90% of money in the world don't really exist?

[Chitose]

Hello there,
it's quite a longtime since last time I pose my question here.

----------------------

'90% of money in the world don't really exist'

I can't remember when or where I heard this form, not really matter.
but... is it true?

Imagine that Every single person in the world withdrew all their money form bank, empty their account. (only cash)

what will happen?

does bank have enough money to pay? I bet they don't.

why?

If money really do exist, If economic is truly honest trade, this shouldn't be any problem at all.
Every human being have right to withdraw their own money.
but I'm sure they use dirty trick like emergency close all bank to prevent that.

what is the gap between actual money and digit of number run around the world?

fill me if I'm wrong.


..............


English is not my native language, forgive me if I'm wrong in spelling or gamma.

 

[Ryan_m_b]

does bank have enough money to pay? I bet they don't.

They won't due to fractional reserve banking. Essentially banks can lend out more money than they have, they essentially create money this way. I don't think it's correct to say that the majority of money doesn't exist. Rather money can be created at whim, essentially money is just a record of credit and debt.

 

[russ_watters]

The money exists, the physical currency/cash does not.

 

[phyzguy]

With a fiat currency like the US dollar, the money exists by definition. As russ_waters says, the physical dollar bills may not exist at a given time, but given time the treasury can print up as many bills as needed.

 

[krash661]

most countries are fiat, all the tops are.

the only thing that gives currency value ( in reality) is nothing more than pure acceptance.

this occurred when nixon removed the gold standard, which meant currency( USD in this case) is back by gold.

at this moment in time the whole world needs to devalue , close to what's considered to be fundamental value.
europe will have to print money to cover the debt, borrowing cost, and buy their own bonds to lower the borrowing cost.
same with china,
china has these rural cities that failed, they used borrowed money to build them.
all that, that is occurring over there is not fixed and fine.
keep this in mind.

 

[krash661]

Everything always leads to a bigger picture.The subjects out come is based on human mentality and human behavior in a majority without subject to change.There's at lease 10% truth to everything,More than likely 90% of it is bull ****.Nothing more.Humanity flows in it's path as it does,And as of this moment in humanity,what is value to it, is what is value to it.Nothing more.We as humans decide what is valuable by a majority.Nothing more.In the end,there's only 3 thing for human existence that is tangibly or realistically valuable,and those 3 things are,Life,intelligence and language Everything else is just ******** to keep a majority content.humanity has already failed.

 

[enosis_]

The money exists, the physical currency/cash does not.

To expand on that - a bank note or other legal instrument can also replace physical cash in a transaction.

 

[ImaLooser]

Now we have bitcoin, which has no intrinsic value whatsoever. There is a protocol to prevent counterfeiting and other such games. I think it is a good idea.

 

[Jim Kata]

Now we have bitcoin, which has no intrinsic value whatsoever. There is a protocol to prevent counterfeiting and other such games. I think it is a good idea.

And what intrinsic value does a dollar have?

 

[russ_watters]

Now we have bitcoin, which has no intrinsic value whatsoever. There is a protocol to prevent counterfeiting and other such games. I think it is a good idea.

I don't understand. Why do you think Bitcoin is a good idea?

 

[ImaLooser]

I don't understand. Why do you think Bitcoin is a good idea?

I like it because it has no backing at all. So there is no commodity or organization that can fail and weaken confidence in the currency.

There IS an organization that maintains the honesty of the system. That could fail. But that is slightly different. I'm assuming that this will not be a problem. We don't know yet so kindly assume for the sake of argument that this is true.

It reminds me a lot of the art market. Rich financiers often invest in art such as Monet, Renoir, Picasso, etc. The art has no intrinsic value. It's value is strictly in the mind of the beholder. So this actually makes it a more secure investment than, say, Apple stock. Apple might lose favor, get a bum manager, etc. None of these can happen to that Monet. Monet has passed away and is very unlikely to be involved in a scandal. The very unreality of the commodity is actually safety. There is much less that can go wrong, as long as you take care of the painting. This is why a painting can sell for multi-millions. It is a safe investment with a very good record of appreciation.

Bitcoin is similar. I know nothing about the details but the basic idea seems sound. The US or the EU constantly encounter political challenges. Bitcoin should be relatively free of that. There is no political dimension to it. That political dimension mostly serves as a source of uncertainty and danger, so good riddance I say.

