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Ron Paul: Bitcoin could 'destroy the dollar'

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Article: Ron Paul: Bitcoin could 'destroy the dollar'

 

First of all, a caveat: I'm not a Bitcoin believer. I think they have a gimmick that's capturing a lot of people's imagination, and they've walked into the limelight, but I see the hype of Bitcoin tapering off at some point. I could be wrong, but I just don't see it. Maybe they will spawn into something else, or they might find an application for their technology and do alright, but I don't see it as "the next big thing".

 

However, Bitcoin is serving a valuable purpose in the discussion about currency and economics. It's going to change people's minds. It appears to have already changed the mind of Ron Paul.

 

How? It's finally putting to rest a conspiracy theory that many libertarians have held for years: that the Fed secretly controls all trade by controlling The Currency, and it maintains a government-protected monopoly, the conspiracy theorists say, over anything that one could call "money".

 

Never mind the fact that barter in various forms (including complex financial instruments) has been both legal and ubiquitous in the USA since the country began, and that the Fed no more has a "monopoly" over US citizen's transfer of wealth than the mint of Paraguay does. No, the conspiracy--stemming directly from the old Illuminati stuff from the 50s--is still with us in cruddy old corners of Libertarian thought, even overlapping into so-called Objectivists.

 

So today's story is a bit of a celebration for me. Ron Paul has been perhaps the leading warrior in the USA banging the drum about the various Federal Reserve Conspiracies for decades. Now he's in a logical pickle: if Bitcoin could "destroy" the power of the Fed and US dollars--and they are perfectly free to do so--then he's just knocked the teeth out of his own argument.

 

In other words, we're left to say to Ron Paul, "Ron, if a tiny group of eggheads can invent a better product than the US mint and eliminate them in the free marketplace, then why again are we supposed to live in fear of their unassailable power again?". It would appear that the only "conspiracy" the US dollar is a part of is its relative stability and practical usefulness. Take those away and it turns to dust, just like any other product in the free market.

 

I daresay that with that choice of words, Ron is projecting what is in his own mind right now: that Bitcoin has "destroyed" is many of his own long-held beliefs about the power of the Federal Reserve.

 

 

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The reason why it's impossible for bitcoin, or any other currency, to threaten the dollar is because the dollar, and the government agency that issues it, are imposed on the US financial system through government force.

 

If the US government ever loses that power, then obviously the dollar as it exists today would disappear, because no one would voluntarily place their bank under the control of a government agency.

Edited by Nicky
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The reason why it's impossible for bitcoin, or any other currency, to threaten the dollar is because the dollar, and the government agency that issues it, are imposed on the US financial system through government force.

 

If the US government ever loses that power, then obviously the dollar as it exists today would disappear, because no one would voluntarily place their bank under the control of a government agency.

 

See what I mean.

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An invisible hand, discovered by Adam Smith, reaches into an invisible top hat and pulls out an invisible rabbit.

 

Most conspiracy theories demonstrate a poor grasp of the role of philosophy serving as an "invisible hand".

 

As to people voluntarily placing their bank under the control of a government agency - is that to suggest that the Federal Reserve Act, approaching its 100th anniversary this year, is an act of voluntarily placing the banks into such a position?

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Government currency or private promissiory notes can be sued upon for dishonour, that is, if I would issue a promissory note I am legally bound to pay up or someone will take my house. In case of government backed currency, it is given that it will be accepted by government and courts as means of payment of debts.

 

In case of Bitcoin it is indeed an agreement, but is not enforcable by law. For example, if in a contract I promise to pay 1000 bitcoins for something but I dont, the courts might deem the contract invalid for want of valuable consideration.

 

Another example, if i took a loan in bitcoins worth 1B=$1000 at the time of signing, but over the period of the loan the value of bitcoin had doubled, then the court would probably uphold the debt of $1000 and not of 1B, given that it could be established that at the time of signing 1B was indeed worth $1000.

 

This could be a mojor hurdle for businesses once they realise that they have no legal recourse.

 

(I think it's interesting that bitcoin is traded primarily on Tor, which traces its origins to DARPA and is 60% sponsored by the US government) 

Edited by Ben Archer
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Government currency or private promissiory notes can be sued upon for dishonour, that is, if I would issue a promissory note I am legally bound to pay up or someone will take my house. In case of government backed currency, it is given that it will be accepted by government and courts as means of payment of debts.

 

In case of Bitcoin it is indeed an agreement, but is not enforcable by law. For example, if in a contract I promise to pay 1000 bitcoins for something but I dont, the courts might deem the contract invalid for want of valuable consideration.

 

Another example, if i took a loan in bitcoins worth 1B=$1000 at the time of signing, but over the period of the loan the value of bitcoin had doubled, then the court would probably uphold the debt of $1000 and not of 1B, given that it could be established that at the time of signing 1B was indeed worth $1000.

 

This could be a mojor hurdle for businesses once they realise that they have no legal recourse.

