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Offline fluxer555

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Does creating BitUSD = synthetic inflation?
« on: January 22, 2015, 05:51:59 PM »

If BitUSD becomes widely accepted as an alternative to paying in USD (99%+ of population accepts BitUSD), does this have the same economic consequences as increasing the USD supply? If so, then that means creating more BitUSD should have a direct effect on the value of USD. What does this mean for the peg?

I understand this is probably not going to be a problem for a long time, but I'm just curious as to what people think.

Offline bytemaster

Re: Does creating BitUSD = synthetic inflation?
« Reply #1 on: January 22, 2015, 05:55:35 PM »
No more so than any other debt from any other party does.
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Offline Ander

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Re: Does creating BitUSD = synthetic inflation?
« Reply #2 on: January 22, 2015, 05:57:59 PM »
Yes it does.  A tiny, tiny amount of inflation. 

Just like what occurs when you take out a bank loan, and they create money to load to you.
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Offline Empirical1.1

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Re: Does creating BitUSD = synthetic inflation?
« Reply #3 on: January 22, 2015, 06:38:45 PM »
Yes it does. It's more a problem for smaller CAP BitAssets.

Another effect it could have is that the underlying asset could get under-priced as a result of too much demand going to the BitAsset instead.

This would result in the BitAsset potentially being a poor way to hold value.

For example, if a reasonable % of Comex gold holders demanded physical, the price of gold would increase substantially.

For this and other reasons I believe ultimately a limited digital money will dominate the universe not BitAssets. BitShares has a shot at being that crypto-currency. (BitAssets like BitCurrencies will dominate for a long while though as crypto-currency will be too volatile.)
« Last Edit: January 22, 2015, 07:14:34 PM by Empirical1.1 »

Offline theoretical

Re: Does creating BitUSD = synthetic inflation?
« Reply #4 on: January 22, 2015, 07:17:25 PM »
If BitUSD becomes widely accepted as an alternative to paying in USD (99%+ of population accepts BitUSD), does this have the same economic consequences as increasing the USD supply? If so, then that means creating more BitUSD should have a direct effect on the value of USD. What does this mean for the peg?

I understand this is probably not going to be a problem for a long time, but I'm just curious as to what people think.

I brought up this point some months ago.  Basically when your BitAsset is no longer small compared to an underlying fiat currency, the network has essentially appropriated monetary policy away from the fiat central bank.

In a future where most of the world's USD denominated wealth is held in BitUSD, if inflation is too high or low, the Fed will want to create or destroy USD, but they will no longer be able to do so to an extent that meaningfully moves prices.  Instead, BitUSD will be created and destroyed according to the supply and demand between shorts and longs, which may result in USD valuations that are sub-optimal from a central bank standpoint.  In particular, the Fed wants USD to have a small amount of inflation with respect to a basket of goods, and be at a level that encourages full employment.
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Offline toast

Re: Does creating BitUSD = synthetic inflation?
« Reply #5 on: January 22, 2015, 07:20:14 PM »
If BitUSD becomes widely accepted as an alternative to paying in USD (99%+ of population accepts BitUSD), does this have the same economic consequences as increasing the USD supply? If so, then that means creating more BitUSD should have a direct effect on the value of USD. What does this mean for the peg?

I understand this is probably not going to be a problem for a long time, but I'm just curious as to what people think.

I brought up this point some months ago.  Basically when your BitAsset is no longer small compared to an underlying fiat currency, the network has essentially appropriated monetary policy away from the fiat central bank.

In a future where most of the world's USD denominated wealth is held in BitUSD, if inflation is too high or low, the Fed will want to create or destroy USD, but they will no longer be able to do so to an extent that meaningfully moves prices.  Instead, BitUSD will be created and destroyed according to the supply and demand between shorts and longs, which may result in USD valuations that are sub-optimal from a central bank standpoint.  In particular, the Fed wants USD to have a small amount of inflation with respect to a basket of goods, and be at a level that encourages full employment.

Wait why? They'd still be able to create or destroy as much USD as they want. Not like BTS has the ability to create new USD without there being a buyer. In fact if the real USD supply is much lower than bitUSD supply it should be *easier* for them to change the prices because only real USD can be used to pay back fed loans.
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Offline theoretical

Re: Does creating BitUSD = synthetic inflation?
« Reply #6 on: January 22, 2015, 07:25:04 PM »
Wait why? They'd still be able to create or destroy as much USD as they want. Not like BTS has the ability to create new USD without there being a buyer. In fact if the real USD supply is much lower than bitUSD supply it should be *easier* for them to change the prices because only real USD can be used to pay back fed loans.

You make a good point:  Because of USD direct support by government, BitUSD may never be able to become a perfect substitute for USD.  If for no other reason than the government will presumably always do business in USD (taxes, payments to government employees and contractors, etc.).
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zerosum

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Re: Does creating BitUSD = synthetic inflation?
« Reply #7 on: January 22, 2015, 07:54:33 PM »

I do not get/believe in this screwed up logic - that bitUSD creates inflation...


Is buying shoes creates inflation?
Does having more shoes in existence creates inflation?  If it does I give up here, but bitUSD is still less inflationary than your inflation producing shoes...

To buy 1 bitUSD you need 1 USD... when you have your 1 bitUSD someone else has an obligation to purchase 1 bitUSD.

So even if more shoes (aka bitUSD) exist and you find this highly inflationary, those extra shoes have buyer for them... better yet, buyer that will be forced to buy them shoes back...



