Topic: Inflation and Deflation of Price and Money Supply - page 50. (Read 1456457 times)
While it has value, invest in commodities that would sky rocket in price/value in such a scenario,e.g. seeds, medicine, non perishable food stuffs of all varieties (preferable 'clean', because hey, if you need it, you'd better be getting as much 'punch' per bite as possible), tools, weapons, and of course, gold and silver, but i'd have to say silver more so as it has, historically, always increased an order of magnitude in value over gold in the same time frame.
More stuff to learn from these kind of thread...Thank you..!!!
Why is it said that BTC will certainly cause deflation? Wouldn't it depend on the velocity of money (in this case BTC) which would define whether deflation really occurs or it is still inflation?
It will appreciate in value which is the same as prices of most goods measured in BTC will fall.
That is deflation in prices, but that is of no special concern for the economy. There could also be deflation in produced volumes, which is the same as lower standard of living. (we don't want that).
Last point there could be deflation in the money volume. That is not the case yet for bitcoin, later, lost coins will mean deflation in money volume. For the time being, bitcoin is not much used compared to other money types, and as long as that is the case, bitcoin money volume will not mean much to the economy.
Deflation in money volume due to lost coins, and lower prices due to expanding population (as experienced in the gold era), and increased productivity (hopefully forever), together, means continually lower prices and continually higher standard of living.
Politicians love words that have no defined meaning, because it is easier to say something without saying anything.
Deflation is good for the consumer and means higher standard of living, a market economy will push prices lower which means you enjoy more things for the same price but a deflation happens in terms of crisis as well due to the lack of Demand, it is giving a break to the consumer thus is good and is a symptom of the Depression, fighting against lower prices will not end the crisis, it will weaken Demand ever more and lower standard of livings
Why is it said that BTC will certainly cause deflation? Wouldn't it depend on the velocity of money (in this case BTC) which would define whether deflation really occurs or it is still inflation?
It will appreciate in value which is the same as prices of most goods measured in BTC will fall.
That is deflation in prices, but that is of no special concern for the economy. There could also be deflation in produced volumes, which is the same as lower standard of living. (we don't want that).
Last point there could be deflation in the money volume. That is not the case yet for bitcoin, later, lost coins will mean deflation in money volume. For the time being, bitcoin is not much used compared to other money types, and as long as that is the case, bitcoin money volume will not mean much to the economy.
Deflation in money volume due to lost coins, and lower prices due to expanding population (as experienced in the gold era), and increased productivity (hopefully forever), together, means continually lower prices and continually higher standard of living.
Politicians love words that have no defined meaning, because it is easier to say something without saying anything.
Deflation is worse than inflation. Look at Japan. Deflation decreases money velocity, people tend to hoard instead of spending and spending is crucial to the growth of GDP.
That is just spinning on the current central bank meme. It is wrong.
@Erdogan: What is your argument against this point? It makes sense to me on face value.
Basically, the money is only a temporary (short or long time) holder of value, it is not the value itself. Edit: Well it is value, but it is not directly usable. It is neither produced (fixed amount) nor destroyed by consumption. It is always only exchanged for something else. The amount of money in total in the economy is of no special importance, it could be any amount. It should be a fixed amount, to not disturb the prices in the organic economic system, especially, the interest rate, which is the price of moving consumption and investment back and forth on the timeline. The interest rate should be based on market pricing only.
Here is an analysis of deflation by Salerno. Deflation is good, except if it is a result of confiscation:
https://mises.org/journals/qjae/pdf/qjae6_4_8.pdf
This is the current QE/ZIRP situation uncovered. If it is too long to read, go to the end, search for
"Here's what truth would sound like if I were to re-write Yellen's speech" by Chris Martenson:
http://www.zerohedge.com/news/2014-10-22/how-federal-reserve-purposely-attacking-savers
Thanks for the references. I would definitely go through them and they do add a lot of credibility to discussions rather than just presenting our own views which can differ and I respect that.
