Combined summary - Deflationary money is a Good Thing

Combined summary - Deflationary money is a Good Thing

The concept of anchoring the value of the United States Dollar (USD) to a basket of commonly consumed goods, such as rice, noodles, pork, and chicken, is presented as a stable alternative to its volatile relation with Bitcoin (BTC).

This method, by adjusting the USD's value annually rather than the frequent adjustments required by BTC's volatility, aims to reduce the need for constant currency valuation changes, enabling easier monitoring and democratic participation in economic decision-making. The stability promised by this approach contrasts sharply with the fluctuations seen in BTC, where values can shift dramatically within short periods, necessitating almost continuous updates to maintain accurate exchange rates.

The discussion extends into the realm of contract denominations, comparing the implications of using USD versus BTC. It highlights the potential for third-party interventions in USD-denominated contracts, which could be circumvented by denominating contracts directly in BTC. The narrative also explores the traditional economic theories supporting inflationary currencies, such as nominal rigidity and the paradox of thrift, alongside the role of central banks in stabilizing a currency like USD. Despite acknowledging BTC's suitability for simplifying certain transactions, the text acknowledges the complexities it introduces in long-term contractual obligations and the benefits of reduced risk from poor central bank policies on personal savings.

Concerns regarding the denomination of contracts in USD in relation to BTC are raised, emphasizing the risk of manipulation and the advantages of a direct BTC denomination to avoid third-party interference. The email argues for simplicity in financial agreements and highlights the vulnerabilities associated with relying on external metrics for accurate measurements, suggesting that BTC offers a clearer, more straightforward approach devoid of manipulation risks.

The practicalities and challenges of implementing government-mandated exchange rates within the economy, especially concerning cryptocurrencies, are discussed. The contrast between transactions facilitated through lightning payments and traditional banking methods underlines the difficulties in enforcing such rates. Criticisms focus on the potential issues of aligning a cryptocurrency like BTC with traditional economic indicators and the inherent problems of attempting to set a fixed exchange rate, including data timeliness, manipulation risks, and relevance to post-hyperbitcoinization conditions.

The feasibility of government-mandated exchange rates is questioned, using Venezuela's experience to illustrate the emergence of black markets in response to artificial currency value fixing. The discussion touches on the Cantillon effect and the unequal advantages conferred upon those closer to the source of new money creation. It also considers the unique position of Bitcoin, suggesting that its pre-mined nature could mitigate some traditional monetary policy issues.

A detailed exploration of government-imposed versus free-market exchange rates reveals the fundamental dynamics of supply and demand in determining currency values. This segment underscores the limitations of government mandates in controlling market realities, highlighting the potential discrepancies and arbitrage opportunities arising from mismatches in currency supply and demand.

Addressing the principal-agent problem, the text suggests focusing on a fixed commodity like Bitcoin to counteract the challenges posed by "intelligent" inflationary minting. By setting exchange rates against stable currencies and adjusting purchasing power accordingly, it proposes a system where economic shocks can be managed without inducing inflation, albeit with challenges in preventing potential manipulation by controlling entities.

Finally, the potential impact of AI on global economies, particularly through the Cantillon effect, raises concerns about economic dominance and the necessity of inclusive consensus mechanisms to prevent imbalances in power. The dialogue concludes by reflecting on historical precedents for government-maintained price lists and the viability of centralized units of account, exploring the balance between government involvement and free-market dynamics in achieving stable, equitable economic systems.

Discussion History

ajtowns Original Post
August 24, 2022 16:14 UTC
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