S2F from PlanB is, in principle, correct. The problem was trying to put it in concrete mathematical relationship.

S2F will still be directionally correct, and correct in principle, if bitcoin continues to accumulate value through the years.

The only way you can disagree with S2F IMO is if you don't think bitcoin will continue to go up in price. And of course, bitcoiners are not prepared to say that.

Halvings as an issuance cut do not matter. They only matter as a confirmation to the fixed supply, which ethereum does not have and which they cannot not replicate.

You can't confirm robustness to change by changing the rules. That's idiotic.

"Variations" again, not changing. It is the difference between saying something and showing something. Halvings show people the immutable (unable to be changed) supply schedule and fixed supply.

This reaches more people each time, either due to the conditions in the market, or the conditions of the individuals viewing it. Perhaps, they are more ready to accept it.

You cannot reverse this reasoning, and say the process doesn't matter. We'll just make a coin that has a fixed supply, issue 1 billion tokens and then no more. Everything has trade offs.

Bitcoin's emission schedule is mainly for distribution without TTPs and bootstrapping of PoW to avoid future TTPs. Get rid of the process, get rid of the decentralization and censorship resistance.

See ethereum people do not understand trade offs or adversarial thinking.

"CHANGES" is the keep term. Bitcoin isn't changing. But that point cannot be conceded else it exposes the whole centralized and arbitrary lie of ethereum.

Unforgeable costliness is not a philosophical concern. Typical Ethereum person not understanding adversarial thinking.

UC is protecting supply as demand increases. It is a fundamental bedrock of monetary reasoning. Thinking "supply and demand is all there is" is pretty elementary. It does not take into consideration changes through time.

BTC halvings themselves don't do anything. Again, it is the fact that supply is immutable and fixed.

The reason this has a drawn out effect on price, is that the immutable nature must be priced in. Each halving is another vote to the legitimacy of this process.

This has nothing to do with ethereum's arbitrary change.

Any good can be temporarily reduced in supply.

An arbitrary change doesn't make it permanent.

The point is the immutable nature of the consensus rules which limit supply. Ethereum's supply is not immutable, and has been conditioned to not be a mandatory part of the consensus rules.

Negative. Bitcoin mining helps the environment by increasing energy consumption efficiency and getting rid of legacy bloat.

Scary

You know better than this Fabio. This is a lie. Dollars and Euros are used 100x more than bitcoin for terrorism.

Bitcoin will help fight climate change. Bitcoin mining is a net benefit to the environment.

People don't want to spend bitcoin mainly because they will miss out on gains. The same reason mainstream economists give for why deflationary money is bad. But plenty of bitcoin is transacted. Each day, billions of dollars worth of value changes hands on the bitcoin network.

what timeframe? There is no two year period where bitcoin has lost value. Just the opposite, bitcoin tends to rise rapidly.

That is the operative word and it's past tense. Check that against the same 3 months in 2013-14. The volatility is getting less.

Right now, sure as a large global money. But it's getting better every year. Bitcoin is only 13 years old. Wait until it's 20 to make this determination. It's not that it "cannot", just that it hasn't yet.

Also, the Euro is quite volatile. Have you looked at the chart?

Again, no. It's a big world out there. If you regulate them, the innovation will go elsewhere (like Russia, your boogeyman). It is also the case that bitcoin cannot be destroyed, so regulating it won't do anything to its survival.

Altcoins I 100% agree. Bitcoin? No. Bitcoin has a circular economy to a significant portion now. Businesses that use it, account with it, spend it and accept it.

There is nothing artificial about it. If you think so, it's fine, don't buy any.

This is refuted, because exchanges and custodians are the largest holders. What percent of cash is held in paper vs bank deposits in your legacy system?

All also point out again, that we should be talking about bitcoin, not some premined, airdropped, pump and dump altcoins.

I see a footnote for "scandals" but not for lack of fundamentals or illegal activities. Remember, we're talking about bitcoin. You wouldn't think it was right to talk about pink sheet stocks as the same thing as Dow Jones companies. Or a loan from friends and family like a government security. It's bitcoin and everything else.

No. You mean "BITCOIN", and maybe with small amendum for ethereum. The rest has not seen strong demand from professional investors.

In fact, bitcoiners have been trying to convince professional investors for years about the new money, and only recently have they started to dabble in BITCOIN.

For your argument to be more honest and believable, I wouldn't even bring up "defi". Everyone already knows it's a scam, and there's no large financial entities with any exposure to that small segment of the space.

They are regulated. Show me any company that handles customer money that is not heavily regulated.

Insufficiently supervised? According to whom? Not the market. The market seems to think everything is fine, and leans toward being too heavily supervised already.

Sure, but 99.9% of them are straight garbage. If you limited your analysis, Fabio, to say bitcoin only or the top two altcoins, it would be more honest and believable.

I might say it is even higher than that, because most stablecoins are "algorithmically" pegged to $1, using a third currency to balance it out. They always fail eventually.

Those only make up a tiny fraction of the overall market for USD stablecoins. When we look at the 3-4 large players, they are backed by actual cash and cash-equivilents.

