Inflation and Deflation of Price and Money Supply

[dinofelis]

Ok, let me try to express myself somewhat better.  Of course everybody is entitled to have his own micro-economic agenda.  That's after all, what freedom and a free market is about !  Of course you should decide your own destiny, and take your own action for what you think is going to achieve your own destiny.

But my point is that your own destiny is micro-economic.  You shouldn't have macro-economic indicators in your own destiny.  Now, that' is somewhat contradictory, because if you are supposed to be free to set your own destiny, I'm not supposed to tell you what should be or shouldn't be that destiny of course :-)  This is probably the contradiction you want to point out to me.

Ah, yes, valid point, but how do we isolate ourselves from a destiny not macroeconomically influenced?  Purchasing is widely distributed, yet production is highly specialized, so our income and wealth are not only dependent upon our own productivity but upon the productivity of others.  We are at a collective mercy the result of an infinite set of choices.

Of course one is interdependent on the actions of others, we do not live each on our individual island in the Pacific Ocean.  But we are not "macro economically influenced".  That has no meaning to me.  We are influenced by the actions of others, and the global dynamical properties of how all these interactions happen, is called macro-economics.   But this is just a coarse-eyed, globalised view of the emerging dynamics that occurs from the micro-economic decisions. 

At this point, a subjective qualification can be made: do we want higher production or less?  If more, we clearly desire price stability.

My answer to that would be: I don't care about higher or lower production of others.  What I want is that I can satisfy most my own needs and those of the people I care about.  In some cases, I might desire lower production and higher levels of poverty elsewhere, if that results in better satisfaction of my own needs.

For instance, I might prefer a very poor Africa so that there is a lot of famine, so that when I go on Safari there, the population density is low and there is a lot of wild nature to see.   Or I might be a politician wanting people to have a lot of problems, so that they are much more sensitive to my propaganda and I might win the elections.

But the Africans living there may have a totally other opinion on that, and might on the contrary want to have high production locally, and maybe poverty in the Western world, so that they don't have to deal with all these tourists.  And the poor people that would be my target of propaganda might not like their situation of poverty.

So, no, I have no particular opinion on whether "production" should be high or low.  I want my own desires to be satisfied.  Sometimes specific macro-economic variables might be an indication to that personal satisfaction, but it would be very indirect.

Aggregate M is at a macroeconomic level and now thanks to Satoshi Nakamoto, it is no longer under exclusive government control.  This will never be controlled by any individual entity ever again.

Individual Ms can be determined by the issuer, and the freedom remains.  The Ideal Reserve cannot control any other issuance's M, yet it can maintain price stability for its own denominated.

My point is indeed that actually, monetary manipulation only makes sense if there is a kind of monopoly on money.  If there are several different free moneys competing for the different functions of money, all this is moot.

How are you going to manipulate M for the price setting, if there are many different moneys which can be exchanged with eachother ?

Pardon me, I used my own notation and assumed agreement on its meaning.  Earlier in our conversation, I think you wished to maximize "store of value" which you defined as 1/V, and I labelled that S.

Is it no longer true that you'd prefer to maximize store of value?

Absolutely not.  That must have been a misunderstanding.  I think one should not have any preference for any macro economic variable.

The only reason why I'm in favor of fixed-supply M, is that there is no handle on it so that it can be corrupted.  My idea is that a regulator is always potentially corrupt.  If there's nothing to regulate, there's nothing to corrupt.

[1714324922]

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[dinofelis]

The general price level of all other currencies is not relevant to MØ.  It will almost always remain equal to 1 1410312858 UTC USD, worldwide.

Aren't those things part of the basket of thing of which the price level should be stable ?
At what point do you decide that an asset is a currency, and shouldn't be included ?

Is the gold price in the basket ?
Is the platinum price in the basket ?
Is the iridium price in the basket ?
Is the copper price in the basket ?
Is the mortar price in the basket ?
Are housing prices in the basket ?

