Successfully capitalizing isn't a problem. Like I've said before, he's contributing by deferring consumption. He isn't "not doing anything".

This isn't an arbitrage. If AK foolishly misses this opportunity, then he will be worse off than if he had invested.

And yes, people are better off. There are fewer Bitcoins bidding up the prices of the goods now. Everyone consuming today gets to benefit from that. Everyone investing today gets the benefit of that. You have this irrational fear that sitting on the sidelines is harmful, which is the opposite from the truth.

omfg, wtf, ftlog, jezuz....

AK is not foolish - he does not know if the project is +EV, he trusts TC to tell him that and he also trust R to tell him that....

all economy is always better by saving AND investing vs just saving, R concludes there is risk-free profit to be made (through higher purchasing power) by just saving so he doesn't invest, people are highly risk averse so a lot decide to not invest, the percentage of investments goes down, economy slows down vs the potential....

how clear can it be (read bold again)

and b) there is no bidding up, if we defer our consumption now for savings but NOT investments.we produce no benefits on total - smaller number of factories are build do to the lower demand. There is no bidding up in the long run all prices fall and if there is "bidding up" more factories lower the price back to equilibrium...

Whether he's foolish or not, he made an error if it is +EV. But it's his choice to not risk it. And no biggie, risk tolerance is a part of the equation for how much gets invested. He misses out, others gain (investing is now even cheaper for others!).

Bold is not always true. There are bad investments. There are time preferences (if you invest and save everything, you starve. Or you never enjoy life).

The money taken out for savings has no effect other than to make it more profitable for others in the future. It is a signal to the economy that some people are preferring consumption later to now. It is a signal for others to invest. There is nothing wrong with this signal.

You keep assuming it's wrong. It's not. That's why it isn't clear. Someone stuffing Bitcoins in a mattress is investing in a sense- they produced goods, then didn't consume anything, freeing them up for other people to use! They are in essence investing what they previously created indirectly. So of course they benefit.

For b- If everyone saves, and no one invests, this means people are not listening to what the economy wants and missing profit opportunities. If there is little consumption now, it means there are a great deal of resources available in the present and a ton of demand in the future. This screams "INVEST!!!!" So if people are dumb and don't invest, yes. But the incentives are there. There is no reason to make fewer factories, there is incentive to make even more! Because there is a signal that people want more in the future than now, so taking wood and building a factory is more beneficial to what people want than taking it and building a consumable item like a house.

Of course, if people ignore signals of the economy, people will be worse off, but this isn't anything unique to deflationary currencies. In fact, it is only more clear in these situations.

If people who are risk averse are pressured into making investments, that is a bad thing. They are being forced to take a risk they do not want to take and they are worse off. If they don't invest, their money is destroyed through inflation, thus stealing from them.

Your entire source of problems in this thinking is keeping score in the currency. You are assuming investment is done in dollars or Bitcoins and not in goods and services. You must realize that currency by itself provides no utility and no value (other than facilitating transactions).

I like Riker's economics a lot better than Tom's. Austrians put way too much emphasis on deduction and zero emphasis on experimental data and mathematical models, and that is why they have been completely cut out of the scientific literature and haven't contributed anything to economics for several decades (although their earlier contributions are so important they cannot be overstated). I think Riker can be shown that Bitcoin is not a problem here. It is generally felt among economists that expanding the money supply at a small percentage is good to keep pace with economic growth, and I think bitcoin with all its genius leaps forward would be better with a constant expansion of 2%. Unfortunately, because the program can be cloned, this is impossible. If satoshi had designed an inflationary version, someone would have made a version like the current one that everyone would start using instead because they don't lose 2% of their savings per year with it. People will demand the one that doesn't inflate if they have a choice.

I think this is ok because no matter how popular bitcoin gets, governments can still mandate that wages be paid in inflationary currency, and people will just instantly convert their savings to bitcoin. But that should solve the sticky wage problem and others.

As for encouraging investing, bitcoin banks will be popular in the future. People will want to store their coins in a bank that pays interest and loans them out, regardless of how much the currency happens to be appreciating or depreciating. A bank with two factor auth will be more secure than the virus infested computers most people use currently, and it will allow your coins to be accessed from anywhere, providing an additional incentive to invest. There just aren't large enough institutions offering banking yet, but given the pace of growth, it won't be too long.

