Topic: Why such agreement that Deflationary currency is a bad thing - page 3. (Read 4415 times)

I also want prices to be "rock steady"... but it may actually be "too much to ask".  The 21 BTC limit is as arbitrary as any governmental monetary policy, just designed to have the opposite effect.  What may happen in the long term is that BTC and fiat strike a sort of mutualistic symbiosis, where the deflation of BTC counteracts the steady inflation of fiat money and people shift their money back and forth as needed to maintain balance.  That may be just a pipe dream though...

I've not used namecheap's hosting, I'm just aware that they're a reputable company and I have registered domains with them.  In general I shy away from "unlimited" services in favor of those with specific service guarantees.  Perhaps I'm a pessimist, but I always take "unlimited" to mean  "We've oversold this service by a factor of infinity... and btw, there is a limit, we're just not going to tell you what it is until you reach it, then we're kicking you to the curb without warning in accordance with the fine print you didn't bother to read".  But, yeah, I might just be a pessimist

I think this is just not possible. There are so many variables underlying a price, that you simply cannot hold all your variables constant. 

I'm aware of namecheap - the issue for me (ironic seeing as we're discussing prices!!!) is that their prices are too expensive. For unlimited domain hosting they charge $14.95 a month, whereas hostgator charges $9.99. Namecheap's bitcoin price is the market exchange for dollars. So in order to use my bitcoins to buy hosting I'd have to accept INFLATION of 50%. Like I said - I don't want deflation, but I don't want inflation either. I want prices to be rock steady. Is that too much to ask?

https://en.bitcoin.it/wiki/Trade

And at least one reputable host/domain registrar (who for some reason is not on the trade list) who accepts BTC is namecheap.com.  They're also the 4th Google result:

http://lmgtfy.com/?q=web+hosting+bitcoin

If you can't find a host who accepts BTC, it's because you haven't looked.

How many businesses are trading with each other? I can't buy my groceries with bitcoins or even hosting for my domains. The most developed part of the bitcoin economy is trading exchanges - one springs up every day. In other words, there is a tendency to hoard, and then change back money into fiat. That's not a good sign - if bitcoin was the future why on earth would people want to check the price against the dollar or even change it into dollars, complete with regretting that they spent their coins because they'd have made so much money if they'd hoarded it and yup, changed into dollars. The dollar should be irrelevant - but it's not...

I thought you were just being ignorant of history but now you're just outright making it up and using hypotheticals to get your way like a neo-keynesian does, I also love the hoarding argument, that's a classic one and has been argued to death, you seem to be completely ignoring all the businesses and people that are trading Bitcoin amongst each other.

Depends on "what the consequences are to them personally".

Deflation simply means that prices fall. Therefore it's not worth spending money today because things will be cheaper tomorrow. In other words, it encourages hoarding of money.

Now consider that one person's spending is another person's income. Say you are a business. You've made some goods and incurred some costs doing that (cost of materials, cost of labor). But no-one is buying, they are waiting for the price to drop. So you shave your margins. Soon you are selling at cost just to release the money locked in the inventory. But what if people refuse to buy goods at cost? Then you go bust. Your staff are fired. Forget decreasing wages, they have no wages, because there is no business, because no one will buy. As the numbers of people getting laid off increases, sales fall further because these people have nothing to spend. Prices get cut even further to try to attract the remaining business - but no-one is buying because a) they are waiting for the price to drop even further and b) they are scared they'll lose their precious job - so you get even more hoarding and even more businesses going bust and even more people laid off. In a downward spiral.

Eventually, after about twenty years, there are some goods that people absolutely have to have (medicine for example), and people will pay for that, but elsewhere the economy is a wasteland. People emigrate, but they find problems wherever they go because other people resent them moving onto their territory (they've become immigrants). You get starvation, you get riots, you get anti-semitism and racism, and you get people trying to exploit popular anger.

The long depression of the late 19th century, which lasted twenty years spawned two responses - some countries introduced welfare states to prevent the masses from rioting and dying, and other countries had revolutions (Russia) or fell to evil dictators (Germany and Spain in the 1930's).

If there hadn't been deflation during the late 19th century, none of that would have happened - no welfare state, no revolutions and no mad dictators leading to a world war that saw about 30 million dead.

