Bitcoin value plunges as Mt.Gox halts withdrawals and Russia says 'nyet' The value of Bitcoins dropped sharply on Friday after leading Bitcoin exchange Mt.Gox suspended all withdrawals and the Russian Federation declared virtual currencies illegal. The exact reasons why Mt.Gox isn't letting customers withdraw their Bitcoins remain murky. According to a statement released on Friday, the exchange had …
If Mt Gox sees a lot of people trying to unload bitcoins at once they stop the sale to keep the price from going into freefall. Similar to the "circuit breakers" stock markets use to prevent overly large drops from all the program trades if something happens that makes them all want to sell at once.
In fact, I wonder if the program traders have got into the bitcoin game? It has very volatile pricing and multiple disconnected markets. That's the perfect market for program trading. I'm sure Russia banning Bitcoin trading would be exactly the sort of event that would cause every program to sell sell sell all at once.
Program trading only works if you can move funds quickly. They need to make hundreds, if not thousands, of transactions per day.
From what I've read (not actually being a player) it seems bitcoin transactions can take many minutes to an hour to confirm.
Relative to that, the stock exchange is fast. You can execute a stock trade in less than 10 seconds. Currency trades too.
How does that pub that sells pints in bitcoin work? Surely he can't be expecting customers to wait 10+ minutes while a payment goes through?
good point about the pub, I wondered that myself.
the transaction confirmations can be sped up by offering a sightly higher fee to those doing the mining, though still far below the ransom demanded by the traditional processor cartel. in the real world even with "default" settings there would be at least one or two confirmations by the time you finished your pint.
the pub or their 3rd party BTC handler could also set up a deal with trusted wallet provider like localbitcoins, or you could pre pay your piss up before you even leave the house.
instant it ain't, but where theres a will and a few quid to be saved, there's a way!
"I guess if you are running a tab it is not a big deal. Close your tab while finishing your last beer is common. Not all bars allow that though."
But generally, you're already running late, or there's a taxi waiting, or the pub is shutting and the poor sod wants to go home. Now everyone must wait 10 minutes for the transaction to happen? Imagine if 20% of a pub's customers were to want to pay this way - a shambles.
As a currency that's broken. These days everyone wants to be able to pay instantly. Swiping a card even takes too long, hence all these NFC payment methods.
Perhaps bitcoin can work effectively as a "backbone" currency, but there still needs to be some other currency for day to day payments.
Or maybe I don't understand properly...
> How does that pub that sells pints in bitcoin work? Surely he can't be expecting customers to wait 10+ minutes while a payment goes through?
I have no idea, but presumably it is the same as if you're paid by cheque (which used to be very popular in France). You take the customer on trust until the funds are (hopefully) cleared.
If all the risk you're exposed to is the price of a few beers, it's probably quite acceptable in the interests of convenience.
When a client makes a transaction it is broadcast onto the network and takes just a few seconds to reach most of the network. At this point the transaction is not confirmed but the payment processor the vendor is integrated with will check for other unconfirmed transactions on the network that would indicate a double spend.
The vendor can decide whether this is sufficient security and for low value transactions like taxi fares and restaurant tabs it probably is.
For larger value transactions one confirmation is targeted to take approximately ten minutes, it can vary significantly though sometimes it can be much longer. The vendor decides how many confirmations are required before considering the transaction irreversible and thus accepted.
You can verify that a transaction has valid input and outputs, that the inputs contain the money specified, and that the signatures are correct so it is the owner of the coin that is spending them. You can do that yourself, locally, and it takes almost no time.
What that quick verification doesn't protect you from is double-spending. If the punter has a mate in a different country who tries to spend the same coin at the same time, only one of them will succeed, and it may not be the one who spent first (because "first" depends on network delays). Waiting 10 minutes mitigates that risk, and waiting for 6*10 minute confirmations generally makes it negligible. For small transactions, the risk of double-spending is low because the benefit is low, and its tricky to set up and you risk the wrong transaction winning anyway, and if it succeeds you probably won't be allowed in the pub again, so you might as well just do a runner instead.
Eventually vendors will probably be able to get insurance against double-spending, and we may even get "green-listed" bitcoin addresses which some trusted entity promises will not double-spend. There is still a role for banks, insurance companies and credit card companies in bitcoin, if/when they want to get involved.
(I don't know what that pub actually does.)
I am curious to see if we will end up in the slightly insane situation where most governments make virtual currencies illegal, which should not be enough to stop the underground trade.
I look forward to explaining my children why it's illegal to exchange messages consisting in large numbers.
Given that both US and EU financial leaders have expressed cautious support for virtual currencies - albeit while cautioning that there are potential dangers - it seems unlikely that Russia's move presages a wider clampdown, at least in the short to medium term. Russia is making it fairly clear that anything that gives voice or capability to a potential enemy (whether it's uncompliant newspapersor foreign NGOs) is on the chopping block.
