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Bitcoin

Discussion in 'Sports and News' started by Dick Whitman, Nov 26, 2013.

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  1. doctorquant

    doctorquant Well-Known Member

    Let your timeframe (i.e., the number of periods into the future you want to project) be N.

    Let your inflation rate be r (and you have to assume that this rate remains constant over your timeframe).

    Finally, let the amount of purchasing power you have right now be Pc.

    The amount of purchasing power you'll have N periods into the future, Pf, will be:

    Pf = Pc/[(1+r)^N]

    With Pc = $5,000, r = 0.01 (i.e., 1%), and N = 5, Pf will be $4,757.33.
     
  2. doctorquant

    doctorquant Well-Known Member

    It's not that a bitcoin has been "created" so much as your account has been credited with a bitcoin, and that crediting of your account has been agreed-upon by some very, very large number of widely distributed and independent auditors. That a given bitcoin is an actual bitcoin isn't the rub; making sure everyone agrees that it's your bitcoin is the trick.
     
  3. The Big Ragu

    The Big Ragu Moderator Staff Member

    If I could answer that question, I could make myself really rich.

    All I do know is that when you are talking about the dollar, it is the currency of a country that has been running up unsustainable rates of debt and has a central bank that has been debasing that currency to facilitate it all.

    That would suggest to me, at least, that unless something changes, today's dollars are going to be worth less in the future. As they have lost value pretty much since we gave a central planner authority over our currency. A 1913 dollar is worth about 4 cents today in purchasing power.

    The problem right now is that we have escalated that whole process over the last decade. At the pace we are going, something is going to have to change relatively soon -- either voluntarily or because of a dollar collapse. You can only devalue your currency so much before others lose faith in it. And you can only devalue it as far as worthless.

    The U.S. dollar is sheltered a bit by the fact that it isn't the U.S. acting in a vacuum. We are in the midst of a global currency war, in which the whole world is drowning in debt and everyone is competitively trying to devalue their currencies to import inflation, which reduces their debt in nominal terms.

    But just in terms of the dollar and where it is headed? China announced (and it got little attention in the U.S. news cycle) last week that it is no longer interested in accumulating U.S. Reserves. http://www.bloomberg.com/news/2013-11-20/pboc-says-no--in-china-s-favor-to-boost-record-reserves.html

    That means that if they are being truthful and follow through (and there are reasons why that will be difficult for them), they are not going to be buying our debt anymore. Either way, they have been complaining for the last few years about how we are destroying the value of the debt they hold by debasing our currency. And their treats to abandon their holdings of dollar reserves have gotten louder. They are already actively trying to create markets that use things other than the dollar as the reserve currency.

    My best guess is that like every other game of chicken we have seen, all of the players in the currency wards going on will take it to the brink. It will play out in the dollar, and we'll get a dollar crisis, at which point they will all sit down around a table (pretty much another Bretton Woods kind of thing) and create a band-aid of some sort. That could mean a return to some imperfect version of a gold standard, but that is not necessarily how they will go. The IMF has been pushing SDRs (basically a reserve currency of a bunch of other currencies), which would simply be another form of fiat currency that you can bet on eventually leading to another currency crisis at some point. Just kick the can down the road kind of stuff.

    But none of this stuff is new. It's just lost on people today. The global currency system was reset three times last century: 1914, 1939 and 1971. They create sets of rules that don't prevent everyone from cheating in "beggar they neighbor" attempts to run up debt and not have to pay for it by pawning it off on the rest of the world. And when they bring the system they created to crisis levels, everyone sits around a table and comes up with a new scheme that leads to the same outcome.

    We are pretty much at that crisis level today.

    At the end of the day, the dollar has never fared well (since we went off the gold standard) over any significant amount of time.
     
  4. amraeder

    amraeder Well-Known Member

    This doesn't look like an escalation over the past decade:
    [​IMG]
     
    Last edited by a moderator: Dec 15, 2014
  5. RickStain

    RickStain Well-Known Member

    Bitcoin transactions are kept in a massive ledger called the "blockchain." It records *every single transaction involving a bitcoin in history and always will*.

    If someone tries to give you a bitcoin, in order to do so, they have to add that transaction to the blockchain, and it will confirm that the person who is giving it to you has it (and it can actually be traced back to the person who gave it to them, and so forth, all the way back to the day it was mined).

    There is a problem, however, called a "51% attack." The blockchain isn't kept centrally, it's stored on hundreds of thousands (maybe millions by now?) of nodes all across the internet, maintained by the users (the ones who do the mining to create bitcoins to begin with).