That's why the ideal is keeping prices rock steady - not inflating but not deflating either.

I think people on here are romanticising the desperation, starvation and sheer madness of the late 19th century and early 20th century simply because it has passed out of living memory and there is no family member left to speak of it's horrors. But read up accounts of people who were actually there. It was not a fun time to be alive.

Going back to your comment that "In an unregulated and deflationary economy employers couldn't drop the wages so low that people would be forced to work for longer without consequences to them personally" - it's happened before where people worked for a loaf of three days old stale bread, because the alternative was death. Don't be naive, of course employers can drop wages that low!!! They've done it countless times in history. The only time they haven't was during the Roman empire when the Emperor forced his law on wayward employers and in the last fifty years, which have been a bit of a golden age in the history of man.

Is bitcoin a deflationary currency? I hope it's just a steady one that allows commerce so we don't have to deal with banks. However, I can already see the hoarding tendency become dominant - the most developed parts of the bitcoin economy are those that encourage people to trade bitcoins for dollars - i.e. just like a stock rather than like a means of commerce.

We have far too many inflationary currencies. So it feels right to have something different for people who believe that reasonable deflation is in fact a good thing. Spending and investment is not always good. It can lead to malvestment or spending "just for the spending". People will think twice, maybe three times before spending and they will buy only goods they really need. Loans would be possible but naturally discouraged.
If bitcoin gains wider adoption then there surely will be projects how to inflate it. There will be fractional reserve, loans and therefore "false bitcoins" in the form of "promises of real bitcoins". There will be far more promises than bitcoins used in backing. I have no problem with that as long as th following works:
If the BTCbank issuing false BTC goes bankrupt (unable to provide real BTC for the promises) then no one will be able to reimburse people by creating some new real BTC for them. Those people will have to decrease their standard of living (some of them might even lose their houses). And they will have to face the consequences of their mistargeted trust into BTCbank. So will all the merchants accepting false BTC from them. If this works and more reasonable "hoarders" are not forced to help them by a single bitcent then I am OK with all that. It might be that the BTCbank will never go bankrupt. Then the people and merchants will of course benefit from increased money supply. I am also OK with that as long as no one is forced (nor forbidden) to accept false bitcoins.

This fight between Keynesian/classical view on economics and Austrian school seems like neverending story. Such as fight between supporters of "giving people more freedom" and "doing right things for the people and perpetrate good even if it means forcing them".

From http://philebersole.wordpress.com/2010/11/17/inflation-through-the-ages/
"Ideally, according to monetarists, there should be a money supply expanding at exactly the same rate that the economy as a whole expands.  This would be impossible in practice, because nobody can know how fast the economy is expanding until after the fact.  So monetarists advocate increasing the money supply at a constant rate – say 2 percent a year – which is consistent with the long-term growth rate of the economy."

I had to actually look up what you meant by real and nominal there, I guess if I had to put it in those terms it would be individual, now you've made me even more suspicious of what's being taught to us at a young age because the kind of calculations can be calculated in such a way to benefit a certain side of an argument like with politics.

If you're curious, the reason I have such a distrust of textbooks ( I personally don't mind wikipedia that much because at least that relies on consensus most of the time, you just have to cross check it with other stuff ) is because I experienced the lies they hammer into your head when I was younger, a lot. Ever since then I've been reading up more and more all the different points of view countries put forward, particularly governments and it's amazing how much they fuck with even basic history. While it's at times subtle and they sometimes get the facts right, you'll find they often give different reasons behind what they did at the time but when it comes to stuff like the economy they'll blatantly bullshit you and change the topic rather than go into any detail of what happened, like with money printing or William of orange, William of orange is my personal favourite because it's pretty simple, the British think they were there because they were peacefully colonizing the Irish and the Irish just see them as bunch of invaders trying to take their land.

