[CHART] Bitcoin Inflation vs. Time

[whitslack]

But once you get into a deflationary spiral (which starts as you may well guess from ever small deflation) you have not much options available to break out (WWII as such a breakout)

Why would you want to break out? Having my savings continually gaining value doesn't sound so bad.

Because you think only from a consumer's point of view. It's not bad for one person (may be even for two or two thousand) but it is very bad for the economy as a whole. Take the side of a producer and you will get a clue

I don't see the problem for the producer. Could you explain it?

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[deisik]

I don't see the problem for the producer. Could you explain it?

Easily. Under deflation it is less profitable and more risky to produce goods. A producer buys raw materials and makes his merchandise today (when prices are higher) but sells tomorrow when prices are lower, so there is no incentive to expand production or may be even keep it at the same level. In detail it is explained in any decent economic textbook

[whitslack]

I don't see the problem for the producer. Could you explain it?

Easily. Under deflation it is less profitable and more risky to produce goods. A producer buys raw materials and makes his merchandise today (when prices are higher) but sells tomorrow when prices are lower, so there is no incentive to expand production or may be even keep it at the same level. In more detail it is written in any decent economic textbook

Okay, that makes sense. Thanks for the simple explanation.

I suspect that this pattern of production is on its way out anyway. The world is shifting to just-in-time manufacturing. Inventory is expensive to store and maintain. Automation and computerized supply chain management are now allowing goods to be produced as they are sold. Under this new model of production, deflation would not have a significant impact. (Hyperdeflation could still be bad, but Bitcoin probably will never experience hyperdeflation.)

[deisik]

Okay, that makes sense. Thanks for the simple explanation.

You're welcome. Don't forget to add some coins 

I suspect that this pattern of production is on its way out anyway. The world is shifting to just-in-time manufacturing. Inventory is expensive to store and maintain. Automation and computerized supply chain management are now allowing goods to be produced as they are sold. Under this new model of production, deflation would not have a significant impact. (Hyperdeflation could still be bad, but Bitcoin probably will never experience hyperdeflation.)

That was not the only reason why deflation is bad

[ilpirata79]

I don't see the problem for the producer. Could you explain it?

Easily. Under deflation it is less profitable and more risky to produce goods. A producer buys raw materials and makes his merchandise today (when prices are higher) but sells tomorrow when prices are lower, so there is no incentive to expand production or may be even keep it at the same level. In detail it is explained in any decent economic textbook

This is not true, imo.

If I need something there will be always someone producing it. If the producer is worried about deflation (if any, that is to see) he/she will simply increase the price for the work ("transformation of raw material") he/she is making.
This process pushes prices up and counterbalances deflation leading in the end to stable  prizes (everything else being constant).

Best regards,
ilpirata79

[deisik]

This is not true, imo.

If I need something there will be always someone producing it. If the producer is worried about deflation (if any, that is to see) he/she will simply increase the price for the work ("transformation of raw material") he/she is making.
This process pushes prices up and counterbalances deflation leading in the end to stable  prizes (everything else being constant).

Best regards,
ilpirata79

Under deflation prices are falling - by definition. What you say ("he/she will simply increase the price for the work he/she is making") breaks this definition, that's all. It does not matter if you need something, what actually matters is the price you are ready to pay for what you need as an "aggregate" consumer (not you personally). Again, under deflation you are not ready to pay the price the producer initially asks which forces the prices down (and leads to all ensuing devastating effects on the economy) - all strictly by definition

[hgmichna]

When a country's currency suddenly goes from inflation to deflation, that can cause a devastating economic slowdown, because people just stop buying most products. To be precise, they defer buying all non-essential goods and services.

Moderate long-term deflation or a very slow turn from inflation into deflation would be a different and much less dangerous animal. That may be the future of bitcoin, if it has any.

[deisik]

Moderate long-term deflation or a very slow turn from inflation into deflation would be a different and much less dangerous animal. That may be the future of bitcoin, if it has any.

Yes, deflation could be less dangerous when it is compensated by other factors and producers are able to keep their profit margins wide enough to continue production (that's what ultimately matters), but could this situation be called deflation? Any real world examples when deflation was good for the economy? Japan had been for almost 2 decades in a deflationary spiral (it started in late 80's - early 90's when asset price bubbles popped) but honestly I can't say it was any good for their economy. Probably it would collapse but for the exports (Japan being an open economy)

[ilpirata79]

This is not true, imo.

If I need something there will be always someone producing it. If the producer is worried about deflation (if any, that is to see) he/she will simply increase the price for the work ("transformation of raw material") he/she is making.
This process pushes prices up and counterbalances deflation leading in the end to stable  prizes (everything else being constant).

