I remember going through city by city rent and each one getting dismissed. Not sure if we actually made it to Detroit or if I just knew it was a lost cause.

The main problem with FRB is that two people will behave as if they are in possession of the same scarce goods, which alters behaviors and those promises cannot be fulfilled. This leads to someone getting the shaft (unless you have someone bail you out, like JP Morgan putting up his "own wealth" or the government printing dollars). If you knowingly get into such an arrangement, there is a predatory element to that in some sense and that's the only moral argument you have. If you say it's your money and an on-demand deposit, then turn around and give it to someone else to do what they want, and continue this cycle until you have N times as many promises compared to whats actually there, you end up with huge booms and busts.

MtGox BTC certainly aren't useless, but they also aren't as valuable as a sure Bitcoin. There would be a price that would be relative to the risk of a run (assuming they were loaned out) that they would be discounted. The problem is when there is no way to distinguish between a MtGox BTC IOU and a normal BTC, or you solve the situation by robbing everyone by printing more bitcoins when Mt. Gox gets a run on them. And you would see a massive number of people NOT storing Bitcoins at Mt. Gox barring them getting a lot of interest on the deal.

I'm all for letting the market decide and not having fraud. If you let people know what they are getting into, and they are able to make such a decision, and you don't bail them out, then no problem to me. When the whole system starts to fall apart and suddenly we need to bail out the idiots, that's when I have the problem.

thats a convenient way to get out of having to face the fact that you're talking nonsense. because that would sabotage this authority persona you've created in this thread. well done

I'm not here to pass judgment on whether a bitcoin on mt gox (or any site that holds deposits) is as good as a bitcoin on the blockchain, but when enough people treat those IOUs like the real thing then they can be used like the real thing. As a matter of fact, I'd gladly buy up mtgox btc at 0.99 btc on the bitcoin, and I don't think anyone would sell it to me at that. Mtgox usd is a different story thanks to all the regulations and seizures that affect usd but not bitcoin.

I'll repeat that mtgox has no business doing anything with people's deposits besides keeping them in storage, and I'd never have any funds on there if I found out they didn't have all btc account balances on hand. I agree w/ you that it would be fraudulent for gox to do so since they are not a bank and their users do not give them consent to loan out their balances.

I can distinguish between cash in hand and cash in a checking account, knowing full well the checking account is using FRB and only 10% of my balance is on hand at the bank. I treat cash in a checking account, up to $250k, as the same as cash in hand though since it's guaranteed by FDIC. Although I've explained above why I think FDIC messes up incentives in the banking sector.

+1

Also this convo reminds me of this image:

http://www.huffingtonpost.com/2013/1...n_4179662.html

This is an article about how the Department of Education is showing a profit. The reality is the fed is setting interest rates to near zero. Thus if you loan out at 0% and earn 3% you are going to be earning a profit. But what if the inflation rate is 3%? It only appears to be earning a profit. The profit in 2010 dollars will not meat the value of 2011 dollars. Read the comments of the morons of the Huffington post. They actually want to lower the interest rates.

This is why bitcoin is so important. You don't have to deal with these lies. For every $100,000 you own you don't need to earn $5000 to keep up with inflation as result of the government clowns and morons and rich elite that feed off the situation.

Furthermore M1 growth has averaged 8% for the last 5 years. With 8.5% in the lastest year over year.

in b4 someone attacks you for being a stupid Austrian because you dont want your savings evaporated

http://en.wikipedia.org/wiki/Reserve_requirement

"Canada, the UK, New Zealand, Australia and Sweden have no reserve requirements."

One can buy stuff with credit cards, so I guess that should be counted as money? I thought FRB was about money and quantity of money in the economy?

You said Canada doesn't have FRB, that's not the same as reserve requirements. If anything reserve requirements are a constraint on FRB. A reserve requirement of 100% is equivalent to banning FRB.

Ah, I see, my bad.

Even with 100% requirement ppl can transact with money and money like vehicles (credit cards, leases, bit/litecoins, etc) and expand effective quantity of money. It is not like deposits are the only form of money.

why does currency have to be a store of value? if you want a store of value, buy gold. one ounce of gold will always be worth one ounce of gold.

or you could just be an actual reasonable person and invest it instead of crying about inflation.

Invest in what?
Blue chip stocks?
Bonds?
Small cap stocks?

Lol not very much feels like an investment anymore given it's all just a rigged game waiting to fail.

Also in a functioning economy one shouldn't be forced to invest if you want to keep your purchasing power. Investing should be a free choice and people that do it should understand the risks/rewards

Try inflation-indexed bonds?

not sure if serious

why does a car have to be a mode of transportation? if you want to get somewhere, just walk!

the reason currency exists is to store value

there is a free online encyclopedia if you don't believe me

That's because you know Gox isn't loaning them out to other people. You have confidence they have a full reserve. If they didn't, would you still pay 0.99btc for one?

