Mt Gox Files Bankruptcy as Customers Lose Faith in Exchange - Update 3

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As of Update 3: So it begins...

This is why the idea behind Bitcoin made me uncomfortable and why I would never get into it unless it was the only currency in the world. All it would take would be one panic, one misstep, and the whole thing would come crashing down. I know countries' currencies are run on the same thing, but they tend to be safer because of the 'faith' behind the actual physical money, and the country's good name. Nothing like that was here for Bitcoin it seemed.

Strazdas:

No currency has intrinsic value and only has support of its followers. Its just that most currencies we have have followers we call countries. Currencies do crash, see the post-crysis euro crash panic for example.

Bravo. You join the group of people to win my "Fundamental misunderstanding of currency" award.

Stable currencies do not just run on faith, I've explained this before in previous bitcoin threads, they are backed by central banks. The pound and the dollar do fluctuate but The Bank of England and the Federal reserve have power to respond. Central currency controls are what make a currency stable; the Pound for example is backed up by the Bank of England and has the full support of the treasury and is given credibility by the entire UK economy. Without these supporting factors the £ and the $ would have died long ago. What did the Federal reserve do when the financial crisis hit? It bought up billions of dollars worth of bad debt to support the economy and it lowered interest rates. A central bank can act to counter destabilizing forces as can a government.

Now you bring up the Euro Crisis, this SUPPORTS this point. The Eurozone is a complex monetary union with only a very rudimentary version of a central bank. It could not directly buy up bad debt from banks because economic policy is not unified across the zone, this would violate treaties and sovereignty and Europe is not one single country. The central bank could not act like it did in the UK and US and this lead to a crisis in the Eurozone.

Central banks, Strong GDP, currency reserves, economic policy, confidence in an economy, interest rates; these are the difference between the imaginary bitcoin and a real currency supported by the weight of a country. Bitcoin is an unregulated COMMODITY. It is not, by any definition apart from its own, a currency.

Anyhone who has ever invested in a bitcoin believing it to be the same as a safe real-world currency needs to take economics 101 again.

I don't get how Bitcoin works. Who decided these were worth anything? Why has this gone as far as it has with businesses accepting this new and very volatile "make-believe" currency? It's just got Calvinball written all over it and I'm genuinely baffled at how this all actually translated to real currency in the first place.

Pardon my ignorance.

Strazdas:
2. gold is inherently valuable due to its value in eletroconductivity. You know there isnt an electronic device without gold now right? you want radio? theres gold in it. computer? gold in it. phone? gold in it. The amount of gold that is used as "Shiny rocks" is close to 10% of all gold use in the world. You could of couse make the same case with something we are even more relient on, like fresh water, but i just used gold as an example that is usually used as "Secure investment".

I remember reading all about this once, maybe nine years or so ago, where someone broke down the reasoning behind the value of gold in the first place, which if I remember right was akin to the diamond cartel inflating the price of diamonds despite the fact that they are very common and very easy to replicate. He wrote that gold is not as conductive as other metals like silver, and he wrote that it had to do with amounts and rarity above and below the surface of the earth. He then added that silver was in actuality rarer than gold and therefore should be a more precious metal.

If I understand Mister Chippy, the sense here is that it's only valuable because someone at some point just decided it was, kind of like diamonds and Bitcoin. That actually sounds about right to me.

I suppose it's entirely too much to hope that all these economic ups and downs and hiccoughs in these made up currencies inspires a rethinking of the entire economic system ideas in the world that somehow gets us to the point where money ceases to exist - ala Star Trek, not back to trading goats for firewood.

Probably.

I never really understood the Bitcoin thing anyway, except as a way to buy things you aren't supposed to with untraceable monies - the whole point seemed lost when corporations and governments got in on the whole gig. /shrug.

Oh no, this obvious ponzi scheme had 127,000 go missing to hackers? How suspiciously convenient. I hope the people invested in all the other bit coin dealers have enough time to get their money out before convenient excuse, I mean hackers, happen there too.