Why is it said that BTC will certainly cause deflation? Wouldn't it depend on the velocity of money (in this case BTC) which would define whether deflation really occurs or it is still inflation?
As to the double loss and bankrupcy protection. I am speaking about (other version of) ideal world where borrower would rather honorably die in starvation to repay his debt from his own property than not repay the debt, ask for some protection and break his promise to lender.
Oh, you are one of those. Apparently I was wrong when I thought you misspoke.
I'm with you about 80%, but it seems daft to me that you insist that the borrower be 100% responsible for their own bad judgment, but the lender can toss cash at any warm body that is willing to sign the note. The borrower's default is evidence that the lender wasn't sufficiently diligent, and should share, to some degree, in the losses. Modern bankruptcy laws implicitly or explicitly accept this joint responsibility.
At any rate, this is a degenerate circumstance. Commerce is rarely zero-sum.
I also agree with shared responsibility. But the lender should take a loss after the borrower has payed as much as he could. If the borrower goes default then it should be like "he has no more property (except for some minimum for living)*" not like "all his current property is protected". The lender will share the losses simply because there is no more** to take.
I do not know current bankruptcy laws, but what I see is protecting both the borrowers and the lenders from the taxpayers money. Which is wrong.
I think that irresponsible borrowers should go bankrupt (if they taken too much bad loans) THEN irresponsible lenders should go bankrupt
(if they borrowed to too many irresponsible borrowers) THEN investors of irresponsible lenders should feel a loss (if they did not care about loans portfolio and its sustainability). No one of them should be saved from the others money. I agree with intermediate situation where borrower goes bankrupt (not starving to death though, that was too extreme from me) and lender makes a profit. I do not agree with opposite situation where lender takes a loss (or goes bankrupt) and borrower takes a (protected) profit.
* - There is, of course, a great debate about what should be this "minimum for living".
** - I know there is a concept of indebted servitude, but this would be very difficult in current world.
As to the double loss and bankrupcy protection. I am speaking about (other version of) ideal world where borrower would rather honorably die in starvation to repay his debt from his own property than not repay the debt, ask for some protection and break his promise to lender.
Oh, you are one of those. Apparently I was wrong when I thought you misspoke.
I'm with you about 80%, but it seems daft to me that you insist that the borrower be 100% responsible for their own bad judgment, but the lender can toss cash at any warm body that is willing to sign the note. The borrower's default is evidence that the lender wasn't sufficiently diligent, and should share, to some degree, in the losses. Modern bankruptcy laws implicitly or explicitly accept this joint responsibility.
At any rate, this is a degenerate circumstance. Commerce is rarely zero-sum.
My concern was a bit different. Let me rephrase it.
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
There is no loss. Profit is mutual and it is "born" from human work and creativity.
That person who is borrowing 500 BTC from you probably has some investment in mind. For example he uses this 500 BTC to build experimental spaceship that allows people to visit orbit. (Not a realistic option for 500 BTC, but let's stay with this example.) He spends this 500 BTC to buy material, to pay the scientists and technicians, to make some advertising, to pay for fuel etc. And he succeeds.
He sells tickets into orbit for 6 BTC and manages to sell 100 of them.
You get your 550 BTC back, he has 50 BTC extra and working business.
Your extra 50 BTC (interest) in fact comes from the "poor orbital travelers" who "lost" their BTC. But... they gained wonderful experience that was worth (more than) it.
If the orbital experience is not worth 6 BTC then customers made a miscalculation in their expectations. If the person who is borrowing 500 BTC is unable to make a profit (or even to build a spaceship or to sell any tickets) then he miscalculated his business plan and your (deserved) profit is his (deserved) loss.
Exactly my point. Someone's profit will have to be other person's loss. Someone will have to miscalculate for other to profit. There isn't a scenario wherein all can profit or all can calculate well (You will say that is not practical, but we are talking about an ideal world where everyone is happy. After all, that is the vision of bitcoin as well to some extent)
Sorry to disappoint you, but our views are different.
