Topic: Beware of the deflation monster!!!1 (not really..) - page 2. (Read 5047 times)

Ok, I don't know much about economy but I would say it also depends on what the definition of currency is.

Personally, I don't think monetary inflation is a reasonable metric at all.  It's a second-order effect which has been given more importance than it deserves.  Price inflation tells us much more about the actual state of the economy than the total number of dollars, which is almost completely arbitrary, given the amount of credit, fractional reserves, derivatives, quantitative easing, etc.  The important thing to pay attention to is the price of basic goods and commodities.  When milk and bread and gasoline go up 30%, that's real inflation.  When people are buying hot dogs and hamburger instead of pork chops and steak, that's inflation.  When central banks start tampering with basic measures of prices and when they stop reporting measures of the money supply, everyone should expect lots of pain to follow.  On the other hand, when goods and commodities are consistently becoming more abundant, and prices are falling, that's a reasonably good indicator of a functional economy.  And if a so-called 'deflationary' currency ever takes hold in a significant way, I think what we will find is that we do have a fundamentally sound economy;  it's just one that has been hampered for far too long by narrow-minded, despotic idealogues.

There is actually a lot of disagreement over how inflation is defined.  I think mainstream economists don't consider it strictly to be an increase in the money supply, but rather a general rise in prices, which could or could not be caused by said increase in money supply.  I agree with OP that it only makes sense to define it in terms of money supply, but don't be surprised(or upset) when people get the terminology confused.

Not every Austrian is in agreement with your definition. Mike (Mish) Shedlock defines it as the supply of money AND credit, with certain qualifications.  The supply of BTC credit is almost non-existant right now, which is bad because BTC credit is what allows puts (short sales) on the exchanges, something needed to keep the market from plunging when there are no bids. (when the shorts cover)

http://globaleconomicanalysis.blogspot.com/

NO! Inflation simply means an increased supply of a currency. It has nothing to do with prices. I mean ffs haven't you read my OP?! You even quoted the relevant part...

And please stop listening to definitions you get from the establishment. Go to mises.org and learn.

I'm a total amateur when it comes to economy but I looked up the meaning of inflation:

"A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services." -- http://www.answers.com/topic/inflation#ixzz1NhgA1LT6

So if the amount of currency increases, and the amount of available goods and services too increases at the same pace, then there is no inflation.

I see it everywhere, people are terribly confused when it comes to correctly understanding the concept which we named deflation and it's counter concept which we named inflation.

In layman's words:

What is (monetary)deflation: Deflation is a decrease of the total supply of a currency.
What is (monetary)inflation: It's an increase of the total supply of a currency.

What deflation is not: An appreciating price of a currency. The appreciation in price is merely the symptom of either a lower supply of currency(monetary deflation) and/or higher demand for currency(hoarding, saving ect.).
What inflation is not: A depreciating price of a currency. That is merely the symptom of either higher supply of currency(monetary inflation) and/or lower demand for currency(increased spending trend).


Which applies to Bitcoin:

Bitcoin is currently experiencing INFLATION by 50 new BTC approx. every 10min and will continue to experience this inflation which will exponentially decrease until the total limit of almost 21mio Bitcoins are generated. After that Bitcoin will experience neither inflation nor deflation. (well not entirely true since a few Bitcoins are going to get lost so technically there will be slight deflation)

What applies to the price of Bitcoin: They are obviously appreciating because the demand is growing faster then the inflating supply. What will likely happen in the future? Well if we assume the demand isn't going to stop growing and we know the supply is, the prices of Bitcoins is going to appreciate in perpetuity. BUT as I clarified this is not deflation, it's a function of supply and demand where the supply is constant and the demand is growing.

Also a mistake is to confuse constant appreciation in price of a currency(Bitcoin) with a deflationary spiral of debt based fiat currency(dollar). While in the former we will always have the same number of Bitcoins with only their prices changing, in the later example should it come to a deflationary spiral, it's usually caused by massive liquidation of debt which because of the fractional server banking literally makes a big chunk of the existing monetary supply suddenly and unexpectedly disappear. This can never happen with Bitcoins, since fractional reserve banking isn't possible unless we start using receipts for Bitcoins instead of actual Bitcoins.




Now can everyone learn this please and stop posting all the nonsense??(feel free to sticky!)