Greece And Bitcoin

There are some who suggest the mini run in the price of Bitcoin this month is related to the crisis in Greece. I wouldn’t know about those sorts of things.

But one thing is clear to me. Photos like this one from the NY Times showing people lined up outside a closed bank do not produce confidence in the banking system.

greek bank

The hardcore cryptocurrency community wants to control their money themselves, with ownership of the keys to it, and the ability to move it when and where they want.

That’s a comforting thought when the alternative is to trust a bank.

Here in the US, we have FDIC insured deposits, a relatively safe and secure financial system, and even in the depths of the financial crisis of 2008, bank customers could access their money when they needed it. But there were a few scary moments.

In other parts of the world, none of that is the case. Which is why I continue to think that we will see more rapid adoption of bitcoin in the less developed world first.

Maybe in Greece. Who knows?

#hacking finance

Comments (Archived):

  1. Tom Labus

    But volatilityand being thinly traded are still issues with Bitcoin pricing. Those Bitcoin holders in Agentina got double whacked. But the risk is worth it when confronted with bank acct seizureYou can take out $66 bucks per day from an ATM in Greece.

    1. William Mougayar

      Still, Bitcoin’s volatility has been better than at least about 50 countries’s currencies in the world. Check Venezuela too, among many others.

      1. Tom Labus

        I agree but it’s a tough step for people under extreme financial duress. Instant conversion to another currency from Bitcoin helps big time.

      2. kidmercury

        here’s a chart of bitcoin against the venezuelan bolivar. BTC has declined against venezuelan bolivar since 2014.

  2. andyswan

    Just look at all that economic equality in Greece! Arm in arm, brother by brother, standing in line waiting for the government ration of your own money. Utopia at last!!!Ain’t Equality grand?

    1. Jordan Thaeler

      Beat me to the punch. Headline: Look at How Awesome Socialism Is! Just like Puerto Rico, Venezuela, Cuba, North Korea, USSR, and the other wins.

      1. andyswan

        Where is your “compassion”?  Don’t you care about the little guy?  Doesn’t he deserve payment from others for successfully maintaining a heartbeat? Next step…walls…to keep people in.

        1. creative group

          Andy:people standing in line to withdraw their own funds has nothing to do with being a little guy or big guy.(We did realize the sarcasm)A primary reason a persob should not keep their wealth in one place and or have others control your liquidity.

          1. andyswan

            Wrong. Big guys got out a while ago

          2. creative group

            Andy:as amazing and brilliant as you know you are our comment was addressing a person (Not institutions, fund managers, Qualifed investors, etc.)

        2. Jordan Thaeler

          It’s just like my fundamental disagreement with the court’s interpretation of the 14th Amendment to allow gay marriage makes me a bigot. And I’m a racist for asking for due process and evidence in salient white-cop-black-thug cases. Just a horrible, no good Libertarian. The question I would posit to you is: where do we go when our country turns to absolute sh*t? America is the last bastion for the free market…

          1. pointsnfigures


      2. pointsnfigures

        Illinois. Heh. Wait, not socialism, epicenter of crony capitalism.

      3. ShanaC

        parts of germany?can we not just call it socialism?

    2. Dan Moore

      I am not sure Greece had an effective government anytime in the past 50 years. So it is hard for me to condemn socialism in this case (I think that is what you are condemning, sorry if I am misinterpreting). It seems to me to be more about balance of payments in the Euro zone and bad government in general. I found this link helpful in helping me understand the situation:

      1. pointsnfigures

        There are plenty of other examples of countries that are messed up economically where you can blame socialism.

        1. SubstrateUndertow

          Socialism ! – the big bad boogie man ?What exactly are you talking about.Every country requires some degree of socialism to operate !After all the root of the word is “social”.The optimal tipping point between private/public interests is still a long way from being settled. We are not at the end of history on this issue.Falling back on tired old ideological left/right linguistic-polemics is no way to visualize the interdependency challenges inherent in our new political/economic landscape.No more politics by ideology- that is functionally dead now !Ours is an age of socially-networked algorithms.An age of politics by socially-networked goals-and-functions!Lets get on with developing new political memes that revolve around – prioritizing our shared social goals/needs- mapping baseline social/economic stability functions- testing methodologies against sustainable stakeholder integrationSocial-language/network-signaling is everything now!

    3. pointsnfigures

      Do I hear Margaret Thatcher talking? Has Greece finally run out of other people’s money?

  3. William Mougayar

    Well, everybody needs to have a Plan “B”: Bitcoin.

    1. awaldstein

      Cute for certain.I’m no dummy. Fiscally not a dumshit.But I don’t have any idea why Bitcoin is the answer to just a mess of an economy.Are you implying that the issue is the currency or the issue is the core mismanagement of the countries economy?I so want to believe in BitCoin. I so don’t get where the logic here holds together.You’ve lost me.

      1. William Mougayar

        Of course there is so tongue n cheek here, but I will say this with certainty:1/ Bitcoin is a viable Alternative global currency and that’s its end game. It will occupy perhaps 5% of the world’s economy, and that’s a big number.2/ Some countries will adopt Bitcoin as their currency, or will peg it to their currency.

        1. awaldstein

          Why?If it is within 3-5 years it is already in deep consideration.I’m baffled by the lack of clarity here.Can no one answer “why’ this is an answer that governments should choose.

          1. Michael

            Bitcoin is still very much in its infancy. It is a fledgling currency and many more things besides, so it is impossible to say where it will be in 5 years’ time (perhaps as an indicator, consider how far it has come in just the last two years). Regardless, the longer Bitcoin continues to exist and operate in exactly the way expected (which so far has been the case), the more likely it is to continue uninterrupted and the more likely people are to make use of it.Personally, I see Bitcoin developing into a settlement rail, initially between banks or B2B i.e. for wholesale trade. Consumer use, if that becomes a thing, will likely be off main chain. That would made the type of pegging described above a (long term) possibility. In the meantime, the infrastructure and ecosystem will continue to develop, in particular through the introduction of Bitcoin related financial instruments and more complex hedging and trading options, and as a result we will see levels of liquidity (and, as a result, price stability) more appropriate to capital markets.I will go one step further: absent a “Fedcoin” (i.e. a competing, government issued cryptocurrency), I think Bitcoin could offer real competition to USD in the international trade and settlement space. Why do I think that? Because the advantages of programmable, tokenised money are too great; the ability to programme or otherwise control units of account and/or value will lead to completely new transaction types and structures with vastly reduced costs and risks.In the past 12 months alone we have seen big additions to Bitcoin itself – things like HD wallets, multi-signature transactions, OP_RETURN (store data in Bitcoin blockchain) and CHECKLOCKTIMEVERIFY (delay transactions and add post delay terms) – and numerous other advancements are in development. They enable things like fully automated escrow arrangements, completely free of counterparty and settlement risk. Think about that for a second. In the context of international trade, it is positively game changing.I suspect people, banks and businesses alike – and possibly even small governments – will eventually come to accept that Bitcoin simply _works_, it’s ledger is, for all intents and purposes, immutable, and as an extremely low cost, decentralised, globally available 24×7 resource, it makes practical and commercial sense to make use of it. Some will be quicker to adopt than others and, in fact, we are already seeing signs of this: virtually every major bank is currently experimenting with Bitcoin and other “blockchain” applications (rewind one year ago and it was precisely zero banks); Nasdaq has opted to use the Bitcoin blockchain to manage private shares on one of its platforms; and Honduras will apparently move its land registry onto the Bitcoin blockchain. These secondary uses will only accelerate Bitcoin’s network effect.

          2. awaldstein

            Good answer and food for thought.Thanks!

          3. LE

            Can no one answer “why’ this is an answer that governments should choose.When I was at a liberal quaker high school, in the 1970’s, everybody was hyping this universal language called “Esperanto” that they thought would or should replace English worldwide. I kind of vaguely remember the lack of the various proponents being able to answer the basic question as far as “why” it was needed when English was already widely adopted and seemed to serve that purpose. In retrospect was a typical naive high school wet behind the ears attitude that the right thing would happen w/o taking into consideration for both human nature and practicality of actual adoption.http://esperantodocumentary

        2. Richard

          The international economy is now regulated by agreements. Any mention of Bitcoin in these agreements?

          1. William Mougayar

            It will be the same as the Internet; gradually it will find itself where it makes sense. Early days. If you regulate too early, you risk killing the growth.

        3. Paul Williams

          From a greek man who knows a thing or two about bitcoin ;)…

          1. William Mougayar

            I agree with Andreas. I wasn’t suggesting that Greece adopts BItcoin. It’s an alternative and a choice for people to make.

      2. ShanaC

        the blockchain as a marker is interesting, that’s about it

  4. Dave Pinsen

    I don’t see how adopting Bitcoin as its currency would help Greece. There seem to be two main problems in Greece, neither of which would be ameliorated by adopting Bitcoin:1) Greece’s government spends a lot more than it collects in taxes.2) Greece doesn’t have its own, national currency, one which would devalue to the point where Greece’s economy would be more competitive.