I'm trying to wrap my mind around the idea that a given currency, in competition with others, can have any meaning on "stable prices".  
Imagine that there are 3 of these currencies around: M0, N0, and P0.   They are trying to achieve stable price levels, all three of them.  But suppose now that on friday, half of the people holding M0, trade it for N0.   This should imply that on saturday, the amount of M0 halves, right ?  How do you do that ?  You halve the contents of all accounts ?  People possessing 50 M0 now only possess 25 M0 any more ?  It would also imply that on saturday, N0 has to increase with the same amount (depending of how much N0 was running around).  In fact, in as much as M0 and N0 both want to hold stable prices, the exchange rate between M0 and N0 should remain constant (let us say for simplicity, it should be 1).  
How do you handle that ?
If you desperately want to buy N0 with M0, and I have N0, how can you have me NOT fix a price above 1 ?
Ideally, if you want to exchange M0 for N0, every M0 that is given should be destroyed, and every N0 so obtained, should be created.  That is, N0 and M0 should be identical.   But we made the hypothesis that they aren't.  

Suppose that there is a period (like bitcoin has known) of decline of M0, that is, during a year, people flee M0 to buy N0.  I can understand that on the N0 side, there is a consensus to create coins, to keep the price stable.  But how are we going to destroy M0 ?  Does it mean that people holding M0 are going to see their accounts diminish automatically ?  That would induce them to flee M0 even more !  
Consider, on the other hand, the holders of N0.  They see all these former M0 holders come in.  This implies that N0 are created at a massive rate.  If they had been holding a supply-stable currency, then the increased demand for N0 would increase the value of their holdings, but by definition, with a price stable currency, the creation compensates that ideally.  Why do the N0 holders remain with N0, and do not go into a supply-stable currency that has the potential to rise ?

So my main question is:
if, when you have different price-stable currencies, one of them declines in popularity, the holdings of the people still holding money in it, decline too in order for it not to diminish in price ?

Because that's annoying.

Imagine I had 100 M0 coins, worth 500 apples in total.  Price level is 1 M0 coin = 5 apples ?
Suppose now that half of the people holding M0 coins want to switch to N0 coins on friday.  The large offer of M0 coins to sell would make the price of M0 coins fall, and my 100 M0 coins wouldn't be worth 500 apples any more if nothing happens.  With an M0 coin, you would only be able to buy 2.5 apples any more.
So what happens ?  Do all M0 accounts get divided by 2 to get the price of an M0 back to 5 apples ?
Do I only hold 50 M0 coins any more ?

But that would imply that my total buying power of my account in reality HAS decreased !  I could buy 500 apples with my account content, and now I can only buy 250 apples.  OK, each individual coin still has the value of 5 apples because of the monetary deflation, but I lost half of my savings !

So how does this work to keep the savings constant, if the market cap of M0 halves ?

If, from friday on saturday, people don't like M0 any more, and want N0, how do you keep the price level constant AND the savings constant of those people still holding M0 ?

Also, look onto it from the side of the N0 holders, before the M0 holders came for N0.  Why would these people who were holding N0, agree to turn out a lot of N0, so that the value of their savings *doesn't* increase in the face of all these newcomers to N0 ?
If the N0 holders are free to determine the quantity of N0 printed, why would they do a favor to the newcomers, and not ask them a higher price for their precious N0 ?
Of course, that's something that is nicer, if there is mining with proof of stake, and if you can get new coins proportionally to your stake.  You may indeed decide that if you were holding 100 N0 coins, that you have the right to create 50 more, which decreases the value of an individual N0 back to its stable price.  If normally, due to higher demand for N0, there was potentially a price increase of 50% of an N0 coin (7.5 apples instead of 5 apples), allowing everybody owning 100 N0 coins to make 50 new N0 coins makes this fall back to 5 apples, but you now hold 150 coins.
The question is, of course, if those N0 holders go back to M0 on money, how you go down again from 150 N0 coins to 100 N0 coins....

