Bitcoin Forum

If there was a global deflationary event, what effect do you think this would have on Bitcoin?

This is of course should be taken as a rhetorical question, as clearly, a deflationary event would destroy Bitcoin in terms of its price.

Question is, how likely is it that a deflationary event is on the horizon in the near/medium term? Obviously, if not for central bank action, it would have occured already or be in the midst of occuring. But what happens when the central banks decide to let their money printing activities slide for a little while? Or perhaps when the markets themselves no longer abide by the interest rates being artificially held at historical lows due to the money printing?

The answer to this question should be crucial to any long term investor of Bitcoin. But how many of you are even asking it?

Deflation? With our fiat system? It seems a bit ridiculous.

The Euro is on the verge of collapse, as is the EU.

Japan is debasing its currency.

The USD is being abandoned as the world reserve currency.

Gold/silver paper shorts have crashed the precious metals markets (deflation) so that large buyers can purchase physical. (Will lead to higher prices once the short manipulation has finished and prices return to their normally depressed levels.)

China and Australia have abandoned (or are planning to abandon) the USD.

etc. etc. etc.

No. I don't see fiat deflation as anything to worry about.

Source?

China, Russia and Iran (I didn't know Australia had also), and I think Japan?

Google it, its all there. They're sick of the US and being forced to trade in USD, they've signed agreements with each other to not trade in USD anymore.

http://www.zerohedge.com/news/2013-03-31/thanks-world-reserve-currency-no-thanks-australia-and-china-enable-direct-currency-c

Tonnes more references out there as well. Just search for "australia china abandon USD".

thanks for the extra countries, found it this time

Australia and China are going to be trading directly with no USD inbetween
looks good, china has been good to us lately and the USD is getting pretty weaksauce

They call it a "contraction" and it has to happen some time. It's the inflation bubble popping. And yes, it fucks a lot of people, just like any bubble. If we're lucky, the US will simply repudiate it's debt and kick out the bankers. Of course, the last country to do that took it a little too far....

If we're not so lucky, we'll all end up fucked, a la the great depression. Bitcoin might be the only thing that saves the economy, at that point.

Glad that there are some people on here who can see the wood from the trees and who has a lengthy enough attention span to recognise that there is a bit more to this game than simply Money Printing = Big/Hyper Inflation.

As I discussed in another thread, if all the money that has been printed since 2008, were to have resulted in the inflation that all the inflation nuts said it would, then commodity prices would have increased by 10 times, cos that is how much more M0 (USD) there is in the world than there was 5 years ago. (and actually, that information is at least a couple of years old). Reason that this hasn't happened is that the printed money , has mainly went towards propping up the balance sheets of the various Too Big Too Fails, thus allowing the multi billionaire class to claw back as much value from their otherwise toxic investments and derivative assets as is possible.

The printed M0, is simply attempting to replace the destroyed M4. If someone doesn't even understand what those terms are referring to then they really shouldnt be on forums pumping your gums about hyperinflation.

For the record, I do believe that in the long run, hyper inflation is where we are headed. But we are not there yet and next stop on the track to global financial meltdown, is Deflationary Falls.

Don't get me wrong, hyperinflation is a distinct possibility. It might even happen before the next crunch. It's probably 50/50, and all depends on how ballsy the FED chairman is. If he's got the guts to pull the trigger, then we'll see a crunch sooner than later. If not, then hyperinflation, followed by an even bigger crunch.

no need to clarify yourself m8, as I never had any doubt about what you meant. You stated that in between now and the financial day of reckoning, that a contraction(s) is/are very likely.

my position is that when one of these happens, a proper bad one, watch Bitcoin implode.

The cash price of a bitcoin might drop, but at the same time, I think demand will increase. We shall see.

Let their money printing activities slide? 

They'll do that when the addicts stop sticking needles into their veins.

Not sure why people keep repeating this. Are you European? I am and I don't see any signs for an impending collapse of the EU. Yeah, we have our difficulties, but most of us realize that breaking up would create even bigger difficulties. Few people in their right minds would suggest blowing up our carefully crafted ties.

I am not sure on which planet that you are European, as most ordinary people that I meet (I meet lots of different nationalities through my work) view the EU in a very different and much more negative light than 'our carefully crafted ties'.

You obviously aren't from any of the southern European EU nations either.

Deflation would be BTC friendly:

* Cheaper energy + cheaper hardware = more mining rigs

Inflation would be BTC friendly:

* People seek safe-haven + less mining rigs = hoarding BTC

What I ment to say was this; as much as anyone might hate the EU, most people realize they would be worse off in regional and global politics if it didn't exist. Sure, they might hate they way it's run but that's not the same as being against the core idea.

I'm from Belgium. Where are you from?

By the "last country" I assume you mean Iceland.  Its worked out well for them.

I don't think the US would repudiate its debts though - most all of it is to US citizens and it would be a huge confiscation of savings.  Far more likely is that interest rates remain close to zero, inflation slightly above zero so over a generation or so the debt is erased.

Actually I wasn't aware of that. I was thinking a little further back in history.

I don't know what the best course from here is. I do know we've climbed waay out on a ledge, though, and all the fed seems to know how to do is keep climbing, or dive off.