    1. Tom Labus

      But it does provide an escape route for individual citizens to protect their assets that remain.

      1. Richard

        Govt with a stroke of a pen could tax Bitcoin transactions.

        1. JLM

          .Under what possible scenario would they not?JLMwww.themusingsofthebigredca…

    2. pointsnfigures

      Include any government there-but the PIGS in Europe are pretty horrible. Tax avoidance is a national sport in all of them (and rightfully so since the govts are pretty corrupt)

  5. William Mougayar

    I couldn’t resist sharing this graph here, comparing what $20 and 1 BTC can get you over the years.

    1. kidmercury

      totally different timeframes on the chart, talk about comparing apples to oranges. this is why it’s so hard to take bitcoin seriously.

      1. William Mougayar

        But Bitcoin just got started. It’s fair if you count it in dog years of evolution 🙂

        1. kidmercury

          here’s a chart since december of 2014, a timeframe conveniently left out of that chart. in that time bitcoin has lost over 75% of its peak value.

          1. Joseph K Antony

            It would be interesting to identify the reason why the value of Bitcoin is falling. It could be possible by bringing a third instrument, in this case Gold. If we can identify and normalise the value of Gold vis-a-vis US $, then I do believe that by comparing this normalised series against Bitcoin, would help in identifying, the reason behind Bitcoin’s fall. My hunch is that it will be a combination of risk perceptions and the relative substitutability of Bitcoin vis-vis-vis the main currency.When the economy is growing rapidly the relative price of a Bitcoin would fall as it would be in comparatively less demand. The tide will turn when the relative share of the Bitcoin economy increases. Adding to the above, the game changer would be if some country gave sovereign backing to “bitcoin”. I suspect a lot of activity could flow to that country.

  6. Matt Kruza

    More adoption by CITIZENS in the developing world for their savings yes. But a govt. won’t adopt it. Also, the issue isn’t the currency so much as the amount of debt (govt., business, private etc.) that the greek society had. And taking out a loan in bitcoin would be the most insane thing ever (its basically like a US citizen taking out a loan in Japanese yen, and not hedging it… this would be disastrous). But yes, if you risk your money being stolen / appropriated by an unsound banking system bitcoin may actually be a good fit for this since its hard for an individual consumer to get a foreign-denominated checking account in that other country without a lot of money (10’s or 100k’s of dollars likely to make that happen efficiently)

  7. kidmercury

    all that matters is the exchange rate, until that gets solved bitcoin has a very limited scope.FDIC is limited in how much money it has. the same thing could happen in the US. people laugh at the idea of having money/wealth stored under the mattress/in a vault at home, but the alternative — trusting a bankrupt system with a track record of theft — seems naive at best.

  8. Justin Fyles

    If the FDIC is to protect savers from the downside of fractional reserve banking, while still allowing for banks to liquidize their assets, it’s interesting to think about how such a system would work that has a public ledger.Would fractional reserve banking even be possible under Bitcoin’s current design? If not, it’s either not viable as a national currency by itself, or we need to rethink our views on banking.(I legitimately don’t know the answer, just thinking out loud here)

    1. sigmaalgebra

      See my post in this thread at…Net, sure, set up a bank, acceptdeposits in BitCoin, to attractdeposits, pay, say, 3% APRinterest, make loans in BitCoinat, say, 10% APR interest.Then hope that when make a loan,the guy with the loan depositsthe loan amount in his checkingaccount at your bank, all inBitCoin. Then, sure, the bankmakes the loan at 9 AM. By 9:30AM it’s back in the bank. By 10AM it’s loaned out again, and by11 AM is back in the bank. Dothat three more times that day,a total of five times.So the bank starts with 1million BitCoin and by the endof the day has deposits of fivemillion BitCoin, that is, hasjust created money of 4 millionBitCoin.Of course, maybe the bank didn’tstart with 1 million BitCoin.Who’s to know?Then the local economy booms.Then it busts and, bingo,presto, the borrowers can’t payback, the bank has no moreBitCoin, the other depositorscan’t get their deposits back,the bank fails, the localeconomy goes into a longdepression, people die, maybe adictator gets elected, etc.Then the dictator borrowsBitCoin from some banks andbuilds battleships, tanks,planes, roads, bridges, sportsstadiums, etc., puts people backto work, makes labor unionsoffers they can’t refuse, kills25 million people, etc.In no way does BitCoin save usfrom the problems of fractionalreserve banking, a crediteconomy, or governmentborrowing.BitCoin saves us from suchthings much like buying goldcoins, putting them in a bigbox, and hiding the box behind afalse wall in the basement.Also, with the gold coins, withBitCoin someone could use thegold to buy BitCoins, take theirlaptop computer, pack up, flyto, say, the US, and slowlyconvert the BitCoins to dollarsand live on the dollars.Of course now some sellers will acceptBitCoins.So, have an alternative form of money thatis difficult for governments to track,tax, confiscate, regulate, etc.

      1. Justin Fyles

        But to “deposit” it you would be giving up your private key right? Wouldn’t that defeat the point?

        1. sigmaalgebra

          Well, you make the “deposit” muchlike now: You hand your money overto the bank. And the reason you doit is partly like now — you get intereston your deposit. And, when you make a withdrawal, that goes to youin BitCoin with your private key, etc.I’m no expert in banking or BitCoin.

  9. Chimpwithcans

    I’m with you on the “less developed markets adopting first” idea. There is a precedent for that (MPesa) and there is a great amount of transferring money back home (urban to rural, and international to home) in emerging mkts. More so than in developed countries at a guess.

  10. jaypinho

    Glad you wrote “hardcore” before “cryptocurrency community,” because the vast majority of everyday people that have gotten started with Bitcoin are placing their holdings in relatively conventional companies like Coinbase, which would be subject to regulation or even closure by the government if something were to go seriously wrong. In other words, your deposits aren’t necessarily safe with Bitcoin unless you keep the keys yourself.

    1. Tom Labus

      It amazes me that teverone piled into Mt Gox

      1. pointsnfigures

        It amazes me that people trade on exchanges based in China…..

        1. Tom Labus

          Here. take my money

          1. pointsnfigures

            Let me send you wiring instructions. I love how they say, “you can trade on margin”, yet none of them even comprehend what that really means.

    2. Dan Moore

      Yeah, I bought some bitcoin with coinbase, then realized I couldn’t do any fun things with the base bitcoin api. Doh!

  11. Brandon Burns

    The last time we saw a Greece-like situation was Argentina 15 years ago.The first time we saw the niche signs of a nation truly embracing bitcoin was in Argentina, starting last year.NYTimes 4/29/15: Can Bitcoin Conquer Argentina?

    1. pointsnfigures

      Except, Argentina was isolated since no one else shared their currency. Greece is part of the EU. That’s a big difference since only the Germans have the economic firepower to make it work.

      1. Brandon Burns

        Yep. Argentina is an imperfect example, but it’s kind of the only one. Especially for applicable bitcoin insights.

    2. JLM

      .Zimbabwe, 11 June 2015, abandoned its own currency and has adopted the US Dollar. Bit early to get the test results.Z’we has been run by the same bunch for 35 years and they have never really been able to approach financial stability of their currency.It is a country rich in resources.JLMwww.themusingofthebigredcar…

      1. sigmaalgebra

        They finally did that? Wow!Guess they ran out of paper androom on the paper for more zerosbut didn’t know enough arithmeticto use scientific notation, e.g., fora loaf of bread, 10^100,000 or somesuch.What’d they do? Just keep inflatingtheir own currency until people usedjust dollars, Euros, or some such.Then, with everyone already convertedover, just make the switch official?

  12. JLM

    .Wow!Greece’s currency is the Euro.What is going in Greece has nothing to do with its currency.The idea of altering its currency is like treating your foot for a headache. It is not the problem. It will not cure the problem.Every country in Europe has thought about jettisoning the Euro. It is not an easy exercise. Here is a good first article to consider the implications.…The problem in Greece — a problem the US would be wise to heed — is very simple. Gov’t outlays have exceeded revenues on a consistent basis for a long time and the cumulative impact has now begun to be felt.The problem is not any more difficult than that.Changing the currency does nothing — NOTHING — to solve that problem. You can go broke in any currency you want.As to bitcoin itself, it is not an attractive currency in the term in which Greece has been at the precipice that would otherwise inspire confidence. Look at this graph. It suggests not a prudent store of value but, rather, a declining store of value.In the same time frame, the Euro has not been as big a problem.This discussion is a perfect example of the immaturity of the bitcoin salon. Even some of the most well informed, brilliant persons of our day and the issue are engaging in proselytizing and zealous rhetoric that seems to grasp at straws — straws that are, arguably, on fire.JLMwww.themusingsofthebigredca…

    1. jaypinho

      This is simply incorrect. Changing the currency has a huge impact: most obviously, it allows for natural devaluation, which is arguably the single greatest failure of the eurozone to begin with — governments’ inability to devaluate is causing huge structural inequalities within the common currency area.Crushing austerity at odds with mainstream economic thinking certainly hasn’t helped either.