Oh dear, you again. Do you ever research your claims, or do you just keep insisting that it's everyone else's research that is wrong?

Strazdas:
1. Were talking about External debt because that is the onle that actually matters in current economy.
National debt or its part of GDP much less so, even then it is currently 70% of your GDP which is simply a terrible state to be in.

This is patently false. All forms of debt have bearing on the economy of a country. And having national debt at those levels is not "a terrible state to be in". It's to be expected of a country that just finished multiple major conflicts half a world away.

I could also pick apart the flaws in your article, but im sure your smart enough to do that yourself. Having large debt during a world war 2 is much different than having one now.

The United States just recently finished two large wars involving extended occupations which required extended use of ground troops, military hardware, hiring contractors to rebuild the city, paying for people to train the new country's security forces, etc. Extended occupations of that nature tend to run up a pretty big bill. Estimates place the Afghan/Iraq wars at roughly $4-6 trillion of that debt all by themselves.

The current US external debt is 15,930,000,000,000 USD and is larger than whole European Union combined.

Wrong again. The United States's external debt is actually closer to $17 trillion, and it would only take the top three indebted countries in the EU to rack up an equal bill to the US's external debt (UK, France, and Germany). The EU's total debt totals closer to $40 trillion when you add up the debts of all 28 member states. Feel free to add it up yourself if you doubt my math.

2013 GDP of US was 16.8 trillion, which is astonishing 94,8%. Almost your whole economy is covered by your external debt.

Which....means almost nothing, really. The UK has an external debt of $10 trillion, and runs a GDP just under $2.5 trillion. I dunno about you, but I haven't seen the UK completely collapse in on itself in the last few years because of its debt being 4 times as much as its GDP, have you?

2. gold is inherently valuable due to its value in eletroconductivity. You know there isnt an electronic device without gold now right? you want radio? theres gold in it. computer? gold in it. phone? gold in it. The amount of gold that is used as "Shiny rocks" is close to 10% of all gold use in the world. You could of couse make the same case with something we are even more relient on, like fresh water, but i just used gold as an example that is usually used as "Secure investment".

Gold is a commodity, not a currency. It has inherent value, yes, but it is in no way more "stable" than legal tender. It has precisely as much value as people choose to put into it, and no more. Gold also has no "backer" to speak of, ergo any money you pour into gold is a liquid investment that can easily dry up if the market for it drops (and it has done so multiple times in the past).

3. yes you were. Economists agree that having your debt above 70% level is a no-return zone for economic collapse.

Evidence?

4. USDs popularity leads to its strenght.

Actually it has more to do with the US being one of the largest economies on the planet.

However its worth noting that for the past decade its value was falling (with obvious exceptions like the bump when Osama was killed). And as USD is being phased out slowly as well (china is slowly getting rid of USD and instead changing it to other currencies such as Swiz franks as well as precious metal reserves), the world will be less and less dependant on USD. Yes, USD is the most backed currency we have, and that was the entire point - even the most reliable currency is extremely unreliable.

The US dollar has not lost nearly as much value as you seemingly want to pretend it has. Even at its most volitile, the USD has not fluctuated even a fraction of the levels that Bitcoin has.

Also, China is moving to other currencies and commodities mostly because it realizes that if the US truly were to "collapse", they are inevitably bound to collapse as well, since much of their country's recent incline in national prowess is owed to their role as an international creditor. Thus they are looking for "safer" investments, but they will not find any....not while they hold the vast majority of the US's debt.

No currency has intrinsic value and only has support of its followers.

No, national currencies are backed by the faith and credit of the country producing them. Ergo, it has intrinsic value.

Bitcoin is a very young currency that has very limited capitalization and large speculation influence, of course its going to go all over the place, any currency would.