And that is not all. Credit card companies get about 3% of each transaction using them. Wouldn't you rather not pay that? Not only that, credit cards are painfully insecure. I can give details about that if you like. Not only that, credit card transactions all go into a big government data base. I don't see how this is any of their business, especially political donations. Maybe the the 2020 Palin administration won't like what I've done, and take action against me. With bitcoin I might be secure against that.

IMO the credit card companies abused their power by their embargo of Wikileaks. This did not make me their friend. (It is believed that there is a secret indictment. If it is secret, it cannot be challenged in court and can go on forever. This sort of sophistic greasy sneakiness disgusts me. The US Treas department refused to sanction the embargo, citing "no evidence of a crime," so the charges are weak.) The embargo was a failure and probably greatly boosted support for Wikileaks, but that is neither here nor there.

Paul Krugman wrote that bitcoin is a speculative commodity with value that gyrates wildly. I don't like that, but at this time it is very thinly traded. If it catches on then it should be as stable as any other currency. Maybe even more so, as it is not affected by political news.

In summary, what's not to like? It could be that Bitcoin will be cracked and blow up, but if so the next currency can learn from the failure and improve. I don't see why it can't be at least as good as the woefully insecure credit cards. It should be easy to do better than that.

 

[russ_watters]

I like it because it has no backing at all. So there is no commodity or organization that can fail and weaken confidence in the currency.

Doesn't the fact that there is no backing just mean that there is no basis for ever having any confidence in the currency? That its value is 100% based on speculation and will never have any hope of long-term stability?

This sounds like an anarchist argument.

It reminds me a lot of the art market. Rich financiers often invest in art such as Monet, Renoir, Picasso, etc. The art has no intrinsic value. It's value is strictly in the mind of the beholder. So this actually makes it a more secure investment than, say, Apple stock. Apple might lose favor, get a bum manager, etc. None of these can happen to that Monet. Monet has passed away and is very unlikely to be involved in a scandal. The very unreality of the commodity is actually safety. There is much less that can go wrong, as long as you take care of the painting. This is why a painting can sell for multi-millions. It is a safe investment with a very good record of appreciation.

Until people's taste in art changes. As their taste in Beanie Babies changed. Or until the economy goes into a funk and people have less money to spend on fine art:
https://www.physicsforums.com/showthread.php?p=4358071&posted=1#post4358071

In summary, what's not to like? It could be that Bitcoin will be cracked and blow up, but if so the next currency can learn from the failure and improve. I don't see why it can't be at least as good as the woefully insecure credit cards. It should be easy to do better than that.

Bitcoin is a currency, so it has nothing whatsoever in common with credit cards. What's not to like is the lack of basis, which implies it has no chance of ever being stable. Don't take this the wrong way, but your argument sounds like that of an anarchist who believes that there can be order in chaos. I don't think that's likely.

 

[ImaLooser]

Doesn't the fact that there is no backing just mean that there is no basis for ever having any confidence in the currency? That its value is 100% based on speculation and will never have any hope of long-term stability?




This sounds like an anarchist argument.


Until people's taste in art changes. As their taste in Beanie Babies changed. Or until the economy goes into a funk and people have less money to spend on fine art:
https://www.physicsforums.com/showthread.php?p=4358071&posted=1#post4358071

Bitcoin is a currency, so it has nothing whatsoever in common with credit cards. What's not to like is the lack of basis, which implies it has no chance of ever being stable. Don't take this the wrong way, but your argument sounds like that of an anarchist who believes that there can be order in chaos. I don't think that's likely.

If you continue such an ad hominem style of argument I will report you to the moderators for disciplinary action. Do you still think I'm an anarchist?

We shall soon see in real life whether bitcoin works or not. So there's not much point in arguing about it.

 

[russ_watters]

There was no ad hominem in my post. You said a number of things that imply you don't like an authority controlling money -- or information.

FYI, we have another thread active about bit coin and it has been showing instability and signs of a bubble.

Also, apparently I messed up copying the link, but the fine art market has been depressed.

 

[Ryan_m_b]

I hardly think anarchist counts as an ad hominem ImaLooser. I agree with Russ on this; fiat currency is a benefit to trust, not a negative. It essentially transfers the question from "do you trust this currency" to "do you trust this nation".

 

[Jim Kata]

I'll openly admit to being an anarchist, and I'm with Looser. The appealing part of bitcoin to me is that there is no central issuer. This is an aspect which Krugman completely ignores in his critique of it yet is the aspect I find most appealing. Our current system where certain banks are borrowing at negative interest from the Federal Reserve and are bailed out when they fail seems less than equitable. Say what you will about Bitcoin and its instability, but it can't be accused of not being a market. Our current banking system is the furthest thing from a market system. IMO it doesn't matter what we think. Bitcoin is the future, and just like Napster changed the recording industry Bitcoin will change the banking industry, and ideas like Kickstarter will change the finance industry. I welcome these changes.