You could wonder what would be the reason for massive moves between N0 and M0, if these coins are both "price stable". There can be different reasons.  One would be the confidence that people have in these two coins.  Others could be that big players want to get the coins slightly off equilibrium to make margin profits.  They know that they don't risk any thing on the long run, as the long run exchange rate will always be 1, and they try to make a benefit on the lag on regulation, where the exchange rates differ from 1.
Yet another reason could be that there is an interesting buy in one of the coins with merchant, who only accepts, say, N0, and refuses M0.  Or still other reasons. 

[kjj]

A sample can represent a population.  Accuracy and precision is dependent upon the statistical method used.

Economic transactions are not fish in a lake.  You can't cast your net and collect a bunch of them at random.  You get the ones you go looking for, which is not how you collect a sample.  The only way out is to get them all, which is not possible.

So the entire statistics profession is wasting its time?  This is indeed news.

If a statistician pulled marbles from an urn while looking and deliberately choosing the ones he wanted, wouldn't you be even a little suspect when he started making claims based on the notion that his sample was random?

You are attempting to refute Hayek's central point from The Fatal Conceit, namely that preferences aren't knowable except through the proper functioning of the market.  Better than you have tried and failed, though they usually have the decency to sit through a freshman statistics course first.

[Dotakels]

Support the Bitcoin. beat the inflation.

[ailsa]

Inflation: Too Many Dollars Chasing Too Few Goods
Deflation: Too Many Goods Chasing Too Few Dollars

[Natalia_AnatolioPAMM]

Inflation: Too Many Dollars Chasing Too Few Goods
Deflation: Too Many Goods Chasing Too Few Dollars

impossible to survive   

[Linola]

The secret to a successful business - it's a good idea. But many ideas can be simplified, for example, by this idea

[Ronald_Clark01]

It's true. Currency was born out of debt.

[Pab]

 Very interesting thread,,now i am in independent development of a kind of economy system with deflation inflation control algorithm,and fastest currency on market,half second
All based on Chicago Economy School ,mostly Milton Friedman

I will like to sent you pm and introduce you to system and contact to dev of you willl ike to
Regards
P

[Pab]

The general price level of all other currencies is not relevant to MØ.  It will almost always remain equal to 1 1410312858 UTC USD, worldwide.

Aren't those things part of the basket of thing of which the price level should be stable ?
At what point do you decide that an asset is a currency, and shouldn't be included ?

Is the gold price in the basket ?
Is the platinum price in the basket ?
Is the iridium price in the basket ?
Is the copper price in the basket ?
Is the mortar price in the basket ?
Are housing prices in the basket ?

I'm trying to wrap my mind around the idea that a given currency, in competition with others, can have any meaning on "stable prices".  
Imagine that there are 3 of these currencies around: M0, N0, and P0.   They are trying to achieve stable price levels, all three of them.  But suppose now that on friday, half of the people holding M0, trade it for N0.   This should imply that on saturday, the amount of M0 halves, right ?  How do you do that ?  You halve the contents of all accounts ?  People possessing 50 M0 now only possess 25 M0 any more ?  It would also imply that on saturday, N0 has to increase with the same amount (depending of how much N0 was running around).  In fact, in as much as M0 and N0 both want to hold stable prices, the exchange rate between M0 and N0 should remain constant (let us say for simplicity, it should be 1).  
How do you handle that ?
If you desperately want to buy N0 with M0, and I have N0, how can you have me NOT fix a price above 1 ?
Ideally, if you want to exchange M0 for N0, every M0 that is given should be destroyed, and every N0 so obtained, should be created.  That is, N0 and M0 should be identical.   But we made the hypothesis that they aren't.  

Suppose that there is a period (like bitcoin has known) of decline of M0, that is, during a year, people flee M0 to buy N0.  I can understand that on the N0 side, there is a consensus to create coins, to keep the price stable.  But how are we going to destroy M0 ?  Does it mean that people holding M0 are going to see their accounts diminish automatically ?  That would induce them to flee M0 even more !  
Consider, on the other hand, the holders of N0.  They see all these former M0 holders come in.  This implies that N0 are created at a massive rate.  If they had been holding a supply-stable currency, then the increased demand for N0 would increase the value of their holdings, but by definition, with a price stable currency, the creation compensates that ideally.  Why do the N0 holders remain with N0, and do not go into a supply-stable currency that has the potential to rise ?