Exactly, I'm talking about if they had a consent option, and issued IOUs (say even in another block chain, or through micropayment channels or the such). Would people really accept them as 1-1?

I'm not talking about cash in hand vs. checking account. I'm talking about you take the the money I deposited and was loaned to you, and put that in a bank account, and they can now loan that out, because your money is as good as mine was. We both think we have money, yet the same amount of goods is available. If I knew I had money only availble when you repaid your loan, then there wouldn't be the same boom-bust cycles.

It's not just incentives in the banking sector, but the effects it brings everywhere else. You basically have more dollars competing for goods, causing prices to eventually rise, projects that seemed previously profitable not to be since the costs have increased so much, no one can calculate the real values, and then everything comes crashing down again (causing the dreaded "deflation" that everyone hates). Guess who wins in those boom/bust cycles?

Banks don't need your deposit to make a loan. They just makes a loan out of thin air. The one getting the money loaned will make a deposit back to banking sector which will then clear the payments through interbank markets (or through reserve accounts if needed).

What kind of system you are suggesting? A one without any loans whatsoever? Or a one that only the government/Central Bank can create money?

Credit isn't bad or evil per se but can surely be abused.

you don't understand currency

See this is what I'm talking about. An Rothbardian like Tom shows up and makes an argument that sounds logical, and the Selgin crowd never shows up to give the other side, so everyone just assumes that Tom is explaining the Austrian view. Perhaps the Selgin guys just don't want to argue with fellow Austrians in order to spend more time ranting about money-printing. It is causing the whole school to be stuck in the 1960s making zero progress.

Both Tom and Greg are wrong in asserting that mtgoxBTC are not as valuable as bitcoins in hand. When gox was issuing redeemable codes, they were MORE valuable than bitcoins. A big reason was that they cleared instantly to allow trading, instead of having to wait for confirmations before selling.

Tom, let's see if I can identify where your hangup is. Please state whether you agree with the following statements:

1) Mtgox codes were often worth the same or higher than bitcoins when they were issued.
2) It is conceivable for a rational person to value an mtgox code higher than the equivalent bitcoin value under certain conditions.
3) There is some chance that mtgox would not be able to pay out all depositor balances if they all withdrew at once.
4) There appears to be little demand among bitcoiners for exchanges to be publicly audited or prove they are full-reserve.
5) This last point I am unsure how to phrase in a way to be sure you will agree, but try to see my point, or rephrase it in a way that you agree with: Bitcoin is currently like the wild west in that it operates in a relatively unregulated state. Lots of launching, hacking, failing, mayhem, etc.

If you read those Selgin papers that TimM posted, he trots out a whole list of historical examples to show the free market chooses FRB, but since this is a bitcoin thread we have an even more obvious example. Exchanges currently act reasonably close to a free market, and it is obvious that an audited or proven full-reserve exchange is near the bottom of the list of features that the vast majority of people look for in choosing where to put their money. There is no free market demand for full reserve, so it is useless to argue in favor of it. I would guess that the "idiots" you speak of who want to put their money in FRB systems (rather than pay for storage) comprise over 99% of the population. The market demands this "fraud".
Sangaman's comment illustrates one line of public thinking that contributes to FRBs popularity. In theory, he wants his money to be safe and he wants to believe it is all there in the exchange, but his free-market actions do not mirror this. In the absence of a public statement or audit saying "this exchange does not hold all depositor bitcoins", he will just be content with his ignorance, and he will not clamor for an audit. Even knowledge of a 10m funds seizure and repeated headlines containing "mtgox" and "FRB" are not enough to change his behavior. His proof of fraud will never appear because gox would never release that information. Essentially, his actions show that FR is so low on his list of desired exchange features that we can consider it to not be a factor, and if a bitcoin bank were to charge him for FR storage, he would probably go with the 99% and choose to get paid interest with FRB.

It is better to discuss optimal strategy to deal with this reality of "fraud" than it is to advocate a system of full-reserve with so little viability and public support. And as I already mentioned, FDIC insurance, bailing out the idiot 99%, etc is a separate issue.

In my last post, FR = Full Reserve, and FRB = Fractional Reserve Bank. I didn't consider that the acronyms interfere with each other.

Well for there to be loans, which credit cards are, there has to be an equal amount of savings. Someone with dollars has to loan them to the person buying with credit cards, and with every loan comes risk of default and lack of on-demand funds.

The thing with FRB is that people assume they will always be able to withdraw, aka cancel the loan of their dollars to the bank, on demand. Generally they can, but not if the bank's loans go bad or there's a run on the bank.

This is incorrect if there are reserve requirements. There needs to be an initial deposit to start the cycle. But after that, yes it's out of thin air.

I have no problem with loans. Just don't create them out of thin air.

Central government creating money exclusively is the last thing I'd want.

