Guest Post: Whom Do You Trust - Bitcoin Or Bernanke?
Authored by John Cochran via The Circle Bastiat blog,
For those following Bitcoin, this interview with Gavin Andresen, the 46-year-old lead software developer for the Bitcoin project in today’s Wall Street Journal should be of interest.
“The chief scientist for the digital currency talks about its appeal - and pitfalls - in a world of fiat money.”
WSJ's Primer on Bitcoin:
As for the upside, small online merchants would welcome a global payment standard. For this reason Bitcoin or a similar technology could threaten the power of not just central banks, but banks, period. Unlike online payment services that give people with credit cards easier ways to transact business, Bitcoin works best when avoiding the traditional financial system completely.
Politicians and their appointees are entirely cut out of Bitcoin’s monetary loop. This is a significant difference between Bitcoin and government-issued fiat currencies. Federal Reserve Bank of Dallas President Richard Fisher calls the U.S. dollar a “faith-based currency.” In other words, its value rests on the belief that the government will not print so many dollars that each one becomes nearly worthless.
This [deflation that is predicted to be a consequence of Bitcoin’s fixed nature ] is portrayed as a recipe for economic disaster by those who like to inflate currencies to relieve the burden on borrowers, including spendthrift governments.
It’s true that deflations have sometimes accompanied economic disaster, but also economic triumphs. For example, in “Money, Markets & Sovereignty,” Benn Steil and Manuel Hinds describe the second phase of the Industrial Revolution in the U.S. between 1870 and 1896. Prices fell by 32% over the period, but real income soared 110% amid robust economic growth, expanded trade and enormous innovation in telecommunications and other industries.
It’s almost time for Mr. Andresen to get back to work. He shares some useful advice about Bitcoin: “I tell people it’s still an experiment and only invest time or money you could afford to lose.” If only investors could as easily follow that advice with fiat currencies.
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