Bitcoin is not a true "currency" in the minds of anyone except those who misunderstand how currencies are meant to "work". Fiat money is the only sort of money with any sort of official creditor backing (specifically, governmental backing), which lends itself to proper oversight, regulation, coverage for inflation, and other issues that naturally arise with currency. Currencies which lack that are propped up entirely by the corporations or individuals who create them, and rise or fall with the whims of those who buy and sell them. It is a speculative commodity in the truest sense, and as with all commodities, they eventually tend to burst quite spectacularly. We may be witnessing the very first large-scale popping of the Bitcoin bubble. It probably won't be the death-knell of the currency by any means, but it will almost certainly damage the currency's credibility as "hack proof" and "safe", and will hamper its efforts towards becoming the world's primary global digital currency. And that, in turn, will contribute to its eventual decline.

Strazdas:

Mister Chippy:
made worse by the fact that you are speculating in something with absolutely no actual value whatsoever.

as opposed to? What other speculative good with perhaps exception of actual goods such as wheat or gold has actual value? most speculative good - USD has no actual value either.

shh dont tell anyone.

really though bubble refers to when something become grossly overvalued by investors and speculators, housing markets, stocks any system where stuff is bought and traded can be manipulated or just run up on its own to the point you get bubbles, eventually these bubbles tend to self correct.

bitcon was stupidly valued for a good bit either way no way they were worth what they were being traded for and the actions by governments on top of hackers that seemed to have stolen any actual value the things had, yea all the governements currencies are the same shell game of no value backed by nothing currencies. why we can print debt and spend debt like its real actual money and skate sofar.

but our currency has bubbles its called inflation and that why all our prices shoot up and have been shooting up because we are printing and spending debt inflating the hell out of the currency no matter what politicians what to spoon feed bullshit you.

One thing I have seen very little discussion of regarding Bitcoin and similar virtual currencies. No one seems to have figured out that they literall are "Blood Money". Just do the math. Bitcoins are generated by farming for them using intense processor heavy calculations tying up computer processing time. So who would be the best Bitcoin farmers? Well maybe nation states with vast computing power particularly of the type used for things like Nuclear Modelling? well why would any such Nation states bother to do that, they can print their own money? Unless they are international pariah's with the blood of millions on their hands. Hmmm? Is North Korea immediately coming to anybodies mind? After all Bitcoin farming seems less challenging than counterfeiting US currency. Just farm or steal Bitcoins and use the deep web to launder them for Dollars and Euro's. (and when done laundering them, steal them back to launder them to the next set of fools.)

Mylinkay Asdara:
I suppose it's entirely too much to hope that all these economic ups and downs and hiccoughs in these made up currencies inspires a rethinking of the entire economic system ideas in the world that somehow gets us to the point where money ceases to exist - ala Star Trek, not back to trading goats for firewood.

Probably.

I never really understood the Bitcoin thing anyway, except as a way to buy things you aren't supposed to with untraceable monies - the whole point seemed lost when corporations and governments got in on the whole gig. /shrug.

Well, in many ways we're already at the apex of the post scarcity world necessary to have money become something more fluid and eventually disappear. The hindrance is that we create a lot of artificial scarcity to keep many fields of development up. Things like furthering the technology of the 3D Printer (once it's cheap enough and sophisticated enough to produce anything you want, what for would you have to buy anything else?) will be the deciding factor on the way to "trek" sociology-economic path. First kill scarcity, then unify the masses.

cerebus23:
but our currency has bubbles its called inflation and that why all our prices shoot up and have been shooting up because we are printing and spending debt inflating the hell out of the currency no matter what politicians what to spoon feed bullshit you.

If a currency were to have a bubble, that would look like deflation, not inflation (until the bubble popped, of course). We have bubbles because there's too much capital chasing too few worthwhile investments; anything can become a de facto pyramid scheme. A bunch of people start investing, causing the price to go up, causing other people to think it would be a good investment...

USD inflation is actually very low - arguably too low - and has been for some time. All those people warning about imminent hyperinflation were very, very wrong, and some of them lost a lot of money because they believed their argument.

Pyrian:
"Extremely unreliable"? Please. Compared to what? Certainly not gold or bitcoin. Really, we could use a drop in the dollar. Having an overvalued currency is nice for buying cheap stuff from abroad, but it kind of sucks for trying to be competitive in the international market.