I believe Tom is correct. Consider the gold coin history. You work and make 1 ounce of gold a week. Suppose you want an item that costs 20 ounces of gold. If you have a inflating currency or no savings, how is someone suppose to buy that car. Today, our corrupt system, sees your earnings and savings as government and banks money. It will soon collapse. Suppose you want to put solar cells on your roof. You have to save, if you can't save, there is no reason to build the plant to make the solar panels. Today you say, oh I will just get the government to buy me a system for free, let grandma pay for it all. This all depends on grandma putting money in the bank. Grandmas pre-1971 are dying out, modern people understand the scam.

So go back to gold, ever hear the term Rome was not built in a day. And it is no coincidence Rome started on a gold standard. Savings give the people the opportunity to buy bigger ticket items. As result the market, provides the incentive for the investment. Fortunately there is still some savings than can be done by putting your money into stocks or commodities and using the fake dollar as a short-term medium of exchange. People save for only one reason to buy items.

I think economics should be one degree removed from funding by federal student loans. There has been a lot of math showing the fed causing more problems than not having it, yet the economists ignore the math and keep the fed?

it is a question of incentives, is risk taking encouraged or suppressed

Bold is always true. Bad investment are simply consumption that transfers wealth to an another player in the economy so in reality no biggie for the economy. You are confusing personal preferences with the global economy. Read the previous bold again.

It is not a signal to future investments in this model nor for consumption. It is a signal that people don't want to consume but it doesn't say anything about the future. Aggregate consumption can very well stay low in the future for all you know. It is also not clear should you invest since no one else is investing but simply saving. You can simply observe any exchange and see how posting larger bids on one side does not encourage people to take the other side. More often it encourages them to go with the flow and not cross those bids....

this is wrong on so many levels. Someone stuffing Bitcoins in a mattress is NOT investing. They do not free resources, they lower consumption that reduces production and gives higher unemployment...

people are dumb. there is no signal that people want more in the future than now, There is signal that people don't want now and probably don't want in the future do to the inertion...

In fact, it is encouraged in deflationary currencies.

people who are risk averse are not pressured into making investments. They have simply moved value of their goods into legal monetary substitute. It is known it does not store value indefinitely (but it does not loose it fast - hyperinflation, so there is temporary stability). their purchasing power is lowered through inflation but only because they don't use it for investment (assuming saving in a bank is considered investing)or consumption. They are penalized for being passive while other people work nor can they piggyback risk-free on other people work like in bitcoin system. I will note that confiscation through inflation via gov. deficit is a whole different thing (and a wrong one to be precise)...

lol, stop trolling. I have deliberately used purchasing power in a lot of my sentiences to stop you from using this argument but you still insist on acting foolish.

If it was anyone else I would be inclined to response kindly. You on the other hand have been proven wrong in so many posts in the econ and politics sections from bunch of posters that if ad hominem should be applied anywhere you are a perfect example....

and your post is a perfect example where you add no value, differ subject to Rome, student loans and whatnot. You are using an argument of corrupt system while it has been stated that system is corrupt by both me and TC and has little to do with this topic

Economists are solving the problem they are designing to solve. The problem is it ignores the problem that *should* be solved. As I said earlier, the problem is they are solving for measure of currency as the measuring stick for if something is good/bad.

There is no such thing as experiments in economics. There are no control variables. It's basically a game of models with very limited track records. Of Austrians have been cut out of economics. They treat economics as a science, rather than a pseudoscience (like psychology or anthropology). They are studying two different things with two different goals. Of course, it helps that those that fund economics in higher education and publications are funded almost entirely by those who benefit from mainstream economics being published over Austrian.

If the models are right and I am wrong, then there should be a reason you can point it out in the logic rather than just hand waving. Relying on the model without any understanding of what it is or why it is so is basically astrology.

If I had the option I would make bank lending a long jailterm 10 years offense. It is fractional reserve lending, as oppose to full reserve lending. Which basically is not lending.

There use to be a (glbse bitcoin global stock exchange) there was basically mining companies. However, some guy made a pirate passthru bond (bank), and as all banks using other peoples money to live it up in Las Vegas, they end in disaster.

