Bitcoin Forum

A decent overview of why deflation may not be the boogeyman so many believe it to be. I wish he'd spent more time discussing the economics of falling prices, but I guess that's "Deflation 102" and better for a follow-up lesson.

http://www.youtube.com/watch?v=a6E1k2YO9qU (http://www.youtube.com/watch?v=a6E1k2YO9qU)

Thesis: Inflation
Antithesis: Deflation
Synthesis: ? ? ?

The only people who love inflation are those who are in debt. The government loves inflation.

You cannot both inflate and deflate the money supply, but you can do neither. That's essentially what Bitcoin will do around 2032.

That's only if we no longer multiply and stay on this planet.  :o

I don't get it.

He actually believes that money supply needs to increase in quantity rather than value because he can't comprehend the concept of private wealth preservation.

oh the internet and ad hominem attacks, how i missed thee.

i merely meant that in order for the bitcoin value to stagnate in ~2030 as prospected by @BitterTea, so does have economic growth. this will likely happen (assuming bitcoin has by then become world currency ;)) when population growth on this planet has stopped and we have overcome the infinite economic growth paradigm. how much people can and will still hoard bitcoins as private savings in such a scenario is another (albeit interesting) discussion. either way, when we set out to colonize other planets, our species can multiply again, thus bitcoin definitely can and will deflate again, and that is really all i wanted to point out.

but this all is separate from my original question.

I said nothing of the value of a Bitcoin. I was referring to the fact that 99% of all Bitcoins will be in existence by 2032. The value has little to do with population, and much to do with the quantity of goods and services that can be bought with them. With a fixed money supply, and zero population growth, the value of Bitcoins will rise if the output of the Bitcoin economy increases.

Nice wrap up.

Inflation is a tax, yes.

But I'm not convinced it is always necessarily bad. 

What if $10,000 were put in your bank account to stimulate the economy, would you complain?

What if money printing was used to pay of the national debt as it comes due?

I agree with his deflation argument.  But what about those that hoard huge amounts of money, does it mean the rich become richer?

I'm still undecided on this one, but I'm thinking about the "inflation used for the public good" concept, maybe being the best way.

Are you saying that decreasing prices is a detriment to commerce? Increasing prices are benefit?

If $10,000 were put in everybody's bank account? Yes. All dollars are now worth ($10000 * # of bank accounts) / (previous total dollars in circulation) less.


What do you think will happen when 14 trillion dollars is created out of thin air? It rhymes with "sniper damnation".


It means everyone's money has more purchasing power. Those who "hoarded huge amounts of money" are now more tempted into spending it, due to this. There's an equilibrium here that you're not seeing. Money hoarded -> purchasing power (for everyone) increases -> money spent -> purchasing power (for everyone) decreases until a balance is reached.


There is no such thing as "the public good".

Why would paying off debt as it comes due (over a 30 year period) cause hyper inflation?

Surely the bonds are considered roughly AAA rated so exchanging them for real cash, as they come due, wont actually increase the money supply?

How can they print money to pay the debt without increasing the money supply?

Really, that simple? What does one do with savings?

Because the money supply was already increased when the bonds were issued?  Paying the bonds is simply fulfilling the original expansion?

(Disclaimer:  This is part speculation / theorizing )

Please, don't be intellectually lazy. What does one do with those savings?

Are you honestly proposing that deflation causes people to accumulate money for the sake of accumulating money, rather than for exchanging for the goods and services that they need to survive or merely desire?

So... when you convert it into a different asset... is that not "spending"?

The problem with deflation is that investments, loans and credit shrink.
Maybe from the viewpoint of a consumer not consuming because tomorrow everything is going to be cheaper is "non-sense". But what about the viewpoint of the merchant?
When does the merchant wants his inventory full of wares, with inflation or with deflation?
And of course from the point of view of the investor/borrower.
If I know that a factory will yield 5% of its price and interest rates are at 5%, will I borrow to build the factory?
If there's no deflation, maybe. You can hire yourself as the manager and live on that wage, even if you're not going to make any profit.
But say with 6% deflation. There's no way that you're going to borrow and build the factory on these circumstances.
The the nominal yield of the factory will drop and therefore its price as capital (that is nothing else than the nominal yield * 20 in this 5% interest example). On the other hand, you will have to pay the whole principal of the loan and the interest will stay constant.
And of course, if you think like this as a borrower and investor, you think the same if you're considering to invest with your own money.

Yes, yes "But then all the lenders are enable to find borrowers at 5% interest and will lower the interest competing between them".
That's true.
But how much must interest rates drop for the same factory to be as attractive in the deflation scenario as it is in the stable prices scenario?
They must fall to -1%.
Is that possible? No.
So with deflation, nominal interest rates fall (often they rise, but not for the deflation itself, but because of the previously inflation lent into existence), but only a fraction of the investment that could have taken place without it is actually made. The production of means of production (real capital) is reduced to only the capitals that can beat both nominal interest rates and deflation.

Some people just think that inflation is so bad that deflation must be necessarily good. Aren't they the opposite thing?
By the way, there's already another thread for this topic.

Disclaimer: I'm not for inflation. When I say deflation I mean price deflation (falling prices), not monetary deflation (shrinking monetary base).

You would consider converting USD to EUR spending? lol

It's not "hoarding"/saving USD...

