Topic: Where can we see deflation being more contributive than inflation ? (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)

But there is no such causality. This was definitely disproved with the stagflation of the eighties.

So you have read some books, we have not. Trust you. Well. You may call it neo-keynesianism, ok. Inflation is central, nothing can be discussed without it.

Yeah , I didn't mean 101 literally , just in the sense that 101 implies the most initial course of study in that field.

The first question I had asked has been answered well and repeatedly ('Why is mild inflation needed ?')

To my second question , I'm still looking for more answers.
The best comparison where despite being deflationary , growth still occurs in that field is computing power :-

You're right, entirely too simplistic, but it does satisfy the Econ 101 perspective (Econ 102 actually - Econ 101 is quite broadly a Microeconomics course at most schools, whereas Econ 102 is Macro, but I digress).

What matters the most (at least mostly from a Keynesian perspective) is the time scale over which the new money is introduced relative to the amount of employment (who's getting the money and the degree of centralization of wealth).  If the government instantly prints that 10 extra dollars and hands it out to the population via the banking system, then yes, prices will explode 10%.  But think about the response of prices from the perspective of a step-input vs. ramp-input - a step-input will obviously cause a greater reaction, whether the response is prices in a money model or the deflection of a spring in a physical model with an initial push.  The math is the same.

Most sane people would rather lose 3% of their savings, than be unemployed or have to downsize their business due to hoarders spending less money.   We need money to be inspire entreprenueral

I think this is too simplistic.  Consumer psychology does matter.  Have you ever driven by a string of gas stations, seen that one of them has raised their price by 30 cents (which, from experience, indicates that the rest will likely be higher soon, too), and then stopped at the next station with the cheaper price to fill up?  I've certainly done that.

Also, remember that inflation and deflation generally affect wages as well as prices.  If we're in a deflationary environment, on average, I can expect to be paid less next year than this year (which could also come in the form of losing my job).  If I believe that to be the case, I'm going to save money as much as I can--only buy the essentials, etc.  If everyone does that, the economy will tank.

I don't disagree that inflation may lead to wasteful behavior and feeds the whole instant gratification mentality.  But what's a better alternative?  Out-of-control deflation (which is often what happens with deflation) leads to depressions--market crashes, very high unemployment, etc.

Thats not historically correct.   Bank runs were more commonplace before creation of the Fed.

Keynes was less about monetary policies and more about fiscal policies.   His breakthrough was "aggregate demand".  It wasnt until Friedman that we have "monetarism"

I dont believe Govt cause recessions or inflations.   Economies respond to market forces.   Govt try to influence economies using policy and sometimes it helps and sometimes it makes things worse or does nothing.

Bitcoin is Satoshis influence coming from Rothbard.   Who,  IMO is a not to be taken seriously as an economist. 

Yes, that is correct.
Unless, we examine the fact that recessions are caused by government interventions. And their proposed solution is government intervention. The irony.
Also, interest rate increase does not takeout money out of circulation. It creates the need for MORE money in the future! (100*2%=102 money needed to payback. 100*10%=110 money needed to pay back.)

My (well, reality's) problem with government intervention is that, at the end of the day, there is one guy sitting in his bureau, signing a paper, how the 100 millions of people
should act (interest rate basically modifies the action of millions). That 1 guy can not have the slightest clue about the values/actions of 100 millions of people (=the market).

Central point of failure. Also, he does not have a stake in the outcome, he is playing with tax payer money, not his own.
These two adds up to total failure, as shown in the last hundred(?) years (since the creation of FED in 1913).

Now, there is this project called Bitcoin, to decentralize (=free market) the money, while at the same time make people to risk their own assets, when "signing the paper".
I can not think of a better incentive+resource allocation system to create a medium of exchange!

Keynes only prescribed that for recessions to avoid spiral into depression.   If inflation was rampant he would suggest raising interest rates.  And taking money out of circulation

Keynesian believe in gov't intervention. 