Then give them that. I sense your answer won't be that friendly to the free market solutions, mainly because there are very very few Euro stablecoins compared to USD stablecoins.

No, stablecoins emerged to circumvent the slow legacy system that is riddled with unnecessary hurdles. They were a way to get dollars onto foreign exchanges, in and out, quickly to take advantage of arbitrage opportunities.

No. What is volatile is the Euro, Fabio. Have you looked at the charts??? Those operators are trustworthy only to a degree. In times of severe societal pressure, they will fail, credit bubbles also pop.

Sound money in much more stable in the long term. wages over the centuries, when measured in gold, have been fairly constant, at the same time your trustworthy operators have driven their currencies into the ground.

No such thing

And nobody is relied upon.

This is funny. We can say math backs bitcoin, or that cryptography backs bitcoin, some hard provable things that don't depend on other people's good will, or that Russia won't invade and crash your government.

Gold did this just fine. The difference between gold and bitcoin is that bitcoin is fixed supply, can be sent over a communications channel, and globally settled and assayed in minutes.

How about name them Fabio. The cryptography isn't particularly new, and the distributed consensus tool is called proof-of-work. PoW was the breakthrough. Proof-of-stake is older and doesn't work at scale.

Do they have to be more? Where's the evidence that stocks and sovereign bonds are not speculative. On the contrary, all investments are speculative.

I'm interested to see how he proposes to get around very basic limitation of this idea.

Of course, the regressive globalists at the ECB will decide what adds value to society, and it's definitely not going to be wealth transfer from establishment crooks.

New term! This is funny. I don't know of any large financial players with exposure to more than maybe bitcoin and ethereum in a professional way. Fabio is trying to make it sound like JP Morgan has billions of dollars in shitcoins. LOL

That's fine. It is invest at your own risk.

Fabio, you know better than this (at least I hope you do). It wasn't the total amount of sub-prime mortgages, it was the credit rating of the products they were bundled into, and the credit default swap market built on top.

If a bank only had 5-10% of their assets in things like this, what happens when they goes approach zero?? It's like hitting a single card in a giant card house. It all comes down.

Now, bitcoin doesn't have the same characteristics. Bitcoin can actually help in those types of situations, where a bank's entire balance sheet is predicated on debt and can theoretically go to zero. If they held 10-25% of their assets backed by bitcoin, it couldn't go to zero.

The typical narrative for altcoins is not generally a promise for gains, although that is always in the background of their talking points. Usually they sell altcoins has solving some problem, one that is just out of reach of most people's ability to vet or comprehend.

InB4 he says it's backed by nothing.

I don't even know what this means. Where is he getting this anarchistic utopia as the driving force? There is a huge difference between predicting anarchistic utopia and striving for it in some revolutionary way.

The crypto anarchist manifesto and bmoney paper are an example of how they thought about this.

Like I said above, the money part of bitcoin was necessary because it is not possible to mitigate TTPs with legacy bank money.

I hope he explains this. Satoshi was first and foremost concerned with removing trusted third parties from digital payments. To do so, he needed a digital money, and to do that, he needed decentralization and cryptography.

Very interesting comparison between an actual gold rush and a bitcoin gold rush, since bitcoin has been called digital gold.

However, there are major problems with this simile. First, altcoins are not like digital gold and don't claim to be for the most part, only bitcoin does. And only bitcoin can be.

Second, a gold rush is inflationary and the value of gold tends to drop. In the case of bitcoin, the supply is fixed and the value has tended to increase.

Third, "greed and lawlessness" was not a particular characteristic of the gold rush. And those are not particular evils eithers. Greed and selfishness are the driving force behind all economic activity. You cannot even think without a perception of "I" and other things relative to yourself. Greed and selfishness are the only movers of society period. It is impossible to act completely selflessly.

As for lawlessness, the opposite is tyranny. The economy functions better the more freedom (less regulation) you put on the market. It is a common tactic to frame lawlessness as evil and violent, when it is typically less so than markets with heavy regulatory burdens that promote black markets and violent organized crime.

"Where the few exploited the dream of the many." Welcome to the grownup world Fabio. Most businesses and people fail when they attempt entrepreneurial activity. The few succeed, and the many fail. But that's not a bad thing. It is better than reducing failure by mandating inefficiency.

That is not the case with bitcoin. All you have to do to get ahead and succeed in bitcoin is buy and hold. Altcoins are a different story.

These are people, not bitcoin.

There is a third and most likely outcome in economic game theory, players cooperate and everyone wins. Bitcoin cannot lose because it is part of the terrain, it is part of the rules. You can build a house out of plumb, but gravity will eventually win. It is not a "winning" strategy to purposefully build crooked buildings. People must acknowledge and obey bitcoin as part of the game.

Here it is, bitcoin as player. This is 100% the wrong way to look at it.

The players in this game are individuals trying to coordinate to get ahead. It is not one group versus the terrain. Just saying that points out the ill-fated nature of that game.

Must be careful to not anthropomorphize bitcoin. Bitcoin is part of the terrain of the game, not a player.

This is an example of changing the payoffs in the game. The printing press was not a player, it is the terrain.

