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RE: The Necessity of Bitcoin as Reserve Asset

in #bitcoi2 years ago (edited)

The central control of money is an accelerant of both sides of the economic cycle, the boom and the bust.

I would replace the word ‘accelerant’ with ‘amplifier’ or ‘distorter’ because although there’s acceleration on the boom, there’s a delay on the bust.

The centralization can cause overshoot which delays the market’s annealing (i.e. corrective adjustments towards the optimal path of fitness), and the loss of fine grained adjustments thus are more catastrophic when the bust because they happen less frequently due to the central bank causing mispricing in the markets.

Excess credit creation, an inevitability during boom times, without underlying assets pull forward production from the future.

Mostly true, but some smaller portion does initiate knowledge production which wouldn’t have started and should have. Yet in support of your point, most knowledge production is better driven by investment than debt, because investment-at-risk is more astute about opportunity costs. Debt is dumb and only cares that there’s a backstop whether it be secured or backed by bailouts.

Excess credit creation thanks to the imperfect knowledge of all economic actors accelerates the boom

Some readers might have missed the implication, which is that there’s no omniscient consciousness that factors in the mispricing when making economic decisions. Each individual actor in the economy must maximize his/her opportunity cost w.r.t. to the pricing as it is, not as what it should be with an optimal path of systemic annealing of the entire holistic market.

Inflation is the result of more money chasing the same number of goods.

The Quantity Theory of Money is debunked. Fluctuations in public CONFIDENCE is what really drives inflation or deflation.

The central banks influence CONFIDENCE by creating booms and delaying busts by underwriting debt. The existence of a “too big to fail underwriter” creates extreme CONFIDENCE. This causes the eventual bust to be much more extreme than if fine grained adjustments to the business cycle had annealed naturally in a more decentralized free market. But humans love the “perpetual” bull market so they demand central banks.

An analogy is a pendulum of CONFIDENCE in that the “too big to fail underwriter” central bank provides the mass for the pivot point sufficient to backstop a huge mass of CONFIDENCE on the swinging end of the pendulum.

This is why wealth inequality is accelerating in the Age of Central Banking at an exponential rate.


The inequality is natural in any fungible resource because power-law distributions are required for natural reasons. I delve into the physics of that near the end of one of my recent blogs. I think I also elaborated since then somewhere but can’t remember offhand.

But the uncorrected increasing concentration is not natural and will not stand. This is caused by the confluence of central banking and government run by debt. All the power over regulation centralizes and the oligarchs monopolize all economic activity. This of course results in a Dark Age if some paradigm shift does not arise enabling the economy to decentralize.

Bankers love inflation, consumers love deflation.

That’s not quite right. Consumers like efficiencies in production and no middle-men markup, but deflation by contraction of debt means they lose their job, the house declines in value, and they have less wealth. Deflation by increases in efficiencies of production are as I said desirable for the consumer, although if these adjustments are too discontinuous then there can be mass unemployment due to automation until the workers retrain and adjust (e.g. the problem of the Luddites).

And banksters love the deflation of extreme economic busts, because that is when they confiscate all the real assets for cheap.

And because of that eventually Bitcoin, or some other suitable cryptocurrency or basket thereof, will form the reserve asset pool against which all other assets are measured.

Btw, this is the model of John Nash’s Ideal Money proposal but he didn’t articulate that it would be a cryptocurrency.

If the market needs more money in the short term it will create it. Banks can issue credit based on its Bitcoin balances.

Fractional reserves of Bitcoin (i.e. inability to satisfy a bank run), which is what I expect Lightning Networks to be.

Note I argue that the paradigm of debt is dying.

C.f. also my response to @stimialiti’s thoughts about perpetual central bank bailouts in the EU. I defended Martin Armstrong at that linked comment.