I agree on the second. Well, i rather say, i expand on that.
And i disagree on the first. The OP can have meaningful answers here as well :-), but yes, go read something, like Human Action (952 pages) (https://mises.org/Books/humanaction.pdf).

Keynes was all about government spending, to "fuel" the economy. Inflation of the money supply - because we are talking about THAT - turned out to be a way to do it, and
at the same time tax the people, while they do not know they are taxed. Governments hit "likes" button.

Or watch Jeffrey Tucker's short video about the 20th century monetary policy failure http://youtu.be/SSWvwBug19M?t=15m30s .

And yes, inflation itself is not Keynesian, because a Keynesian can not even define it in a sensible way. I mean, demand-pull inflation is so laughably wrong...private and government spending as a cause of it; in the same sentence we have private - a free market actor-, and government spend - by definition is the opposite of market. The Keynesian view on inflation is just fairy dust hocus pocus, the cost push inflation (yes, resource got more expansive due to sudden events, gasp!) view of them has nothing to do with the available money supply, it is just a typical example of unkown-knowns (and it is only in a given industry, NOT the whole economy).

The theories around it, and how governments acted in the 1906-70's, everything is wrong and history proved it. Hayek "won".
http://mises.org/daily/6716/Why-Keynesian-Economists-Dont-Understand-Inflation

So many wrong economic theories here.   

OP I suggest you take a coursera course instead of asking here about economics

These guys probably never even read an economics book in their life.

I'll give you a hint - inflation has nothing to do with Keynes

You ask the wrong question OP. Do not misunderstood me, it is not about offending you 

First: Define "mild". As stated above, a "mild" 2% inflation destroys the purchasing power of your savings by 80% by the time you retire (given you save the same amount every year in your pillow in cash!)

Second: inflation also needs a definition. Speaking in general, people define it as the rising of prices of consumer goods compared in a given time/space period (example: price of 1 liter of milk in 1st of jan 2009, and 1st of jan. 2010). Also count in market changes, like: disease in cows, number of cows increased/decreased, producers of milk changed, demand for it has changed etc. etc. So, it might be that the value of 1 dollar has not have changed, but the market price of milk did. See http://en.wikipedia.org/wiki/Market_basket for more info.

Eco 101:

Let say, the whole amount of currency (which plays the money function) is a 100, and the whole amount of goods/services which can be bought/sold by that currency is also 100.
If the government - issuer of the currency - prints (QE by FED), for example, another 10 units of currency that year, the amount of goods/services is still 100.
Now, we have 110 currency for 100 wares. This will generate an increase of prices equals to the increase of new currency in the rotation, ~ 10%.
So, no, inflationary policy will not make people to spend more and increase the consumption, create new jobs, since the resources/labor/capital in the REAL PHYSICAL world did not have changed, we only had more colorful paper. Yes, by numerical count, people spent more, because prices went up, but the sum of the goods did not rise.

Some may argue, that new "money" fuels new investment. There is a basic fallacy here. For any investment to be economical, you have to earn more than you spend. Means: you have to make profit. But, if the money inflates for example, 2%, your profit rate has to be n+2% of the usual n profit to reach just the same amount of return, given no inflation!
Also, if you can not find an investment, your money gets less and less, year by year. (hence the loss of purchase value).
Actually, that is why the stock exchange is pumping up, the newly created money tries to find a way to not lose value (compound interest).

Of course, the newly printed money first gets into government's pocket (infinite budget!), whom them sell it to the banking system for interest rates controlled by the same government(!), then the banks can lend it out to the real actors of economy for a significantly higher rate than the inflation rate, hence the only participants who win out with inflation are governments and "friendly" banks tied to them. That is why every single state in the world is in ever increasing debt year by year (the real economy can not produce that many goods/services as newly created money produced/year).

In this system, inflation makes money a "proof of debt".
That is why Keynesian policy is a nonsense...

Now, let us examine the definition of deflation in a free market economy setup (like Bitcoin).
It means, that the same laptop you would have bought in 2004 for 500$ now you can buy for 50$, or you can buy a 10 times faster laptop for the same 500$. The purchasing power of your dollar increased for the same technological level, or you can get a 10 times better technological product for the same price!

