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This is why we need a currency that cannot be printed at whim...

Note that it took 30 years for the price to double (1950->1980), and now it's doubled again in just the last five years (2007->2012).

https://sphotos-a.xx.fbcdn.net/hphotos-ash4/251616_4811995543674_899763116_n.jpg

+1

Deflation feels soooo good  ;D

Good index. I use the coin index. This was worth fifty cents when I was kid:

https://i.imgur.com/4cdM9.gif

It's now worth about $12.50. That's the debasement of the currency in a nutshell.

Disregard dollars, acquire tomato soup! :)

Holy shit! No wonder I'm always broke!

Quickly, the government needs to start subsidizing mining rigs, or bitcoins won't feel the loving, smothering embrace of inflationary policy

So true.

HONESTLY before BTC I was fucking depressed: I knew on a subconscious and later conscious level that my savings were being eaten up. Like running to stay in the same place.

Now I can look at my clown politicians and ECB fucking up and just not give a shit.

So refreshing.

IMF

IMF, ECB, bank union, QE3.. all the same BS.

Fed up with the inflationary treadmill.  Fed up with having to speculate and risk capital just to protect purchasing power.  Fed up with an unaccountable politburo distorting the economy.

Some here think that semi-deflationary money will create all sorts of economic problems.  Perhaps.  But even if it does, I don't think it can possibly be any worse than what we have right now in terms of unfairness and misallocation of resources.  The choice isn't between Bitcoin and some hypothetical perfectly balanced currency regime, but between Bitcoin and the garbage currently imposed on us.  Bitcoin might not be perfect, but it's the best hope we have to try something different and escape this evil economic nightmare.

I'm anxious and ready to live in a 100% Bitcoin economy.

I can remember a time when you could fill up an entire standard-sized grocery cart with real food for $100.

You can still fill up a shopping cart for $100, but now you're getting processed food-like substitute instead.

Forget about the deflationary trait of Bitcoin. Howabout a fair day's pay for a day's hard work? No more free money for the elite banker class and their cronies on Wall Street and the Military Industrial Complex.

It's mostly because of the global food shortage, but I suppose facts that don't fit what we want to believe should be swept under the carpet as usual?

You can blame it on any conspiracy theory you'd like, it's still not because of the money printing.

sooooo +1

You can't compare a 1950's can of tomato soup with a 2012 can! That's apples and tomatoes!  There have been massive improvements in tomato soup technology in the past 60 years that have dramatically improved its flavor and nutritional content. In the 1950's, Campbell's tomato soup was basically a glorified can of watery ketchup.  And now it's... uh... better.  So sure, you pay a little more today, but you also get more. That's why the price has gone up. ;)

But...but..National Public Radio keeps telling me that Inflation is under two percent per year.

Yes if I can make the numbers I report to you based on an index and can swap beef for dog food, 2% inflation can be true.  No one cares about integrity anyone it seems.

It's exactly how I feel.



Isn't it weird though, electronics also keep getting better and better and yet they are cheaper than ever. What gives?

That's because inflation is a tax on you to enrich the apparatchik and their cronies and to bribe the dependent classes.

You could buy a can of tomato soup in 1950 for a dime. In 2012, you can buy somewhere between 2.5 and 3 cans of tomato soup for a dime. Oh, but it has to be the same dime. (The current melt value of a 1950 silver dime is around $2.50.) It occurs to me that people see inflation and get angry, but most of them don't see the deflation that would have occurred if people were freely allowed to use a sound currency. The theft is bigger than you thought.

Bottom-line is that inflation and continual reduction of your purchasing power is baked into the cake.  Our leaders have decided this is the proper way to run economies.  Unless you change our system from debt based into asset based, this will happen over and over again.  No debating that, it is basic math.  This is why I think Bitcoin is so interesting and worth the risk.  At this point, we can not create more Bitcoins so it can preserve wealth (purchasing power) so BTC is in the initial stages of becoming a wealth reserve asset.

Not really when it's so easy to adapt. If you put it in a savings account you would could buy just under 2, and if you put it in 1 year bonds you could buy about 5 after taxes. If you put it in an S&P index fund you could buy more than 50. Why anyone would want a system that would discourage people from investing and creating such a fantastic wealth increase is beyond me.

