolerate bitcoin as long as it is a diversion, but will get serious if it grows, and try to ban it on money laundering grounds (because USD clearly can never be used for money laundering, right?).
i also think the "innovation in virtual currencies" is an interesting claim because there are plenty of other non-US virtual currencies to use for transactions - yuan, rubles, etc. they just don't have the gold-like aspects of bitcoin.