The Bitcoin Standard

John K said:
Basically it says Governments should lower taxes and borrow in a recession, and increase public spending in order to raise economic activity. The classic way was to raise taxes, reduce public spending and balance the government books in recession. But this was disastrous during the Great Depression.
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Yeah, and from we can deduce that he thought government debt is not a problem. Because guess what, lower taxes + higher government spending = higher deficit/debt. I know he thinks that debt will reduce in good times, but history shows that this either doesn't happen or it reduces at much slower pace than it grows.

He also thought inflation is not a problem, because he is "depression economist" and inflation is not supposed to happen in a depression/recession.

He was wrong on both of those.
 
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Anyway, on one podcast I heard this interesting fact:

Global debt (government + private) is cca 400 trillion, while global GDP is 100 trillion. If we assume that the average interest coupon per year on global debt is 3%, that means global GDP needs to grow at 12% per year just to keep the debt/gdp ratio constant. And this doesn't even include the fact that most government run deficits on yearly basis (they spend more than they receive).

There is no way global GDP will grow at 12%, thus currency depreciation needs to make the difference (because inflation reduces the real debt burden).

All fiat currencies are melting ice cubes.
 
philostam said:
Yeah, and from we can deduce that he thought government debt is not a problem. Because guess what, lower taxes + higher government spending = higher deficit/debt. I know he thinks that debt will reduce in good times, but history shows that this either doesn't happen or it reduces at much slower pace than it grows.

He also thought inflation is not a problem, because he is "depression economist" and inflation is not supposed to happen in a depression/recession.

He was wrong on both of those.
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Quite! It doesn’t work in stagflation, or when interest rates are so low already they can’t be reduced further. But he wasn’t wrong in an absolute sense - it’s horses for courses. Unfortunately politicians like to use the same sticking plasters for situations that don’t suit them. It’s moot how far it cured the Great Depression too - it was WW2 that had the greater impact on that. Not a recommendation though :sweatsmile:
 
So correct me if i’m wrong but aren’t there similar trends going on now within the current US and global market? Last year afaik the US reached the trillion mark on their gdp deficit.

I’m not sure what exact measurements they did now to counter this (vaguely recalling the plan to create a platinum dollar coin that should hold a certain high value or something), but in regards to the current market flow I do notice similarities to market evolution in regards to how Keynesian economics would be implemented in the past. As we are transitioning in a -raise the taxes, lower expenditure- phase now.
 
dragulagu said:
As we are transitioning in a -raise the taxes, lower expenditure- phase now.
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No chance.

They might raise taxes for super rich and corporations, but not for average person.

They are gonna try to inflate their debt away. So if inflation is 8%, that means that for same tax rates they get 8% more in revenue. Usually this would be balanced by raise in interest rates on government bonds, but not today. We are in deeply negative territory, where interest on their debt is 1-3%, while inflation is 8-10%. So they are reducing their debt by 5-7% a year, until something breaks.

What would break it? No buyers for government debt because no one want to lose money in real terms. In that case FED (and all other central banks) will have to step in and buy up all the treasuries, thus inflating the currency even more. Basically when FED buys treasuries, they are injecting new money into the economy.

Inflation is a mathematical certainty over the next decade. So, buy hard assets with limited supply that cannot be seized by governments, i.e, gold, real estate, Bitcoin :)
 
But that's something I do not completely get though, you can't keep on pushing inflation indefinitely. It does put more and more pressure on the economy, doesn't it? And we are already pushing far on that pressure lid.

As for taxes, Yes they are proposing to tax the super rich (Global Tax Agreement, etc.), but that doesn't mean this will be the end of all means for the general economy. For the past months -now speaking from a European perspective- Energy prices, Food and general Consumption prices (due to transportation fuel costs) have risen a lot in comparison with the European economical growth, for a variety of reasons. Europe is handling these costs but these costs are be pushed further onto its member states (and their citizens). So in general the cost of living has pumped up this year for the average European citizens already, while the wages are currently already lagging behind with this price increase. Which in turn lowers buying power of the European citizens and lowers average consumption. I doubt that the European governments can handle this situation without proposing tax increases in certain areas?

https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en
https://ec.europa.eu/info/sites/default/files/economy-finance/ip169_en.pdf
1.5.3. Inflationdevelopments

After decreasing on average by 0.3% in the last quarter of 2020, euro area prices started increasing again last year, gathering strong momentum in the last quarter of 2021. In December, HICP inflation in the euro area reached 5%, the highest reading on record. It averaged 4.6% in the fourth quarter, almost one percentage point higher than expected in autumn, and 2.6% in 2021 as a whole. In the EU, the inflation rate was 4.9% in the final quarter of 2021 and 2.9% for the year. Dispersion among the non-euro area Member States widened in the fourth quarter, with inflation ranging from 3.5% in Denmark to 7.3% in Poland. Dispersion was however exceptionally wide also in the euro area, mainly on account of the differential impact of energy inflation across EU countries.

