Bitcoin Forum

Did you know that Bitcoin currently has 43.999281216541% inflation rate..

161 blocks per 24 hour x 365 days x 50 BTC per block / 6,677,950 BTC total mined

you mean bitcoin supply increases by 44% a year. It's only 44% inflation if bitcoin economy does not grow, but chances are, bitcoin economy is growing faster than 44%, so it's actually a deflation of a x%.

Yep, but it is temporary, inflation will decrease to about 15% around 2012, and then 5% around 2016. By 2020 it'll be less then most fiat currency, approching 0.  

yep. around 40% for the next 1.5 years.
and around 20% each year (->exponential) if you take the average over the next 5 years.

I mean if prices can weather such inflation rate than we doing fucking good!

you mean the bitcoin economy, which is now maybe at 100 k$ a year, grows by 40% to 140k$ a year and therefore offsets monetary inflation in bitcoins valued at 53 million $ (margin price)?

IF this kind of monetary inflation is offset, it is by speculation. either by new money coming in, or by miners speculating on even higher selling prices.


IF.

The bitcoin economy includes the exchanges, you can't pretend that the exchanges are something "outside the economy". Money transfer is one of the services bitcoins provide, and that is facilitated in the exchanges. Considering that mt gox traded about $600,000 yesterday, I'd say that the bitcoin economy it is a little larger than $100K a year.

YES entirely true - if there is no bitcoin price appreciation/depreciation.  Bitcoin price appreciation/depreciation will give you an indication of how many new goods/services/other are added/subtracted for trade with bitcoin (if you also account for your calculated inflation by first subtracting that from bitcoin price appreciation/depreciation).

Bitcoin price appreciation/depreciation was not 0% for the past year - so you would need to account for that - unless you expect a 0% appreciation/depreciation in price for the next year.  But then you would have to use the average number of bitcoins that will be in existence for the year to come - and that will be a higher number, bringing your 44% slightly down (again if there is no bitcoin price appreciation/depreciation).

good point, you might get some demand from there. i.e. 400k BTC are apparently tied up in MtGox for trading purposes.
if that increases, it offsets the inflation a little. how does it increase? by more speculation.

http://en.wikipedia.org/wiki/Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services.

I didn't go through the best K-12 school in the world, but I think in 6th grade I learned what inflation was for the first time.  For there to be a 44% inflation rate, the general cost of goods and services would have to decrease by 44%, relative to the bitcoin.  ....

Move this thread to the econ. section or delete it pls

Inflation rate is measured by change in the price level over time.

The '44%' you are measuring is the growth rate of the money supply.

Trends since Jan 1st are extremely rapid deflation coupled with rapid growth in the money supply.

Deflation since Jan 1st is due to growth in demand for Bitcoin as a store of value (speculators) and to a much lesser extent as an exchange medium (consumers purchasing from BTC stores).

To avoid future embarrassments, look up definitions of economic terms on wikipedia or in an introductory economics text.

The OP's definition is consistent with the Austrian view:

http://en.wikipedia.org/wiki/Monetary_inflation

That's actually price inflation.  The economic definition of "inflation" in this context is the expansion of the monetary base.


You should take your own advice before playing among the adults.

Inflation, properly defined, is not a "change in the price level." Rather, it is an increase in the money supply. The fact that government schools have taught generations of people differently does not change the proper definition of the term.

People get these things confused because inflation (ie - an increase in the money supply) tends to cause prices to increase. But the price increases themselves are not "inflation." One is the disease, the other the symptom. Changing the term "inflation" to refer to the symptom instead of the disease has led to widespread misunderstandings regarding why prices increase in an economy.  

So to you, I would say, to avoid future embarrassments, DON'T look up definitions of economic terms on wikipedia.

And yes, Bitcoin's inflation is 44% this year, but it will fall as we know to zero percent over time. Comparatively, USD inflation will continue without end - and no, it should not be measured by the price changes in the economy, for the reasons mentioned above. When the government says "inflation is only 1%," they are deceiving people because they're measuring price changes, not money supply changes.

One thing I have (painfully) learned about bitcoin is that everything happens on an accelerated time scale. I don't know where the price of bitcoin will be 12 months from now, but I'm almost certain it wont be within a measly +40% , -40% range of the current price.

people are again painfully mixing up 'price inflation/deflation' and 'monetary inflation/deflation'

Bitcoin is in strong price deflation (things are getting cheaper in relative terms to bitcoin).
Bitcoin is also in strong monetary inflation (bitcoins are getting less rare, or the monetary supply is getting diluted by the issuing of new currency).

stop argueing about the definition of inflation.
a hundred years of economic theory hasnt settled on one definition. you wont either. it's obvious what kind OP meant.