      1. pointsnfigures

        Crushing austerity along with high tax rates is a recipe for disaster. Killing the size and scope of government along with lower tax rates would work. In Greece, pensioners are bankrupting the entire system-and because they are on the Euro, other countries citizens are on the hook for them.John Cochrane wrote a great piece on how to get to 4% growth in America. Works other places too. http://johnhcochrane.blogsp… Remember, the multiplier effect of government spending is equal to 0.

        1. JLM

          .There is not a single example of a country in crisis taxing itself back to prosperity.It is the financial equivalent of using leeches to bleed oneself well.JLMwww.themusingsofthebigredca…

          1. pointsnfigures

            62% of the US govt budget is entitlement spending. Unsustainable.

        2. Dan Moore

          Do you have a citation for “the multiplier effect of government spending is equal to 0”? Here is a reference to a high multiple in certain situations:

          1. pointsnfigures

            I will ask the same question that Professor Cochrane asks-“In order for a government to spend money, where does it get that money?” http://faculty.chicagobooth… and another:…Government debt is a liability and a claim on the future income of the country that issues it.

          2. Dan Moore

            I never understood the difference between government debt (pilloried) and private debt (treated as a useful tool). If an entity borrows at a rate to make an investment that will allow it to grow faster than the loan rate, isn’t that good, whether it is a private company or a government?There are definitely instances of wasteful government borrowing. But I’d say that there are instances of wasteful private sector borrowing as well.

          3. pointsnfigures

            Big differences. Huge. If a corporation borrows, you or I don’t have to worry about it. If it can’t pay its debt, it defaults. It usually doesn’t affect us. Bankruptcy courts take care of it. Even in the case of a major corporate entity defaulting, like Chrysler, it wouldn’t affect you or I one iota. Government default, or can’t pay off its bondholders-affects us big time.You might think that some corporate spending is wasteful. But, the reality is they are responding to economic incentives that they quantified for themselves. Corporations, and individuals, are rational and try to maximize outcomes for themselves given the economic incentives and risk/reward in place at the time they make the decision. Government is not like that.Governments can print money and pay off debt as long as the debt markets (and their taxpaying citizens) allow it. Corporations are constrained.

          4. sigmaalgebra

            Case A: We went from October,1929 with an economy that wason its knees or back into TheGreat Depression and, then,just stayed there.Case B: Once people started shooting at us, everyone who could work had 1-3 or so joboffers and sometimes jobs, allin about 90 days.What could be more wasteful than a Sherman tank, M1 rifle,Liberty ship, B-17, etc. that wasuseful only for destruction andeven then had a useful life forthat purpose of, what, a fewmonths or so?Still, in 90 days we were out ofThe Great Depression and, whenthe war ended, stayed out of ituntil, say, the nonsense of VietNam or other voluntary ways DCfound to mess up the economy.But from 1945 to, say, 1955 we had massive inflation? Right?Nope.I fully agree that government spending is wasteful, createsdistortions, etc. in many ways.Still, history shows that it canbe one of the only ways to getthe heck out of a depression orrecession.I’ll put it to you this way: It’s darned wasteful to have nearlyall the labor force un/under employed for years.Still worse, The Great Depressionwas a massive destruction of USsocial capital, that is, peopleand their families were severely hurt, in ways that we are still notout of.Indeed, one of the main reasons for feminism is just the stresses from the economic disasters and uncertainties ofThe Great Depression: Motherstold their daughters, no way should you try to be a wife andmother and depend on a manfor your financial support. Instead,you should be independent, autonomous, and self-sufficient,should be able to support yourselfin the man’s world of theworld of work, and largely youshould just forget about motherhood.So, one would suspect that a manwho cannot support his wife willnot do well as a father; similarlyfor a country. But did such a thing happen? Yup: Exceptfor the baby boom ofthe late 1940s, the US as beenfailing in family formation –i.e., on average each womanhas been having less than theminimum of 2.1 children.Our men can’t support theirwives. Our country can’t support its men.We need to ask why and dosomething about it.

          5. pointsnfigures

            Government spending didn’t get us out of the Great Depression. That is an economic fallacy. Neither did WW2. The cost of WW2 was far greater than any benefit-otherwise we would just break windows and repair them and count it as growth in GDP.In a Monetary History of the United States, Friedman and Schwartz show all of this, and make the case for independent monetary policy that is data driven. They showed conclusively that monetary policy could avert events like the Great Depression. The Depression was caused by poor government policy-as was the 2008 calamity. At least in 2008, we didn’t raise tariffs or interest rates. We did engage in useless stimulus.Might disagree a bit with your history. I think the modern feminism movement was borne out of WW2 when women had to work because there were no men to do the jobs. WW2 was a very strange, and seminal moment in American history. Capitalism and freedom were truly and seriously at stake. No other conflict since has been close in its scale, scope, or magnitude or importance to the future of the world.

          6. sigmaalgebra

            Government spendingdidn’t get us out of the GreatDepression. That is an economicfallacy. Neither did WW2. Thecost of WW2 was far greater thanany benefit-otherwise we wouldjust break windows and repairthem and count it as growth inGDP. Sure, don’t count war productionas GDP. But to pay forrepairing the brokenwindows, in starting afterLend-Lease or at least PearlHarbor, we had to print money.We did.That put money back into theeconomy.When the banks failed early inThe Great Depression, the moneytheir fractional reservebanking had created wassuddenly destroyed. Thatcreated massive deflation andThe Great Depression. When westarted printing money afterPearl Harbor, that replaced themoney that had been destroyed.That money, together with theurgency of the war effortgot the economy going rightaway.That money was crucial, even ifit was only for repairingbroken windows.Apparently breaking windows andhaving the US Federal Governmentpay to have them fixed wouldhave worked, too.Just dropping from airplanesmoney would have worked.And I agree — with some decentmonetary policy after October,1929, we could have been goingagain in 90 days. Since wedidn’t, our Great Depressionspread to the rest of theindustrialized world, and we gotWWII which killed 50 millionpeople.That is, we should have printedmoney to make the banks wholeagain — that is, replace themoney destroyed by the stockmarket crash that the banks hadcreated via fractionalreserve banking, and thenput in place some decentregulations on banking reservesand buying stock on margin.For a detail, have the FederalGovernment buy the broke banks,make them whole, and sell them.But, one way or another, must,net, add money to theeconomy — easy to understandsince you like Friedman.Since that money went into thehands of consumers and since dueto the war we had a shortage ofconsumer goods, rationing, etc.,there was a risk of an activeblack market and inflation. So,to damp out that inflation, wesoaked up the money with warbonds.The standard story goes that 90days after Pearl Harbor, we wereout of The GreatDepression, e.g., suddenlyeveryone had 1-3 job offers, andeveryone who could work did,often at two jobs.Again, Once people startedshooting at us, everyone whocould work had 1-3 or so joboffers and sometimes jobs, allin about 90 days. It worked. That it worked wasone of the best things ever tohappen in the history ofcivilization — no joke.Then, when the war ended?A lot of people were convincedthat we would fall back into TheGreat Depression. But, wedidn’t.Instead, apparently peoplecashed in their war bonds andused the money to have babiesand buy cars, houses, furniture,radios, etc. Housing loans wereavailable.Jobs? People had jobs makingthe cars, houses, ….Now? A lot of people:(1) Would like to have a job,but they can’t find one. Evencomputer programming, datascience, computer science,artificial intelligence? Nope.Microsoft, IBM, GE, Cisco,laying off thousands. No jobs.(2) Would like to buy a house –can’t, prices too high and/or nojob.(3) Would like to have kids –can’t, no house, poor or no job.We’re having so few babies we’regoing extinct, literally.(4) Would like to buy a car –can’t, poor or no job.(5) Would like to have a jobbuilding houses, cars, etc. –can’t, no jobs. E.g., Detroitis a great wasteland.For building cars and houses, weare much more productive than wewere in 1950:Houses go up with a lot ofplywood, sheet metal studs,particle board, laminatedtrusses, nail guns, spray guns,glues, and plastics withwindows, doors, kitchens, andbaths ready just to set inplace. Still houses are tooexpensive on average for peoplewho have jobs such as buildinghouses.Cars make use of a lot of robotsfor doing the spot welds;computers have reduced manycosts. Still the cars are tooexpensive for the people whobuild them.Why? I don’t know. Maybe partof it is too many governmenttaxes, regulations, legalliabilities, etc. So, by thetime a company can deliver aproduct, on average the peoplethe business pays to make anddeliver such products can’tafford to buy them.Due to automation, foreigncompetition, etc., a lot ofpeople have lost a lot of jobs.In effect, say, in Friedmanterms, that destroys assets,that is, money, and, thus, weneed to replace the money.My guess is that we should printup about $10 trillion and dropit from a helicopter — wouldlikely have little or noinflation from worker shortages.Looks to me like, except for thesafety net, we’re inanother Great Depression. Lookslike we will stay here fordecades until we print somemoney.

