Topic: The real problem behind inflation - page 5. (Read 10854 times)

I have just discovered this site today, and have been looking at monetary reform for a few years - see Stephen Zarlenga in the US and Ben Dyson's Positive Money site in the UK. I feel reform of the current world money system is nearly impossible as the bankers have a vice like grip on the creation of money, they are able to do legal forgery by issuing new money as a debt with interest. As many here know, this causes ever increasing debt, high taxation, reductions in public spending, poverty, boom, bust, and huge inflation, and enriching a few at the expense of the many.

My question is this - How, if at all can I transfer my wealth (in my case UK £s), into Bitcoins, and then can I use Bitcoins to buy the essentials of life, ie food and energy ?? It would be great if I could because the £, $ and Euro are corrupted by the banking system, and we all suffer loss of wealth through inflation whichever currency we use. The present debt based world money system is the greatest form of slavery ever devised -

" Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take this power away from them, and all the great fortunes disappear, and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create money and control credit." Attributed to Josiah Stamp, governor of the Bank of England in the 1940s.

Bitcoin may be in it's infancy, but if it could become a large trading community where essentials like food can be bought and sold, then the power of the bankers can be gradually eroded, and the majority will be very much better off, and not enslaved by debt.

Yeah, margaritaville is indeed quite a smart South Park episode.

For certain definitions of free:



Here's an excerpt:
http://www.youtube.com/watch?v=SvSJY3Xiwdg

fergalish, I see now that you said 'unnecessary', so my post isn't quite right.
 

Well, you are an individual, so of course only you know what you think you would do.

For the masses, deflation means going into the cellular phone shop and saying "wow, I thought I could only afford a dumphone, but it turns out I can buy a smartphone". Deflation means Joe Public saying "My TV has broken, and it seems that I can buy a 46-inch TV rather than a 32-inch TV like my old one". Deflation means Fred saying to Martha "Last year we could only afford a week's holiday just across the state border. This year let's have two weeks in the Bahamas".

This, of course, is good for the individual. Some might even say it's good for the "economy".

Do you realize cellular phones do go down in prices all the time and you have bought it anyways? It seems to me you are contradicting yourself.

Electronics in general go down in price all the time, and people keep buying it. Everybody knows that if they wait 6 months the phone, the tv, the computer,... they are going to buy will be cheaper. And yet, they still buy it.


This is actually good. You should not buy anything that you dont want to buy just because you know you need to spend the money before it devaluates. The function of the economy is not to make people consume, consume and consume more. The function of the economy is to provide what people need and want. And if someday (that I dont think I will see) we have too much of everything, that day we can stop working this much and just work 1 day a week (in fact this has happened a bit, since 200-300 years ago, people used to work a lot more hours).


Bitcoin is a special case, because is starting, mainly for two reasons.

1. As much as it hurts to admit, there is still not much you can buy with bitcoins.
2.Also, there is still not a financial system that operates in bitcoins that allows to transmit bitcoins savings into bitcoin investments.


This is a fallacy as big as it gets. First of all you need to define what is good for society in general, because this is the typiucal discourse the elite use to mean you do as I command. But assuming you mean what its better for the majority or for the longer term, its still false.

Traffic? The first roads in the USA where privately built by cooperatives formed in the different towns. There are examples of private roads that work fine.

Environment? Precisely this is an example how the government is managing it and not letting the market manage it by not allowing environmental property rights. You can see the horrible results.

Queues?

Paying taxes??


So? It seems to me you are implying that more spending can heal the economy. If this were true, all the government spening should have taken the USA out of the recession. It has not. Its an economic fallacy.

Only the people working and producing what they need through NON DISTORTED market signals are going to solve the depression. All the government spending its hurting the economy.


Prices go down if there is less money. Also the banking system reacts (or should react) creating more bills if there is an increase in the deman for money. This is not an issue.

I could keep going.

Maybe you are unusual. I have a really hard time believing that when the newest cool cell phone of 2015 comes out and you still have your 100BTC that you aren't going to part with .00001 of them to get your holographic phone. But if you insist that there is nothing you'll ever pay any fraction of a coin for, I can buy it and I'll play along.

Why are you holding them if you are never going to spend a single tiny bit of one?!

I can't answer your question about the economy, maybe you can answer this: Is it better to care for your garden and hope this improves your plants or to care for your plants and hope this improves your garden?