The Church didn't lose. The Church was a way of organizing society, that general tenet shifted to secular bodies. The "people" didn't win per se.

I've heard it described recently by James Lindsay as prior to the printing press being like a slave-master information society, and since being a feudalist society. We still have an expert class, expert institutions, and expert certifications.

Countered by your opponent

This is not always the case. There are cooperative games, which is the majority of economics, people cooperating.

You have to think about being in a Nash Equilibrium that is very hard to break out of. To do so, it requires someone to go against their best interest and lose on purpose.

Another important part of this story is that bitcoin is not a player; bitcoin is part of the field. It is something that has changed the payoffs in the game theory.

Nonsense really. In a bitcoin world, competence will be rewarded even more. Socialists will lose. The playing field will shift, but bitcoin will not get rid of inequality, it will simply make inequality merit based. And again, fairness doesn't matter.

The world is not fair, it is cutthroat. IF these places are getting exploited now, they will be exploited in the future (most likely). That is not fair or right, but it is. Refusing to believe that is an irrational belief in equality of outcome.

Seigniorage is not the reason the USD is top, or the reason the US economy is the top. Countries are sometimes held down by the currency, but sometimes their currency is actually a benefit to them. Bitcoin alone will not turn a piece of crap into a diamond.

Like a lottery winner, most of them are broke or dead as little as 5 years later. A country that gets ahead because of early bitcoin adoption won't necessarily stay ahead. They can piss it down their leg, get invaded or overthrown, or any number of things. Wealth is created and maintained through competence, not money.

Money can help the best and the brightest in a country, but it cannot change geography or nature. It cannot reduce the cost of economic development, that is what fiat inflation is for.

Empirically wrong. El Salvador didn't have the highest inflation, they use the USD. Tonga's currency is very stable.

The Economic collapse is starting. The Bitcoin & Markets thesis is that these very emerging markets will suffer most from deglobalization and the rising risks of war. Now, the IMF is saying the quiet part out loud, countries are facing a massive debt burden coming due soon. This will accelerate the dollar shortage already underway.

This is the inflation rate with gold btw

I agree, but likely in the exact opposite way. Creating overcapacity has an opportunity cost. Just look at our demographics, we've sacrificed family and culture to globalization and created a very unstable geopolitical atmosphere. Innovation and technology are not straight lines, and they aren't always good.

I would answer no, but not because we have a fiat monetary system. Currently, base money is a depressionary hybrid of cash + collateral. This cash + collateral system evolved naturally from a floating fiat standard, with a partial (yet severed) link to gold (central banks still hold gold). The current system is not a fiat system, it is a hybrid. humans have evolved our tools.

Now, to the "bounty of innovation". It is wrong to equate innovation to progress IMO. Most innovation fails miserably. We have experienced several decades of higher than average innovative success, leading to grotesque overcapacity in almost everything, driven by an every seemingly insatiable demand for credit.

Those days are over. We will likely experience a period of below average innovative success for the next few decades, if not a century. Many of the fanciful ideas of a utopian future amongst the stars, is influenced and predicated on the unprecedented period of peace the world has enjoyed after WWII, in the US led liberal trade order. Over the next decade, this order will break down. And if you live in the traditionally war torn areas of the world, and have grow accustomed to a peaceful civilized life, you have a rude awakening coming.

Very good question.

Important piece because without freedom, progress can stop. It speaks against an idea of runaway deflation from technology.

Bingo. It occurred during that time precisely because of that increasing centralized coordination over economic activity. It's called overcapacity.

This is my main disagreement. There is no such thing as an unstoppable tsunami of technology. Technological advancement occurs to fill a demand. Without demand there will be negative value to technology and that will stop it.

This includes price increases. Nominal GDP vs Real GDP will look higher if prices rise faster than production falls.

A pure fiat CBDC will not have any appeal as a store of value. The ECB cannot act alone. If they do, investors will disinvest in the Euro and flee to other bank-based money and bitcoin.

There are trade offs, we'll get into that below, but suffice it to say here, these things have trade offs that will create negative, not positive feedback loops.

I am surprised to see this point in here. That means they might be graduating to bitcoin 201 level thinking. The bearer vs account-based design is an actual debatable point, but has for the most part been settled by real-world experience with these two options. Bitcoin is a bearer instrument.

At least they are making this distinction, but this is a mighty short paragraph about account based CBDC.

If central banks were really dedicated to "enhancing cross-border payments" according to the G20, they would support bitcoin. It is a ready made solution with open source layer 2 payments capability. The El Salvador legal tender development might go a long way in convincing many bankers that bitcoin is the solution for all these interoperability and payment needs.

So despite tinkering of central planners in "design choices" it really doesn't matter. The market will choose the money it uses based on convergence concerns. I'll add that tinkering design choices are not additive they are decremental and counterproductive.

The only reason it would help is because it would face less regulatory scrutiny and hurdles. Payments are trivial and only held back from being cheap and ubiquitous by central planners who add KYC AML and anti-fraud regulations.

They might not have decided, but they are leaning that way. And I'll add they are leaning that way despite studies like this in their annual report that show they have made very little progress toward really understanding what it is they are.