          7. Mark Essel

            This is pretty fascinating. I do not understand money policy. It’s not just bartering with a placeholder

          8. sigmaalgebra

            There has to be money enough forits uses and to go around. When acountry doesn’t have enough money,then it needs to create some more,say, with lower reserve requirementsfor banks or ability of the banks toborrow money from the central bankof the country.

          9. ShanaC

            modern feminism was born out of mary wollenstonecraft and classical utilitarianism like John Stuart Mill, who couldn’t bend his head around why women would be second class people from a utilitarian point of view. Parts of it also date to Rousseau and his questions on education (Emile had a wife, Sophie).Women also were part of the labor force in a house, and then poor women and middle class women worked (which is how you get women working in Lowell, MA en mass, and stuff like the founders of the International Ladies Garment Union as Ladies…)I’d also like to remind people that circa 1918, outside of the US, it wasn’t totally uncommon to see women doctors. particularly in Eastern and Central Europe.Contemporary feminism is driven by a bunch of things. 2nd wave feminism is driven as much by education of a large group of women going nowhere and in fact options with that education was causing life options to reverse, where interestingly in the 1920s-40s due to many social and technological changes (maybe even a bit earlier), women had options.Take a look at Rose Wilder Lane’s life. She’s pretty conservative politically. There was no way she could have lived her life had she been born 20 years later: there would have been many more social constraints on her.

          10. pointsnfigures

            JS Mill is great.

          11. Matt Zagaja

            Sort of. If a corporation goes bankrupt there are lots of costs associated with social safety net spending on now unemployed workers. Also AIG and other financial service companies were rescued by government and then when regular banks go under the FDIC is on the hook. Not to mention if private pensions go bust they are insured by the pension benefit guarantee fund. If a corporation or contractor the government buys services from goes under then that’s also a big problem for taxpayers as well. The bankruptcy of a company also means that the local government is brining in less tax revenue in the form of property taxes, corporate taxes, income taxes, payroll taxes, and fees. For better or worse were all part of the same larger system.

          12. JLM

            .One of the most important considerations about gov’t spending is the horrific cost to collect a single dollar.I have seen several citations indicating costs as much as $0.26 for the gov’t to collect a dollar.The obvious implication as it relates to the multiplier effect is that gov’t dollars are more expensive than private sector dollars.A dollar in the private sector can produce more output than the same dollar turned into $0.74 by being sent to Washington.JLMwww.themusingsofthebigredca…

          13. Dan Moore

            Huh, I hadn’t thought of the cost of collection–that seems pretty compelling. I guess we have to get better at cutting government services, because the issue I see is that everyone is happy to government services–for the other guy!

        3. ShanaC

          it’s been disastrous which is why government after government in greece is being voted out. what does the IMF expect? people to see 0 growth and never see a way out to pay the bills. That’s ridiculous. It is better to declare bankruptcy under those conditions

          1. pointsnfigures

            Yup. Bankruptcy can heal. Should have done it here in 2008 with the big banks and not passed the Dodd-Frank albatross. Problem in Greece is a new government won’t follow Cochrane’s advice.

      2. JLM

        .You make my argument, do you not?The Euro has not lost its buying power — therefore, individual Greeks whose wealth is denominated in Euros can take their wealth and move elsewhere.If they had a Greek currency, the currency would be devalued to an extent that it would have long since destroyed — like the Weimar Republic — any store of value.The world cannot have it both ways — profligate spending with no consequences and no impact on personal wealth.In this instance, the individual Greek holding Euros comes out better than the country itself.JLMwww.themusingsofthebigredca…

        1. jaypinho

          All Greek wealth is denominated in euros. The problem now is there’s a schism (and capital controls) between Greek euros and everyone else’s.And currency devaluation is not the same thing as hyperinflation. For one, the tourism industry would likely skyrocket following a return to the drachma.

          1. JLM

            .The issue for Greece will be the level of services that are able to be maintained by a new Greek government. It is pretty clear that people on holiday intend to flee if the gov’t shuts down.I agree completely with you that there will be an boomlet in travel when any repricing mechanism provides the same experience for a lesser price.Today, I suspect the issue will be one of perceived safety.In Mexico, today, there is a very attractive pricing point in places like Acapulco which have historically been very safe. Unfortunately, they are no longer safe with drug cartel activity endangering tourists.Thanks.JLMwww.themusingsofthebigredca…

    2. Tom Labus

      It does provide a route to an individual with a bank acct. There is alway risk in capital flight but it’s better than having your bank acct turned into a Government Bond.Bitcoin prices could be $1000 in six months or six days. But longer term, I would hold them

      1. JLM

        .What you describe it absolutely true but it is an investment strategy not a means of conducting day to day life in a single currency.The individual Greek, who today holds Euros has the same benefit. His Euros are quite spendable in Greece and other countries. This is why the spendthrift Greek gov’t does not want to let the thrifty Greek get his hands on his own wealth.The thrifty Greek is leaving Greece with his Euros in his pocket.Greece has a very simply problem — it spends way too much at the gov’t level because it has degenerated into a nanny state. This is the ultimate destination of liberal policies, nanny states, high taxes, profligate spending and wealth re-distribution.The people with the money are going to take their money and leave.Same thing happened in Maryland when O’Malley signed a millionaires tax.JLMwww.themusingsofthebigredca…

          1. JLM

            .Not sure what you are saying you cannot find. Here is an article on the Maryland experience.…JLMwww.themusingsofthebigredca…

          2. LE

            I saw that when I was searching but the study was done by an “anti tax group” and I have no way of trusting or vetting the underlying analysis.Plus it says this:Recent data shows that a record 1,800 Americans renounces their citizenship last year.That doesn’t exactly strengthen the point 1800 people of any income level (and we can assume most high income people are already minimizing taxes) is not exactly earth shattering.I mean really what is the chance that this number bears any relation to reality, given where it is coming from:The Change Maryland study found that the tax cost Maryland $1.7 billion in lost tax revenues.

          3. JLM

            .Not looking for the job as your research dep’t and not interested in defending anyone’s work.Maryland made it more expensive to own the same income and people reacted to it. Millionaires left.…Perhaps the biggest validation is that Maryland itself changed — is changing — its laws having felt the impact.http://articles.baltimoresu…JLMwww.themusingsofthebigredca…

    3. James Ferguson @kWIQly

      @JLM:disqus Difficult for the Brits to jettison the Euro when they still use SterlingThis like saying the US will probably jettison the Euro – it makes no senseEdit – Typo thanks @vasudevram (Sterling as in pounds not Stirling as in the beautiful Scottish Air Engine… ) – my mistake

      1. JLM

        .Haha, excellent point and thank you. I was making a left handed reference to the European Union. Corrected and thank you.An over zealous bit of proselytizing on my part.JLMwww.themusingsofthebigredca…

      2. Vasudev Ram

        You’re welcome. I got to know about the Stirling engine because of your typo, and it’s pretty interesting 🙂

        1. James Ferguson @kWIQly

          Coolest thing is although it predates the internal combustion engine, it has been considered in Jarvik artificial hearts as an engine using shielded radioactivity as a heat source. Long use no re-charge It is also being used to run microchp which generate electricity from the waste heat in boiler flues (chimneys) http://www.energysavingtrus…recovery of waste from low-grade energy

          1. Vasudev Ram

            >Coolest thing is although it predates the internal combustion engine, it has been considered in Jarvik artificial hearts as an engine using shielded radioactivity as a heat source.Yes, when I read the Wikipedia article you linked to (about Stirling engines), one of the key things I noticed is that they said it can run on many different kinds of energy sources, which makes it versatile.Also saw in the article that while Stirling engines were not used much for a while, people are now finding more uses for them.>Long use no re-chargeThere could be many applications for that.

    4. Dan Moore

      I thought that changing the currency would make it far easier to depreciate, and thus make exports far more affordable on the world market. Right now, Greece controls its fiscal policy, but the ECB controls its monetary policy. What am I missing?

      1. JLM

        .I think you are absolutely right, Dan. It would allow things to depreciate. The question is whether there would be anything left after the depreciation.Depreciating the currency will not solve the profligate spending of the gov’t which is the root cause of the problem.It is tantamount to having to have one’s head amputated to cure the disease. The victim will not survive the operation.The smart money has long since left Greece and the gov’t cannot keep the people from their own wealth forever.When it gets sorted out — as it will even if Greece becomes part of Germany — the smart money will come back and repurchase the hard assets at pennies on the dollar.As an aside, it will not just be purchasing parity depreciation, it will also be garden variety inflation.JLMwww.themusingsofthebigredca…

    5. Jordan Thaeler

      So. Much. Logic.

    6. SubstrateUndertow

      “keep it as simple as possible but no simpler”Monetary policies have a much wider range of social/fiscal/economic/political dependencies than you imply here.

      1. JLM

        .Of course they do.They will all be discussed in the book.The root cause — unrestrained profligate spending to support a nanny state in which expenditures overwhelm revenues — is fairly simple.Aerodynamic theory is also quite complex but most crashes can be explained by the simple fact that weight exceeded lift and the beastie stopped flying thereby smashing into the ground at a high rate of speed and killing all aboard.Thanks.JLMwww.themusingsofthebigredca…

        1. SubstrateUndertow

          The VALIDITY-VOLUME-VOLOCITY tipping point interdependencies of the money supply, not to mention the over concentration of wealth in the hands of too few, play pivotal roles in cyclical economic stasis, especially in regards to the devilish details surrounding a sustainable revenue/expenditure equilibrium.

          1. JLM

            WTF does that really mean?The amount of wealth/currency in private hands is the rounding error of institutions.JLMwww.themusingsofthebigredca…

          2. SubstrateUndertow

            I did not say in “private hands”.I said over concentration of wealth in the “hands of too few” and yes you are right those too few hold most of that wealth via institutional mechanisms 🙂

    7. Paul Williams

      If all goes wrong for Greece and they leave or are booted of the Euro zone suddenly(which is looking very likely) the Euro of the ordinary citizen sitting in a greek bank will be turned into the “New Drachma” over night.It will be devalued(or crash) fairly quickly, not sure if that will help with their debt as I would imagine their creditors will demand hard currencies.The black/grey economy(which is huge and a big part of their problem) will continue to operate in cash € only regardless of what the official currency is.The problem with cash is as well as being a security problem is that it actually limits the what you can do in this grey economy….. try paying for the netflix account that you watch over a vpn from USA with cash(but you can with bitcoin).… Look for this to see how ingenius use of bitcoin can solve very ordinary problems for ordinary businesses in(future) Greece. “The Rock Hostel is one of hundreds of hotels in the country using the Argentine start-up BitPagos to collect credit-card payments from foreign customers.”If Greece goes back to the drachma the ordinary Greek will discover bitcoin very quickly.

    8. Mark Essel


  13. pointsnfigures

    US Dollar, Swiss Franc and Gold first.… But, it gives a nice platform for Bitcoin backers to talk about. The Greek crisis is more about really poor government, and really poor government programs/pensions etc than it is about currency.

  14. creative group

    We feel the impediment to a universal acceptance of Bitcoin or any form of cryptocurrency is the global financial infrastructure not being able to have control. (IMF & EBC to name a couple)The main reason it was embraced by the cryptocurrency community was the open and secure access and lack of back door shenanigans, etc(We definitely are not apart of the conspiracy community)If there is instability in the BITCOIN there is no entity to stabilize, halt, address fraud, etc. It will eventually be accepted in some form or in the limited instances as now but replacement or universal adoption is not imminent.

    1. pointsnfigures

      Today, you are correct. Early days. I think as markets develop around the Bitcoin ecosystem, and get depth (futures, options, OTC derivatives), there will be free market governance over Bitcoin. The danger in Bitcoin is failure to perform-but fail to perform and you are kicked out of the network and it will be prohibitively expensive to try and get back in. Reminds me of trading pits.

  15. Antonio Chris Simeone

    Actually BTC is raising, without volume. The Bicoin hardcore enthusiast has altogether stopped the dramatic fall, by refusing to sell it at such a low price and, the market price is now slowly and steadily recovering many technical levels such as the 20 days moving average, the 50 days moving average, the 20 weeks moving average.New investors are expected in order to skyrocket with volumes beyond 300. We suppose that bad news about the solvency in the banking system, that could jump out from all over the world, will trigger the decision to jump on the Bitcoin train, before new highs are achieved.Our best compliments to the Hardcore Bitcoin Community that could arrest the MtGox related fall and is now putting on the ground the foundation for a new extended rally that has still to come.

    1. ShanaC

      how would you relate this to a structural failure in the economy such as greece going under. how would the market respond?

  16. Mario Cantin

    Bitcoin is a long way from being ready to take anything over in a meaningful way, as much as I (and many others) want to believe in it.The recent debate over the block size and the proposed hard fork illustrate that, IMO.No matter how decentralized something is, it needs a proper team to manage it. And right now, it’s not clear that managing strictly by consensus can work for Bitcoin on the long run without having to resort to some sort of benevolent dictatorship.In order words, a lot still needs to unfold, and it may turn out differently than any of us could have anticipated or hoped.

    1. ZekeV

      A VC with big balls might make an interesting play, by purchasing a significant amount of bitcoins, then financing efforts to improve the implementation of current wallet, node, pool software, possibly even the protocol itself, and then financing bare metal to mine on any “improved” implementation of the protocol if necessary to ensure adoption. If this hypothetical investor really has a viewpoint about how the network should work, and feels implementing his / her viewpoint will increase the value of the network, that’s how to do it IMHO. Sort of a soft centralization, with a possible incentive for doing it properly.

  17. ZekeV

    Greeks looking for a safe harbor from their national banking system are not going to flee to bitcoin at this point. Any Greeks who are also bitcoin enthusiasts already bought as much bitcoin as they cared to, and it probably wasn’t even a blip on the trading screen.However in the long run, I do think that decentralized finance is going to change the system. I doubt that national currencies will go away, but there will be more options. And individuals will be able to keep some of their paper wealth in a form that is safe from capital controls and confiscation by attainder.

  18. tdepuydt

    FDIC-type schemes exist in several countries in Europe – they insure against bank failure, not currency failure

  19. Brad van Leeuwen

    TLDR; Deposit insurance exists in much of the rest of the world. Not even the FDIC can protect depositors against a systemic crisis.Almost all licensed deposit taking institutions in Greece participate on a mandatory basis in the Hellenic Deposit and Investment Guarantee Fund, which covers eligible depositsup to EUR 100k and operates in a broadly similar fashion to the FDIC. All countries of the EU offer something very similar and post 2008 financial crisis, even much of emerging Europe largely harmonised with their near neighbours in the Eurozone (at least to the extent that it made sense for them to on the basis of the distribution of their deposits).The International Association of Deposit Insurers lists 113 such systems around the world, which is clearly not all the countries of the world, but probably covers 85%+ of global GDP.The bug with Deposit Insurance (or more accurately, the feature), is that it can only handle isolated bank failures. The purpose of all deposit insurance, FDIC and otherwise, is to prevent an isolated bank failure or bank run becoming a systemic problem. In the absence of deposit insurance, it is more likely that runs on other banks will follow as people realise that banks don’t hold cash to cover all their deposits and people panic – which in turn brings down further banks. It is impossible for any deposit insurer to hold enough assets to prevent a systemic crisis such as is happening in Greece. The FDIC holds $74 billion in assets, compared to $11.9 trillion of deposits, so even it is a drop in the ocean.So, I don’t think that the Greek systemic crisis should be a driver of bitcoin adoption. Adoption of bitcoin is effectively the acceptance of one set of risks in place of the current set of risks faced by depositors. Whether it is better or worse, I will leave to others to argue, but I will say that adoption of BTC en masse by the Greek economy would in many ways be as difficult as retaining the Euro when it comes to using monetary policy to helpfix the shortcomings of the Greek economy.

    1. JLM

      .Your point is well made.The FDIC has an advantage that other depository insurance schemes do not — it is battle hardened and it has weathered several such storms.The increase from $100K to $250K per account and the ability to have multiple nominal accounts at multiple institutions breathed life and confidence back into the system.Greece has been unwilling, thus far, to allow the kind of individual failure and consolidation that happened in the US. In the US, accounts didn’t simply get made whole, they were also transferred to “healthy” institutions so that the system did not have to pay off every account.In the end, it is a fiscal crisis at the gov’t level. Nothing is going to really work until the Greek gov’t balances revenues v expenses with enough left over to make a meaningful dent in long term debt.JLMwww.themusingsofthebigredca…

      1. Brad van Leeuwen

        I don’t think bank failure or consolidation is necessarily the issue here, in fact the Greek banking system is probably a lot more consolidated than the US system (Piraeus has about 30% market share).The problem is that most Greeks, saw the writing on the wall and started taking deposits out of Greek institutions to avoid impending capital controls or a conversion to drachma. The liability side of a bank’s balance sheet (i.e. their funding) is typically 70%ish deposits, so when everyone takes out their deposits, even good banks will fail. I’m not going to argue whether or not they were good banks – the point is that this is a systemic crisis and bank funding means that it doesn’t matter.IMHO the real problem is the sustainability/competitiveness of the overall Greek economy and it’s impact on soverign debt levels. The economy isn’t competitive and therefore the government can’t raise the taxes to meet budget and service debt. If they had their own currency, they’d normally devalue, but as they use the EUR, this isn’t possible. So the referendum this weekend is basically asking people if they want to switch to Drachma or not – it was the anticipation of this that caused the bank run, not necessarily the health of the banks.