Well, you got me here, there is no realiable stable items for pricing. The most stables ones seems to be the rare metals that are less prone to speculation (basically all but gold and silver which si where specualtors are concentrating most of the time).
While having low currency value does help your exports, it is the countries that have high currency value that seem to be doing the best. However i agree that US needs to increase its exporting amounts, however they alraedy had a drop in the dollar, and quite a big one.

Scrumpmonkey:

Bravo. You join the group of people to win my "Fundamental misunderstanding of currency" award.

Stable currencies do not just run on faith, I've explained this before in previous bitcoin threads, they are backed by central banks. The pound and the dollar do fluctuate but The Bank of England and the Federal reserve have power to respond. Central currency controls are what make a currency stable; the Pound for example is backed up by the Bank of England and has the full support of the treasury and is given credibility by the entire UK economy. Without these supporting factors the £ and the $ would have died long ago. What did the Federal reserve do when the financial crisis hit? It bought up billions of dollars worth of bad debt to support the economy and it lowered interest rates. A central bank can act to counter destabilizing forces as can a government.

Central banks, Strong GDP, currency reserves, economic policy, confidence in an economy, interest rates; these are the difference between the imaginary bitcoin and a real currency supported by the weight of a country. Bitcoin is an unregulated COMMODITY. It is not, by any definition apart from its own, a currency.

Anyhone who has ever invested in a bitcoin believing it to be the same as a safe real-world currency needs to take economics 101 again.

Thank you for the award but i may have to return it.

Currencies run on faith. All of them. the only part of currency that could be considered backing is the smallest denominations of cash perhaps (for example 1 cent actually has 1.4 cents worth of iron in it). Central banks can only back very small amount of the currency they have put out in actual reserves, and even then vast majority of those reserves consists of nothing but other currencies. The banks do try to regulate it by regulating the amount of money in circulation thus increasing or decreasing the turaround speed and they also used to regulate the money multiplicator factor, alas due to the recent crysis that mostly went to "as high as we can" level. Just because there are actions to stabilize the value percieved does not mean that there is intrinsit value behind it though.
I should remind you however that Central Banks are private institutions that do not own countries economies, so no, its not backed by whole economy. In fact quite the opposite - the economy is backed by the currency. a currency that is based on faith.
All currencies are commodities. Its simply ones that have no actual value of their own and instead are used as a middleman between natural trade. thats what they were invented for. Since Bitcoin also has no intrinsit value and is used for middleman between pruchases of goods and services, it is very much in the same category. Its backing is different, granted.

I agree that Bitcoin was never a "SAfe investment", but then, noone here was claiming that now were we?

Icehearted:
I don't get how Bitcoin works. Who decided these were worth anything? Why has this gone as far as it has with businesses accepting this new and very volatile "make-believe" currency? It's just got Calvinball written all over it and I'm genuinely baffled at how this all actually translated to real currency in the first place.

Pardon my ignorance.

just like with any other currency - WE decide how much it is worth. As far as business accepting it, popularity would be my guess, they wanted to look hip and new and catch the "internet crowd". this never works but companies dont learn.
The translation is simple: you give company bitcoins and they give you dollars. Why you ask? because they THINK its worth it.

I remember reading all about this once, maybe nine years or so ago, where someone broke down the reasoning behind the value of gold in the first place, which if I remember right was akin to the diamond cartel inflating the price of diamonds despite the fact that they are very common and very easy to replicate. He wrote that gold is not as conductive as other metals like silver, and he wrote that it had to do with amounts and rarity above and below the surface of the earth. He then added that silver was in actuality rarer than gold and therefore should be a more precious metal.

If I understand Mister Chippy, the sense here is that it's only valuable because someone at some point just decided it was, kind of like diamonds and Bitcoin. That actually sounds about right to me.