(8) European Central Bank, Statistical Data Warehouse

Energy inflation was indeed the main driver of headline inflation in the euro area and beyond, though the December reading (25.9% in the euro area) came in a notch lower than in November, amidst fading base effects (see Box 1.2). Food inflation is also driving headline inflation up, with December registering a major increase in unprocessed food inflation (4.7%), on account of both a strong base effect from last year and solid month-on-month growth (1.5%). Averaged over the fourth quarter, unprocessed food inflation rose to 2.6% in the euro area. Higher input costs, in particular for fertilisers, are fuelling pressures on food prices.
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And I agree with you that it is within one's own interest to buy hard assets rather than invest in assets that can be heavily regulated (I would doubt that they would be able to just seize assets).
Bitcoin however, even though I do invest in crypto myself, is something I'd say to be wary of in the future. The governments still need to take the step to implement digital assets within their own controlled environment.

China has the Digital Yuan (e-CNY), the US government (Biden's executive order) proposed to invest into the research of a digital e-Dollar in 2022. India's digital Rupee will have a planned release in 2023. And Europe is, albeit slowly, also researching the possibility for the digital Euro. I'm not sure on Russia, perhaps the will implement bitcoin in their economic architecture, but with the whole current situation I don't think that's something that will be implemented immediately.

So Bitcoin, and all the digital crypto will either have to sidestep its position on the current market or will have to adhere to international taxation laws in accordance to agreements of the centralised (ironically) instances regulating the digital currency. So I wouldn't count bitcoin as a safe asset in the long term, without a clear vision on the outcome of digital currency. Even though more and more people are putting their earned money into it.
 
1. Well, no one is saying that inflation is gonna be easy. It's a very chaotic environment, akin to war, especially when you get to even higher numbers we have now. Imagine having 50% year on year inflation; this is the reality of many countries and reality of fiat currencies. No one wants this situation to occur, but it's part and parcel of fiat money.

If we think this cannot happen to G7 countries, I think we are wrong. There are some strong trends that counterbalance inflation though (technology, bad demographics etc.) so we'll see. I hope we avoid the worst. So far it's been smooth sailing.

2. I do not worry about central bank digital currencies. They are the opposite of Bitcoin. It's a centralized shitcoin designed to track your every purchase and with no supply cap. No thanks. Central bank digital currencies don't solve any problem.

3. I think governments around the world are too incapable to stop Bitcoin even if they want too. And I don't think they do. When they maybe do in few years, it will get to big to stop, it would require insane international collaboration. Plus, it's becoming politically very unpopular to be anti Bitcoin. Governments cannot even stop piracy and illegal streaming...Even China cannot stop Facebook and Youtube...The only way to stop Bitcoin is to shut down the internet, maybe. Or bomb all the mining rigs or something. It can be done, but it's not something I worry about.

Of course there are still risk and uncertainties. If they weren't, Bitcoin would cost 4 million a coin. Not 40k a coin. That's a good thing, it means we are still early.

From the risk/reward perspective, this is the best time in history to buy Bitcoin. But is it zero risk? Of course not.
 
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dragulagu said:
But that's something I do not completely get though, you can't keep on pushing inflation indefinitely. It does put more and more pressure on the economy, doesn't it? And we are already pushing far on that pressure lid.
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What happens to inflation very much depends on where we go from here. As long as wages fall well behind the inflation rate, it will stop people spending on non-essentials and they will cut back on essentials. This will put a major break on economies and cause a recession. If things keep going like that, eventually there will be civil unrest particularly in poor areas where people fall below the poverty line in increasing numbers. If nothing changes, the political scene will change radically towards extremist policies. The alternative, which is what happened in the 1970s, is that workers with strong unions will demand and get pay rises that match inflation - at that point it will become endemic as everyone else catches up and the cycle repeats year after year. Governments won't be able to borrow so easily and so interest rates will soar. There will be a hard few years, but the inflation will carry people's debts away to some extent and they will all like that - as @philostam says, Governments will like it too, but they have a fair proportion of index-linked debt commitments which means it's not quite so easy for them.

philostam said:
From the risk/reward perspective, this is the best time in history to buy Bitcoin. But is it zero risk? Of course not.
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Bitcoin is like any other investment that carries a bit of a risk - it's worth having something like it within a well balanced set of other investments. I don't think it's safe to have a very high proportion of your savings in it, but some is OK. Be prepared for big swings in value, but that's OK, lots of other investments such as gold and company stocks do the same. It's unwise to put any short term savings into bitcoin though in case you need access to it unexpectedly - unless you bought bitcoin to spend immediately of course.