Nobody is forcing you to use bitcoins to pay taxes or for everyday products and services. The interest in bitcoin is almost unanimously about making money. Put your heads in the sand all you want, but bitcoin has failed in an utterly epic way as a medium of exchange. I'd hazard a guess that 95%+ of all bitcoin trades are either moving wallets or exchanging for real world currency. There is no economy whatsoever as is so evident by how easily the market is manipulated. Early(-ier) adopters are causing the fall of bitcoin before it will ever have a chance to get off the ground. I've said it before: how many times do you think people will take getting burned and volunteer their actually valued fiat cash money for some digital trash that could have its value dropped out at the whim of someone with a hoard of cheap coins. Each time these rounds of price drops cause thousands to lose thousands, people will be angry and tell others to stay the fuck away. The game is coming to a close with the final result being a few made lots of money, a lot lost a lot of money. Zero sum lol.

No. Many people are interested in bitcoin because they're interested in freedom.
But if there where the only interest, what's wrong with that?
Speculating with the price is not the only way to make money through bitcoin.


By no means bitcoin has failed as a medium of exchange. It may have failed as a store of value.

Yeah we've got a real bunch of William Wallaces around here.


Gee, I dunno, perhaps that it serves to transfer wealth and nothing else?


Drinking milk is not the only way to get calcium either.


Broseph, they are one in the same. If your medium of exchange can't store value, who the hell is going to want to use it? If no one is using it, no one is demanding it, and :gasp: it's not a medium of exchange. Just because you can send digital trash tokens over the internet relatively easily doesn't mean it's a medium of exchange.

Yes, yes it does. Just because you say it's not a medium of exchange doesn't mean it isn't.

Actually, it does. If you want something I have and I don't accept bitcoins, you're screwed. Why don't I accept bitcoins? Because I'm going to lose value if I do. At least, this is what any reasonable business entity is going to think. Ergo, its use is relegated to a bunch of nerds on the internet, no different from WoW gold. Except at least WoW gold supports an economy, lol. Bitcoins will always be about who can cash out first.

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

All of your quotes indicate that bitcoin is a medium of exchange, though not a widely accepted one.

If I want something you have and you don't accept Euros, does that mean the Euro isn't a medium of exchange?

How do you read "a form of money widely accepted to buy any other good" to mean "a form of money that may or may not be widely accepted to buy any other good"?

Rose-colored glasses, perhaps? Widely accepted is open to interpretation, but a few thousand nerds on the internet doesn't fit for mine. And bitcoin patently fails at all 3 of the quotes I provided.

Because you suck at emphasizing the important concepts in a sentence.


As in, something can be a medium of exchange and NOT be "a form of money widely accepted to buy any other good".


As in, something can be a medium of exchange and NOT "be widely acceptable" or "have stable purchasing power".

ROFL, "most often" is referring to MONEY you blathering fool. Of course you can trade anything you want for something else if someone is willing to take it. That's called barter. A system that a medium of exchange is attempting to fix.


When the intermediary is used only to convert to other intermediaries, you have what is known as a bitcoin, or digital trash token. I think I'll add the "medium to medium of exchange" entry to wikipedia myself.

Make the claim as much as you want, it doesn't make it true (https://en.bitcoin.it/wiki/Trade).

Unless you're claiming that because Bitcoin cannot be used by a business to pay for their operating costs, thus they must exchange it for another currency to do so, means that it is not a medium of exchange. In that case, I'd love for you to point me to a definition of medium of exchange that has this requirement.

what I claimed was this:


The retarded, asinine structure of bitcoin promotes hoarding and speculation, not trade. This is never going to change. The greed-induced early adopter design may have been necessary for it to reach the mass of users it has this soon, but it is also causing whatever minimalist economy it had to shrink because of that greed.

So you made a claim, big deal.

I'd hazard a guess that 95% of your brain cells do not function. If I repeat it over and over again, it will eventually become true!

You're just trying to push the FUD so people will take your *coin clone idea, which is based on a fundamental misunderstanding of economic incentives, seriously.

I was pushing FUD before I ever came up with an alternative idea to bitcoin. And I'd say my claims that $30, $15, $10, and even $5 were completely unsustainable price points for the bitcoin economy came true. But a lot of other people were claiming $100 by the end of the year, if they said it enough it must be true! Well, assuming you never look at the trade price anyway.

So $30 was unsustainable at the time, and only $2 may be sustainable right now. That says nothing about the future of Bitcoin, nor the future of the exchange rate between Bitcoin and USD.

Yes, the answer is BUY BUY BUY! $2 is an opportunity!

$2 is an opportunity, to me. Your subjective value judgement is no more special than mine.

The medium of exchange doesn't have to be perfect for storing or measuring value. If that was the case, we couldn't use dollars, euros or gold to trade. It doesn't even need to be cash, it can be built directly on pure credit. By pure here I mean directional, from person to person, instead of from a whole community of currency users to person, like cash. Money is always credit in the deep. Even the monetary value of gold (the part of its value that comes from its use as money) is credit. Morgan was wrong.
If you really want a stable unit of value, don't trust cash, just define a basket of products that fits with your concept of stability, use a currency that is not issued (https://bitcointalk.org/index.php?topic=11614), that only exists in contracts and lists of prices.
If you want an abstract (like money) and perfect store of value, forget it. That's simply not possible.

Perfect? No, of course not. Raising millions of percent in value then tumbling thousands of percent in a span of a few months? Just a hair on the wrong side of ridiculous.

The reference currency is kind of a cool idea though.

Thank you.


So you can say that it has failed as a store and measure of value, but not as a medium of exchange because its being used for trade.
It will get more stable when it get more users and the bitcoin economy gets bigger. It's just to soon.
I wouldn't expect it to be any stable before 2013 anyway. The first drop in reward will affect the price.