Apples and tomatoes. You can't compare the return on savings in a deflationary currency with the return on riskier investments in an inflationary currency. As I pointed out in another thread, when you simply save your money (e.g., in a safe), you're making a "loan" of that money's purchasing power to the rest of the economy, but it's a kind of loan with no risk of default and that can be recalled at any time. The fact that you can tread water or do slightly better than that return in an inflationary currency by making riskier, less flexible loans is hardly surprising. Nor does it prove anything. Because you could do EVEN BETTER THAN THAT in a deflationary currency by making similar investments. There's just no getting around the fact that when a government or central bank prints new money, it gives the recipients of that new money real purchasing power without  creating corresponding value. That purchasing power has to come from somewhere. And it does. It comes from everyone else holding that currency. Some people call that "inflation." Some call it "theft." (But I see that as sort of a "tomato" / "tomahto" thing.  :))

No, it comes from there being lots people who have something they want to sell. Deflation discourages that, because it's easier to just hold on to the money than to invest them to create something new, or buying something so others can create something new. The evidence is that that's pretty much what you say you want to do with your dime.

Right, it's easier (and safer) to just hold onto the money. It's also less profitable. And yes, I'd prefer to invest most of my money for a higher rate of return (even with a deflationary currency). So would most people. Gold is (sort of) available today as a deflationary currency that can be used for "pure savings" (despite unfair tax treatment). But most people don't just hoard gold, and the capital markets haven't ceased to function (yet, and if they do, it won't be gold's fault). So where's the problem?

This sounds like a case of, "It is difficult to get a man to understand something, when his salary depends upon his not understanding it."

Do you think Grinder is Bernanke, Geithner, or Krugman?

You guys don't understand inflation, okay. You can't just go by one single item to calculate a consumer price index. You see, you've got to use item replacement because as tomato soup gets more expensive, people will switch to something else, like a boiling pot of cherry Kool-aid, which only costs about $.10. That plus the fact that you can get a first generation iPhone on ebay for $50, a 90% reduction in cost, means we're spiraling into a deflationary liquidity trap we at the Fed call "con-flation." So, we're cranking up the printers and buying all the homes in America. It won't cause a bubble: Trust Us(tm).

/Bernanke.

Is that a real quote from Bernanke?

A paraphrase.  And he isn't really responsible for the CPI manipulation, BLS does most of that.

Who knows?
https://bitcointalk.org/index.php?topic=112881.0 (https://bitcointalk.org/index.php?topic=112881.0)

Bottom-line is that inflation will always be under-reporting because that is the best thing to do politically.  We take out things like food and gas even though most of our extra incomes goes into these items.   Inflation has been rising and it doesn't matter if LCD TVs are $100 if you don't have $100 to spend on them.   You don't deploy trillions of dollars into the economy and then tell people truthfully it is not causing inflation.   

The really boogie monster all status-quo supporters fears is DEFLATION.   Why, because it hurts creditors and god forbid a creditor takes a hit.   It started with Confidential of Illinois in 1984 when we bailed out the creditors and sense then, that is how we operate.   Risk is imaginary unless your not connected to the establishment.   People who decry class warfare are the same people perpetrating it on a daily basis.  Once the majority of people realize this and wake up to do something, that will be the day things CHANGE.

And that's even despite improvements in technology to make the soup and to deliver it (and gas being cheaper than ever in terms of things that aren't dollars), and maybe even a cheapening of the product or a smaller profit margin to service a poorer market.

You are begging the question. Accepting something as truth with no evidence. There are people and businesses on the other ends of those investments that must pay the price if investments provide a unilaterally better return in a deflationary economy. The rate of deflation *must* be taken into account to provide an accurate real interest rate, just as banks take into account inflation.

http://fskrealityguide.blogspot.com/2008/11/interest-rates-in-true-free-market.html

"Suppose the free market interest rate is 2%. I predict I can earn a 4% rate of return on my business. Therefore, it pays for me to borrow at 2% and invest in my business yielding 4%. Of course, I should include a margin of error in my calculation.

Suppose the free market interest rate is 6%. I predict I can earn a 4% rate of return on my business. Therefore, it does not pay for me to invest in that business. I'm better off doing something else."

The real interest rate will be interest + deflation, just like the real interest rate in a typical economy is interest - inflation.

Since bitcoin is a free market currency, the interest rate will be determined by how willing people are to borrow money vs. how much is available. If deflation is 5%, do you really think anyone trying to borrow money is going to pay 5% + the nominal interest rate? Or are they going to say "I'm better off doing something else"?

And of course the issue economists fear is what happens if the deflation rate makes a big leap one year? Say 8 or 10%? A whole lotta bankruptcies.


You are right that the government/central bank unfairly favors certain institutions with new purchasing power without creating any new value. But you're ignoring the fact that Bitcoin does the same thing for wealthy holders. And it also comes from everyone else using bitcoins.

Say person A is a wealthy businessman who maintains a running personal savings of about 1000BTC. He spends a lot of it but brings the balance back up through his business venture.
Say everyone else has a total of 1000BTC that moves around the economy.

