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NxtChg

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Economics
« on: January 01, 2016, 01:33:39 pm »
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In defense of non-inflationary currencies:

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These examples show that, in the absence of effective legal tender laws, Gresham's Law works in reverse.

If given the choice of what money to accept, people will transact with money they believe to be of highest long-term value.

However, if not given the choice, and required to accept all money, good and bad, they will tend to keep the money of greater perceived value in their possession, and pass on the bad money to someone else.

In short, in the absence of legal tender laws, the seller will not accept anything but money of certain value (good money), while the existence of legal tender laws will cause the buyer to offer only money with the lowest commodity value (bad money) as the creditor must accept such money at face value.

https://en.wikipedia.org/wiki/Gresham%27s_law
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NxtChg

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Re: Economics
« Reply #1 on: January 01, 2016, 09:48:26 pm »
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(Cross-post from reddit)

For most of my life I believed the simple and neat explanation we're all given about why inflationary currencies are necessary.

Now I am not so sure.

1) Recent quote from one of the redditors (matches my own behavior and observations):

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...every time there is a price spike I am eager to spend bitcoin because I have more buying power. Most people have both a checking account and a savings account. I do the same with bitcoin, I have my cold storage (savings account) and my hot wallet (checking account/spending money).

2) Humans are irrational creatures with strong bias towards the present. Most will prefer $100 now vs $110 in a month.

3) In some areas Bitcoin outcompetes other currencies, so it becomes almost the only option (e.g. privacy, etc.).

4) Reality is uncertain. You can never completely guarantee appreciation in the future, so there's always a risk involved in taking $110 in a month.
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NxtChg

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Re: Economics
« Reply #2 on: January 11, 2016, 02:49:56 pm »
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Ben Bernanke's blog is an interesting read:

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/11/09-budgetary-sleight-of-hand

Although he's an economist, he still knows how to write without making his readers fall asleep :)

Here's a quote for all those conspiracy theorists:

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To see why, first note that the Fed, as a side effect of its other activities, is already a major source of revenue for the federal government.

The Fed earns interest on its portfolio of securities. This income, less the Fed’s operating expenses and interest paid on Fed liabilities, is sent to the Treasury on a pretty much continuous basis.

These remittances are large: Over the past half dozen years the Fed has sent nearly half a trillion dollars to the Treasury, funds which directly reduce the government’s budget deficit. (See here for the press release on last year’s payment. It’s true that the ultimate source of the Fed’s income is interest payments from the Treasury; but if the Fed didn’t own the bonds, those interest payments would go to investors who would not return the proceeds to the government.)

The Fed’s capital account provides a buffer that absorbs any losses on the Fed’s portfolio and allows the payments to the Treasury to be smoothed over time.
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