In the end this might actually be *good* for Bitcoin, because it will lessen the odds of btc being a haven for the Russian mob, and thereby deny ammunition to its Western opponents.
That's going on the assumption that the Russian mob isn't the same thing as the government in the first place, of course...
How is "trading messages including numbers" any different than sending an email ordering a trade of 50 kilos of heroin or 50 eight year old Thai girls?
The content of the message isn't at issue, it is what the content represents - which in all cases (yours and my silly examples) represents something of value to others. You can argue that Bitcoin trading shouldn't be illegal, but not on that basis.
"Barter is surely different in that it is trading things that have intrinsic value."
you mean like small carbon monocrystals and aluminium oxide with trace amounts of iron, titanium or chromium? (that's diamonds and sapphires for the uninitiated) There's no such thing as "intrinsic value".
I can cut glass with the diamonds, and use the sapphires in making equipment for spectroscopy.
So there is a bit of intrinsic value there. Though most people seem to want them for artistic reasons, or for rarity value (and rate them higher than a 1978 Kenner Star Wars figure still in its box)
>>"A bitcoin has no intrinsic worth. It is just some bits. If those bits encode music or something then it could be argued those bits have some intrinsic value."
People get overly hung up about whether individual bits have intrinsic value or not. It doesn't matter - not all crime is about property. If by taking an action (in this case moving some numbers around a network) you cause harm to another (they lose purchasing power or money they would have had), then it doesn't matter whether those numbers have "intrinsic value" or not. What matters is one person taking an action that harms another and that can be the basis for making something illegal.
It's just the same as copyright infringement. People keep shouting about how it's not theft because the numbers are just numbers, ignoring the actual harm caused / wishes of the legal owner.
True, but I still think there's a difference in your example. What does the content represent? In your example, there is intent to commit a crime, but in the Bitcoin example, the mere manipulation of numbers in a network would be illegal.
Although I think the real issue is not that it would be criminalising trading of numbers - I still think that theft of Bitcoins should be treated as theft of anything else of value, even if it's "just numbers". The worry would be criminalising trading of a currency at all - has there been any precedent for this?
" The worry would be criminalising trading of a currency at all - has there been any precedent for this?"
Yes. Many places have had, or still have, currency trading restrictions. South Africa had limits in the 1900s (and perhaps still does), UK has had them, Russia was one of those and still might be.
Not so long ago, rubles could only be legally exchanged for other national currencies (USD, GBP) at official banks. Black market traders gave you far better rates because they wanted/needed off-the-books forex. Some of that was for money laundering, some for smuggling, and some was a way to get money out of the country to set up a nest egg for leaving the country.
Well, Russia here is a slightly special case. Its constitution has inherited the USSR age provision for "only our currency is legal tender". Effectively, you are not allowed to conduct any transaction in any other currency on their territory.
That was the norm in USSR and the rest of the soviet block before the fall ofthe wall. We all know the result - everyone used to use Dollars and Euros anyway.
Do the Russian powers that be like it or not, it is a small world and in order for a country to participate in the world markets it needs to be able to transact in any currency. One of the reasons why the ruble cannot reach a freely convertible status after all these years is exactly that - this line in the Russian constitution. You cannot have a convertible currency if you forbid any other currencies into which you want to convert to exist on your territory.
In any case - this is a bit different from the anti-Bitcoin drive by other governments. Other governments try to deal just with uncontrolled currencies. Russia is trying to forbid anything but ruble on its territory out of principle.
I don't think it's principle so much as "ripping off the wealthy through an inflation stealth tax".
It's what the govt. in the UK is doing by printing mon... er... quantitative easing.
Imagine if someone came up with a currency based on a basket of commodities with intrinsic value; in this case, intrinsic value dictated by the interests of the currency's "customers". A bit like air miles...
"I don't think it's principle so much as "ripping off the wealthy through an inflation stealth tax"."
Yeah, that 2% inflation is really starting to bite, isn't it? How will they survive?
You do realize that deflation is tending to be seen as the larger macroeconomic danger right now, don't you?
I don't think it's principle so much as "ripping off the wealthy through an inflation stealth tax".it's what the govt. in the UK is doing by printing mon... er... quantitative easing.
DanDanDan,
As someone else said, I don't think 2% inflation is all that awful. Although admittedly it's higher than it looks, because interest rates are so low. But it's not high by any recent historical measure.
Also QE isn't money printing. At least not yet. In theory the bank of England has bought that government debt with printed money, but must start selling it back into the market as the money supply and inflation rises - when the economy gets back into the hot part of the next boom. Although admittedly the dirtly little secret is that QE had less of an inflationary effect than thought, so they may think they can sneakily cancel it in a few years time, and no-one will complain too much. The alternative view is that there were more deflationary pressures on the economy than thought - and QE may have saved us from them. I gues we'll find out, over the next decade or two. My personal opinion is that it's something you can get away once or twice a century.