The gold that we put for shinies price is very much a cartel akin to that of diamonds. were talking about industrial gold here however, and that one has different value and is the item thats traded in international markets usually. while silver does have more electroconductivity, Gold is much better at being streched out into think layers without loosing its structural integrity, which makes it the choice metal for microelectronics that measure in nanometers.
Wast majority of golds prices and the artificial rarity comes from two factors mainly:
1. hoarding. there are plenty of institutions simply hoarding gold sitting on it. this removes it from circulation and creates scarcity. and they count in billions.
2. speculation, but that bubble seems to have finally busted now.

CriticKitten:
Oh dear, you again. Do you ever research your claims, or do you just keep insisting that it's everyone else's research that is wrong?

Given our previuos encounters and your lack of knowledge what a source even means as evident By this thread you are not the one to make any claims here. Therefore i chose not to respond to your accusations.

Strazdas:
Given our previuos encounters and your lack of knowledge what a source even means as evident By this thread you are not the one to make any claims here. Therefore i chose not to respond to your accusations.

That's hilarious. I completely dismantled your argument and you choose not to respond to it because of a completely different thread (in which, by the way, I dismantled you AGAIN, so stop pretending to take credit for something you had nothing to do with), as if that thread holds any bearing on what is going on here. That's ad hominem at its finest, and it's the weakest possible response to any legitimate debate ever.

If you choose not to respond, then I choose to take your refusal to respond as an indication that you acknowledge the fact that you are wrong and can't put together a legitimate counterargument to anything I've said. I take your response as a white flag. That said, I'm going to keep responding to your posts anyways, because you're still saying things that are clearly wrong and come from someone who doesn't know what he's talking about.

So in the interests of that, here I go again. Let's see if you choose to ignore this dismantling, too:

Well, you got me here, there is no realiable stable items for pricing.

Of course there isn't. Pricing is determined by presumed market values, currency value, and speculation. The value of items and the costs to make them are changing constantly. The only reason most costs don't change on a daily basis is because that would significantly increase the costs of most markets (printing the new price labels, etc) for virtually no real gain (a few cents adjustment). So most markets wait until the price has climbed significantly before bothering to make a true price hike.

While having low currency value does help your exports, it is the countries that have high currency value that seem to be doing the best.

Currency value is not necessarily related to the strength of the country's exports or economy in general. The EU's economic situation is worse than the US's, yet the euro is worth more. The British pound is also worth more, despite their GDP being well below the US's.

Currencies run on faith. All of them.

As scrump clearly established, this is false. Currencies can be regulated and managed by their government, which makes them inherently different from commodities (which have no backing) by definition.

I agree that Bitcoin was never a "SAfe investment", but then, noone here was claiming that now were we?

Well, you were attempting to imply that it was at least equally "safe" as other currencies and worthy of being considered in the same boat as them, so yeah, you kinda did imply that you thought it was at least as "safe" as other governmental currencies.

Strazdas:

All currencies are commodities.

**shakes head in despair** there is no point in talking about something if you can't correctly define what you are talking about. Do some reading on what a commodity is, the concept of legal tender and have a good think about how Bitcoin is completely unsupported by any stabilizing factors or controls.

Scrumpmonkey:

**shakes head in despair** there is no point in talking about something if you can't correctly define what you are talking about. Do some reading on what a commodity is, the concept of legal tender and have a good think about how Bitcoin is completely unsupported by any stabilizing factors or controls.

Thank you for your suggestion but i have already been reading up on it. for 4 years in fact. Not that you countered the sentence you nicely cherrypicked anyway. Having stabilizing factors and controls does not turn the item into something above commodity. Currency is merely a nice definition for legal tender that is officialy recognized. It is still a commodity, a special commodity, sure, but a commodity.

CriticKitten:

Strazdas:
Given our previuos encounters and your lack of knowledge what a source even means as evident By this thread you are not the one to make any claims here. Therefore i chose not to respond to your accusations.

That's hilarious. I completely dismantled your argument and you choose not to respond to it because of a completely different thread (in which, by the way, I dismantled you AGAIN, so stop pretending to take credit for something you had nothing to do with), as if that thread holds any bearing on what is going on here. That's ad hominem at its finest, and it's the weakest possible response to any legitimate debate ever.

