Topic: Krugman makes some good points - page 9. (Read 7202 times)
Bitcoin is extremely inflationary right now. Look at how much BTC is created annually. It will become less inflationary over time, but we are not there yet. The fallacy of deflation has been discussed numerous time. Krugman fails to convince me (and many others). On top of that, Krugman has proven to either not to understand economics or talk the official book. Be cautious, do your own thinking.
inb4 shitstorm
also what happend to the "thou shall not talk about deflation - the last word on the forum" sticky?
also what happend to the "thou shall not talk about deflation - the last word on the forum" sticky?
From the economist who wrote half the textbooks we use in the economics department at my university:
http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters/
Basically, he says that bitcoin is not really being used as a medium of exchange because it's deflationary. He has a point. If you aren't using it to buy goods and services then you are using it as a way to save your money, speculating on it. Constant deflation stops people from using it as a medium of exchange.
If any currency is deflationary it makes sense to hold as much of that currency as you can for as long as you can because the value will constantly increase. This discourages spending and encourages saving. Even if every vendor in the world accepted bitcoin, people still would not spend their bitcoins if they can get around it by using USD or Euros Yen or L$ (Linden Dollars, AKA SecondLife currency) or something else.
On the other end of things, think about the effects on the credit market. Interest rates take inflation into account, to ensure that the lender makes money after inflation eats some of their investment. If a currency deflates at 5% per month then it makes sense to only loan to somebody who can make more than 5% per month on your investment (and this is compounded monthly for the life of the loan). This is because if they don't make more than that then it makes no sense to loan the money out when you can make more money by leaving it in a savings account. This would make it very difficult to buy houses and cars and start new ventures with credit.
http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters/
Basically, he says that bitcoin is not really being used as a medium of exchange because it's deflationary. He has a point. If you aren't using it to buy goods and services then you are using it as a way to save your money, speculating on it. Constant deflation stops people from using it as a medium of exchange.
If any currency is deflationary it makes sense to hold as much of that currency as you can for as long as you can because the value will constantly increase. This discourages spending and encourages saving. Even if every vendor in the world accepted bitcoin, people still would not spend their bitcoins if they can get around it by using USD or Euros Yen or L$ (Linden Dollars, AKA SecondLife currency) or something else.
On the other end of things, think about the effects on the credit market. Interest rates take inflation into account, to ensure that the lender makes money after inflation eats some of their investment. If a currency deflates at 5% per month then it makes sense to only loan to somebody who can make more than 5% per month on your investment (and this is compounded monthly for the life of the loan). This is because if they don't make more than that then it makes no sense to loan the money out when you can make more money by leaving it in a savings account. This would make it very difficult to buy houses and cars and start new ventures with credit.
Jump to: