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Comment by alex_young | Hacker News Reader

I see lots of comments suggesting that BTC is a constant store of value and that it is rising in USD terms because of ‘money printing’.

If that was the case, wouldn’t we see inflation in USD prices for a basket of goods? Isn’t inflation very close to zero?

Others say they are sick of talking about BTC price and would rather focus on its utility. This makes sense, but for the same reason above it cannot happen since on a basket of goods basis BTC is deflationary. Your options if you hold it are to buy something with it today or to hold onto it for a short period of time and buy 2 things with it later.

If BTC is actually viable as a currency, shouldn’t the goal be to get it to some kind of CPI stability?

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The price of Eggs is up 50% in my neck of the woods over the past 6 months.

House prices are up 20-30% over the same time frame.

The stock market is up close to 50% over the same time frame...

This is not happening because the economy is booming.

It is happening because the limits on printing money have been completely erased.

>In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.

Any American Bank can lend any amount of money without holding anything in reserve. Let that sink in for a minute.

The reserve requirements used to be 10%... for decades... and money was still being created very fast due to lending from fractional reserve banks...

Now fractional reserve banking is not even a thing... it's just no reserve banking.

I am seriously concerned that north america will experience hyper inflation over the next few years as a result of that meeting back in March.

Pens are powerful.

[0] https://www.federalreserve.gov/newsevents/pressreleases/mone...

Yes I agree with everything you said. I have a few questions for you if you don’t mind.

A) In an environment where banks can lend every penny they have, is there a way to see how much of the money outstanding is loan money and vs how much is hard money? With a 10% reserve ratio, the theoretical max was $10 of loan money for every $1 of hard money. Therefore the ratio could be as high as 10:1.

2) What would happen if some banks wound up having -10% assets in reserve after a few defaults?

The premise of A is incorrect.

(Banks cannot only lend out ONLY every penny they have...)

Banks have (until March 2020) been able to lend out 10x the amount of pennies they have... aka assets listed on their books.

Now they are able to lend out an infinite amount of pennies they have.

Theoretically all money is "loan money". That's how money is primary created through fractional reserve banking, through loans.

I own a house that is worth $1m.

Somebody buys my house with $100k downpayment and $900k in loaned money from a bank in the form of a mortgage.

Now I have $1m, the bank has $1m worth of assets listed on their books, and (until March 2020) the same bank would be able to loan out another $9m in money from the $1m in hard assets they have just added to their books.

Let’s say there are only two banks in the world for simplicity.

1)You start with boomer’s 1M of savings in BankA

2) The bank lends out 1M of that to Judy who deposits it in bank b.

3) bank b lends out that 1M to James who deposits it into his account in bank A.

4) bank a lends out that 1M to Jesse who buys a house from Karen. Karen deposits the money in her account at bank b.

5) bank B lends that 1M out to Jordan who buys cryptocurrencies. The Cryptocurrency seller Jake deposits the proceeds into bank A.

We now have: Boomer: 1M in bank A(the only “real money)

Judy: 1M bank B

James: 1M in bank A

Karen: 1M in bank B

Jake: 1M in bank A.

4 million dollars has been created from the initial 1M dollars. 5M in bank assets, 4M in bank liabilities. This process goes on and on.

What do you mean by all money is loan money?

I mean exactly what you just laid out there. That's how money is created. By loaning it out to others in exchange for hard assets... Or at least that's how it was created prior to the reserve requirement being eliminated.

Money printing causes asset inflation because it benefits the rich disproportionately. The rich invest and do not cause widespread commodities inflation. As is apparent, asset prices are sky high. Money printing in the US doesn't quite feed the poor if you've been paying attention. It goes to the corporations.

The primary manner asset inflation leaks into public exposure is higher rent, real estate prices v/s wages.

BTC market cap is still smaller than Google, Facebook etc. Wait until it reaches 10-100x market cap before volatility is significantly reduced.

I don’t know what the actual CPI says. But as a person on the street, I definitely see inflation everywhere I go. It’s especially obvious to me as I spent a few years out of the country and came back to much higher prices. Everything is significantly more expensive than it was five years ago.

The CPI is gamed to keep people from panicking, and to ensure that the government doesn't have to increase social security payments too much, as they're tied to official CPI numbers.

Another way inflation is "hidden" is in things like product packaging. Look at how jars of spaghetti sauce, cereal boxes, packages of coffee etc. are shrinking. You pay the same price for fewer goods.

It' a possibility that inflation on cheap mass goods (like food nowadays) is unlikely to happen, instead most of the money could go into assets. This means inflation for rare things like stocks, quality housing, gold, bitcoin and expertise services (digital skills, craftmanship,...).

Of course, this would mean accelerated wealth concentration on a minority of people and be a challenge for society.

> If that was the case, wouldn’t we see inflation in USD prices for a basket of goods? Isn’t inflation very close to zero?

Given the rate of artificially keeping the economy going by printing money at unprecedented rates I'm surprised the house of cards hasn't come down a long time ago.

> Others say they are sick of talking about BTC price and would rather focus on its utility.

Perfect example of its utility is the other day when Pornhub started accepting bitcoin after Visa/Mastercard shut down their transactions. Drugs are another obvious one. A third one is not being controlled/manipulated (at least directly) by governments.

> Your options if you hold it are to buy something with it today or to hold onto it for a short period of time and buy 2 things with it later.

This hasn't deterred people from buying computers/smartphones, even if they know they can get a better one if they wait a year.

Increasing prices can be seen in several places, most visible of all, the stock market. CPI is not necessarily a sure indicator of an expanding money and credit supply.

CPI has become more of a tool for political posturing than an accurate measure of the cost of living. Real cost of living is growing significantly faster than CPI.

Depends on how you measure it. The government keeps shifting the goalposts and the current measurement is little related to what a consumer faces. Inflation is measured differently today from the 90s and both different from 80s IIRC.

For further reference: http://www.shadowstats.com/alternate_data/inflation-charts

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