If you choose not to respond, then I choose to take your refusal to respond as an indication that you acknowledge the fact that you are wrong and can't put together a legitimate counterargument to anything I've said. I take your response as a white flag. That said, I'm going to keep responding to your posts anyways, because you're still saying things that are clearly wrong and come from someone who doesn't know what he's talking about.

Considering you opened your post with ad hominem you are not the one to talk about it. again. What you "take" my response as i do not care. It is not my job to prove you anything. Your insistent false claims of victory when you have been repeatedly proven wrong does not help you case either. Therefore, basedon that i have no wish to respond to your arguments, legitimate or not this time (i havent actually bothered reading it anymore).
You of course can keep responding to my posts if you wish so. Escapist has provided us with a great feature called ignore list and you may end up being the first person i try it out with.

Oh, and yes, i didnt bother reading past the part that got quoted in the PM this time either, so i got no idea whether your counterarguments are valid or not here, your invalid arguments in the past has deterred me from wasting more of my time with it.

Strazdas:
i didnt bother reading

Yes, we all have figured that much out by now.

You're talking big about a subject you know absolutely nothing about, openly contradicting information from actual economists and other such individuals who are far more educated on the subject than you. Again, just like last time. And, just like last time, you're acting like you've "won" the argument, despite never once making a factual statement.

It's patently amusing that you keep calling my arguments "invalid" even as I provide evidence, links, and facts to back them up, while you have never ever done so. You don't get to claim victory in a debate if you can't so much as back up even ONE thing you've said. In fact, most of the claims you've made in this thread, I've already proven wrong, too....and your response to that was to just pretend I didn't say it.

Seriously, shall we run down the list one more time for good measure? Let's do it Politifact-style. I'll just quote a sample of claims you made, all from one post.

1) "Were talking about External debt because that is the onle that actually matters in current economy."

Mostly False, all debts have relevance to the overall economy.

2) "Having large debt during a world war 2 is much different than having one now."

False, the US owes at least $4-6 trillion of that debt to the wars in Afghanistan and Iraq alone. So it is absolutely accurate to state that at least part of that debt is due to outstanding war bills.

3) "The current US external debt is 15,930,000,000,000 USD and is larger than whole European Union combined."

Pants on Fire, as it's not only inaccurate but hilariously so. It only takes the top three EU countries to surpass the US's current external debt, and the entire EU together surpasses the US's debt by a factor of 2 when compared head-to-head.

4) "Economists agree that having your debt above 70% level is a no-return zone for economic collapse."

False. You made no evidence to prove this claim so I went hunting myself. I found no evidence of this claim being made by any economist or banker. I found a lot of articles from 2010 or so claiming that the US was nearing the point of no return, but nothing substantial. I did, however, find a report from 2011 in which Moody (one of the major international banks which assigns credit ratings to countries) assessed that the US still had enough room to commit to just over a 170% increase in their debt-to-GDP ratio without serious trouble. I think I'll take the bank's word over yours.

Also worth noting that the "point of no return" differs for each country based on various factors, including the government's willingness to act upon issues of credit. Which sounds exactly like what Scrumpmonkey said earlier: that fiat currency has an inherent advantage over articles like Bitcoin because they can be regulated and managed by the official acting body which issued them, something which Bitcoin cannot do.

[fin]

And there were others, too, but those alone are enough to prove my point. You've made several objectively false statements in this thread, all without evidence, and yet you're trying to claim that neither I nor Scrumpmonkey know what we're talking about when we provide actual facts, evidence, and quotes from people who are actual economists and bankers. This is the epitome of an unproductive argument: when one side has all the evidence, and the other side just keeps pretending it's "winning" anyways. I honestly won't mind if you put me on "ignore" or not, and I'm not sure why you think it's a meaningful threat. I'm perfectly satisfied knowing that I'm not the only one who sees that you clearly don't know what you're talking about. So neither Scrumpmonkey, nor I, will be the last to point out to you that you're factually incorrect. It's time to start doing your research.

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