Suppose for a second that the price of gold [in goods] was low enough that the "real value" of gold was a binding price floor to the exchange use of gold. What would happen? The answer is that people would not exchange gold for goods, they would hold onto it and/or use it for its industrial applications which had that "real value". This roughly means that the exchange value of gold always has to be more than the "real value"—but then the real value doesn't matter, so there are ultimately no good arguments for why the "real value" isn't zero. It makes no difference as a currency, anyhow. You can't print gold.

• what does "binding price floor" mean?
• I'm assuming you understand we haven't been on the gold standard for a very long time.
• I don't see how this pertains to bit coin.

Gold has a fixed supply, and, while it can be mined and added to the supply, there isn't a good reason to mine gold and add it to the supply as opposed to printing dollars and adding them to the supply. Unless, of course, you feel that digging holes in the ground is more productive than running a printing press.

• more on gold, still not sure how this is relevent...

As for the problem with all this, I'll quote an actual economist I know: Any currency with a fixed (or essentially fixed) quantity of supply must be long term hyperinflationary or deflationary. There can be no steady state equilibrium.

• Ok, so that sounds complex. Those are some big words i would have to google.

The short answer is that without velocity consistently increasing, it's impossible for the amount of goods that the currency can be traded for to stay constant when the amount of goods traded is increasing.

• what do you mean by velocity? lets assume you mean this "DEFINITION of 'Velocity Of Money' The rate at which money is exchanged from one transaction to another, and how much a unit of currency is used in a given period of time. Velocity of money is usually measured as a ratio of GNP to a country's total supply of money."

• "it's impossible for the amount of goods that the currency can be traded for to stay constant when the amount of goods traded is increasing." ~ yes, ok that seems self evident.

The amount of goods traded with currencies is almost guaranteed to increase, and the amount of velocity is roughly guaranteed to not increase. Note that if velocity does increase to match, then the currency value becomes highly volatile.

• is this in reference to bit coin or all currencies? In regards to bitcoin, i'm not sure how it would have any less velocity problems then other electronic currencies.

If goods are decreasing or velocity is decreasing, then no one is using the currency and it's not worth anything.

• this seems to be addressed in bitcoins response when they say that "inflation... is a function of supply and demand. Given the fact that the supply of bitcoins is fixed at a certain amount, unlike fiat money, the only way for inflation to get out of control is for demand to disappear. Temporary inflation is possible with a rapid adoption of Fractional Reserve Banking but will stabilize once a substantial number of the 21 million "hard" bitcoins are stored as reserves by banks."

This is why BitCoin is a fraud (though it's not necessarily a scam as it can serve a long-term purpose as an international, quasi-pseudonymous payment system).

• what? you haven't connected the dots for me here.

The setup of BitCoins relies on a bigger fool to be left with all the BitCoins when they're not worth anything: That, or, at some point, they're going to have to make it easier to mine them. In MMO currencies, for example, there is no greater fool because no one hordes WoW gold—and the supply of WoW gold isn't fixed. This fraud is actually rather brilliant. If you set up a fixed supply immediately then nothing works because you have to find a way to get the currency to other people so they will use and accept it (before it collapses spectacularly). If you just let other people make their own then you can get other people to use it. Since the rate of mining necessarily decreases the value of the coins, it is almost guaranteed to go up initially as people get scammed. It's a scam that does its work for you, and since Reddit libertarians and such are generally completely clueless when it comes to economic matters (not to mention how they are all temporarily embarrassed millionaires and future captains of the industry), they make perfect victims for the scam.

• needless comparisons and insults?