Topic: Inflation and Deflation of Price and Money Supply - page 20. (Read 1424421 times)

Crypto economy is a new way of economy so nobody can predict for sure the rules of demand if future. I would expect slight inflation of bitcoin in the future

nice team

Thanks for the answer corall. I really just want to know if that's a consensus because that means there's an unattended demand for stable crypto currency.

future value of bitcoin will depend on the percentage of money being replaced by crypto, and on the bitcoin percentage of all crypto cap

In simple and understanding words inflation just indicate the situation of buying 1 kg of sugar from market @ Rs.45/kg during 2016 and buying sugar from market @ Rs.55/kg during 2017 i.e in laymen language decreasing in purchasing power of money and the reverse case will be the example of deflation.

We can take the example of recession on america during 2008, collapse of layman brothers too....

To my mind BTC is very volatile, which means unpredictable risk of inflation/deflation. So mostly it is an investing and saving too. I.e. some alternative currencies should be used to run a business

Yes you could estimate future cash flows of you had contracts or sales data.

For example I worked for a bakery that made 20K per month.  Then I decided to model my business after theirs but in a different past of town that didn't have a good bakery.  I could estimate that within a few years my business could possibly genstate similar income

Or if I snuck behind their backs and offered the same baguette to a distributor for 20% less and stole their contract

I wish I had half the skill you do answering questions...So poised and professional.

Hello, this is my first post on this thread I couldn't read 50 pages of internet discussion so kindly correct me if anything I'm assuming is obviously wrong.

BTC main value proposition is to be a decentralized currency and/or value store.

I understand price inflation is considered bad because it unfairly damages savers vs consumers. On the other side, some people can handle inflation reasonably well by re-indexing contracts every so often. This is common behavior in countries with high inflation, and again I understand it still damages savers but the damage can be reasonably controlled. Additionally, some would argue that inflation is bad even for those prepared for it because it raises the cost of doing business.

The point that I want to discuss is, isn't bitcoin's price fluctuation equally bad to inflation in the fact it raises the cost of doing business?

If we all accept BTC as a volatile store of value, does it imply it can't be the decentralized currency most would use?

Now let me try to explain some of my assumptions: 1. BTC price will always be volatile.

The BTC supply increasing rate is positive, that rate is fixed looking in the short term (30-90 days). On the other side, demand is highly unpredictable. Fixed supply and highly unpredictable demands cause unpredictable prices.

Common counter arguments:
1 "BTC is volatile but it always rises in the long-term so it doesn't matter". Is it does, it increases the cost of business. I can't start a bakery with only BTC capital because in the first dip I will have to take loans to pay wages.
1.1 "Oh, but you can't see that happening because you can't see far enough." This sounds like a highly utopian view. Pragmatically, we need a path from here to there, I turn to you and ask, how can we get there?
1.2 "Okay, it doesn't matter for some people and that's all". Okay, then BTC will be a niche store of value.
2 "Demand will stabilize in the long term." How?
3 "Price stability is a myth, market demands always change them" Sure, it's a myth. Yet it is desirable. If we are designing the system, shouldn't we take that in account? "No, we shouldn't, if you want to do that go and create your own coin." Okay, then BTC will be a niche store of value.

Right now it looks to me that price instability prevents BTC wide adoption.

What incentives do savers have to buy-in on a inflationary money supply? The incentive of stability? That's one reason people agree being exposed to the USD. Am I defending inflation tax? No. I'm asking could there be benefits to having a transparent voluntary contract with varying money supply rate. And I'm leaning towards a yes to this question.

If the supply of a coin could be influenced by price then we would have a more stable coin, the cost we pay is inflation. The issue then becomes an optimization issue, on what would be a proper trade-off.

What are your thoughts?

Generally it can be said that inflation is a measure of a general increase of the price level in an economy, as represented typically by an inclusive price index, such as the Consumer Price Index in a nation. The term indicates many individual prices rising together rather than one or two isolated prices, such as the price of gas in an otherwise calm price environment. The inflation rate is typically expressed as an annual growth rate in prices (again, as measured by an index) even if measured over a shorter period of time. For example, if a radi o report states that "consumer prices rose at an inflation rate of six percent last quarter," that would typically mean than the Consumer Price Index for All Urban Consumers (the most quoted index) rose over the last three months at an annualized rate of around four percent, and the press would generally refer to the current inflation rate as around four percent. The term deflation refers to a general decline  in prices or the price level as measured by an inclusive price index and, again, is not a reference to isolated price declines, like natural gas declining in price, in an otherwise stable price environment. 