I have put emphasis on my actual point. "poor" (orbital travelers) and "lost" were meant as irony.
Actually I think that most of the scenarios would be like that. In my opinion this is profit for everyone.
I would very much disagree with the world where everyone is happy (without relation to his abilities, effort and achievements) , I do not think this is the vision of Bitcoin and I hope it will never be its goal.
As to the double loss and bankrupcy protection. I am speaking about (other version of) ideal world where borrower would rather honorably die in starvation to repay his debt from his own property than not repay the debt, ask for some protection and break his promise to lender.
Deflation is worse than inflation. Look at Japan. Deflation decreases money velocity, people tend to hoard instead of spending and spending is crucial to the growth of GDP.
That is just spinning on the current central bank meme. It is wrong.
@Erdogan: What is your argument against this point? It makes sense to me on face value.
Basically, the money is only a temporary (short or long time) holder of value, it is not the value itself. Edit: Well it is value, but it is not directly usable. It is neither produced (fixed amount) nor destroyed by consumption. It is always only exchanged for something else. The amount of money in total in the economy is of no special importance, it could be any amount. It should be a fixed amount, to not disturb the prices in the organic economic system, especially, the interest rate, which is the price of moving consumption and investment back and forth on the timeline. The interest rate should be based on market pricing only.
Here is an analysis of deflation by Salerno. Deflation is good, except if it is a result of confiscation:
https://mises.org/journals/qjae/pdf/qjae6_4_8.pdf
This is the current QE/ZIRP situation uncovered. If it is too long to read, go to the end, search for
"Here's what truth would sound like if I were to re-write Yellen's speech" by Chris Martenson:
http://www.zerohedge.com/news/2014-10-22/how-federal-reserve-purposely-attacking-savers
My concern was a bit different. Let me rephrase it.
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
There is no loss. Profit is mutual and it is "born" from human work and creativity.
That person who is borrowing 500 BTC from you probably has some investment in mind. For example he uses this 500 BTC to build experimental spaceship that allows people to visit orbit. (Not a realistic option for 500 BTC, but let's stay with this example.) He spends this 500 BTC to buy material, to pay the scientists and technicians, to make some advertising, to pay for fuel etc. And he succeeds.
He sells tickets into orbit for 6 BTC and manages to sell 100 of them.
You get your 550 BTC back, he has 50 BTC extra and working business.
Your extra 50 BTC (interest) in fact comes from the "poor orbital travelers" who "lost" their BTC. But... they gained wonderful experience that was worth (more than) it.
If the orbital experience is not worth 6 BTC then customers made a miscalculation in their expectations. If the person who is borrowing 500 BTC is unable to make a profit (or even to build a spaceship or to sell any tickets) then he miscalculated his business plan and your (deserved) profit is his (deserved) loss.
Exactly my point. Someone's profit will have to be other person's loss. Someone will have to miscalculate for other to profit. There isn't a scenario wherein all can profit or all can calculate well (You will say that is not practical, but we are talking about an ideal world where everyone is happy. After all, that is the vision of bitcoin as well to some extent)
No, it is not a loss for the customer, he has traded his coins for something more valuable, the product. Both parties win in a free trade, it is a positive sum game.
Deflation is worse than inflation. Look at Japan. Deflation decreases money velocity, people tend to hoard instead of spending and spending is crucial to the growth of GDP.
That is just spinning on the current central bank meme. It is wrong.
@Erdogan: What is your argument against this point? It makes sense to me on face value.
The problem is simple: people NEED savings. The need them because they need to eat, drink, get shelter in the future when they can not earn as much money as today (for whatever reason).
Destroying savings force you to hope everything go always right, because if it doesn't, you are fucked up.
If you have no money and no food at home, but your home is worth $ 10M and you have other illiquid assets, you must liquidate them at any price available. Because if you don't eat, you starve.
Inflation destroy the savings (in currency). Depending on the level of inflation, this limit the value of your currency balance compared to your income.