Something that's worth pointing out is that one of the best investments in times of high inflation is debt. If you can borrow at interest rates well below inflation than you will gain - particularly if you use the cash to buy an asset that's increasing in value such as a house to live in. It's best not to borrow to invest in more volatile stuff such as stocks etc, because you can come badly unstuck and end up in debt that way if the investments go pear-shaped.
 
philostam said:
1. Well, no one is saying that inflation is gonna be easy. It's a very chaotic environment, akin to war, especially when you get to even higher numbers we have now. Imagine having 50% year on year inflation; this is the reality of many countries and reality of fiat currencies. No one wants this situation to occur, but it's part and parcel of fiat money.

If we think this cannot happen to G7 countries, I think we are wrong. There are some strong trends that counterbalance inflation though (technology, bad demographics etc.) so we'll see. I hope we avoid the worst. So far it's been smooth sailing.
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This is indeed a reality to a surprising amount of countries (Venezuela, Argentina, ... ), it is surreal that this could happen. I don't think it would happen to the G7 countries as they do have the countermeasures to balance out any possible trends towards hyperinflation. But as you said, thinking it would never happen is a mistake. Europe seems to currently dive itself into a slow-burn situation, it is giving away a lot of resources away to other superpowers. I'm not sure where it will stand economically in 10 years.

philostam said:
2. I do not worry about central bank digital currencies. They are the opposite of Bitcoin. It's a centralized shitcoin designed to track your every purchase and with no supply cap. No thanks. Central bank digital currencies don't solve any problem.
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Yes, but they do propose centralised regulation. And in some extent the propose the ability for artificially pumping the economy with virtual value. Central bank digital currencies don't solve any problem. Exactly, but they do propose a means to delay economical destabilisation.

philostam said:
3. I think governments around the world are too incapable to stop Bitcoin even if they want too. And I don't think they do. When they maybe do in few years, it will get to big to stop, it would require insane international collaboration. Plus, it's becoming politically very unpopular to be anti Bitcoin. Governments cannot even stop piracy and illegal streaming...Even China cannot stop Facebook and Youtube...The only way to stop Bitcoin is to shut down the internet, maybe. Or bomb all the mining rigs or something. It can be done, but it's not something I worry about.

Of course there are still risk and uncertainties. If they weren't, Bitcoin would cost 4 million a coin. Not 40k a coin. That's a good thing, it means we are still early.

From the risk/reward perspective, this is the best time in history to buy Bitcoin. But is it zero risk? Of course not.
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Could you explain your reasoning on this? I'm curious. Is it really the best time in history to buy bitcoin?
There is this global need -from the financial industry- to transfer anything fiat to everything digital. And the "Utopic" idea to have total regulation in expenditure and capital exchange.

John K said:
What happens to inflation very much depends on where we go from here. As long as wages fall well behind the inflation rate, it will stop people spending on non-essentials and they will cut back on essentials. This will put a major break on economies and cause a recession. If things keep going like that, eventually there will be civil unrest particularly in poor areas where people fall below the poverty line in increasing numbers. If nothing changes, the political scene will change radically towards extremist policies. The alternative, which is what happened in the 1970s, is that workers with strong unions will demand and get pay rises that match inflation - at that point it will become endemic as everyone else catches up and the cycle repeats year after year. Governments won't be able to borrow so easily and so interest rates will soar. There will be a hard few years, but the inflation will carry people's debts away to some extent and they will all like that - as @philostam says, Governments will like it too, but they have a fair proportion of index-linked debt commitments which means it's not quite so easy for them.
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So how do you see us going on from here? Inflation is a certain reality for the coming years.
 
dragulagu said:
Could you explain your reasoning on this? I'm curious. Is it really the best time in history to buy bitcoin?
There is this global need -from the financial industry- to transfer anything fiat to everything digital. And the "Utopic" idea to have total regulation in expenditure and capital exchange.
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Absolutely. I just think now it's more clear than ever that Bitcoin has what the world needs:

- Securing property rights for 8 billion people on the planet without counter-party risk. Permission-less and trust-less. Secured by cryptography and proof of work.
- Defense against currency depreciation and inflation that is destroying more and more countries in the world
- Transferring value over the internet without using a 3rd party. Low fees and fast settlement.