This makes sense, because Gox coins were all held in full reserve. I'm talking about a scenario where they are not. If they have an advantage over normal coins, then they will be more expensive. If this advantage is greater than the risk (Gox not having the assets they claim to have, or getting robbed or whatever), then they won't be.


I think people are underestimating the risk, but holding your own coins is risky in itself too. I don't really have a hangup because no one believes Gox doesn't have the coins. I was operating under the assumption that Gox did not have the coins and everyone knew this, and only had given out debt to people now owed the coins. There are bad things that could happen if Gox is spending your coins (or loaning them and someone else is spending), AND you are spending the same ones through codes.

Free market choosing is a bit of a misnomer. I have less a problem with FRB if when it comes crashing to a halt, those who get burned actually get burned instead of bailed out. People will eventually learn, or businesses will adjust and figure out what is needed to keep things operating properly. If you give a dollar credit in an account and say "this is good for redemption" and then you go to redeem it and its not there, that's fraud. If it says "this is good for redemption if we happen to have enough", then that's the risk you take accepting it, and why you get the benefits of it.

There's plenty of demand for full reserve on demand - have you seen a safe deposit box? Even if you eliminate on-demand loans, bonds and CDs are reasonable because they are not having the same dollar chasing after goods at the same time.

But to say the free market has chosen it is to say the free market has chosen people like Bernie Madoff selling ponzi schemes. There is manipulation, legal tender laws, central banks, etc..., if you are going to say "free market has chosen it" for any result that ever occurs, then its being disingenuous of the term free market. It reminds me of when people say "free markets have chosen government intervention, therefore free market!". If that's your position, then we need to redefine terms, because you are simply taking words that exist and twisting them to mean something else.

And when the run happens, may he go broke.

See what public support is for it when people keep getting destroyed by runs and lose their ass. People support it because they can get away with it because they are always bailed out. I think if there is honesty and you can distinguish between the actual currency and a promise of it, and there is a market to trade between them, you only have to deal with the morality of whether someone is of the mindset to make a choice and if predatory markets are something that should be something to consider.

It might just be you assuming that.

Western Union: Bitcoin Not Ready Yet

http://www.coindesk.com/western-unio...oney-transfer/

With dollars, banks can just borrow from or sell securities to the Fed, which has an infinite supply of dollars, to cover their reserve requirements. That's just up to the monetary policy the fed decides to pursue, if it wants to make banks lend more it just lowers the discount rate and buys securities to increase liquidity.

There's nothing like that with bitcoin, and that's a big difference.

Dark Wallet



https://darkwallet.unsystem.net/

http://www.indiegogo.com/projects/bitcoin-dark-wallet

I agree that safety deposit are full reserve and that there is demand, particularly for wealth that is difficult to store in an FRB fashion, such as diamonds. I would guess that an extremely tiny percentage of funds that could be stored in bank accounts is stored in safety deposit boxes, so this does not change my view unless you can show me otherwise. I also agree that public support for full reserve and physical assets goes up during bank crises. Suddenly priorities get shifted to where knowing their wealth is there goes to the top of the list.

Here is what you are missing: Almost no one cares about the difference between "this is good for redemption" and "this is good for redemption if we happen to have enough" other than in theory or in the middle of a bank run. You are just hairsplitting about something that the 99% couldn't care less about.

This is how the world works: Banks have an interest in running fractional reserve because they can make more money. Depositors have not cared if this happens for hundreds of years. Therefore, the system always winds up as FRB.

The free market does not care whether gox has all the coins in full reserve. If they did, they would demand audits of exchanges. Whether gox shows an audit statement showing that they are full reserve has close to zero bearing on people valuing mtgoxBTC higher than bitcoins. It will always be in a bank or exchange's interest to use some of the bitcoins they are sitting on to make more bitcoins, and thinking they won't is dumb. It is literally blowing my mind that you are saying you think gox is full reserve when it is public knowledge that 10m of their money is seized, but perhaps I am just not reading that paragraph right.

You are way off when you say "People support (FRB) because they can get away with it because they are always bailed out". People have always consistently supported FRB. People will not eventually learn. You are making a big deal about distinguishing the IOU and the real thing when the free market has said it doesn't care for hundreds of years. You also don't appear to have read Selgin's work. One of his main points is that accepting interest on a deposit means you know it is FRB.

Change your statement from this:

"I have less a problem with FRB if when it comes crashing to a halt, those who get burned actually get burned instead of bailed out"

to this:

"People acknowledge that their money might not be there when they accept interest on their deposit, so it is fine for FRB to be available in a free market without any disclaimer, as long as it is not subsidized through government bailouts and FDIC insurance."

Or perhaps just this:

"I don't have any problem with the existence of FRB as long as it's not subsidized."

Congratulations, you have now graduated from the 60s to the 90s of Austrian thought. Welcome to the cutting edge. If you still disagree, state whether you agree with the 5 points in my last post so I can figure out what the holdup is.