If your balance is limited, you are better off consuming and accumulating stuff. So, there is no overproduction and capital accumulation because, you basically eat everything you produce.
Fundamentally you are forced to consume even if you do not want to do so. And are forced to revert to barter (and any minimally complex economy need money and do not work with barter alone).
If the orbital experience is not worth 6 BTC then customers made a miscalculation in their expectations. If the person who is borrowing 500 BTC is unable to make a profit (or even to build a spaceship or to sell any tickets) then he miscalculated his business plan and your (deserved) profit is his (deserved) loss.
Exactly my point. Someone's profit will have to be other person's loss. Someone will have to miscalculate for other to profit. There isn't a scenario wherein all can profit or all can calculate well (You will say that is not practical, but we are talking about an ideal world where everyone is happy. After all, that is the vision of bitcoin as well to some extent)
He misspoke. Under virtually no circumstances will the lender profit while the borrower loses. Typically, the failed borrower will ask a court for bankruptcy protection, and the courts will attempt to divide the losses between them the best it can.
Quote
If the person who is borrowing 500 BTC is unable to make a profit (or even to build a spaceship or to sell any tickets) then he miscalculated his business plan and will probably be unable to repay the loan; your (deserved) loss is his (deserved) loss.
On the other hand, he only misspoke in one sentence at the end. The mistake is blatantly obvious because it reverses the entire meaning of the whole rest of the post. What's your excuse for ignoring the rest of the post so that you could highlight the one line that agreed with your initial misconception? Smells a bit trollish from here.
Deflation is worse than inflation. Look at Japan. Deflation decreases money velocity, people tend to hoard instead of spending and spending is crucial to the growth of GDP.
That is just spinning on the current central bank meme. It is wrong.
@Erdogan: What is your argument against this point? It makes sense to me on face value.
My concern was a bit different. Let me rephrase it.
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
There is no loss. Profit is mutual and it is "born" from human work and creativity.
That person who is borrowing 500 BTC from you probably has some investment in mind. For example he uses this 500 BTC to build experimental spaceship that allows people to visit orbit. (Not a realistic option for 500 BTC, but let's stay with this example.) He spends this 500 BTC to buy material, to pay the scientists and technicians, to make some advertising, to pay for fuel etc. And he succeeds.
He sells tickets into orbit for 6 BTC and manages to sell 100 of them.
You get your 550 BTC back, he has 50 BTC extra and working business.
Your extra 50 BTC (interest) in fact comes from the "poor orbital travelers" who "lost" their BTC. But... they gained wonderful experience that was worth (more than) it.
If the orbital experience is not worth 6 BTC then customers made a miscalculation in their expectations. If the person who is borrowing 500 BTC is unable to make a profit (or even to build a spaceship or to sell any tickets) then he miscalculated his business plan and your (deserved) profit is his (deserved) loss.
Exactly my point. Someone's profit will have to be other person's loss. Someone will have to miscalculate for other to profit. There isn't a scenario wherein all can profit or all can calculate well (You will say that is not practical, but we are talking about an ideal world where everyone is happy. After all, that is the vision of bitcoin as well to some extent)
My concern was a bit different. Let me rephrase it.
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
There is no loss. Profit is mutual and it is "born" from human work and creativity.
That person who is borrowing 500 BTC from you probably has some investment in mind. For example he uses this 500 BTC to build experimental spaceship that allows people to visit orbit. (Not a realistic option for 500 BTC, but let's stay with this example.) He spends this 500 BTC to buy material, to pay the scientists and technicians, to make some advertising, to pay for fuel etc. And he succeeds.
He sells tickets into orbit for 6 BTC and manages to sell 100 of them.
You get your 550 BTC back, he has 50 BTC extra and working business.
Your extra 50 BTC (interest) in fact comes from the "poor orbital travelers" who "lost" their BTC. But... they gained wonderful experience that was worth (more than) it.
