Topic: Inflation supports economic growth. Prove otherwise in this thread! - page 5. (Read 4508 times)

I wouldn't mind working a little less.

Because the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used. Keynesian economists argue that deflation is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs. The Austrian school of thought counters this criticism, claiming that as deflation occurs in all stages of production, entrepreneurs who invest benefit from it. As a result, profit ratios tend to stay the same and only their magnitudes change. In other words, in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits. Price deflation encourages an increase in hoarding — hence savings — which in turn tends to lower interest rates and increase the incentive for entrepreneurs to invest in projects of longer term.

From https://en.bitcoin.it/wiki/Controlled_supply

Simply put people invest because they expect a greater return than deflation can bring in the long term, therefore the economy is grown at a rate of development greater than the price decrease and promotes long term over short term investments on a balance sheet, second bitcoin is still inflationary this concern is not to be addressed for a few more decades.

262500    2    25.00    2014    11812500    1312500    13125000    11.11%    62.500%
315000    2    25.00    2015    13125000    1312500    14437500    10.00%    68.750%
367500    2    25.00    2016    14437500    1312500    15750000    9.09%    75.000%
420000    3    12.50    2017    15750000    656250    16406250    4.17%    78.125%
472500    3    12.50    2018    16406250    656250    17062500    4.00%    81.250%
525000    3    12.50    2019    17062500    656250    17718750    3.85%    84.375%
577500    3    12.50    2020    17718750    656250    18375000    3.70%    87.500%
630000    4    6.25    2021    18375000    328125    18703125    1.79%    89.063%
682500    4    6.25    2022    18703125    328125    19031250    1.75%    90.625%
735000    4    6.25    2023    19031250    328125    19359375    1.72%    92.188%
787500    4    6.25    2024    19359375    328125    19687500    1.69%    93.750%

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.

That is, until they do begin to use them. The rules are constantly changing. There is a nonzero chance that the coming economic meltdown is planned. As long as it happens in a controlled way, it is possible to benefit from it.

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.

The amount of additional dollars that has been injected into the economy is huge. QE has made the money supply artificially higher then it otherwise would be.

Actually the goal of QE was to inject liquidity into the banking system w the hope that banks would lend the money out.  But what happened instead was the banks used the money on investments so the stock markets shot up.  The reason they did this because private sector doesn't want to take on new debt because they're paying down balance sheets

I don't believe unemployment insurance de-incentivize people from looking for jobs.  Its more like the jobs aren't available.  Even though 2 years is a long time its still temporary

Its not just unemployment, the entire US economy is in a  slump by most metrics. 

Richard Koo has a good theory that explains this he calls "balance sheet recession" and another one called "QE trap"

The goal of QE was to get people to take more risk with their capital and to get asset prices to rise. This has happened and QE has been successful in this regard. It was hoped that the rising asset prices and people taking more risk with their capital would result in higher employment rates.

What has hampered higher employment was the amount of transfer payments and new regulations that has set back our economy. Things like unemployment insurance that lasts almost 2 years and disability insurance that lasts a lifetime give people disincentives to look for and actually work.

Best explanation I have seen so far to date.


Also agree on the point here.

All trades are between two entities. In an inflation scenario, you say that the loaner who buys a house, wins, because his house has a rather stable value (let's just assume that), and the loan shrinks in value. Everybody knows this.

But here is the puzzle. What about the lender? He also knows this. Why is the bank willing to lend money and get back less value later? The answer is the money supply manipulation.

The question of inflation or deflation is that it does not matter, as long as the money supply is not manipulated. Lender and loaner has the same information and the same access to money. The interest rate will float, and at times of inflation the interest rate will also rise, giving a positive real interest rate. The reason for inflation or deflation is things like inventions, change in resources, needed change in the capital structure, change in the number of people, change in the tendency to save money. The prices and interest rate will adjust continually to direct the productive capacity of the land.

The volume of money does not have to be a mathematically fixed number. In fact it can never be, because there will always be alternative money like gold, silver, types of fiat, and bubbly goods like aluminium, oil, houses that also function as a store of value sometimes. Also natural changes in the money supply. Then there is credit, that will automatically grow in times of demand for money and will work counter to deflation.

That is why we call it sound money. The supply is not fixed, but it is relatively stable and unmanipulated by governments. The point is to remove the money supply question from politics.

Yes, the economy is obviously not healthy.  If it were, all the QE the Fed has been doing should have caused massive inflation.

slight inflation is good for the government/bankers who get the seniorage(benefit) of introducing the fiat

inflation is bad for the population as your savings is devalued and you might not even know it, its a hidden tax

What you should be worried is that even w QE, demand hasn't risen and unemployment is still not dropping.

Means its not working so they gotta find a better theory or we looking at possibly a decade of recession like Japan

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.

If inflation is higher then interest rates then lenders will end up having assets that are worth less then when the funds were lent out.

If you have an incentive to save then you have an incentive not to spend, if you do not spend money then there will be overall lower economic output

Deflation gives incentive to save. Less loans mean less debt and less slavery. And inflation is caused by lending, the extra money from interest is where money printing comes from. It does not hurt banks at all, on the contrary, it hurts everyone who does not have the ability to print money.

Inflation is actually good for anyone who borrows money as it is now cheaper, in terms of effort, to pay back the loan. The opposite is true for people who hold assets as their assets are now worth less. Since banks lend money inflation is actually bad for banks.

Moderate amounts of inflation provide people an incentive to not put off purchases an undue amount of time.

No it does not, economic growth is caused by increased production, not increased money supply

Yes you earn more money, but inflated money, so in effect you earn less, it only looks more.

It's a scam.

Totally correct. Glitters.

Inflation is a necessary component of usury. If we used a deflationary system the banks as we know them could not exist.

Inflation is good for banks, deflation is good for everyone else.