djamal-soft
الأربعاء، 5 مارس 2014
You might have noticed the world has been facing a bit of a fiscal and monetary problem of late. Bitcoin devotees are certainly aware of this as it has been the search for solutions which has stoked much of the recent interest in Bitcoin.
Indeed, Bitcoin can help solve some of those problems. Some though persist despite the virtues of Bitcoin.
Bitcoin's big advantage is in addressing the ills of fiat currency and the inevitably ensuing inflation . Inflation is a longstanding and nasty problem that clandestinely impoverishes. The majority of people have their purchasing power of their earnings and savings gutted through no fault of their own by inflation. Meanwhile, well placed, and politically connected, interests like the big banks and their favored customers receive the first issuance of the newly invented money. This allows them to prosper by using the magic money to buy at pre-inflated prices, leaving everyone else to pay the inflated prices with their devalued currency.
Bitcoin is a helpful remedy to this problem. Where fiat currency's value is determined by the issuer (i.e., government), through monetary supply and interest rate control, Bitcoin's value is decided by the market. A real, rather than fiat, currency is evaluated by the market for benefits, such as providing a reliable medium of exchange or store of value.
Here, Bitcoin shines. Since no individual(s) or organization can arbitrarily decree the Bitcoin supply, it is not subject to the self-serving manipulation characteristic of government's use of fiat currency. Consequently, Bitcoin effectively resists inflationary pressures.
Fiat currency though isn't the only problem contributing to the present problems of the world economy. Another is fractional reserve banking. This is the practice by which banks magically multiply the amount of money in the economy.
Banking black magic though it may be, fractional reserve banking practices are ubiquitous. You know that banks make loans. Have you considered from where they get the funds to do so? They're drawn of course from the savings placed in the bank by depositors. In principle this isn't a problem, and the interest payments made possible will be attractive to many depositors. The problem is banks wanting to have their cake and eat it too. Thus, they perpetuate the illusion that the depositor's money is still available to be withdrawn at will. (Otherwise, far higher interest payments would likely be demanded, if people couldn't access their own money.) Obviously, though, the funds cannot be simultaneously in the depositor's account and in the hands of the borrower.
This bit of financial magic is defended, with some justification, as fuelling the economic machinery: it certainly increases monetary liquidity, and entrepreneurial benefits may result. There are tradeoffs to everything though and costs of fractional reserve banking can be immense.
1) The practice contributes to inflation; the money supply is after all being artificially increased. This increase of money though is not actually an increase of wealth or savings. 2) Consequently, the practice also exaggerates business cycles. Borrowers are deceived into miscalculating the true availability of resources. The phony money supply increases suppress interest rates, so that entrepreneurs borrow thinking there are more available resources for their project than there really are. The inescapable outcome is recession - or even depression. 3) Finally, not only are borrowers hurt in the long run, but depositors are put at risk. When they recognize the Ponzi scheme aspects of the situation, they want their money back. Too often though too many recognize the situation at the same time, leading to bank runs. The money, though, of course isn't really there.
Bitcoin offers no solution to fractional reserve banking, though, as demonstrated by the suspension of Bitcoin withdrawals at a Tokyo-based exchange called Mt. Gox. For some time now it has been the global leader among exchanges of U.S. dollars and Bitcoin. However, despite being formally an exchange, clients do set up account and Mt. Gox has been exercising fractional reserve lending practices. Now, the Bitcoin depositors are finding they cannot withdraw their funds.
Mt. Gox's official explanation has been to blame a recent moratorium on withdrawals on technical malfunction. The problem with this spinning of the matter is that Mt. Gox has engaged in a low profile, high volume convertibility suspension for the last year. Multiple ruses have been deployed over that time. It appears, though, the gloves are now off.
What we're seeing with Mt. Gox is the first ever digital bank run. And the response has been the same as that of banks through history: bar the door! It's now looking doubtful whether those with Bitcoin accounts at Mt. Gox will get all - or possibly even any - of their money out.
A truly, market based currency like Bitcoin has huge social and personal advantages, which should not be underestimated. It is though no panacea for ill-considered investment decisions. The interest earning appeal of deposits in fractional reserve banking institutions have real allure. Turning a blind eye to their danger, though, can prove costly. Bitcoin's virtues do not include a financial do-over.
Indeed, Bitcoin can help solve some of those problems. Some though persist despite the virtues of Bitcoin.