 

(I think it's interesting that bitcoin is traded primarily on Tor, which traces its origins to DARPA and is 60% sponsored by the US government) 

 

A contract is a contract. If I promise you, "100 shares of AAPL" in exchange for my car, then you owe me 100 shares of AAPL, and this is absolutely enforceable in court. Same with Bitcoin, or gold, or my watch collection, or random bits of cat poo. A contract is a contract and the terms of the contract can reference anything.

 

See: Tesla dealership accepts bitcoin from a car buyer

 

Again, I'm not endorsing the wisdom of this--it's a business transaction that's none of my business--but it's absolutely, positively legal.

 

And in the case of enforcing a Bitcoin (or AAPL stock, or old rocking chair) contract in court, a court will be required to arrive at a fair settlement which in this case would mean awarding the plaintiff consideration (which yes, might be in retroactively calculated dollars--but doesn't have to be) that achieves the exact effect that the contract said it should have achieved.

 

In other words, if I traded you my car for 100 shares of AAPL, and you didn't have over the shares, and I took you to court, and I won, and it was six months later--then the court would have a bit of a mess on it's hands determine how much you owe me (because the judge would need to guess whether I would have sold the shares and converted it into something else immediately, or whether I would have held the particular instrument). The principle, however, is no different than if the medium of exchange were US dollars (or Euros, or Pesos, or gold, or whatever).

 

Most likely the judge would simply award what the contract said, or the current US dollar equivalent as of the time the defendant forfeits the consideration (meaning the  plaintiff could, in a few milliseconds, convert said US dollars to the instrument of their choice, e.g. the instrument specified in the original contract). (But again, the judge can also award additional damages associated with the late payment).

 

This is no different than a judge ordering you to give me your house if you didn't pay me for my car since the judge estimates its value to be similar to what the contract stipulates along with extra damages and so forth. There is nothing special about US dollars in any of this--it's just another tradeable instrument.

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An invisible hand, discovered by Adam Smith, reaches into an invisible top hat and pulls out an invisible rabbit.

 

Most conspiracy theories demonstrate a poor grasp of the role of philosophy serving as an "invisible hand".

 

As to people voluntarily placing their bank under the control of a government agency - is that to suggest that the Federal Reserve Act, approaching its 100th anniversary this year, is an act of voluntarily placing the banks into such a position?

 

It is for me and any other sophisticated investor, yes. US dollars are an investment, just like any other. I keep part of my portfolio there sometimes when I think it makes sense.

 

I have also mused that inflation is dead as a meaningful political concept in another thread. This is why. The US government inflating its currency no more bothers me than AAPL missing its quarter. Bad maybe, if I didn't see it coming and my money was in that. Otherwise I don't care. If everybody was a sophisticated investor (as my thread above postulates could easily happen and probably will happen) and traded in and out of US dollars regularly (like sophisticated investors do) then inflation of a particular currency would be pretty meaningless overall, and your purchase of said currency would include the same caveat emptor as any other investment.

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As to your "inflation is dead as a meaningful political concept" , I simply avert my eyes to the recent Venezuela price controls being imposed and reminisce about the Nixon years. Your recent elucidation on Goldman Sachs position has simply alerted me to the most recent opportunity to augment my positions accordingly.

 

The contradiction highlighted about the supposed impossibility of 'bitcoin' or any other potential alternative solution to government imposed monopolies in any other areas of life than the legitimate use of retalitory force only serves to reinforce the fact that the ingenuity of reason applied to the problem of survival is pitted against the fact that in order for evil to win, the good need only sit back and do nothing.

Edited by dream_weaver
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As to your "inflation is dead as a meaningful political concept" , I simply avert my eyes to the recent Venezuela price controls being imposed and reminisce about the Nixon years. Your recent elucidation on Goldman Sachs position has simply alerted me to the most recent opportunity to augment my positions accordingly.

 

Glad I could help.

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Another example, if i took a loan in bitcoins worth 1B=$1000 at the time of signing, but over the period of the loan the value of bitcoin had doubled, then the court would probably uphold the debt of $1000 and not of 1B, given that it could be established that at the time of signing 1B was indeed worth $1000.

The Court would rule that the debt is whatever the contract says it is. If the contract says you owe 10 bitcoins, that's what you'll owe.

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I have also mused that inflation is dead as a meaningful political concept in another thread. This is why. The US government inflating its currency no more bothers me than AAPL missing its quarter. Bad maybe, if I didn't see it coming and my money was in that. Otherwise I don't care. If everybody was a sophisticated investor (as my thread above postulates could easily happen and probably will happen) and traded in and out of US dollars regularly (like sophisticated investors do) then inflation of a particular currency would be pretty meaningless overall, and your purchase of said currency would include the same caveat emptor as any other investment.

I would suggest that people read that thread before calling this an argument against inflation. It's based on a lot of assumptions and a technology that doesn't exist. The idea of it not being a political concern is based on it not existing because of this supposed technology. Also, it's a tall order to hope that everybody becomes a "sophisticated investor." You'd also have to define in what way they're sophisticated that protects them from inflation, because I know plenty of salespeople that are also called financial experts, but are no more than quants that take the subway to work. 

