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The Truth about Savings and Consumption
We regularly hear how important consumer spending is for the economy. The story goes like this: the more consumers spend, the more money circulates in the economy, which stimulates healthy job growth and profits. If people could be encouraged to go out and spend a little more of their paycheck, we’d all be better off.
Keynes went as far as to say that individuals saving their money may actually be hurting the economy, as saving reduces “aggregate demand” and therefore company revenue. Sounds troubling, doesn’t it?
Fear not. You aren’t actually hurting anyone by filling up your piggy bank. In fact, savings help the economy, as they make lending to productive entrepreneurs possible. The consumption that we enjoy is only made possible by prior production.
And that production is only made possible by savings.
For more resources about the economics of saving versus consuming, visit http://www.fee.org/the_freeman/detail/savings-fuel-for-an-economic-engine#axzz2SdcFUHti
Buying a Ferrari isn’t progress. Buying a better Ferrari is progress.
Turns out I was spot on with the reason bitcoin has experiences a price collapse over the last 48 hours; 3rd party issues.
Specifically, 3rd parties can’t keep up with demand and they certainly don’t provide the proper velocity for liquidity to suit the needs of bitcoin holders. The result is a panic by sellers who couldn’t sell fast enough and the perpetual cycle pushed strong as most investors of bitcoin are not sophisticated enough to understand what was happening. Didn’t take long for the fear to spread like wildfire.
More from Mt. Gox and Mashable:
Bitcoin, the world’s most popular virtual currency, yesterday took a huge nosedive — from its all-time-high of $265 to as low as $105 — but thereasonis not a DDOS as some have speculated.
Instead, the leading Bitcoing exchange,Mt.Gox, claims that Bitcoin was “a victim of its own success,” with the lag from too much interest in the currency causing many investors to sell, which lead to a market panic.
“The rather astonishing amount of new account opened in the last few days added to the existing one plus the number of trade made a huge impact on the overall system that started to lag. As expected in such situation people started to panic, started to sell Bitcoin in mass (Panic Sale) resulting in an increase of trade that ultimately froze the trade engine,” wrote Mt.Gox on itsFacebook page.
Mt.Gox added some numbers to fortify its claims. According to the exchange, the number of trades executed tripled in the last 24 hours, and the number of new accounts opened went from 60,000 in March alone to 75,000 new accounts created in the “first few days of April,” with “roughly 20,000” new accounts created each day.
Mt.Gox promises to do its best to remedy the lag issues; in fact, the exchange will have to be closed for two hours “in the next 12 to 24 hours” to add “several” new servers to the system.
Problems such as these are to be expected since the Bitcoin market is still in its infancy. Still, since nothing scares off investors like a panic sale, Mt.Gox (and other Bitcoin exchanges) will have to do more to ensure stability of their system and avoid huge disturbances like this one.
It’s come to my attention that most people “investing” in bitcoin don’t know a thing about investing or currency.
Most see bitcoin as an investment asset. That’s so wrong it’s sad. Bitcoin isn’t an “investment”, it’s a currency. It’s only value is as a currency. If bitcoin isn’t used in transactions, it will have a difficult time retaining any sort of value over time because bitcoin itself has zero value outside of being a currency. It’s not art and it has no utility value. It’s worth even less than a dollar because at least a dollar is a tangible good.
So all of these people who are buying bitcoins and planning on hoarding it, you will be the reason bitcoin fails. Stop it.
Considering dropping a few grand in some of these new alternative currencies this week.
Probably going to spread a few grand around one some bitcoins, Silver Shields and a Valcambi CombiBar. There goes my .308 fund…
http://www.combibar.com/
https://silverbulletsilvershield.com/
EDIT: Silver Shield/Bullet just put a temporary hold on all sales to catch up the back-orders and demand.
I was just shopping around two days ago and all was great… sigh.
Bitcoin Investment and Profitability.
Bitcoin has been building up quite a head of steam lately and I’ve decided to pay attention. I’ve been doing a lot of reading and the idea seems sound, to a degree. I haven’t looked too much into the programming and I probably won’t since I don’t speak that specific dialect of nerd. But one thing I have looked into is the profitability or value of converting or at least investing in some Bitcoins.
