Topic: Inflation and Deflation of Price and Money Supply - page 7. (Read 1268748 times)
I'm a supply side economist. Build it and they will come!
A video to watch, and you'll get everything about Inflation, Deflation and Money Supply: https://www.youtube.com/watch?v=THAaIZmxfNA
why do supply of money effect the inflation or deflation
Money supply is simply money in circulation. Monetary policy attempts to control this, thus, attempting to keep a little bit of inflation and keep it in check.
To answer your question:
Picture a helicopter full of unlimited supply of money, just flooding the streets, from city to city, coast to coast, as it drops money into circulation literally. So, given the extra money in circulation, this "waters down" the value of that money. So the $20 dollar bill you pick up will have less purchasing power, because there is soooo much more money in circulation.
Inflation (a little bit, not helicopters), is good -- The simplest way to think about this: We don't want consumers waiting to make a purchase. We want you to walk into a store, see a TV you like, and purchase it. We don't want you to think "hmm... my dollar may be worth more tomorrow, so I will wait". We want you to inherently know that your dollar LOSES value over time due to inflation. So you think "hmm.. my dollar is at peak value today, I will purchase the TV now".
The Fed has target inflation of 2% which has historically kept the economy from going into recession. Deflation has been top of mind for central bankers. They have literally had to throw full weight of their power to try and get inflation to pick up.
Hope this helps!!!!
Love the analogy. What are your thoughts on the effect of liquidity on price?
If the liquidity characteristic of supply is adjusted, could that be a way to regulate price? What if that rate of liquidity change was voted on in a democratic way? I ask because one of the projects I follow, BitBay (BAY) is attempting to do that exact thing. Wondering if the principles hold up or not.
thanks
That's the difference between monetary and price inflation. The FED discovered a way to get one without the other and that's what's destroying the middle class around the globe.
Contrary to what many believe, I don't think the money creation was intentionally 'evil' (ie for the purpose of hurting classes of persons) but merely a knee-jerk response to the fear of loss (and consequent lobbying/pressure) by the owners of the 'capital' (actually only money) which was under threat from the 'crisis'.
Of course, the crisis should have taken its course, and removed the dead-wood capital from the system, to allow fresh solid growth. Had that happened , a few years of deep recession would have been followed by a well founded fresh growth cycle.
An area dedicated to discussing the differences between these two terms and the theories supporting them.
I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the blog, and thought it may be reasonable to dedicate a post on the matter.
Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease because the value of Bitcoin goes up.
Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.
So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.
I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the blog, and thought it may be reasonable to dedicate a post on the matter.
Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease because the value of Bitcoin goes up.
Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.
So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.
That's correct.
You also have monetary inflation, which is what the FED does.
The "solution" to the 2008 crash was to print money. The FED discovered something very interesting (but evil): if you print money and give it to the masses, price inflation happens. In that case monetary inflation leads to price inflation.
BUT. And here's the evil twist to the FED's game: if you print money and that money stays with bankers, and never reaches The People, then price inflation does not happen. Because The People can't spend the newly printed money.
That's the FED's game. They print money for bankers. This money never reaches you.
If you try to buy stocks and other equities, you'll find that your money isn't worth anything because the FED has printed trillions of U$ and bankers buy it all cheaply while you work 9-5 for 30 years to build savings that they can simply pull out of their virtual money system.
That's the cruelty of the FED system. They simply print money for themselves, this money never reaches you. 15 families for whom they print money hold half the world's wealth, while 7 billion people work for them for free.
That's the difference between monetary and price inflation. The FED discovered a way to get one without the other and that's what's destroying the middle class around the globe.
That's exactly what happened with the European central Bank. The money that is printed never reaches the small people through salary increase, but get lended at 0% interest to private banks that only lend money to rich people.
I do think that inflation and deflation is the only egalitarian way of taxing / retributing the people.
An area dedicated to discussing the differences between these two terms and the theories supporting them.
I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the blog, and thought it may be reasonable to dedicate a post on the matter.
Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease because the value of Bitcoin goes up.
Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.
So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.
I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the blog, and thought it may be reasonable to dedicate a post on the matter.
Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease because the value of Bitcoin goes up.
Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.
So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.
That's correct.
You also have monetary inflation, which is what the FED does.
The "solution" to the 2008 crash was to print money. The FED discovered something very interesting (but evil): if you print money and give it to the masses, price inflation happens. In that case monetary inflation leads to price inflation.
BUT. And here's the evil twist to the FED's game: if you print money and that money stays with bankers, and never reaches The People, then price inflation does not happen. Because The People can't spend the newly printed money.
That's the FED's game. They print money for bankers. This money never reaches you.