You have all raised good points.  But the fact is, if there were deflation, I would *NOT* buy a new cellular phone, I would *NOT* buy anything I considered unnecessary (taking into account how high the deflation actually is).  As a matter of fact, I'm doing exactly that with the bitcoins I have - they're still going up, and I'm keeping them until I need them.  I wouldn't invest unless I was guaranteed a return greater than the appreciation of my currency (measured in purchasing power).

There are many examples of where something that harms an individual can be good for society in general.  e.g. traffic, environment, queues, paying taxes, damn I've a mind-blank and can't think of others.  But the Prisoner's Dilemma is a great place to start studying these phenomena.  (this goes way back to a long debate about morality, see "should you kill the fat man" on philosophyexperiments.com; let's not get so deep here.).

The economy may be a statistic, but it's important.  Do you deny when the economy suffers (i.e. recession, depression) that people suffer more?  Or that people are better off when the economy improves?  It is a statistic - a very important one, something like the average of people's earnings or wealth.

#grondilu: someone who hoards is restricting others' ability to make their necessary purchases, *especially* if there's no new money coming into the market.  Your suggestion about the police is curious - how long before that actually happens do you suppose?  Ever read "Brave New World" by Aldous Huxley?  As for us not being cows and sheep... are you sure?  Cows behave uniquely for their own benefit, not the herd's; exactly unlike that feature of human society that you would remove. So maybe we're not cows, but you would make us so.  And freedom - "freedom's just another word for nothin' left to lose" (Kris Kristofferson) - you want to have all your wealth, and keep your freedom.  But we can't all have both.

@caveden: how can savings feed investment?  You need fractional reserve banking for that - otherwise the bank has to keep all your savings in its coffers, and can't give it out as investments.  I'll try to check out mises.org when I have time.  But saying hi-tech prices are deflationary is, I think, wrong.  Their prices decrease, not because of deflation, but because the *inherent value* of the object decreases.  If you compare dollars to bread (or whatever basket you choose), you can calculate inflation or deflation.  Compare hi-tech prices to bread, though, and you get an estimate of value, and I'll bet that the price of mobile phones in loaves of bread (i.e. their value) has been coming down too - and I'm sure you wouldn't say the bread is inflating there.  With deflation, if people like me don't buy phones, then the lack of income will cause R&D to falter, and the hi-tech stuff won't get cheaper quite so much.

#ribuck: the economy *is* an entity of its own.  That's the central message of the science of complexity - the whole is more than the sum of the parts.  Look at an ant colony for example.  Look at your own brain, or your DNA.  The economy does *not* follow the same rules as its members and, therefore, something good for its members is not necessarily good for itself, and vice-versa.

Thanks for the discussion folks.

Absolutely. There is nothing that is good for my family that is bad for my family members. There is no such thing as hurting the trees to help a forest. If you want to help then help individuals; they actually exist.

I think the keynesian's point of view is the one of a farmer.  Sure, a farm would be a mess if cows were free to do what they want, and if chickens could just wander everywhere they want.

But we are not cows, nor chickens, damned it.

It's a misconception that "the economy" is an entity of its own, that it is anything other than the aggregate of what is done by people. You are essentially saying that people should be forced to do something other than what is in their best interests, for the benefit of a statistic called "the economy".

But if "the economy" can only show the statistics that you want to see, when society is structured against the best interests of the people within it, then I think you're looking at the wrong side of the equation.

I don't agree at all.  This has been discussed many times on this forum.


All money is a debt from society to its owner.  Thus, someone who hoards money without actually spending it, is actually freeing society from this debt.  There is nothing wrong in that.

This 2% target comes out from nothing.  It is actually a theft of increasing productivity which should normally make prices reduce.

You don't have to give people any incentive to spend money whatsoever.  Who are you to tell them what they should do ?  If they want to spend money only for what they think is absolutely necessary, it is their right.  Don't you believe in freedom at all ?

Why don't you just have police beat them in order to force them to go shopping ?  It would be much simpler.

This is "simple inflation", not exactly what we have in central banking economies.
In our current system, it's worse than a commutative-hidden-tax. They use inflation to lower the interest rates which provokes business cycles and lots of capital destruction.


This is fallacy spread by Keynesians. There are many other topics on this very forum explaining why this is wrong, and you'll certainly find good articles on the web. Check www.mises.org for example, there are very good articles there on the subject.
Just think of hightec products... their productivity raises even higher than inflation, what make their prices deflationary. And that doesn't prevent people from buying them...
And by the way, savings is good. That's what feeds investments which bring economic growth.