How can one have a rational discussion with out defining what they are talking about?

You can lookup a history of the word inflation here:
http://www.clevelandfed.org/research/Commentary/1997/1015.pdf

Currently, economics textbooks and the academic economics literature defines inflation in terms of the price level.

Homework for you. Look up the definition of inflation in contemporary undergraduate texts

These are probably the two most popular intro texts at the moment:
1) Krugman and Wells. Marcoeconomics
2) Mankiw Principles of Economics

If you are aware of contemporary textbooks which define "inflation" in terms of the money supply, I'm interested, please list/quote them in this thread.

Please don't tell me about how the word was used by Ron Paul or in 1920, however. Not interested.

Lets not argue over silly semantics. The issue is that "inflation" has two widely accepted definitions - a generic one - it means growth in general, and has a specific one for economics. The OP was correct - the supply of bitcoins is inflating. The demand is also inflating, but more rapidly. Then the price goes up which means that bitcoin is undergoing deflation.

My point: that the value of Bitcoins would have to scale massively for bitcoins to be widely accepted globally.

Okay, are there universities teaching Austrian economics nowadays?

Murray Rothbard - Man, Economy, and State, 1971.
http://mises.org/store/product.aspx?ProductID=177

If you prefer to believe Keynesian "economists," such as Mankiw and Krugman, you're welcome to do so. However, if you wish to be correct in your thoughts, I'd encourage you to read beyond what is offered in the US public education system... a system which has been declining in it's effectiveness for decades, despite absurd levels of money spent on "improving" it. I've read Krugman's textbook... have you read Rothbard's?

Correct the standard 'inflation' is regarding price... However the OP was clearly talking about the growth of the monetary supply, (that is in 'inflation' in the generic sense).

It is useful to clarify what sort of 'inflation' we are talking about otherwise the OP post would be clearly incorrect by common definitions.  Since the OP was clearly talking about the monetary supply we should at least talk about it by it's correct label.... (no-matter how rarely it is used in common literature).

Yes. George Mason University, Clemson, Florida State, NYU, Suffolk, West Virginia U, San Jose State, Loyola University, and certainly others.

Of course, truth is not up for democratic vote... I don't much care how many schools teach Theory A vs. Theory B. All I care about is which theory is correct. My own judgement, for whatever it's worth, tells me that a theory which suggests digging holes in the ground and filling them back up as an "economic stimulus" is probably missing something.

1971, huh. Has someone assigned this for an undergraduate course somewhere?

congratulations.

you have just encapsulated 300 years of economic debate into one, easy to grasp sentence.

me - i'm from the why-don't-we-wait-and-see-what-happens school...

The main division in macroeconomics today is between Keynesian "saltwater schools" and Rational Expectations "freshwater schools". While the two schools disagree on substantive issues, they share definitions of common terms, like inflation. Sure there are crackpots who lie outside of these two schools (e.g. Marxists, Austrian Economists, etc.), but definitions written down by these guys don't influence common usage.

Now that this thread has made these distinctions clear, I will take my posts elsewhere.  ;D

I guess you two missed an important part of what I wrote. I bolded it for you.

OK, I'll bite. So "you" (long/short list of mainstream economic trolls[1]) stand by the textbook definition of inflation? Let's have a closer look at it.

It is just weighted sum of prices. That's it, period. It could have been other weights/prices? Absolutely. Are those weights continually adjusted and tweaked? Absolutely. But it is those arbitrary and tweaked weighted sums which make economics into a science, almost like physics. Oh, really?

Look, I have no emotional attachment to the classical definition inflation, but the modern one is bordering on the absurd. Or over. If tomorrow(next year, decade) technologies will evolve  in such a way that prices of basic necessities (those whose weight is not zero) will halve, the money supply will have to be doubled in order to avoid harmful deflation?

Or if the greens will take over and all efficient technologies will be banned as un-green, and the price of those commodities whose weight is not zero will double the central bank will have to halve the money supply in order to avoid inflation?? Is that absurd enough or not yet?

Ugh, now I feel better.

[1] A troll in my definition is one with no interest in understanding the subject.

You already know that's exactly what they'll do..

The way to create a community is not to insult people.

Also, I dont know how you can call crackpots to the people that predicted the housing bubble, while a majority of keynesians did not see it coming, including Krugman. Krugman specifically called for the creation of the housing bubble. So if someone has to be called a crackpot here are the keynesians.

The real problem with keynesianism is that its not scientific, but that is another discussion.

Yes, that's so. Of course, bitcoins may catch on... (crosses fingers, or whatever...)