If you try to buy stocks and other equities, you'll find that your money isn't worth anything because the FED has printed trillions of U$ and bankers buy it all cheaply while you work 9-5 for 30 years to build savings that they can simply pull out of their virtual money system.
That's the cruelty of the FED system. They simply print money for themselves, this money never reaches you. 15 families for whom they print money hold half the world's wealth, while 7 billion people work for them for free.
That's the difference between monetary and price inflation. The FED discovered a way to get one without the other and that's what's destroying the middle class around the globe.
An area dedicated to discussing the differences between these two terms and the theories supporting them.
I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the blog, and thought it may be reasonable to dedicate a post on the matter.
Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease because the value of Bitcoin goes up.
Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.
So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.
I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the blog, and thought it may be reasonable to dedicate a post on the matter.
Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease because the value of Bitcoin goes up.
Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.
So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.
Have you heard of the EBSP company? It company team has been working since may 2016, during this time we have gained vast experience in the blockchain industry, recruited a large staff of professional linguists, programmers, marketing and crypto specialists. Carried out more than 20 blockchain projects
why do supply of money effect the inflation or deflation
Money supply is simply money in circulation. Monetary policy attempts to control this, thus, attempting to keep a little bit of inflation and keep it in check.
To answer your question:
Picture a helicopter full of unlimited supply of money, just flooding the streets, from city to city, coast to coast, as it drops money into circulation literally. So, given the extra money in circulation, this "waters down" the value of that money. So the $20 dollar bill you pick up will have less purchasing power, because there is soooo much more money in circulation.
Inflation (a little bit, not helicopters), is good -- The simplest way to think about this: We don't want consumers waiting to make a purchase. We want you to walk into a store, see a TV you like, and purchase it. We don't want you to think "hmm... my dollar may be worth more tomorrow, so I will wait". We want you to inherently know that your dollar LOSES value over time due to inflation. So you think "hmm.. my dollar is at peak value today, I will purchase the TV now".
The Fed has target inflation of 2% which has historically kept the economy from going into recession. Deflation has been top of mind for central bankers. They have literally had to throw full weight of their power to try and get inflation to pick up.
Hope this helps!!!!
why do supply of money effect the inflation or deflation
Money supply is simply money in circulation. Monetary policy attempts to control this, thus, attempting to keep a little bit of inflation and keep it in check.
To answer your question:
Picture a helicopter full of unlimited supply of money, just flooding the streets, from city to city, coast to coast, as it drops money into circulation literally. So, given the extra money in circulation, this "waters down" the value of that money. So the $20 dollar bill you pick up will have less purchasing power, because there is soooo much more money in circulation.
Inflation (a little bit, not helicopters), is good -- The simplest way to think about this: We don't want consumers waiting to make a purchase. We want you to walk into a store, see a TV you like, and purchase it. We don't want you to think "hmm... my dollar may be worth more tomorrow, so I will wait". We want you to inherently know that your dollar LOSES value over time due to inflation. So you think "hmm.. my dollar is at peak value today, I will purchase the TV now".
The Fed has target inflation of 2% which has historically kept the economy from going into recession. Deflation has been top of mind for central bankers. They have literally had to throw full weight of their power to try and get inflation to pick up.
Hope this helps!!!!
The core focus of Central bank is the inflation band. If the economy is out of that inflation band, the central bank will either exercise the Monetary or Fiscal shocks to put inflation back into the band However, altering the nature dynamic of the economy will have a price to pay. Usually the shock will change the direction of the exchange rate which in turns will affect wages, unemployment, the price ratios and interest rate and that affects the appreciation /deprecation of money.
Most people understand that a drastic increase in a country's money supply will produce inflation. This is because if the monetary supply increases faster than demand, the value of each unit of currency will fall. To put it another way, if the supply of money were to grow faster than the demand for it, the result would be too many dollars chasing too few goods which is the very definition of inflation. Despite the Fed's massive capital infusion, why is inflation only 1.4%? This is the precise question we will attempt to answer in this article.
Conventional currency is very vulnerable to inflation, because its use is regional and sometimes only applies in one country so that sometimes the currency is very much while the small demand can cause inflation but if the supply of currency is a bit medium the demand can cause a lot of currency to rise or deflation, but things like that might not apply to global currencies used in all countries the decline in value is very small because there are many users.
How this will happen is what interests me the most.
I very much doubt that this will be a direct deal, such as a client buying futures for a day, after a day he receives an address to his btc - a certain amount of real btc.
Most likely, as in the case of stocks, customers will be obliged to store their Bitcoins in a “depository approved by the regulator”, i.e. Bitcoins will not be able to leave the bakkt wallet limits, at least until other "approved" custodians appear
I very much doubt that this will be a direct deal, such as a client buying futures for a day, after a day he receives an address to his btc - a certain amount of real btc.