I get the feeling that they think features are additive. They are not. Features always have trade offs, and you can end up with a Frankenstein's monster of a currency that is very unattractive you to try to tailor everything just so. This is the fatal conceit of central planning.

Wrong.

Total central banker wet dreams right here. Absolutely not workable in a competitive environment, especially where they are attempting to balance interoperability and anonymity.

They get it, but no mention to the competitive nature with bitcoin.

This is the bottom line for anonymity, they cannot provide it. Period. Because it undermines their central planning work. However, they know it is important and an important feature in money. Therefore, they are at once saying anonymity is necessary and the lack of anonymity is necessary. See the mental knots?

There will always be a differential between the anonymity and privacy available with bitcoin and that available with CBDCs. Therefore, there will always be at the very minimum a market niche for bitcoin. When you add to that convergence, it starts to become apparent that these limitations of a central planner coin are fatal.

Again, talking about fostering the Euro, which they said wasn't the goal.

Interoperability is a noble goal, but they don't really want this. It opens up the door to easy of speculative attacks on a currency and convergence on holding one currency versus another. Why hold any value in a more risky currency is interoperability is seamless/lossless?

Therefore, the ECB will quickly learn that they don't even want interoperability. They must impose inefficiencies on the market or else people will converge on one money.

The market is self-correcting, not self-destructive. The central planners'/bankers' conceit is that the market needs them in order to function properly. It's like "war is peace" here. To avoid the market being dominated by one provider with strong market power, we must submit to one central planning board with strong market power. How do they function with so much dissonance?

This is their true concern in my opinion. They don't want to lose market share to other currencies. They have a feeling of uneasiness, that if they don't do something, they will get eaten by the USD or bitcoin.

They claimed this wasn't about "fostering" the use of the Euro but everything is "increase" or "enhance" or "strengthen".

Sure, the synergy with money and payments (like bitcoin and it's transaction capability) can be great, except there are trade offs. High transaction throughput means massive overhead and cost. Bitcoin gets passed that because it has only very limited on network transactions, other payments can be built on top (again like paypal and the USD, or Visa and USD).

There is also risk to forcing together the money layer and means of payment layer, MoP can have bugs, be disputed, reversed, or the product of fraud. Therefore, you would need highly centralized and inefficient systems built into the money layer to enable updating the records. It is highly limiting and inefficient.

We can all describe our perfect world money and payment system, but building that is a different story. There are massive trade offs here that make CBDCs worse than the existing system.

Bitcoin is a different story. You shouldn't lump bitcoin in with "crypto" or "CBDCs". Bitcoin's design is tailored to ensure its complete independence from meddling tinkerers, like the ECB officials, who's fickle manipulation dooms the digital Euro to failure anyway.

Okay, here they have it basically right.

This is backwards. It is not the invoicing that gives rise to demand for USD deposits, but the deposits that give rise to the invoicing.

This is a very important misunderstanding by the ECB. They believe it is competition of features and ability to centrally plan, when in fact, the more you tinker the less robust your currency will be.

You need research for this?

This is already possible.

These inefficiencies come from the central planning regulators in the first place! What are these people saying!?

"Traditional intermediaries" who are hamstrung by regulation!!

There's no free lunch. You cannot simply get cheaper transactions, there is a trade off for everything. Financial inclusion means very little to me. Most people don't understand and can't manage their own money. Many people were benefit from hiring financial expertise instead of doing it themselves.

Private banks have a much lower likelihood of censoring transactions on their own. CBDCs therefore would have an inflation and censorship risk, while private currencies simply have a third party risk, where the third party's incentives are aligned with the customer.

They are just stating that money is convergent.

People do not trust government. Shocking, I know. But these bureaucrats think it is a plus that a CBDC will be more closely controlled by the central planners. Absolutely not the case.

Means of payment is not medium of exchange!!!!!

Paypal and the dollar are not the same thing!!!!!

If anyone is conflating these things, they are either ignorant or malicious.

"Appeal" is an interesting term here. Money is not based on appeal, but as a tool, based on how well it functions in its role.

"Digitalization is unlikely to alter" is false. For one, currencies are mainly digital already, why? Because it provides different characteristics to the money, over being only tangible. CBDCs are a different kind of digital money. Current digital money is a derivative of banking, CBDCs on the other hand are a derivative to fiat. This is a new monetary asset, which very new characteristics. Instead of relying on the economic environment to dictate money supply, it is purely a fiat money supply.

This will likely be very "unappealing" to most people. Bad money will chase out good. So in this situation, the fiat currencies will push out bitcoin, but will inflate dramatically.

They use the term foster, which means to promote the development of. That does not speak to maintaining of the international role of the Euro. Likely, they simply don't want to lose ground for the Euro in a digital space. This is a defensive move instead of offensive in other words.

This is the major concern for the ECB. They are scared that a digital dollar, will crowd out the Euro in international use. They should be scared. The next Euro Area crisis might be the end for the Euro.

The Euro is a never finished project. It is in constant need to closer integration and "further efforts" to complete.

They will continue to experience deeper crises as they try to hold it together, until some of the disadvantaged countries start to leave.

How do they come to this conclusion? In other words, they are saying "further resolute policy measures and reform (central planning) would enable the euro to realise its global potential"?

