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Author Topic: What would happen if all fiat printing stopped? 100 years ago? Today?  (Read 1385 times)
Lorenzo
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April 01, 2015, 08:03:08 PM
Last edit: April 01, 2015, 11:02:19 PM by Lorenzo
 #1

Once Bitcoin is fully mined in 2140, no more new coins will be created afterwards. However, the rate of new coin generation would have significantly slowed long before then.

Fiat money, on the other hand, doesn't have a fixed unchanging supply and it probably never will. But as an economic thought experiment, what do you think would have happened if the US Government decided to stop printing any new dollars a long time ago? Would a loaf of bread today be worth $0.01? Would the economy have stagnated due to deflation or prospered? And would the effects be different if this happened today rather than ~100 years ago?
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freeyourmind
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April 01, 2015, 10:51:18 PM
 #2

Once Bitcoin is fully mined in 2140, no more new coins will be created afterwards. However, the rate of new coin generation would have significantly slowed long before then.

Fiat money, on the other hand, doesn't have a fixed unchanging supply and it probably never will. But as an economic thought experiment, what do you think would have happened if the US Government decided to stop printing any new dollars a long time ago? Would a loaf of bread today be worth $0.01? Would the economy have stagnated due to deflation or prospered? And would the effects be different if this happened today rather than ~100 years ago?

If the US government stopped their monetary expansion, then the amount of debt available would be significantly reduced.  People would need to save in order to make purchases, rather than borrow.  So overall consumption would decrease, and there wouldn't be speculative investments creating asset bubbles.  Lifestyles would need to change, where it wouldn't make sense to have a new cell phone and TV and computer every 2 years.

The profitability of banks/Wallstreet would decrease, and the average person would likely benefit as there wouldn't be inflation (the hidden tax on purchasing power).  If they stopped money printing altogether, there would likely be deflation, where a dollar will be worth more in the future compared to today, and we'd be encouraged to save rather than spend.

Without money printing, the government would have less control over economic conditions, but the other part of monetary policy is controlling interest rates.

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April 01, 2015, 11:09:41 PM
 #3

Once Bitcoin is fully mined in 2140, no more new coins will be created afterwards. However, the rate of new coin generation would have significantly slowed long before then.

Fiat money, on the other hand, doesn't have a fixed unchanging supply and it probably never will. But as an economic thought experiment, what do you think would have happened if the US Government decided to stop printing any new dollars a long time ago? Would a loaf of bread today be worth $0.01? Would the economy have stagnated due to deflation or prospered? And would the effects be different if this happened today rather than ~100 years ago?

If the US government stopped their monetary expansion, then the amount of debt available would be significantly reduced.  People would need to save in order to make purchases, rather than borrow.  So overall consumption would decrease, and there wouldn't be speculative investments creating asset bubbles.  Lifestyles would need to change, where it wouldn't make sense to have a new cell phone and TV and computer every 2 years.

The profitability of banks/Wallstreet would decrease, and the average person would likely benefit as there wouldn't be inflation (the hidden tax on purchasing power).  If they stopped money printing altogether, there would likely be deflation, where a dollar will be worth more in the future compared to today, and we'd be encouraged to save rather than spend.

Without money printing, the government would have less control over economic conditions, but the other part of monetary policy is controlling interest rates.



That doesn't seem entirely positive then.

Wouldn't a mild inflation rate that kept in pace with population growth be the most ideal? Especially when compared to inflation which erodes purchasing power and deflation which discourages spending?
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April 01, 2015, 11:41:12 PM
 #4

That doesn't seem entirely positive then.

Wouldn't a mild inflation rate that kept in pace with population growth be the most ideal? Especially when compared to inflation which erodes purchasing power and deflation which discourages spending?

It would be positive for most people, who do not currently benefit from inflation (people with lower income and lower savings/assets).  It would also discourage debt based spending, so people would have to live within their means.

Deflation would delay spending, as it would make sense to hold off due to theoretically falling prices of luxury products.  There probably wouldn't be a huge difference for essentials like food, which would have a pretty inelastic demand.