The alternative is what the ECB did. They un-wound their stealth QE. The Germans wouldn't let them but government bonds, so they lent over €1 trillion to the banks, via the LTRO. This allowed the banks to buy the government debt instead. They've almost un-wound this now, and this year took over half a trillion Euros out of the Eurozone system (and money supply), which is one of the reasons they're flirting with deflation. Much beloved of many Bitcoin fans, deflation is horribly bad for economies.
-- To contain clandesting "messges"
-- To be routed to specific recpients
Imagine if real currency had an unusual number of phony coins, not just physically circulated for purchases and debt settlement, but for containing microdot-like transmission of dead-drop-valuable info. ANY government would want to shake that money tree and drop those coins into a forensices hopper.
Imagine if, when a payment is made, a person could say, "These monetary instruments, these specific bills, serial nos: "xxxxxxxxxxxx", shall be by the bank specified, transferred to the recipient specified, and to no others along the route, and no others trying to sniff the route shall be granted to "wrapper accesses" at any time..
I'm starting to wonder whether crypto currencies have a payload capability. Or, some sort of "keyhole manipulation" (lock/unlock/lock share/joint-keys-for-highly-uncrackable-decrypt-unlock) functions.
"Imagine if real currency had an unusual number of phony coins, not just physically circulated for purchases and debt settlement, but for containing microdot-like transmission of dead-drop-valuable info."
Someone already did imagine that: Hermione Granger's phony galeons in "Harry Potter".
"ANY government would want to shake that money tree and drop those coins into a forensices hopper."
And Hogwart's Administration did.
Sorry, but I had to chuckle (and warn anyone thinking of a juicy patent that J.K.Rowling was the first).
Any sufficiently advanced technology is indistinguishable from magic...
> -- To contain clandesting "messges"
Yes. Except it isn't clandestine, everybody can see it if they care to look. The very first Bitcoin block (Genesis block) contains the message:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
Whoever mines a block can include extra data (text/audio/video/?) in that block. The only constraint is a size limit.
> -- To be routed to specific recpients
That is the purpose. You route some Bitcoins to a specific address.
> I'm starting to wonder whether crypto currencies have a payload capability.
Yes they do have a payload. The process for authenticating that you can spend the Bitcoins you are attempting to spend is performed with a script. You also specify what the recipient has to do to spend the coin. This is usually the equivalent of "Sign this with the private key associated with the address xxxxxx" but it isn't limited to that. One of the transactions was a puzzle that you had to solve in order to spend the BTC.
"In accordance with Art. 27 of the Federal Law 'On the Central Bank of the Russian Federation', the official currency of the Russian Federation is the ruble ... Bitcoin are money substitutes and cannot be used by individuals and legal entities,"
I guess that the Russian players in Everquest II and World of Warcraft are going to be out some Gold then. Since any magical weapons and armor purchased with in-game money are tainted by currency violations, those must be seized as well.
This lends a whole new meaning to the term "raiding party".
"leading Bitcoin exchange Mt.Gox "
Not since last April. http://bitcoincharts.com/charts/volumepie/ shows Bitstamp leading, Mt Gox in 3rd place. For several months it's been hard/impossible to withdraw money in USD, significantly limiting its use.
"That last point was certainly proven this week, when news of Mt.Gox's withdrawals problem sent the real-world value of a single Bitcoin – which had been stable at more than $900 for some time – into a nosedive that bottomed out at $660 before recovering slightly to around $760."
Where are these figures from? From http://bitcoincharts.com/charts/bitstampUSD , on Bitstamp (the actual leading exchange), the value was hovering around $800, hasn't been above $900 since 12 Jan.
Quoting Mt Gox prices is misleading, if you're trying to imply what Mt Gox's effect on the rest of the world was. Its prices have been inflated for months due to the difficulty of withdrawing money (so people can't actually take advantage of the higher price) - that inflation is now lost, since people can't withdraw Bitcoin either, making the price somewhat meaningless for anyone who hasn't already got money on Mt Gox (and even those who do, can't actually do anything with it other than trade back and forth). Yes, there was a drop in price, but not to the magnitude that The Reg claims. The sooner Mt Gox becomes insignificant and stops affecting Bitcoin prices for everyone else everytime it messes up, the better.
What is some time? It has only been stable at $900 for about a month.
Pulling circuit breakers to prevent stock markets free-falling is one thing, but doing that to a "currency" is something completely different.
If we all drink of the bitcoin dream, you should be able to do all your worldy transactions in the stuff including buying your groceries and paying the rent. For that to work, a currency must be operational. If people are going to periodically stop it working then it loses its viability as a currency.
The money laundering concerns are well founded. Bitcoin is a perfect medium for money laundering and cannot be properly vetted.
The money laundering concerns are well founded. Bitcoin is a perfect medium for money laundering and cannot be properly vetted.
It's not well-founded. Any system you can't get your money back out of isn't much good for money laundering...
