Topic: Price inflation =/= Monetary inflation , but why do CB use the CPI data then? (Read 2496 times)

Here is the 2nd part of the response! 


No, no ,no. The price depreciation last year had nothing to do with inflation. It was simply a bubble popping out as irrational investors in the beginning overvalued bitcoin and now it's coming back to reality.

The true inflation was only ~10%, which was smaller then previous years 11% and much smaller than the initial one of 30% and so.

There are some variables from the supply standpoint (electricity cost, investment in mining & technology), but inherently bitcoin is bound to be a deflationary currency!

It's price will go up no matter what, because of 1 simple reason: fractions of leftover chunks of money!

Because of the supply being limited, currency will be lost slowly, at every transaction there will be chunks leftover like here:

https://blockchain.info/address/1PkKCMw54FpgagP2pzhyPqyBWXtAJshdqZ

A few satoshis here and there + people will lose access to their accounts, forget passwords ,etc. So these small bitcoins will add up and eventually the bitcoins in circulation will diminish, thus moving the price of it up eventually.

These bitcoins on these addresses will be forever locked there, and will no longer participate in the economy, thus we can easily ignore it, so the circulating bitcoins number will eventually become smaller and smaller, driving the price up.

I guess if you look at it from this perspective the quantity theory of money does make sense, so i`m considering to embrace it from now on, however there is a misconception there between price inflation and monetary inflation, so i`m not agreeing with it 100%.

We can discuss that in another thread though.

Also don't worry about BTCJam, it's a peer2peer loaning system, so they wont go bankrupt. As for the creditors, they should wait until the price goes back, low prices favor loaning, which will increase the economy (most loans go to small startup businesses), and that economy will eventually increase bitcoin's price.

Just the mere fact of transactioning bitcoins and locking out 1 satoshi at every transaction to a unmovable account will eventually drive the price up, so i`m not really scared of this scenario.

If you look at it from this perspective you find out that Nakamoto was really a genius, he thought of everything, probably it took years to plan it out this precisely, because it looks like a masterpiece.



Cleaning it up wtf? They are putting more gasoline on the fire, NASDAQ at 5000, FED has a much bigger leverage , M3 who knows how big it is, and the banking sector's loan size is enormous, much bigger than in 2008.

So they actually made mess even bigger, they don't plan to shrink the balance sheet, nor to increase interest rates, they will play the cheap money game and eventually create global hyperinflation.



Not really, plus the parts of the car is also inflating. Even though if the car price would deflate, the iron or whatever materials they create it from is inflating, thus the price will also go up..

You cannot isolate a market from the economy, its all interconnected, the fact that the world runs on the keynesian pyramid scheme affects all markets, even those with the best intention to preserve the purchasing power of consumers will eventually has to rise prices up...




Raw materials decreased? How they evaporated? It's not like there is no sand left on earth to make windows. And they can be recycled once they are not used anymore...

The only material that I can think of is oil, but then again we already have a substitute for that (nuclear,wind,geothermal,solar, special algae that produce natural gas), but ofcourse the OPEC cartel is heavily lobbying agains that so it's not like the free market is agains it, but the special interest groups.



Hey i`m not 100% agains credits, because somewhere, sometime, people will need it. I`m just saying that it's overhyped and too big, while it also feeds the keynesian ponzi scheme. The only legit credit market would be a 100% reserve market, and then the prices will eventually come down to real demand levels and not artificial ones.

If people will focus more on production rather than speculation, that also adds to the health of economy. In abundance and prosperity the prices are low and everyone is satisfied with their needs, absolutely no need for credit in this economy, only for larger projects perhaps.

But all this student loan, car loan, house loan is just too overexxagerated, and will eventually collapse.



Not really, a fractional lending scheme makes them give out enough loans, so that the nominal income from their interest - taxes is always by orders of magnitude bigger than the inflation they cause on society, because the savers will bear the costs as their deposit rate is most likely under the inflation rate, while the consumers pay them in higher prices.

Also the various derivative markets are guaranteed by taxpayer money, so market makers can easily live on comissions, active traders will just buy and hold, and when the market collapses, the nice little tax payer slaves will cover their losses. 

So recap the main beneficiaries of the ponzi scheme:
-Lenders (Commercial Banks/Credit insitutions) ✓
-Derivative Traders/Speculators/Investors (Hedge Funds , Pension Funds , or Individuals) ✓
-Derivative Market Makers (Investment Banks) ✓
-Government ✓
-Central Bank ✓
-Tax Payer & Consumer fucked

Thats a very efficient ponzi scheme if you ask me.