So my main question is:
if, when you have different price-stable currencies, one of them declines in popularity, the holdings of the people still holding money in it, decline too in order for it not to diminish in price ?

Because that's annoying.

Imagine I had 100 M0 coins, worth 500 apples in total.  Price level is 1 M0 coin = 5 apples ?
Suppose now that half of the people holding M0 coins want to switch to N0 coins on friday.  The large offer of M0 coins to sell would make the price of M0 coins fall, and my 100 M0 coins wouldn't be worth 500 apples any more if nothing happens.  With an M0 coin, you would only be able to buy 2.5 apples any more.
So what happens ?  Do all M0 accounts get divided by 2 to get the price of an M0 back to 5 apples ?
Do I only hold 50 M0 coins any more ?

But that would imply that my total buying power of my account in reality HAS decreased !  I could buy 500 apples with my account content, and now I can only buy 250 apples.  OK, each individual coin still has the value of 5 apples because of the monetary deflation, but I lost half of my savings !

So how does this work to keep the savings constant, if the market cap of M0 halves ?

If, from friday on saturday, people don't like M0 any more, and want N0, how do you keep the price level constant AND the savings constant of those people still holding M0 ?

Also, look onto it from the side of the N0 holders, before the M0 holders came for N0.  Why would these people who were holding N0, agree to turn out a lot of N0, so that the value of their savings *doesn't* increase in the face of all these newcomers to N0 ?
If the N0 holders are free to determine the quantity of N0 printed, why would they do a favor to the newcomers, and not ask them a higher price for their precious N0 ?
Of course, that's something that is nicer, if there is mining with proof of stake, and if you can get new coins proportionally to your stake.  You may indeed decide that if you were holding 100 N0 coins, that you have the right to create 50 more, which decreases the value of an individual N0 back to its stable price.  If normally, due to higher demand for N0, there was potentially a price increase of 50% of an N0 coin (7.5 apples instead of 5 apples), allowing everybody owning 100 N0 coins to make 50 new N0 coins makes this fall back to 5 apples, but you now hold 150 coins.
The question is, of course, if those N0 holders go back to M0 on money, how you go down again from 150 N0 coins to 100 N0 coins....

You could wonder what would be the reason for massive moves between N0 and M0, if these coins are both "price stable". There can be different reasons.  One would be the confidence that people have in these two coins.  Others could be that big players want to get the coins slightly off equilibrium to make margin profits.  They know that they don't risk any thing on the long run, as the long run exchange rate will always be 1, and they try to make a benefit on the lag on regulation, where the exchange rates differ from 1.
Yet another reason could be that there is an interesting buy in one of the coins with merchant, who only accepts, say, N0, and refuses M0.  Or still other reasons.  

Hi
i work for IdealReserve MO,we are now added to c-cex voting list,will be possible for you to see how it is going,you can contact me about IR anytime via pm,i have contact to dev

We had Vernon Smith experiment repeat on reddit private trading,
it was really interesting

http://www.econlib.org/library/Columns/CourseyVSmith.html

[HigsonPP]

An area dedicated to discussing the differences of these two terms and the theories supporting them.

I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the forum, and thought it may be reasonable to dedicate a thread on the matter.

Pulled from a discussion in Wall Observer


Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease, because the value of Bitcoin goes up.

Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.

So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.

Example: As the Bitcoin price goes from $10 to $20, the prices of goods/services goes down from 20BTC to 10BTC. As the Bitcoin price goes from $20 to $10, the prices of goods/services goes from 10BTC to 20BTC!

Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section.