The recent HSBC shenanigans show yet again that traditional financial institutions are perfectly capable of turning a blind eye to money laundering by drug cartels and Middle Eastern terrorist states. The $1.9bn penalty they were slapped with is laughable. The two drug cartels mentioned had laundered $881m. Who knows what Iran, Syria, Burma and the others put through the HSBC? Perhaps the Federal Reserve and the ECB could get their own house in order before worrying about Bitcoin?
My simple understanding of economics says that a country's currency is backed by a)its economy, b)the stability imbued by people's confidence in the currency and c) it can be impacted by creating too much money.
Bitcoin is constrained by the amount of coins that can be generated in any given period (23 per 10 minutes) and the number generated is halved every so often and finally (according to Wikipedia) the total number of coins cannot exceed 21 million. So where is the value being driven from? All I can see is that the low number of coins is driving the value. This suggests to me that the whole thing is a bit of bubble since the nice thing about electronic money making schemes is that people get bored (who remembers the land millionaires in Second Life?).
The other problem is that whilst the exchange rate is $900/coin the actual holders of the currency do not actually have access to 12 million time $900 in ready cash (since not all coins are sold at the value) nor assets to support that kind of cash demand.. This means that the currency has no support from an asset base which traditional currencies do, cause for concern?
Finally, apart from those who own coins or are trying to make money by trading the coins, there appears to be no overall confidence in the currency which would also appear to make it weak in strength since it only takes one major rumour to cause on run on those who exchange the coins for dollars.
I have fashion statements and Bitcoin certainly seems to be one.
This means that the currency has no support from an asset base which traditional currencies do, cause for concern?
The 'mainstream' currencies like USD, EUR, GBP etc don't have such an asset base either, and neither do any of the banks you store your cash in.
All governments that have their own currency continually print more in part to fund their borrowing - as inflation is the most effective way to reduce the debt burden of a country. (That's why several of the Eurozone countries got into so much trouble - they couldn't inflate their way out of the debt mountains.)
There's a reason why 'traditional' banks fear a "Run on the bank", and that's because none of them actually have the assets (let alone liquid assets) required to pay out more than a tiny percentage of the savings in them. Banks borrow for short periods and lend for long periods, that's what a bank is. Your salary is what they borrow, and things like government bonds and mortgages are what they lend.
All modern currencies work by fiat - they work because they work.
The reason any currency pulls off that trick is because the general population have confidence that they will still be able to exchange the bits of metal, paper, plastic or numbers stored on a computer somewhere they've never seen for tangible goods for a reasonably long time in the future.
(The people providing services need confidence they can buy tangible goods, like food, with the currency you're offering for that service. If they can't, they won't accept it.)
It's the idea that the cash will still be valuable next week, next month, next year etc that sustains a currency.
The moment the holders of a significant amount of a currency lose confidence in the future, they'll exchange it for something else, the value slumps (so inflation skyrockets) and boom! The currency dies.
You don't know what you're talking about. In fact you make a habit on these forums of talking confidently whilst giving flawed information. If you like playing the knowledgeable person, first educate yourself.
>>"The 'mainstream' currencies like USD, EUR, GBP etc don't have such an asset base either"
This is crap. The USA has massive state assets. The Euro is the national currency of numerous nations and nations denominate their state bonds in euros - again state actors with major state assets. Your statement ranks alongside War is Peace and the Moon is made of cheese for its stupidity.
>>, and neither do any of the banks you store your cash in.
Odd, because I'm pretty sure collateral counts as an asset. Yep, it does. If you actually believe banks have no asset base, I presume you think you don't have to pay your mortgage? You're an idiot. You just say what you think sounds profound and to Hell with reality.
>>"All governments that have their own currency continually print more in part to fund their borrowing"
Actually, the Bank of England and the Federal Reserve are both not controlled by their host governments. Printing more is a fundamental part of the system - it's called interest rates. It's not ultimately about the Government abusing power to pay off its own debts as you make it sound. Especially in those cases where debt is foreign.
>>"as inflation is the most effective way to reduce the debt burden of a country."
You haven't got a clue. You make it sound as if governments are all keen to pump up inflation in order to reduce domestic debt. They hate doing that! Inflation devalues savings, discourages investment (why lend a million to get two million back if by the time you do, the two million is worth less than the one million), and it destroys foreign exchange rates.
>>"All modern currencies work by fiat - they work because they work"
They are fiat currencies but you make it sound as if they're arbitrary and entirely based on faith unlike Bitcoin. The fact that you can pay taxes in them and that their governments are required to use and accept these currencies gives them a foundation that no virtual currency has yet come close to matching. There are numerous interesting ways in which the pros and cons of virtual currencies can be compared to those of the mainstream currencies, but you're not interested in them - you just want to do a flawed hatchet job in favour of bitcoin.
No, I just thought the similarities were interesting.
