I am hardly an expert. But I (apparently) know a lot more than the average Joe. Seeing the rash of "end the fed" madness on the internet makes me very sad.
In other words, I think the arguments against why Bitcoin is needed in the US are interesting and all, but ultimately miss the point (in my opinion). As someone who came from a country where the central banks were anything but amazing, and there is essentially a 5/10 year cycle that inevitably leads to hyperinflation, I can attest that these problems are in fact very real -- not scary stories told by crazy libertarians -- even if they don't happen to take place in the richest nations on earth. As such, Bitcoin provides a very interesting new hope to solving these problems in these areas, as opposed to yet another unfair loan from the IMF or exploitative foreign investments.
It's kind of like laughing at how silly filtering water bottles are because we have great water sanitation in America, while ignoring that this is a real issue in Africa.
Germany 1930s - hyperinflation; Argentina 1990s - hyperinflation; USA 2010s - quantitative easing.
These can also be real problems even for the richest nations.
As you correctly mention - Iraq [1] & Libya [2] were essentially currency invasions and NOT oil invasions. Millions of innocent lives lost to keep the USD propped up. Wars that would make no sense under BTC.
[1] http://content.time.com/time/magazine/article/0,9171,998512,... [2] http://www.thenewamerican.com/economy/markets/item/4630-gadh...
The oil thing is nonsense. All oil sales are enumerated in USD for historical reasons only. Dictators who face embargo by the U.S. would rather sell oil for other currencies in order to evade the embargoes.
Iran is trying to sell oil on their own private oil bourse right now. It is an operating concern, today, in 2014. They are perfectly free to sell oil for other currencies, but they are not finding a lot of buyers.
And then those tokens become valuable themselves ?
I thought that explanation was quite interesting but was unsure of its value in describing the real world. BUT THEN, I remember the description in Zinns _Peoples History of the United States_ wherein he describes exactly that scenario:
Columbus wanted gold out of Haiti. There was none. They told the natives to get it anyway, and gave them copper necklaces to indicate that they had fulfilled their gold tribute. "Indians found without a copper token had their hands cut off and bled to death."
So ... to whatever degree this picture of money is accurate, and it appears that it is more accurate than I thought after simply reading "Debt", and to whatever degree central banking is a continuation of that process ... I would have to look askance at central banking, yes ?
[1] http://www.thirdworldtraveler.com/Zinn/Columbus_PeoplesHx.ht... (see paragraph that begins "But too many of the slaves died in captivity")
"The greater the need to improvise the more democratic the cooperation [within companies] tends to become. Inventors have always understood this, start-up capitalists frequently figure it out, and computer engineers have recently rediscovered the principle … Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other’s garages."
I wouldn't trust any part of anything in the book.
Learning other stuff in the process?
Gaining a better idea of what the thing you study entails, even if you don't understand it fully yet?
What I mean is, you can study something even if you know that you won't understand it at the end of your studies. There's even stuff that you can have a full career in and still not understand completely, like Quantum Mechanics.
It's not a guarantee that by studying something you'll understand it, but learning more about it can be valuable in itself.
For example I can study some X technique in a language, e.g Monads, and know when to apply it and what it does, and be quite productive with it, even if I don't yet understand it (or never get to understanding type theory).
> I came to this conclusion after spending a significant fraction of my too-short lifespan studying how money works.
Alright, I'll bite. Please educate me by answering these questions:
1) How are central banks "ranked"? What makes one better
than another?
2) What is the benefit of a central bank?
3) What makes fiat currency valuable?
4) Why is governments' ability to print limitless
amounts of fiat currency not a problem
with regard to its value?
5) .. and if it is, why are we all using fiat currency anyway?
Having the ability and using it are two completely different things.
"Competent economic management" (which establishes trust in a currency) is the answer to #2, #3. #1 - They are ranked by their primary objective which is slow stable growth.
#5 - because that is what has worked best.
1. Central banks are ranked on two measures: a.) How independent are they? Are they easily swayed by politicians? b.) How well do they meet their mandates? The U.S. Fed is universally well-regarded in terms of its independence. It does less well on its "dual mandate."
