The Tomato Soup Index - Inflation Sucks

[Etlase2]

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.

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?

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?

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.

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[Fjordbit]

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, [...]

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?

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.

[Grinder]

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.

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.

[Etlase2]

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.

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?

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.

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.

It's an extremely unplausible scenario while the Wall street bailouts have happened and continue to happen (QE3).

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.

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.

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?

[Fjordbit]

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.

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.

snip

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.

[Etlase2]

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.

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.

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,

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.

[DobZombie]

elite banker class and their cronies on Wall Street and the Military Industrial Complex.

Jesse Ventura, is that you?

[notme]

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.

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.

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.

[Nolo]

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.

+1

[pretendo]

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.

[DoomDumas]

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 !

[notme]

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 !

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.

[DoomDumas]

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 !