Now I want to correct somebody who seems to think that money now on a variant of the "gold standard", when it isn't.
Net (after all money-in-bank) UK national debt is over £1,254,000,000,000
Does the UK government really have that much in physical assets? It doesn't matter because we can keep servicing the debt and inflation means the real cost of the debt goes down over time.
Banks don't have the assets to repay all their liabilities - they bet the company on no more than a small number of loans going bad. In 2008/9 a few of them lost that bet.
Foreclosing loses money, that's why they try to avoid it if possible. I pay my mortgage because I don't care if the bank loses money, I don't want to lose my house!
- On a small scale, inflation means my mortgage payments get more affordable as time goes by.
Government are afraid of too much inflation as that can kill the currency, and of deflation as that kills their borrowing. They need it to be just right.
The difference between Bitcoin and GBP is that there are hundreds of millions of people who are confident that GBP will still be valuable in 25 years time.
Very few people are confident that Bitcoin will exist at all by then, expecting it to have been replaced by something else.
Who is right remains to be seen.
Real currencies have gone down the toilet more than once, with hyper-inflation wiping out everything (Germany, Peru etc). A new currency was then created - the government and country still existed, but the old currency became worthless.
Even GBP nearly did it in the 70s.
>>"Now I want to correct somebody who seems to think that money now on a variant of the "gold standard", when it isn't."
I said no such thing, nor implied it. Correcting someone who says that the UK, USA and Europe have "no asset base", doesn't mean anything other than that I'm pointing out you're wrong. I know what you're trying to imply - that I say because these countries have assets to back their wealth that I'm saying they're like the Gold Standard. But I didn't say anything remotely like that and the fact that you think the one implies the other shows your own misunderstanding of what Fiat and non-Fiat currencies are. Just because a currency is a Fiat currency, doesn't mean there isn't anything backing it, it means it has no intrinsic value. Whereas gold sovereigns or similar obviously do.
>>"Net (after all money-in-bank) UK national debt is over £1,254,000,000,000 Does the UK government really have that much in physical assets?"
Did you just try and shift your position from the USA, UK, Europe "have no asset base" to 'we don't know how much precisely the asset base is so lets ignore it' and think no-one would notice? Have the decency to admit you were talking absolute shit. As to whether £1.25trn is more or less than the sum saleable value of Britain's state assets AND future taxable income, the question pretty much answers itself when you phrase it out properly. But just for you, the UK's GDP is £2.38trn. So unless you think that the UK is making nearly double its total worth annually (I wish I could buy something that would make me double what it was worth each year in perpetuity), then the answer even ignoring future taxable income is a resounding "yes". Really, your grasp of relative figures is perhaps the only thing shakier than your grasp of the underlying principles.
And if you dislike my tone, it's because you obviously no very little about this subject and should therefore have the decency not to try and sound like an expert.
>>It doesn't matter because we can keep servicing the debt and inflation means the real cost of the debt goes down over time.
In the immortal words of Lt. Ripley: "Did IQ's drop sharply while I was away?" I already said that inflation is bad because it devalues savings and is a critical disincentive to investment. Governments hate high inflation. Read some basic economics text books, for our sake if not your own.
>>"Foreclosing loses money, that's why they try to avoid it if possible. I pay my mortgage because I don't care if the bank loses money, I don't want to lose my house!"
No relation to the point I made whatsoever which was that if as you wrote banks have no asset base, what do you think your mortgage payments are? Every time you pay your mortgage, you prove your own words above wrong. Again, stop trying to shift the argument wildly and have the decency to admit you wrote something fundamentally and obviously wrong.
>>Banks don't have the assets to repay all their liabilities - they bet the company on no more than a small number of loans going bad. In 2008/9 a few of them lost that bet.
They have the assets. They're legally required to. What they don't have is the liquidity to repay them all at once. Again, you don't understand the basic terminology you are using. You're way out of your depth and still trying to talk authoritatively. I would enjoy enormously seeing you stand up in front of a room of second year Economics undergraduates and deliver your original post to them. Additionally, your understanding of the Sub-prime crisis and the events that followed are another titanic misunderstanding of what actually happened. The crisis wasn't precipitated by banks lending out more than they had. It was precipitated by them lending to people they shouldn't, those people defaulting and house prices collapsing, and then not being able to make enough money to pay their own debts. They borrowed money to lend out and then couldn't pay it back (massively simplified), which is a very different scenario to lending out money which doesn't exist (what you say was the issue when you state that they were lending out with no asset base).
>>"On a small scale, inflation means my mortgage payments get more affordable as time goes by."
Really? Got fixed interest rates in perpetuity do you? Think the banks can't calculate their own APRs? Hate to break this to you, but interest rates get adjusted to account for inflation. Your mortgage repayments get more affordable over time because you're reducing your principle (the amount you owe), not because of lovely inflation. The latter is compensated for by adjustable interest rates.