Offline Ander

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Re: Does creating BitUSD = synthetic inflation?
« Reply #8 on: January 22, 2015, 08:07:47 PM »

I do not get/believe in this screwed up logic - that bitUSD creates inflation...


Is buying shoes creates inflation?
Does having more shoes in existence creates inflation?  If it does I give up here, but bitUSD is still less inflationary than your inflation producing shoes...

To buy 1 bitUSD you need 1 USD... when you have your 1 bitUSD someone else has an obligation to purchase 1 bitUSD.

So even if more shoes (aka bitUSD) exist and you find this highly inflationary, those extra shoes have buyer for them... better yet, buyer that will be forced to buy them shoes back...

Creating shoes would create an inflation in the shoe supply, causing every shoe to be worth a tiny bit less. :)  Buying shoes and consuming them does the opposite.

But usually we only speak of inflation in terms of money.

Creating $1M bitUSD has a similar effect to inflating the supply of USD by $1M. 
Creating 1000 oz worth of bitGOLD has a similar effect of increasing the gold supply by 1000 oz, which is also a similar effect to creating a comex paper gold contract for 1000 oz of gold.  (The gold bugs complain about this constantly - there is all this 'paper gold'). 

We are also creating 'paper Gold/USD/etc'. 

That said, here are two qualifying factors:
1) The amount of bitAssets that exist is currently nothing in comparison to their pegged items, so they have essentially zero effect right now.  Bitsahres would have to become HUGE before it would have any impact at all in this way.
2) All bitAssets are also destroyed within 30 days be a corresponding close short order.  This act has the opposite effect and removes the inflationary impact.
3) Their is a limit to how much inflation we can cause, which is about 1/3 of the BTS market cap, in total to all assets.
 
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Offline bytemaster

Re: Does creating BitUSD = synthetic inflation?
« Reply #9 on: January 22, 2015, 10:06:59 PM »
Creating any product that COMPETES AS MONEY causes price inflation.   

Gold causes price inflation.
CNY causes USD price inflation.

If you were to instantly burn all other world currencies then USD would SURGE.   

Creating any product that causes people as a whole to reduce their dollar savings causes USD price inflation.

BitUSD merely competes in the market for "money".  It doesn't inflate the USD supply.   
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zerosum

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Re: Does creating BitUSD = synthetic inflation?
« Reply #10 on: January 22, 2015, 10:54:40 PM »
Creating any product that COMPETES AS MONEY causes price inflation.   

Gold causes price inflation.
CNY causes USD price inflation.

If you were to instantly burn all other world currencies then USD would SURGE.   

Creating any product that causes people as a whole to reduce their dollar savings causes USD price inflation.

BitUSD merely competes in the market for "money".  It doesn't inflate the USD supply.

No, it doesn't...

If anything it causes deflation, cause 'their / (the money)/ the same money' can buy one more thing. So the money become more valuable not less so.
« Last Edit: January 22, 2015, 11:09:56 PM by zerosum »

Offline Pheonike

Re: Does creating BitUSD = synthetic inflation?
« Reply #11 on: January 22, 2015, 11:03:59 PM »
Since it takes a 1 usd to create a 1 bitusd  it's unlikely to be more bitusd than usd so at best the total supply would be %50 usd/%0 bitusd. Not sure what that means for inflation.

Offline Ander

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Re: Does creating BitUSD = synthetic inflation?
« Reply #12 on: January 22, 2015, 11:07:21 PM »

BitUSD merely competes in the market for "money".  It doesn't inflate the USD supply.

I think this is more accurate than my earlier statement.

In the same way, creating a paper gold contract on the comex competes with physical Gold, causing inflation and reducing the gold price.
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Offline Ander

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Re: Does creating BitUSD = synthetic inflation?
« Reply #13 on: January 22, 2015, 11:10:51 PM »
No, it doesn't...

If anything it causes deflation, cause 'their / (the money)/ same money' can but one more thing. So the money become more valuable not less so.

It depends on whether the thing you created acts as money (a currency/store of value), or a good/service (thing that you buy with money). 

Price level = Money supply / Quantity of goods and services
If you create more things that are money, such as creating more gold, bitcoin, USD, or bitshares, you increase the money supply and increase price level. 
If you create more goods and services to consume, you increase the productive capacity of the economy, and the price level decreases (if the money supply stayed constant).
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zerosum

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Re: Does creating BitUSD = synthetic inflation?
« Reply #14 on: January 22, 2015, 11:21:25 PM »
No, it doesn't...

If anything it causes deflation, cause 'their / (the money)/ same money' can but one more thing. So the money become more valuable not less so.

It depends on whether the thing you created acts as money (a currency/store of value), or a good/service (thing that you buy with money). 

Price level = Money supply / Quantity of goods and services
If you create more things that are money, such as creating more gold, bitcoin, USD, or bitshares, you increase the money supply and increase price level. 
If you create more goods and services to consume, you increase the productive capacity of the economy, and the price level decreases (if the money supply stayed constant).

Here we come...

there is only one thing that is money for no other utility than being money, i.e. being money cause somebody said so. Gold, bitcoin, shoes and bitshares are product with other uses other than just being a measure of value. They are product and/or services. More products do not cause inflation!!!!  More of each individual one of those will probably result in its comparative value going down.

But this is not inflation!

« Last Edit: January 22, 2015, 11:23:12 PM by zerosum »

 

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