The government could create enough money to be on par with population growth and spending and have no inflation at all, but they seem to pass that point.  Inflation is great for people with debt, as you can pay yesterday's debt with tomorrow's dollar, which will in theory have reduced purchasing power. 
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April 02, 2015, 02:02:04 AM
 #5

People would face a world that everything's price continuously dropping. Actually this is a common phenomenon when it comes to IT products, a dropping price means continuously improving efficiency in the production, and that is the new normal in today's highly automated economy

Since money's purchasing power continuously increase, people will adapt to it, and spend them carefully, also put this appreciation potential in all their financial calculations

I think the investment from saved capital is even more active, because even if an investment is not able to ROI, it does not mean it will fail, since the money returned will worth more than the time when it was invested. But investments by taking a loan would require much higher return to cover its cost, thus most of the investment will not take loan, obviously not good for banks, so it is no doubt banks are against deflation


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April 02, 2015, 12:51:27 PM
 #6

The fiat financial system that we live on today is far different. It is surrounded by debts and if fiat ever stopped printing with nothing left on the supply to keep up with the imaginary money in circulation, I can't imagine what would be the consequences. Either way, printing has to continue and that is a fact which keeps the system afloat.

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April 02, 2015, 01:59:01 PM
 #7

Guys,forget the argument that inflation should equal population growth. We are leaving the exponantial growth path of humanity in the next decades. And this will have massive implication on our socio-economic behaviours. It is highly unlikely, that there is any population growth after 2100. This is why I think Satoshi chose a perfect garph to fade out the generation of new bitcoins.



Countries like India (due to higher education) show, that population growth declines even faster than expected. http://qz.com/317518/finally-indias-population-growth-is-slowing-down/

Always wrong until not.
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April 02, 2015, 02:13:56 PM
 #8

People would face a world that everything's price continuously dropping. Actually this is a common phenomenon when it comes to IT products, a dropping price means continuously improving efficiency in the production, and that is the new normal in today's highly automated economy

Since money's purchasing power continuously increase, people will adapt to it, and spend them carefully, also put this appreciation potential in all their financial calculations

I think the investment from saved capital is even more active, because even if an investment is not able to ROI, it does not mean it will fail, since the money returned will worth more than the time when it was invested. But investments by taking a loan would require much higher return to cover its cost, thus most of the investment will not take loan, obviously not good for banks, so it is no doubt banks are against deflation


Somethings like this. You just have to ask yourself what are the effects of deflation? We'd have similar things
Also, fiat is constantly being destroyed (either accidentally or intentionally). Eventually the money would have a high value do to there being a huge lack of it.

freeyourmind
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April 02, 2015, 02:59:37 PM
 #9

People would face a world that everything's price continuously dropping. Actually this is a common phenomenon when it comes to IT products, a dropping price means continuously improving efficiency in the production, and that is the new normal in today's highly automated economy

Since money's purchasing power continuously increase, people will adapt to it, and spend them carefully, also put this appreciation potential in all their financial calculations

I think the investment from saved capital is even more active, because even if an investment is not able to ROI, it does not mean it will fail, since the money returned will worth more than the time when it was invested. But investments by taking a loan would require much higher return to cover its cost, thus most of the investment will not take loan, obviously not good for banks, so it is no doubt banks are against deflation

Good point about ROI.  In our current environment, you would need to take on risk in order to maintain purchasing power, or have nominal returns greater than or equal to the rate of inflation.  If we were in a deflationary environment, simply holding onto your money would increase your purchasing power, and then you'd have the choice of whether you want to invest for additional returns.

The current system causes a lot of people that have little to no knowledge in investing, to be consulted by a commissioned financial adviser to throw their money into the stock market.
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April 02, 2015, 03:23:57 PM
 #10

Youd have extreme class division and no technological progress.  No way to start new ventures cause money gets hoarded and loaned out at ridiculous rates
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April 02, 2015, 04:53:18 PM
 #11

Youd have extreme class division and no technological progress.  No way to start new ventures cause money gets hoarded and loaned out at ridiculous rates

In a deflative environment, holding money itself is a good investment, so almost no one will take loan, the interest of loan will be negative to attract borrowers. Even now some central banks are setting interest to negative to encourage borrowing.