 

[DavidSnider]

I think if BitCoin ever got out of the 'beanie-baby' stage and people started taking it seriously I'm fairly sure most governments would make it illegal and find ways to cripple the infrastructure supporting it so badly as to be almost unusable.

 

[russ_watters]

I'm not seeing how it could ever be possible to get out of the "beanie-baby stage". Market/price stability comes from a stable balance between supply and demand. For items with no inherent value whatsoever - not even aesthetic value like a painting or Beanie Baby - value can change on any whim. Like Beanie Babies, there appears to me to be a pretty good chance people will get tired of it and it will just lose all of its value.

 

[Jim Kata]

The term inherent value has been batted around in the discussion of Bitcoins. What is inherent value? The dollar only has more "inherent value" than a Bitcoin because you can pay your taxes in them. Other than that, what inherent value does any fiat currency have?

 

[russ_watters]

The term inherent value has been batted around in the discussion of Bitcoins. What is inherent value? The dollar only has more "inherent value" than a Bitcoin because you can pay your taxes in them. Other than that, what inherent value does any fiat currency have?

The "inherent value" of a fiat currency is the faith in and credit of the government that issues it.

[edit] Many sources prefer to use the term "intrinsic value" and say that fiat currency has none. I'm fine with following that convention as long as we recognize/agree that there's still a difference in basis for the value of a fiat currency (faith in and credit of the government) vs Bitcoin (nothing at all).

I'm even thinking with Bitcoin it might be a purposeful scam of a fad, almost like a pyramid scheme. The fact that you "mine" bitcoins and the mining gets harder the more bitcoins there are means that early adopters get the most out of it, just like a pyramid scheme. The mining encourages fad value but points to a possibility of an end-point when it could completely collapse (when no more coins are available/or it becomes too hard to mine them).

 

[Jim Kata]

Maybe that's why I'm open to the idea of them, since I've been growing more and more dubious to the faith and credit of governments.

 

[DavidSnider]

Here's what I don't understand: Are you less dubious about the faith and credit of a group of anonymous people on the internet?

 

[russ_watters]

Maybe that's why I'm open to the idea of them, since I've been growing more and more dubious to the faith and credit of governments.

As you said, you're an anarchist, so that fits. I understand the "what" of the ideology, I've just never understood the "why". As David's question implies, it doesn't seem to me to make logical sense.

 

[Evo]

I can't even fathom how people can trust a fake currency with nothing and no one backing it. But hey "A fool and their money are soon parted". No skin off my nose.

 

[russ_watters]

I can't even fathom how people can trust a fake currency with nothing and no one backing it. But hey "A fool and their money are soon parted". No skin off my nose.

Yeah. Do (did) you know many Beanie Baby "investors"? I knew a few. One of my best friends, his mom collected hundreds and considered them an investment. Never did make any sense to me at the time and I was not at all surprised when they became worthless.

 

[DavidSnider]

There is an interesting argument being made that its intrinsic value is technological and that it doesn't need to be a store of value. That the value is the ability to wire money extremely cheap and anonymously. IE. Person A buys $100 worth of bitcoins, sends them to Person B who immediately sells them on the market.

 

[Jim Kata]

Evo what's a fake currency? To David's point it's not about whether I trust anonymous people over the internet, it's about whether I trust the safety of the cryptocurrency system. At this stage I'd say no, but in principle I think the system could be made very secure. To Russ's question as to the why of anarchism, I believe all institutionalized power is inherently corrupt, and the less of it there is the better.

 

[Evo]

Evo what's a fake currency?

A currency that has no backing. Who backs bitcoins? What amount is guaranteed? What collateral do they have to back it? Who do you go to to get your money back if it goes down the drain?

 

[Jim Kata]

So it's fake because it doesn't have the equivalent of an FDIC?

 

[Evo]

There is an interesting argument being made that its intrinsic value is technological and that it doesn't need to be a store of value. That the value is the ability to wire money extremely cheap and anonymously. IE. Person A buys $100 worth of bitcoins, sends them to Person B who immediately sells them on the market.

David, I have the ability to instantly transfer and receive money worldwide right now with "real" money. Did you know that paypal does this? You can send money to anyone via e-mail. It's just one of many.

 

[Evo]

So it's fake because it doesn't have the equivalent of an FDIC?