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  • 2 weeks later...

Well, to the original question, I would point out that it's not really just a few eggheads trying to topple the fiat money system with their own currency. Bitcoin has harnessed the awesome power of the internet. It's a matter of the different pieces falling into place: cryptography, P2P networks, online transactions. The internet has brought upon us a paradigm shift and it's not outlandish to think that once powerful agencies can be disrupted.

 

Think how Twitter makes a mockery of all the press injunctions the British courts have been trying to impose.

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Yep. Technology makes "inflation" as most know the term irrelevant in the way that most fear it. If the US government ever gets around to debasing the dollar as the conspiracy theorists say they are itching to do, then we'll just route around the problem like the Internet itself was made to route around the physical line breakages inherent in nuclear war.

 

Who's afraid (or even concern about) US dollar inflation? Not me. No more than I'm afraid of the odd backhoe wiping out the whole Internet...

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 If the US government ever gets around to debasing the dollar as the conspiracy theorists say they are itching to do, then we'll just route around the problem like the Internet itself was made to route around the physical line breakages inherent in nuclear war.

Really?   -_-

 

Keep in mind that there's three types of inflation: consumer price, commodity price, and asset price. Now consumer price has rarely been lower than it is now, Same with commodity prices: down 25% in less than 2 years. (great time to buy silver). 

 

But asset prices are rising very sharply....simply because all this money the Fed's printing is being used to buy assets. This creates the wealth effect as people's homes go up in value...and it's the main thing driving aggregate demand. So this is the function of QE4ever. It doesn't matter how you cut the pie...the money is inflating somewhere, and worse, if QE starts to taper and aggregate demand falls, then deflation is likely. How exactly technology is going to help people repay their debt, with falling prices, is beyond me. 

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Two things:

 

1) If Bitcoin (or something like it) ever does substantially threaten the Dollar, the government will outlaw it.  But it won't threaten it because...

 

2) Bitcoin can never compete with the Dollar because it's not allowed to be issued as physical currency.  The convenience and flexibility of carrying around little paper "contracts" that are so open-ended that literally millions of people will take them (and don't have to check to make sure you are who you say you are, or that you actually have the Bitcoins) is unassailable.  

Edited by Edmond Dantes
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I think some people do issue physical coins, within which they have inserted a piece of paper with the cyptographic key...or whatever it is that's needed to prove you hold some bit-coin.

Though bit-coin is being used as a currency to some extent, it mostly is not. The buying and selling is like Dutch tulips.

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Just because the government shouldn't issue and be in charge of currency, doesn't mean that money doesn't require government. The role of government is the same as with any other economic activity: punish fraud and theft, and enforce contracts.

Above, I said that the Bitcoin can't beat the dollar because the dollar is imposed on the US economy by force. And that is true.

But even on the Internet, the Bitcoin can only be a viable currency on any significant scale if at least one major government chooses to protect the rights of traders (by creating legal frameworks that allow for safe trade). The people who hope that the Bitcoin can be a tool to circumvent all governments, and create a free economy on the Internet without any government backing, are fools. The only way to have a free economy is by fixing the government, not by circumventing it.

Edited by Nicky
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Above, I said that the Bitcoin can't beat the dollar because the dollar is imposed on the US economy by force. And that is true.

 

 

Fascinating. You're still holding onto that myth, huh? Even though you can buy car with Bitcoins? Are all of those people criminals? Are you going to call the Feds on them?

Edited by CrowEpistemologist
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If you follow bitcoin you'll have noticed that its valued plummeted recently because of FinCEN. They  sent "industry outreach" letters yesterday to around a dozen firms, discussing potential compliance measures related to Bitcoin businesses.

 

In other words… if you're a business accepting Bitcoins… the government wants you to know it's watching you. :ph34r:

 

http://www.newsday.com/business/technology/bitcoin-businesses-get-u-s-treasury-warning-on-money-laundering-1.6633168

 

http://www.foxbusiness.com/economy-policy/2013/12/18/treasury-cautions-bitcoin-businesses-on-legal-duties/

 

Which assets? Data?

Crow I'm not sure what you mean by which asset. If you just google asset price inflation there's plenty of info. The S&P's up 25% this year, home prices are up 17%, household wealth hit record highs (since 1945) last monday...all thanks to QE4ever.

Edited by Ben Archer
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[Probably way way off topic to get into a biz discussion here so I'll let that aspect of the thread die].

 


In other words… if you're a business accepting Bitcoins… the government wants you to know it's watching you. :ph34r:

 

As opposed to a business accepting US dollars?

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The dollar is at least imposed by force indirectly, in the form of the requirement that taxes be paid in dollars.

There is also a very direct, explicit ban on financial institutions operating on a national level unless they are a part of the Fed. That puts a damper on any currency not issued by the Fed.
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