2. Central banking systems make cash and checking possible. Without central banking, your bank-denominated money (whether "checking" or cash) is valued only to the extent that a third party trusts your bank. Your twenty dollar bill printed in Philadelphia becomes valueless in New York, 100 miles away. Fixing this problem makes business transactions, particularly lending, easier and more efficient.
3. Broadly, fiat currency is valuable because other people deem it to be so. Specifically, even if no other person on earth wants it, the IRS and the courts will accept it. Being able to pay my taxes and satisfy court judgments against me in fiat currency places a floor on its value. (It is interesting to observe fiat systems where you de facto can't pay your taxes in the fiat currency: north korea, cuba, zimbabwe, etc)
4. Ability is not action. It is a problem when and if they do happen to do so. (returning to the ranking question, the central bank that printed limitless amounts of currency would be very poorly ranked, since they would fail to meet inflation mandates) Secondly, we want the money supply to rise and fall with the economy. It is very important that the printing of money is not limited artificially, or else we encounter liquidity crises, bank runs, etc. The ancient demons of inflation and deflation.
5. Because the prior standard for currency, precious metal, was dangerously uncontrollable. The very word "dollar" comes from a place in Germany where silver was unexpectedly found, causing an economic crisis across Europe as cheap silver flooded the market.
> 1. Central banks are ranked on two measures: a.) How independent are they?
Central banks are never independent, because they're extremely central in governments' control of their money supplies.
> Are they easily swayed by politicians?
Of course they are. They exist to serve politicians (especially the shadowy figures behind the scenes), and massive financial corporations with first access to "free" (0% interest) money, with which to buy real, productive assets.
> b.) How well do they meet their mandates? The U.S. Fed is universally well-regarded in terms of its independence.
Universally, huh? We must live in different universes. Sure, it's supposedly a "private" entity, but obviously married to the government, buying treasuries like there's no tomorrow.
> It does less well on its "dual mandate."
The Fed's "dual mandate" is supposedly to control interest rates and employment. Too bad it can't create jobs - the best it can do is stop fucking with the economy and let businesses create jobs. Interest rates have been zero (or near it) for years, in an attempt to maintain and create bubbles to keep that inflation going, to lighten the government's debt load etc, and to maintain the illusion that the US economy is not in shambles. It is.
> 2. Central banking systems make cash and checking possible
Oh, right. Because gold wasn't used as "cash" for millennia before central banks entered the picture? Money is just a medium of exchange, and gold was used as one exactly because its properties make it suitable for it.
> Without central banking, your bank-denominated money (whether "checking" or cash) is valued only to the extent that a third party trusts your bank
No, without central banking, my medium of exchange works just fine. That's why it's a medium of exchange - because it can be exchanged for stuff.
> Your twenty dollar bill printed in Philadelphia becomes valueless in New York, 100 miles away. Fixing this problem makes business transactions, particularly lending, easier and more efficient.
I'm not sure how to decipher this.
> 3. Broadly, fiat currency is valuable because other people deem it to be so.
Almost. Fiat currency is valuable because other people are willing to accept it in exchange for goods and services.
> Specifically, even if no other person on earth wants it, the IRS and the courts will accept it.
In fact, they will downright demand it. Governments will forcefully confiscate a percentage of what you earn, and strangely enough, they all want to get it in a specific fiat currency. Go figure.
> Being able to pay my taxes and satisfy court judgments against me in fiat currency places a floor on its value
Being forced to pay taxes in it does that. This, incidentally, was my point earlier, as I suspect you knew all along.
> 4. Ability is not action. It is a problem when and if they do happen to do so.
Oh? Does "QE" ring a bell? .. What about QE2? Or perhaps you're familiar with the still on-going QE3 they're talking about "tapering" to something like "only" 75 billion dollars per month in freshly created thin-air money?
You're so full of shit it stinks all the way to Finland. Again, not a surprise.
> Secondly, we want the money supply to rise and fall with the economy.
Who's we? And no, "we" don't. In fact, in a free market, the rising and falling of the money supply would be negligible because whatever would be used as currency could not be manipulated by anyone (by, say, pressing a button and conjuring 666 trillion quatloos into your account).
