Topic: Inflation supports economic growth. Prove otherwise in this thread! - page 4. (Read 4508 times)

Quote from: tee-rex on July 08, 2014, 01:11:58 PM

The fiat system is forced upon us through law, which means that issuing a competing currency to your nation's currency is illegal. Therefore nobody can compete with the gov./central bank. Normally everyone knows that that competition in the market is a good thing, but why is money the exception? Why can the gov. issue more currency, but if the average person does it's called counterfeiting (which of course is theft)?

Actually, money is no exception. We have dollars, euros, pounds, pesos or whatever, and they are all competing with each other at an international scale (or, rather, economics are). You can hold your savings in whatever currency you see most appropriate (or profitable). Also, If I'm not mistaken, bitcoin is not considered illegal in the USA, though it is obviously not a legal tender there.

Crypto currencies are the solution to fiat! BTC was built with a limit of 21M units because Sastoshi knew the evils of inflation. The distributed nature of the system means that it essentially cannot be shutdown. Governments accepting Bitcoin is not because they wish for competition, but more because they don't have a choice. Of course most of them at this point are ignorant of the technology and will be pressured in due to demand as well.

Actually, cryptocurrencies are not very far from fiat. Both bitcoin and fiat are money since they are called so and accepted as such (no utility besides being a currency). Regarding the limit of 21M coins, it is not really an advantage since, in the first place, it won't be reached any time soon, and it can be changed afterwards if such a necessity should arise, in the second.

As to Bitcoin's generation rate, it is also a double-edged sword (there are pros and cons to this).

Fiat has nothing to do with its utility. Fiat literally means "by government decree". http://www.merriam-webster.com/dictionary/fiat. So by definition BTC it is a long ways from fiat!

I'm talking about the essence of bitcoin, not about formal definitions (sorry if it wasn't evident from the start). To keep things simple, think that Satoshi Nakamoto issued an edict that made bitcoin into a money.

And I didn't understand what you meant by "fiat has nothing to do with its utility".

btcbug

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Quote from: btcbug on July 08, 2014, 12:36:33 PM

Quote from: btcbug on July 08, 2014, 12:36:33 PM

The fiat system is forced upon us through law, which means that issuing a competing currency to your nation's currency is illegal. Therefore nobody can compete with the gov./central bank. Normally everyone knows that that competition in the market is a good thing, but why is money the exception? Why can the gov. issue more currency, but if the average person does it's called counterfeiting (which of course is theft)?

Actually, money is no exception. We have dollars, euros, pounds, pesos or whatever, and they are all competing with each other at an international scale (or, rather, economics are). You can hold your savings in whatever currency you see most appropriate (or profitable). Also, If I'm not mistaken, bitcoin is not considered illegal in the USA, though it is obviously not a legal tender there.

Crypto currencies are the solution to fiat! BTC was built with a limit of 21M units because Sastoshi knew the evils of inflation. The distributed nature of the system means that it essentially cannot be shutdown. Governments accepting Bitcoin is not because they wish for competition, but more because they don't have a choice. Of course most of them at this point are ignorant of the technology and will be pressured in due to demand as well.

Actually, cryptocurrencies are not very far from fiat. Both bitcoin and fiat are money since they are called so and accepted as such (no utility besides being a currency). Regarding the limit of 21M coins, it is not really an advantage since, in the first place, it won't be reached any time soon, and it can be changed afterwards if such a necessity should arise, in the second.

As to Bitcoin's generation rate, it is also a double-edged sword (there are pros and cons to this).

Fiat has nothing to do with its utility. Fiat literally means "by government decree". http://www.merriam-webster.com/dictionary/fiat. So by definition BTC it is a long ways from fiat!

As for the technical side, may the best crypto currency win! I don't use Bitcoin because I like the name. I use it because it is based on sound Austrian principals and at this point in time no other competitor has anything better to offer in my opinion. So far the market is favoring Bitcoin so you're arguing against a lot of people. If you want to understand where I'm coming from check out the links I provided earlier.

I think the bottom line is that whatever YOU think about inflation and technical stuff is fine. There is or will be a currency tailored to your exact desires and you'll be free to use it.

