Topic: Where can we see deflation being more contributive than inflation ? - page 2. (Read 8408 times)

Your post is full of irony.  LOL

Where does Friedman say that?  Heres a quote from an interview where he recommends QE to the BOJ


"Now, the Bank of Japan's argument is, "Oh well, we've got the interest rate down to zero; what more can we do?" It's very simple. They can buy long-term government securities, and they can keep buying them and providing high-powered money until the high-powered money starts getting the economy in an expansion."

Its true he wanted to abolish the Fed but not for the reason you state

First, deflation is the increasing purchase value of the currency (yes, we all know it is not that simple, and it has many angles/subtext etc. We here are talking about bitcoin as a currency vs. fiat as a currency, and the inflation/deflation about these two. We do not care about CPI core rate, consumer price index vs. PPE...).

It does not matter, why computers are cheaper/better, if i can by a better for the same money as 1 year ago, my currency have more purchasing power relative to a past date FOR computers (and this was only an example, we all know, that one segment doesn't make the WHOLE currency higher in value..)

About the personal and insulting remarks. You do not even know me, and you call me (and others) uneducated. And you CAN watch MIT lectures on youtube, does that make them "fringe lunatics" as well? You call Antonopoulos (you couldn't even spell hes name correctly) a lunatic in a Bitcoin forum. Do you know who that man is? How he is one of the core developers, and researcher of the blockchain? How he is involved in the betterment and education about bitcoin, and leading speaker in every great bitcoin conference? Which i guess you never were, troll.

By the way, who are you? How many code you wrote to the protocol? Do you have a successful crypto start-up? Have you have written a new economic theory book?

If no, than you should not throwing poo on everyone you can just see.
Let me assume something about your knowledge as well: you are one of those autoriter professor fatishist, who only cares about who says thing, and not what they say.

As Milton Friedman would say, the root of the problem is that banks are relying on the central bank to provide liquidity if there is any crisis.
The net effect is that any mismanagement on the central bank part will crash the whole system. (It is a single point of failure)

Most of the bank run of the past (1907) were quickly resolved after short suspension of payment.
Some bank failed, but most survived, because they knew they would not count on the money printer to save them.

It is similar to the analogy of forest and underbrush in thieves emporium.

It is maintaining a forest by preventing any fire to catch.
The net result is that the underbrush will expand so much, that the odd of the first fire to consume the entire forest go very high.

Another way of maintaining the forest is to regulary light fire when the underbrush is not big enough to spread. The small stuff get cleared away, preventing a fire to consume the whole forest afterward.

The central banks are preventing any fire to catch, but the underbush grew so much that a spark can now consume the forest.

The idea is when you have recession the interest is lowered to encourage lending and when economy recovers the debts are paid down. 

BTW so far the QE doesn't have the effect its intended to have so you can say the theory is flawed.  The problem is you can't force someone to borrow money even if you make it cheap to do so. 

As for why The Treasury don't print paper money?  The short answer is that's not how it works.  They're not allowed to.

The Treasury issues bonds and the Fed buys them off the open market.  They do this to affect interest rate.  If they just printed a truckload of bills what are they gonna do with it? 

I wouldn't say there is any deception there.  If you go to the federal reserve website, its all explained.

Great overview, thanks. These episodes are examples of abrupt deflation due to clearing of debt. When debt is paid back or it is evident that the debt can not be paid back, and therefore written off. Since debt is a part of the money supply, that means when there is clearing of debt, the money supply goes down.

I still do not think that should be messed with, because the threat of debt having to be written off, is what should hold the market back to not create too much debt. I understand that this can be argued both ways.

What is interesting, is the question: Why do the neo-keynesians, who believe that the money supply should increase when economic activity goes down, why do they insist that the new money is created in the form of debt? Because the debt, since it can be cleared, makes the total money supply much more instable. If they instead insisted on printing paper dollars, they would exist forever, and a panic could not reduce the money supply.

Of course I have an opinion of this, that it is a form of deception, since the market does not necessarily understand that debt increases money supply, and it is easier for the government to get a sanction for it. But if there is another explanation, I would like to know it.