No one actually wants to use fiat currency, because it's manipulated at will by governments.
> 5. Because the prior standard for currency, precious metal, was dangerously uncontrollable.
Being uncontrollable is one of the fundamental reasons why gold was used as currency, and it's a fundamental reason for why Bitcoin has become so popular. Here in the real world, we really want our currencies to be uncontrollable by anyone.
For someone who's studied "how money works" for years, you sure are clueless about it. Of course, you might just be a government shill, out to mislead people.
When the economy is booming, if not enough gold is being mined to satisfy the need, you will have a tight money supply and all of the ugly consequences one associates with an excessively tight monetary policy. Credit becomes scarce. Growth slows. Prices fall.
If a few rich veins are discovered, and gold pours onto the market, you effectively have an excessively loose monetary "policy." Far too much gold chases too few goods. Prices rise. Bubbles inflate.
This is equally true of, say, Bitcoin. There is a fixed number being mined. A variable number are lost. Economic growth varies every year. If you were to use BTC as a national currency, your nation could be forced into an ugly monetary situation because you have put money supply outside your control. The money supply will grow and shrink for its own reasons, independently of your economy.
In any case, money supply is still a problem for businessmen. You have just surrendered human control of the supply to the natural environment (gold) or to a computer algorithm that doesn't account for your economic status in its inputs (BTC).
You got one of those right, Mr. Money Expert. I'll let you try and figure out which one.
> If a few rich veins are discovered, and gold pours onto the market, you effectively have an excessively loose monetary "policy."
The thing is, there's no need for a monetary "policy", and effecting one requires coercion. People will use whatever is the most suitable for a medium of exchange. It needs to be durable, easily divisible, valuable, and something that can't be just conjured up in massive quantities. Gold was used because it has these characteristics.
Other than that, you just leave people alone, and let them produce real wealth.
> your nation could be forced into an ugly monetary situation because you have put money supply outside your control
No, that would be a beautiful monetary situation, and "YOU" here can only be the government - some kind of central monopoly on violence that can force people to use its currency instead of whatever had emerged as a reliable medium of exchange.
You're still spewing bullshit. In a way, I hope you actually are a government shill whore puppet, instead of someone who wasted several years of his life on a completely clueless economics education.
This can be the blind "coercion" of a computer algorithm, the unintentional "coercion" of precious metals mining, or it can be the careful determination of a council of bureaucrats and businessmen.
Removing people from the equation is an option, but it doesn't remove the market forces.
No, it's coercion because I'm forced to pay taxes in a fiat currency of the government's choosing, and alternative currencies are shut down (by force, of course): https://en.wikipedia.org/wiki/Liberty_Dollar
> This can be the blind "coercion" of a computer algorithm, the unintentional "coercion" of precious metals mining
See above. Not that you're being sincere.
> Removing people from the equation is an option, but it doesn't remove the market forces.
I haven't talked about removing people from the equation.
It wouldn't make sense either, because "market forces" consist of people's actions in the market. What else could it be? It's very simple once you grasp even the very basics of how money and economies work.
Imposing a fixed amount of money on the world does not somehow imply that there is a fixed supply of money. This was a central problem in European economies for thousands of years.
You hate the central banks. Great. What's your solution? Chaining your economy to precious metals or a computer algorithm is an unpleasant alternative.
(An interesting historical option: rather than precious metals, Chinese accounts were historically backed by the productive capacity of the land. i.e. capital was defined in terms of rice. This had its own ugly side-effects. Still, it was, in many ways, less ugly than relying on precious metals, since money supply was at least somewhat correlated with economic activity)
Did you read Rothbard's "What has government done to our money?"
If not, do so, and come back to tell us how your mind changed, for good or bad.
Just as one does not read alchemical texts for insight into modern chemistry, I have not spent very much of my life reading the Austrian school.
There is certainly a great deal of historical interest for students of philosophy, but that isn't in line with my personal interests. Broadly speaking, the Austrian school has little relevance to the study of economics or finance.
If a currency or commodity accumulates value, the seller's incentive to acquire it is mathematically equal to the buyer's incentive to hoard it. Eventually, they meet in the middle and find a mutually agreeable price, because people will always want goods and services.