If you think it's use should be mandatory and made law (aka forced upon everyone else!), then I highly disagree because that would be fiat again.

tee-rex

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Quote from: molecular on July 08, 2014, 02:48:33 AM

The fiat system is forced upon us through law, which means that issuing a competing currency to your nation's currency is illegal. Therefore nobody can compete with the gov./central bank. Normally everyone knows that that competition in the market is a good thing, but why is money the exception? Why can the gov. issue more currency, but if the average person does it's called counterfeiting (which of course is theft)?

Actually, money is no exception. We have dollars, euros, pounds, pesos or whatever, and they are all competing with each other at an international scale (or, rather, economics are). You can hold your savings in whatever currency you see most appropriate (or profitable). Also, If I'm not mistaken, bitcoin is not considered illegal in the USA, though it is obviously not a legal tender there.

Crypto currencies are the solution to fiat! BTC was built with a limit of 21M units because Sastoshi knew the evils of inflation. The distributed nature of the system means that it essentially cannot be shutdown. Governments accepting Bitcoin is not because they wish for competition, but more because they don't have a choice. Of course most of them at this point are ignorant of the technology and will be pressured in due to demand as well.

Actually, cryptocurrencies are not very far from fiat. Both bitcoin and fiat are money since they are called so and accepted as such (no utility besides being a currency). Regarding the limit of 21M coins, it is not really an advantage since, in the first place, it won't be reached any time soon, and it can be changed afterwards if such a necessity should arise, in the second.

As to Bitcoin's generation rate, it is also a double-edged sword (there are pros and cons to this).

Harley997

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Quote from: btcbug on July 07, 2014, 04:12:08 PM

In my opinion, spending just for the sake of spending is not a formula for wealth creation. Savings, investment and wise spending are what makes everyone wealthier.

Inflation is a terrible hidden tax for those on a fixed income and punishes savers. The ones who benefit are the ones who get to spend the newly created money first before the general increase in prices.

Well said, man.

If you invest well then your investments should outpace the rate of inflation, giving you a smaller gain on your investment but still a net gain, the same is generally true for interest on savings accounts and CDs as the interest paid is usually slightly obove the inflation rate, although this is not the case now.

btcbug

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Quote from: molecular on July 08, 2014, 02:40:12 AM

The fiat system is forced upon us through law, which means that issuing a competing currency to your nation's currency is illegal. Therefore nobody can compete with the gov./central bank. Normally everyone knows that that competition in the market is a good thing, but why is money the exception? Why can the gov. issue more currency, but if the average person does it's called counterfeiting (which of course is theft)?

Actually, money is no exception. We have dollars, euros, pounds, pesos or whatever, and they are all competing with each other at an international scale (or, rather, economics are). You can hold your savings in whatever currency you see most appropriate (or profitable). Also, If I'm not mistaken, bitcoin is not considered illegal in the USA, though it is obviously not a legal tender there.

Crypto currencies are the solution to fiat! BTC was built with a limit of 21M units because Sastoshi knew the evils of inflation. The distributed nature of the system means that it essentially cannot be shutdown. Governments accepting Bitcoin is not because they wish for competition, but more because they don't have a choice. Of course most of them at this point are ignorant of the technology and will be pressured in due to demand as well.

Sorry but your argument for national currencies being an example of competition is a huge stretch. Up until recently most people in the world could not open up an account in any currency of their choosing. Nowadays it's possible, but sill extremely limited. If these currencies were truly competing then we'd all able to hold a basket of them and even be able to spend them anywhere. Argentina for example has made it illegal for their citizens to save in USD, meanwhile they are inflating the currency at 20% a year and headed for a collapse that will devastate many peoples savings. Gold has been confiscated in the past as well.

herzmeister

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It results in misallocation of capital that will correct at some point and in addition distorts price signals, making the economy less efficient.