Best regards,
ilpirata79

Under deflation prices are falling - by definition. What you say ("he/she will simply increase the price for the work he/she is making") breaks this definition, that's all. It does not matter if you need something, what actually matters is the price you are ready to pay for what you need as an "aggregate" consumer (not you personally). Again, under deflation you are not ready to pay the price the producer initially asks which forces the prices down (and leads to all ensuing devastating effects on the economy) - all strictly by definition

I talked about what he/she adds for his/her work ("transformation of raw material/components"). The final price can be less because he/she bougth such material/components at a lower price.

Best regards,
ilpirata79

[deisik]

I talked about what he/she adds for his/her work ("transformation of raw material/components"). The final price can be less because he/she bougth such material/components at a lower price.

Deflation means that today's prices (your material/components) are higher than tomorrow's (ready product which producer sells). The producer gets into situation when he buys dear but sells cheap, so his profit margin narrows. When it reaches the break-even point he stops production and fires his staff thus contributing to ever falling demand (the cause of prices fall)

[ilpirata79]

I talked about what he/she adds for his/her work ("transformation of raw material/components"). The final price can be less because he/she bougth such material/components at a lower price.

Deflation means that today's prices (your material/components) are higher than tomorrow's (ready product which producer sells). The producer gets into situation when he buys dear but sells cheap, so his profit margin narrows. When it reaches the break-even point he stops production and fires his staff thus contributing to ever falling demand (the cause of prices fall)

My statements are compatible with deflation.

I sell something today at price A, because I had to buy material/components which costed x,y and z and I added my profit (or added value) Q. Therefore A=x+y+z+Q

In a month I sell something at, say, A'=A-15/100*A. I had to buy material which costed, FIFTEEN days before I selle, x'=x-20/100*x , y'=y-20/100*y, z'=z-20/100*z, and I added value Q'=Q+somePercentage/100*Q, so that A'= x'+y'+z' + Q'.

In fact, I sell at a lower prince (which can be defined as defaltion), but I still earn MORE.

I think deflation will make us all richer, apart from politicians and their lacché that will lose a lot of their privileges.

Best regards,
ilpirata79

[deisik]

My statements are compatible with deflation.

No

In a month I sell something at, say, A'=A-15/100*A. I had to buy material which costed, FIFTEEN days before I selle, x'=x-20/100*x , y'=y-20/100*y, z'=z-20/100*z, and I added value Q'=Q+somePercentage/100*Q, so that A'= x'+y'+z' + Q'.

Fifteen days before (starting point) you would have bought your materials at their initital price x, y and z. If you sold your final product at that very moment you would get your initial profit Q, i.e. A=x+y+z+Q, but you can only sell fifteen days after you bought materials at the lower price which is now A'=A-15/100*A due to ongoing deflation. So your profits have shrunk by A-A' (if you are on a narrow margin you may even suffer losses). When you make second turn (if ever) you buy materials at the new lower price x'=x-15/100*x, y'=y-15/100*y, z'=z-15/100*z (I changed the deflation factor to that of A to keep things correct), but you will again sell A only fifteen days later at the price which will still be lower, i.e. A''=A'-15/100*A' since deflation continues. You won't return to your initial profitability unless and until deflation comes to an end. Like inflation, it is not a one-off drop in prices, it is a lasting process

Deflation will always be ahead of you. The longer your production cycle, the more profit will be stripped. Probably you meant that your profits/losses won't be shrinking/expanding any further (i.e. A-A'=A'-A''=A''-A'''=..., provided the deflation rate doesn't change) but this was not my point

[marcotheminer]

Very cool graphs, can you post updated ones please.? they would be interesting to see!

[whitslack]

Very cool graphs, can you post updated ones please.? they would be interesting to see!

Since there have been no changes to the bitcoin production rules, there is nothing to update on these charts.

If you're looking for a chart showing the actual number of bitcoins that have been mined over time, go here:
http://blockchain.info/charts/total-bitcoins?timespan=all

[pabloangello]

Very cool graphs, can you post updated ones please.? they would be interesting to see!

Since there have been no changes to the bitcoin production rules, there is nothing to update on these charts.

If you're looking for a chart showing the actual number of bitcoins that have been mined over time, go here:
http://blockchain.info/charts/total-bitcoins?timespan=all

So we are in a half way. If btc price raised so much since the begining. What will be it's value if 21mln coins will be mined?

[hgmichna]

So we are in a half way. If btc price raised so much since the begining. What will be it's value if 21mln coins will be mined?

$37,584

[DannyHamilton]

So we are in a half way. If btc price raised so much since the begining. What will be it's value if 21mln coins will be mined?

We are beyond half way in so far as number of bitcoins that have been created.  We reached that halfway point a year ago.  I think we reached 57.14% today.

We are not even close to half way in so far as the amount of time that bitcoins will continue to be created.   I think we are currently about 3.81% of the way there.

[rampalija]

you created nice chart, thx man

[gaston909]

[brush242]

Okay, I just started a thread called "Economic Idiocy", and after reading this thread, my faith in humanity is restored; Paulsy Krugman be damned!!!