Topic: Can a deflationary currency really work? - page 2. (Read 402 times)

Who knows.. people say that if it's deflationary then people will just not spend it, but if it's all there is and you need to eat am pretty sure not wanting to starve would outway your hoarding mindset.

Inflation is touted as a good thing in general by pundits, even though the masses moan about it. It is also a flawed model though. People are told to spend (via advertisements) and save (interest) at the same time even though there's no longer an incentive for the latter, and most are not market savvy in the least.

I don't see why the two can't coexist. If both are flawed and both have opposite goals, then perhaps the answer is both. Maybe the solution really is an argument to moderation.. who knows?

The existence of one does not necessarily have to end the other. I completely agree.
We started from the gold standard then we abandoned it. Doesnt that tell you that we use what best fits our need? Right now we are moving fast and consuming more than we can produce, but that wont be sustainable forever. One day we are going to have to slow down and a deflationary currency would work better for us. But that doesnt necessarily mean we need to abandon fiat. We have fiat, because it could be used to bail us out of economic disasters, but when used irresponsibly, it causes more disasters. We need both deflationary currency and inflationary currency.

Far from being a trivial issue, this is probably one of the main reasons bitcoin will not be able to serve as a world currency. We had thousands of years of gold and silver backed money with no real mechanism for creating money through lending, literally out of thin air. But that's also why for thousands of years we had only petty economic growth and development. Our ability to create money as well lend and borrow against the future is what's allowed the phenomenal economic output of the past century or so. Any currency that is deflationary and does not allow for this will probably send us back in time. We've been there. We know it doesn't work well. It's good to have the option, though. And I guess bitcoin will become much like gold, a scarce resource that will allow us to protect our wealth against inflation but, at the same time, use it to pay for goods and services. Mind you, also because of blockchain technology, gold is being digitised and heading in that direction too!

This is an interesting thread with some very good posts and points to consider.
It would in fact seem that a deflationary currency cannot work but the point above about the "rich effect" is interesting.
If Bitcoin is constantly rising, in theory it would make sense to spend it because as it rises you have to spend less for the same product/service
Would that figure correctly?

Were global economies stunted before fractional reserve banking or the modern system of "gold backed" fiat currencies printed without limit out of thin air, were invented?

 

I think its important for people to be skeptical of ideas such as "deflationary currencies stunting economic growth" and not blindly believe in these urban myths without better evidence being provided. Of course bankers love inflationary currencies as it is the best system for fueling wealth redistribution from the poor and middle class upwards to one percenters. Inflationary currencies as a modern analogue to trickle down economics where supposed economists and financial experts have convinced the public that taking on trillions of dollars and euros in debt, the vast majority of which profits the wealthiest demographics--making them richer while everyone else becomes poorer is "best" for society and civilization.


Not to single you out but I'm curious as to how this happens. I have yet to see a good explanation for this and would appreciate it if anyone could enlighten me.    

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If anyone wants an argument against inflationary policies:

Inflationary policies benefit the rich and do nothing for the public.

• $1 trillion dollars spent on the F-35. Did the majority of this money go to the public, or did it wind up in the pockets of wealthy wall street demographics who comprise the largest majority shareholders of northrop grumman?
• Multi trillion dollar bank bailout bill (TARP). This money went to bankers to bail them out of the bad gambling decisions they made with subprime mortgages.
• War in the middle east. All of the money went to wealthy defense contractors benefiting war profiteers.
• Healthcare reform / obamacare. It was funded by 20+ tax hikes. All of the money went to maintaining the profit margins of big pharma and medical equipment manufacturers, as well as maintaining state based healthcare monopolies with their price fixing campaigns. None of it when towards benefiting the public good.

This is a short list. Virtually every inflationary program and policy is designed to shift debt further onto the shoulders of poor to middle class working americans while shifting wealth further onto the shoulders of those who are already wealthy. This is the only reason inflationary policies are endorsed. It increases the debt potential of the poor while increasing the profit potential of the wealthy.

If there was only one currency, and it was deflationary - yes, it would stunt economic growth.

But we have loads of world fiat currencies, and about 1500 cryptocurrencies, many of why have mild inflation built into them. Such as Ethereum and Doge.

The currency that "wins" on the payment front will likely be a mildly inflationary crypto.

There will be much less possible cost-effective investment projects. The economy will shrink.

Inflationary and deflationary both have their pros and cons. It is generally accepted that inflationary currencies stimulate the economy as spending is encouraged. In fact though, the only reason they are inflationary currencies is because more can be added to circulation, that is what inflates their value, not much else. A deflationary currency will have the obvious disadvantage of discouraging spending as all present purchases are more expensive in the future. This would have to be counteracted by disincentivising saving, one such option could be negative interest rates, thus better equating future and present day values. The truth of it all is that in economics every time you change one variable another is adjusted and eventually it all comes full circle and then everything must re-adjust again. There is no correct or incorrect way and everything has to be constantly adaptable. This is the big limitation in bitcoin, there is no option to use fiscal stimulation in the future by methods such as quantitative easing.

Well it's working at the moment. Fiat is inflationary by design precisely to discourage hoarding money and to spur spending, which apparently promotes economic growth. The system is built around it after all. How long it will continue to work is anyone's guess though.

It's hard to imagine how a deflationary currency will work because it goes against the principle of world economy at the moment. There could be a "rich effect" though, where peoples' wealth start growing, and they, in turn, start spending more and more. This phenomenon was observed in Japan recently. Either way, deflation is the least of Bitcoin's worries right now.

This statement would make a better point if interest didn't exist.
Investing your money (bonds, stocks, anything that could bear interest) as opposed to keeping it in cash is a pretty good method to avoid inflation.

You could also ask:

Can an inflationary currency really work?

What are the incentives to save or lend your money if it always goes down in value? Does this not stunt economic growth?

What are the incentives to spend your money if it always goes up in value?
Does this not stunt economic growth?