Topic: The Tomato Soup Index - Inflation Sucks (Read 9587 times)

I still beleive that the soup can is late in the race, much more inflation on the way.. dig a bit more about what "really happens" in egypt, lybia, syria, and actually happens in Iran !  

Watch out for the "soon to be 10$ tomato soup can" is my call !   Then the heads will roll.



It's simple math, and.. In numeris I (we) trust !

Nah, all that money went to the wealthy, and they were already buying everything they need.  It just bumped them all up on the scoreboard and now they feel more important.  Lots of people are expecting massive inflation, but when the dollar deflates those same wealth hoarders will feel even more important... right up until we are all out of work and start rioting.  That's when the heads will roll.

I like the chart (tomato soup price)

it reminds me the U$ money supply chart.. the big big peak (increase of last 5 years) in U$ money supply has not even reflect on consumer price, IMHO !

Wath out, soon, we may pay hundreds bucks for the f... tomato soup can !

Remember, in an economy income = spending, so most of the harm done by inflation is in the form of malinvestment, as well as pay cuts to the working class that cannot hedge against inflation easily.

+1

Because there is no wealth increase, only a transfer from the poor working stiffs who are too busy to track what the manipulators are doing to those who are better informed.

Jesse Ventura, is that you?

No, it's not, according to the Austrian school of economics. Because money saved in banks returning interest is providing non-consumption growth for the sake of future consumption. The money is still moving around the economy, thus not affecting its velocity. Hoarding, when you remove the money from the supply, does affect velocity and does increase the rate of deflation in a very artificial way.


You think it's egregious that banks get the benefit before you get the benefit. Where's the difference, man? Oh wait, because YOU will be the bank in this situation it's all good. I totally get your philosophy bro. You're jealous of the early adopting banks and want a piece of the pie for yourself rather than fixing the problem with money.

Sorry, I thought you were Etlase2. It does matter if the coins are held by 1 person or 1 billion because the effect Etlase2 and I are talking about is how newer money released into the market gets a higher value versus the existing savings (called the Cantillon Effect). But that this is effect is similar to when one person releases savings: they get a benefit over the other people in the economy. For example, if there are 1 billion people with savings and 500 million decide to spend all their savings at once, then the value of the savings of the other 500 million will be worth less for some time.


Well, that's just, like, your opinion, man. It seems you are too upset to really talk to about this. You think it's egregious that people who have money before you can get a benefit, and I understand the principle even if I don't agree with it in practice. I personally feel that individuals get a minor advantage when they use their savings, and because this is limited in scope and it is tempered with opportunity costs, that it is not really an effect worth worrying about.

The awesome thing about my stated philosophy about what is right is that you are free to choose that monetary system that you think is best and doesn't have this effect that seems to upset you so greatly. I still think a system like bitcoin is miles better than what we have and is the best at what we've come up with.

But I've shown with the simplest of math that this is wrong. You are begging the question, I am using an equation, one devised in part by Mises no less. Why should anyone trust what you believe will happen when the equation simply says you're wrong?


Except that I only do this to make the scenario clear. You can use any amount of money and the same effect happens to a lesser degree. Present hoarding causes future inflation. It is unquestionable. It's all a matter of who benefits. And many times this may occur naturally and exogenously, such as in the case of the majority of banking panics in the US before the federal reserve. Predictable and unpredictable circumstances can both cause serious price shocks. In the end equilibrium may be returned (a lot quicker if you have such a helpful chap named JP Morgan to buy back your economy for you), but in the meantime there is misery.


I'd say it's an extremely implausible scenario that the gambling derivatives market would be 400x the GDP of the United States, but it is true. What isn't true is that because A is bad and B is not A, B must be good. Red herring, denying the conjunct, ignoratio elenchi, what have you. It's distracting and irrelevant to whether or not bitcoin is sound money.


Strawman with a bit of "hey it's ok, the value you lost is for your own benefit" thrown it. "The pyramid will continue and you will eventually be rich too!"


Are you going to foam at the mouth on me now too like Realpra after pointing out how argumentative and logical fallacies make for a piss-poor argument?

I didn't give any numbers, and it doesn't matter if the coins are held by 1 person or 1 billion. If it is the currency of the whole economy it will still be so when the economy have doubled, and those who just sit on their money will eat up the whole increase without contributing. Those who invest will be playing a zero sum game, where they have to be very lucky or unusually good at what they do to benefit from investing.

Bitcoins are not very relevant as the Bitcoin price is only driven by speculation. I'm talking about a mature economy.

If you want to know what I think is right, then I think it's right to allow people to choose their currency with the understanding of the pros and cons of that currency, that way when something occurs against their favor, it was ultimately their choice that lead them there, and not the use of force. I don't strictly think that Bitcoin is more right than a private bank issuing notes, but that it is a more moral situation when both exist and people can choose.

If you want to know why I think the old man situation is better when choosing a currency, this is because of the limited scope, the incentives are set up for him to not just take him money off the market or if he does, for him to reenter in stages at different value points, again limiting impact. The numbers you give look bad, but they assume a mythical person who owns half the coins and suddenly wants to get out entirely all at once. It's an extremely unplausible scenario while the Wall street bailouts have happened and continue to happen (QE3).

This is just the early adopter argument dressed up with economics equations. But I'm not jealous of early adopters, I think they took a risk where they didn't have to. They all could have all eaten BTC10,000 pizza pies, but they didn't. Worrying about them is like worrying about people who bought gold at 200 and Apple at $50. They might dump and get a large benefit in front of everyone else, but the worry of that shouldn't detract you from getting in.