I'll counter and say that it possibly short curcuited political waste within weaker societies.

For example, perhaps Brazil would not have integrated as deeply with the international order if their own politicians were too corrupt to adopt oil trade in a central currency.

All great points!!!

If this is the case, it hurt the US. Any government intervention into the market is a net negative. We cannot claim it was a huge benefit for the US and that it wasn't economical. Those things are opposing views.

Were they buying military equipment or USTs?

There was also a real threat that Russia would be able to side with Saudi against the US. This was not a malevolent USD plot, this was exactly in keeping with the strategy of cold war containment.

It's true that war is usually the source of devaluations of the currency, but Vietnam was not that big of a war. It was bad, but it wasn't relatively expensive by any means.

This was not the case. The Eurodollar system had printed too many dollars abroad.

This was a logical concern. Nixon was being advised in 1968 when he was elected to devalue the dollar to $50/oz. They even sent specialists around Europe to see what kind of support there was for that idea. It wasn't a secret, devaluation was an option. But leave it to the French to blow up American debt they were owed. History rhythms.

This is just wrong. As far back the Revolutionary War the US has financed every war. (after the Revolutionary War however, we defaulted completely on the French)

The US had been an economic powerhouse since the 19th Century. This is an important fact. Bretton Woods did not create the US.

This is an important question to ask, why was the US not war-torn?

The answer is not luck or a weird twist of fate. The US enjoys exceptional geographic dominance. If you live on the Steppe you will have to deal with raids and warfare, etc. If you live in the mountains, you won't have as vibrant an agricultural sector, but will have more mining.

The US has the best of all worlds geographically, and is secure. The is geographic destiny.

This is wrong Alex. The US became the world's largest economy in the 1880's. This is way before WWI or Bretton Woods.

It wouldn't be nearly as developed in the third world. It'd probably be much more violent, too.

This is a misunderstanding of the how money is printed.

This is not what gives America its dominance. The US's relatively free and stable market, along with geographic dominance, gives us the economic dominance we enjoy.

The USD is a huge burden.

There are certainly negatives, but the positives out weigh them by a huge margin.

What was the situation in most countries in the world pre-USD dominance? It was crap. They were the same as they had been for 500 years or more, war torn, high infant mortality, etc. The USD literally civilized the world.

Now, don't get me wrong, the current financial system has major problems, but those shouldn't be framed as horrific. The alternative to hyper-credit build up in these economies is not peaceful economic prosperity. The alternative is local and regional wars, corruption, and poverty.

This chart should make the observer think, 'the volatility on the left is measuring something different than the calm 2.5% nearly flat line on the right.'

It is literally measuring something different here!

Why 1971 to 2020? Why not 1980 to 2020?

Including the 70s with any other period is deceptive IMO.

M2 is not money supply. This is the heart of the much of the confusion. Just stop using M2/M1/ base money, etc, these things do not measure money, they measure certain types of balance sheet entries.

In fact, the higher the M2, likely the lower other forms of free market money. So it could arguably be a sign of deflation if M2 is going up.

Just looking at this chart should make you question its legitimacy. How can it go vertical and we still have this debate about inflation vs deflation? It doesn't make sense.

Right off the bat, this appears to be a piece that is concerned with five fundamentally different eras where money behaves differently; 1) classic gold standard with sterling, 2) interwar period, 3) Bretton Woods, 4) post-1971, 5) post-2008.

I think it is useful to say what is inflation by definition: an increase in the money supply. Then talk about today. I'm skeptical that a 150 year deep dive, say looking at money in the year 1900 is not applicable to money measurements in 2020.

This is the wrong period to examine.

I'd personally look at 1) pre-WWI, 2) 1914-1945, 2) 1945-1971, 4) 1971-2008, and then 2008-present.

Looking at 1990 to present is mixing eras.

You mentioned interest rates in the affordability of real estate section, but not interest rates as a proxy by which to check CPI. That is by far the biggest smoking gun here.

30Y rates at 3% don't at all portend inflation. Perhaps your argument would be that the Fed keeps rates down, but there is little evidence of that. The literature is pointing more and more toward negligible effect from QE, and that is despite the fact that dealers usually sell to the Fed at a loss, meaning they sell it at a lower price (not higher) than they bought it for at auction.

80% of those losses happened prior to 2008.

Once again, a chart that shows a change around 2008. It was dropping dramatically, and significantly slowed.

Chicken or egg? Which comes first, society's willingness to take on debt, or the taking on of debt. I'd argue that first comes the societal changes toward normalization of debt, then comes this flat income.

What a great chart to show that something happened in 2008.

Chicken or egg?

This is the much of the hard problem of the CPI. There are tons of these kind of hard choices that must be made, researched, tracked, etc. It's a hard job, but they do an okay job at it.

This is a troublesome term. Most people don't pay cash for their homes. Nearly all homes are financed.

This is more a change in behavior once again. Today, people are more comfortable living with debt. That is a shift in society brought about by the form of money, which is constantly evolving.

Price inflation of what? The monthly payment yes.

Here it is, nice, affordability.