Now that we've gone over PRICE Inflation and Deflation (which honestly, to me, is a term made popular by Keynesian's to hide the real facts, as price inflation/deflation is simply the market exchange rate, reflective of the money supply into a currency from itself and other currencies), let's go over the REAL inflation/deflation of a currency (otherwise known by many as Monetary Inflation).

MoneySupply-Inflation is when the value of Bitcoin decreases when the total supply of Bitcoin increases. In our current state, this is at a generation rate of 25 BTC every 10 minutes.

MoneySupply-Deflation will essentially never occur. It is when the value of Bitcoin increases when the total supply of Bitcoin decreases. This may happen, say, when someone loses their private key and all the BTC associated with it are lost. This effectively "makes the rest of us richer". That being said, there is a SET DECREASE in the generation rate of BTC, so you have sort of a "deflationary effect" in the value, as long as more exchange occurs for BTC at a rate which is faster than that set generation rate.

When all 21 million coins are produced, the MoneySupply will be neutral, and the value will continue to increase (prices will decrease, consequently), as long as people continue to exchange in BTC.

This leads me to the last section.


What determines the PRICE of Bitcoin? The VALUE of Bitcoin at a particular moment.

What determines the VALUE of Bitcoin? The SUPPLY and DEMAND of Bitcoin in the economy.

What determines the SUPPLY of Bitcoin? Currently, the MoneySupply-Inflation rate of 25 BTC every 10 minutes, and traders willing to SELL Bitcoin to BUYERS in exchange for other supplies of money (currencies).

What determines the DEMAND of Bitcoin? Traders willing to BUY Bitcoin from SELLERS in exchange for other currencies.


Therefore: BUYERS, SELLERS, and MONEYSUPPLY-INFLATION (miners) determine the VALUE of Bitcoin, which determines the PRICE of BTC as BUYERS and SELLERS trade based on that VALUE (or supply and demand) of Bitcoin.


We don't exactly know the totality of the supply and demand. Sure, we could try and aggregate data from all the exchanges, but we will never be accurate as there are exchanges which can not be accounted for (OTC). The cool thing is that we DO know the MoneySupply rate, and we DO know the exchange rate. From this, we can determine a real value of Bitcoin when simply multiplying the two factors; a sort of inflation-adjusted view of the currency.

Effectively, the quantitative analysis of supply and demand is really what the currency exchange traders attempt to accurately determine which is conveyed through buying and selling of Bitcoin, setting a VALUE via the PRICED exchange rate of the currency. On a side note, most of the big Market Makers (FX Traders) use this price movement as a way to make a profitable living, as well. Especially when price fluctuations are a consequence of hype or fear (bubbles, cliffs), not factual supply/demand data, and are wildly out of the real price range.

Thus, if you analyze the proper macroeconomic data in an attempt to forecast future DEMAND for more Bitcoin (price increase), you will realize some very interesting things, and have a more accurate picture of where the price is going...

Happy trading!

Ty.. This was a lot of help

[dollarneed]

this thread so helping, finally i knew about inflation and deflation of bitcoin and its suplied but i just wondering why there are diferent price both of one exhanger and other exchanger?

[Erdogan]

this thread so helping, finally i knew about inflation and deflation of bitcoin and its suplied but i just wondering why there are diferent price both of one exhanger and other exchanger?

It could be that the groups of customers of each exchange thinks differently about the value of bitcoin, and that there is a difference in cost of transacting, including fiat to fiat conversions and bank transfers. Transaction latency could be different, and the level of risk that the exchange runs away with your money. It is impossible to say exactly what is the reason. But it is expected and normal that there are slight differences.

[dollarneed]

this thread so helping, finally i knew about inflation and deflation of bitcoin and its suplied but i just wondering why there are diferent price both of one exhanger and other exchanger?

It could be that the groups of customers of each exchange thinks differently about the value of bitcoin, and that there is a difference in cost of transacting, including fiat to fiat conversions and bank transfers. Transaction latency could be different, and the level of risk that the exchange runs away with your money. It is impossible to say exactly what is the reason. But it is expected and normal that there are slight differences.

