Treasury nominee Yellen is looking to curtail use of cryptocurrency | Hacker News Reader

Treasury nominee Yellen is looking to curtail use of cryptocurrency

arstechnica.com

10 pointsbergie23 comments

Another refreshing sign of competence from the new administration. Yellen would be well aware of how destabilizing deflationary cryptocurrencies could become to the macro economy.

The more a cryptocoin is used as a savings asset, the more it gets tied to the real economy, the more it can become destabilizing.

When gold had too much ties to the real economy, it caused enough instability to cause the great depression.

This happens because people, businesses and banks start hording tokens instead of investing in building and maintaining the production capacity of consumables so the ratio of value of tokens meant to buy consumables vs the actual production of consumables gets out of wack.

When the music stops, people realize that other people are sitting on tons of seemingly valuable tokens but stuff to buy with them is getting scarce because capacity is not being maintained, they reverse their trade, prices of stuff go up, volatility ensues, and the destructive cycle resets.

Too much savings being tied to tokens instead of assets that create real value is an economy wide coordination failure, a terrible Nash equilibrium. It can be hard to solve because it's a prisoner's dilemma where the first people to invest in real production are disadvantaged so everyone hoards tokens instead (the gridlock in the production market this causes ends up hurting a lot more overall).

This is what central banks and sound currencies are designed to prevent (as Yellen would know). We don't want cryptocoins to cause another great depression like gold tied currencies did almost a hundred years ago.

This is the best resource I can find that disagrees with you:

https://mises.org/search-mises?search=deflation

If people lose trust in fiat legal tender (e.g., their money starts losing value very quickly), they will look for an alternative. This is universal i believe, and no amount of central bank or legal banning will be able to reverse the loss of trust.

The USD has not yet had its trust lost by a majority of the world. Whether it will in the future or not depends on the US gov't and their repairing of fractured relationships and bad PR, as well as increase stability and future outlook.

That's the point. Macroeconomists understand that people should keep savings in assets that are tied to real production, not just fiat. It's important to make currencies not too attractive as a savings vehicle. A stable currency is very useful as an exchange and negotiation medium so we want to have it, but it being used too much as a savings medium is dangerous to the aggregate economy.

It gets problematic when people's savings are too tied to promises/tokens/ious. I mean, if everyone owes everyone else their savings, on the aggregate, does anyone really have any savings?

Things like gold remain sufficiently unattractive to not interfere with production markets because it is volatile and cyclical (Price of gold is highest when the average person is buying it and lowest when it is selling) usually making it a poor investment. Hopefully, cryptocoins remain that way too.

There's a fundamental difference between storing value and investment.

You're right that it's good to invest in productive assets. That said, there is still a need to store and represent value, and to be able to transfer it, divide it, etc.

If you look up the history of money, it actually shows that using something with tangible value (e.g. salt) is a bad idea for multiple reasons. This is why the U.S. dollar is not backed by oil, corn, salt, shares of Berkshire Hathaway, etc. This is what made gold historically a good money as well, as it historically had more use as a status symbol/symbol of wealth than actual industrial uses (this may not hold for the future).

I don't get what you are saying. Everyone in the US holds dollars. Almost no one (statistically) holds BTC or other coins. Outlawing crypto won't cause a depression. The Fed selling all the assets it has been buying for 9 months would.

Er.. the term "sound currency"/"sound money" is used to describe currencies with tangible value, e.g. backed by gold. Gold itself is considered "sound money."

What you're saying about sound money and/or deflationary (what I think you intend to say is disinflationary) is highly contested.

The modern U.S. Dollar is represented by Federal Reserve Notes, which are simply nominal liabilities of the central bank. Before dollars were Federal Reserve Notes, they were Silver Certificates, redeemable as silver from the U.S. government.

The Federal Reserve Note is a very young experiment, far from proven, and to make an argument from authority that of course Janet Yellen knows that FRNs and modern monetary theory is correct and proven is just plain wrong.

So this post is actually extremely misleading. I just found another article that mentions her other remarks today:

https://www.finance.senate.gov/imo/media/doc/Dr%20Janet%20Ye...

In those comments today she also said:

"Bitcoin and other digital and cryptocurrencies are providing financial transactions around the globe. Like many technological developments, this offers potential benefits for the U.S. and our allies."

So she said multiple things and does have at least an idea about the potential benefits. If I hadn't been mislead by this arstechnica.com article then I would not have made the other comment.

> Yellen argues many cryptocurrencies are used "mainly for illicit financing."

That's kinda the point of cryptocurrencies, their raison d'etre.

Another approach would be to remove those reasons.

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Personally I think at this point she should be required to prove that she understands what Bitcoin and Ethereum actually are in detail and what applications they may have.

I suspect she does not know much about them. And I believe that should disqualify her from that job.

Why do you think the details matter? She works at a different level that deals with the flow of money and various investment/trade devices. Do you think her decisions would be different when learning the tech details vs treating them at black box stock tickers?

This is a new type of money that is going to play a crucial role at the intersection of money and government. It is not a different level. It is exactly her level. It may be several years or even a generation, but people in jobs like her will eventually need to understand and incorporate cutting-edge cryptocurrencies and other decentralized technologies or those governments will simply be completely obsoleted.

The lack of understanding and integration now means that current governments are obsolescent.

What do you mean by "new type"? You can transfer it, you can trade it, you have a known rate of generation. The implementation details don't change anything from the treasury PoV. (Which is mostly about market impact, legality of transfers, etc.)

The type of generation and rate is new. The distribution of computing (global) is new. The security and availability is new.

Ethereum is a brand new thing. Enables new forms of governance, information distribution and synchronization, etc. Research it.

Ok. And why do you think the type of generation on a technical level matters at the treasury level? Do you think they must know the chemical process of creating steel to understand impacts of steel industry on the market?

Yes, I know ETH. Whatever processes you program are not different than people executing them with equivalent paperwork. They can be analysed / taken into consideration in just about the same way as actions of a company.

Do you need the traffic regulation policy makers to understand the inner workings of a tesla engine, or combustion engine, or gear boxes, to make good traffic policies?

The equivalent metaphor is autonomous vehicles. It would be as if a transportation secretary's only comment about self-driving cars was that they were dangerous.

Janet Yellen is a very highly-regarded academic economist, and was famed for the depth of her preparation, both when she used to teach at Harvard, LSE and elsewhere, when she was an economic advisor and as a fed chair.

She studied under a nobel prizewinner and is co-author on many papers with her husband George Akerlof, who is also a nobel prizewinner. She's no intellectual lightweight.

I'd be really surprised if she hasn't done the work to understand these details.

Has she ever written a paper or made a comment about cryptocurrency that evidences any significant depth of understanding?

Her eminence in the traditional field could actually be detracting from her willingness to explore and accept disruptive new developments.

Yes. If Yellen is so competent as she seems to be - to many, including myself - I'd like to listen to her explanations why arguments in favor of cryptocurrencies aren't good enough. After all, there are some ideas behind Bitcoin, some explanations of benefits, which apparently bring some people to cryptocurrencies even without get-rich-quick hopes.

What are Yellen's answers to those requests which led to creation of cryptocurrencies?

To understand the economic implications of cryptocurrency, all you would need to know is that it is a decentralized currency that can't be controlled by any one entity and that is frequently used for crime because it is psuedo-anonymous.

I don't see how knowing any of the technical details would make any difference in her expert analysis.

Those are not all of the salient facts about Bitcoin and Ethereum. Not even close.

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