I already know where this is going. Let's see if she mentions "affordability".

Again, if you education used to average 12 years and now averages 16 years, that must be in there somewhere. Also, caloric intake has risen from about 2800/day in the US in 1960 to 3600/day today. And more of those calories are empty carbs, making us need to consume more healthcare on average.

No, commodities rose pre-2008.

Notice commodities prices advanced prior to 2008 and have been flat to down since.

Behavior has changed and people are more comfortable living in debt and paycheck to paycheck. That is normal now, not so in the past. People consume more of these things.

I agree with this, however, this is slightly apples and oranges. What people spend is not the same as prices. You're mixing things a bit here I think. Health has declined over the decades as modern diets have gotten worse. People consume more healthcare. People consume more calories.

Again, spending and prices aren't apples to apples.

Another example, more people go to university today, and stay longer. They consume more education, so naturally it would mean that its a higher percentage of expenditures. People consume more childcare than 40 years ago, so naturally it will be a higher percentage of their expenditures.

I also haven't seen in the post anything about how credit enters the system versus how it exits. College tuition is a big source of entry, mortgages, car loans, margin debt, etc.

I argue that these are cultural shifts in demand.

Food can also include discretionary spending. It's not education it's tuition which you used above. And it's healthcare not the cost to stay healthy.

You also have to figure in affordability. As interest rates fall, the monthly payment for a new car goes down. This is the same argument for houses. Car are very often financed, so financing terms will be hugely important.

This makes me think that if you borrowed money today to pay for 5 years of your food costs upfront, then paid back the fixed rate on the loan, food prices wouldn't seem to be going up so much. Now do it for 30 years. Get a 30 year fixed rate loan at 3%, it would be half of what a family spends on a mortgage, but prices would remain flat.

I'd of course put it at 2008, not 2003. Something happened then that is as important (or more) than 1971.

I applaud this moderate view.

I will continue reading, but also challenge you to look at only 2008 to present. That is the new era, or maybe the end of an era.

LOL nice

I've never heard this term. Interesting. I call them inflationists.

I'm glad you used the terms you did. Tuition not education, healthcare not 'to be healthy', house prices not house affordability, and food prices not food needs.

Very low? It's still pressing 30%. The UK for instance is much lower since 2008, and the US is in the same ballpark until this last year.

Yet this recent period from roughly 2000 to present shows a definite change, especially around 2007-8.

This is because back then M2/M1 was much more realistic as a measure of money. Today, they don't measure money.

GDP is flawed, and "broad money" is flawed, velocity becomes a tautology.

We must add that this period did NOT end with hyperinflation. There was a temporary shock of higher CPI growth (WWI) that turned into deflation. It always comes back to deflation.

This is a great story but it is missing the primary mover, the free trade subsidy. These place became viable to grow because of the US security guarantee and eurodollar credit expansion. This was not mainly a story of technology, but a story of credit and subsidy.

Yes, prior to roughly 2000-2008 where the correlation broke down. Why? because "broad money" doesn't measure money anymore.

Simply looking at the inconsistency throughout this period should tip us off that it is measuring different things throughout. They moved together for the most part until even after 1971, until 2008 the the GFC. What happened in 2008 to cause this?

Why?

I don't want to labor this point, but "farming by hand" and industrial agriculture are different activities. Sustainability and providing for your family and perhaps a very small amount for local trade, is very different to industrial soybean and ethanol production today.

This is in fact what technology is. Why do people innovate most of the time? To save time and money.

The other type of technological innovation, Thiel's 0 to 1, don't necessarily happen due to cost savings and efficiency, they are a result of passion or curiosity. These things can fundamentally shift demand structures in the economy and are harder to say if they are deflationary or not IMO.

These things are artifacts of the bias in the measurement. M2/M1 is measuring the balance sheet entries exactly to measure rich people's money. It'd be like saying, when I add weight to this dumbbell it starts to limit the people who can lift it by strength. Of course, that is what you are measuring.

"Broad money" M2 (this is not a good measurement of money but I'll go with it) is measuring deposits. Rich people have more deposits and are rich because they can better provide value to the economy. As the economy struggles due to deflationary pressures, the rich people get a higher percent of the deposits. Of course, because rich people are better at getting deposits, that's why they are rich.

or rent or paying off debt. Uh oh.

Where is this money coming from? It's not brand new, it is borrowed, pulled forward from future demand. This is not magic new demand, it is existing demand in the future.

Huge mistake. See comments above. No no no.

Rich folks with extra money use it to start businesses and solve problems for people, creating value and wealth. If they aren't doing that, there's a deeper issue already existing in the economy. In this case, a deflationary environment.

Human demand is infinite

In an inflationary economy, an expanding economy, they'd spend it on business creation!! The fact that they buy assets with it should be a huge sign that we are in a deflationary environment.

They exact people who should best be able to use that money to create yet more economic activity and wealth btw.

I think this is political view from Lyn. The economic question is why doesn't it trickle down? Why don't these rich folks spend it on starting businesses? Why doesn't it work its way through the yacht supply chains to raw materials, artisan pay, new yacht building companies, marinas, etc etc etc?