Not "less efficient" (in fact, too much efficiency would be a problem: http://www.scribd.com/doc/26248658/Is-Our-Monetary-Structure-a-Systemic-Cause-for-Financial-Instability-Bernard-Lietaer ), but (apart from the hamster wheel bullshit jobs) we get a major collapse or a giant "economic discharge" (i.e. war) every couple of decades.

tee-rex

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Quote from: molecular on July 08, 2014, 02:40:12 AM

The fiat system is forced upon us through law, which means that issuing a competing currency to your nation's currency is illegal. Therefore nobody can compete with the gov./central bank. Normally everyone knows that that competition in the market is a good thing, but why is money the exception? Why can the gov. issue more currency, but if the average person does it's called counterfeiting (which of course is theft)?

Actually, money is no exception. We have dollars, euros, pounds, pesos or whatever, and they are all competing with each other at an international scale (or, rather, economics are). You can hold your savings in whatever currency you see most appropriate (or profitable). Also, If I'm not mistaken, bitcoin is not considered illegal in the USA, though it is obviously not a legal tender there.

btcbug

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I would argue there are different kinds of growth:

Artificial type of growth (generated by injecting newly generated money into the economy).
Growth financed by investment of existing money (usually savings)

On paper using an aggregate view they look the same: GDP increases. However they differ in sustainability and effect on the economy: the first one is kind-of "fake". It might not have been done without the new money being printed, so whatever was done with that money is less economically viable. At the same time it has the effect of "removing" value from projects that are economically viable (due to the reduced value of the existing money). It results in misallocation of capital that will correct at some point and in addition distorts price signals, making the economy less efficient. The second type of growth ("real growth" if you will) is more sustainable. There was a viable economic reason the investment was made (otherwise it wouldn't have been made). Of course also these businesses / innovations can fail, but they should turn out to do so at a lesser rate.

Those are good practical points as well.

To add a bit more... many people will argue that this "fake growth" is good and it can be difficult to distinguish between the two.

To make it easier just look at the principal of it and you'll always spot a bullshit argument.

The fiat system is forced upon us through law, which means that issuing a competing currency to your nation's currency is illegal. Therefore nobody can compete with the gov./central bank. Normally everyone knows that that competition in the market is a good thing, but why is money the exception? Why can the gov. issue more currency, but if the average person does it's called counterfeiting (which of course is theft)?

What is considered immoral for us as individuals, cannot magically be morally correct for a group of individuals who call themselves the government/central bank. End of story!

molecular

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Quote from: btcbug on July 07, 2014, 04:12:08 PM

In my opinion, spending just for the sake of spending is not a formula for wealth creation. Savings, investment and wise spending are what makes everyone wealthier.

Inflation is a terrible hidden tax for those on a fixed income and punishes savers. The ones who benefit are the ones who get to spend the newly created money first before the general increase in prices.

Well said, man.

molecular

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I would argue there are different kinds of growth:

Artificial type of growth (generated by injecting newly generated money into the economy).
Growth financed by investment of existing money (usually savings)

On paper using an aggregate view they look the same: GDP increases. However they differ in sustainability and effect on the economy: the first one is kind-of "fake". It might not have been done without the new money being printed, so whatever was done with that money is less economically viable. At the same time it has the effect of "removing" value from projects that are economically viable (due to the reduced value of the existing money). It results in misallocation of capital that will correct at some point and in addition distorts price signals, making the economy less efficient. The second type of growth ("real growth" if you will) is more sustainable. There was a viable economic reason the investment was made (otherwise it wouldn't have been made). Of course also these businesses / innovations can fail, but they should turn out to do so at a lesser rate.

Essentially growth generated by inflation is "fake paper growth". It's like blowing air into a balloon: it get's bigger, but doesn't gain weight.

just my 2 satoshis

btcbug

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I have been always taught that slight inflation is good. I saw people pointing out 100 year graph of USD always having slight inflation. It makes sense, it makes a little urge for people to spend.
But I believe that also deflationary system can work. People will still buy things they need, although not as much.. Causing joblessness etc Huh

If possible to, can you please somehow prove that deflationary financial system can be sustainable aswell?

As an individual when you work, get paid and put your money in the bank are you becoming wealthier or poorer? Hint: You are increasing your stockpile!

If you save your money for many years and then start spending it and depleting your stockpile, are you becoming wealthier or poorer?

Now if you had saved $100,000 during your career, retired, and lived off a fixed income from your savings, do you think rising prices would be a benefit?