Well then don't look at government data because its probably made up BS. The real inflation rate in the US is already ~7%, and in some parts of Europe ~15%.

Don't look at gold markets and other ones because they are severely undervalued.So its actually very hard to know the exact figures , but you can see where it will go.

All Central Banks decrease rates, and do QE, just now Poland also joined the club after Sweden, so its beginning.

I`ll definitely hoard up on bitcoins because this will be big!

Also yes the oil collapse saved them temporarly, but funny thing is that it will hurt them in long term, the US domestic oil investments will evaporate, also Russia and other countries having troubles, so jobs will be lost by millions.

They will need to pump oil price back, and that will need a QE4 for for the FED.


There is no bubble that wont pop, its like putting air in a ballon, that eventually will pop, even if you construct it from the best material, the pressure will always pop it out.

The bubble is just a mirage, and has nothing to do with poverty, in a real economic growth the GDP will grow without bubbles, only in the keynesian world you need huge fractional based credits to do anything.

In a bubble you only have temporary wealth, in a real growth you have lasting wealth (until the keynesians fuck it up again).



Thats just a stupid statement, you can add 50 decimal places to an insturment and then buy as much as you can with your money. It's not like you can have only integers ...

Also adding decimals to is = increasing supply. You don't increase the supply of it, you just make the purchasable units amount more affordable.

Besides insurance in a deflationary enviroment will also decrease as more and more insurance companies exist.



As i said earlier, please dont make early assumptions, bitcoin is new, it needs time to adjust.

https://blockchain.info/charts/market-price

Also i observed a long term trend of decresing daily volatility, despite the incresing number of users.

So my theory is correct, the volatility is is invesely proportional to the number of users!

Give it 5-6 more years and the price of it will be more stable than the current bond markets

The problem is that you think in this keynesian logic, which is flawed, i dont blame you ,because its been a long time since a legit and transparent market existed, so no wonder people lost their common sense to all this propaganda...


Then they would cease to exist, who cares? Free market eliminates useless units of the economy. Why keep them artificially alive with this ponzi scheme economy when the free market says that they are inefficient?

Also bitcoin has already made them obsolete. Time for p2p lending without capital controls and regulatory BS.



I`ll follow your instrument's progress, it looks interesting, however I cannot comment it yet until i find out it's mechanism exactly how it works.

But i`m still favoring deflationary instruments though.



You don't have to built that into the protocol. You create a real company with KYC stuff when you want to lend out huge amounts and then you can enforce the loans.

Or for smaller amounts you can do it anonymously with collecting collateral, or just designing some sort of "trust system" whereas if one guy defaulted on your loan, you can give him a "thumbs down", so that others can see that too.

And the more loans they paid back, you can give him "thumbs up" ,there fore people can see which addresses are honest loanpayers and which are not, and set their interest rates and credit size accordingly.

It can be done with a little creativity.



Ok so now you are confusing me? So you are saying that reserve ratios don't create inflation.

So the fact that I got 1$ and i loan out 1 billion $, and then instead of collecting 1% on 1$, as of 0.01 cent, i collect 10m dollars, I didnt created inflation?

Where did that 999,999,999 dollar + 9,999,999.99 $ of interest come from? Maybe from thin air, if my memory serves good. Also if the loan is sold in the derivative market to a market maker in exchange for only 1 billion dollar (i dont even want the interest on it), that is counterfeiting 1B $, that is exactly creating inflation.

So please explain it because you lost me on that...


Ah c`mon man, dont say to me that you are leftist, so we were arguing here the whole time and turns out that you are leftist?

There is already 9999999 examples of how to take care of the needy or handicapped people in a free market. That is exactly by charities & religious organizations, which ironically is discouraged by the socialist governments.

Instead of robbing people monthly and giving 99% of that money to sociopath politicians and greedy conman, and only 1% of it to the needy, why not free up the markets, and make people give atleast 5% of their income voluntarly to the needy, and 0% to the scammers.

Real needy people will get much more this way. And unlucky people will get more opportunities, alot of homeless people can find jobs and everyone will be better off...

Sounds much more favorable to me.

Sure, i`m all for free market, and free market means that we can have Keynesian insturments too.

However I think they will really become unpopular, just because it's in monopoly now. 99% of economists are Keynesians, and not because it's good for the economy, but because its the easiest way to legally steal money from the whole world. A masterpiece of con art, how to defraud the whole planet, John Keynes was the God of Scammers! 

But yes let's let the market decide which system we should use, however i think its a no brainer, if it werent for the forced control of Central Banks, nobody would use these fiat toilet papers.

