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mrbluze writes:
"An interesting blog post by Charles Hugh Smith on Why Banks Are Doomed: Technology and Risk.:
The funny thing about technology is that those threatened by fundamental improvements in technology attempt to harness it to save their industry from extinction. For example, overpriced colleges now charge thousands of dollars for nearly costless massively open online courses (MOOCs) because they retain a monopoly on accreditation (diplomas). Once students are accredited directly--an advancement enabled by technology--colleges' monopoly disappears and so does their raison d'etre.
The same is true of banks. Now that accounting and risk assessment are automated, and borrowers and owners of capital can exchange funds in transparent digital marketplaces, there is no need for banks. But according to banks, only they have the expertise to create riskless debt.
...
One last happy thought: technology cannot be put back in the bottle. The financial/banking sector wants to use technology to increase its middleman skim, but the technology that is already out of the bottle will dismantle the sector as a function of what technology enables: faster, better, cheaper, with greater transparency, fairness and the proper distribution of risk.
There may well be a place for credit unions and community banks in the spectrum of exchanges, but these localized, decentralized enterprises would be unable to amass dangerous concentrations of risk and political influence in a truly transparent and decentralized system of exchanges.
It's still early days, but can new electronic currencies such as Bitcoin become mainstream without the assent of governments?"
(Score: 1) by Grishnakh on Monday February 24 2014, @12:59PM
Not only that, but what about inflation? Maybe I'm missing something, but there's only a fixed number of possible Bitcoins, and they get harder and harder to mine. Healthy economies require a currency where the money supply constantly grows, in order to avoid inflation (i.e., if the economy is growing, the money supply needs to grow with it). If you don't do this, you'll wind up with deflation, which is a very very bad thing.
(Score: 1) by sfm on Monday February 24 2014, @01:49PM
Bitcoin has an inherent limit, even if you ignore diminishing returns as more and more is created. This limit is large enough to allow Bitcoin to flourish for a time, but will eventually be limited. From there, they can either change the basic rules, or more likely, a new cryto-currency will take its place. Much easier, now that Bitcoin has proved the path.
Biggest downside I see here is any new currency will "grow up" in a time of far stronger regulation.
(Score: 1) by len_harms on Monday February 24 2014, @05:36PM
I 'skimmed' inflation a bit. Inflation is good or bad depending on what you are doing with money. If you borrow money you want inflation. We borrow vast sums of money. If you save money you want deflation.
With deflation you can actually stall out people wanting to buy things. As if they simply wait they can buy some positive multiplier of what you made (unless you recalc your price every second). The only people who would buy things are people that *must* buy. If they can wait they will. As to increase your fortune all you have to is let the clock tick. If the price of goods was perfectly priced (which is illegal) this would not matter. But we do not live in that world.
With no inflation money will move towards people who have it already becoming more and more concentrated. As the more you horde the more 'rich' you are. As the exchange rates go up.
(Score: 2, Interesting) by Grishnakh on Monday February 24 2014, @05:54PM
Right, and that's why deflation is so bad. It works against the economy; in a healthy economy, you want people buying and selling a lot of stuff. You don't want them hanging onto money, because that's economic activity that isn't happening. The more trade there is, the better off everyone is (as long as bubbles don't happen, of course, as we've painfully learned several times in the last couple of decades). Obviously, not saving any money is a bad idea for pretty obvious reasons, but in general, if everyone starts hording their money and not buying anything, it's bad for most everyone, because then companies go out of business, people lose their jobs, etc. The term for this is "recession". Deflation makes it worse since it rewards people for hanging onto their money, which prevents the society from emerging from the recession.
What you really want is inflation: it rewards spending money, which makes the economy healthy, and discourages hording money. But you only want a little bit of it. Too much inflation (hyperinflation) is really bad as Zimbabwe found out (and various European countries back in the first half of the 20th century), since the currency stops having any real value. A small amount of inflation is ideal, since it encourages spending, while not overly penalizing saving, and gives you a little buffer room to avoid deflation. It's similar to unemployment: zero unemployment is a bad thing; you always want a small amount of it, as it makes for a healthy economy (people need to move around between jobs, not stay in the same job forever), but too much is obviously really bad.
(Score: 1) by beckett on Monday February 24 2014, @10:30PM
this may or may not be true. certainly in the idea of free market economies this may be true, but also understand by keeping interest rates at 0% or lower, this already disincentivises a savings account, and encourages leveraged investments.
most of us live beyond our means and owe our soul to the company store. this is what a "healthy economy" with lots of spending, rather than instilling the ethic to save up for a rainy day, does to people. if you owe money on a mortgage you will not want to go on strike, and perhaps this type of compliance is exactly what people need from a dissatisfied underclass.
i'm not saying the economy is as simple as this relationship, but we should at least recognize there are benefits to saving, and people should be incentivised to save more than they currently do. with easy access to credit, someone can put themselves into financial ruin far quicker than their parents or grandparents could.
(Score: 2) by maxwell demon on Tuesday February 25 2014, @03:20AM
Is this really a necessity, or is it just a shortcoming of the current economic system? It seems to me that a system where everyone buys only what he needs (or really wants) is more sustainable than a system where everyone buys new stuff all the time. Indeed, a lot of the ecological problems come from our excessive consumption of resources, which is driven by people constantly buying new stuff they don't really need.
Or formulated differently: Is our economy really healthy when people buy much, or is it just addicted, and the negative effects of deflation are essentially withdrawal syndromes?
The Tao of math: The numbers you can count are not the real numbers.
(Score: 1) by Grishnakh on Tuesday February 25 2014, @12:25PM
That's a very good point. However the reality in our current economic system is that more consumption leads to more employment, and vice versa. Less employment means more unemployment, which means people suffering and starving. Maybe if we adopted a basic-income scheme this might be different as people wouldn't absolutely need to work to survive.