If you want to invest, you can buy shares in stock, crowdfund, buy a mutual fund, or you could leave the money in your own wallet knowing the politicians won't spend it.

If you have money in the bank, take it out and buy an index fund or Berkshire Hathaway you will be far better off.

There can't be banking in bitcoin, becasue someone in the office will eventually take the bitcoin and there will be no proof who took it.

So sick. Lock a person up for a voluntary transaction, gross. I guess the sickos in power are sadistic enough to do it except for the fact that they are bankers.

It is not a voluntary transaction there are banking laws, federal reserve backstops, and FDIC insurance all paid by the tax payer. If you want fractional reserve lending, when the bank fails let the people lose their money. The Fed buying $40 billion in home loans a month is a bankers backstop. The Fed loaning money to banks at 0% is a backstop. Why do the bankers fund politicians so much? The interest you receive at the bank is less than credit creation. If the system was fair you would be earning interest at the bank higher than the national deficit/debt ratio, That ratio has averaged about 9% the last 10 years. There are also legal tender laws, you are required to use the U.S. dollar in transactions.

The banks are doing nothing wrong, the crime is the banking government dollar complex. it is not a voluntary transaction, I am forced to pay for the bank bailouts and the inflation.

bitcoin is a volunary system. if you want to invest in a bitcoin bank or pirate bonds go ahead.

If Bitcoin Savings and Trust bonds were issued by a bank say JPM. The government would backstop all the losses. http://bitcoinmagazine.net/the-pirat...nd-so-it-ends/

Tom is there another thread where we can argue about Austrian Economics? I don't think this is the appropriate thread, but I'm good for a few posts.

Did this trade with seth, he sent bitcoins first, I sent pokerstars money second.

Smooth successful trade, no dramas

Get on BTCSportsMatch.com and bet with fellow 2+2ers.

WTF this site is SWEET! How did I not know about this? I spend hours every day reading the forums about bitcoin, and somehow this site escapes me. The only thing I didn't like is it didn't give me a QR code to make a bitcoin deposit off my phone. It looks like they are using a no-vig calculator on the pinnacle lines, which is exactly what the threads do here on 2p2 where people bet sports with each other, except this makes it way easier than posting on a forum. There's a bunch of people betting $500/game on the NFL it looks like. I think I'll just book everyone's action on sunday

Edit: Now that I search for it, the site has been mentioned on 2p2 many times. I guess I am going blind.

Due to the high demand of my blog articles in German i have now decided to make some proper translation into English to get more viewers from the admittedly bigger English speaking group that is prone to reading econ blogs. My article for evaluation of Bitcoins can be found here: http://makrointelligenz.blogspot.de/...-analysis.html

BTCSportsBet is BAD! I just booked up all the outstanding bets for today for no reason. What a perfect, addictive currency for gambling. We need more 2p2ers into this. This is sick that i can have money on my phone, essentially dollar bills in my hand under my direct control, and instantly bet it with someone else across the globe with no fees and no vig. This is very illustrative of some of the giant advantages of bitcoin over fiat.

It is also funny to bet on there because the exchange rate makes it seem like you are betting 10x less than you really are.

I've really enjoyed the discussion re: deflation here. I certainly wouldn't mind keeping the discussion here since it's a major factor in the bitcoin experiment.

Rikers in your example of the bread, wouldn't it have been smart for R to also invest his 10 bitcoins (assuming it pushes the bread up even more)? His EV of bread purchasing power would be higher if he had invested. And to be clear they're essentially paying H to be more productive in his bakery, right? On turn 0, did Henry have all the bread or was the bread distributed evenly? On turn 1 presumably he will need to buy some bread as well, so he can't just hold on to his 10 btc forever and hope that Henry's bakery continues to be more productive.

I think TC has been making more sense in this discussion although it's interesting to hear both sides.

Rikers, at what point does a currency become too deflationary and result in the problems you are talking about - lack of investment, lack of spending, etc... You're saying it's a bad thing that total amount of goods and services grows by (roughly lets say) 2% a year but the growth of bitcoin supply will eventually become negligible. What if bitcoin grew 1% each year but the economy grew at 2%, is that bad? What if bitcoin grew at 1.99% but the economy at 2%, is that still bad? If not, at what point would you say that the deflationary nature of a currency becomes a problem?