Last night I was doing some crude math with bitcoin values just trying to see where bitcoin is and where it can end up. . It’s probably safer to assume that bitcoin, if successful, will only be one of a number of major currencies in use (I can best imagine a scenario or 3 or 4 different currencies at play). It’s also highly likely that bitcoin will fail. There are some programming or coding weaknesses, especially in privacy/anonymity, and other issues regarding government intervention and regulation, outlawing and so on. For simplicity’s sake, I’ve assumed that bitcoin will eventually replace the entire US currency system but not the entire world’s system. I’m sure if I my intrigue of bitcoin grows a little more, I’ll probably build a few models, factoring in growth, size and risk factors but for now just plain crude math.
Here’s some simple numbers:
- There will only ever be 21 million bitcoins created
- Each bitcoin is currently valued at around $75 a coin (3/25/2013)
- In 2009 there was about $8 trillion US dollars in existence.
- Since 2009, the Fed has significantly increased the world’s US Dollar supply, but I don’t know the exact number. Let’s leave this figure at $8 trillion for now.
I won’t try to calculate bitcoin’s value based on the world’s total money value because that would first of all be beyond optimistic, even more so than this post is already and secondly bitcoin is supposed to bring about a new revolution in money where people have competing, free market currencies, so it would be pointless to assume bitcoin will hold a monopoly on the world’s currency. It was never supposed to do such a thing.
So, what happens if bitcoin replaces the US dollar completely? Well, it would have to carry the weight of the value of those dollars, or come close to doing so. But for the sake of simplicity, let’s just say that it would have to replace the dollar completely.
This means that 21 million coins would have to hold a value of 8 trillion dollars.
That’s an absurd amount. How absurd?
Well, each bitcoin is currently worth about $75. There are 10 million or so coins currently in circulation. Let’s assume that the total value of bitcoins stays static until 21 million coins are released. Each coin would be worth about $36.
That’s about 0.01% of what a bitcoin would have to be worth for it to replace the US Dollar. If you’re not good at math, that means that each of the 21 million bitcoins would have to be valued at $358,000 each. That’s an increase of over 4,700%.
Just to bring some gravity to the situation, this is all calculated on extremely gracious assumptions. There are still very real risks in investing in bitcoin.
The price needs to stabilize for the currency to become something more than just an investment. If the price keeps climbing people will only invest and hoard bitcoin. Very few will be willing to pay with or trade bitcoins out of fear that they might lose out on the next price jump. Some of this is due to the fact that some “investors” still look at the dollar as their main currency and see bitcoins as investments. Others because bitcoin isn’t accepted as a payment method in the overall marketplace. Unless people start to openly accept bitcoin, there’s no real way to obtain or capitalize on the value of bitcoins short of “cashing out”.
Here’s where competing with governments hurts bitcoin. Governments can still step in and make it illegal to buy, sell or hold bitcoins. This would mean that unless you can use bitcoins to buy things, there’s no way to extract the value and the investment is now useless.
There are other real fears with bitcoin; The whole thing could be a big scheme by early adopters to pump and dump. The code can theoretically be hacked or manipulated at some point. Electronic records are much more potent that standard paper keeping. In the electric world no one is really anonymous, some just do a better job of hiding their tracks.
It’s safe to say that it’s probably worth investing $100, $500 and maybe even a $1,000 in bitcoins, if you can afford it just for the fun of it. It will make for a good story, if nothing else.
I’m personally still holding out but watching with a curious eye and a fist full of money to invest.
Corbett Report - How the Markets Are Manipulated
I laugh at people who invest in gold stocks or “paper gold”. What? Why would you think paper gold is a protection against other paper asset devaluation?
Physical assets or bust, you guys.
Get a boob job or invest the money? Numbers according to financial literacy expert Manisha Thakor, the author of On My Own Two Feet: A Modern Girl’s Guide to Personal Finance, and Get Financially Naked: How to Talk Money with Your Honey. (via newsweek)
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You’re assuming that one can find an investment that will deliver them 7% annually and consistently for nearly their entire working life.
That’s a tall order to fill, my friends, but it is doable. You just have to be smart about it and have a keen investing sense. For those of us that don’t breast implants and a weekend gig as a cocktail waitress or a dancer might also add up as a great investment.
I’m just saying.
(via newsweek)