Yup i got it,thats why other people utilize this chance for make arbitrage right? especially for alternative coin and earn some profit from it

[Erdogan]

this thread so helping, finally i knew about inflation and deflation of bitcoin and its suplied but i just wondering why there are diferent price both of one exhanger and other exchanger?

It could be that the groups of customers of each exchange thinks differently about the value of bitcoin, and that there is a difference in cost of transacting, including fiat to fiat conversions and bank transfers. Transaction latency could be different, and the level of risk that the exchange runs away with your money. It is impossible to say exactly what is the reason. But it is expected and normal that there are slight differences.

Yup i got it,thats why other people utilize this chance for make arbitrage right? especially for alternative coin and earn some profit from it

Arbitage is only for the same coin, the relatively risk free buying on the cheap exchange and at the same time selling on the expensive exchange. Arbitrage is possibly working between chinese bourses, as they have a quick mechanism to move renminbi, the peoples money. But mostly I think traders just look on the prices on other bourses, that is the main reason they are connected.

[dblink]

impossible to survive   

Deflation generally occurs when the supply of goods rises faster than the supply of money, which is consistent with these factors, the supply of money goes down, the supply of other goods goes up, demand for money goes up and finally demand for other goods goes down.

[BillyBones]

Deflation generally occurs when the supply of goods rises faster than the supply of money, which is consistent with these factors, the supply of money goes down, the supply of other goods goes up, demand for money goes up and finally demand for other goods goes down.

Economists generally believe that deflation is a problem in a modern economy because it increases the real value of debt, and may aggravate recessions and lead to a deflationary spiral. To be true, deflation is one of the most scariest part in the Economic sections.

[kjj]

Deflation generally occurs when the supply of goods rises faster than the supply of money, which is consistent with these factors, the supply of money goes down, the supply of other goods goes up, demand for money goes up and finally demand for other goods goes down.

Economists generally believe that deflation is a problem in a modern economy because it increases the real value of debt, and may aggravate recessions and lead to a deflationary spiral. To be true, deflation is one of the most scariest part in the Economic sections.

Nonsense.

Many economists say that deflation is a problem because they've already taken a pro-inflation stance which requires that they be opposed to anti-inflation.  Then again, most economists don't know enough about economies to have honest opinions about such matters, but they are statists, and being pro-inflation lets them provide cover to their political counterparts.

Inflation is nothing less than the theft of value done in a way that is hard for most people to understand because no money is actually taken.

[JarvisTechnology]

impossible to survive  

Deflation generally occurs when the supply of goods rises faster than the supply of money, which is consistent with these factors, the supply of money goes down, the supply of other goods goes up, demand for money goes up and finally demand for other goods goes down.

Deflation of prices in a Bitcoin economy is often put forward as a major reason not to depend on such a currency, as it has many ups and down phases at current stage.
Deflation in supply money usually defined as a general drop in prices of goods and services.
All such inflation and deflation occur randomly,as it part of living.

[Erdogan]

impossible to survive  

Deflation generally occurs when the supply of goods rises faster than the supply of money, which is consistent with these factors, the supply of money goes down, the supply of other goods goes up, demand for money goes up and finally demand for other goods goes down.

Deflation of prices in a Bitcoin economy is often put forward as a major reason not to depend on such a currency, as it has many ups and down phases at current stage.
Deflation in supply money usually defined as a general drop in prices of goods and services.
All such inflation and deflation occur randomly,as it part of living.

In a sound situation, a high degree of saving will lower the interest rate, and signal to entrepreneurs that more investing is needed. When new products arrive, some time afterwards, people have the money to spend.

The artificially low interest rate, which can only be brought down by creating new money and ever expanding debt, likewise signals to entrepreneurs to invest. But at the same time, low rates and inflation signals to consumers to spend more. When products are ready, nobody have the money to buy them. That is what we have now, a general oversupply and a general low demand, world wide. That is why the oil price is down.