In my opinion, spending just for the sake of spending is not a formula for wealth creation. Savings, investment and wise spending are what makes everyone wealthier.

Inflation is a terrible hidden tax for those on a fixed income and punishes savers. The ones who benefit are the ones who get to spend the newly created money first before the general increase in prices. So if the government prints more money and then spends it into the economy they can benefit by paying today's prices. Once that money makes it way through the economy and prices rise it hurts the average person because wages generally do not keep up with prices and savers are losing purchasing power their existing savings.

Read Murray Rothbard - What has government done to our money. Check out Mike Maloney's stuff http://www.hiddensecretsofmoney.com/

Ektra

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I understand the idea that inflation encourages exchange of money for goods and investments. I wont attempt to claim this doesn't support growth. But people do not like being dictated to that having value sapped from their savings is a good thing, like they need to be whipped into splurging their money. The system supposedly works to stimulate a certain pattern of spending and growth, but it is narrow minded to assume it is the only way to do things. So - rather than 'more of the same, but mo'betta', IMO people are turning away from the system in order to do things differently.

tee-rex

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Quote from: CoinsCoinsEverywhere on July 07, 2014, 11:55:17 AM

I have been always taught that slight inflation is good. I saw people pointing out 100 year graph of USD always having slight inflation. It makes sense, it makes a little urge for people to spend.
But I believe that also deflationary system can work. People will still buy things they need, although not as much.. Causing joblessness etc Huh

If possible to, can you please somehow prove that deflationary financial system can be sustainable aswell?

It can be, and actually was sustainable in the late 18th and through the 19th centuries under the gold standard. The reason for this is rather simple though. Money appreciation (that is deflation) was compensated by technological innovations and growth in productivity (remember the Industrial Revolution which happened in the period from about 1760 to 1840). The same is also possible today if, for example, they find a means to postpone the coming of old age significantly (I've heard that half of all production worldwide in the last 50 years was due to an increased human lifespan).

Ibian

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Without QE the money would have had to come from elsewhere. As such it did cause inflation.

Look, it's simple. The money is either real, or it is not. If it is real money then it is part of the economy. If it's not real money, then it doesn't exist and doesn't count.

RoadTrain

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I did a little research, and I see what you mean about how bank reserves held at the Fed have increased by almost as much money as the QE programs have created. I still think that QE has caused inflation, but in the sense that the deflation we experienced in 2009 probably would have continued if it weren't for QE and other actions taken by the Fed and government.

Putting my belief about inflation having negated deflation aside, I'm also not sure that QE can't contribute to inflation, especially in the future. So far, banks have had reason to park a lot of their money at the Fed. But depending on Fed policy, they may start to withdraw their excess reserves and lend them out. That would cause inflation.

In any case, thanks for making light of where a lot of the QE money has gone. That's not something I had considered.

Yes, deflation event was fairly short. But I'm inclined to thank the Treasury for this, not the Fed (but the Fed actions likely helped by calming the panic and giving some confidence). What is truly inflationary is budget deficit, because it adds financial assets to the private sector, which helps increase spending.

As of reserves, it's important to understand that banks can't "withdraw their reserves and lend them out". The reserve money is only used inside the Fed payment system, i.e. in transactions between banks, the Fed and the Treasury.

Reserve requirement does not actually restrain bank lending in a modern monetary environment, because new reserves can always be created by using discount window, repo operations and so on.

CoinsCoinsEverywhere

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Quote from: RoadTrain on July 07, 2014, 11:11:12 AM

Quote from: CoinsCoinsEverywhere on July 07, 2014, 01:42:07 AM

Quote from: RoadTrain on July 06, 2014, 04:22:08 PM

Quote from: lyth0s on July 04, 2014, 06:11:49 PM

Quote from: ronskii on July 03, 2014, 09:17:08 PM

Quote from: lyth0s on July 03, 2014, 09:07:34 PM

Inflation is good for borrow's since you pay the money back with dollars that are not worth as much and it hurts people with savings. Deflation is good for creditors and people with savings as their dollars are worth more tomorrow than they are worth today.