MV = PQ
M = money supply equals 2000 BTC
V = velocity of money, we'll just call it 1
P = price level, we'll call it 1
Q = quantity of real goods and services in the economy

2000*1 = 1*2000 (solving for Q) is our status quo

Now say wealthy businessman A wants to retire, but just for the sake of example spends no money whatsoever and removes his 1000BTC from the economy. So the velocity of money drops by half, and the price level drops by half (we'll completely ignore the unemployment implications and the fact that the businessman is unlikely to announce his plans to give the market perfect information to account for this collapse).

2000*0.5 = 0.5*2000

10 years later, new products, new people, new whatever has entered into the economy and it has doubled. To adjust for this, the price level has fallen further.

2000*0.5 = 0.25*4000

Now the wealthy businessman decides he's going to go on a spending spree and put his money back into the economy. Now:

2000*1 = 0.5*4000

He got to buy everything before the prices double to account for his money being put back in circulation. The market can't possibly adjust instantaneously. And everybody who saved a dime now has a nickel's worth.

How is this thematically any different from the current system?

Even if the economy stays even, even if removing his portion of the money causes no problems, he can still buy stuff for half price while everybody has been making half-wage and whatnot and cause a major upset in savings. Do you think the Bit Street elite don't get this? Do you really believe that increased purchasing power happens in a vacuum?

The old man benefits because he planned for his future by saving, and also incurred years of opportunity cost by not employing his dollars in a different way, allowing him to get a limited advantage that will approach an equilibrium, versus the current system where the advantage is manufactured from thin air and awarded not based on foresight, risk management, and sacrifice, but on nepotistic cronyism employed to bail out the most egregious risk takers, creating a moral hazard that forces an continuous exponential expansion with no chance of equilibrium.

But other than that, I see how it's kind of the same.

Why do you think it's right that those who don't waste their opportunities should effectively be taxed to pay for his opportunity costs?

+1 This is an excellent way of explaining why the current fiat money printing ponzi sucks.

It looks to me two things should be separated:

1) Arbitrary monetairy expansion or money printing => fiat only

2) Change in currency value due to large players (wealthy people) leaving and entering the market => same goes for both fiat and Bitcoin

Wouldn't you need really, really big players for 2) to have any noticeable effect at all?

Wouldn't 2) reach an equilibrium, because many large players will be entering and leaving at random points in time, so the effect would be even less noticeable?

Not as long as new players are literally born every day, and those who invest make the economy become more productive.

Roll (pão francês) in Brazil:

1995 - $0.05 (BRL),
2012 - $0,40 (BRL)

Let's ignore for the sake of argument that finding a nominal positive interest rate in a deflationary economy will be very difficult. "Saving" in the austrian sense means putting your money to work, almost absolutely to non-consumption growth. Capital reinvestment. Things decay, it's a fact of life. Equilibrium will still be achieved because the free market interest rate will vary depending on the amount of money available to lend and the amount of people that need to borrow. But in this case the supply of money won't be upset. If we assume a totally stable economy, Mr. Businessman will only earn a few percent per year. To the contrary, in a stable economy, Mr. Businessman can withhold all of his money and double its value as soon as the market readjusts to the new money supply.

Which one do you think he will choose (where's the opportunity cost)? Which one will cause immense suffering for everyone but the businessman? What exactly are we trying to solve with fiat?


Don't you consider Wall Street to be pretty big? Are we all supposed to naively assume that greedy people won't do their very damndest to manipulate this economy? How many times does the value of a bitcoin have to double to reach even 1% of the world's GDP? How many easy opportunities will this provide for the bitcoin wealthy to manipulate the market?

While equilibrium may be reached every now and then, there will be people always accumulating wealth and always looking to game the system in their favor. Withhold money, cause extra deflation (again not a perfect market, they don't know what's happening, people lose jobs prices stay high and so on before the market has a chance to adjust), then when everything has settled down, flood the market to grab all kinds of real value, cause everyone to lose value in savings, so on and so forth. The. Business. Cycle. In a new and stupid form.

If you want to know what I think is right, then I think it's right to allow people to choose their currency with the understanding of the pros and cons of that currency, that way when something occurs against their favor, it was ultimately their choice that lead them there, and not the use of force. I don't strictly think that Bitcoin is more right than a private bank issuing notes, but that it is a more moral situation when both exist and people can choose.

If you want to know why I think the old man situation is better when choosing a currency, this is because of the limited scope, the incentives are set up for him to not just take him money off the market or if he does, for him to reenter in stages at different value points, again limiting impact. The numbers you give look bad, but they assume a mythical person who owns half the coins and suddenly wants to get out entirely all at once. It's an extremely unplausible scenario while the Wall street bailouts have happened and continue to happen (QE3).