If the money is getting trapped in the "upper echelons of society" it is because the economy is in a deflationary funk already! The market is trying to clear itself instead of expanding. This is a sign of deflationary pressure. Exactly the opposite of asset price "inflation", this is price increases due to a deflationary environment.

These rich folks are the builders, the business moguls, the ablest in a relatively free market. They are the exact people you would want to have extra cash, so they could use it to better the economy. Yet it goes into asset prices????? What? If they can't use that money to expand the economy things are very very deflationary!!

At first glance, these appear to be indirectly correlated. However, if you look closely, there are only a few periods where they are indirectly correlated, the most prominent being from 2008 until today. That is my main point, the system radically changed in 2008, it started it's terminal deflationary stage.

No, this is wrong. It is due to the different characteristics of the money itself. The market is more powerful than any ivory tower economists that we like to make fun of for being stupid. But they are so stupid they can control the infinitely complex free market? Not a chance.

Different characteristics of what the market considers money, not different central planning clowns.

I understand why 1971 is used, but the Great Inflation is more relevant here is it not? Half of the inflation took place in the single decade of the 70s right?

Can this chart be in log scale?

Easy, keep buggy whips and horse drawn carriages in the CPI calculation for all eternity.

Of course, you would update the weights.

There's also another reason to do this, the capital structure used in the manufacture of those goods is also extremely important. If a certain chemical was very important in making a broad range of goods, and the source of that chemical was interrupted or destroyed, prices would be jacked across the board. For instance, an economy was built around forestry and they cut down all the forests. The capital structure and resource structure in the economy can mandate a change to the CPI basket.

This is a very good question and I understand it is a theoretical question, meant to be unanswerable, but it is answerable. You can look into exactly how the BLS does it for the CPI. It's not perfect because it has been supported by other prices, like interest rates for a long time.

If you start from the position that it is unanswerable, you get to a bad place in theory. Of course, people can do some measurements like this. I'm not saying I agree with it, but treating it as 100% impossible is wrong. It can be done in a ballpark fashion for sure.

ALL goods have this. Some?

M2. Not a measure of money.

Here we go. The money of 1881 has almost no resemblance to money in 2020. This chart does not include off shore, off balance sheet lending.

Big problem here. Where does the money come from for fiscal deficits? It comes from somewhere right? It's coming from the vast sea of uncountable money out there. M2 is not a measure of money, it is a measure of a certain type of balance sheet entry.

There's a huge type of money not being considered here. Repo is the center of the whole system, if I own a UST, it is a "cash equivalent" because it is like cash. Treasuries and hypothecated in chains of collateral, moving money around the system. Perhaps we can think of this like velocity of repo. You can start with say $1 mil in cash and USTs, and that can be transformed in a very liquid repo market into $50 mil.

This lack of counting all good forms of money is due to a religious zeal for M2/M1. The reason people hold onto this non-measure of money is because it fits their preconceived notions of inflation.

Yes, and vice versa!! Deflation can cause price increases that can be interpreted as inflation!!

A tool is not in existence to serve one particular narrative.

Not at all.

I don't buy this. You can't "subvert" nature. It is more that Wall St and US Treasury are moving closer to reality and truth that bitcoin represents.

For example, when we look at any other natural phenomenon, you can deny its existence forever. You can deny that we must breath air for at most 2 minutes, then you must relent. But even then, you can protest and say it was an aberration, you could have held your breath forever, but it is too powerful a social construct to breath.

It's silly. The more direct reasoning is that it is a natural force in reality. Bitcoin will spread everywhere and to everyone. Like a virus, it will invade everyone's thinking on value. Who would you expect to be second after the visionary entrepreneur forward thinkers? Yep, people who specialize in money.

I like this and think it is true for the most part for early bitcoiners, but it is quickly going away. It doesn't describe the majority of bitcoin owners out there today.

Okay, I'm not an art expert, but this smacks of a non-artistic elitist person speaking out expensive art display. He is speaking of "high art", those works of art that sell for tens of millions of dollars.

But art itself is not this way whatsoever. How many times have you jammed out with headphones to one of your favorite songs? Got emotional when viewing a piece of sculpture or a painting, or reading a poem? Art is a very personal experience.

There is a cash flow to art for the artist. You can sell prints or replicas for instance. Museum sell tickets, musicians sell tickets. There is definitely a living there for whole industries and fields of specialization.

There are fundamentals to art creation and appreciation as well. Art will suffer during depressions and do better during boom times, especially when the middle class is doing well.

Art's use case is variable, bringing utility to the observer for their own benefit, or to the creator for theirs. An example of the later is government propaganda art.

This is coming from a respected economic pundit/academic? Value is subjective my dude. We've known this for centuries. You put a value on a good, others put a value on a good, if you benefit from an exchange you do it the exchange. That gives a price history versus other goods. Money is the thing that condenses these relative exchange prices to being relative to one good.

Most significant variations in value come from variation in supply and demand from place to place and from time to time. Money is the thing in the economy with least variation in supply and demand from place to place and from time to time. This means the ability for a given quantity of money produces the most stable utility.

It is a hard question for a layman, but shouldn't be for an economist.