And, in a highly automated society like today, you don't need more technological progress, so no new investment is needed, keep the existing running is enough to give everyone a decent life with early retirement, which is the ultimate goal of technology advance

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April 02, 2015, 06:57:45 PM
 #12

A national money supply is shared by all of those of said nation.  As the population grows by immigration children growing up into adults they begin competing for the same money supply, there is a deflationary force applied.  Wages would have to be brought downwards, and tax brackets would need to be brought down as well assuming the same economic growth.  It might begin to become difficult to buy small things because your smallest unit, might become too valuable to buy small things.  Coins would have to get new denominations: 1m$, (10 the penny) for example.

All of this doesn't take into account the value that moves from the saver to the creator of money and how inflation allows borrowers to pay back loans that would otherwise be impossible.  That's really the interesting part.  Look at history.  See how in Roman times, a general would promise the soldiers a pay raise if they supported him in a civil war to become emperor.  When it was time to pay he simply made as many coins as he promised out of coins that were each made with less and less silver.  There was one emperor, who instead had to confiscate property from many people because he didn't want to devalue the coins.

sdp





On seeing people having their accounts deleted by twitter and Chase for their political beliefs.  Isn't it time we closed our Chase bank accounts and twitter accounts?
https://d.tube/#!/v/pressfortruth/legx29vc
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April 02, 2015, 07:17:16 PM
 #13

Youd have extreme class division and no technological progress.  No way to start new ventures cause money gets hoarded and loaned out at ridiculous rates

In a deflative environment, holding money itself is a good investment, so almost no one will take loan, the interest of loan will be negative to attract borrowers. Even now some central banks are setting interest to negative to encourage borrowing.

And, in a highly automated society like today, you don't need more technological progress, so no new investment is needed, keep the existing running is enough to give everyone a decent life with early retirement, which is the ultimate goal of technology advance

Thats overnight rate from Central Banks.  No commercial lender is going to pay you to borrow money.  LOL
freeyourmind
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April 02, 2015, 08:27:48 PM
 #14

Youd have extreme class division and no technological progress.  No way to start new ventures cause money gets hoarded and loaned out at ridiculous rates

In a deflative environment, holding money itself is a good investment, so almost no one will take loan, the interest of loan will be negative to attract borrowers. Even now some central banks are setting interest to negative to encourage borrowing.

And, in a highly automated society like today, you don't need more technological progress, so no new investment is needed, keep the existing running is enough to give everyone a decent life with early retirement, which is the ultimate goal of technology advance

Thats overnight rate from Central Banks.  No commercial lender is going to pay you to borrow money.  LOL

There would still be credit/debt/lending in a deflationary environment.  It's just that the criteria to lend out money would tighten up.  I'll give an example for Canada, as that's where I live, but it would have applied to the states as well.  Most of the average person's debt is taken out in the form of a mortgage on the place of residence.  Now if you don't meet a 25% down payment, the mortgage is insured by a government institute (CMHC).  If you then default on the mortgage, the government institution is now responsible.  The government institution is funded by taxpayers.  So at the end of the day, the banks want to lend out as much money as possible, because there really is no consequence for doing so.  In a deflationary environment, and without the government putting taxpayers on the hook for speculative investments that go bad, the banks would be much more critical of the people they were lending money to.  The due diligence and criteria would need to tighten up because the bank would suffer the consequence of a mortgage/loan gone bad.

So theoretically, speculative investments would be discouraged, and the interest rate would be much higher.  That way, you'd be encouraged to save rather than spend, and perhaps invest or start businesses based on savings or equity rather than debt.