ETA: I should add that Bitcoins have the ability to go to more than 8 decimal places if the need should ever arise without too much trouble.

If we're going to be announcing successful trades ITT, I'll add that after I posted in this thread looking to buy bitcoins, I made a few successful trades with ALawPoker. My PayPal for his btc, in increments of 5 and 10 btc at MtGox average price. We alternated who sent first and all went smoothly.

Does anyone here have any thoughts on Proof-of-Stake cryptocoins (as opposed to Proof-of-Work) or PPCoins, the first and only implementation of a POS coin? It's supposed to be able to secure the blockchain without a tremendous amount of computing resources and power, which becomes increasingly necessary with Proof-of-Work coins as they become more valuable and widespread.

PPCoins has a built in 1% annual increase in the supply of coins as well, paid in interest on existing coins, which ties in a bit to the discussion of deflationary currencies.

The major problem with it seems to be that you have a good chance of being able to double spend if you have old coins, which is ******ed. No one seems to have found a way around this. In fact, it appears that it would be necessary to try to double spend your coins every so often or you would be leaving money on the table. Litecoin security is much better than this, but both are bad compared to bitcoin.

The amount of resources necessary to secure the bitcoin network are miniscule compared to the resources (buildings, employees, etc) spent on the legacy banking system. Bitcoin is extremely environmentally friendly.

a petition thread in the zoo for Merge to offer bitcoin deposit/withdraw: http://forumserver.twoplustwo.com/28...ethod-1263775/

there is an infinite amount of dumb in the thread.. please at least sign it

Me too. I really enjoyed TC arguments. Not sure why he didn't reply on the last, hope he's not folding...

Yes, as I stated saving and investing is always better then just saving. This is to be expected in an economy where all people are rational and can calculate EV correctly. I have omitted this from our little story but you should know what the bakers wife feels about R:

"Devils work, I tell you. Devils work that R." -whispers the bakers wife.
"Silence, women." - sharply replays H.
Nevertheless, bakers wife continues:
"Always smiling and talking slowly. Never working but always having the money, sitting in that castle of his. And if he's not there he's sitting in a coffee shop at 9 AM when all other honest people work. Suspicious, you hear me? He should not be trusted..... And always whispering the same word. He's cursing us I'm telling you..."
"What word?"- asks the baker.
"....arbitrage...." - slowly replays the bakers wife as here eyes widen and here face goes white, scared that something like this is not to be said by the common people...

In essence they are compensating him for a extra workload and if he is successful they get their compensation with additional money while H gets to hold all of the LoB.

Distribution (who holds what) is irrelevant. Modeling economy with only one product is somewhat pointless but in this there were no constraints that indicate the consumption as I've intentionally wanted to avoid complex analysis. LoB can be gold if you want but actually it represents all of the products in an economy..

I'm quite fond of me, for no apparent reason...

If it's growth is below the growth of the economy.
Yes
Yes, but the effect of a deflation are not immediately observed but distributed over wider time vs the 1% As long as you have the growth of a monetary substitute below the economy growth.

---------------------------------------
Money is essentially a substitute. An I.O.U. = I own you... But who owns you? The economy. As you produce more goods you are compensated with money that indicate that for producing your good or services you have the ability to take other product from the economy. Basically as long as the currency grows as the economy grows you will always be able to buy the same amount of goods you deserve and you will never loose or get more purchasing power. You are not better of holding any passive exposure to the economy as you are holding money...

something like:

10 MU (monetary units) = 10 products (total economy)
20 MU = 20 products

- parallel growth has retain all of the purchasing power of a 1 MU. Pearson holding 1 MU can always buy 1 product....

it only indicates that bitcoins are capable of deflation, it does not add additional bc in the system

tl;dr

Yeah you can book $500/game no problem on NFL. Vig-free sports betting with instant cash outs is the best thing about bitcoins at the moment IMO.

Rikers, am I correct in my understanding that you're saying that 1.99% money supply growth with 2% economic growth is bad because it discourages spending and investing, but 2% (or 2.01%) money growth with 2% economic growth is fine?

That isn't passing the common sense test in my head.