This does not mean you wont spend your money. It only means, that the wealth of the world (product/services) increases, and you either need less and less unit of money to get the same product, or the same amount to get a better product! Actually, this increases the incentive to invest and save, because, now you have a vested interest to create better products, which you will also be able to pay, since your money does not depreciate, so you do not "have to spend it" because the rate of inflation is faster than the rate of product improvement.

This makes the Bitcoin money system, a money where it is a "proof of value".



 

The Keynesians mistakenly believe that the economy has some potential output level, and that we currentlty are below that. They think that creating more money, both treasury notes, central bank debt and private debt, will force production up to the potential. The new money goes to public spending, banks (supposedly to lend to businesses), corporate welfare and wars.

This kind of thinking leads to a planned economy, massive malinvestments, loss of freedom, poverty, a general feeling of being reliant on government doles, huge differences in wealth, social division and strain, and war.

They count and measure, but change the yardstick every month. GM supposedly increased output the previous period, but half of the increase went into the channel and was not sold to consumers. The other half was a result of subprime lending. GM is a crony company. Stalin did the same accounting tricks.

But in reality, there is no mystical maximum economic output level. It depends on the capital structure, the number of workers, the savings rate, the investment rate, and other things. The prices, including the market based interest rate will make sure that the capital structure is diversified, right sized and adapted to consumer demand. Saving rate, investment rate, consumption level should be decided by the market actors guided by prices, including interest rate. The money supply should be fixed, and governments should not take up loans.

If you get a $1000 new dole from the government, and simultaneously had taxes increased by $2000, you would ask yourself: What is the point, and where is the other $1000 going. Using the Keynesian method, you get the $1000, the government takes up a loan of $2000 in stead, but the collateral for that loan is your future income. The other $1000 is gone, consumed by the dominators.

it can sustain the NEEDS of many more but not the WANTS of many more.

Inflationary economics make people want more and more, and keep consuming even if they don't need, because their money will be worth less and less each day.

But we can't have more and more for everyone, someone is going to suffer, and the more profit the extremely rich want, the more people will have to suffer to fulfill the greed of the few.

Until at a point there's not even enough left for even the 1 person who has all wealth, because by the time that happens the world will be so polluted life s no longer possible.


I know, but it's unequally spread, i'm not sure if this will happen with a deflationary and limited currency, but i doubt it will be worse than the current system anyway

Easy to talk from a 1st world country, try living in a 3rd world country and see if you still like it so much

you seem to be pretty happy with the direction humankind is taking, are you a bankster by any chance?

Remind me what Milton Friedman said to a student asking a question, it was something along these lines :
-"M Friedman, resources of the planet are exhausting"
-"This is false, you start with the wrong premise"
-"What ?"
-"From an economic perspective, we never had so much petrol as now.
You can't say that the petrol nobody discovered 20 years ago under surface was existing. From an economic perspective, it existed only when we discovered it and had tools and capital to exploit it. Science discovers petrol faster than we consume it, so for an economic perspective, the resources are not exhausting, it is exploding. Why are you paying more ? it is certainly not because it becomes rare, maybe you can ask to your regulators."

I hate bull shit like this. This planet can sustain MANY more people than it currently does (here is a reference only arguing for 10 billion, but you can find others that will argue higher http://www.livescience.com/16493-people-planet-earth-support.html). The reason people are hungry has nothing to do with how much food there is. We currently produce more food than the world can stuff in its face ("The world produces enough food to feed everyone. World agriculture produces 17 percent more calories per person today than it did 30 years ago, despite a 70 percent population increase." http://www.worldhunger.org/articles/Learn/world%20hunger%20facts%202002.htm)

Yes, some of the things we do are unsustainable looking toward the future, such as burning fossil fuels, but we have MORE than enough right now, and will for a long time.

