In the latest episode of the Bitcoin.com podcast, Trace Mayer talks about the history and study of Austrian economics, and ties it in with the origins of the Bitcoin community. Also, Trace offers a uniquely Austrian perspective as he analyzes a few a critical economic problems, including credit contraction and expansion, negative interest rates, inflation and how Bitcoin could help.
Trace Mayer: History and Economics
Trace discussed his theory on global monetary history with Zach, saying that for 500 years we engaged in credit expansion where large amounts of money was allocated towards capital investment. Trace describes this period as the “Great Credit Expansion,”also saying about this period that we began to move away from commodity money and full reserves to the modern day fractional reserve banking system we have today. Originally, Trace believed gold as the solution to the business cycles that tend to follow these kind of monetary systems, but as he became more familiar with Bitcoin he began to see the cryptocurrency as an even better alternative.
“Bitcoin, like gold, has no counterparty risk … [Bitcoin] is actually more portable than gold is because it’s just data, can be transferred over a communications channel, and it has never become worthless.”
Zach and Trace also talk about negative interest rates, how they arose and the impact they have had on the economy. Trace says that negative interest rates originate from seeking more liquid and safer asset in the form of treasury bills. According to Trace, With capital moving down the liquidity pyramid it is what is driving down interest rates. Low interest rates essentially create a situation where people are paying money to keep their capital in safe, liquid assets.
Additionally, Zach and Trace explore inflation caused by credit expansion and how Bitcoin’s own inflation rate will be decreasing from around 8% to 4% after the coming halving expected in the summer of 2016. Also, Trace believes that because of Bitcoin’s fixed supply it can be used as a solution to negative interest rates that are causing inflationary effects.
Trace Mayer is an entrepreneur, investor, journalist, and monetary scientist. He holds a degree in accounting and law. He has studied Austrian economics focusing on the work of Murray Rothbard and Ludwig von Mises. He started recommending Bitcoin around $0.25 and funded core blockchain infrastructure including, Armory which provides the foundational security for Bitcoin wallets, Bitpay the largest Bitcoin merchant processor, and Kraken the largest Bitcoin/Euro exchange and a major worldwide liquidity provider. He also hosts the Bitcoin Knowledge Podcast, and can be followed on Twitter @TraceMayer.
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Images courtesy of Trace Mayer and the Mises Institute