    If someone were to come up with enough computing power to create and control enough active nodes to make up 51% of the network, they could create their own version of the blockchain and it would become the official version, presumably with a lot of bitcoins now transferred to them. The only protection bitcoin has against this is that it would take more computing power than any person could accumulate practically. It *might* be within the power of a large government to pull off, if they wanted to.
     
  6. doctorquant

    doctorquant Well-Known Member

    Let's say inflation averaged 3% over that 20-year-period ending in 2010. Your $5,000 in initial purchasing power would have been inflated down to $2,768.38. That's almost a 45% erosion of purchasing power.
     
    Last edited by a moderator: Dec 15, 2014
  7. amraeder

    amraeder Well-Known Member

    I'm not saying it has no impact on savings. I'm just saying that the past decade looks to be generally lower inflation than most of the time preceding it since the late 60s. I'm not seeing the escalation in inflation that Ragu's worried about.
     
    Last edited by a moderator: Dec 15, 2014
  8. The Big Ragu

    The Big Ragu Moderator Staff Member

    Maybe you are not seeing rising prices if you live in a bubble. But the CPI is propaganda; a complete lie. Your government is cooking the books to try to convince you you aren't seeing what everyone is actually seeing.

    You really believe that the CPI is an accurate gauge of rising prices? Despite the increases in prices you have ACTUALLY seen over time?

    They continually are changing their methodology and their basket of goods to hide the inflation they are creating. And they just lie.

    This is courtesy of Peter Schiff, who I linked to earlier. Earlier this year, he randomly took 20 consumer goods that people buy every week. They were eggs, new cars, milk, gasoline, bread, rent for a primary residence, coffee, dental services, potatoes, electricity, sugar, airline tickets, butter, store-purchased beer, apples, public transportation, breakfast cereal, tires, beef and prescription drugs.

    I hope you would agree that is a pretty decent basket of goods with which to compare today to 10 years ago, right? It hits most subsections of the population and the kinds of things people buy every day.

    If you look at the CPI between 2002 and the end of 2012, it would suggest that prices rose 27.5 percent. That basket of 20 goods, however, rose 44.3 percent when you use their actual prices, not our government's prices.

    The CPI is a complete lie.

    Take anything. Health insurance is an obvious one. According to your government, between 2008 and 2012, health insurance prices increased by 4.3 percent. It was actually LOWER than their "official" rate of inflation. Do you really believe that? I was buying health insurance during that time, and I can tell you that was just not the case in my world. According to a Kaiser Survey, the actual increase in health insurance premiums during that time was more than 24 percent.

    It gets worse, though. The government is constantly changing the weightings of the basket of goods they use to calculate the CPI, and in their current basket, health insurance is only 1 percent of the basket. The real annual cost of health insurance for the typical family is obviously a much greater percentage of their expenditures than that.

    The CPI is complete, unfettered bullshit. The last thing the government wants is for the public to know how much inflation we have.

    It doesn't mean that it isn't obvious to anyone who has actually been buying stuff. We all can see how much general prices have risen over time, no matter what number someone else tells us to believe.
     
  9. RickStain

    RickStain Well-Known Member

    Picking 20 goods that just feel reasonable doesn't strike me as a robust method. I bet you could get a lot of different answers with a lot of different groups of 20 that all feel about right.
     
  10. amraeder

    amraeder Well-Known Member

    Especially if a significant number of those 20 either 1) are grown and therefor impacted by droughts, or 2) come from animals that eat feed and therefore impacted by droughts.

    I mean, really that basket of goods looks like we're tracking price shocks from droughts and oil prices.
     
  11. The Big Ragu

    The Big Ragu Moderator Staff Member

    Fair enough. That basket honestly wasn't cherry picked.

    But I am certain you would agree anecdotally that your cost of living is requiring a lot more today relative to 10 years ago than the CPI would suggest. At least if your experience is similar to most people's. Just in gasoline expenses, home ownership /rental expenses, higher education expenses and health care (and the CPI has purposely changed its methodology to underweight those things compared to the way it used to be calculated), the price increases have hit a large portion of the population in a big way.
     
  12. BTExpress

    BTExpress Well-Known Member

    The problem with that is that most people do not buy at "random." They look for deals --- and there are ALWAYS deals. Store specials, Buy-one-get-one-free (which at my stores mean you can buy just one for half price), all kinds of stuff. Shoppers today are more savvy than ever, and there are more ways to get deals than ever.

    There is no doubt in my mind I can buy most things on Schiff's list at a lower price than he paid.
     
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