Let's ignore for the sake of argument that finding a nominal positive interest rate in a deflationary economy will be very difficult. "Saving" in the austrian sense means putting your money to work, almost absolutely to non-consumption growth. Capital reinvestment. Things decay, it's a fact of life. Equilibrium will still be achieved because the free market interest rate will vary depending on the amount of money available to lend and the amount of people that need to borrow. But in this case the supply of money won't be upset. If we assume a totally stable economy, Mr. Businessman will only earn a few percent per year. To the contrary, in a stable economy, Mr. Businessman can withhold all of his money and double its value as soon as the market readjusts to the new money supply.

Which one do you think he will choose (where's the opportunity cost)? Which one will cause immense suffering for everyone but the businessman? What exactly are we trying to solve with fiat?


Don't you consider Wall Street to be pretty big? Are we all supposed to naively assume that greedy people won't do their very damndest to manipulate this economy? How many times does the value of a bitcoin have to double to reach even 1% of the world's GDP? How many easy opportunities will this provide for the bitcoin wealthy to manipulate the market?

While equilibrium may be reached every now and then, there will be people always accumulating wealth and always looking to game the system in their favor. Withhold money, cause extra deflation (again not a perfect market, they don't know what's happening, people lose jobs prices stay high and so on before the market has a chance to adjust), then when everything has settled down, flood the market to grab all kinds of real value, cause everyone to lose value in savings, so on and so forth. The. Business. Cycle. In a new and stupid form.

Roll (pão francês) in Brazil:

1995 - $0.05 (BRL),
2012 - $0,40 (BRL)

Not as long as new players are literally born every day, and those who invest make the economy become more productive.

+1 This is an excellent way of explaining why the current fiat money printing ponzi sucks.

It looks to me two things should be separated:

1) Arbitrary monetairy expansion or money printing => fiat only

2) Change in currency value due to large players (wealthy people) leaving and entering the market => same goes for both fiat and Bitcoin

Wouldn't you need really, really big players for 2) to have any noticeable effect at all?

Wouldn't 2) reach an equilibrium, because many large players will be entering and leaving at random points in time, so the effect would be even less noticeable?

Why do you think it's right that those who don't waste their opportunities should effectively be taxed to pay for his opportunity costs?

The old man benefits because he planned for his future by saving, and also incurred years of opportunity cost by not employing his dollars in a different way, allowing him to get a limited advantage that will approach an equilibrium, versus the current system where the advantage is manufactured from thin air and awarded not based on foresight, risk management, and sacrifice, but on nepotistic cronyism employed to bail out the most egregious risk takers, creating a moral hazard that forces an continuous exponential expansion with no chance of equilibrium.

But other than that, I see how it's kind of the same.

You are begging the question. Accepting something as truth with no evidence. There are people and businesses on the other ends of those investments that must pay the price if investments provide a unilaterally better return in a deflationary economy. The rate of deflation *must* be taken into account to provide an accurate real interest rate, just as banks take into account inflation.

http://fskrealityguide.blogspot.com/2008/11/interest-rates-in-true-free-market.html

"Suppose the free market interest rate is 2%. I predict I can earn a 4% rate of return on my business. Therefore, it pays for me to borrow at 2% and invest in my business yielding 4%. Of course, I should include a margin of error in my calculation.

Suppose the free market interest rate is 6%. I predict I can earn a 4% rate of return on my business. Therefore, it does not pay for me to invest in that business. I'm better off doing something else."

The real interest rate will be interest + deflation, just like the real interest rate in a typical economy is interest - inflation.

Since bitcoin is a free market currency, the interest rate will be determined by how willing people are to borrow money vs. how much is available. If deflation is 5%, do you really think anyone trying to borrow money is going to pay 5% + the nominal interest rate? Or are they going to say "I'm better off doing something else"?

And of course the issue economists fear is what happens if the deflation rate makes a big leap one year? Say 8 or 10%? A whole lotta bankruptcies.


You are right that the government/central bank unfairly favors certain institutions with new purchasing power without creating any new value. But you're ignoring the fact that Bitcoin does the same thing for wealthy holders. And it also comes from everyone else using bitcoins.

Say person A is a wealthy businessman who maintains a running personal savings of about 1000BTC. He spends a lot of it but brings the balance back up through his business venture.
Say everyone else has a total of 1000BTC that moves around the economy.

MV = PQ
M = money supply equals 2000 BTC
V = velocity of money, we'll just call it 1
P = price level, we'll call it 1
Q = quantity of real goods and services in the economy

2000*1 = 1*2000 (solving for Q) is our status quo

Now say wealthy businessman A wants to retire, but just for the sake of example spends no money whatsoever and removes his 1000BTC from the economy. So the velocity of money drops by half, and the price level drops by half (we'll completely ignore the unemployment implications and the fact that the businessman is unlikely to announce his plans to give the market perfect information to account for this collapse).

2000*0.5 = 0.5*2000

10 years later, new products, new people, new whatever has entered into the economy and it has doubled. To adjust for this, the price level has fallen further.

2000*0.5 = 0.25*4000

Now the wealthy businessman decides he's going to go on a spending spree and put his money back into the economy. Now:

2000*1 = 0.5*4000

He got to buy everything before the prices double to account for his money being put back in circulation. The market can't possibly adjust instantaneously. And everybody who saved a dime now has a nickel's worth.

How is this thematically any different from the current system?

Even if the economy stays even, even if removing his portion of the money causes no problems, he can still buy stuff for half price while everybody has been making half-wage and whatnot and cause a major upset in savings. Do you think the Bit Street elite don't get this? Do you really believe that increased purchasing power happens in a vacuum?

And that's even despite improvements in technology to make the soup and to deliver it (and gas being cheaper than ever in terms of things that aren't dollars), and maybe even a cheapening of the product or a smaller profit margin to service a poorer market.