Do you know any history at all? There are less epidemics and famine than there ever have been in world history . Sure, some things go a bit higher for brief periods, but the long term trend is for a healthier world. (Sorry, couldn't find an easy info link on this, but I'm pretty sure it's true. I would sure rather live now than any other time in history as far as disease goes.)

If you still believe the FUD you're spreading give us some references.

Inflation is redistribution of wealth.
It redistribute wealth held in currency from the people holding the currency to people holding the newly printed currency.
A "mild inflation" like 2% year will destroy 80% of your saving in 40 year (you know, your eggs nest for the retirement).
Inflation favor people borrowing and consuming and damage people saving and lending.
Good investors are punished by inflation in favor of bad investors investing too much, too early.

With 0 inflation, the investors making the right prediction of the future will be rewarded.
With mild deflation the investors too much prudent (investing less than optimal) will be rewarded.
With mild inflation the investors too much reckless (investing too much than optimal) will be rewarded.

Actually inflation is worse than deflation because too much prudent investors will not invest and don't take loans. They just increase their savings level before starting their enterprises.
If things go wrong, they have a bigger and stronger safety net.
Inflation, on the other ends, reward malinvestments, consuming more savings and locking them in configurations that are difficult or impossible to undo. Like building houses no one need or use or is able to payback in the long term. At some time, people discover there is no more resources saved to complete their projects and are forced to stop them and start liquidate them at a loss.

indeed, assets make money

people say money creates money, but it's the assets that make money. And only the rich have the money for proper assets (and they know which assets to buy in the first place).

Bitcoin is one of the few assets that is available for the masses, and it allows for investing it as well to even get interest on bitcoins.


people will buy things when they need it, which is much better because it prevents buying for 'wants' and encourages buying for 'needs'

which is much better for the environment in the end, and it might reduce greed.

A consumption driven society like we have now is very bad for many reasons. Ever heard of planned obsolescence? That certainly won't happen in an deflationary system.

Inflation encourages wasteful behavior.


why is saving up bad? Why should you buy something you don't need, just to boost the economy?

Why should everyone have full-time jobs, while we are theoretically advanced enough to have machines do almost all of our work, while we can focus on art, science, and recreation? And actually do something useful with our lives instead of wasting the good parts of our lives working for a 'boss' like we are owned by someone like a fucking dog? Wouldn't you rather actually travel the world and spend time with your friends and family than having to do mindnumbing tasks so that someone you don't even really know makes a shit ton of money from the work you do?

My niece and her husband just bought a house (she's 23 I think).  So there you go.  Maybe it's because she chose NOT to go to college that she can afford it.

Mild inflation encourages people to invest and spend money on what they need, because if you don't, you money looses purchasing power. A health economy needs people to spend money to keep everyone employed.

From the FED's point of view, they also need a mild positive inflation to give room for a positive interest rate. If inflation is too low, there is little room for interest rate to throttle exchange rate, gdp growth, unemployment, lending... and so on.

That seems to be a very mundane explanation and is insightful at the same time...


Actually growth produced from inflation is artificial growth, because it is not driven by necessities but by the expectation/fear of losing wealth. Therefore it can not be sustainable longterm and wastes resources.

I hope Bitcoin will prove that the doctrine of inflation-induced growth is wrong.

I think subjugation is a broader issue.  It doesn't matter whether you have inflation or deflation.  The rich will use either to their advantage.  In a deflationary scenario, the poor will still remain poor and will probably get poorer because, as a whole, they're the first ones to lose their jobs.

In a normal economy, it's pretty much impossible to have no inflation or deflation, unless you're constantly mucking with the currency supply for that economy.  So that basically leaves you with a choice between inflation, which theoretically leads to an upward spiral in prices and spending (if xyz is going to cost more tomorrow, I should buy it today while it's cheaper), or deflation, which leads to a downward spiral in prices and spending (if xyz is going to cost less tomorrow, I'll wait until later to buy it).  A little deflation now and then can be ok, but it's easy for it to get out of control.

Inflation is a form of subjugation -- a way to ensure that the poor remain poor. The poor keep most of their wealth in the form of currency, and that wealth is destroyed by inflation. The wealthy keep most of their wealth in assets, and are not affected by inflation.