If the orbital experience is not worth 6 BTC then customers made a miscalculation in their expectations. If the person who is borrowing 500 BTC is unable to make a profit (or even to build a spaceship or to sell any tickets) then he miscalculated his business plan and your (deserved) profit is his (deserved) loss.
the japanese are old and the prductive generation is shrinking.
if i shoot you in the head and your heart stops, you did not die of heart failure.
if i shoot you in the head and your heart stops, you did not die of heart failure.
Quote
My concern was a bit different. Let me rephrase it.
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
I think you did this on purpose, but the 500 BTC loan when there is only 1000 BTC available seems pretty contrived. It then becomes very difficult to come up with a way for him to make enough profit while justifying borrowing @10%.
However, this could be seen not as a loss for another but rather just a need based expenditure. Maybe he was catering necessities to people and they just had to buy food/water/shelter.
You also don't need to spend to get your money back, if there was a high enough velocity of money in the remaining 500 bitcoins in the money supply. Also, you would have to spend for things like food/water/shelter and wouldn't begrudge that.
My concern was a bit different. Let me rephrase it.
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
Assume there are total 1000 BTC in the world
I have 500 BTC which I lent to another person @10%. Now where will that extra 10% BTC or 50 BTC for the interest come from in the economy? The only way he can repay the interest is if someone in the economy faces a loss of 50 BTC from which he profits. So are we devising an economy where loss is certain for some and all cannot profit at the same time?
The velocity of money comes into play. Assuming at some point you spend some of your interest received, you can be paid back again with the same money.
e.g. month 1 borrower pays lender 50BTC, lender buys stuff for 25BTC, now 25BTC is back in the economy and can be used to help make the next 50BTC payment, and so on. While it is very difficult to measure the velocity of money, I think I remember reading that real world currencies typically have a velocity of around 1 - for each dollar/euro/etc. that exists, it gets spent once per year on average. That doesn't mean that it can't be spent twice a year if the incentive to spend money is high. However, as BTC has some extreme deflationary characteristics, it is highly unlikely that BTC's velocity will be higher than fiat - the incentive to spend is low. A velocity of less than 1 will make it very difficult to pay back loans.
Does that mean that if I don't spend, pari passu, I won't get my money back?
Ok. Let's take the lending - borrowing side of things.
Assume I lend 100 BTC @ 10% interest.
If apart from me and the borrower, the entire economy remains constant, then where will that extra 10% BTC come from? That can happen only when someone looses that 10% equivalent BTC. So it will become a system where someone will have to lose for other to win and it can never be a win-win. Which means that all people can't live happily in such a system
You lend because you want more, in the future, to spend or save.
You save because you value consuming now less than you value consuming later.
You save because of uncertain, so you want to have a cushion against uncertain.
But, everything, must abide to the law of marginal utility: any unit of goods you acquire satisfy a less important/urgent need or want.
The first scoop of ice cream will take care of your hunger (you need energy to live), the second scoop of your palate (you like the taste and the texture), and so on.
More money you have, less utility have the last unit acquired.
If you acquire enough bitcoins the utility to own another bitcoin will decrease. Maybe it would become more useful to buy a new house, or a new car, a new computer, pay for a surgery, give to a charity, etc.
If you have 1000 BTC and lend 100 BTC, the 10 BTC of interest will come from other people owning BTC spending them because they derive more utility from the service or the goods they acquired from the takers.
Remember, also, the 100 BTC are not a sure thing. They are a risky thing. You could strip bare naked the taker and end owning his car, his home and his business, but never recover the BTCs you lent him.
Like a bank making a loan, they could get the home but never get enough value from it to cover the loss.
If you continue to lend and just hoard BTC, the value of every BTC raise as well, so people, on a side, are wealthier (because their BTC grow in value), but you are no benefitting from this raise in value as you are not spending them. As you try to benefit, the value will stop to raise and probably will start to fall.
This is treating BTC like an asset, not a monetary unit. There is a difference. Monetary unit is supposed to act as grease in economy, not make people hoard it by behaving like an asset.
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