Just think about that. Is that what world needs? I think so. I think this a 100 trillion dollars idea, at least. I think cca 50% of the problems in the world are due to money. The rest is due to natural causes, sickness, war and whatever. Bitcoin fixes the first 50%.

That's also why I disagree with @John K. When you have a winning idea, you don't need to hedge it. Over the last 10 years you would do the best if you just picked few winning ideas and let them play out. Amazon, Google, Netflix, Apple, Tesla. You don't hedge Amazon with Walmart, and Google with Yahoo.

Of course it depends on your risk tolerance and age. I understand that with age, your risk tolerance drops.

But I am young and irresponsibly long on Bitcoin (I didn't take any debt though) :)

It feels good to truly believe in something.
 
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philostam said:
That's also why I disagree with @John K. When you have a winning idea, you don't need to hedge it. Over the last 10 years you would do the best if you just picked few winning ideas and let them play out. Amazon, Google, Netflix, Apple, Tesla. You don't hedge Amazon with Walmart, and Google with Yahoo.

Of course it depends on your risk tolerance and age. I understand that with age, your risk tolerance drops.

But I am young and irresponsibly long on Bitcoin (I didn't take any debt though) :)

It feels good to truly believe in something.
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LOL yes - run with it all the way if you are young and free of commitments, and think it will make you a fortune. You may win big, but it's got a strong element of gamble in it and you have to be willing to accept that you might lose heavily, even if you think that's unlikely. The guys jumping off skyscrapers in 1929 thought they were on just as sure-fire a prospect, but they'd borrowed to invest of course. I hope it works out well for you, and don't get me wrong, it very possibly will!

I wouldn't advise someone putting all their pension money into any single investment as they get older though, or all their savings if they have family commitments. Never invest what you aren't prepared to possibly lose is a good maxim.

I don't think it's a valid argument to look back over previous years and say all you have to do is pick the obvious winners - if it were that easy no-one would ever make an investment loss. It's dead easy to see the winners with hindsight, but they aren't easy to spot ahead of the game and even the professionals get it wrong - just look at how the collective funds fare over time and it's obvious most of them often even struggle to beat passive index trackers. What has been successful in the past is not a good guide to what will work in the future either.
 
dragulagu said:
So how do you see us going on from here? Inflation is a certain reality for the coming years.
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I think the second of these is more likely. I think we'll see wages starting to rise to the same degree as inflation and it'll spiral for a few years until the commodity price / demand equation stabilises and the central banks take coordinated action to raise interest rates and choke it off. The folks who'll be hit hardest are those on fixed incomes - pensioners and annuity holders. We'll see a lot more older folks on poverty level incomes, but living in increasingly valuable properties that they can no longer afford to run.

The fly in the ointment is what's happening in Russia and Ukraine. These countries have considerable control of key commodities that we need, and the Russians could weaponize these with unpredictable consequences.
 
Deep dive on Bitcoin (like 4 hours) with two MIT trained scientist. Good introduction IMO. Michael Saylor is the smartest man I listened to...maybe ever (An archetypal INTJ, by the way).

 
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Crypto people are hilarious.
Not a flavor of kool-aid I'll be drinking any time soon though.
 
philostam said:
Agree, Bitcoin is not the same as crypto.

99% of crypto shitcoins are going to zero. Bitcoin's innovation is real. Those are the words of Gary Gensler, current chair of SEC. He lectured on blockchain technology at MIT before that.
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Yeah, but also no. I don't share the same fervor.
 
Wyote said:
Yeah, but also no. I don't share the same fervor.
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That's fine.

It's good to be careful. Bitcoiners do have a bit of a tendency to be too iconoclastic and imagine the world under the Bitcoin standard that will be in every way better and fairer than today, without any unintended negative consequences.

We'll see. I am in this space for 2 years and still didn't find any good counter-argument that would break my conviction. And believe me, I'm skeptical by nature.

You're right that Bitcoin proponents have religious like dedication. That's also one difference between Bitcoin and any other financial asset. You don't get attached to Apple stock, but you do get attached to Bitcoin. That's why cca 65% of Bitcoin supply last moved 1+ year ago, meaning that 65% of holders don't mind the volatility and are not selling (at least not for a year or more).

That's also a neat thing about Bitcoin - all the transaction are public and seen on chain. It's a digital and publicly available ledger.
 
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