Glad that we got alternatives now,decentralized ideas such as bitcoin will save humanity! 

Reading this thread clearly make me understand why it is so important to have an alternative monetary system: You can write a novel about the topic but still no one understand if it works, so it is better to have 2 opposite systems running side by side and compare the effect

As observed during the past year, when bitcoin becomes more valuable (deflation), people spend more bitcoins, and when price of bitcoin crashed (inflation), people like to hoard more. So, this is against the traditional claim that inflation will stimulate spending and deflation will encourage hoarding

That is an argument from ignorance to assume that 1 argument is true, because it hasn't been disproved yet.

I have to look into it more deeply but from what I can say at this point is that if the monetarists invented it, then take it with a grain of salt. I cant conclude it for sure, so i`ll have to analyze it more deeply. It would need perhaps real world examples, of pre-keynesian periods to test it for sure. Anything that was tested in the keynesian enviroment is most likely false, because the keynesian enviroment generates so many misleading variables that it's hard to conclude anything.

Then it must be automatically adjusted and hackproof.

Anything that has a voting system can be quickly influenced by financial tyrants. Democracy is too idealistic to become practical.
Almost all civilized countries are now democracies and look where we got with it.


There is not such thing as a no risk instrument, it's impossible. Somehow, someway, risk will always be added into any equation, as the entropy of the instrument grows. Unforseen variables will always create "black swan" events that are most likely unforseen and unprepared for if you encourage investors to be risk takers.

If you encourage investors to invest in a risk-free currency, then they will risk alot, and when the black swan happens, it will cause a catastrophe.

Instead in a non-risk free currency investors will be always risk averse, so that no matter what happens they wont lose that much.

It`s a more realistic approach, than to hope for an idealistic holy grail of finance which has been shown time and time again that its impossible.



Of course it will, how are you going to stabilize the price. You must tamper with the supply of it, and when the price suddenly rises, you have to expand the money supply to slow down the bubble and return to a normal 45* angle increase.

Not if the market is huge enough. Yes a 100$ market cap can be manipulated by anybody, but can a 100 billion $ market cap be manipulated the same? For now it probably can since the financial parasites have too much money at their disposal.

However not in the future. As bitcoin's market cap will rise it will become more and more stable. Also the 10 minute transaction time will prevent flash crashes, and will slow down potential bubbles.

Also i tell you again, please not compare stuff to bitcoin yet, its only a newborn baby of currency, wait atleast 5-10 more years before making such assumptions. It needs more time to maturize, and to its market cap to rise to stable levels.

At this point bitcoin is for speculators, gamblers and long term investors, it needs more time to gain appeal of merchants



I heard from somewhere that Apple has about 1000% profit margins, because they produce it in China with slave labour.

Also the OPEC had ~1100% profit margin before the oil crash, they produced them at ~10$ a barrel i think, and sold it for about nearly 110$.

Of course only cartel enterprises have these levels because they hardly pay any tax and are exempt of regulation or they buy them, a regular business is taxed like a slave and harrassed by mobsters so called "inspectors" every month.



Of course they do, their fractional system makes prices rise to an unaffordable level, and then they give the money stolen from us through inflation, back to us through lending it, what a masterpiece of scam.

First they rob us through inflation, then they give that money back in credits, and if somebody fails to pay it back, they steal real tangible assets from us aswell.

The only reason why financial sector countries perform well is because the ponzi scheme works, if we were to return to a real economy, the banking sector would shrink down to 1-2% where it should be.

Actually with bitcoins and digital currencies, we don't even need banks anymore.

Credit sector, sure, but only private, and either 100% reserve requirement, like with bitcoin, or some kind of mechanism that is decentralized and limits them from running the fractional ponzi again.

However I still prefer the bitcoin lending mechanism, 100% reserve, collateral % adjusted based on the 3 standard deviation of the risk of default, and the average lending rate.

So for example i got 1 bitcoin, I can lend out only 1 bitcoin or less, and my competitors average rate is 1%/ year, while the average risk of default on this rate is 50%, then I know that I can still give out 1 bitcoin in loans and (however diversified, in 0.05 btc packets) and i`ll still make profit, perhaps i`ll ask for 5-10% collateral just to make sure. It's all based on statistics and math.



Only in the keynesian world, because investing is heavily discouraged here. With the amount of inflation, hell its easier to get a loan and pay it back slowly.



Then the price of the house will drop, subsequently the price materials and the wages of the workers, so the profit margin will remain the same.

The only one hurt in this is the creditors, but who cares about them when their existence is not needed.

This is why they lobby against it, hopefully crypto currencies will end their greed.