"The difference between Bitcoin and GBP is that there are hundreds of millions of people who are confident that GBP will still be valuable in 25 years time."
No, the difference is the reason why people are (semi-)confident in the British pound's long term value over Bitcoins, and that's for real differences between the currencies. As already explained, the pound is a national currency and required by law for paying taxes, is used as the denomination for government bonds, etc. BitCoin has none of these. It's not just that one achieved some critical mass and this is the sole distinction between the two. Additionally, there are other major differences, such as the pound being a fiat currency and inflationary, and Bitcoin (despite having no intrinsic worth) works as a non-fiat currency in many ways and is non-inflationary. But feel free to dismiss that which you find complicated. (Again).
>>"Real currencies have gone down the toilet more than once, with hyper-inflation wiping out everything (Germany, Peru etc). A new currency was then created - the government and country still existed, but the old currency became worthless."
Funny how earlier you were arguing how inflation wipes out debt. In neither of these cases did that actually happen. The debt was foreign-owned. The Weimar Republic (Germany) collapsed in large part because of foreign debt (war repatriations) and the hyper-inflation did nothing to help them. Learnt anything from all these corrections? Or are you just going to try and sound even more authoritative next time around and try to again avoid admitting obvious errors on your part such as the USA, UK and Europe "having no asset base".
>>"Actually it's you who doesn't have a clue. I thought Richard had it spot on -- you make it sound like you're the one who knows everything With a name that sounds like Harmony - you are promoting anything but!"
Hello AC. Is that Richard again posting anonymously? I guess we'll never know for sure. Do I make it sound like I know everything? Well the reason is that I actually know what I'm talking about to a degree and Richard does not. There's no hypocrisy in saying people shouldn't make things up.
As to the name "Harmony"? I believe when idiots realize they're idiots and stop telling people false things, then there will be greater harmony. I'm fine with that.
"Hello AC. Is that Richard again posting anonymously? I guess we'll never know for sure. Do I make it sound like I know everything? Well the reason is that I actually know what I'm talking about to a degree and Richard does not. There's no hypocrisy in saying people shouldn't make things up.
As to the name "Harmony"? I believe when idiots realize they're idiots and stop telling people false things, then there will be greater harmony. I'm fine with that."
FYI this isn't Richard. I happen to have read his post and agree with most of his comments.
The real problem we have is people who think they know and understand - economics.
\They simply don't - the reason I know? The world is in such a mess. Every country is in debt.
Thanks to fiat currencies and the Banksters that control the currencies and Governments.
Then you have bullshit Professors of Economics trying to make sense of something that's totally flawed.
Bitcoins offer transparency - something that real currencies do not. They know this and are shit scared of it - which is why they are trying to take it down.
There's a lot of money laundering - hello HSBC and QE which is has destroyed the value of the Pound and the $. Couple that with the Euro being in dire straights, banksters gambling, losing their tshirts and the kitchen sink and then twisting the arms of Governments to bail them out and we now have a situation where the world economy is a house of cards ready to collapse.
None of your asset theories are going to cover that fact one bit.
>>"FYI this isn't Richard. I happen to have read his post and agree with most of his comments."
There's no evidence that you're not just Richard trying to bolster his posts because you're hiding your identity. And what he's been writing has been clearly demonstrated wrong. USA, UK and Europe have no asset base? Inflation as a deliberate policy to eliminate debt (including foreign debt), non-central banks creating money (his confusion between assets and liquidity), his not knowing that the debt of the Weimar Republic was external and that hyper-inflation didn't wipe it out? Seriously - what's more likely? That you're Richard ticking the Anonymous Coward option or that there are two people on the planet who actually believe this crap?
>>"The real problem we have is people who think they know and understand - economics."
The world economy has a lot of real problems. People like Richard who think they know but demonstrably don't, are not the "real problem", they're just spreading misinformation. That has little to know impact on how governments and central banks behave, it just affects how angry or confused the public is. It's pretty weird for you to say the "real problem" with the world economy is people who think they know and understand economics. Or is that a kak-handed dig at me? In which case perhaps you should try pointing out anything I've said that is factually wrong instead of falling back to personal attacks in desperation. :)
>>"They simply don't - the reason I know? The world is in such a mess. Every country is in debt."
The world economy is a Chaotic System. There's a limit to how much can be done. The world being "a mess" (your opinion) is not a logical argument that people do not understand economics. I understand Newtonian mechanics, I can't fly, but I can tell you how quickly I will fall. Is that an argument that I don't understand F=ma ? I think you can clearly see that it is not.
>>Then you have bullshit Professors of Economics trying to make sense of something that's totally flawed.
Then why don't you get yourself a nice juicy Nobel prize by showing the fundamental flaws in modern economic theory. I've read university level Economics text books. You appear not to have since you reject Economics totally. A position I can only reconcile with ignorance.
>>Bitcoins offer transparency - something that real currencies do not. They know this and are shit scared of it - which is why they are trying to take it down.
By transparency you can only mean a lack of anonymity. People can trace the transfer history of money, correct? There is no "cash" or ability to block the tracing of transfer history, correct? Why do you think governments are scared of that? And if that's not what you mean, then what on Earth do you think makes Bitcoins more transparent than, e.g. the GBP? The statements and issuances of the Bank of England are all public record, you understand?
>>"None of your asset theories are going to cover that fact one bit."
What are "my asset theories"? Richard / You wrote that the US dollar, Euro, British pound had no asset base. I pointed out that was laughably wrong. What is it you think I'm trying to say? Are you just creating phantom arguments for me, now?
Traditional currencies have an asset base? When did that happen?
An asset base for the dollar - very funny. Alexander Hamilton pretty much defined the asset base for the dollar as "other peoples' stuff" and US policy hasn't changed since then.
Icon - the logo of the US Treasury department - motto - "What''s yours is mine, what's mine is my own"
Russia haven't banned Bitcoins They just disapprove of it. No government will be happy about Bitcoins, because as a currency it cant be manipulated. And when they see what the future holds for this technology, they will get very nervous indeed. Cryptocurrencies are here to stay. The genie is out of the bottle.
Bitcoin is for fun. If you can play games with it and make a profit, great. But never take it seriously. It has no basis in actual value and never will. It's play money. It's worth what the herd says its worth through their behavior.
Bitcoin got bad press this past week. The herd made a run on the bank. The bank closed its doors out of desperation and self-preservation. The herd rules. The herd is emotional. Emotion is played out in game behavior. The play money changes value. Play play play.
You can't have a run on the bank in Bitcoin, or you shouldn't, as the bank simply stores the money, unlike regular banks which not only lend out your deposits to others but engage in fractional reserve banking where they actually lend out multiples of your savings in spite of not actually having funds to cover it.
https://en.wikipedia.org/wiki/Fractional_reserve_banking
Which one sounds more like a shell game or ponzi scheme?
scrubber,
You should read that Wiki link you posted. It doesn't actually say what you think it does. Or at least not from a quick scan - as it actually seems to describe fractional reserve banking reasonably accurately.
unlike regular banks which not only lend out your deposits to others but engage in fractional reserve banking where they actually lend out multiples of your savings in spite of not actually having funds to cover it.
Banks aren't allowed to lend out money they don't have. So they can't lend out multiples of your savings. Only lend them out once. The fractional reserve bit isn't about lending out money twice, it's about only keeping a small proportion of their assets in cash - and hoping all the customers don't demand their savings back on the same day. Banking wouldn't work otherwise, as there'd be no way to lend on a 25 year mortgage, unless they did this.
But the books still have to balance. In order to lend me £100,000 (that loan is an asset) they have to have 100 people saving £1,000 (the liabilities). Plus another 10 or so to keep around as cash. Then they have to charge me enough interest to cover the savings rates they'll pay to those 110 people.
The assets (loans) have to equal the liabilities (savings) on the bank's books, otherwise they're insolvent. Plus the banks need another class of assets, which can't be loans - which are the operating capital of the business.
So as well as keeping a cash 'float' around, they also have to meet a capital reserve requirement. That is they have to have enough assets to cover some loss on their loans. The Basel process, and various changes in what could be counted as an asset to meet this requirement, was one of the causes of the financial crisis. Banks were holding other banks' CDOs as core assets, but no-one could work out what they were worth, so no-one had confidence in the core capital of the banks. This whole area is a nest of vipers. You may say the banks shouldn't be so greedy, and should just have held boring (lower profit) government debt to meet their Tier 1 capital requirement.
Which is all fine and dandy, until you look at the Spanish, Greek of Cypriot banks, who are currently doing just that. Even government bonds aren't as safe as houses, and neither is cash. Even gold has to be guarded - and fluctuated in value by over 20% last year.
When you look at how complex it is to keep heavily regulated financial trading working safely, it doesn't exactly fill you with confidence about totally un-regulated trading...
I ain't Spartacus, you miss the part where the magic sauce is applied:
I store £100 at the bank, they are forced to keep, say, £10 on hand so they lend out £90. At some point in the scheme of things that £90 becomes a deposit again for someone else (not necessarily at that bank, but let's have a single bank to simplify things).
That £90 deposit (which is the loan from my original saving) then allows the bank to lend out another £81. The £81 becomes a deposit too which allows the bank to lend another £73 etc. etc.
Based on the £100 initial deposit the bank can lend, through just 3 iterations, £244 (and, when all is said and done, about £900 total). This is known as the money multiplier. Like I said, they lend out a multiple of the original deposit.
Your scenario is flawed. For each iteration, they are getting money back from which to lend again. The bank has not lent out £244 from an initial deposit of £100. It's leant out £90, got it all back, lent out £81, got it all back. All you've done is create a scenario in which the bank gets to charge interest many times over on their money.
