Topic: Deflationary national currency, pros and cons (Read 3798 times)

Inflation cause, ALWAY - by design - transfer of purchasing power from old money holders to new money holders.
If interest rates exceed inflation, there is no reason for the government to print money.
In fact, inflation (of the money supply) increase just to keep interest rates down on the market.

What just happen is the government print more (a lot more) and take loans. The interest rate is raised to drain liquidity from the markets and people give loan to the government in exchange for 10-15% interest rates. These savings given to the government slow down consumption and keep some prices lows (not all). The government spend them in some silly way (like building infrastructures private enterprises could build with their money at their risks) and some prices normal people is unaware of rise a lot faster than inflation.
Then, a few years later, the government is unable to pay off its debts and continue to keep printing even more to paper the difference and make laws to raid private retirement funds, pay supplier later, raise taxes

I'm from Italy, I know how it work.
When Italy fought inflation in the '80s the government just stopped (slowed down) the printing presses and raised interest rates to gather funds from private investors in bonds. And in the 1992 it was on the edge of bankruptcy. CPI was low, inflation was lower, but the debts was exploding. They raided people savings, changed laws of retirements (dropping the bill on youngers generations), raise taxes from 33% to 43% of the GDP. Now, one generation later we have higher taxes, lower savings, more corruption, and we are back on the edge of bankruptcy.

Moderate inflation is not necessarily bad. Please note that if interest rates exceed inflation, your savings do not necessarily diminish.
It is unpredictable / run-away inflation which people hate. 

Low inflation like 2% year will leave you with 20% worth of saving after 40 years.
There is people understanding compounding interests and people doesn't.
You are in the latter.

1) Central Banks governed are not needed
2) a stable (as in supply stable) currency is desirable because it doesn't redistribute value from an actor to another.
3) a mildly deflating currency is better than a mildly inflating currency because it reward saving and not spending (and saving is more difficult than spending so it can use some help).
4) a mildly deflating currency reward prudent people (people investing what they can lose, investing minimising the risks and maximising the rewards), inflation reward imprudent people (people investing too much, what they can not afford to lose, etc.)

There are a lot of inefficient central banks in this world. Which is why it may be better to have a target of low inflation.

Since it is really not possible to have a currency that has zero inflation and zero deflation this is correct. If a central bank were to attempt this then the currency would often fall into deflation that is much more difficult to fight then mild inflation is and can easily get out of hand very quickly.

This is true, but no currency is 100% stable in that it experiences zero inflation nor deflation. A currency that is "stable" usually has very mild inflation in the 2-3 percent range.

Even a known and low inflation/deflation can be factored in to any economic calculation. It is the threat of high inflation/ volatility which is dangerous.

Stability reduce the risk and ease the long term project economic calculation. A volatile currency is the sign of un-healthy economic system.

Most currencies are generally stable by most economists' standards. Countries also generally try to keep their currency as stable as possible (expect when they run into money problems - Argentina). I don't this it is really very realistic to be able to make a country's currency have neither inflation nor deflation (and keep the value exactly the same) as there are too many market factors affecting the value of a currency.

what is a stable currency for you? something in the middle?

Although this is true, it is much easier to keep inflation to be moderate and keep it moderate then it is to keep deflation to be moderate. It is also much easier to slow down inflation then it is to slow down deflation.

People are greedy. I am sure ponzi schemes will exist even in a deflationary scenario. 

main reason against deflationary currency is that people will just hold money and not spend or make other investiments, even ifmore profitable, because peopleare lazy.

And we live in a predatory consumption bubble, so it won't happen

People dont spend, then Companies dont sell. then people dont get salaries. then people spend even less. Then companies sell even less. then people get even less salaries.  Deflation leads in spyrale. It happened in 1930ies and is happening now.

You have bitcoin Deflationary. How many people you know they say. I want to buy car, but will wait next bubble? If everyone would know bitcoin would be worth 55 less next year no one would think this way and all would spend and make economy rolling.

I guess it is a function of utility value and the time it takes for the price to drop.
If I need a phone now, I am not going to wait 6 months just because it may become 10% cheaper.

First, this is only the case with hyperdeflation. If the deflation is small enough, no one would care to wait 5 years to buy something with noticeable discount.
Second, loans are evil to begin with. They were invented by people who were lazy to do physical work

Deflation does not necessarily destroy investing into businesses. It just adds some additional risk that the business generates less money than it was initially given. However, I'd call it diversification. Even though gold gives me much less returns than Bitcoin, I would still hold some gold too for the sake of not holding all my eggs in the same basket.

This is only true if the goods are "hot" and sought after.

IMO the reason that iPhones sell like this is because people expect for Apple to sell out of them, so if they don't buy early they will have to pay more on the secondary market.

Ah, but there is where you are wrong. If we knew that computers would never get better or cheaper, I suspect sales would spike. People delay purchases to wait for prices to drop and upgrades to be made, or at least I do.

An exception - electronic goods.
People are rushing out to buy the latest iphones, even though they know prices will drop in the future. 

When there was a gold standard it was not uncommon for consumer prices to move down as well as up.  

However, deflation is generally regarded as a very bad thing.  First, it greatly reduces consumption - why would you pay for something today if you KNEW the price would be lower tomorrow?  Second, it hurts investment as it serves as an additional cost to borrowers (assuming you can't really have negative interest rates - something that kind of happened during the financial crisis).

So generally, very modest amounts of inflation, 1 to 2% are generally regarded as good for economies.

Obviously, there is a problem, even rates that low quickly destroy the store of value aspect of the money used.  At 2% prices will double, then double again over a person's expected lifetime.

Interestingly, the USA did have very high marginal income tax rates, 90% at one point.  Kennedy dropped the highest rate to 70% and Ronald Reagan's big 1981 cut dropped it to 50%, so I'm not sure about the monetary system dictating tax rates.