FYI. The financial crisis in 2008 was a global deflationary event.

and if it Bitcoin had existed back then, we could have expected 99% losses within a blink of an eye.

I donno, how did gold do at the same time?

Gold had its spell tanking as a result of the 2008 collapse. But Gold and Bitcoin are two totally different things. Amongst all the other bullshit and market manipulation, gold is viewed as a safe haven asset, essentially as a hedge.

99.5% of the money behind Bitcoin, is undoubtedly speculative capital looking for fast ultra high gains. This could change over time of course, but right now, Bitcoin is like a big soap bubble that would go pop as it met the slightest little economic breeze.

I think you have a very valid point here. Much of the money is speculation. Most of the users, though, I think, are here for other reasons. (why I say the price will drop, but demand would probably rise)

It's funny that gold seems to have a larger and larger effect on the stability of the Euro, how is that?

Cyprus announced intended sale of their gold, influenced gold price or in other words made the Euro more expensive! So I choose to view that as scare tactics or payback from Cyprus!

The UK has also to some extent, at least since last summer, used their gold to squeeze Germany for a better deal in EU, something their PM has announced quite openly.

Germany have been working on the slow process of bringing their physical gold home the past 4 years

Also traded gold volume is low, gold is for hoarding, so the threat of 18 Tonnes being put on market, have a large effect on price.

So the strange entanglement of gold into the Euro zone member states internal "friendly" competition for not ending like Greece is destabilizing gold too.

Anyone else here considering this as an important reason? If this is true, gold is just another heavy gun joining the currency wars.

Every time the US has tried kicking out the bankers either have had their presidents assassinated or the UK go to war with the US .. (Assassinations have been post 1812, this I believe because the UK would be rather stupid to go to war with the US nowadays).

1812 the UK burned down the White House.

And for those that go "amagad proof or it didn't happen!" - Have you seriously never heard of google? lazy buggers..

Hold it there Charlie - for being an expert in this area, your statistics are waaay off.
No chance that M0 has increased by a factor of ten since 2008 (not even a factor of 3)!
http://www.sunshineprofits.com/media/cms_page_media/2012/6/27/m0_monetary_base.png

And let's not sell the "inflation nuts" short - the primary measurement of USD inflation is the CPI, which has been doctored to hell so that inflation is less visible. I guess you didn't notice gas prices rising 30% (oh, but that's not part of the CPI) ? Many economists say that the current US stock market valuation is actually inflation - if you consider that few corporations have created growth since 2008, the doubling of the market looks like quite significant inflation!

I agree with you regarding the bailout money - clearly it went straight to the 1%, however that money will eventually find its way into the mainstream economy. When this happens, it will cause inflation. But let's also remember that the money wasn't PRINTED - it exists only in electronic form on balance sheets! Chances are it will be laundered via investing in the tech and military sectors...

Back on topic - in a deflationary event, people with savings win, and people with debt lose. I guess that's why your typical American would be afraid of deflation... LOL.

To the guy who registered less than a month ago:  Don't make up statistics.  And if you DO have a hard number, include a link or describe your methodology. 

P.S. I don't think "undoubtedly" means what you think it does.

Anyone can produce two coloured lines on a graph. From where I got my information, when reading on the subject a couple of years ago, ten times more M0 than before was the information that I took in. I dont have to go hunting for links for a web forum post that about ten people are going to read.

Nice to see that the Bitcoin price has stabilised out, at least in the short term. I may now feel confident enough to use it for Silk Road purchases again. But as for investing in it, I will wait and see what it does when the next deflationary event hits, something that many notable pundits (Marc Faber, Jim Rogers) suggest isn't too far round the corner. I suspect that the coin has some way to fall yet.

The precious metals have gone down a shitload as well since I was last on this forum. If there is one thing I done financially right this year, it was liquidating my goldmoney holding when Silver was still at $30 which resulted in me breaking even overall on that particular venture. We are in volatile times and no one asset is going to be the correct asset over the whole duration, especially not Bitcoin.

They can suck all that extra fiat up in a heartbeat by letting interest rates rise.  Debt is at all time highs and if interest rates rose all extra fiat would go to servicing and attempting to reduce debt.

That is pure speculation, since Bitcoin was not around then we cannot say what would have happened.  Deflation is just as likely to be Bitcoin positive as anything. 

In a deflationary event what really deflates is the asset side of the balance sheet.  The liabilities still remain and without intervention bankruptcies increase.  When bankruptcies increase "counterparty risk" increases and so individual actors within the system start to distrust their trading partners and you get the proverbial downward spiral.

Bitcoin, similar to physically owned previous metals, lacks counter party risk, and thus could benefit.

I'm not claiming to know what would happen in a deflationary event but your alarmist statements have no facts to support them since Bitcoin did not exist during the last big deflationary event.

That works in theory, but in practice if you let interest rates rise, as Japan is seeing right now, it bankrupts any government with a high debt pile, which means you have to hold interest rates down as long as the market allows.  We'll see how it works out over the coming years.

Right... then they sell off stocks and any other risk assets they can get their hands on to drive bonds back to a level they can tolerate.

Like is happening.  Hopefully they can keep it from getting out of hand.

The Japanese central bank has been saying it is going to generate inflation for 20 years without any success. There is no reason to think that if they get inflation started they will be any better at containing it given their historic track record.