Yes but it's unneeded. A crypto bank is really useless, i`m not saying that it should not exist, they can do whatever they want, i let them have free market, but there wont be demand for it. People can easily store bitcoins on their PC, without a bank.

Sure there will be laymen who dont like to hold their money in their PC because they cant guard them safely agains hackers, so they will use online wallets which are actually banks with checking accounts.

But what if the government robs them or they got hacked? Nobody will guarantee their funds...

I like instrument layers, but i`m just pointing out that banking is not that much a necessity anymore, not to say that it's completely useless, but it has lost its significance already.

But the current banking system forces you to hold the money at them, either because burglars break into your house and stole the 1 billion dollar held under your pillow, or just because the inflation eats it away, so you must deposit it.

Also you cannot transfer it, the transfer fee of 1 billion dollar is about 2-3 million dollar + capital controls and other bullshit.

Also it's more convenient to buy things online, than to go out in the city and check every store for stuff.

So the BTC phenomenon combines the practical use of credit/debit cards to shop online, with the freedom given by laissez faire and 100% reserves, generating a convenient, easy to use and free economy! 

-----------------------------

I`ll respond to the other parts later, we are writing too much here, i`m feeling like i write a novel here!

No, I don't think so.  The point is that denoting prices in any inflation index you like, is first of all FREE (you can pick the index you want, you can hedge against the basket you want - free in the sense of freedom, and not imposed by any central authority with obscure agenda), and second, and most important: it doesn't create seigniorage.
The biggest problem with a supply-changing currency is the seigniorage.  The seigniorage is lucrative, and goes to institutions and people which get something for nothing.  That creates corruption, and "want for more".  It is the fiat printing seigniorage that creates the bulk of the financial sector (which is the main beneficiary of the printing of money).


Of course, because they are expressed on loans expressed in that currency.  A loan expressed in a "price index" would have the interest rate that goes with the stability of that price index (which, by definition, is stable against itself, right !).


I'm not sure if you include the cost of the structures built upon the seigniorage, and the damage they do (the financial institutions in other words), the risk induced by the corruption of the regulator and all that.


Yes, the advantages are huge: no seigniorage and no corruption of the regulator.


I don't see why.  They get the same thing.  If I am paid 100 baskets, then I can buy 100 baskets with that.  If one day, these 100 baskets are worth 50 shinkels each, and the next month, they are worth 49 shinkels each, this wouldn't change anything for me, because the first month I receive 5000 shinkels, and the next month I receive 4900 shinkels.  But all prices have lowered too (as they are expressed in shinkels, but calculated in baskets).

It wouldn't change anything.


What's the cost of a multiplication ?

If you can avoid a corrupt regulator, and a whole mass of people getting tons of seigniorage at your expenses, I would think that that balances largely out.


A number on a website and a multiplication is more costly than the price of half of the City ?

What I am saying is that bubbles will always form, so intelligent people can hedge their risk, use insurance and other methods to minimize risk.

A commercial guy can use future contracts, or buy options to hedge their risk.

Also after a bigger credit market will form, and a bigger investment market, you will see interest rates stabilize. They used to ask for 30% rates on 1 week credits (look it up in the lending section), now they lowered it.

So obviously as liquidity of credit becomes bigger, interest rates will become smaller, and thus the volatility of the exchange price will also stabilize with it.


2 methods can exist: if we use the cental bank system , then 100% reserve requirement is necessary , however if we use a truely free system where people can choose their currency of preference, then it's not needed.

For example in Bitcoin you have no choice but to use 100% reserve.

But if some1 would invent a crypto currency where "decentralized supernodes" (crypto-private-banks) could issue more currencies
then they set a reserve requirement as they wish.

So then it's up to the people to choose which one they will use: Bitcoin with 100% reserve, or this new currency with arbitrary reservers.

Of course since nobody would set the reserve requirement for these crypto banks, probably all of them would use 0%, which would destroy that currency entirely though inflation, even if 1 crypto bank would use 100% or 80%, the majority would still use 0%.

Another option is to let the users vote the reserve requirement for the crypto banks, and they all have to obey that, built into the protocol.

But still, at this point, this would be a free market. Private currencies competing with eachother, yes i still think that 100% reserve currencies would win.

If it's not 100% then eventually you will end up with hyperinflation


Taxes would not exist in a free market. They are the tool of opression and control of interventionists. We dont need any government to control the economy because it would be free, therefore taxes would be obsolete in this world.

Ok here is my second part of my response, sory for being late i was busy with other projects.


