Actually, that's a good point. Inflation would be even worse if that cash was going into physical goods and services. The government now has an incentive to leave crypto alone aside from providing clarity.
In the macro economic sense, fiat money isn't 'used up' or 'locked away' when you buy something like crypto, it's transferred from your account to someone else's bank account. Worse, it goes through the process of fractional reserve banking and multiplies about ~10x after changing hands repeatedly.
There's no such thing as fractional reserve banking. It's an urban myth that has been debunked by QE for over a decade. Lord only knows why people still believe it.
Banks create money on demand by discounting collateral. Government creates money on demand by discounting the power to tax.
Fiat money disappears by the drain to taxation, to repaying loans and to 'rainy day funds'.
QE is so thinly related I can hardly imagine how you could contort it to have "disproved" something which is codified in law and taught in basic finance and economics courses.
1) It appears to me that the document you provided actually refutes what you are saying. It supports fractional reserve banking. Here is a quote from the conclusion: "Most of the money in circulation is created, not by
the printing presses of the Bank of England, but by the
commercial banks themselves: banks create money whenever
they lend to someone in the economy or buy an asset from
consumers. "
2) "infinite money" without a legal limit to reserve ratios would only occur if every single bank actually had exactly 0% reserves, and it would take infinite time and infinite transactions for that to occur.
FYI using the observed absence of 'infinity' as a proof is generally poor logic as there is lots of mechanisms blocking infinity from occurring in reality.
That's correct. However, investing in Crypto using dollars will inflate the dollar. Thus, the arguments that the government will probably leave crypto alone, still holds.
But if someone with money to spend transfers it to a crypto scammers account rather than buying say a car, that avoids inflationary pressure on car prices.
Although if you have X in circulation as money, and Y in stock market valuation, you could say Y/(X+Y) of total value is in the stock market.
If the market valuation goes up to Y+Z, you could say money has "entered" the stock market, pushing its share of value to (Y+Z)/(X+Y+Z) even though the money in circulation, X, could be unchanged.
Not sure about that. Money velocity went down a lot. If you pay Apple money, Apple – the company – keeps that money as cash reserves in some form or another. This might be reinvested and circulates a bit more, but is it really spend in the real economy so that average Joe benefits from this?
Yes, when you buy newly issued shares from Apple (rare), cash flows through the stock market into Apple's accounts, but again, no money went 'into' the stock market.
If you're talking about Apple selling devices, then it's another concept entirely.
Yes, although you could argue that money that was transferred from a checking account to a brokerage account has « flowed into » a market, at least for the time it takes to settle any trades and for the counter party to withdraw theirs (since it will not be used for consumption)
That is an interesting justification for leaving crypto alone.
“Well if those poor people weren’t gambling on that ponzi scheme for a new dog coin they would actually be materially improving their living conditions and prices for everyone else would go up”
It’s interesting to see the wealth transfer of all these people that usually buy weekly lotto tickets get crypto instead and send their 10s of millions to programmers making an ICO and a fancy website.
Banks don't need to be. If half their customers declare bankruptcy or default on their mortgages, loans, etc; The bank won't have enough liquid assets to take on the subprime loans.
It doesn’t work like that though. If I buy BTC at 60k then someone is selling BTC at the same price. The fiat is just moving from one account to the next. The people getting cash-rich from crypto are either spending it (on lambos) or putting it back into the stock market.
You buy 1 BTC from me for 60k. Now let's say I want to buy BTC again, but you want to sell it for 120k, so now I buy 0.5 BTC from you for 60k, and if everyone agrees that 120k should be the fair price, we've just bid up the market cap and value of BTC without really increasing the fiat.
Now imagine that with different crypto, stocks, other financial instruments, real estate, etc etc and in different combinations and with margin and derivatives and what not.
In all probability, you’re selling to a crypto trader or bot who then uses those funds to make more crypto trades, so the money is in a sense trapped in crypto markets until someone withdraws it from the exchange. The extent to which this money is being absorbed by crypto can be seen by analyzing exchange flows.
Which contribute to a chip shortage making cars more expensive, seemingly pure financial instruments directly causing inflation for everyday people, there is no escape
Oh I figure he's being super sarcastic and saying that all that money went into propping up prices in NFTs and crypto that will at some point show their inherent worth. Maybe I read it wrong compared to all the other commenters
Yes, but the marginal propensity to consume matters here. If it’s an average person buying Bitcoin from a millionaire (or many such average people), it acts as a liquidity sink (since the millionaire has lower marginal propensity for consumption)
No, there are new ICOs with trillions of coins minted every month. It’s the FED injecting cash into newly minted monthly ‘stable coin’ wallets. Can’t wait to see the documentaries on the overnight millionaires who set up fancy ICO websites during the pandemic :D
No, it hasn’t. As money spirals deeply into inflation, crypto holdings and equities will have to be liquidated so that people have money to live off of. This will only feed into the inflation more. Investments haven’t absorbed inflation. They’ve delayed it slightly.
So it has, by your own admission. You predict a worse eventual outcome, which is not insightful. When this will all end badly is the question, not if. Rome lasted a good long time playing these games.
You can assume some stickiness on investment decisions. If people end up panic liquidating it would on the one hand deflate crypto on the other indicate lower demand.
If 10000 people buy bitcoin at 60k per coin as an investment and later have to sell at 10k per coin to make ends meet, I somehow doubt that the guy that pocketed the difference will contribute to inflation as much as the 10000 guys trying to put up a meal for tomorrow.
It feels like saying Elon Musk will make make your next stop at the grocer's more expensive, because selling his 10% of shares for $20 billion will contribute to inflation because of all the stuff he's gonna buy with that money.