Bitcoin's big advantage is in addressing the ills of fiat currency and the inevitably ensuing inflation . Inflation is a longstanding and nasty problem that clandestinely impoverishes. The majority of people have their purchasing power of their earnings and savings gutted through no fault of their own by inflation. Meanwhile, well placed, and politically connected, interests like the big banks and their favored customers receive the first issuance of the newly invented money. This allows them to prosper by using the magic money to buy at pre-inflated prices, leaving everyone else to pay the inflated prices with their devalued currency.
Bitcoin is a helpful remedy to this problem. Where fiat currency's value is determined by the issuer (i.e., government), through monetary supply and interest rate control, Bitcoin's value is decided by the market. A real, rather than fiat, currency is evaluated by the market for benefits, such as providing a reliable medium of exchange or store of value.
Here, Bitcoin shines. Since no individual(s) or organization can arbitrarily decree the Bitcoin supply, it is not subject to the self-serving manipulation characteristic of government's use of fiat currency. Consequently, Bitcoin effectively resists inflationary pressures.
Fiat currency though isn't the only problem contributing to the present problems of the world economy. Another is fractional reserve banking. This is the practice by which banks magically multiply the amount of money in the economy.
Banking black magic though it may be, fractional reserve banking practices are ubiquitous. You know that banks make loans. Have you considered from where they get the funds to do so? They're drawn of course from the savings placed in the bank by depositors. In principle this isn't a problem, and the interest payments made possible will be attractive to many depositors. The problem is banks wanting to have their cake and eat it too. Thus, they perpetuate the illusion that the depositor's money is still available to be withdrawn at will. (Otherwise, far higher interest payments would likely be demanded, if people couldn't access their own money.) Obviously, though, the funds cannot be simultaneously in the depositor's account and in the hands of the borrower.
This bit of financial magic is defended, with some justification, as fuelling the economic machinery: it certainly increases monetary liquidity, and entrepreneurial benefits may result. There are tradeoffs to everything though and costs of fractional reserve banking can be immense.
1) The practice contributes to inflation; the money supply is after all being artificially increased. This increase of money though is not actually an increase of wealth or savings. 2) Consequently, the practice also exaggerates business cycles. Borrowers are deceived into miscalculating the true availability of resources. The phony money supply increases suppress interest rates, so that entrepreneurs borrow thinking there are more available resources for their project than there really are. The inescapable outcome is recession - or even depression. 3) Finally, not only are borrowers hurt in the long run, but depositors are put at risk. When they recognize the Ponzi scheme aspects of the situation, they want their money back. Too often though too many recognize the situation at the same time, leading to bank runs. The money, though, of course isn't really there.
Bitcoin offers no solution to fractional reserve banking, though, as demonstrated by the suspension of Bitcoin withdrawals at a Tokyo-based exchange called Mt. Gox. For some time now it has been the global leader among exchanges of U.S. dollars and Bitcoin. However, despite being formally an exchange, clients do set up account and Mt. Gox has been exercising fractional reserve lending practices. Now, the Bitcoin depositors are finding they cannot withdraw their funds.
Mt. Gox's official explanation has been to blame a recent moratorium on withdrawals on technical malfunction. The problem with this spinning of the matter is that Mt. Gox has engaged in a low profile, high volume convertibility suspension for the last year. Multiple ruses have been deployed over that time. It appears, though, the gloves are now off.
What we're seeing with Mt. Gox is the first ever digital bank run. And the response has been the same as that of banks through history: bar the door! It's now looking doubtful whether those with Bitcoin accounts at Mt. Gox will get all - or possibly even any - of their money out.
A truly, market based currency like Bitcoin has huge social and personal advantages, which should not be underestimated. It is though no panacea for ill-considered investment decisions. The interest earning appeal of deposits in fractional reserve banking institutions have real allure. Turning a blind eye to their danger, though, can prove costly. Bitcoin's virtues do not include a financial do-over.
About the Author:
Anyone hoping to be benefiting from the Bitcoin renaissance in global finance, you need to stay on top of events by following the news at the Bitcoin Profit Calculator blog. Wallace Eddington has been storming the blogosphere with his recent analysis. See particularly his popular piece on Bitcoin exchange trading funds .
Category ›
ليست هناك تعليقات:
إرسال تعليق