Deflation is in the monetary base used to transact in an economy.   Recession refers to the productive growth of the economy or GDP, especially with more people in a country its natural for more business to be conducted but it is separate from numbers of currency notes or digital transactions done daily.
   They are not linked in effect and vice versa; unfortunately neither do we grow automatically as a country because we have inflation.

The biggest point here is government debt.   That is the elephant on the see-saw.    Over 50% of GDP is done via politics so this is where the whole gravity of any argument starts to revolve to anything which can justify or make easier that burden of taxation, debt and so on.   In that context we cheer inflation especially now as many governments have no way to repay their debts up front.

Extreme levels of inflation in a currency and also deflation would mean price instability.   This represents inefficiency and possibly a restriction on business as contracts can no longer be written reliably.  One reference to that might be the airlines trying to account for oil prices.   We have giant reserves and production even with various wars and USA as a free country is a big producer however oil price can spike and that is a price instability partly stemming from easy money policy.


The ideal is perfect pricing or zero inflation and zero deflation, stable value to currency hence why gold was used as an element its unchanging where as politics can cause a countrys promise to repay debt become very unstable and so now its currency.   People argue against bitcoin as has no link to anything fixed, so it represents instability and a challenge for business so if it were deflationary that might be a step up as a recognisable trend

Computer prices is not "deflation" -- its scale of manufacturing.   Please don't listen to these uneducated people who learn economics from youtube & fringe lunatics like Molyneux and Adropolous

Here's some historical examples of deflationary periods:  Theres a lot more examples but I just copy & paste this from some website

Post Panic of 1837―United States
Following the Panic of 1837, which was spurred by all banks' insistence on accepting payments in either silver or gold coinage alone, there was a five-year long period of economic recession in the US during which the money supply in the US economy had decreased by almost 30%.

The Great Deflation―United States
This was a 20 years long period, spanning from 1870-1890, in the US when there was a drastic decline in the prices of goods, raw materials, labor and services throughout the country. This was a rare instance of a nation actually gaining from deflation as due to the low cost of materials and labor, the just-beginning-to-industrialize US economy of those times was better able to swiftly inundate itself with industries and set up factories and production units at a lower cost. During this time, the well-established industrial nations such as Great Britain suffered economically due to a fall in demand and prices. The cause of this deflationary period is attributed to the return to gold standard post Civil War.

The Great Depression of the 1930s
The Great Depression is, perhaps, the most notorious among all historical periods of deflation. It started with the catastrophic US stock market crash on 29th October, 1929. This phenomenon is also known as the Wall Street Crash and the day it happened is grimly remembered as Black Tuesday. The Great Depression was born of manifold reasons, such as massive failures in financial structures like banks and stock markets, contraction of money supply by the US Federal Reserve, decision to return to the Gold Standard by Great Britain prior to World War 1, etc. The ripples of this depression was felt worldwide, with most countries experiencing its onset at different times during the 1930s, till the early 1940s.

The Financial Crisis of 1997―Asia
It all started when the Thai Baht collapsed, as a result of the Thai government's decision to float the national currency by cutting down its peg to the USD. This decision was spurred by failure to support the Baht exchange rate after long periods of financial extensions, most of which was extended towards real estate. Thailand was already under a staggeringly high foreign debt, way before the Baht crashed, and was technically seeing bankruptcy in the eyes at that time. The currency crash only added fuel to the already raging fire of an economic collapse. Starting from Thailand, the Asian Financial Crisis spread its ominous grip upon a large part of Asia, including Indonesia, South Korea, Laos, Malaysia, Hong Kong and Philippines were the countries that received a major blow due to this crisis. Other Asian countries like China, India, Singapore, Taiwan, Vietnam and Brunei also felt the ripples, though on a much smaller scale.

The Japanese Deflation of the 1990s
Starting in the early part of the 1990s, the deflation in Japan, was a result of a combination of various economic and demographic dissonances. Chief among them were asset price deflation, investment in insolvent companies, extension of non-performing loans by banks, etc. Also, due to the large incidence of banks involved in non-performing loans, people in Japan prefer investing their savings in Treasury Bonds rather than in bank accounts, further pushing these banks towards insolvency. Another major concern is Japan's negatively lopsided demographics. A significant part of the Japanese population consist of individuals above the age of 60. This part of the populace is headed towards a decline and a higher death rate, which significantly exceeds the birth rate in Japan, making such demographics a major issue.