        1. JLM

          .My point as it related to bank consolidation is that the FDIC was not a “one trick pony” in which they just paid off deposits and went home.They — with other agencies of the gov’t — forced shotgun marriages with “healthy” banks, which was another element of their playbook.In the US context, the size of the country and the difference in loan performance and mix allowed simple diversification to overcome “concentration” issues.These shotgun marriages had to move the loans — the operating assets of the banks — as well.The incentives provided for the survivor institutions to collect bad loans, generally, worked.Banks like NCNB (the precursor North Carolina National Bank which was called “No Cash for NoBody” in Texas) gave the regulators a platform from which to engineer the final solution. Just one example.The ability to consolidate on a national basis — as opposed to the then primarily regional basis — made a huge difference. All the big Texas bank holding companies disappeared.The great irony is that had the Feds simply consolidated every loan and simply deleted every “bad” bank, the entire loan portfolio would have recovered completely.Greece may not be big enough to do this but it hasn’t even tried thus far.Only the strong will survive.JLMwww.themusingsofthebigredca…

      2. sigmaalgebra

        There is a huge, huge, differencebetween (A) the US economy, bankingsystem, FDIC, and other US means ofproviding a stable financial systemand (B) any country with the Euro as itscurrency:The difference is that (A) the US FederalReserve can fund the FDIC, etc. as neededbut (B) as far as I know, nothing inEurope can do anything similar.I try not to pay attention to the Euro, dooccasionally read some essays by Soros,but do get the broad idea that the Euro isa central currency without a centralgovernment or a central bank.For some Banking 101, to be clear andblunt about something we all know toowell, banks, in particular, what is calledfractional reserve banking, net, inblunt terms, where a bank does not keepand have the money deposited but loans outthat money and, thus (just follow thesimple flows and arithmetic of a bank fora few weeks), definitely, in very solid,very real and meaningful terms, terms asserious as the US Great Depression and itscontributions to WWII and the deaths of,what, 50 million people, did I mention”meaningful”?, creates money andthat a run, in shutting down banks,i.e., the bank can’t give their depositorstheir money back, destroys money.Banks can create money and can destroymoney.Sure, the creation of that money isbasically inflationary — e.g., US in the1920s. Bank failures are basicallydeflationary — e.g., the US in the 1930s.Killing 50 million people must besomething only bankers could love.But in the US, once the bankers havedestroyed too much money, the US FederalReserve has a solution — create money toreplace what was destroyed.Yes, the business of creating/destroyingmoney, especially in chunks comparable insize with that of the US GDP, is tricky,dangerous stuff; still, for anything likeour current financial system, it is workthat has to be done, hopefully with greatcare and competence.But, for Greece, they can’t print Euros –the US Federal Reserve can print dollarsto back the FDIC, etc., but Greece can’tprint Euros to back whatever depositinsurance they have. Big difference.Biggie. Not nearly the same, at all.The Euro? Sure, looks, walks, talks,smells, like Utopian, one-worlder,Unified Europe, smoking funny stuff,dreamer stuff to hook Europe into apolitical union and a central bank. Then,finally, as long dreamed, they can, atlast, have thousands of bureaucrats inBrussels or some such each day writing outpages of regulations by the millions and,thus, creating European Utopia, so theydream, maybe so for the well paidbureaucrats (the richest part of the US iswithin 100 miles of the WashingtonMonument). Ah, yes, they can regulate theshape of each croissant! Utopia on theway!Some partisans had a goal of a politicalunion. Then the partisans tricked Europeinto a single currency, knowing that thewhole thing without a political union anda central bank, i.e., couldn’t handlesomething like the current banking crisisin Greece, was unsound. Then theyexpected, say, hoped, that a financialcrisis that needed a central bank would,then, get the Euro countries to move tothe coveted political union.Standard political trick, sometimes triedin the US, too: Want a big thing; talkthe people into accepting a little thing,get them hooked, have them discover, then,that they also need the big thing or maybehave a disaster that kills 50 millionpeople, then get the people to accept thebig thing. Exercise: Find such things inthe US.Oh, isn’t all power in the center, to runeverything, all so optimally, ah,at least, Pareto optimally,revolutionary political economyjust so much really big time fun, fun,fun, like Marx, Lenin, etc. would reallylove! Ah, as those two guys would nodoubt admit, may have to break some eggs,kill 50, ah, be generous, 100 million,naw, now 1 billion people, to bring aboutthe coveted perfect socialism orwhatever they call the smoky dreams theyhave in mind.ISIS has their funny dreams — beheadeveryone who doesn’t go along except makesex slaves out of any females over agesix. Iran has their funny dreams based onnukes. There were more funny dreams fromMao, Lenin, Hitler, Tojo, etc. Ah, somany funny dreams. LBJ had some funnyfears/dreams about Viet Nam and killed,what, 1+ million people? W had some funnydreams about Iraq, e.g., give them a”democracy” — recently Rummy confessed…that maybe Iraq was just not ready fordemocracy; no Shiite Sherlock — but,with efforts toward democracy in Iraqflowing out of the ends of US guns, killed1+ million people? Lots of funny dreams;lots of dead people.For morals and ethics, I’m no expert anddon’t want to put too fine a point onit, but (A) killing 1+ million peopleoffends me and (B) killing 1+ billionpeople might also kill me. I’m notthrilled about all these dreams that killpeople.Let’s hope Greece doesn’t lead to WWIIIand 1+ billion dead people. Sure, maybethe Unified Europe dreamers wouldbe willing to see 1+ billion people killedfor their funny dreams — we might keepthat in mind.Last, we should also keep in mind thatsomeone with a laptop in a coffee shop inBangkok could set up the First WorldBitCoin Bank (FWBB). They could acceptdeposits in BitCoin, pay interest, say, 3%APR, make loans in BitCoin and chargeinterest, say, 10% APR in BitCoin, andkeep nearly reserves. They’dtell everyone that their bank wasespecially safe because of BitCoin.But, sure, Joe borrows 1 million BitCoinfor inventory for his building materialscompany, to get his 3% he immediatelydeposits it back in FWBB. Then FWBB loansthe money to a real estate developer Tomwho, to get his 3%, deposits the moneyback in FWBB. Tom buys from Joe and paysJoe in BitCoin that Joe deposits in FWBB.FWBB has now created a total of 2 millionBitCoin that didn’t exist before. In thetown of Joe and Tom, this 2 millionBitCoin creates a real estate bubble.Eventually the bubble crashes, thedepositors at FWBB ask for their BitCoinand create a run on FWBB.Net, BitCoin won’t stop bubbles, runs, andcrashes in fractional reserve banking.And the town of Joe and Tom could borrowheavily, say, as we have seen, from FWBB,spend on roads, bridges, hospitals,schools, parks, playgrounds, waterresources, dance companies, a townsymphony orchestra, create a boom, not beable to pay back the loans, and create acrash. BitCoin would not stop that,either.

        1. JLM

          .The Krauts, figuratively, will get with the Mark/Euro everything that Hitler failed to keep with the Tank.JLMwww.themusingsofthebigredca…

          1. sigmaalgebra

            Due to my work, I haven’t been keeping up on the German economy, Euro, Mark, etc. anddidn’t know that the situation wasthat strong.

    2. ShanaC

      interesting, I didn’t know that.

  20. DJL

    Let’s not forget the more obvious lesson from Greece. A government held hostage by labor unions continues to spend out of control until something breaks. The US needs to wake up. There is no currency – crypto or otherwise – that can save massive debt with no source of income to cover it.

    1. Jordan Thaeler

      See @andyswan:disqus’s continual commentary

  21. Paul Williams

    @Fred We do have the equivalent of FDIC in the Euro zone(which includes Greece).…But won’t protect your funds in the event of a bail-in to save the banks, which seems to be official EU/ECB policy since the Cyprus crisis.http://www.thepressproject….All of this is interesting in comparison to what happened here in Ireland during the 2008 banking crisis… when the ECB strong armed the Irish government into providing a blanked guarantee to bank deposits and bond holders to protect the Euro which the Irish tax payer taking the massive hit, which they now conveniently deny insisting on.…The one working ATM in Athens….only installed a few days ago ;)…

  22. William Mougayar

    I love it when smart people keep ridiculing and taking shots at Bitcoin and its future.And I’m starting to lose sympathy for those that still don’t get it and expect others to convince them.Please educate yourselves on cryptocurrencies, blockchains, Bitcoin and other crypto-related technologies and what they mean. It’s coming, even it’s foggy and murky now. Nobody is going to feed it to you, even if there was a book on it. The Internet is full of material. You can read 1-2 articles per day about Bitcoin, or skim 200 daily headlines –>

    1. JoeK

      No one is questioning that more useful applications for bitcoin will be found. The bone of contention is the suggestion that bitcoin will replace one or more national currencies some day. Given that bitcoin holds no benefits other than speculation and anonymous trading as of 2015, and that the loose regulations surrounding it will only exist while national governments consider it of little significance, there is little to convince a neutral player to jump into the bitcoin game.PS: There are more internet articles on Kim Kardashian, who is also a finite deflationary asset.