Well there is no specific model that I can point at, i`m using always that seems the most logical to me, so it's not just 1 school of thought that I use, but my core foundation is in the classical economics.

I don't reject quantitative analysis, I just dont know that they are true or not, i have to look into it myself to determine, which I havent done lately. I wasn't in the loop of economics for a few years so i`m  could be a bit rusty for now, but what I never accepted is controlled economics.

I`m always for the Laissez Faire principle. Because control freaks are inneficient, corrupt and also probably wrong on so many levels.


Haha dont even bring up feminism, they are just leftists gone amok, the same nonsense as socialism , just for women only.

Yes you cannot have it both, but before i thought that price stability was more important. I changed my mind, supply stability is more important.

Many economists say that we need stable prices for commerce, but thats not really true.

Future contracts, Insurance, or other risk - mitigation insturments can be used by any commercialist, for risk mitigation.

There is no null risk, you will always have that, but good entepreneours must manage their risk accordingly. Those who didnt, might deserve to go bankrupt. It's just the survival of the fittest.

Stabilizing prices will only create inflation and debt, which after a century can cause an unimaginable financial collapse which will obliterate all progress done, not a sustainable model. And not even considering the 8 year cycles of mini-collapses.

The main problem with keynesianists is that they try to achieve a 0 risk model, which is impossible. There will always be years of non-productivity where GDP growth might be negative, but other years it will grow and compensate for it.

You must always release the pressure and have smaller depressions, instead of building up the steam and release it all at once in a huge total economic collapse.

Keynesians, Monetarists, and other idealists are therefore 100% wrong.


■Ok first of all, most companies already got 10000% profit margins, so prices can easily fall and should fall.

■I don't care about bankers, they are already a big burden of the economy. The banking/credit sector is like 40% of an economy, when it should be about 1-2%. They are overgrown and they are useless. They only create false demand for credits by shoving them down on people who don't have a choice.

You can't buy a house from your saving, because your wages are crap, so you have no choice but to take a loan. When in fact in a gold standard-100% reserve requirement-deflationary enviroment the house prices would fall, and guess what, home builders would still be in profit because their profit margin would be still positive.

Yes a few home brokers and building companies would go bankrupt, but who cares? Who said they should exist in the first place? Central bankers think they are the GOD OF ECONOMY, and everything should be done as they say. When there is no right or wrong in an economy. An economy should be shaped by real demand and supply, and not by false artificial demand created through inflation.

■ Actually the institution of "bank" has already become obsolete, with the advent of Bitcoin. They are useless now, and if there would be real demand and supply, all of them would already go out of business. Because Bitcoin is already superior to any payment processor or money holding institution.

■As for the credits , BTCJam has that, of course we need more of these companies, but eventuall, there will be a wide range credit system for bitcoin too, just be patient 

After prices fall to their real prices, you would not need that much credit anymore to fund your project, so the credit market will shrink to its normal size, as it should be.

All this credit card, student loan, car loan nonsense just makes me sick. A car should not be more expensive than 1 year net income of a household, given that there are so many of them already...


That is only because the materials or labour is getting more expensive, or the technology is worth more. But still there is demand for used markets too, and not just a little.

There are full retail store chains that sell second-hand stuff, so there is a real market for that. Big mistake that it's not taken into account.



One more reason to discourage enormous credit markets. Yes under the current conditions we are pretty fcked up, the world is in huge debt, you see all central banks around the world decreasing interest rate (to negative too) and doing QE:  EU, Sweden, Canada, etc

And also markets are already collapsing, despite they try to preserve the inflated bubble: like the oil market , which already rendered Russia , Venezuela and other countries in big trouble.

So at this point there is nothing else to be done. Either they increase the interest rates now and we suffer a huge economy collapse worldwide.

Or we will have nice global hyperinflation



Not noone, the bankers did, because they are on the top of the pyramid. They got billions in loan interest rates, while the others suffer price increase and pay the interest. The banksters always shield themselves from inflation.

So the bigger the inflation will get, the more they will demand and steal to not lose money from inflation, so eventually they will rob the entire world, until the global economy collapses.


Well too late now, they cant increase interest rates anymore because the debt is so big that they will go bankrupt if they do so.

That's only because you denominate it in something you do not mean to denominate.  Money is a vector of value, and shouldn't necessarily be seen as a measure stick of value.  If you denominate things in money, and you actually wanted to denominate them in something else (namely, that of which you want the "price to be stable"), then it is much simpler to denominate it directly in that value.  That's what I wanted to say.


Price stability could be anything with such a flexible definition, but I prefer the Ideal Fisher Index.  It passes all known tests.