Topic: Deflation (Read 335 times)

Personally I never believed in the scarcity story. There are quite a few altcoins which have limited supply and which could be called deflationary. But does this alone make them any more useful, for just being scarce? To me, this idea is not valid and legit. Though someone has actually tried to exploit the idea of scarcity producing value and created a coin dubiously called 42-coin. They claimed each coin should be worth 1 million dollars because the total supply would be only 42 coins. And what do you think? In the end it turned out to be just another shitcoin.

There are many deflationary assets dude! Many of the newly created ALTs have a limited supply, so by your theory, these are deflationary. But that is just an example.

Cannot give you a good example. The only deflationary assets we have are precious metals and those can theoretically be found in outer space the more we explore. So there will never be a deflationary asset like bitcoin.

Ok, but what makes people save money instead of investing? Where does the problem start?


So you are saying in asset's market the deflation pushes prices down, but it's fastly pushed up again as the number of buyers (demand) increase instantly and the disponible coins (supply) is limited. Different from real economies, deflation doesn't break asset's market.

Then the problem isn't deflation itself, right? The problem is that people don't have interest in buying or investing on their local businesses and stuff when the prices go down for any other reason.

Deflation is not the opposite of inflation or its mirror image with a minus sign attached to it as many people here seem to erroneously think. Under inflation, the interest rates have a premium added to the inflation rate, which is kind of obvious. For example, when the annual inflation rate is equal to 3%, you could well expect that the interest rates would be somewhere around 7%. Of course, they may be higher or lower but you get the point. But this is definitely not so with deflation even if you try to invert everything.

Under deflation, you can have like 3% annual deflation rate (-3% inflation), but that doesn't mean that the interest rates will be like -7% or just negative, so you could borrow money in a bank and the bank would pay you interest on the borrowed funds or you could return less, which is essentially the same. The interest rates even under the most severe deflation will always remain positive for the borrowers, no matter what actual deflation rate might be. And thus your real interest rate may be huge.

This is one of the reasons why deflation is not an inverted version of inflation and why its effects on the economy are so detrimental if it persists. In these circumstances, people as well as businesses are discouraged from borrowing which leads to a decline in economic activity and ultimately to a recession. It doesn't make sense to invest money because you can just sit idly on it and wait till its value rises without doing anything productive.

I think most meaning of deflation can be found if you google it enough with a bit of extra efforts but in common deflation means the decrease of price for consumer goods and services mostly done because lots of supply pumping while there are no purchasing power or people starts to saving money that resulted in low cashflow. Most common example nowadays happens in Japan where deflation has already been a problem until now for almost 20 years if i'm not mistaken. It all started with japan asset bubble in 1990s which bursted out, any more information should be easy to find it you google when the japan deflation started.

Deflation in fiat money makes more people save money instead of investing. Why should millionaire invest money in any business, when value of his money is growing for nothing? It causes worse economics in country when no one is investing, and when we go further, prices will go up instead of falling long term in deflation what will make more people poor. Very low inflation is also very good for any country. It's about money used everyday and about masses. But when we talk about value holder, like gold or btc (this is how I treat btc at this moment with this price and those fees, value holder) deflation is good because everyone wants to buy and no one wants to sell, there is no way to create it and it makes price to rise. So inflation can be bad or good, same deflation, depends on currency we use and the way we treat it, spendable money or value holders.

Not all the cultures are traditionally based on inflation.

The current problem is with the IMF ( International Monetary Fund )
https://en.wikipedia.org/wiki/International_Monetary_Fund

If you read carefully through their functions at this point you understand the connections with some of the SDDS functions.

Eventually this leads to the private banks really controlling the "production" of money, that is mostly through loans.
This is due to the fact that the "reserve requirements" are pretty low for banks ( Actually modifying those requirements leads to change in economies ); inflation is then controlled just by changing those requirements more than printing money these days.

In other words if everyone was going to the same bank and ask to cash out all their savings no bank could honor that.
In an inflationary model the total reserve unfortunately accounts for the loaned amounts . In other words the moment a loan is created that total is "magically" added to the total available supply, and this is regulated through the reserve requirements.

If the bank has a total circulation of say $1B, it only really has to guarantee 10% of that from their NTA ( Net Transactions Accounts ).
For example from here:
https://en.wikipedia.org/wiki/Reserve_requirement#United_States

The moment you move to a deflationary system, is when the snow melts. And fast.

When I re-read about these things makes me feel like digital currencies are actually 100x more true and safe than any other system we trust, especially the ones based on inflation.
And not to mistake price inflation with supply.

I can be saying something wrong, but isn't deflation a good thing? Let's think from the point of view it just makes things balanced, it's a natural event that shows the market what is needed and what isn't needed anymore on the market... So you won't produce something that others are already producing, you will have to find a new product/sector to work with.

In my opinion what isn't a solution is to incentive people to spend more money than they have and to incentive the population increasement without control (common weapons to beat deflation). What do you think?

Most of the global economies after 1929.

Here are the economic indicators from 1929 to 1932

Economic indicators

Change in economic indicators 1929–32
   United States    Great Britain    France    Germany
Industrial production    −46%    −23%    −24%    −41%
Wholesale prices    −32%    −33%    −34%    −29%
Foreign trade    −70%    −60%    −54%    −61%
Unemployment    +607%    +129%    +214%    +232%

It only ended with WW2.

Ok, thanks for the correction. LOL Embarrassing !.
inillo and notaek, May the 'good day' be with you all.
All you say is true LOL 'Reverse', I'm too confident to write it down, maybe I wasn't concentrating very well at that moment.

Paul Krugman (He was awarded the Nobel Memorial Prize in Economic Sciences)  wrote an interesting article about the 3 reasons that are defining the bad sides of the deflation for the economy. The article is written in 2010 and the thesis that is presented in it is still useful. Demand and supply side are both suffering from the deflation process!

Here is a link if you are interested:

https://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/

Deflation is rare, and when it happens, it's not normally so big of a deal. For one, incomes go down and general price levels go down, but purchasing power of money increases, which is good for pretty much everyone. Also, people don't tend to hoard too much because they see the deflationary period as temporary (they know that eventually inflation will be back). In the case of BTC, we know that supply will algorithmically decrease, thus we tend to hoard our coins. Not great for the economy.

Lol. Do you even know the meaning of deflation?

deflation
dɪˈfleɪʃ(ə)n/
noun: reduction of the general level of prices in an economy.

The example you used is for "hyperinflation" which is the exact opposite of deflation.

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OP, you don't really have to worry about the effects of deflation in Bitcoin.

That an example of the opposite. You don´t really need to go as far as Zimbabwe. Many of the selff called serious goverments, including the US, tend to print money galore before the elections.

But that is inflation not deflation, deflation is the shrinking of the money supply that is all, the problem with that situation is that there is less money in the economy and as such people begin to cut down in their expenses this creates a spiral of less economic activity until the economy halts, this is dangerous since you now need to chase less dollars with more effort but your debts remain the same.

Usually developed countries fight deflation. deflation is actually the inverse of inflation. In short, the amount of money is reduced, the value of money increases and the prices decrease. There was a major deflation in Japan at the beginning of the 2000s.

Not to mention the perpetual Japanese crisis, that is no longer a crisis but an existential situation since they have become used to having zero interest rates and printing money as a sport.

Do you remember? ..., with its corrupted zimbabwe currency due to deflation.
As a result of deflation, Zimbabwe dollar currency value began to fall apart in 2009 ago.
At that time, where every 500 thousand trillion Zimbabwean dollars is the same as $ 2.
This is what makes the banks in Zimbabwe publish money with a large nominal, such as 'hundreds of trillions of Zimbabwean dollars'. Sometimes, to pay the bus fare alone, the money as much as 100 trillion that is still not enough.

Where did you read the article regarding a collapsing economy due to deflation? Yes world economy suffered due to deflation but is does not collapse and was prevented to worsen. For example the deflation in china last 2015 where the central bank got woried due to deflation which only give them 0.8% for their inflation rate, the lowest in their 5 years record.

I mean I can't find any collapsing due to deflation, but I know that a good amount of goverments are facing this problem as of right now / or have in the past. Some of these include Ireland, Hong Kong, Japan, UK, and the United States. The one with the biggest problems and I think is still ongoing in Japan, where people are actually accepting negative yield bonds as a way to protect them against this delfation.

Here's a link to the wiki on deflation - https://en.wikipedia.org/wiki/Deflation#Historical_examples

Have fun!

Long-term deflation can affect all sectors that harm employers and employees. Deflation can make all parties choose to be silent and not take any action, whether in business, work, until investment.

If the country is deflation the value of currency of this country is increasing. This leads to the fact that the products of this country becomes uncompetitive on the world market. Through the time of decline of the economy. Now America is artificially lowers the dollar to reheat its economy. This is a response to deflationary processes. Within the country unnoticed. But in other countries, the dollar increase was noticeable for a long time.

Deflation can precede a crisis (thus being a reason rather than a consequence). One example is the economy in the UK during the 30´s in which deflation was cause instead of effect.

There is a term called Recession. Recession is defined as the significant decline in economic activity bringing it to the lowest of the last 6 years which leads to Deflation. So, deflation isn't directly a reason of economic crisis. But is a result of recession, an economic crisis. The global recession of 2007-2009 is one such example.

Sure, there are a few examples if you care to google a bit. One of the ones that are more studied is the Great Depression, not on why it happened (bubble + leverage buys) but also because the wrong monetary policy led to a deflation.

As you may know, deflation is due to scarcity of money and creates a preference for savings againts spending that depresses the economy.

We always hear about economies collapsing due to inflation. Can anyone give me one example of an economy collapsing due to deflation?