This is the main source of confusion, the fact that bitcoin can't go to zero, and art can't go to zero, means they are fundamentally the same thing. As a thought experiment, this is true for all goods that don't degrade quickly over time. Their value won't go to zero because demand is function of price. You can lower price until you find a bidder, or wait long enough at that low price to find a bidder. As long as the owner themselves doesn't apply a zero value and throw it away, all goods have a non-zero value.

This is mixing up so many false ideas it's hard to know where to start.

1) bitcoin is not an NFT anymore than a couch is an NFT, or the moon, or my garbage can. To say bitcoin is an NFT means everything is an NFT. It's utter nonsense.

2) instantiated on a blockchain is also nonsense. NFTs do not need a blockchain, and are handicapped by a blockchain. NFTs being unique and identifiable are centralized. Where "Bitcoin" and "bitcoin" both exist everywhere and nowhere, NFTs exist in an identifiable place, namely with the owner. Being on a blockchain is a negative by exposing an NFT to needless counterparty risk (the network itself).

In addition, a block chain is the artifact of a functioning decentralized network. There is no magic powers of the data structure. In 99.9% of cases, a block chain is the wrong choice. From a technical perspective, a block chain only has utility for money. However, from an asymmetric scam perspective, including a block chain has pump potential, while actually handicapping the stated use case.

There is no value found in the art itself, only in the valuation placed there by humans, like all value. For value to be "lasting" it needs to prove long term liquidity. Some art is like this, not others.

Art is not durable, divisible, relatively non-portable, non-recognizable, and by definition non-fungible. Bitcoin is valuable for the opposite reasons of art.

This definition has no productive/predictive value to the discussion. How do we use it to estimate the future purchasing power of bitcoin or anything?

Nothing has inherent value. Things have properties, people have valuations.

If the academic economist crowd doesn't think bitcoin has properties or utility, that's a fundamentals denial of reality. Get them to say it does not have those things, they are the things around which people form their valuations of it as an economic good.

Haha. What? Either these morons don't understand market setting price or they are victims of their own bias against bitcoin. Hilarious.

This is the extent to 99% of people's comprehension unfortunately.

Let me try to answer this one.

The use case of bitcoin is slightly different for everyone, just like any tool. A pot hold things, a hammer hits things, money stores value through time.

These generic uses don't fully explain the tool, and can never encompass the infinite things clever humans can do with them. A hammer isn't a plain raw resource either. A hammer is also an end point of the infinitely variable use of other tools that dig, transport, smelt, form, polish, drill, harvest, etc etc etc. At a minimum bitcoin is an end point for many other tools, but also in reverse, it is the raw value used to make other tools.

This is getting to be a pretty big deal!

Wait, I thought there was massive money printing and inflation happening?

Debatable. More what? More satisfaction and happiness? Or more stuff?

I agree that there is no choice what comes next. The fate of the system is sealed.

I think this is inflammatory rhetoric that stirs emotional responses versus intellectually reasoned responses. Many things exacerbate the wealth gap. Like everything in the economy it is a result of an infinite number of inputs.

It is shaky to even argue that some wealth gap is natural, and in times of stress or recession that wealth gap can naturally widen.

It's also fueled by the circumstances. There is a lack of alternatives for lending. Margin debt has skyrocketed, while business loans have languished.

It is perceived as less risky to lend to margin traders investing in blue chips or the top 500 companies in the S&P, than to a start up business. Therefore, money flows there.

To bring in the financial hurricane analogy here to explain how misallocation can build up in free market activity.

If 3 hurricanes hit the same stretch of beach in the same season or even 3 years in a row, there might be dramatic changes to the people's behavior in the area, as if hurricanes are guaranteed every year. But then a hurricane doesn't hit there for 100 years after that.

They have misallocated their resources based on rational economic calculation and action/reaction. But it is still a misallocation because it turned out to be wrong. People can be wrong in the free market, and they can be wrong en masse.

I don't think it is the monetary policy that is doing this, it is the form of money and the circumstances the economy finds itself in. It can all happen without conscious effort like the market always does.

This is not happening like portrayed.

I'd say it is more like a freezing. The market is frozen in place and not allowed to default. This frost-bite spreads with each bailout.

Bitcoin kind of blows this up. It can't be a monopoly if bitcoin is thriving.

It is very possible to not use the USD. It is the network effects of the USD that keep it in place, added to the Stockholm syndrome of many mindless Statists.

I agree up to this conclusion.

They aren't buying these assets from the rich, and as stated above those dealers that are selling to the Fed are doing so at a loss.

I think the rich get richer because the payoff to their particular skill set is greater during times of depression.

Not the right word. They are asset swaps.

They can be hurt by any number of things. I disagree that monetary policy had much to do with it. I think they have suffered from a slow deflationary depression.

I agree that inflation does this, but so does deflation. We have to be very careful when discussing this because we don't want to cloud the academic discussion with a bunch of pathos. Being poor is usually undesirable.

If you have a financial hurricane wiping out economic activity, of course the lowest value add people will be hurt the worst.

It is also true that social unrest and other things follow from increases in wealth inequality. I totally agree with this. However, social unrest and populism manifests in different ways in different places.