Financial Crisis of 2007-2010
The recent recession that rocked the global economy started with a decline in the liquidity that took place in the US banking sector. Widespread unemployment in terms of drastic decline in recruitment and a peak in firings by companies all over the world was witnessed during the period starting from December 2007 till June 2009. Repercussions and ripples of economic depression can still be seen and felt at present, though on a much smaller scale than when it started. This is why despite recession having officially ended in June 2009, the threat of a deflationary rebound still lingers in our minds.

That was a brief overview of the major deflationary occurrences in world history. Although there are certain technical differences between recession and deflation, both cripple the economy. Compared to deflation, inflation is the lesser evil as people don't lose employment and the aggregate demand keeps mounting, leading to increased production of goods and services which require employment and recruitment of more people. In fact, within a certain limit, a small dose of inflation now and then is actually good for any economy.
Read more at Buzzle: http://www.buzzle.com/articles/historical-periods-of-deflation.html

Here is an excellent explanation about inflation. By the way, it comes from a non-economist, Andreas M. Antonopoulos

http://youtu.be/KLj2X8ml-CI?t=34m36s  just watch till 41:20 (but i advise to watch the whole video, VERY educational).

He explains it through with:
"in a debt based monetary system, deflation sucks, because the biggest debtor is the government, who than would never able to repay the loans if the currency starts to worth more year by year. So they inflate the money into nothingness."

and also:
"deflation in a debt based currency can lead to a catastrophic collapse of the demand, BUT in an asset based currency - Bitcoin -, it does not."

I'm not sure if I am going in circles half of the time

Anyways, many people were saying how a deflationary model is superior.
I was simply asking for precedence or hypothetical examples.

The computers one seemed sensible from my perspective , didn't realize that deflationary couldn't be applied to only a specific field.

Is unemployment inherently bad?

I think it's just the fact that unemployed people make no money that is bad. But what if we drastically reduce the amount of hours everyone needs to work in a week, to example 4 or 5 hours. And have machines do all the work. Wouldn't we be better off?

Also depressions are not caused by the lack of selling products, it's by overly high expectations of ever exponentially increasing sales. But deflation or inflation, sales will never continue to grow exponentially. With inflation it may only look like it does because the money supply increase exponentially, but the profit is fake because the value of the money is less. Also with deflation you would not need exponentially increasing sales because even if you make less money each year, you can buy the same products (or even more) with it.

I think many people are stuck in thinking inflation is good becaus they are used to it, but I don't think anyone has ever really tried to have an open mind about honest money (gold/silver/bitcoin) and all honest money by default is deflationary.


If by that you mean we won't buy a new kitchen every 3 years, a new car every 2 years, a new computer  every year and a new phone every 6 months, than yes, the economy will tank.

But do we really NEED to be that wasteful to be happy? Do we?

I hope not, or else the world won't  be able to continue as we know it for the next 50 years or so!

Who doesn't need a laptop immediatly will wait for a better one (or cheaper one), who needs a laptop right now will buy it anyway.

What's so bad about people onl buying what they need?

Also, in fact, is a $50 laptop in 2024 really cheaper than a $500 laptop now, if we consider the same $50 can buy you 500 pieces of bread in 2024 compared to 50 pieces of bread now? (Considereing deflation)

Well considering that computers are still a relatively new invention, we see a lot of economies of scale in play in the field of computer engineering (not the least of which is that computers themselves help us design computers).  Its not so much deflationary per se, but rather that the field was initially very profitable (and not very competitive), but has since become more distributed in terms of market power.

The problem here is that you can't speak of markets for goods and services as inflationary or deflationary, only as monopolized or price-taking.  While in terms of coin-mining hardware, you'd consider the computer an asset, to the rest of the world its just a computer (outside the market). 

Inflation and deflation refer to macroeconomic prices as a whole (i.e. how a decrease in computer costs and costs of other enabling technologies might lower prices across the entire economy).  Its not just the effect of prices in a single market, but rather how these prices then have a reverberating effect across the entire ecosystem.

Was that what you were getting at or did I miss your query?  (cool discussion btw - haven't had one of these since undergrad)