Most likely, as in the case of stocks, customers will be obliged to store their Bitcoins in a “depository approved by the regulator”, i.e. Bitcoins will not be able to leave the bakkt wallet limits, at least until other "approved" custodians appear
Wow! A post that could have come from me. I agree completely. I would add that one should snip out the images as well.
I have seen that on some forums the quote is limited to a dozen lines or so, and at the bottom of the quote there is a ...more... type of link. Clicking this expands the quote. I have suggested several times that this is added to the forum, as it would reduce the work of the mods.
I have seen that on some forums the quote is limited to a dozen lines or so, and at the bottom of the quote there is a ...more... type of link. Clicking this expands the quote. I have suggested several times that this is added to the forum, as it would reduce the work of the mods.
In normal economic circumstances, if the money supply grows faster than real output it will cause inflation. In a depressed economy (liquidity trap) this correlation breaks down because of a fall in the velocity of circulation. This is why in a depressed economy Central Banks can increase the money supply without causing inflation. This occurred in the US between 2008-14 However, when the economy recovers and velocity of circulation rises, increased money supply is likely to cause inflation.
An area dedicated to discussing the differences of these two terms and the theories supporting them.
I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the forum, and thought it may be reasonable to dedicate a thread on the matter.
Pulled from a discussion in Wall Observer
Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease, because the value of Bitcoin goes up.
Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.
So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.
Example: As the Bitcoin price goes from $10 to $20, the prices of goods/services goes down from 20BTC to 10BTC. As the Bitcoin price goes from $20 to $10, the prices of goods/services goes from 10BTC to 20BTC!
Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section.
Now that we've gone over PRICE Inflation and Deflation (which honestly, to me, is a term made popular by Keynesian's to hide the real facts, as price inflation/deflation is simply the market exchange rate, reflective of the money supply into a currency from itself and other currencies), let's go over the REAL inflation/deflation of a currency (otherwise known by many as Monetary Inflation).
MoneySupply-Inflation is when the value of Bitcoin decreases when the total supply of Bitcoin increases. In our current state, this is at a generation rate of 25 BTC every 10 minutes.
MoneySupply-Deflation will essentially never occur. It is when the value of Bitcoin increases when the total supply of Bitcoin decreases. This may happen, say, when someone loses their private key and all the BTC associated with it are lost. This effectively "makes the rest of us richer". That being said, there is a SET DECREASE in the generation rate of BTC, so you have sort of a "deflationary effect" in the value, as long as more exchange occurs for BTC at a rate which is faster than that set generation rate.
When all 21 million coins are produced, the MoneySupply will be neutral, and the value will continue to increase (prices will decrease, consequently), as long as people continue to exchange in BTC.
This leads me to the last section.
What determines the PRICE of Bitcoin? The VALUE of Bitcoin at a particular moment.
What determines the VALUE of Bitcoin? The SUPPLY and DEMAND of Bitcoin in the economy.
What determines the SUPPLY of Bitcoin? Currently, the MoneySupply-Inflation rate of 25 BTC every 10 minutes, and traders willing to SELL Bitcoin to BUYERS in exchange for other supplies of money (currencies).
What determines the DEMAND of Bitcoin? Traders willing to BUY Bitcoin from SELLERS in exchange for other currencies.
Therefore: BUYERS, SELLERS, and MONEYSUPPLY-INFLATION (miners) determine the VALUE of Bitcoin, which determines the PRICE of BTC as BUYERS and SELLERS trade based on that VALUE (or supply and demand) of Bitcoin.
We don't exactly know the totality of the supply and demand. Sure, we could try and aggregate data from all the exchanges, but we will never be accurate as there are exchanges which can not be accounted for (OTC). The cool thing is that we DO know the MoneySupply rate, and we DO know the exchange rate. From this, we can determine a real value of Bitcoin when simply multiplying the two factors; a sort of inflation-adjusted view of the currency.
Effectively, the quantitative analysis of supply and demand is really what the currency exchange traders attempt to accurately determine which is conveyed through buying and selling of Bitcoin, setting a VALUE via the PRICED exchange rate of the currency. On a side note, most of the big Market Makers (FX Traders) use this price movement as a way to make a profitable living, as well. Especially when price fluctuations are a consequence of hype or fear (bubbles, cliffs), not factual supply/demand data, and are wildly out of the real price range.
Thus, if you analyze the proper macroeconomic data in an attempt to forecast future DEMAND for more Bitcoin (price increase), you will realize some very interesting things, and have a more accurate picture of where the price is going...
Happy trading!
Price-Deflation is what you are used to hearing about in Bitcoin. The prices of goods/services as they decrease, because the value of Bitcoin goes up.I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the forum, and thought it may be reasonable to dedicate a thread on the matter.
Pulled from a discussion in Wall Observer
Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease, because the value of Bitcoin goes up.
Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.
So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.
Example: As the Bitcoin price goes from $10 to $20, the prices of goods/services goes down from 20BTC to 10BTC. As the Bitcoin price goes from $20 to $10, the prices of goods/services goes from 10BTC to 20BTC!
Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section.
Now that we've gone over PRICE Inflation and Deflation (which honestly, to me, is a term made popular by Keynesian's to hide the real facts, as price inflation/deflation is simply the market exchange rate, reflective of the money supply into a currency from itself and other currencies), let's go over the REAL inflation/deflation of a currency (otherwise known by many as Monetary Inflation).
MoneySupply-Inflation is when the value of Bitcoin decreases when the total supply of Bitcoin increases. In our current state, this is at a generation rate of 25 BTC every 10 minutes.
MoneySupply-Deflation will essentially never occur. It is when the value of Bitcoin increases when the total supply of Bitcoin decreases. This may happen, say, when someone loses their private key and all the BTC associated with it are lost. This effectively "makes the rest of us richer". That being said, there is a SET DECREASE in the generation rate of BTC, so you have sort of a "deflationary effect" in the value, as long as more exchange occurs for BTC at a rate which is faster than that set generation rate.
When all 21 million coins are produced, the MoneySupply will be neutral, and the value will continue to increase (prices will decrease, consequently), as long as people continue to exchange in BTC.
This leads me to the last section.
What determines the PRICE of Bitcoin? The VALUE of Bitcoin at a particular moment.
What determines the VALUE of Bitcoin? The SUPPLY and DEMAND of Bitcoin in the economy.
What determines the SUPPLY of Bitcoin? Currently, the MoneySupply-Inflation rate of 25 BTC every 10 minutes, and traders willing to SELL Bitcoin to BUYERS in exchange for other supplies of money (currencies).
What determines the DEMAND of Bitcoin? Traders willing to BUY Bitcoin from SELLERS in exchange for other currencies.
Therefore: BUYERS, SELLERS, and MONEYSUPPLY-INFLATION (miners) determine the VALUE of Bitcoin, which determines the PRICE of BTC as BUYERS and SELLERS trade based on that VALUE (or supply and demand) of Bitcoin.
We don't exactly know the totality of the supply and demand. Sure, we could try and aggregate data from all the exchanges, but we will never be accurate as there are exchanges which can not be accounted for (OTC). The cool thing is that we DO know the MoneySupply rate, and we DO know the exchange rate. From this, we can determine a real value of Bitcoin when simply multiplying the two factors; a sort of inflation-adjusted view of the currency.
Effectively, the quantitative analysis of supply and demand is really what the currency exchange traders attempt to accurately determine which is conveyed through buying and selling of Bitcoin, setting a VALUE via the PRICED exchange rate of the currency. On a side note, most of the big Market Makers (FX Traders) use this price movement as a way to make a profitable living, as well. Especially when price fluctuations are a consequence of hype or fear (bubbles, cliffs), not factual supply/demand data, and are wildly out of the real price range.
Thus, if you analyze the proper macroeconomic data in an attempt to forecast future DEMAND for more Bitcoin (price increase), you will realize some very interesting things, and have a more accurate picture of where the price is going...
Happy trading!
Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.
We don't exactly know the totality of the supply and demand. Sure, we could try and aggregate data from all the exchanges, but we will never be accurate as there are exchanges which can not be accounted for (OTC). Effectively, the quantitative analysis of supply and demand is really what the currency exchange traders attempt to accurately determine which is conveyed through buying and selling of Bitcoin, setting a VALUE via the PRICED exchange rate of the currency.
In a recession, there is spare capacity in the economy. Therefore, an increase in the money supply, merely helps to get unemployed resources used in the general economy. Therefore, in the case of a recession, increased money supply is unlikely to cause inflation. In a liquidity trap, interest rates fall to zero but this doesn’t prevent people saving. In this situation, there is a fall in the velocity of circulation and this can cause deflation. In this situation, increasing the money supply will not necessarily cause inflation.
Deflation is generally defined as the generalized decrease in the prices of goods and services, which is when the inflation rate reaches a negative value. In the case of inflation, the value of the currency decreases, meaning that it loses purchasing power over time.
While in the case of deflation this increases because it has a fixed supply, which generates a form of shortage of money. Deflation can be seen as the general decline in the prices of goods and services, but can also be applied to the increase in the purchasing power of a currency, such as the euro or the dollar
While in the case of deflation this increases because it has a fixed supply, which generates a form of shortage of money. Deflation can be seen as the general decline in the prices of goods and services, but can also be applied to the increase in the purchasing power of a currency, such as the euro or the dollar
So neither deflation or inflation can be defined as something strongly positive or negative. They are both can have quite a controversial effect
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