This is just the early adopter argument dressed up with economics equations. But I'm not jealous of early adopters, I think they took a risk where they didn't have to. They all could have all eaten BTC10,000 pizza pies, but they didn't. Worrying about them is like worrying about people who bought gold at 200 and Apple at $50. They might dump and get a large benefit in front of everyone else, but the worry of that shouldn't detract you from getting in.

I didn't give any numbers, and it doesn't matter if the coins are held by 1 person or 1 billion. If it is the currency of the whole economy it will still be so when the economy have doubled, and those who just sit on their money will eat up the whole increase without contributing. Those who invest will be playing a zero sum game, where they have to be very lucky or unusually good at what they do to benefit from investing.

Bitcoins are not very relevant as the Bitcoin price is only driven by speculation. I'm talking about a mature economy.

But I've shown with the simplest of math that this is wrong. You are begging the question, I am using an equation, one devised in part by Mises no less. Why should anyone trust what you believe will happen when the equation simply says you're wrong?


Except that I only do this to make the scenario clear. You can use any amount of money and the same effect happens to a lesser degree. Present hoarding causes future inflation. It is unquestionable. It's all a matter of who benefits. And many times this may occur naturally and exogenously, such as in the case of the majority of banking panics in the US before the federal reserve. Predictable and unpredictable circumstances can both cause serious price shocks. In the end equilibrium may be returned (a lot quicker if you have such a helpful chap named JP Morgan to buy back your economy for you), but in the meantime there is misery.


I'd say it's an extremely implausible scenario that the gambling derivatives market would be 400x the GDP of the United States, but it is true. What isn't true is that because A is bad and B is not A, B must be good. Red herring, denying the conjunct, ignoratio elenchi, what have you. It's distracting and irrelevant to whether or not bitcoin is sound money.


Strawman with a bit of "hey it's ok, the value you lost is for your own benefit" thrown it. "The pyramid will continue and you will eventually be rich too!"


Are you going to foam at the mouth on me now too like Realpra after pointing out how argumentative and logical fallacies make for a piss-poor argument?

Sorry, I thought you were Etlase2. It does matter if the coins are held by 1 person or 1 billion because the effect Etlase2 and I are talking about is how newer money released into the market gets a higher value versus the existing savings (called the Cantillon Effect). But that this is effect is similar to when one person releases savings: they get a benefit over the other people in the economy. For example, if there are 1 billion people with savings and 500 million decide to spend all their savings at once, then the value of the savings of the other 500 million will be worth less for some time.


Well, that's just, like, your opinion, man. It seems you are too upset to really talk to about this. You think it's egregious that people who have money before you can get a benefit, and I understand the principle even if I don't agree with it in practice. I personally feel that individuals get a minor advantage when they use their savings, and because this is limited in scope and it is tempered with opportunity costs, that it is not really an effect worth worrying about.

The awesome thing about my stated philosophy about what is right is that you are free to choose that monetary system that you think is best and doesn't have this effect that seems to upset you so greatly. I still think a system like bitcoin is miles better than what we have and is the best at what we've come up with.

No, it's not, according to the Austrian school of economics. Because money saved in banks returning interest is providing non-consumption growth for the sake of future consumption. The money is still moving around the economy, thus not affecting its velocity. Hoarding, when you remove the money from the supply, does affect velocity and does increase the rate of deflation in a very artificial way.


You think it's egregious that banks get the benefit before you get the benefit. Where's the difference, man? Oh wait, because YOU will be the bank in this situation it's all good. I totally get your philosophy bro. You're jealous of the early adopting banks and want a piece of the pie for yourself rather than fixing the problem with money.

Jesse Ventura, is that you?

Because there is no wealth increase, only a transfer from the poor working stiffs who are too busy to track what the manipulators are doing to those who are better informed.

+1

Remember, in an economy income = spending, so most of the harm done by inflation is in the form of malinvestment, as well as pay cuts to the working class that cannot hedge against inflation easily.

I like the chart (tomato soup price)

it reminds me the U$ money supply chart.. the big big peak (increase of last 5 years) in U$ money supply has not even reflect on consumer price, IMHO !

Wath out, soon, we may pay hundreds bucks for the f... tomato soup can !

http://www.peakprosperity.com/files/u4/Exp_Money_Exponential_Money_v2.jpg

Nah, all that money went to the wealthy, and they were already buying everything they need.  It just bumped them all up on the scoreboard and now they feel more important.  Lots of people are expecting massive inflation, but when the dollar deflates those same wealth hoarders will feel even more important... right up until we are all out of work and start rioting.  That's when the heads will roll.

I still beleive that the soup can is late in the race, much more inflation on the way.. dig a bit more about what "really happens" in egypt, lybia, syria, and actually happens in Iran !  

Watch out for the "soon to be 10$ tomato soup can" is my call !   Then the heads will roll.

;)

It's simple math, and.. In numeris I (we) trust !