    2. Simone

      Sorry, I don’t agree. If bitcoin is an innovative ‘product’, someone will have to promote it to the world. If bitcoin is a new currency, then the tech world needs to take this seriously, because a currency is something very serious and euros vs bitcoin is not a choice of little consequence like iphone vs android.I think people here are making an effort to educate themselves, but I fail to see why should I adhere to a new religion, unless it is better in every way than what we already have. If the whole point about a currency was only fast/decentralized transfer of value, we would have had bitcoin soon after internet. No, you are not trying to do good to people against their will. There are many valid points raised here about currencies various roles. Bitcoin is underestimating its rivals (so far)

      1. William Mougayar

        Yes and No. The Bitcoin phenomenon is very similar to the beginnings of the commercial Internet. It was very mis-understood, disdained, ridiculed, and grew only timidly in the 94-97 period. Same thing. So I understand your position, but I’ll add that Bitcoin isn’t going against the world nor is it a new religion. It’s a gradual thing that will happen and become a “choice” for people who want it (on the consumer side), and an important technology for businesses that want to exploit that side of it.

        1. Simone

          Having fin services industry adopt some aspects of this technology (after they are done replacing many other legacy systems, that is) is not the same with adopting Bitcoin (a new currency).Have you noticed that phone payments are so stubborn to pick up and tablets seem to have dissapeared? You can’t be upset with people being people.Nobody is ridculing bitcoin here, they are only trying to make you aware it will never pick up as a new currency for as lonf as it is being promoted as some cool game platform that we happen to be too narrow to get.And I will keep on reading until someone figures this one out. And that person is not going to be a romantic or the best geek out there. It is going to be someone who understands people and money (since the technology is already out there).

  23. OurielOhayon

    Don’t think this is a banking issue. i think it is an economy issue. Greece is imo an exception

  24. abolish

    So Bitcoin enables the digital equivalent of stuffing cash under a mattress. That is not such a comforting thought for the less developed world, to me.Money needs to be held in deposits to enable loans to build an economy. If nobody takes that risk then the result is a depression. See pre-FDIC America for an example.

    1. Bob Vance

      That’s an incorrect oversimplification. Bitcoin is a unique combination of a lot of very cool technology.…Explains it well enough.

      1. JoeK

        Bitcoin is doomed unless it’s advocates realize that ‘cool’ technologies are a dime a dozen. This is like trying to pitch an index fund to a 401k holder on the basis that several of the stocks in the index are traded on an exchange that uses a ‘cool’ in-memory database to look up buy orders.

        1. Bob Vance

          You’ve again missed the point, apart from criticising my use of language I’d suggest you look into the underlying Bitoin infrastructure, than analyse that. Than you can really make your point, deconstruct and disprove the Bitcoin technologies.

      2. abolish

        Seriously, your response is a link to the wikipedia article on Bitcoin? Oy vey.Depository institutions are essential for the development of an economy. It doesn’t matter what the currency is (euros, dollars, bitcoin).. some people have to hand their money over to a trusted institution so they can make loans.Fred’s point is with Bitcoin it’s even easier not to trust banks and just hold your money in software. Which is essentially a digital version of keeping cash in a box under the bed at home. But that would be EVEN WORSE for developing economies, because of the resulting lack of credit availability.

  25. LE

    Photos like this one from the NY Times showing people lined up outside a closed bank do not produce confidence in the banking system.As others have pointed out has nothing to do with the banking system and everything to do with the way money is spent, right?Also nobody in this country cares about the banking system in Greece or what happens in banana republics. They will care about it when it impacts them in a significant way when it reaches our shores (like Ebola or the latest world issue shiny ball). “They” means most people not a small group of vocal people that might make headlines from time to time.What are people here concerned about here? Things like allowing gay people to marry, taking down confederate flags from a State capital, and making sure that out of the millions of police activities carried on every day, not a single person gets harmed that shouldn’t get hurt of shot by an amped up officer of the law!!!!! That’s how advanced (and how spoiled) we are here.At a cost of millions and millions of dollars, we finally caught/killed two escaped convicts. An example of how we spend money in our country in such an out of whack way.

  26. JoeK

    There is something galling about the statement that bitcoin will/should take off in the developing world first. It’s really the moral equivalent of testing vaccines in the 3rd world to establish their efficacy, before selling them in the first. Admittedly, people mistake the adoption of mobile money in several developing nations with the interest in digital currencies. Mobile money is a transaction bandaid, nothing more. It does not allow for secured savings, insurance, or lending. What is does do, is allow telcos to act as a poor man’s Visa, sending cash deposits from one account to another, with pretty high transaction rates. Nothing more.

  27. William Mougayar

    Let’s put it this way. Today, in Greece bank accounts are frozen, you can only withdraw 60 Euros per day. In the meantime, Bitcoin is still free, instant, secure, global, open, and it works well as an alternative money system, albeit one without all the bells and whistles, but at least it’s open.

    1. JoeK

      Typing ‘bitcoin withdrawal suspended’ into Google gives 267,000 results.Mostly duplicates of course, but still not the eternally rosy picture you paint.

      1. William Mougayar

        If you have Internet and you’re a real person, you can transact in Bitcoin. It’s that simple. Google “Banks scandals” or “Bank crooks” and you get lots of results too, but that doesn’t mean anything.

        1. JoeK

          Exactly my point William, your comment was making too simplistic (and historically inaccurate) a conclusion.

          1. William Mougayar

            What part verbatim that I said was “historically inaccurate”? I want to make sure you’re referring to my facts, and not to your own interpretation of what I said.

          2. JoeK

            For one bitcoin (the financial system) in practice (as of today) is neither universally free, instant, secure, global, open, nor does it work well as an alternative money system. Where you were correct is the fact that it does not have all the bells and whistles

          3. William Mougayar

            I’m not sure you understand Bitcoin. Have you used a wallet and transacted in it? It is universally freely available, it is sub-instant, it is secure, it is global, it is open and it works well as an alternative money system almost like a foreign currency.

      2. Bob Vance

        “Typing ‘bitcoin withdrawal suspended’ into Google gives 267,000 results.”I typed in ‘bank scams’ and just got 66,000,000 results. We shouldn’t be using banks!

      3. marcus

        Those results refer to “hosted wallets” disasters. If you manage your own wallet, which is easy enough to do with native apps like Mycelium and Breadwallet, there is technically no way a third party could restrict your ability to control your own balances.

  28. aminTorres

    This is true of any new technology that tries to replace existing expensive infrastructure.Developing countries that have not invested as much as the developed world will embrace the new tech much rapidly. Change costs money.

    1. JoeK

      Any specific examples of your hypothesis?

      1. aminTorres

        Not a hypothesis.In the Dominican Republic cellphones have overtaken landlines.10 people out of every 100 people use a landline.90 people out of 100 use a mobile phone and that is just in less than 12 years since I moved out.Same thing is happening/going to happen with solar.We are building real state and not even bothering with wired power from the electrical company, solar/wind + backup generators instead.when I lived in the country in 2003, I personally did not know anyone who owned a mobile phone. Now both my parents and my brother own individual phones, Look at these numbers now:Population: 10,349,741 (July 2014 est.)Telephones – Main Lines In Use: 1.065 million (2012)Telephones – Mobile Cellular: 9.038 million (2012)

        1. JoeK

          Both cellular and wireless technology were adopted earlier in the developed than the developing world. What does happen is that adoption in the developing world is typically low until costs go below a critical point, at which growth rates are higher as they ‘catch up’.

          1. aminTorres

            True, but a distinct point.

  29. Dan Epstein

    I know very little about Bitcoin, but get mentally stuck in the “two” Bitcoins (maybe there are more?). Bitcoin the system/infrastructure, and Bitcoin the currency/investment which changes in value.The descriptions above of Bitcoin the infrastructure make it appealing, much more than an old fashioned bank where you go wait for cash (and hope they have it).But the idea of a rapidly fluctuating currency is unappealing to me. I can’t imagine what my spending patterns would look like if dollars changed in value that much every day.