I guess you have less trust in economics textbooks (and wikipedia) than I do.  or pehaps you have a significant level of distrust that you are biased toward ideas that conflict with such textbooks.  to each their own.  I suppose the recent macroeconomic instability has contributed toward your distrust, but in my view that is somewhat short term reactionary

are you talking about real or nominal wage?  if BTC can buy 2 apples instead of one.  your employer will pay you half the BTC after deflation.  in the end he's still paying you one apple.  The important caveat is why would he buy your labor anyway if hoarding his BTC can give him/her a better return?  it's not a switch, but this effect starts small, then snowballs

I'd argue that they lie to your "ass", since that seems to be the origin of most "facts" produced here

TLDR:

. Some people here need to read up on history that isn't from the point of views of government sponsored/regulated schools and texbooks ( seriously, they lie to your face )

. In an unregulated and deflationary economy employers couldn't drop the wages so low that people would be forced to work for longer without consequences to them personally, that and the limited nature of deflationary currencies wouldn't allow for it mathematics wise

Something tells me you don't really know what you're talking about and I found the answer with the history you cited, the depressions experienced during that time were a result of massive hyper-inflation of the likes you saw in the great depression later on towards World War 2 both involved massive amounts of money printing of the kind that you saw the Weimar Republic churn out in the hopes of fixing the economy. The problem is money printing does nothing, it temporarily causes prices to rise and wages to rise and then everything comes crashing down. While this is deflation it is deflation and inflation that has been artificially created by central banks which because of the scale causes the massive and total collapses that you see of economies because rather than letting the poorly run companies etc. go out of business they steal everyone else's wealth to keep them going and of course because they are poorly run everyone ends up losing out entirely and the paper becomes worthless.

The idea of deflation is that prices go low and you guy buy things with much less currency than you would normally have to if the currency was inflationary, with deflationary economies you shouldn't be able to have prices going so low they are worth nothing because in a deflationary currency like with Bitcoin there is a limited supply so they will be valued to someone at a given time, gold and silver is also like this which is why they have been used as currencies for centuries. As for wages in general, if the wages go that low and the employer is forcing their employees to work for longer than that is a bit like what central banks are currenctly doing with inflation and interest rates, anyone with sense is going to find someone else to work for in that situation but unless they banded together there is no way the wages in a deflationary economy could go that low people would have to work much longer without them noticing.

Adding to that, deflationary wise I can start providing examples of deflation with real life examples, I calculated that if I sold silver Jewellery I'm making in Bitcoin I would be able to make far more profit than if I did it in paper and it was because Bitcoin, after all the fuss and rants of neo-keynesians is still having much more value than paper. For sure, inflationary paper money causes nothing but grief and is nothing more than an extremely clever way devised by ultra rich central bankers to steal other peoples wealth without getting into trouble.

In short, your history is wrong, you need to study what isn't just in school textbooks and told to you by teachers.

how do you price a deflationary currency?  let's be very clear with an example

For simplicity sake, it is defined to rise 3% in real value each year.  how many apples would you trade for it today?  it is defined, that you'll be able to buy more apples in the future. conversely would anybody ever accept a 0% interest loan from you?  in short, you wouldn't trade, you wouldn't lend, you would stop transacting, and that would create a reinforcing feedback cycle, then nobody transacts at which point the ccy is explodes to 0.

rofl. Sure the deflationary nature creates wild swings but thats only because speculators have no experience with a deflationary currency. They will eventually learn how to price this stuff in. and sure bitcoin may explode into a value of 0 a hundred years from now but so what, think of how many trades it will have facilitated by then.

that alien will fail because btc would simply never reach widespread use in that scenario and everone continues to use fiat.  the prevention for "being tricked" is people like me and many economists raise the deflationary spiral concern.

the endgame with a deflationary currency is that its value grows exponentially and then explodes to zero.  just like tulip mania.

this might be why btc is so volatile these days.

Anyway it's not at zero now because the jury is still out on if btc can address the fixed 21million supply in 2140.  it might be addressable by instituting a fractional reserve/lending system.  of course, the ability to create one in a decentralized environment has yet to be proven.

what if satoshi is an alien sent from his planet to conquer the earth and bitcoin is basically.... like a memetic virus created to destroy civilization with a tulup bubble that never crashes, it just inflates and inflates until everyone dies.

aggregate deflation is worse than aggregate inflation.  any aggregate deflation is ridiculously dangerous.  Each period of aggregate deflation has usually been associated with economic recession or depression.  

Stable low inflation has been experienced for a vast majority of US history.  Throughout all the good times and all the relatively mild bad times including now.

For completeness, hyperinflation is very dangerous but is hard to achieve without huge issues with the central bank.