If you go back one hundred years before the start of the Federal Reserve then the entry for inflation definition was an expansion of the money supply.     With QE this is clearly apparent

Overall we have increased the production of money far above a normal rate.    Most new cash was used to buy government bonds which only distributes the cash gradually within the economy.
Only when government repays the debt will we see the return to a normal scenario and a nessecery higher interest rate on the Dollar, Euro or Yen.

Japan has been operating QE for 17 years so it is unlikely they will ever repay the debt or unwind QE programs.    In effect the bonds have defaulted but are being continually rebought by government itself to prevent that scenario.    Some clarity might appear if you look at Greece who are unable to rebuy their own bonds hence have neared a default scenario, this is the same for every country far past 100% GDP debt, Japan is 260% or so

Inflation occurs when the price of goods and services rise, while deflation occurs when those prices decrease. The balance between the two economic conditions, opposites of the same coin, is delicate, and an economy can quickly swing from one condition to the other.

Inflation is caused when goods and services are in high demand, creating a drop in availability. Supplies can decrease for many reasons: A natural disaster can wipe out a food crop; a housing boom can exhaust building supplies, etc. Whatever the reason, consumers are willing to pay more for the items they want, causing manufacturers and service providers to charge more.


Deflation occurs when too many goods are available or when there is not enough money circulating to purchase those goods.



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As the law of demand and supply goes, money supply has the same effect. Money supply is the quantity or number of money produced and circulating inside a country. As the supply of money increases, the demand for money decreases which make prices of goods rise up resulting to inflation. But when the supply of money decreases, the demand for money increases making the price of goods decrease resulting to deflation.

Inflation occurs when the price of goods and services rise, while deflation occurs when those prices decrease. The balance between the two economic conditions, opposites of the same coin, is delicate, and an economy can quickly swing from one condition to the other.

Money supply is the quantity of money generating inside a country.

How does inflation and deflation relate to money supply?

As the discussion goes in the Law of Supply and demand. "The higher the demand, the lower the supply and vise versa" therefore if money supply goes up, its demand goes down. If the demand for money will go down, higher prices will be implemented. If the price of goods becomes higher, it is called inflation. But if the opposite happened, deflation will be the result.

Far from inflation being the problem, the money supply has shrunk and we are in a deflationary bind. The money supply needs to be pumped back up to generate jobs and productivity; and in the system we have today, that is done by issuing bonds, or debt.

I don't think that barter is a situation that we should strive for. It only allows for a limited economic activity, because everyone has to know the barter rates of every good with every other good.


I think money serves a bunch of needs and that they won't disappear soon, even though the medium they inhabit may change. You don't need money just so you can compare the value of goods between themselves, a task you will find very hard to do in a barter economy.  But also you need money to protect for future uncertainty. If somehow we all knew the future perfectly, then we won't need money anymore, because we could set up our income and expenses so that they match perfectly and we won't be in a need to have cash.

Other than that, money serve a role as a store of value (or at lease, it should serve this role. But fiat currencies failed at this role spectacularly), to move value created through time, not just through space.


I also think that fiat currencies will become superfluous, but I don't think the same thing can be said about the financial system. Yes, it will have to change, to use sound money and be responsible, but it does offer a function that is asked from the market, so I don't think it will disappear. Just my 2 cents

Excellent publication! Even though several years have passed, this information helps anyone to understand the constant exchange of securities figures within the market.

From the history of mankind, the carrier of money will always change. The earliest is the exchange of barter. Afterwards, shells, gems, gold, coins, banknotes and electronic money are the trend of the future. Security and stability are the basic characteristics of money. What is the terminator of the currency? Quantum calculation?

If bitcoin is perceived as a means of exchanging goods and services, then the drop in purchasing power is called inflation, the growth of purchasing power is deflation.

Good for whom? For those who receive the newly printed money first. Because they will be able to get out and buy things at the older prices, that were present before the money increase. And this drives up prices for everyone else. And the worst off will be those who are the last on the receiving ladder.

And now lets identify who are those who receive the money first: Banks and Governments. Who are those who receive the money last? Those on fixed income, employees mostly and those who save. It's called the Cantillon effect. It's a grand scheme of redistribution from the poor and low income earners to the rich and those connected to the money faucet.