You tell me, who is backing it? What are they backing it with? What is the guarantee? What is their ability to back it?

 

[DavidSnider]

David, I have the ability to instantly transfer and receive money worldwide right now with "real" money. Did you know that paypal does this? You can send money to anyone via e-mail. It's just one of many.

Yes but as far as I know PayPal charges a fee for this and is far from anonymous.

 

[Jim Kata]

You tell me, who is backing it? What are they backing it with? What is the guarantee? What is their ability to back it?

Nobody, is backing it, but I'm not sure that means the currency is fake. The main reason I'm having this debate, and what I find interesting about it, is that it exposes what people think is real verse what is not real. It's the perfect platform for the question of what is value? To my understanding of credit based money, the value of the money is purely a human contrivance that is dependent on what you find to be credible.

 

[Evo]

Yes but as far as I know PayPal charges a fee for this and is far from anonymous.

It's like a dollar for a $500 transfer and they do the foreign money exchange.

 

[Evo]

Nobody, is backing it, but I'm not sure that means the currency is fake. The main reason I'm having this debate, and what I find interesting about it, is that it exposes what people think is real verse what is not real. It's the perfect platform for the question of what is value? To my understanding of credit based money, the value of the money is purely a human contrivance that is dependent on what you find to be credible.

No, money issued by the US actually has backing and there is the FDIC. But paranoid people have problems trusting anyone, and they usually get screwed, IMO.

 

[russ_watters]

Ultimately, the value of *anything* in a market economy is determined by what people *think* the value is, whether there is something real behind it or not. The US government has a massive wealth with demonstrated staying-power, so people have faith in the stable value of its money - which therefore causes it to be stable.

Because Bitcoin is new and interesting and fun (novel), there must be a component of novelty in its value. The question is whether once that novelty wears-off if there's anything left to give it value.

Bitcoins have attributes that I think even the supporters should agree, do not have mass appeal. The fact that ordinary people like me and Evo are genuinely confused by the appeal is an indicator of limited mass appeal. It really smells like a fad or even a scam.

Another important issue that somehow I missed before is that the performance of Bitcoin has actually been a mutually exclusive attribute for different purposes. The most important attribute of currency is stability. The most important attribute of an investment is growth. These are mutually exclusive ideas that are nevertheless both being attributed to bitcoin. If bitcoin's value grows, that is a deterrent to using it as a currency. If its value stabilizes, that is a deterrent to using it as an investment. This tells me that its use lacks rationality. Again, that points to a fad.

 

[Ryan_m_b]

Whether or not bitcoin itself is a fad I think there is a variety of niche uses for such a currency, not all of them good
http://en.wikipedia.org/wiki/Silk_Road_(marketplace)#Auctions

 

[ImaLooser]

I think if BitCoin ever got out of the 'beanie-baby' stage and people started taking it seriously I'm fairly sure most governments would make it illegal and find ways to cripple the infrastructure supporting it so badly as to be almost unusable.

Mastercard and Visa would surely lean on Amazon and so forth to not accept it. But if it gets popular enough Amazon would rebel. Amazon doesn't like to pay Mastercard 3% on each transaction. If bitcoin is popular enough then Mastercard's threat loses its force, and would actually work against them.

Governments might not like the anonymity. But my guess is that governments have more important things to worry about than bitcoin.

 

[ImaLooser]

Here's what I don't understand: Are you less dubious about the faith and credit of a group of anonymous people on the internet?

They aren't anonymous. The whole point is that the algorithm is open, not secretive. There is no secret that can be lost.

 

[ImaLooser]

Barack Obama's ancestors were exposed to a fiat currency. The natives of Kenya were self-sufficient so they would not work for wages. The colonists imposed a tax on huts. The natives had to pay the tax in cash. To get the cash they had to work for the colonists.

Many times I read that the US dollar works the same way, but I always doubted that. Many corporations pay no tax, but this does not at all reduce their desire for dollars. The dollar's true value lies in being a convenient medium of exchange. The contribution of the US government is to supply a currency that is difficult for others to counterfeit and ability to prosecute those who do. I bet that it is legal to counterfeit bitcoin, so they have to depend on their algorithm and public trust in such.

That is, the tax angle may get the whole thing started, but if somehow magically Utopia arrived and we no longer had to pay taxes there would still be a demand for dollars. People would still need a medium of exchange.

It's hard to say what they full faith and credit of the US government means. I guess it means that they are trusted both to avoid inflation that rapidly degrades the value of the currency, and also not to default on its debts.