You know, I mostly agree - inflation is a hidden tax.  Only it's worse, it's like a cumulative tax.  If you earn €100k and pay income tax of 40%, then you get €60k in your pocket.  But with inflation, that €60k is taxed again, and then next year, again, and then again and again and it never stops until a year's work is worth the price of a loaf of bread.

But, just in the spirit of discussion, I'd like to say something.  In order to have a functioning economy, people must spend their hard-earned money (and by "money", I mean anything that is generally accepted as payment for goods or services).  However, in deflationary or zero-inflation situations, there is no incentive to spend extra money.  I, for example, hate to have money in the bank or even in my pocket, now, because real inflation is huge (what, it must be at least 5 or 6% - not official inflation figures, but real inflation).

So, this incentive to spend (related to "the velocity of money" or how many times a single note is spent in the year) is high right now on account of inflation, even though there is a huge lack of liquidity.  If people had money now, inflation would cause them to spend and the economy might just recover.  It's just that there's no money in the general economy - all the bailouts etc went either into bankers' bonuses, or to shore up bank reserves in the wake of the real estate crash.

Now, what about bitcoin?  If all goes according to plan, there'll never be any long-term inflation.  Therefore we can assume that people will only spend what they consider necessary, and save the remainder for a rainy day.  The velocity of money will be much lower, and the relatively fewer bitcoins that do circulate will have to represent much more wealth than otherwise.

So maybe inflation isn't *all* bad, as long as it's kept to some reasonable value - the ECB's target, I think, is to keep it below 2%.

Comments?

Yeah, but still, that's the monetary base... as soon as it reaches banks, through the fractional reserves system, most of this increase in money supply becomes debt... (at least until before 2008 it did )
Only the compulsory reserves remain, which normally is a small fraction.

When the central bank monetizes the government debt, that is the government printing money, there is no debt there. Now you are saying hey! you just said the central bank bought government debt. Lets see:

The central bank buys government bonds and, in the mid-long term, never sells them. If you check any central bank, they just keep buying more and more government debt. There are some short term operations where they sell gov bonds, but in the mid-long run they always increase the amount of bonds. When the bonds mature they renew them. In the mid-long run, central banks always increase their bond holdings. So basically the government is never going to return the principal on a monetized bond, because its always going to be renewed.

Now what about the interests? The interests the government pays on the bonds are central bank profits. The central bank profits go back to the government (check the law). So basically the government gets back the interest, its like it does not pay it.

So when the central bank monetizes government debt, neither the pricnipal nor the interests are going to be payed in reality. So basically its not debt, its an accounting trick. The central bank uses the government debt as collateral to increase the money supply.

If you still think monetizes bonds are debt, I will borrow from you all the money you have in those conditions (not repaying it and not paying the interests). When the central bank monetizes government bonds its equivalent to the government printing money.

The compulsory reserves banks hold on the central bank.

There is heavy M3 deflation right now. Or rather there is suspected heavy M3 deflation right now, since the fed no longer measures it. It is one of the reasons the Fed can temporarily get away with monetizing government debt. It is simply keeping trying to keep the money supply stable by creating money via gov debt instead of private debt.

If you say there is money that is not backed by a debt instrument I would like to see an example? The only exception I know of is the very small pile of gold central banks still hold because they know they cannot trust each other.

This is not really true even in a central bank system. The fractional banks protected by a central bank do create money through credit, but that does not mean all the money in circulation is debt based, just most of it.

And during this crisis it has become evident that considering only the banking system as the source of money in the present monetary system will make you get the economy wrong. Understanding the present banking system is important, but there are more parts to the monetary system. If money was all debt and the banking system was the only way to create/destroy money there would be heavy deflation right now. But there is not.

You can of course exploit the system yourself. Which adds a welcome libertarian scent to the situation.

All money is debt based. When you loan money to buy a house or a car it is created in that instance. The only difference between your debt and the debt the bank uses to consolidate real assets to itself is the interest rate. Banks and governments pay almost no interest and generally at a rate lower than the inflation of the money supply. Once in control of real assets bought with funny money their debt is no longer a problem.

The "good" news about this is that the same mechanism is available to you and me. We to can get loans, effectively printing money from nothing which we can use to acquire assets. At higher interest rates we need to be more selective about our asset choices but it can and has been done. We are also not at the mercy of the interest rates we are offered. Once you understand the bureaucracy a bit there are really amazing deals available.