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April 02, 2015, 09:20:01 PM
 #15

The notes would have been worn away by now i assume.(i'm too lazy to google the lifespan of a typical fiat note) Roll Eyes
Maybe the one's made of hemp paper might have survived.
freeyourmind
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April 02, 2015, 10:27:06 PM
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The notes would have been worn away by now i assume.(i'm too lazy to google the lifespan of a typical fiat note) Roll Eyes
Maybe the one's made of hemp paper might have survived.

haha I believe the paper bills are refreshed periodically.  In Canada, we change the design of the bills every few years, and now have plastic bills.

But when we refer to "printing money" it's not literally the printing press as the majority of money is created digitally.

Of my earning/spending transactions, I'd say < 2% of that is done with actual paper money.  The rest is just online transactions.
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April 02, 2015, 11:19:02 PM
 #17

Youd have extreme class division and no technological progress.  No way to start new ventures cause money gets hoarded and loaned out at ridiculous rates

In a deflative environment, holding money itself is a good investment, so almost no one will take loan, the interest of loan will be negative to attract borrowers. Even now some central banks are setting interest to negative to encourage borrowing.

And, in a highly automated society like today, you don't need more technological progress, so no new investment is needed, keep the existing running is enough to give everyone a decent life with early retirement, which is the ultimate goal of technology advance

Thats overnight rate from Central Banks.  No commercial lender is going to pay you to borrow money.  LOL

There would still be credit/debt/lending in a deflationary environment.  It's just that the criteria to lend out money would tighten up.  I'll give an example for Canada, as that's where I live, but it would have applied to the states as well.  Most of the average person's debt is taken out in the form of a mortgage on the place of residence.  Now if you don't meet a 25% down payment, the mortgage is insured by a government institute (CMHC).  If you then default on the mortgage, the government institution is now responsible.  The government institution is funded by taxpayers.  So at the end of the day, the banks want to lend out as much money as possible, because there really is no consequence for doing so.  In a deflationary environment, and without the government putting taxpayers on the hook for speculative investments that go bad, the banks would be much more critical of the people they were lending money to.  The due diligence and criteria would need to tighten up because the bank would suffer the consequence of a mortgage/loan gone bad.

So theoretically, speculative investments would be discouraged, and the interest rate would be much higher.  That way, you'd be encouraged to save rather than spend, and perhaps invest or start businesses based on savings or equity rather than debt.


Investing with borrowed money is always a gambling, no one can foresee the future, the borrower put unknown future in the bet. In a deflative environment, people tends to save first and then invest, so that the investment is always done by risk capital, no risk of default, much safer for society

But banks don't like this, if no one is borrowing from banks, how could they make a live? If there is no new money creation, the banks will die




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April 03, 2015, 12:56:03 AM
 #18


But banks don't like this, if no one is borrowing from banks, how could they make a live? If there is no new money creation, the banks will die


If banks die the economy will die with them.  Banking and finance is integral to free trade. 
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April 03, 2015, 02:04:32 AM
Last edit: April 03, 2015, 02:27:24 AM by johnyj
 #19


But banks don't like this, if no one is borrowing from banks, how could they make a live? If there is no new money creation, the banks will die


If banks die the economy will die with them.  Banking and finance is integral to free trade.  

Banks works exactly like centralized bitcoin exchanges, they store customer money and play until they go broke, and ask for bailout by tax payer (unfortunately they can not claim to be hacked like a bitcoin exchange). Centralized bitcoin exchanges are not necessary, we have OTC market and localbitcoins, you can do person to person trade

In old time, a major reason that banks are needed is security, people need bank's vault to provide some protection for their saved money

https://bitcointalk.org/index.php?topic=1010511.0

"Banks are not just unnecessary... they are harmful"  Grin

freeyourmind
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April 03, 2015, 05:46:21 AM
 #20


But banks don't like this, if no one is borrowing from banks, how could they make a live? If there is no new money creation, the banks will die


If banks die the economy will die with them.  Banking and finance is integral to free trade. 

Banks are necessary in our current system, but if you could store wealth and access it for sending/receiving payments or investing outside of banks, then it would be less necessary.

Right now, I can't exchange funds online without the help of a bank.  The bank is the gatekeeper to having money online...and who's going to sit at home with a pile of cash?
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