  30. Sergey Nazarov

    Thanks for another great post.In my personal opinion, this is a key question for the next 1-3 years of Bitcoin adoption and seems to be a dividing line between the customers many Bitcoin/Blockchain startups decide to initially focus on.Bitcoin is being adopted in developed markets mainly for it’s technological/security/fraud prevention benefits by a community of enthusiasts who can’t seem to convince the mainstream business or consumer use case to rely on it due to volatility. Data security and Asset Registration being separate use cases.In emerging markets, there seems to be a lack of network effect in terms of what it can be used for, even though it is less volatile than the local currency.The other key question seems to be; what size transactions will underly the initial killer use case? Large transactions eg: B2B remittance for invoices or smaller transactions which were previously unfeasible eg:microtransactions for IoT/content payments?

  31. JPaolo_Huelgas

    Good read. What do you think of this tweet, text: “@aantonop could @bitwage come to the rescue in Greece offering direct deposit via ACH from employer to Bitcoin wallet?” from

  32. Kashif

    Some 3 years back, Volos, a town in Central Greece, has developed an alternative currency to replace the Euro. “TEM is more or less a form of barter, a promissory note to provide a product or service in exchange of a commodity.”…Wonder what happened to it.

  33. Nadav

    I’m a huge supporter of Bitcoin and the Blockchain and hold some of my assets in Bitcoins, but… There is a commom misconception: also in a world of Bitcoin we are likely to see runs on the banks…Bitcoin cannot replace the entire money system on its own. Most of the money we are using is credit money, this is a very flexible currency that its supply can grow and shrink together with the economy. It’s a vert very elastic system.Bitcoin can replace the base money, or better say, bring back a base money to the system. It is much better than no base (Fiat) and more transparant than gold base (who really knows how much gold there is in Fortnox), but on top of the Bitcoin base there will must be credit institutions. Maybe these are Coinbase, Circle, and Xapo and maybe not. In any case, these future institutions will settle on the Blockchain and not via central banks and the BIS.Also in a world based on Bitcoin and the Blockchain we are likely to see runs on the bank…

  34. marcoliver

    For the gentle human; trusting money was never a good idea to begin with. With any form of currency, greed comes attached to it. Besides, the Greeks for whom all the talk means nothing – because they have nothing.

  35. ShanaC

    Doesn’t the euro overall have bank insurance?This is a mess for everyone

  36. awaldstein

    A thank you!These strings get intense.People are kvetching. People go off the wall. Way off the wall.Tons of great learnings here and the widest array of often whacked out monologues.Almost filibusters of craziness.Reminds me of that very old (and great movie) King of Hearts with Alan Bates! (JLM I bet knows that one.)Best learning experience possibleThanks!

  37. Prasanth

    “In other parts of the world, none of that is the case. Which is why I continue to think that we will see more rapid adoption of bitcoin in the less developed world first.”Since I respect this blog and your views in general, I would like to point out that you sound terribly uninformed on this topic, especially when you make such a broad generalization. e.g., Indian regulators (RBI primarily) are extremely cautious (too cautious, some would say) and this will never happen in India. India was relatively insulated from 2008 collapse because RBI didn’t allow the banks to take any risk positions unlike in the US.

  38. alina

    yeah really make sense

  39. Abdelkrim Boujraf

    Each European bank account is backed by a deposit insurance of up to 100.000 Euros.Even Greece enjoy such warranty :…The bank run is a problem for the rich … and the banks not the regular citizen even this is a bit recursive: the public administration insure the deposit of the citizens which is paid by the citizens :-)The Bitcoin alternative is useful for people owning more than 100K€ on their bank account. this may be the reason why the Cyprus crisis did increase the value of the Bitcoin: Cypriot citizens are in fact rich Russian citizens?

  40. kidmercury

    the blockchain, of course! </sarcasm>

  41. jaypinho

    In theory there is no insurance needed for Bitcoin because no one else holds your money. All of the currency’s many colossal disasters — Mt. Gox, most prominently — have been the result of trusting an intermediary to hold private keys. The blockchain protocol itself has never been undermined, to my knowledge.

  42. fredwilson

    coinbase does if you use them

  43. JLM

    .FDIC insurance is not chicken feed. It paid off every account in two S & L crises in my lifetime.When it was at $100K, it was increased to $250K and you can have as many $250K nominally differentiated accounts as you want and you can have multiple accounts in multiple institutions.When S & Ls were closed down, there was not a single run on the bank.To use FDIC insurance in the same sentence or the same breath as Bitcoin — from which millions have been lost in garden variety fraud — would make your Momma take a bar of soap to that nasty mouth of yours.This is a comparison between chicken salad and chicken excrement.JLMwww.themusingsofthebigredca…

  44. pointsnfigures

    the network.

  45. jaypinho

    Definitely not, just as the FDIC doesn’t prevent a collapse in the dollar’s value.

  46. Joseph K Antony

    Bitcoin’s value is a bit of a mystery. Brainstorming a bit, it seems that unlike conventional currency, bitcoin’s value is purely a function of demand and supply. Bitcoin’s value seems to be influenced by perceptions of “risk” about the currency, just as gold’s value is directly correlated to perceived global risks. The perception of risk is about the stability or volatility of Bitcoin itself. So the following elements determines the value of Bitcoin a) The quantity and growth of Bitcoin money in circulation b) The “velocity of Bitcoin money” in the Bitcoin economy c) risk perceptions or the expected volatility of Bitcoin’s value. Looking at it this way, if the risk perceptions around the reliability of the currency is addressed, then the value of Bitcoin would stabilise.

  47. creative group

    Yet! The reason global acceptance of BITCOIN isdragging. The Global Financial IMF, ECB, FED, want assurances that the markets will not be affected if someone equally brilliant as the creator of BITCOIN can commit fraud that could devastate the currency. (Difficult to imagine but be sure there are people who are actually creating scenarios who hopefully want to keep the blockchain secure)Note: We have no personal knowledge of any person or group testing the blockchain.

  48. Girish Mehta

    Hmmm..saying Bitcoin needs no insurance might be underestimating consumer psychology and behaviour.Consider the 51% attack. The Bitcoin community will discuss how very unlikely it is to succeed. But the intellectually honest answer to whether that is a fundamental structural issue in the protocol is – Yes.The answer to the question – Is it possible, Yes or No…is Yes. It is a structural issue in the protocol, not an issue with the ecosystem.Insurance is always in response to a question of “What If”…not “What Will”.Alternatively, consider the fork of March 11, 2013. The hardcore Bitcoin community will discuss how efficiently it was resolved. And yes, it was efficiently resolved. But the fact that it happened will be of little comfort to mainstream users if they are educated about it.At this point, most people don’t know and don’t need to know about the 51% attack possibility or the March 2013 fork because they don’t use bitcoin. If Bitcoin starts to go mainstream, these issues becomes fertile ground for FUD (Fear, Uncertainty, Doubt).As such, the question about insurance is important. Again, Insurance is always in response to a question of “What If”…not “What Will”Thanks.

  49. sigmaalgebra

    Ah, yes, as I remember from myfather in law’s house out back with40,000 chickens — good, old, unmistakable NH3.

  50. creative group

    Colorful comments. Analogies are one of a kind.

  51. Michael

    FDIC is great, but it’s paid for. By you. Initially in the form of bank charges and poor returns and, during financial crises, by you again, this time in the form of bank charges, even worse returns and staggeringly large taxpayer bailouts, subsidies and indirect support (indirect support that continues today). What happens when the banks and the government run out of money? And does it matter if you can only withdraw $50/day from your account? The Greeks have an equivalent that guarantees up to €100,000, I believe – let’s see how it works out for them. I suspect it will be “re-imagined” immediately the Greek Drachma is re-introduced.

  52. Richard

    Why is it that the Bitcoin community speaks of corruption as such an extreme, virtually nonexistent outlier ?

  53. LE

    The Bitcoin community will discuss how very unlikely it is to succeed. But the intellectually honest answer to whether that is a fundamental structural issue in the protocol is – Yes. Consider the 51% attack.A good example of why smart old time business people, people who have been around the block a few times (such as “Warren”) don’t invest or get involved in anything that they don’t fully understand. The hardcore Bitcoin community will discuss how efficiently it was resolved.Which is the perfect crime since the average and even the above average business person has no way of knowing if what they are saying even makes any sense at all.

  54. jaypinho

    This is true. Ironically, though, if a 51% attack were to take place, I don’t think insurance would necessarily be possible since the new corrupted blockchain would become the official one of record and no one would be able to work out what the “uncorrupted” version should look like. I’m not even sure how an insurance scheme would work in that case.

  55. Girish Mehta

    My understanding is same as yours. But the question is important. And its a structural issue of the protocol, not an issue with the ecosystem.Edit: Wasn’t saying that insurance is possible on 51% attack, at least there is none that I know of. But rather that – when you can have insured deposits, saying that it is not necessary on bitcoin won’t work once users get educated on what “can” happen. This makes it fertile ground for FUD. Thanks.