Some small inflation can be good, but when you look at how acutely the monetary base has skyrocketed, this is a problem.

http://www.geekcipher.com/technology/bitcoin-vs-us-dollar-in-retaining-value/

^^First graph on that page

http://www.slate.com/blogs/moneybox/2012/08/03/the_monetary_base_is_irrelevant.html

The monetary base is still increasing at an alarming rate, whether its parked with the fed, in my savings account or stuffed in someones mattress, the fact remains the same: It's increasing rapidly.

But it doesn't really matter because QE can't contribute to inflation, and it has been proved at least two times (Japan and US).
What Fed does is replacing treasury securities that banks hold with reserves. Reserves on their own can't flow into the economy, they are only used in transactions between commercial banks, Fed and the government.
The only positive thing QE might've done is unloading toxic MBS's from the banking system and thus calming the markets.

How do you figure that QE doesn't contribute to inflation? We have had inflation over the last few years, and look at how much the markets have gone up since 2009.

Because QE can't in its nature, and I explained why. Inflation is out there for sure, but it doesn't mean it's because of QE.

I did a little research, and I see what you mean about how bank reserves held at the Fed have increased by almost as much money as the QE programs have created. I still think that QE has caused inflation, but in the sense that the deflation we experienced in 2009 probably would have continued if it weren't for QE and other actions taken by the Fed and government.

Putting my belief about inflation having negated deflation aside, I'm also not sure that QE can't contribute to inflation, especially in the future. So far, banks have had reason to park a lot of their money at the Fed. But depending on Fed policy, they may start to withdraw their excess reserves and lend them out. That would cause inflation.

In any case, thanks for making light of where a lot of the QE money has gone. That's not something I had considered.

RoadTrain

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Quote from: CoinsCoinsEverywhere on July 07, 2014, 01:42:07 AM

Quote from: RoadTrain on July 06, 2014, 04:22:08 PM

Quote from: lyth0s on July 04, 2014, 06:11:49 PM

Quote from: ronskii on July 03, 2014, 09:17:08 PM

Quote from: lyth0s on July 03, 2014, 09:07:34 PM

Inflation is good for borrow's since you pay the money back with dollars that are not worth as much and it hurts people with savings. Deflation is good for creditors and people with savings as their dollars are worth more tomorrow than they are worth today.

Some small inflation can be good, but when you look at how acutely the monetary base has skyrocketed, this is a problem.

http://www.geekcipher.com/technology/bitcoin-vs-us-dollar-in-retaining-value/

^^First graph on that page

http://www.slate.com/blogs/moneybox/2012/08/03/the_monetary_base_is_irrelevant.html

The monetary base is still increasing at an alarming rate, whether its parked with the fed, in my savings account or stuffed in someones mattress, the fact remains the same: It's increasing rapidly.

But it doesn't really matter because QE can't contribute to inflation, and it has been proved at least two times (Japan and US).
What Fed does is replacing treasury securities that banks hold with reserves. Reserves on their own can't flow into the economy, they are only used in transactions between commercial banks, Fed and the government.
The only positive thing QE might've done is unloading toxic MBS's from the banking system and thus calming the markets.

How do you figure that QE doesn't contribute to inflation? We have had inflation over the last few years, and look at how much the markets have gone up since 2009.

Because QE can't in its nature, and I explained why. Inflation is out there for sure, but it doesn't mean it's because of QE.

zebedee

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Quote from: molecular on July 07, 2014, 05:36:12 AM

I have been always taught that slight inflation is good. I saw people pointing out 100 year graph of USD always having slight inflation. It makes sense, it makes a little urge for people to spend.

What makes you think you should decide whether people spend? Who gave you that right? It's this kind of I-know-better-than-you-what's-good-for-you thinking that is at the root of the ills of society.

Just leave people alone to do with their assets what they will.

herzmeister

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But I believe that also deflationary system can work. People will still buy things they need, although not as much.. Causing joblessness etc Huh

I wouldn't mind working a little less.

Exactly. Inflation is what keeps us in the hamster wheels, locking us into bullshit jobs. http://strikemag.org/bullshit-jobs/

Spending is not what makes an economy wealthy. The available products and technology do. We could work less without losing "income", i.e. our standard of living.

molecular

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