Or to put it in really simple terms: It's the same chocolate biscuit
scrubber,
Yes you've sort of got the expansion of the money supply in there - as banks create money. But the banks don't get to print it out of nothing (like Bitcoins) - they have to get lent it first (by savers) and then find someone who wants to borrow it. So although they're creating broad money, via lending, it's not like they're getting to magic it out of thin air - they only make a profit on the difference in the interest they charge to the interest they pay out.
This also depends on your definition of money. M0, which no-one really uses, is what most people would call money. i.e. notes and coins. M3 is notes, coins and bank desposits. But it's not a ponzi scheme, because each time the money gets re-cycled, the bank is sitting on both an asset (the loan) as well as a matching liability (the savings account).
Ideally M3 should grow at the same rate as nominal GDP (i.e. GDP + inflation). As an example the European Central Bank has a stated target of M3 growing at 4.5% per year. That's 2% inflation target, plus 2.5% growth. Although at the moment they've horribly fucked this up and the money supply is shrinking, and the Eurozone may be tipping into deflation - but that's a different kettle of fish. And another huge flaw of Bitcoins...
Based on the £100 initial deposit the bank can lend, through just 3 iterations, £244 (and, when all is said and done, about £900 total). This is known as the money multiplier. Like I said, they lend out a multiple of the original deposit.
But they have far more than £100 in deposits to cover it.
Consider the same 10% reserve level. Mr A deposits £1,000,000. B then borrows £900,000. The bank keeps the other £100,000 towards its reserves. B spends his loan with C who redeposits in in the bank, who then lends out another £810,000, keeping £90,000 to add to its reserves. You can repeat this cycle as many times as you want. After ten iterations the bank have received £6,513,215.60 in deposits, lent out £5,861,894.04, and has £651,321.56 in its reserves.
In other words the 10% ratio is maintained. Each transaction is completely separate - there is no chaining of them together. It isn't as if if Z defaults that means P doesn't have to pay his loan back either. The amount out on credit thus remains the same proportion of the same proportion of their liabilities. This isn't advanced finance, it's basic maths.
Let's consider two actors, me and the bank.
I deposit 100k, they lend me 90k, which I deposit, they lend me 81k, which I deposit etc. etc.
There ever only was 100k, but the bank reports 1m in assets and 1m in liabilities. I report 1m in assets and 900k in liabilities.
something has gone wrong somewhere and "the same chocolate biscuit" just doesn't cut it. Not least because the bank and myself have access to much higher degrees of finance because of our 1m assets rather than my actual 100k assets. The bank is doing this with hundreds of thousands od customers.
scrubber,
Now you're just being silly.
"But they have far more than £100 in deposits to cover it."No! That is the whole frigging point, When the financial wizardry stops they have EXACTLY £100 in cash. And a nominal £900 in loans and a nominal £1000 in deposits. But there is only £100 in existence (in this closed system).
and
I deposit 100k, they lend me 90k, which I deposit, they lend me 81k, which I deposit etc. etc.
Firslty no-one ever does that. If I borrow money it's to do something with it. Becuase the bank pays me less interest on deposit than I have to pay on the loan.
It's not a closed system, and money circulates round the economy, doing things.
Example: My bank has deposits it has to pay interest on. So it loans me £100k. I buy a house with this. The person I buy from puts that cash into a bank (probably a different one) - and they can then loan out that cash again. So my bank has a debit on its books (£100k in deposits) and a credit (£100k mortgage backed by my house).
If the cash goes back to my bank, and they lend on another house - the banks books look like this:
Debit: £200k - the orginal £100k of savings + the new £100k from my house vendor
Credit: £200k - made up of 2 x £100k mortgages, both backed by houses.
Banks then need to keep a reserve to cover if we can't pay our mortgages, and house prices fall. This would be a mix of retained profits, shareholder capital from rights issues/IPO and bonds issued by the bank. This to be invested in government and other AAA rated bonds, their account at the Bank of England, plus cash. All the UK banks are currently keeping this at over 10% of assets.
"But they have far more than £100 in deposits to cover it."
No! That is the whole frigging point, When the financial wizardry stops they have EXACTLY £100 in cash. And a nominal £900 in loans and a nominal £1000 in deposits. But there is only £100 in existence (in this closed system).
Your logic is conceptually flawed. Each iteration of the system results in the bank keeping more of the money - the sum to infinity is that they retain the full amount. They have external liabilities greater than the original cash amount but equally they have external creditors greater than those liabilities. Your argument switches between the two sets of figures mid-flow: if you deal with it on a cash basis it makes sense. You deal with it on an assets and liabilities basis it makes sense.
It doesn't make sense if you look at one side of the assets and liabilities equation but ignore the other. You're treating the deposits as if they were cash and treating the creditors as if they don't exist. The problem isn't a flaw in the model, it's a flaw in the analysis by not using the figures consistently.
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