 

[mheslep]

Reference on the definition of a fiat currency:

Fiat money, such as paper dollars, is money without intrinsic value: It would be worthless if it were not used as money

That is, the US government can only produce more of the same on demand; there is no pot of gold or other alternative security behind the curtain. The US M2 money supply is around 10 trillion dollars and, for the last two year period, is continuing to grow faster than it ever has since 1980.

 

[BWV]

no money has any intrinsic value, its a fallacy to believe that gold or any other substance represents "real" money.

 

[Evo]

It's not money.

Bitcoin: Whatever It Is, It's Not Money!

The basic reason: it has no fixed value. It trades like a stock or commodity. In recent days it has been crashing after a spectacular rise in terms of dollars. Such volatility makes it useless as a means to do transactions. Money has only one purpose–it makes doing transactions, that is buying and selling products and services and securities, infinitely easier than barter. All the other purposes of money flow from this basic function.

http://www.forbes.com/sites/steveforbes/2013/04/16/bitcoin-whatever-it-is-its-not-money/

 

[ImaLooser]

no money has any intrinsic value, its a fallacy to believe that gold or any other substance represents "real" money.

Gold has very useful properties and is in demand as both an industrial and decorative material. Gold is very electrically conductive and is used as a ground plate in computer boards.

 

[ImaLooser]

It's not money.

Bitcoin: Whatever It Is, It's Not Money!

The basic reason: it has no fixed value. It trades like a stock or commodity. In recent days it has been crashing after a spectacular rise in terms of dollars. Such volatility makes it useless as a means to do transactions. Money has only one purpose–it makes doing transactions, that is buying and selling products and services and securities, infinitely easier than barter. All the other purposes of money flow from this basic function.

http://www.forbes.com/sites/steveforbes/2013/04/16/bitcoin-whatever-it-is-its-not-money/

To have a currency with a truly fixed value one would have to have a very controlled market in which the price of every commodity was fixed. Forbes appears to be arguing in favor of the economic system of the Soviet Union.

 

[ImaLooser]

Looking further at bitcoin I have to say that it is an ingenious thing. I'll assume that it is proof against counterfeiting. The big problem is this. The supply of money has to grow in such a way that the price is more or less stable. Recently this has been done by having it under the control of some sort of Alan Greenspan somewhere. The bitcoin people wanted to set up something that is self stabilizing and under no ones control.

What they do is very clever. The bitcoins can only be obtained by using large amounts of computer power, and this costs money. It is also a readily available technology that cannot be monopolized. So it "costs money to make money." The idea is that the market will reach a dynamic equilibrium. It is very much to be expected that this will take some time, maybe a year or two.

I really can't tell whether it will work or not. The supply always increases and never decreases, so the long term trend would seem to be a steady decline in value. This is a good thing as it discourages saving of bitcoin. I actually had this idea of a currency that intentionally and predictably declines in value, but never pursued it. Some guy in 1890 or so thought of it first. The basic problem is that money has two functions: as a medium of exchange and as a repository of value. They aren't all that compatible and this creates a basic tension. There is a lot to be said of splitting money into two forms. Bitcoin seems deliberately designed to be a good medium of exchange and poor repository of value. I approve. Traditional currencies can then concentrate on the repository of value function. Everyone will be better off.

What it more, it is the first non-national currency with no intrinsic value. That's great. It seems to me that they have taken a very abstract real world problem and come up with a clever real world solution.

 

[Jim Kata]

I can't wait till ten years from now when I can post "Bitcoin won, and you were wrong".

 

[ImaLooser]

Whoops! I was wrong. It gets harder and harder to create bitcoins as time goes by. So the value would tend increase over time, which I think is a bad idea. This encourages hoarding, speculators and market instability, which is exactly what I don't want. It's been around for three years or so and is still very unstable, which is a bad sign. On the other hand only one bug was found in the system which allowed counterfeiting, so that was a success.

 

[Ryan_m_b]

What it more, it is the first non-national currency with no intrinsic value. That's great. It seems to me that they have taken a very abstract real world problem and come up with a clever real world solution.

What do you mean by no intrinsic value? As in has no use other than as currency? There have been plenty of non-fiat currencies in the world before bitcoin where the physical currency had little or no use.

 

[ImaLooser]

What do you mean by no intrinsic value? As in has no use other than as currency? There have been plenty of non-fiat currencies in the world before bitcoin where the physical currency had little or no use.

Yes, but they were local, not global. (I didn't say that, but I had it in mind.) :-)