It is no surprise that the bankers running the Fed say that inflation is necessary. Who are benefiting the most from inflation right now? Owners of real estate and corporations. Everyone else has to suffer from rising food and energy prices and watch their bank accounts lose value.

the reason the economy needs reviving in the first place is because the economy demands constant consumption.

The earth is not made for constant exponential increase in demand. We are already past the limit the earth can sustainably provide in resources, the current way the economy works will make the earth unsuitable to sustain life, and it's already causing unnecessary spread of epidemics and famine.

great to know the economy is working for the 0.01%, but it doesn't work for the other 99.99%

Mild inflation will push spending and investing.People isn't willing to keep fiat to lose value.  They prefer to spend or invest something to earn more fiat.It will increase the commence activities and revive the economy.

And the reason it skyrockets is one of the same reasons BTC has value - it can be slipped under capital controls and changed into a different country's currency if people were to move their family or just their money elsewhere.  Essentially it functions as an inflation hedge/floating currency, and because no govt has had control of its supply since the abandonment of the gold standard, it makes a very attractive asset if you're betting against the dollar/another fiat.

Japan from the 90s til now.  Read up on the current economic situation, Shinzo Abe's plan, and the actions of the Bank of Japan.

Edit:  And also, its not necessarily going against the inflation-driven theory of growth, its just a hedge against excessive growth, functioning the same way as gold in these circumstances.

When the Fed started printing money with QE (it had never been tried before), they essentially put a price floor on mortgage backed securities (which had become near-worthless with people defaulting on their mortgages once there were no buyers left in the bubble).  Look at this chart of the gold price from the past 15 years - as a hedge, the price skyrockets in times where people lose faith in the dollar/fiats (especially when the credit ratings agencies begin downgrading the US govt's credit rating, because if that goes to zero, well...its all over).

So, basically Bitcoin is going against the widely believed principal that a small amount of inflation is required to expedite economic growth ?

Can somebody give me more reasons , or give me a decent reading list to why a deflationary system is superior ?
I can already see negative effects of it , as most people already don't spend much of their Bitcoin due to their perception of it primarily as an investment.

The Fed doesn't print unlimited amounts of dollars for shits and giggles.  Currently, its being done in the QE program with the hopes that injecting liquidity will revive the cancerous mortgage backed securities underpinning the housing market.  However, in order to do this, they have to drop interest rates to near zero, meaning banks are then less likely to give out credit.

The housing market won't reinflate though, meaning that yes, this money they're printing will eventually just translate into inflation.  You disagree, Mr. Bernanke and Ms. Yellen?  Please tell me who the next generation of homebuyers will be, because everyone I know in their 20s is swamped by student debt, and oh right - banks aren't lending.

In that sense, Austrian is more accurate than Keynesian.

There are a lot of factors. And it would require a lot of reading to understand.

I think the biggest reason that deflation is scary to the mainstream is because of its relation to economic collapse. In recent history the only time deflation has been seen in an economy was during a big colapse, so everyone thinks it correlates. Maybe it does, maybe it doesn't. If you go along with the Keynesian economics you tend to be very afraid of deflation's effects. if you believe in the Austrian School of economics you know that deflation is just an adjustment to market demand, and is perfectly reasonable.

It is not needed - and we are going to prove it.

It's what the FED wants you to believe to have an excuse for printing unlimited amounts of dollars.

It encourages people to spend, buying the goods and services that in turn give others in the economy jobs and crank the whole engine onward.

That is the current assumption from the academic type.

I wouldn't called mild inflation is needed any more than mild deflation is needed.

Can someone explain to me :-
1- Why mild inflation (2.5%) is beneficial to an economy ? Has been answered repeatedly
2- If mild inflation is beneficial , shouldn't Bitcoin , as a deflationary currency , be counter-intuitive ? I'm looking for more current examples where despite deflation in a field (The same amount of fiat buying more goods), consumer spending is high.

One case submitted is :-